-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HK1dB1xdQC2DEC403iTCW+JKXC4qrtoZvk+tUOsWrCJuzbUrCwDczAHo29TTEyq+ Pn7z4ttipoRx/gvfolnesQ== 0000950116-01-500476.txt : 20010713 0000950116-01-500476.hdr.sgml : 20010713 ACCESSION NUMBER: 0000950116-01-500476 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 41 REFERENCES 429: 333-70777 FILED AS OF DATE: 20010712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RITE AID CORP CENTRAL INDEX KEY: 0000084129 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 231614034 STATE OF INCORPORATION: DE FISCAL YEAR END: 0302 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-64950 FILM NUMBER: 1679266 BUSINESS ADDRESS: STREET 1: 30 HUNTER LANE CITY: CAMP HILL OWN STATE: PA ZIP: 17011 BUSINESS PHONE: 7177612633 MAIL ADDRESS: STREET 1: PO BOX 3165 CITY: HARRISBURG STATE: PA ZIP: 17105 FORMER COMPANY: FORMER CONFORMED NAME: LEHRMAN LOUIS & CO DATE OF NAME CHANGE: 19680510 FORMER COMPANY: FORMER CONFORMED NAME: RACK RITE DISTRIBUTORS DATE OF NAME CHANGE: 19680510 S-1 1 p312054.txt P312054.TXT As Filed with the Securities and Exchange Commission on July 12, 2001. Registration No. 333- =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM S-1 REGISTRATION STATEMENT Under the Securities Act of 1933 -------------------- RITE AID CORPORATION (Exact Name of Registrant as Specified in its Charter)
Delaware 5912 23-1614034 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number)
-------------------- 30 Hunter Lane Camp Hill, Pennsylvania 17011 (717) 761-2633 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) -------------------- Elliot S. Gerson, Esq. Senior Executive Vice President and General Counsel Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 (717) 761-2633 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) -------------------- Copy to: Stacy J. Kanter, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 -------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. |X| If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. |_| --------------------
CALCULATION OF REGISTRATION FEE ================================================================================================================================ Proposed Maximum Proposed Maximum Amount of Title of Each Class of Amount To Be Offering Price Aggregate Registration Securities to be Registered Registered(1) Per Share(2) Offering Price(2) Fee(3) - -------------------------------------------------------------------------------------------------------------------------------- Common stock, par value $1.00 per share 123,059,669 $8.07 $985,021,528.83 $246,255.39 ================================================================================================================================
(1) Includes 21,216,770 shares of common stock issuable upon the conversion of 2,121,677 shares of Series C preferred stock, which shares of Series C preferred stock automatically convert into shares of common stock upon the effectiveness of this registration statement. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, as amended, and based upon the average of the high and low prices on the New York Stock Exchange on July 9, 2001. (3) Pursuant to Rule 457(p), the full amount of the filing fee due with respect to this registration is being paid by applying a portion of the $834,000.00 filing fee paid in connection with our Form S-3 (File No. 333-70777) filed on January 19, 1999 and subsequently withdrawn. -------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. =============================================================================== The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated July 12, 2001 PROSPECTUS RITE AID CORPORATION 123,059,669 Shares of Common Stock This prospectus relates to the sale by selling stockholders, including their respective transferors, donees, pledgees, or successors of up to 123,059,669 shares of our common stock that the selling shareholders acquired from us in various private placements and debt-for-equity exchanges. We will not receive any proceeds from the sale of any of the shares. The shares are being registered to permit the selling stockholders to sell the shares from time to time in the public market. The selling stockholders may sell the shares through ordinary brokerage transactions or through any other means described in the section "Plan of Distribution". We do not know when or in what amounts a selling stockholder may offer shares for sale. The selling stockholders may sell any, all or none of the shares offered by this prospectus. Our common stock is listed on the NYSE and the Pacific Stock Exchange under the symbol "RAD". The last reported sale price of our common stock on the NYSE on July 9, 2001, was $8.07. See "Risk Factors" beginning on page 9 for a discussion of risks you should consider before investing in our securities. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy of this prospectus. Any representation to the contrary is a criminal offense. The date of this prospectus is , 2001 TABLE OF CONTENTS
Page -------- Cautionary Note Regarding Forward Looking Statements ............... 3 Where You Can Find More Information ................................ 4 Prospectus Summary ................................................. 5 Risk Factors ....................................................... 9 Use of Proceeds .................................................... 14 Price Range of Common Stock and Dividend Policy .................... 14 Dilution ........................................................... 14 Selected Consolidated Financial Information ........................ 15 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 17 Security Ownership of Certain Beneficial Owners and Management ..... 52 Business ........................................................... 31 Management ......................................................... 40 Certain Relationships and Related Transactions ..................... 54 Description of Capital Stock ....................................... 56 Selling Stockholders ............................................... 60 Plan of Distribution ............................................... 68 Legal Matters ...................................................... 70 Experts ............................................................ 70 Index to Consolidated Financial Statements ......................... F-1
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS This prospectus includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by terms and phrases such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "should," "could," "may," "plan," "project," "predict," "will," and similar expressions and include references to assumptions and relate to our future prospects, developments and business strategies. Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to: o our high level of indebtedness; o our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our credit facilities and other debt agreements; o our ability to improve the operating performance of our existing stores, and, in particular, our new and relocated stores in accordance with our management's long term strategy; o the outcomes of pending lawsuits and governmental investigations, both civil and criminal, involving our financial reporting and other matters; o competitive pricing pressures and continued consolidation of the drugstore industry; o third party prescription reimbursement levels and regulatory changes governing pharmacy practices; o general economic conditions, inflation and interest rate movements; o merchandise supply constraints or disruptions; o access to capital; and o our ability to further develop, implement and maintain reliable and adequate internal accounting systems and controls. We undertake no obligation to revise the forward-looking statements included in this prospectus to reflect any future events or circumstances. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in this prospectus in the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 3 WHERE YOU CAN FIND MORE INFORMATION We are subject to the informational requirements of the Securities Exchange Act of 1934. Accordingly, we file annual, quarterly and current reports, proxy statements and other information with the SEC. We also furnish to our stockholders annual reports, which include financial statements audited by our independent certified public accountants and other reports which the law requires us to send to our stockholders. The public may read and copy any reports, proxy statements or other information that we file at the SEC's public reference room at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 and at the SEC's regional offices at 505 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048. The public may obtain information on the public reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at "http://www.sec.gov." Our common stock is listed on the New York Stock Exchange and the Pacific Stock Exchange under the symbol "RAD". You can inspect and copy reports, proxy statements and other information about us at the NYSE's offices at 20 Broad Street, New York, New York 10005 and at the offices of the Pacific Stock Exchange, 301 Pine Street, San Francisco, California 94104 and 618 South Spring Street, Los Angeles, California 90014. We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of our common stock offered by this prospectus. This prospectus does not contain all of the information in the registration statement. You will find more information about us and our common stock in the registration statement. Any statements made in this prospectus concerning the provisions of legal documents are not necessarily complete and you should read the documents which are filed as exhibits to the registration statement or otherwise filed with the SEC. 4 PROSPECTUS SUMMARY The following information summarizes the detailed information and financial statements included elsewhere in this prospectus. We encourage you to read this entire prospectus carefully. Unless otherwise indicated or the context otherwise requires, dates in this prospectus that refer to a particular fiscal year (e.g. fiscal 2001) refer to the fiscal year ended on the Saturday closest to February 28 of that year. The fiscal year ended March 3, 2001 included 53 weeks. The fiscal years ended February 27, 1999 and February 26, 2000 included 52 weeks. Rite Aid Corporation Our Business We are the second largest retail drugstore chain in the United States, based on number of stores, and the third largest based on revenues. As of June 2, 2001, we operated 3,631 drugstores in 30 states across the country and in the District of Columbia. We have a first or second place market position, based on revenues, in 34 of the 65 major U.S. metropolitan markets in which we operate. During fiscal 2001, we generated $14.5 billion in revenues. Since the beginning of fiscal 1997, we have purchased 1,554 stores, relocated 949 stores, opened 469 new stores and remodeled 410 stores. As a result, we believe we have one of the most modern store bases in the industry. In our stores, we sell prescription drugs and a wide assortment of other merchandise, which we call "front-end" products. In fiscal 2001, our pharmacists filled more than 204 million prescriptions, which accounted for 59.5% of our total revenues. We believe that our pharmacy operations will continue to represent a significant part of our business due to favorable industry trends, including an aging population, increased life expectancy and the discovery of new and better drug therapies. We offer approximately 24,600 front-end products, including over-the-counter medications, health and beauty aids, personal care items, cosmetics, household items, beverages, convenience foods, greeting cards, photo processing, seasonal merchandise and numerous other everyday and convenience products, which accounted for the remaining 40.5% of our total revenues in fiscal 2001. We distinguish our stores from other national chain drugstores, in part, through our private label brands and our strategic alliance with General Nutrition Companies, Inc. ("GNC"), a leading retailer of vitamin and mineral supplements. We offer over 1,500 products under the Rite Aid private label brand, which contributed approximately 10% of our front-end sales in fiscal 2001. Background Under prior management, we were engaged in an aggressive expansion program from 1997 until 1999. During that period, we purchased 1,554 stores, relocated 866 stores, opened 445 new stores, remodeled 308 stores and acquired PCS Health Systems, Inc. These activities had a significant negative impact on our operating results and financial condition, severely strained our liquidity and increased our indebtedness to $6.6 billion as of February 26, 2000, which contributed to our inability to access the financial markets. A resulting decrease in revenue due to inventory shortages, reduction in advertising and uncompetitive prices on front-end products led to a decline in customer traffic, which had a negative impact on our store operations. In October 1999, we announced that we had identified accounting irregularities and our former chairman and chief executive officer resigned. In November 1999, our former auditors resigned and withdrew their previously issued opinions on our financial statements for fiscal 1998 and fiscal 1999. We needed to restate our financial statements and develop accounting systems and controls that would allow us to manage our business and accurately report the results of our operations. In December 1999, a new management team was hired, and since that time we have been addressing our business, operational and financial challenges. In response to our situation, new management has: 5 o Reduced our indebtedness from $6.6 billion as of February 26, 2000 to $3.7 billion as of June 30, 2001, after giving effect to the Refinancing (described below); o Improved front-end same store sales growth from a negative 2.2% in fiscal 2000 to a positive 6.5% in fiscal 2001 by improving store conditions and product pricing and launching a competitive marketing program; o Improved same store sales growth from 6.2% in the first quarter of fiscal 2001 to 10.0% in the first quarter of fiscal 2002 and front-end same store sales growth from 1.4% in the first quarter of 2001 to 5.9% in the first quarter of 2002; o Restated our financial statements for fiscal 1998 and fiscal 1999, as well as engaged Deloitte & Touche LLP as our new auditors to audit our fiscal years beginning with fiscal 1998; o Continued developing and implementing a comprehensive plan, which is ongoing, to address problems with our accounting systems and controls, and also resumed normal financial reporting; o Significantly reduced the amount of our indebtedness maturing prior to March 2005; and o Addressed out-of-stock inventory levels and strengthened our vendor relationships. Refinancing Transactions On June 27, 2001, we completed a comprehensive $3.2 billion refinancing package (the "Refinancing") that includes a new $1.9 billion senior secured credit facility underwritten by Citicorp North America, Inc., The Chase Manhattan Bank, Credit Suisse First Boston and Fleet Retail Finance, Inc. As a result of the Refinancing, we have significantly reduced our debt and the amount of our debt maturing prior to March 2005. Simultaneously with or prior to the closing of the new credit facility, we completed the following transactions, which also form part of the Refinancing: o $552.0 million in private placements of our common stock. o An exchange with a financial institution of $152.0 million of our 10.5% senior secured notes due 2002 for $152.0 million of new 12.5% senior secured notes due 2006. The 12.5% senior secured notes due 2006 are secured by a second lien on the collateral securing the new credit facility. o Private exchanges of common stock for $303.5 million of our bank debt and 10.5% senior secured notes due 2002. o A synthetic lease transaction with respect to two of our distribution centers in the amount of approximately $106.9 million. o $150 million in a private placement of new 11.25% senior notes due 2008. o The reclassification of $848.8 million of capital leases as operating leases. o An operating lease that we entered into with respect to our aircraft for approximately $25.6 million. o A tender offer whereby we accepted for payment $174.5 million of our 10.5% senior secured notes due 2002 at 103.25% of their principal amount. With the proceeds of the Refinancing, we repaid our previous senior secured credit facility, our PCS and RCF credit facilities and our secured exchange debt. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Credit Facilities and Refinancing". As a result of the Refinancing, our remaining debt due before March 2005 consists of $152.0 million of our 5.25% convertible subordinated notes due 2002, $107.8 million of our 6.00% dealer remarketable securities due 2003, $21.9 million of our 10.5% senior secured notes due 2002 and amortization of the new credit facility. We expect to 6 use internally generated funds to retire both the 5.25% notes and the dealer remarketable securities at maturity and to meet the amortization payments under the new credit facility. Risk Factors Prospective purchasers of our common stock should carefully consider the information set forth under the heading "Risk Factors", together with all other information in this prospectus, before making an investment in the common stock offered by this prospectus. Our headquarters are located at 30 Hunter Lane, Camp Hill, Pennsylvania 17011, and our telephone number is (717) 761-2633. The address of our Web site is www.riteaid.com. The information on our Web site is not part of this prospectus. Our common stock is listed on the New York Stock Exchange and the Pacific Stock Exchange under the trading symbol "RAD". We were incorporated in 1968 and are a Delaware corporation. Recent Event On July 11, 2001, we announced our results for our first quarter ended June 2, 2001. Revenues for the thirteen week quarter were $3.7 billion, versus $3.4 billion in the first quarter of fiscal 2001. Same store sales increased 10.0% during the quarter compared to the first quarter of fiscal 2001, reflecting prescription sales growth of 12.7% and a 5.9% increase in front-end same store sales. Prescription revenue accounted for 61.6% of total drugstore sales and third party prescription sales represented 91.7% of total pharmacy sales. Net loss from continuing operations for the first quarter was $211.1 million, or a loss of $0.56 cents per share, compared to a net loss from continuing operations of $403.4 million, or a loss of $1.57 per share, in the first fiscal quarter of fiscal 2001. The Offering Common stock offered by selling stockholders ....................... 123,059,669 shares Use of proceeds .................... We will not receive any proceeds from the sale of shares by selling stockholders New York Stock Exchange/ Pacific Stock Exchange Symbol ...... RAD 7 SUMMARY CONSOLIDATED FINANCIAL DATA The following summary consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and related notes appearing on pages F-1 through F-42. The following summary financial data does not give pro forma effect to the Refinancing.
Year Ended -------------------------------------------------------------------------- March 3, 2001 February 26, 2000 February 27, 1999 February 28, 1998 (53 weeks) (52 weeks) (52 weeks) (52 weeks)(2) ------------- ----------------- ----------------- ----------------- (In thousands, except per share amounts and other data) Statement of Operations Data: REVENUES ............................................ $ 14,516,865 $ 13,338,947 $ 12,438,442 $ 11,352,637 COSTS AND EXPENSES: Cost of goods sold, including occupancy costs...... 11,151,490 10,213,428 9,406,831 8,419,021 Selling, general and administrative expenses....... 3,458,307 3,607,810 3,200,563 2,773,560 Goodwill amortization.............................. 20,670 24,457 26,055 26,169 Store closing and impairment charges............... 388,078 139,448 195,359 155,024 Interest expense................................... 649,926 542,028 274,826 202,688 Loss on debt conversions and modifications......... 100,556 -- -- -- Share of loss from equity investments.............. 36,675 15,181 448 1,886 Gain on sale of fixed assets....................... (6,030) (80,109) -- (52,621) ------------ ------------ ------------ ------------ Total costs and expenses ............................ 15,799,672 14,462,243 13,104,082 11,525,727 ------------ ------------ ------------ ------------ Loss from continuing operations before income taxes and cumulative effect of accounting change......... (1,282,807) (1,123,296) (665,640) (173,090) INCOME TAX EXPENSE (BENEFIT) ........................ 148,957 (8,375) (216,941) (28,064) ------------ ------------ ------------ ------------ Loss from continuing operations before cumulative effect of accounting change....................... (1,431,764) (1,114,921) (448,699) (145,026) INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net(1)... 11,335 9,178 (12,823) (20,214) Loss on disposal of discontinued operations, net(1) (168,795) -- -- -- CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net ......... -- (27,300) -- -- ------------ ------------ ------------ ------------ Net loss ............................................ $ (1,589,224) $ (1,133,043) $ (461,522) $ (165,240) ============ ============ ============ ============ BASIC AND DILUTED (LOSS) INCOME PER SHARE: Loss from continuing operations.................... $ (5.15) $ (4.34) $ (1.74) $ (0.58) Income (loss) from discontinued operations......... (0.50) 0.04 (0.05) (0.08) Cumulative effect of accounting change, net........ -- (0.11) -- -- ------------ ------------ ------------ ------------ Net loss per share................................. $ (5.65) $ (4.41) $ (1.79) $ (0.66) ============ ============ ============ ============ Balance Sheet Data (at end of period): Working capital (deficit).......................... $ 1,955,877 $ 752,657 $ (892,115) $ 1,258,580 Property, plant and equipment (net)................ 3,041,008 3,445,828 3,328,499 2,460,513 Total assets....................................... 7,913,911 9,845,566 9,778,451 7,392,147 Total debt and capital lease obligations(3)........ 5,894,548 6,612,868 5,922,504 3,132,894 Redeemable preferred stock......................... 19,457 19,457 23,559 -- Stockholders' equity (deficit)..................... (354,435) 432,509 1,339,617 1,898,203 Other Data: Cash dividends declared per common share........... $ 0 $ .3450 $ .4375 $ .4075 Basic weighted average shares...................... 314,189,000 259,139,000 258,516,000 250,659,000 Number of retail drugstores........................ 3,648 3,802 3,870 3,975 Number of employees................................ 75,500 77,300 89,900 83,000
(1) PCS was acquired on January 22, 1999. On October 2, 2000, we sold PCS. See "Business--PBM Segment." Accordingly, our PBM segment is reported as a discontinued operation for all periods presented. See note 24 of the notes to the consolidated financial statements. (2) K&B, Incorporated and Harco, Inc. were acquired in August 1997. (3) Total debt includes capital lease obligations of $1.1 billion, $1.1 billion, $1.1 billion and $622 million as of March 3, 2001, February 26, 2000, February 27, 1999 and February 28, 1998, respectively. 8 RISK FACTORS You should carefully consider the following factors, in addition to the other information in this prospectus, before investing in our common stock. Risks Related to an Investment in our Common Stock We are highly leveraged. Our substantial indebtedness will severely limit cash flow available for our operations and could adversely affect our ability to service debt or obtain additional financing if necessary. After giving effect to the Refinancing, we had, as of June 30, 2001 $3.7 billion of outstanding indebtedness (including current maturities but excluding letters of credit) and stockholders' equity of $567.6 million. We also have additional borrowing capacity under our new revolving credit facility of $500.0 million. Our debt obligations will continue to adversely affect our operations in a number of ways and our cash flow is insufficient to service our debt, which may require us to borrow additional funds for that purpose, restructure or otherwise refinance that debt. Our earnings were insufficient to cover our fixed charges for fiscal 2001 by $1.2 billion. After giving effect to the Refinancing on a pro forma basis, we estimate that our earnings would have been insufficient to cover our fixed charges for fiscal 2001. Our high level of indebtedness will continue to restrict our operations. Among other things, our indebtedness will: o limit our ability to obtain additional financing; o limit our flexibility in planning for, or reacting to, changes in the markets in which we compete; o place us at a competitive disadvantage relative to our competitors with less indebtedness; o render us more vulnerable to general adverse economic and industry conditions; and o require us to dedicate substantially all of our cash flow to service our debt. In fiscal 2000 we experienced operational and financial difficulties, resulting in disputes with suppliers and vendors. These disputes were based primarily on our level of indebtedness and led to more restrictive vendor contract terms. Although we believe that our prior disputes with suppliers and vendors have been largely resolved, any future material deterioration in our operational or our financial situation could again impact vendors' and suppliers' willingness to do business with us. Our ability to make payments on our debt, depends upon our ability to substantially improve our future operating performance, which is subject to general economic and competitive conditions and to financial, business and other factors, many of which we cannot control. If our cash flow from our operating activities is insufficient, we may take certain actions, including delaying or reducing capital or other expenditures, attempting to restructure or refinance our debt, selling assets or operations or seeking additional equity capital. We may be unable to take any of these actions on satisfactory terms or in a timely manner. Further, any of these actions may not be sufficient to allow us to service our debt obligations or may have an adverse impact on our business. Our existing debt agreements, limit our ability to take certain of these actions. Our failure to earn enough to pay our debts or to successfully undertake any of these actions could have a material adverse effect on us. Some of our debt, including borrowings under our new credit facility, is based upon variable rates of interest, which could result in higher interest expense in the event of increases in interest rates. Approximately $378.0 million of our outstanding indebtedness as of June 30, 2001, following the Refinancing, bears an interest rate that varies depending upon LIBOR and is not covered by interest rate swap contracts that expire in 2002. If we borrow additional amounts under our senior secured facility, the interest rate on those borrowings will vary depending upon LIBOR. If LIBOR rises, the interest rates on this outstanding debt will also increase. Therefore an increase in LIBOR would increase our interest payment obligations under these outstanding loans and have a negative effect on our cash flow and financial condition. Holding Company Structure We are a holding company with no direct operations. Our principal assets are the equity interests that we hold in our operating subsidiaries. As a result, we are dependent upon dividends and other payments from our 9 subsidiaries to generate the funds necessary to meet our financial obligations, including the payment of principal of and interest on our outstanding debt. Our subsidiaries are legally distinct from us and have no obligation to pay amounts due with respect to our debt or to make funds available to us for such payment or for any other reason. As of June 30, 2001, after giving effect to the Refinancing, our subsidiaries had approximately $3.7 billion of indebtedness and liabilities. The covenants in our outstanding indebtedness impose restrictions that may limit our operating and financial flexibility. The covenants in the instruments governing our outstanding indebtedness, including our new credit facility and the instruments governing our new 11.25% notes and 12.5% notes, restrict our ability to incur liens and debt, pay dividends, make redemptions and repurchases of capital stock, make loans, investments and capital expenditures, prepay, redeem or repurchase debt, engage in mergers, consolidations, asset dispositions, sale-leaseback transactions and affiliate transactions, change our business, amend certain debt and other material agreements, issue and sell capital stock of subsidiaries, restrict distributions from subsidiaries and grant negative pledges to other creditors. Moreover, if we are unable to meet the terms of the financial covenants or if we breach any of these covenants, a default could result under one or more of these agreements. A default, if not waived by our lenders, could result in the acceleration of our outstanding indebtedness and cause our debt to become immediately due and payable. If acceleration occurs, we would not be able to repay our debt and it is unlikely that we would be able to borrow sufficient additional funds to refinance such debt. Even if new financing is made available to us, it may not be available on terms acceptable to us. If we were required to obtain waivers of defaults, we may incur significant fees and transaction costs. In fiscal 2000, we were required to obtain waivers of compliance with, and modifications to, certain of the covenants contained in our senior credit and loan agreements and public indentures. In connection with obtaining certain of such waivers and modifications, we paid significant fees and transaction costs. Risks Related to our Operations Major lawsuits have been brought against us and certain of our subsidiaries, and there are currently pending both civil and criminal investigations by the U.S. Securities and Exchange Commission, the United States Attorney and an investigation by the United States Department of Labor. In addition to any fines or damages that we might have to pay, any criminal conviction against us may result in the loss of licenses and contracts that are material to the conduct of our business, which would have a negative effect on our results of operations, financial condition and cash flows. There are several major ongoing lawsuits and investigations in which we are involved. These include, in addition to the investigations described below, several class action lawsuits. While some of these lawsuits have been settled, pending court approval, we are unable to predict the outcome of any of these matters at this time. If any of these cases result in a substantial monetary judgment against us or is settled on unfavorable terms, our results of operations, financial condition and cash flows could be materially adversely affected. There are currently pending both civil and criminal governmental investigations by the SEC and the United States Attorney concerning our financial reporting and other matters. In addition, an investigation has also been commenced by the U.S. Department of Labor concerning our employee benefit plans, including our principal 401(k) plan, which permitted employees to purchase our common stock. Purchases of our common stock under the plan were suspended in October 1999. In January 2001, we appointed an independent trustee to represent the interests of these plans in relation to the company and to investigate possible claims the plans may have against us. Both the independent trustee and the Department of Labor have asserted that the plans may have claims against us. These investigations are ongoing and we cannot predict their outcomes. If we were convicted of any crime, certain licenses and government contracts, such as Medicaid plan reimbursement agreements, that are material to our operations may be revoked, which would have a material adverse effect on our results of operations and financial condition. In addition, substantial penalties, damages, or other monetary remedies assessed against us could also have a material adverse effect on our results of operations, financial condition and cash flows. 10 Given the size and nature of our business, we are subject from time to time to various lawsuits which, depending on their outcome, may have a negative impact on our results of operations, financial condition and cash flows. We are substantially dependent on a single supplier of pharmaceutical products to sell products to us on satisfactory terms. A disruption in this relationship would have a negative effect on our results of operations, financial condition and cash flows. We obtain approximately 93% of our pharmaceutical supplies from a single supplier, McKesson HBOC, Inc., pursuant to a long-term contract. Pharmacy sales represented approximately 59.5% of our total revenues during fiscal 2001, and, therefore, our relationship with McKesson HBOC is important to us. Any significant disruptions in our relationship with McKesson HBOC would make it difficult for us to continue to operate our business, and would have a material adverse effect on our results of operations, financial condition and cash flows. Our auditors have identified numerous "reportable conditions", which relate to our internal accounting systems and controls, which systems and controls may be insufficient. Improvements to our internal accounting systems and controls could require substantial resources. An audit of our financial statements for fiscal 1998 and fiscal 1999, following a previous restatement, concluded in July 2000 and resulted in an additional restatement of fiscal 1998 and fiscal 1999. Following its review of our books and records, our management concluded that further steps were needed to establish and maintain the adequacy of our internal accounting systems and controls. In connection with the above audits of our financial statements, Deloitte & Touche LLP advised us that it believed there were numerous "reportable conditions" under the standards established by the American Institute of Certified Public Accountants which relate to our accounting systems and controls that could adversely affect our ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. In order to address the reportable conditions identified by Deloitte & Touche LLP, we are developing and implementing comprehensive, adequate and reliable accounting systems and controls. If, however, we determine that our internal accounting systems and controls require additional improvements beyond those identified, or if the changes we are implementing are inadequate, we may need to commit additional substantial resources, including time from our management team, to implement new systems and controls, which could affect the timeliness of our financial or management reporting. We need to continue to improve our operations in order to improve our financial condition, but our operations will not improve if we cannot continue to effectively implement our business strategy or if they are negatively affected by general economic conditions. Our operations during fiscal 2000 were adversely affected by a number of factors, including our financial difficulties, inventory shortages, allegations of violations of the law, including drug pricing issues, disputes with suppliers and uncertainties regarding our ability to produce audited financial statements. To improve operations, new management developed and in fiscal 2001 began implementing and continues to implement, a business strategy to improve our stores and enhance our relationships with our customers by improving the pricing of products, providing more consistent advertising through weekly circulars, eliminating inventory shortages and out-dated inventory, resolving issues and disputes with our vendors, and developing programs intended to provide better customer service and purchasing prescription files and other means. If we are not successful in implementing our business strategy, or if our business strategy is not effective, we may not be able to continue to improve our operations. In addition, any adverse change in general economic conditions can adversely affect consumer buying practices and reduce our sales of front-end products, which are our higher margin products, and cause a proportionately greater decrease in our profitability. Failure to continue to improve operations or a decline in general economic conditions would adversely affect our results of operations, financial condition and cash flows and our ability to make principal or interest payments on our debt. 11 We cannot assure you that management will be able to successfully manage our business or successfully implement our strategic plan. This could have a material adverse effect on our business and the results of our operations, financial condition and cash flows. In December 1999, we hired a new management team to address our business, operational financial and accounting challenges. Our management team has considerable experience in the retail industry. Nonetheless, we cannot assure you that our management will be able successfully to manage our business or successfully implement our strategic business plan. This could have a material adverse effect on our results of operations, financial condition and cash flows. We are dependent on our management team, and the loss of their services could have a material adverse effect on our business and the results of our operations or financial condition. The success of our business is materially dependent upon the continued services of our chairman and chief executive officer, Robert G. Miller, and the other members of our management team. The loss of Mr. Miller or other key personnel could have a material adverse effect on the results of our operations, financial condition and cash flows. Additionally, we cannot assure you that we will be able to attract or retain other skilled personnel in the future. Risks Related to our Industry The markets in which we operate are very competitive and further increases in competition could adversely affect us. We face intense competition with local, regional and national companies, including other drugstore chains, independently owned drugstores, supermarkets, mass merchandisers, discount stores and mail order pharmacies. We may not be able to effectively compete against them because our existing or potential competitors may have financial and other resources that are superior to ours. In addition, we may be at a competitive disadvantage because we are more highly leveraged than our competitors. Because many of our stores are new, their ability to achieve profitability depends on their ability to achieve a critical mass of customers. While customer growth is often achieved through purchases of prescription files from existing pharmacies, our ability to achieve this critical mass through purchases of prescription files could be confined by liquidity constraints. Although in the recent past, our competitiveness has been adversely affected by problems with inventory shortages, uncompetitive pricing and customer service, we have taken steps to address these issues. We believe that the continued consolidation of the drugstore industry will further increase competitive pressures in the industry. As competition increases, a significant increase in general pricing pressures could occur which would require us to increase our sales volume and to sell higher margin products and services in order to remain competitive. We cannot assure you that we will be able to continue effectively to compete in our markets or increase our sales volume in response to further increased competition. Changes in third-party reimbursement levels for prescription drugs could reduce our margins and have a material adverse effect on our business. Sales of prescription drugs, as a percentage of revenues, and the percentage of prescription sales reimbursed by third parties, have been increasing and we expect them to continue to increase. In fiscal 2001, sales of prescription drugs represented 59.5% of our revenues and we were reimbursed by third-party payors for approximately 90.3% of all of the prescription drugs that we sold. During fiscal 2001, the top five third-party payors accounted for approximately 26.4% of our total revenues. Any significant loss of third-party provider business could have a material adverse effect on our business and results of operations. Also, these third-party payors could reduce the levels at which they will reimburse us for the prescription drugs that we provide to their members. Furthermore, if Medicare is reformed to include prescription benefits, we may be reimbursed for some prescription drugs at prices lower than our current retail prices. If third-party payors reduce their reimbursement levels or if Medicare covers prescription drugs at reimbursement levels lower than our current retail prices, our margins on these sales would be reduced, and the profitability of our business and our results of operations, financial condition and cash flows could be adversely affected. 12 We are subject to governmental regulations, procedures and requirements; our noncompliance or a significant regulatory change could adversely affect our business, the results of our operations or our financial condition. Our pharmacy business is subject to federal, state, and local regulation. These include local registrations of pharmacies in the states where our pharmacies are located, applicable Medicare and Medicaid regulations, and prohibitions against paid referrals of patients. Failure to properly adhere to these and other applicable regulations could result in the imposition of civil and criminal penalties and could adversely affect the continued operation of our business. Furthermore, our pharmacies could be affected by federal and state reform programs, such as healthcare reform initiatives which could, in turn, negatively affect our business. The passing of these initiatives or any new federal or state programs could adversely affect our results of operations, financial condition and cash flows. Certain risks are inherent in the provision of pharmacy services; our insurance may not be adequate to cover any claims against us. Pharmacies are exposed to risks inherent in the packaging and distribution of pharmaceuticals and other healthcare products, such as with respect to improper filling of prescriptions, labeling of prescriptions and adequacy of warnings. Although we maintain professional liability and errors and omissions liability insurance from time to time, claims result in the payment of significant amounts, some portions of which are not funded by insurance. We cannot assure you that the coverage limits under our insurance programs will be adequate to protect us against future claims, or that we will maintain this insurance on acceptable terms in the future. Our results of operations, financial condition or cash flows may be adversely affected if in the future our insurance coverage proves to be inadequate or unavailable or there is an increase in liability for which we self insure or we suffer reputational harm as a result of an error or omission. We will not be able to compete effectively if we are unable to attract, hire and retain qualified pharmacists. There is a nationwide shortage of qualified pharmacists. In response, we have implemented improved benefits and training programs in order to attract, hire and retain qualified pharmacists. However, we may not be able to attract, hire and retain enough qualified pharmacists. This could adversely affect our operations. Risks Related to our Common Stock You may not be able to sell the common stock when you want to and, if you do, you may not be able to receive the price that you want. Although our common stock has been actively traded on the New York Stock Exchange and the Pacific Exchange, we do not know if an active trading market for the common stock will continue or, if it does, at what prices the common stock may trade. The shares of our common stock offered by this prospectus will significantly increase the number of shares of our common stock registered for sale to the public, and could result in a decline in the market price of our common stock. Therefore, you may not be able to sell the common stock when you want and, if you do, you may not receive the price you want. Additionally, in connection with the settlement of a class action suit brought against us, we may be required to issue 20 million shares of common stock. If the value of our shares of common stock is less than $7.75 per share in February 2002, we may deliver a greater number of shares. We will also issue additional shares of common stock pursuant to outstanding options granted pursuant to our various stock option plans. In addition, as described below, the refinancing of our indebtedness may include additional issuances of equity securities. We cannot predict the extent to which this dilution, the availability of a large amount of shares for sale, and the possibility of additional issuances and sales of our common stock will negatively affect the trading price of our common stock or the liquidity of our common stock. Our debt restructuring efforts may be dilutive to your shares. We may undertake additional transactions to simplify and restructure our capital structure, which may include, as part of these efforts, additional issuances of equity securities in exchange for our indebtedness. The issuance of additional shares of common stock may be dilutive to the holders of our common stock, including holders who purchase shares of common stock in this offering. 13 USE OF PROCEEDS We will not receive any of the proceeds of sales by the selling stockholders. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY Our common stock is listed on the New York and Pacific Stock Exchanges under the symbol "RAD". On July 9, 2001, we had approximately 11,690 record shareholders. Quarterly high and low stock prices, based on the New York Stock Exchange composite transactions, together with dividend information are shown below:
Fiscal Year Quarter High Low Dividend - ----------- -------- -------- -------- -------- 2002 (second quarter through July 9, 2001) ... First 9.09 5.27 -- Second 9.99 8.02 -- 2001 ......................................... First 8 1/2 4 3/4 -- Second 8 1/2 4 -- Third 4 3/8 2 7/16 -- Fourth 6 3/32 1 3/4 -- 2000 ......................................... First 41 3/4 21 $.1150 Second 26 15/16 17 1/2 $.1150 Third 20 1/8 4 1/2 $.1150 Fourth 13 1/4 6 3/8 --
We have not declared or paid any cash dividends on our common stock since the third quarter of fiscal 2000 and we do not anticipate paying cash dividends in the foreseeable future. Our credit facilities and the instruments governing our other indebtedness do not allow us to pay cash dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Credit Facilities and Refinancing". DILUTION This offering is for sales of our common stock by some of our existing stockholders on a continuous or delayed basis. Sales of common stock by selling stockholders pursuant to this prospectus will not result in a change to the net tangible book value per share before and after the distribution of shares by the selling stockholders. There will be no change in net tangible book value per share attributable to cash payments made by purchasers of the shares being offered. Prospective investors should be aware, however, that the market price of our shares may not bear any relationship to net tangible book value per share. 14 SELECTED CONSOLIDATED FINANCIAL INFORMATION The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes appearing on pages F-1 through F-42. Selected consolidated financial information is presented for four fiscal years. As previously discussed in our Form 10-K dated May 18, 2001 and our Form 10-K/A dated October 11, 2000, substantial time, effort and expense was required over a six month period to review, assess, reconcile, prepare and audit our financial statements for the 2000, 1999 and 1998 fiscal years. We believe it would require an unreasonable effort and expense to conduct a similar process related to the 1997 fiscal year. The following selected consolidated financial information does not give pro forma effect to the Refinancing.
Fiscal Year Ended -------------------------------------------------------------------------- March 3, 2001 February 26, 2000 February 27, 1999 February 28, 1998 (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)(1) ------------- ----------------- ----------------- ----------------- (Dollars in thousands, except per share amounts) Operations Data: Revenues ............................................ $ 14,516,865 $ 13,338,947 $ 12,438,442 $ 11,352,637 Costs and expenses: Cost of goods sold, including occupancy costs...... 11,151,490 10,213,428 9,406,831 8,419,021 Selling, general and administrative expenses....... 3,458,307 3,607,810 3,200,563 2,773,560 Goodwill amortization.............................. 20,670 24,457 26,055 26,169 Store closing and impairment charges............... 388,078 139,448 195,359 155,024 Interest expense................................... 649,926 542,028 274,826 202,688 Loss on debt conversions and modifications......... 100,556 -- -- -- Share of loss from equity investments.............. 36,675 15,181 448 1,886 Gain on sale of fixed assets....................... (6,030) (80,109) -- (52,621) ------------ ------------ ------------ ------------ Total costs and expenses ............................ 15,799,672 14,462,243 13,104,082 11,525,727 ------------ ------------ ------------ ------------ Loss from continuing operations before income taxes and cumulative effect of accounting change........ (1,282,807) (1,123,296) (665,640) (173,090) Income tax expense (benefit) ........................ 148,957 (8,375) (216,941) (28,064) ------------ ------------ ------------ ------------ Loss from continuing operations before cumulative effect of accounting change(2).................... (1,431,764) (1,114,921) (448,699) (145,026) Income (loss) from discontinued operations, net(2)... 11,335 9,178 (12,823) (20,214) Loss on disposal of discontinued operations, net .... (168,795) -- -- -- Cumulative effect of accounting change, net ......... -- (27,300) -- -- ------------ ------------ ------------ ------------ Net loss ........................................... $ (1,589,224) $ (1,133,043) $ (461,522) $ (165,240) ============ ============ ============ ============ Basic and diluted (loss) income per share: Loss from continuing operations.................... $ (5.15) $ (4.34) $ (1.74) $ (0.58) Income (loss) from discontinued operations......... (0.50) 0.04 (0.05) (0.08) Cumulative effect of accounting change, net........ -- (0.11) -- -- ------------ ------------ ------------ ------------ Net loss per share................................ $ (5.65) $ (4.41) $ (1.79) $ (0.66) ============ ============ ============ ============ Balance Sheet Data (at end of period): Working capital (deficit).......................... $ 1,955,877 $ 752,657 $ (892,115) $ 1,258,580 Property, plant and equipment (net)................ 3,041,008 3,445,828 3,328,499 2,460,513 Total assets....................................... 7,913,911 9,845,566 9,778,451 7,392,147 Total debt and capital lease obligations(3)........ 5,894,548 6,612,868 5,922,504 3,132,894 Redeemable preferred stock......................... 19,457 19,457 23,559 -- Stockholders' equity (deficit)..................... (354,435) 432,509 1,339,617 1,898,203 Other Data: Cash flows from continuing operations provided by (used in): Operating activities.............................. $ (704,554) $ (623,098) $ 276,855 $ 622,865 Investing activities.............................. 677,653 (504,112) (2,705,043) (1,050,322) Financing activities.............................. (64,324) 905,091 2,660,341 535,066 Capital expenditures(4)............................ 132,504 573,287 1,222,674 716,052 Cash dividends declared per common share .......... 0 .3450 .4375 .4075 Basic weighted average shares ..................... 314,189,000 259,139,000 258,516,000 250,659,000 Ratio of earnings to fixed charges(5).............. -- -- -- -- Number of retail drugstores........................ 3,648 3,802 3,870 3,975 Number of employees................................ 75,500 77,300 89,900 83,000 Pharmacy sales as a percentage of revenues......... 59.5% 58.4% 54.2% 50.2% (Footnotes on next page)
15 - --------------- (1) Includes the operations of K&B, Incorporated and Harco, Inc. from their acquisition in August 1997. (2) PCS was acquired on January 22, 1999 and sold on October 2, 2000 and accordingly, reported as a discontinued operation for all periods presented. See note 24 of the notes to the consolidated financial statements. (3) Total debt includes capital lease obligations of $0.6 billion, $1.1 billion, $1.1 billion and $1.1 billion as of March 3, 2001, February 26, 2000, February 27, 1999 and February 28, 1998, respectively. (4) Capital expenditures represent expenditures for property and equipment. (5) Calculated by dividing earnings by fixed charges. For this purpose, earnings include loss from continuing operations before income taxes and cumulative effect of accounting change plus fixed charges. Fixed charges include interest, whether expensed or capitalized, amortization of debt incurrence cost, preferred stock dividends and that portion of rental expense which is representative of the interest factor in those rentals. For fiscal 2001, fiscal 2000, fiscal 1999 and fiscal 1998, earnings were insufficient to cover fixed charges by approximately $1,248.0 million, $1,113.4 million, $671.6 million and $175.3 million respectively. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We operate 3,631 retail drugstores in 30 states and in the District of Columbia. We sell prescription drugs, which accounted for approximately 59.5% of our total revenues during fiscal 2001, and other products, which we refer to as front-end products, including non-prescription medications, health and beauty aids and personal care items, cosmetics, photo processing and convenience items. Until October 2, 2000, we operated a pharmacy benefit management services business. From the beginning of fiscal 1997 until December 1999, we were engaged in an aggressive expansion program. During that period, we purchased 1,554 stores, relocated 866 stores, opened 445 new stores, remodeled 308 stores and acquired PCS. These activities had a significant negative impact on our operating results, severely strained our liquidity and increased our indebtedness to $6.6 billion as of February 26, 2000. In October 1999, we announced that we had identified accounting irregularities and our former chairman and chief executive officer resigned. In November 1999, our former auditors resigned and withdrew their previously issued opinions on our financial statements for the fiscal years 1998 and 1999. Thereafter, the SEC and the U.S. Attorney for the Middle District of Pennsylvania began investigations into our affairs. In addition, the complaint in a securities class action lawsuit, which had been filed in March 1999, was amended to include allegations based upon the accounting irregularities we disclosed. In December 1999, a new senior management team was hired. At the time of their arrival, the new management team faced a series of immediate challenges. These included: o Deteriorating Store Operations. We experienced substantial operational difficulties during fiscal 2000. The principal problem was a decline in customer traffic and revenues due to inventory shortages, reduced advertising and uncompetitive prices on front-end products. By November 1999, our out-of-stock level had reached 29% and many popular products were not available in our stores. This situation resulted from liquidity constraints and concerns, tighter vendor credit terms and a delay in the opening of our distribution center in Perryman, MD, which caused delays in the shipment of seasonal merchandise. During fiscal 2000, we also suspended our practice of circulating regular newspaper advertising supplements. This disrupted customer traffic and adversely affected revenues. In order to offset the effects of these actions, former management raised the prices of front-end products above competitive levels. Customers rejected the higher prices and revenues continued to decline. o Inability to Access Capital Markets. From March 1995 through February 2000, we substantially increased our level of debt and placed a significant strain on our short-term liquidity. The problems were exacerbated by our inability to complete a planned public offering of equity securities to repay the $1.3 billion short-term credit facility due in October 1999, which had been established to support the commercial paper issuances used to acquire PCS. By June 1999, we had issued the maximum amount of commercial paper that was permitted under our credit facilities. In September 1999, we informed our banks that we anticipated being in default on various covenants under both our $1.3 billion PCS credit facility and our $1.0 billion general credit facility and in October 1999, Standard & Poor's and Moody's downgraded our credit rating. Following these events, we lost access to the commercial paper market. In response to the situation we faced, we completed the following: o Reduced our indebtedness from $6.6 billion on February 26, 2000 to $3.7 billion on June 30, 2001 after giving effect to the Refinancing; o Improved our front-end same store sales growth from a negative 2.2% in fiscal 2000 to a positive 6.5% in fiscal 2001 by improving store conditions and product pricing and launching a competitive marketing program; 17 o Restated our financial statements for fiscal 1998 and fiscal 1999, engaged new auditors to audit our financial statements for fiscal 1998, fiscal 1999 and fiscal 2000, and resumed normal financial reporting; o Significantly reduced the amount of our indebtedness maturing prior to March 2005, including as a result of the Refinancing; o Pending court approval, settled the securities class action and related lawsuits for $45.0 million to be funded with insurance proceeds and $155.0 million of common stock, cash and/or notes to be issued and paid in January 2002; o Began implementing an initiative to improve all aspects of our supply chain, including buying practices, category management systems and other inventory issues; and o Continued developing and implementing a comprehensive plan, which is ongoing, to address problems with our accounting systems and controls, and also resumed normal financial reporting. Recent Actions Affecting Operating Results. During fiscal 2001, we took a number of actions which had the short term effect of significantly reducing our operating results but which management believes were nevertheless necessary. Among the actions taken were: (i) the sale of PCS which resulted in our recognizing a loss of $168.8 million and an increase in income tax expense of $146.9 million; (ii) the exchange of approximately $597.3 million of our debt for shares of our common stock which resulted in a net loss of $100.6 million; (iii) our decision to close or relocate certain stores which resulted in an approximate $149.2 million charge included in the $388.1 million recorded charges for store closures and impairment; and (iv) the restatement and audit of our fiscal 1998 and fiscal 1999 financial statements and the related investigation conducted by our audit committee of prior accounting irregularities, which resulted in our incurring and recording of $82.1 million of accounting and legal expense. We anticipate taking actions in the future similar to those described above that may have a material negative impact upon our operating results for the period in which we take those actions or subsequent periods. We expect to incur costs and fees of approximately $94.0 million in connection with the Refinancing. Maturing Store Base. Since the beginning of fiscal 1997, we opened 469 new stores, relocated 949 stores, remodeled 410 stores and closed 1,159 stores. These new, relocated and remodeled stores represented approximately 49.8% of our total stores at March 3, 2001 and are generally larger, free standing stores and have higher operating expenses than our older stores. New stores generally do not become profitable until a critical mass of customers is developed. Relocated stores also must attract additional customers to achieve comparable profitability to the store that was replaced. We believe that the period of time required for a new store to achieve profitable operations is generally between two and four years. This period can vary significantly based on the location of a particular store and on other factors, including the investments made in purchasing prescription files for the location and advertising. Our recent liquidity constraints have limited our ability to purchase prescription files and make other investments to promote the development of our new and relocated stores. We believe that our relatively high percentage of new and relocated stores is a significant factor in our recent operating results. Management believes that as these newer stores mature they should gain the critical mass of customers needed for profitable operations. We believe this continuing maturation should positively affect our operating performance in future periods. If we are not able to improve the performance of these new and relocated stores, it will have a material adverse effect on our ability to restore the profitability of our operations. Substantial Accounting, Legal and Investigation Expenses. We have incurred substantial expenses in connection with the process of reviewing and reconciling our books and records, restating our fiscal 1998 and fiscal 1999 financial statements, investigating our prior accounting practices and preparing our financial statements. Included in these expenses are the costs of the Deloitte & Touche LLP audits, the investigation by the law firm of Swidler, Berlin, Shereff, Friedman LLP, assisted by Deloitte & Touche LLP, conducted for our audit committee concerning the accounting irregularities which led to the restatement of our financial statements for fiscal 1998 and fiscal 1999 and the costs of retaining Arthur Andersen LLP to assist management in reviewing and reconciling our books and records. We incurred $82.1 million in fiscal 2001 and we expect to incur $10.0 million to $15.0 million in fiscal 2002 for these types of investigations. We 18 anticipate that we will continue to incur significant legal and other expenses in connection with the ongoing litigation and investigations to which we are subject. Dilutive Equity Issuances. In June 2000, we completed a series of debt restructuring transactions as described in "Liquidity and Capital Resources". In connection with these transactions, an aggregate total of 69,564,434 shares of our common stock were issued in exchange for $462.6 million principal amount of our outstanding indebtedness. In addition, in November 2000, January 2001 and April 2001, we completed numerous privately negotiated transactions, whereby an aggregate total of 18,125,700 shares of our common stock were issued in exchange for approximately $156.6 million principal amount of our outstanding indebtedness. In March 2001, we also exchanged approximately $279.3 million principal amount of outstanding indebtedness for an aggregate of 41,276,335 shares of our common stock upon completion of a public tender offer. As a result of these exchanges, we recorded an aggregate loss on conversion of approximately $100.6 million in fiscal 2001 and will record additional losses in fiscal 2002. In addition, pursuant to the conversion price adjustment and pay-in-kind dividend provisions of the series B convertible preferred stock issued to Green Equity Investors III, L.P. in October 1999, 62,317,123 shares of our common stock were issuable upon the conversion of such preferred stock at July 1, 2001. As a result of the Refinancing, and including the shares issuable upon the conversion of our Series B and our new Series C preferred stock, shares issuable under outstanding stock options and warrants and shares contingently issuable under the shareholder litigation settlement, common shares outstanding increased from 348.1 million on March 3, 2001 to 493.3 million on June 30, 2001. Accounting Systems. Following a review of our books and records, management concluded that further steps were needed to establish and maintain the adequacy of our internal accounting systems and controls. In connection with the audit of our financial statements, Deloitte & Touche LLP advised us that it believed there were numerous "reportable conditions" under the standards established by the American Institute of Certified Public Accountants which relate to our accounting systems and controls that could adversely affect our ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. We are developing and implementing comprehensive, adequate and reliable accounting systems and controls which are intended to address the reportable conditions identified by Deloitte & Touche LLP. Sale of PCS. On October 2, 2000, we sold PCS, our PBM segment, to Advance Paradigm (now AdvancePCS). The selling price of PCS consisted of $710.5 million in cash, $200.0 million in principal amount of AdvancePCS's 11% promissory notes and AdvancePCS equity securities. Accordingly, the PBM segment is reported as a discontinued operation for all periods presented in the accompanying financial statements, and the operating income of the PBM segment through October 2, 2000, the date of sale, is reflected separately from the income from continuing operations. The loss on disposal of the PBM segment was $168.8 million. Additionally, we recorded an increase to the tax valuation allowance and income tax expense of $146.9 million in the first quarter of fiscal 2001 in continuing operations. Working Capital. We generally finance our inventory and capital expenditure requirements with internally generated funds and borrowings. We expect to use borrowings to finance inventories and to support our continued growth. Over 75% of our front-end sales are in cash. Third-party insurance programs, which typically settle in fewer than 30 days, accounted for 90.3% of our pharmacy revenues and 53.7% of our revenues in fiscal 2001. Seasonality. We experience seasonal fluctuations in our results of operations in the fourth fiscal quarter as the result of Christmas and the flu season. We also tailor certain front-end merchandise to capitalize on holidays and seasons. This leads to an increase in revenues during our fourth fiscal quarter. Industry Trends. It is anticipated that pharmacy sales in the United States will increase 75% over the next five years. This anticipated growth is expected to be driven by the "baby boom" generation entering their fifties, the increasing life expectancy of the American population and the introduction of several new drugs and inflation. The retail drugstore industry is highly fragmented and has been experiencing consolidation. We believe that the continued consolidation of the drugstore industry will further increase competitive pressures in the industry. We expect to continue to compete on the basis of price and convenience, particularly in front-end products and therefore will continue to focus on programs designed to 19 improve our image with customers. Prescription drug sales continue to represent a greater portion of our business due to the general aging of the population, the use of pharmaceuticals to treat a growing number of healthcare problems, and the introduction of a number of successful new prescription drugs. In fiscal 2001, we were reimbursed by third-party payors for approximately 90.3% of all of the prescription drugs that we sold. If third- party payors reduce their reimbursement levels or if Medicare covers prescription drugs at reimbursement levels lower than our current retail prices, our margins on these sales would be reduced and the profitability of our business could be adversely affected. Results of Operations Revenues and Other Operating Data
Year Ended ------------------------------------------ March 3, February 26, February 27, 2001 2000 1999 ----------- ------------ ------------ Revenues (dollars in thousands)....................... $14,516,865 $13,338,947 $12,438,442 Revenue growth........................................ 8.8% 7.2% 9.6% Same store sales growth............................... 9.1% 7.9% 15.5% Pharmacy sales growth................................. 8.7% 15.6% 18.2% Same store pharmacy sales growth...................... 10.9% 16.2% 21.9% Pharmacy as a % of total revenues..................... 59.5% 58.4% 54.2% Third-party sales as a % of total pharmacy revenues... 90.3% 87.8% 85.4% Front-end sales growth................................ 3.8% (2.6)% 0.8% Same store front-end sales growth..................... 6.5% (2.2)% 6.6% Front-end as a % of total revenues.................... 40.5% 41.6% 45.8% Store data: Total stores (beginning of period).................... 3,802 3,870 3,975 New stores............................................ 9 77 163 Closed stores......................................... (163) (181) (330) Store acquisitions, net............................... -- 36 62 Total stores (end of period) ......................... 3,648 3,802 3,870 Remodeled stores...................................... 98 14 155 Relocated stores...................................... 63 180 331
Revenues The 8.8% growth in revenues in fiscal 2001 was driven by an increase of 3.8% in front-end sales, an increase of 8.7% in pharmacy sales and the additional week in fiscal 2001. Our total revenue growth in fiscal 2000 of 7.2 % was fueled by strong growth in pharmacy sales, offset by a slight decline in front end sales. Same store sales growth for fiscal 2001 was 9.1%. As fiscal 2001 was a 53 week year, same store sales are calculated by comparing the 53 week period ended March 3, 2001 with the 53 week period ended March 4, 2000. The decrease from 15.5% sales growth in fiscal 1999 was due to the deterioration in store operations described above. For fiscal 2001 and fiscal 2000, pharmacy revenues led sales growth with same store sales increases of 10.9% and 16.2%, respectively. Fiscal 2001 increases were generated by our ability to attract and retain managed care customers, our successful pilot markets for reduced cash pricing, our increased focus on pharmacy initiatives such as will call and predictive refill, and favorable industry trends. These favorable trends include an aging population, the use of pharmaceuticals to treat a growing number of healthcare problems, and the introduction of a number of successful new prescription drugs. Fiscal 2000 pharmacy increases were driven by similar favorable industry trends, as well as the purchase of prescription files from independent pharmacies. The lower growth in same store pharmacy sales in fiscal 2001 was due primarily to a significant reduction in the number of prescription files we purchased and store relocations we effected. The lower growth in fiscal 2000 was due primarily to a reduction as compared to fiscal 1999 in the number of relocations effected. 20 Same store front-end sales in fiscal 2001, which includes all non- prescription sales, such as seasonal merchandise, convenience items, and food and other non- prescription sales, increased 6.5% from fiscal 2000. This increase was fueled by the reinstatement of our weekly circular advertising program, and was also driven by strong performance in seasonal businesses, consumables, vitamins, general merchandise and private label brands. Same store front-end sales in fiscal 2000 decreased 2.2% from fiscal 1999 levels. This decrease was due to elevated levels of out-of-stock merchandise in the third and fourth quarters of fiscal 2000, and the decision of former management to suspend the weekly advertising program in fiscal 2000 and to raise front-end prices to levels that were not competitive.
Year Ended ------------------------------------------ March 3, February 26, February 27, 2001 2000 1999 ----------- ------------ ------------ (dollars in thousands) Costs of goods sold............................... $11,151,490 $10,213,428 $9,406,831 Gross margin...................................... 23.2% 23.4% 24.4% Selling, general and administrative expenses...... $ 3,458,307 $ 3,607,810 $3,200,563 Selling, general and administrative expenses as a percentage of revenues.......................... 23.8% 27.0% 25.7% Goodwill amortization............................. $ 20,670 $ 24,457 $ 26,055 Store closing and impairment charges.............. 388,078 139,448 195,359 Interest expense.................................. 649,926 542,028 274,826 Loss on debt conversions and modifications........ 100,556 -- -- Share of loss from equity investments............. 36,675 15,181 448 Gain on sale of fixed assets...................... (6,030) (80,109) --
Cost of Goods Sold Gross margin was 23.2% for fiscal 2001 compared to 23.4% in fiscal 2000. The slight decline in margin was attributable to a shifting in sales mix to pharmacy from front-end. In fiscal 2001, the percentage of front-end sales to total revenues decreased to 40.5% from 41.6% in 2000. Also contributing to the lower margin in 2001 was an increase in sales of cigarettes and liquor (typically lower margin products) as a percentage of front-end sales. Additionally, we incurred $17.5 million in inventory liquidation losses related to our closed stores. Partially offsetting the items listed above was an improvement in the margin of front-end goods (exclusive of cigarettes and liquor). These increases resulted from a more profitable product mix, and from increases in the levels of one-hour photo and phone card sales. Gross margin declined to 23.4% in fiscal 2000 from 24.4% in fiscal 1999. The decline in gross margin in fiscal 2000 from fiscal 1999 was a result of a substantial decline in our pharmacy margins. A decline in occupancy costs in fiscal 1999 was largely offset by increased costs related to our distribution facilities. We incurred costs in fiscal 2000 in connection with the shift in certain operations from our distribution facility in Harrisburg, Pennsylvania to a new distribution facility located in Perryman, Maryland, resulting in certain duplicate costs and also in connection with the processing of merchandise received from our stores for shipment back to our vendors. These costs are not expected to be recurring costs. These increased costs were partially offset by a substantial credit to cost of goods sold resulting from the receipt of vendor allowances following a restructuring of the terms of certain vendor contracts. In fiscal 1999, prior to the restructuring of the contracts, these vendor allowances were credited to selling, general and administrative expense. Also partially offsetting the increases in cost of goods sold in fiscal 2000 were improved store level margins for front-end and pharmacy sales. Also negatively impacting gross margins in the periods presented was the continuing industry trend of rising third-party sales coupled with decreasing margins on third-party reimbursed prescription sales. Third-party prescription sales typically have lower gross margins than other prescription sales because they are paid by a person or entity other than the recipient of the prescribed pharmaceutical and are generally subject to lower negotiated reimbursement rates in conjunction with a pharmacy benefit plan. Pharmacy sales as a percentage of total revenues were 59.5%, 58.4% and 54.2% in fiscal 2001, fiscal 2000 and fiscal 1999, 21 respectively and third-party sales as a percentage of pharmacy sales were 90.3%, 87.8%, and 85.4% in fiscal 2001, fiscal 2000 and fiscal 1999, respectively. We use the last-in, first-out (LIFO) method of inventory valuation. The LIFO charge was $40.7 million in fiscal 2001, $34.6 million in fiscal 2000 and $36.5 million in fiscal 1999. We have changed our method of accounting for LIFO as of February 26, 2000. See "Accounting Change". Selling, General and Administrative Expenses Selling, general and administrative expense ("SG&A") was 23.8% of revenues in fiscal 2001, 27.0% in fiscal 2000 and 25.7% in fiscal 1999. SG&A expenses for fiscal 2001 were favorably impacted by a $20.0 million increase in estimated insurance recovery related to the settlement of the shareholders' class action lawsuit, and by $20.0 million received related to the partial settlement of litigation with certain drug manufacturers. Offsetting these items was $82.1 million incurred in connection with the restatement of our historical financial statements, and the incurrence of $45.9 million in non- cash expense related to variable plan accounting on certain management stock options, and restricted stock grants. If these non-operating and non cash items are excluded, our SG&A as a percentage of revenues would have been 23.2%. SG&A expense for fiscal 2000 was unfavorably impacted by a charge of $232.8 million related to litigation issues, offset by a reversal of stock appreciation rights accruals of $45.5 million. Excluding these non-operating and non cash items results in an adjusted SG&A as a percentage of revenues of 25.6% in fiscal 2000. SG&A on an adjusted basis of 23.2% for fiscal 2001 compares favorably with SG&A on an adjusted basis of 25.6% for fiscal 2000 due to lower depreciation expense resulting from a net reduction in our store count, decreased repair and maintenance and terminated project costs, and the better leveraging of fixed SG&A costs resulting from our higher sales volume. The increase in SG&A expense as a percent of revenues in fiscal 2000 over fiscal 1999 is predominately attributable to increased accruals for litigation and other contingencies, as described above. Store Closing and Impairment Charges Store closing and impairment charges consist of:
Year Ended --------------------------------------- March 3, February 26, February 27, 2001 2000 1999 -------- ------------ ------------ (dollars in thousands) Impairment charges ....................... $214,224 $120,593 $ 87,666 Store lease exit costs ................... 57,668 18,855 107,693 Impairment of investments ................ 116,186 -- -- -------- -------- -------- $388,078 $139,448 $195,359 ======== ======== ========
Impairment Charges In fiscal 2001, fiscal 2000 and fiscal 1999, store closing and impairment charges include non-cash charges of $214.2 million, $120.6 million and $87.7 million, respectively, for the impairment of long-lived assets (including allocable goodwill) of 495 stores, 249 stores and 270 stores, respectively. These amounts include the write-down of long-lived assets to estimated fair value at stores that were assessed for impairment as part of our on-going review of the performance of our stores or management's intention to relocate or close the store. Store Lease Exit Costs Costs incurred to close a store, which principally consist of lease termination costs, are recorded at the time management commits to closing the store, which is the date that the closure is formally approved by senior management, or in the case of a store to be relocated, the date the new property is leased or purchased. We calculate our liability for closed stores on a store-by-store basis. The calculation includes the future minimum lease payments and related ancillary costs, from the date of closure to the end of the remaining 22 lease term, net of estimated cost recoveries that may be achieved through subletting properties or through favorable lease terminations. As a result of focused efforts on cost recoveries for closed stores during fiscal 2001, we experienced improved results, which has been reflected in the assumptions about future sublease income. This liability is discounted using a risk-free rate of interest. We evaluate these assumptions each quarter and adjust the liability accordingly. Impairment of Investments We have an investment in the common stock of drugstore.com, which is accounted for under the equity method. The initial investment was valued based upon the initial public offering price for drugstore.com. During fiscal 2001, we recorded an impairment of our investment in drugstore.com of $112.1 million. This write-down was based upon a decline in the market value of drugstore.com's stock that we believe to be other than temporary. Additionally, we recorded impairment charges of $4.1 million for other investments. Interest Expense Interest expense was $649.9 million in fiscal 2001 compared to $542.0 million in fiscal 2000 and $274.8 million in fiscal 1999. The substantial increase in fiscal 2001 and fiscal 2000 were due to higher average levels of indebtedness and higher interest rates on debt. In fiscal 2001, we increased our average outstanding debt with the addition of the $1.1 billion senior secured credit facility, which includes a $600.0 million term loan and a $500.0 million revolving credit facility. We used the term loan to terminate our accounts receivable securitization facility and repurchased $300.0 million of unpaid receivables thereunder and funded $66.4 million of transaction costs related to our debt restructuring. The remainder of the term loan together with the revolving credit facility were used for general corporate purposes, including the costs of reviewing, reconciling and restating our fiscal 1998 and fiscal 1999 financial statements, the cost of the audit of our restated financial statements and investigation costs. These items were partially offset by reductions of indebtedness in the second half of fiscal 2001 resulting from the sale of PCS and debt for equity exchanges. In fiscal 2000, our debt increased as a result of the $1.3 billion borrowed in January 1999 under the PCS credit facility and the $300.0 million of demand note borrowings to supplement cash flows from operating activities. The annual weighted average interest rates on our indebtedness in fiscal 2001, fiscal 2000 and fiscal 1999 were 8.2%, 7.4% and 6.8% respectively. Income Taxes We had net losses in fiscal 2001, fiscal 2000 and fiscal 1999. Tax expense of $149.0 million and tax benefits of $26.6 million (including the benefit related to cumulative effect of accounting change) and $216.9 million have been reflected for fiscal 2001, fiscal 2000 and fiscal 1999, respectively. The full benefit of the net operating loss carryforwards ("NOLs") generated in each period has been fully offset by a valuation allowance based on management's determination that, based on available evidence, it is more likely than not that some of the deferred tax assets will not be realized. We expect to file amended tax returns and utilize the NOLs against taxable income in prior years to the maximum extent possible. It is likely that an "ownership change" for statutory purposes may occur as a result of our refinancing efforts, including issuances of equity and exchanges of debt for equity. If an ownership change occurs, the use of our existing NOLs and possibly our net unrealized built-in losses would be subject to limitations. Of the $147.6 million recoverable taxes recorded as of February 26, 2000, we have collected or have offsets of $122.7 million. The remaining $24.9 million has been reclassified to other non current assets since we anticipate collection beyond fiscal 2002. Other Significant Charges In addition to the operational matters discussed above, our results in fiscal 2001 were adversely affected by other significant charges. We recorded a net loss of $168.8 million on the disposal of the PBM segment. As a result of the decision to dispose of the PBM segment, we recognized an increase in the income tax valuation allowance of $146.9 million for fiscal 2001. We also recorded a pre-tax loss of $100.6 million on debt conversions and modifications, and recorded a loss of $36.7 million representing our share of drugstore.com losses. 23 Discontinued Operations On July 12, 2000, we announced the sale of the PBM segment, at which time the PBM segment was subjected to discontinued operations accounting. Prior to becoming a discontinued operation on July 12, 2000, the PBM segment generated net income of $11.3 million from February 27, 2000 through July 11, 2000, compared to net income of $9.2 million in fiscal 2000 and a net loss of $12.8 million in fiscal 1999. Liquidity and Capital Resources We have two primary sources of liquidity: (i) cash provided by operations and (ii) the revolving credit facility under our senior secured credit facility. We may also generate liquidity from the sale of assets, including sale-leaseback transactions. During fiscal 2000 and fiscal 2001, cash provided by operations was not sufficient to fund our working capital requirements. As a result, we have supplemented our cash from operations with borrowings under our credit facilities. Our principal uses of cash are to provide working capital for operations, service our obligations to pay interest and principal on our debt, and to provide funds for capital expenditures. On June 27, 2001, we completed a comprehensive $3.2 billion refinancing package to refinance a significant proportion of our indebtedness. See "Prospectus Summary--Refinancing Transactions". Credit Facilities and Refinancing New Senior Secured Credit Facility. As part of the Refinancing, we entered into a new senior secured credit facility in the aggregate principal amount of $1.9 billion, consisting of term loan facilities in the amount of $1.4 billion, which includes funds sufficient to repay the remaining $22 million aggregate principal amount of outstanding 10.5% senior secured notes due 2002, and a revolving credit facility in the amount of $500.0 million. Borrowings under the facilities generally bear interest at LIBOR plus a spread of 3.50%, if we choose to make LIBOR borrowings, or the highest of (a) the current base rate of Citibank, N.A., (2) the Federal Funds Effective Rate plus 0.5% and (c) the Base CD Rate plus 0.5%, plus a spread of 2.50%. The facilities will mature on June 27, 2005, provided that to the extent that more than $20 million of our 7.625% senior notes due 2005 remain outstanding on December 31, 2004, the facilities will mature and all lending commitments under the revolving facility will terminate on March 15, 2005. The senior secured credit facility contains covenants that are customary for facilities of this type, which place restrictions on, among other things, the increase of debt, the payment of distributions in respect of capital stock, the prepayment of debt, investments, capital expenditures, mergers, liens, sale-leaseback transactions and the granting of negative pledges to other creditors, and require us to meet various financial ratios. The senior secured credit facility is subject to mandatory prepayment with the net cash proceeds of sales of specified assets and sales of capital stock of any of our subsidiaries owning any specified assets (other than sales in the ordinary course of business and other limited exceptions) and the net cash proceeds of certain permitted capital markets transactions. However, provided that we are in compliance with certain requirements under the facility, we may use up to $300 million of proceeds of a permitted capital markets transaction to repay certain outstanding debt and use the balance of the $300 million for general corporate purposes. Any proceeds from a permitted capital markets transaction in excess of $200 million will be split 75% for prepayment of the term loan facilities and 25% for general corporate purposes. The facility also permits the issuance of certain additional debt, the proceeds of which will not be required to be applied to mandatory prepayment, as follows: (a) up to $200 million aggregate principal amount of secured debt, subordinated only to the senior secured credit facility and any remaining 10.5% notes, with terms and conditions satisfactory to lenders under the facility holding more than 66 2/3% of the aggregate amount of the loans and commitments under the senior secured credit facility (of which $107 million has been issued as part of a synthetic lease facility), and (b) an aggregate principal amount of debt (which, among other things, has a maturity date after January 1, 2006 and is limited to a passive second priority lien on the senior secured credit facility or to liens on certain real estate) in an amount not in excess of $450 million. 24 The senior secured credit facility contains customary event of default provisions including nonpayment, misrepresentation, breach of covenants, bankruptcy and default under other indebtedness. Substantially all of our wholly-owned subsidiaries guarantee our obligations under the new credit facility. These subsidiary guarantees are secured primarily by a first priority lien on the inventory, accounts receivable, intellectual property and prescription files of the subsidiary guarantors. Our direct obligations under the new credit facility will be unsecured. The $21.9 million aggregate principal amount of outstanding 10.5% senior secured notes are secured on a shared first priority basis with the new credit facility. Our 12.5% senior secured notes due 2006 are secured on a second priority basis. The new senior secured credit facility and our outstanding indebtedness include borrowings that were used to purchase $174.5 million aggregate principal amount of 10.5% senior secured notes due 2002 in the tender offer, which is a part of the Refinancing. Previous Senior Secured Credit Facility. In June 2000, we entered into a $1.0 billion (which was increased to $1.1 billion in November 2000) senior secured credit facility with a syndicate of banks led by Citibank N.A., as agent. The facility was to mature on August 1, 2002, and consisted of a $600.0 million term loan facility and a $500.0 million revolving credit facility. We used the term facility to terminate our accounts receivable securitization facility and repurchase $300.0 million of unpaid receivables thereunder, to fund $66.4 million of transaction costs relating to our financial restructuring and to provide $133.6 million of cash available for general corporate purposes. The revolving facility provided us with borrowings for working capital requirements, capital expenditures and general corporate purposes. Borrowings under the facilities generally bore interest either at LIBOR plus 3.0%, if we chose to make LIBOR borrowings, or at Citibank's base rate plus 2%. Substantially all of our wholly-owned subsidiaries guaranteed our obligations under the previous senior secured credit facility. These subsidiary guarantees were secured by a first priority lien on the inventory, accounts receivable, intellectual property and some of the real estate assets of the subsidiary guarantors. Our direct obligations under the senior credit facility were unsecured. The previous senior secured credit facility contained customary covenants, which placed restrictions on the assumption of debt, the payment of dividends, mergers, liens and sale-leaseback transactions. The facility required us to meet various financial ratios and limited our capital expenditures. The previous senior secured credit facility was repaid with the proceeds of the Refinancing. Other Credit Facilities. In June 2000, we extended to August 2002 the maturity date of our RCF credit facility and our PCS credit facility. Borrowings under the PCS credit facility bore interest at LIBOR plus 3.25% and borrowings under the RCF credit facility bore interest at LIBOR plus 3.75%. These credit facilities contained restrictive covenants which placed restrictions on the assumption of debt, the payment of dividends, mergers, liens and sale-leaseback transactions. They also required us to satisfy financial covenants which were generally slightly less restrictive than the covenants in our previous senior secured credit facility. The facilities also limited the amount of our capital expenditures to $186.0 million for the three quarters ended March 3, 2001, increasing to $243.0 million for the four quarters ending June 1, 2002. As part of the restructuring of our debt in June 2000, certain affiliates of J.P. Morgan, which had lent us $300.0 million under a demand note in June 1999 and was also a lender under the RCF and PCS credit facilities, together with certain other lenders under the two credit facilities, agreed to exchange a portion of their loans for a new secured exchange debt obligation and shares of our common stock. This resulted in a total of $284.8 million of debt under these facilities, including $200.0 million of the outstanding principal of the demand note, being exchanged for an aggregate of 51,785,434 shares of our common stock at an exchange rate of $5.50 per share. We recorded a gain on this exchange of debt of $5.2 million in the second quarter of fiscal 2001. An additional $274.8 million of borrowings under the facilities were exchanged for the exchange debt, including the entire remaining principal amount of the demand note. The terms of the exchange debt were substantially the same as the terms of our RCF and PCS credit facilities and the interest rate was LIBOR plus 3.25%. The PCS and RCF credit facilities and the exchange debt were repaid with the proceeds of the Refinancing. 25 Debt Covenants. We were in compliance with the covenants of the previous senior secured credit facility and our other credit facilities and debt instruments as of March 3, 2001. With continuing improvements in operating performance, we anticipate that we will maintain our compliance with our debt covenants in the new senior secured credit facility. However, variations in our operating performance and unanticipated developments may adversely affect our ability to remain in compliance with the applicable debt covenants. Commercial Paper. Until September 24, 1999, we issued commercial paper supported by unused credit commitments to supplement cash generated by operations. Since the loss of our investment grade rating in fiscal 2000, we are no longer able to issue commercial paper. Our outstanding commercial paper amounted to $192.0 million at February 26, 2000 and $1,783.1 million at February 27, 1999. All remaining commercial paper obligations were repaid in March 2000. Exchange Offers. During the period between June 2000 and March 3, 2001 we completed numerous debt for debt and debt for equity exchange offers. In the aggregate, we issued: o $467.5 million of our 10.5% senior secured notes due 2002; and o 32.3 million shares of our common stock, in exchange for an aggregate of: o $123.0 million of our 5.5% notes due December 2000; o $342.7 million of our 6.7% notes due December 2001; o $292.7 million of our 5.25% convertible subordinated notes due 2002; o $17.8 million of our 6.00% dealer remarketable securities due 2003; and o $2.0 million of our 7.625% senior notes due 2005. In connection with these exchanges we recorded an aggregate loss of $100.6 million during fiscal 2001. Subsequent to March 3, 2001, the holders of approximately $205.3 million principal amount of our 5.25% convertible subordinated notes due 2002 exchanged these notes for an aggregate of 29.7 million shares of our common stock and the holders of approximately $79.9 million principal amount of our 6.0% dealer remarketable securities due 2003 exchanged these notes for an aggregate of 12.4 million shares of our common stock. We also exchanged an aggregate of $303.5 million in our RCF credit facility, PCS credit facility, 10.5% senior secured notes due 2002 and other debt for 44.3 million shares of common stock. In addition, as part of the Refinancing, we consummated a tender offer for $174.5 million of our 10.5% senior secured notes due 2002. See "Summary--Refinancing Transactions". In connection with the Refinancing, we will incur nonrecurring expense in the first and second quarters of fiscal 2002 of approximately $221.0 million. On a prospective annual basis, the Refinancing reduces depreciation and amortization expense approximately $4.0 million, but increases rent expense approximately $57.0 million. Interest expense is also expected to decrease due to the Refinancing, earlier debt for equity exchanges and the repayment of debt related to the sale of AdvancePCS investments. Prospective annual interest expense is estimated to be $370 million to $390 million, of which $320 million to $340 million is cash interest expense. 26 Capitalization. The following table sets forth our capitalization at June 30, 2001, following the completion of the refinancing transactions described in "Prospectus Summary--Refinancing Transactions".
As of June 30, 2001 --------------- ($ in millions) Secured Debt: Senior secured credit facility ............................... $1,378 10.50% senior secured notes due 2002 ......................... 22 Capital lease obligations .................................... 227 Other ........................................................ 12 Other Senior Debt: 6.7% notes due 2001 .......................................... 7 6.0% dealer remarketable securities due 2003 ................. 108 6.0% notes due 2005 .......................................... 195 7.625% notes due 2005 ........................................ 198 7.125% notes due 2007 ........................................ 350 6.125% notes due 2008 ........................................ 150 6.875% senior debentures due 2013 ............................ 200 7.7% notes due 2027 .......................................... 300 6.875% debentures due 2028 ................................... 150 11.25% senior notes due 2008 ................................. 150 12.5% senior secured notes due 2006 .......................... 143 Subordinated Debt: 5.25% convertible subordinated notes due 2002 ................ 152 ------ Total debt .................................................. 3,742 Redeemable preferred stock ................................... 19 Stockholders' equity ......................................... 568 ------ Total capitalization ........................................ $4,329 ======
Net Cash Provided By (Used In) Operating, Investing and Financing Activities We used $704.6 million of cash to fund continuing operations in fiscal 2001. Operating cash flow was negatively impacted by $543.3 million of interest payments. Operating cash flow was also negatively impacted from an increase in current assets, primarily resulting from repurchasing $300.0 million of accounts receivable when we refinanced the accounts receivable securitization facility, and a decrease in accounts payable and other liabilities. In fiscal 2000, we used $623.1 million of cash to fund continuing operations. Operating cash flow was negatively impacted by $501.8 million of interest payments. Operating cash flow was also negatively impacted from an increase in current assets and a decrease in accounts payable partially offset by an increase in other liabilities. Cash provided by investing activities was $677.7 million for fiscal 2001. Cash was provided from the sale of our discontinued operations and various other assets, less expenditures for fixed and intangible assets. Cash used for investing activities was $552.1 million and $2.7 billion for fiscal 2000 and fiscal 1999, respectively. Cash used for store construction and relocations amounted to $573.3 million for fiscal 2000 and $1.2 billion for fiscal 1999. In addition, cash of $1.4 billion was used to acquire PCS in fiscal 1999. Cash used in financing activities was $64.3 million for fiscal 2001. The cash used consisted of payments of $78.1 million of deferred financing costs partially offset by net debt borrowings of $6.8 million and proceeds from sale-leaseback transactions of $7.0 million. During fiscal 2001, we used the proceeds from the sale of our PBM segment to reduce our borrowings. 27 Cash provided by financing activities was $905.1 million for fiscal 2000 and $2,660.3 million for fiscal 1999. Increased borrowings under our RCF and PCS credit facilities which replaced our commercial paper program and the sale of $300.0 million of preferred stock were the main financing activities during fiscal 2000. In fiscal 1999, we issued commercial paper to finance the acquisition of PCS. Also during fiscal 1999, net proceeds were received from the issuance of $700.0 million in long-term debt and $200.0 million of dealer remarketable securities. Cash provided by financing activities included proceeds received from store sale-leaseback transactions of $74.9 million and $505.0 million for fiscal 2000 and 1999, respectively. Capital Expenditures We spent approximately $132.5 million, $573.3 million and $1.2 billion in capital expenditures in each of fiscal 2001, fiscal 2000, and fiscal 1999, respectively. In fiscal 2001 our capital expenditures were primarily related to new store construction, store relocation and other store construction projects. We plan to make total capital expenditures of approximately $140.0 million during fiscal 2002, consisting of approximately $34.7 million related to new store construction, store relocation and other store construction projects. An additional $89.2 million will be dedicated to other store improvement activities and the purchase of prescription files from independent pharmacists. Management expects that these capital expenditures will be financed primarily with cash flow from operations and borrowings under the revolving credit facility available under our senior secured facility. Future Liquidity We are highly leveraged. Based upon our current levels of operations and expected improvements in our operating performance, management believes that cash flow from operations, together with available borrowings under our new senior secured credit facility and our other sources of liquidity (including asset sales) will be adequate to meet anticipated requirements for working capital, debt service and capital expenditures for the foreseeable future. However, our ability to meet our obligations will depend in part on our ability to successfully execute our long-term strategy and improve the operating performance of our stores. On June 27, 2001, we closed a series of transactions to refinance a significant portion of our indebtedness, see "Prospectus Summary--Refinancing Transactions". These transactions provide us with additional liquidity and reduce the amount of our indebtedness maturing before 2005. Our indebtedness maturing before 2005 now consists of $152.0 million of our 5.25% convertible subordinated notes due 2002, $107.8 million of 6.00% dealer remarketable securities due 2003 and $21.9 million of our 10.5% senior secured notes due 2002. Funds sufficient to repay the $21.9 million of notes outstanding at maturity are included in our new credit facility. Accounting Change In fiscal 2000, we changed our application of the LIFO method of accounting by restructuring our LIFO pool structure through a combination of certain geographic pools. The reduction in the number of LIFO pools was made to more closely align the LIFO pool structure to store merchandise categories. The effect of this change in fiscal 2000 was to decrease our earnings by $6.8 million (net of income tax benefit of $4.6 million) or $.03 per diluted common share. The cumulative effect of the accounting change was a charge of $27.3 million (net of income tax benefit of $18.2 million) or $.11 per diluted common share. The pro forma effect of this accounting change would have been a reduction in net income of $6.4 million, (net of income tax benefit of $4.2 million) or $.02 per diluted common share for fiscal 1999. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended by SFAS 138, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, will be required to be recorded on the balance sheet at fair value. If the derivative is designated and effective as a fair value hedge, the changes in the fair value of the derivative and 28 the changes in the hedged item attributable to the hedged risk will be recognized in earnings. If the derivative is designated and effective as a cash-flow hedge, changes in the fair value of the effective portion of the derivative will be recorded in other comprehensive income ("OCI") and will be recognized in the income statement when the hedged item affects earnings. SFAS 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value will be recognized in earnings. On March 4, 2001, in connection with the adoption of the new Statement, we will record a reduction of approximately $29.0 million in OCI as a cumulative transition adjustment for derivatives designated as cash flow-type hedges prior to adopting SFAS 133. Certain issues currently under consideration by the Derivatives Implementation Group ("DIG") may make it more difficult to qualify for cash flow hedge accounting in the future. Pending the results of the DIG deliberations, changes in the fair value of our interest rate swaps may be recorded as a component of net income. In June 2001, the Financial Accounting Standards Board ("FASB") issued two new pronouncements: Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 is effective as follows: a) use of the pooling-of-interest method is prohibited for business combinations initiated after June 30, 2001; and b) the provisions of SFAS 141 also apply to all business combinations accounted for by the purchase method that are completed after June 30, 2001 (that is, the date of the acquisition is July 2001 or later). There are also transition provisions that apply to business combinations completed before July 1, 2001, that were accounted for by the purchase method. SFAS 142 is effective for fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized in an entity's statement of financial position at that date, regardless of when those assets were initially recognized. The Company is currently evaluating the provisions of SFAS 141 and SFAS 142 and has not adopted such provisions in its June 2, 2001 condensed consolidated financial statements. Change in Accountants On November 19, 1999, we filed a Current Report on Form 8-K disclosing the resignation of our former auditors, KPMG LLP and the withdrawal of their report on our financial statements. On December 6, 1999, we amended the Form 8-K dated November 19, 1999 to file a letter by KPMG LLP concerning the disclosure in the Form 8-K. On December 10, 1999, we filed a Current Report on Form 8-K to announce that we had retained Deloitte & Touche LLP as our independent auditors. Market Risk Our future earnings, cash flow and fair values relevant to financial instruments are dependent upon prevalent market rates. Market risk is the risk of loss from adverse changes in market prices and interest rates. Our major market risk exposure is changing interest rates. Increases in interest rates would increase our interest expense. Since the end of fiscal 2000, our primary risk exposure has not changed. We enter into debt obligations to support capital expenditures, acquisitions, working capital needs and general corporate purposes. Our policy is to manage interest rates through the use of a combination of variable-rate credit facilities, fixed-rate long-term obligations and derivative transactions. The table below provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal payments and the related weighted average interest rates by expected maturity dates as of March 3, 2001.
Fair Value At March 3, 2002 2003 2004 2005 2006 Thereafter Total 2001 ------ ---------- -------- -------- -------- ---------- ---------- ----------- (dollars in thousands) Long-term debt, including current portion Fixed rate ..................... $8,353 $1,828,874 $188,533 $197,014 $198,439 $1,153,550 $3,574,763 $ 2,824,904 Average Interest Rate .......... 5.91% 9.41% 6.00% 6.06% 7.62% 7.05% Interest Rate Swap ............. -- -- -- -- -- -- -- ($ 29,000) Variable Rate .................. -- $1,219,785 -- -- -- -- $1,219,785 $ 1,219,785 Average Interest Rate .......... -- 9.16% -- -- -- --
In June 2000, we entered into an interest rate swap that fixes the LIBOR component of $500.0 million of our variable-rate debt at 7.083% for a two year period. In July 2000, we entered into an additional interest rate swap that fixes the LIBOR component of an additional $500.0 million of variable rate debt at 6.946% for a two year period. Our ability to satisfy our interest payment obligations on our outstanding debt will depend largely on our future performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service our interest payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy 29 those obligations, our business and results of operations will be materially adversely affected. We cannot assure you that any replacement borrowing or equity financing could be successfully completed. The ratings on the senior secured credit facility, the RCF credit facility, the PCS credit facility and the fixed-rate obligations as of March 31, 2001 were B- by Standard & Poor's and by Caa1 by Moody's. The exchange debt facility was not rated. Immediately prior to the Refinancing, the interest rates on the variable-rate borrowings were as follows: $1.1 billion previous senior credit facility: LIBOR plus 3.00%, the RCF facility: LIBOR plus 3.75%, the PCS and the exchange debt facilities: LIBOR plus 3.25%. The interest rate on the new $1.9 billion senior credit facility is LIBOR plus 3.50%. Downgrades of our credit ratings will not have an impact upon the rate on the borrowings under these credit facilities. Changes in one month LIBOR affect our cost of borrowings because the interest rate on our variable-rate obligations is based on LIBOR. If the market rates of interest for one month LIBOR change by 10% (approximately 50 basis points), our annual interest expense would change by approximately $1.9 million based upon our variable-rate debt outstanding of approximately $378.0 million as of June 30, 2001. A change in interest rates generally does not have an impact upon our future earnings and cash flow for fixed-rate debt instruments. As fixed-rate debt matures, however, and if additional debt is acquired to fund the debt repayment, future earnings and cash flow may be affected by changes in interest rates. This effect would be realized in the periods subsequent to the periods when the debt matures. 30 BUSINESS Overview We are the second largest retail drugstore chain in the United States based on number of stores and the third largest based on revenues. We operate our drugstores in 30 states across the country and in the District of Columbia. We have a first or second place market position, based on revenues, in 34 of the 65 major U.S. metropolitan markets in which we operate. As of June 2, 2001, we operated 3,631 stores, which generated $14.5 billion in revenues during fiscal 2001. Since the beginning of fiscal 1997, we have purchased 1,554 stores, relocated 949 stores, opened 469 new stores and remodeled 410 stores. As a result, we believe we have one of the most modern store bases in the industry. In our stores, we sell prescription drugs and a wide assortment of other merchandise which we call "front-end" products. In fiscal 2001, our pharmacists filled more than 204 million prescriptions which accounted for 59.5% of our total revenues. We believe that our pharmacy operations will continue to represent a significant part of our business due to favorable industry trends, including an aging population, increased life expectancy and the discovery of new and better drug therapies. We offer approximately 24,600 front-end products, including over-the-counter medications, health and beauty aids, personal care items, cosmetics, household items, beverages, convenience foods, greeting cards, photo processing, seasonal merchandise and numerous other everyday and convenience products which accounted for the remaining 40.5% of our total revenues in fiscal 2001. We distinguish our stores from other national chain drugstores, in part, through our private label brands and our strategic alliance with GNC, a leading retailer of vitamin and mineral supplements. We offer over 1,500 products under the Rite Aid private label brand, which contributed approximately 10% of our front-end sales in fiscal 2001. Our stores range in size from approximately 5,000 to 40,000 square feet. The larger stores are concentrated in the western United States. Substantially all of the stores we have opened since 1995 are based on our prototype 12,500 square foot freestanding building and such stores typically include a drive- thru pharmacy and one-hour photo shop and many include a GNC store-within-Rite Aid-store. Until October 2, 2000, when we sold it to Advance Paradigm, Inc. (now AdvancePCS), we owned PCS Health Systems, Inc., a provider of pharmacy benefit management services to employers, insurance carriers and managed care companies. As a result of the sale, the PBM segment is reported as a discontinued operation for all relevant periods in the financial statements included in this offering memorandum. Strategy Our primary long-term operating strategy is to focus on improving the productivity of our existing store base. We believe that improving the sales of existing stores is important to achieving profitability and positive cash flow. We also believe that the substantial investment made in our store base over the last five years has given us one of the most modern stores bases in the industry. However, our store base has not yet achieved a level of sales productivity comparable to our major competitors. We intend to improve the performance of existing stores by continuing to (i) capitalize on the substantial investment in our stores and distribution facilities; (ii) improve the product offerings in our stores; and (iii) enhance our customer and employee relationships. Moreover, it is estimated that pharmacy sales in the United States will increase 75% over the next five years. This anticipated growth is expected to be driven by the "baby boom" generation entering their fifties, the increasing life expectancy of the American population, the introduction of several new successful drugs and inflation. We believe this growth will help increase the sales productivity of our existing store base. To achieve this objective, we are implementing the following strategies: Capitalize on Investments in Stores and Distribution Facilities. Approximately 50% of our stores have been constructed, relocated or remodeled since the beginning of fiscal 1997. Our new and relocated stores are generally larger and need to develop a critical mass of customers to achieve profitability, which generally takes two to four years. Therefore, attracting more customers is a key component of our long-term operating strategy. We continue to attract new customers to our modern stores through various marketing strategies including weekly circulars, seasonal merchandising programs and direct marketing efforts. To support our 31 new store base, we improved our distribution network by, among other things, opening two high capacity distribution centers in Perryman, MD and Lancaster, CA. During fiscal 2001, we undertook several initiatives to increase sales of our Rite Aid brand products and generic prescription drugs. In fiscal 2001, we piloted a program in four markets whereby we reduced pricing of our Rite Aid brand and reduced cash prices of generic pharmacy products which resulted in higher amounts of cash prescriptions being filled. Improve Product Offerings in Our Stores. We continue to develop ideas for new product departments and have begun to implement plans to expand the categories of our front-end products. We continue to add popular and profitable product departments, such as our GNC stores-within-Rite Aid-stores and one-hour photo development departments. Although we are already an industry leader in dispensing generic drugs, which are generally more profitable than brand name drugs, in fiscal 2001 we took additional steps to further improve our generic efficiency, including adding functionality to our proprietary Rite Aid Dispensing System to aid our pharmacists in dispensing generic prescriptions whenever possible. As private label and generic prescription drugs generate higher margins than branded label, we expect that increases in the sales of these products should enhance our profitability. We continue to improve inventory and product categories to offer more personalized products and services to our customers, including better management of seasonal items. We also continue to strengthen our relationships with our suppliers in order to offer customers a wider selection of products. Enhance Customer and Employee Relationships. We have implemented programs designed to improve relationships with customers and improve employee morale. Through attention to customers' needs and preferences, we are increasing our efforts to offer more personalized products and services to our customers. We are continuing programs that are designed to build awareness and enhance positive perceptions among customers, including distribution of a weekly circular, weekly sales items, seasonally relevant merchandising and our customer reward program, "Rite Rewards." We are increasing customer loyalty by establishing a strong community presence, increasing promotional themes and exclusive offers and focusing on the attraction and retention of managed care customers. We continue to develop and implement employee training programs to improve customer service and educate our employees about the products we offer. We are also developing employee programs that create compensatory and other incentives for employees to provide customers with quality service, to promote our private label brands and to improve our corporate culture. Description of our Business Products and Services. During fiscal 2001, sales of prescription drugs represented approximately 59.5% of our total revenues up from 54.2% in fiscal 1999. In fiscal 2001, fiscal 2000 and fiscal 1999, prescription drug revenues were $8.6 billion, $7.8 billion and $6.7 billion, respectively, of our revenues. We sell approximately 24,600 different types of non-prescription, or front-end, products. The types and numbers of front-end products in each store vary, and selections are based on available space and customers' needs and preferences. No single front-end product category contributed significantly to our revenues during fiscal 2001 although certain front-end product classes contributed notably to our revenues. Our principal classes of products in fiscal 2001 were the following:
Percentage of Product Class Revenues ------------- ------------- Prescription drugs ............................................. 59.5% Over-the-counter and personal care ............................. 10.9 Health and beauty aids ......................................... 5.8 General merchandise and other .................................. 23.8
We offer over 1,500 products under the Rite Aid private label brand, which contributed approximately 10.0% of our front-end sales in fiscal 2001. During fiscal 2001, we added 159 products under our private label. We intend to increase the number and the sales of our private label brand products. 32 We have a strategic alliance with GNC under which we have agreed to open a minimum of 1,000 GNC "stores-within-Rite Aid-stores" across the country by July 2003. GNC is a leading nationwide retailer of vitamin and mineral supplements and personal care, fitness and other health-related products. As of March 3, 2001, we operated 605 GNC stores-within-Rite Aid-stores. We plan to open 220 GNC stores-within-Rite Aid-stores during fiscal 2002. Store Locations. Part of our strategy is to locate our stores at convenient locations in fast-growing metropolitan areas. As of March 3, 2001, we had a first or second place market position in 34 of the 65 major U.S. metropolitan markets in which we operate. We have significantly reduced our store development program in order to focus our efforts and resources on improving the operations of our existing store base. Consistent with our operating strategy, during fiscal 2001, we opened 9 new stores, relocated 63 stores, remodeled 98 stores and closed 163 stores. Our current plan for fiscal 2002 is to open approximately 6 new stores, relocate 25 stores and remodel 76 stores. Our fiscal 2002 planned store openings and relocations are not concentrated in any specific geographic region. The table below identifies the number of stores by state as of June 2, 2001:
State Store Count ----- ----------- Alabama .......................................................... 129 Arizona .......................................................... 3 California ....................................................... 599 Colorado ......................................................... 31 Connecticut ...................................................... 44 Delaware ......................................................... 26 District of Columbia ............................................. 8 Georgia .......................................................... 52 Idaho ............................................................ 22 Indiana .......................................................... 8 Kentucky ......................................................... 123 Louisiana ........................................................ 96 Maine ............................................................ 82 Maryland ......................................................... 154 Michigan ......................................................... 344 Mississippi ...................................................... 32 Nevada ........................................................... 37 New Hampshire .................................................... 39 New Jersey ....................................................... 174 New York ......................................................... 404 Ohio ............................................................. 278 Oregon ........................................................... 72 Pennsylvania ..................................................... 368 Tennessee ........................................................ 51 Texas ............................................................ 5 Utah ............................................................. 30 Vermont .......................................................... 13 Virginia ......................................................... 159 Washington ....................................................... 138 West Virginia .................................................... 109 Wyoming .......................................................... 1 ----- Total ........................................................ 3,631 =====
Technology. All of our stores are integrated into a common information system, which enables our pharmacists to fill prescriptions more accurately and efficiently with reduced chances of adverse drug interaction and which can be expanded to accommodate new stores. As of March 3, 2001, we had installed ScriptPro automated pharmacy dispensing units which are linked to our pharmacists' computers and fill and 33 label prescription drug orders in 871 stores. The efficiency of the ScriptPro units allows our pharmacists to spend an increased amount of time consulting with customers. In fiscal 2001, we developed and implemented several new technologies and applications, including productivity improvements related to our piece picking and inventory movement management. We also made modifications to our proprietary pharmacy information system in order to improve its user interface and information output. Additionally, each of our stores employs point-of-sale technology that facilitates inventory replenishment, sales analysis and recognition of customer trends. Our customers may also order prescription refills over the Internet through drugstore.com or over the phone through our telephonic rapid automated refill systems. Suppliers. During fiscal 2001, we purchased approximately 93% of the dollar volume of our prescription drugs from a single supplier, McKesson HBOC, Inc., under a contract which runs until April 2004. Under the contract, McKesson HBOC has agreed to sell to us all of our requirements of branded pharmaceutical products. With limited exceptions, we are required to purchase all of our branded pharmaceutical products from McKesson HBOC. If our relationship with McKesson HBOC was disrupted, we could have difficulty filling prescriptions, which would negatively affect our business. We purchase generic (non-brand name) pharmaceuticals from a variety of sources. We purchase our non-pharmaceutical merchandise from numerous manufacturers and wholesalers. We believe that competitive sources are readily available for substantially all of the non-pharmaceutical merchandise we carry and that the loss of any one supplier would not have a material effect on our business. In fiscal 1999 and fiscal 2000 disputes arose between us and some of our major vendors which weakened our relationships. During fiscal 2001, we made significant efforts to resolve prior issues and disputes and to improve our relationships with our suppliers and vendors and we believe these efforts have been successful. We sell private label and co-branded products that generally are supplied by numerous competitive sources. The Rite Aid and GNC co-branded PharmAssure vitamin and mineral supplement products and the GNC branded vitamin and mineral supplement products that we sell in our stores are developed by GNC, and along with our Rite Aid brand vitamin and mineral supplements, are manufactured by GNC. Customers and Third-Party Payors. During fiscal 2001, our stores served an average of 1.9 million customers per day as compared to an average of 1.8 million customers per day in fiscal 2000. The loss of any one customer would not have a material adverse impact on our results of operations. No single customer or health plan contract accounted for more than 10% of our total revenues. In a typical third-party payment plan, we contract with a third-party payor (such as an insurance company, a prescription benefit management company, a governmental agency, a private employer, a health maintenance organization or other managed care provider) that agrees to pay for all or a portion of a customer's eligible prescription purchases in exchange for reduced prescription rates. During fiscal 2001, the top five third-party payors accounted for approximately 26.4% of our total revenues, the largest of which represented 10.8% of our total revenues. Any significant loss of third-party payor business could have a material adverse effect on our business and results of operations. Competition The retail drugstore industry is highly competitive. We compete with, among others, retail drugstore chains, independently owned drugstores, mass merchandisers, discount stores and mail order pharmacies. We compete on the basis of location and convenient access, customer service, product selection and price. Our store base has not achieved the level of sales productivity our major competitors achieve. Our new and relocated stores are generally larger and need to develop a critical mass of customers to achieve profitability, which generally takes two to four years. Although in the recent past we have had problems with inventory shortages, uncompetitive pricing and customer service, we have taken and are taking steps to address these issues. Our major competitors among retail drugstore chains are CVS and Walgreens. We believe continued consolidation of the drugstore industry will further increase competitive pressures in the industry. Marketing and Advertising In fiscal 2001, marketing and advertising expenditures were $214.9 million, which was spent primarily on newpaper advertising circulars. We have initiated various programs that are designed to improve our 34 image with customers. These include our distribution of weekly circulars to announce vendor promotions, weekly sales items and, in our expanded test market, our customer reward program, "Rite Rewards." We continue to develop and test direct marketing initiatives with a goal of expanding such initiatives to all of our stores. In addition, in fiscal 2001, in order to improve our image, we implemented several consumer events, including our Rite Aid Health and Beauty Expos held in New Orleans, Louisiana and in Seattle, Washington. Our front-end and prescription suppliers were invited to participate in both of these events by displaying, demonstrating and sampling their products and services in exhibit booths. We have also initiated programs that are specifically directed to our pharmacy business. These include reduced cash prices and an increased focus on attracting and retaining managed care customers. Employees We believe that our relationships with our employees are good. As of March 3, 2001, we had 75,500 employees, approximately 9,000 of which were pharmacists. Approximately 47% of our employees were part-time and approximately 26,400 were unionized. There is a national shortage of pharmacists. Our management is implementing various employee incentive plans in order to attract and retain qualified pharmacists. Research and Development We do not make significant expenditures for research and development. Licenses, Trademarks and Patents The Rite Aid name is our most significant trademark and the most important factor in marketing our stores and private label products. We hold licenses to sell beer, wine and liquor, cigarettes and lottery tickets. Additionally, we hold licenses granted to us by the Nevada Gaming Commission that allow us to place slot machines in our Nevada stores. We also hold licenses to operate our pharmacies and our distribution facilities. Together, these licenses are material to our operations. Regulation Our business is subject to various federal and state regulations. For example, pursuant to the Omnibus Budget Reconciliation Act of 1990 ("OBRA") and comparable state regulations, our pharmacists are required to offer counseling, without additional charge, to our customers about medication, dosage, delivery systems, common side effects and other information deemed significant by the pharmacists and may have a duty to warn customers regarding any potential adverse effects of a prescription drug if the warning could reduce or negate such effect. Our pharmacies and pharmacists must be licensed by the appropriate state boards of pharmacy. Our pharmacies and distribution centers are also registered with the federal Drug Enforcement Administration and are subject to federal Drug Enforcement Agency regulations relative to its pharmacy operations, including purchasing, storing and dispensing of controlled substances. Applicable licensing and registration regulations require our compliance with various state statutes, rules and/or regulations. Violations of applicable statutes, rules or regulations could result in the suspension or revocation of our licenses and registrations. In recent years, an increasing number of legislative proposals have been introduced or proposed in Congress and in some state legislatures that would effect major changes in the healthcare system, either nationally or at the state level. The legislative initiatives include prescription drug benefit proposals for Medicare participants. Although we believe we are well positioned to respond to these developments, we cannot predict the outcome or effect of legislation resulting from these reform efforts. Also, in recent years, both federal and state authorities have proposed and have passed new legislation that imposes on healthcare providers, including pharmacies, significant additional obligations concerning the protection of confidential patient medical records and information. We are also subject to laws governing our relationship with employees, including minimum wage requirements, overtime and working conditions. Increases in the federal minimum wage rate, employee benefit costs or other costs associated with employees could adversely affect our results of operations. 35 In addition, in connection with the ownership and operation of our stores, distribution centers and other sites, we are subject to laws and regulations relating to the protection of the environment and health and safety matters, including those governing the management and disposal of hazardous substances and the cleanup of contaminated sites. Violations of or liabilities under these laws and regulations as a result of our current or former operations or historical activities at our sites, such as gasoline service stations and dry cleaners, could result in significant costs. PBM Segment On October 2, 2000, we consummated the sale of PCS to Advance Paradigm (now known as AdvancePCS) for $710.5 million in cash, equity securities of AdvancePCS and AdvancePCS's $200.0 million 11% promissory notes. In March 2001, we sold the AdvancePCS equity securities in an underwritten public offering for a total of $284.1 million (net of selling commissions) and AdvancePCS paid the promissory note in full plus accrued and unpaid interest. We applied $1,093.5 million of the proceeds from the sale of PCS to reduce our debt. We recorded a loss on disposal of $168.8 million in fiscal 2001 as a result of the sale. Properties We own our corporate headquarters, which are located in a 205,000 square- foot building at 30 Hunter Lane, Camp Hill, Pennsylvania 17011. We lease a 99,000 square-foot building near Harrisburg, Pennsylvania for use by additional administrative personnel. We lease 3,358 of our drugstore facilities under non-cancelable leases, many of which have original terms of 10 to 22 years. In addition to minimum rental payments, which are set at competitive market rates, certain leases require additional payments based on sales volume, as well as reimbursement for taxes, maintenance and insurance. Most of our leases contain renewal options, some of which involve rent increases. As of June 2, 2001, we operated 3,631 retail drugstores. The overall average size of each store in our chain is 12,663 square feet. The stores on the east coast average 9,502 square feet per store. The west coast stores average 20,802 square feet per store. The central stores average 10,323 square feet per store. We operate the following distribution centers and overflow storage locations, which we own or lease as indicated:
Approximate Owned or Square Location Leased Footage -------- -------- ----------- Rome, New York ....................................... Owned 291,000 Rome, New York (1) ................................... Leased 71,400 Utica, New York (1) .................................. Leased 115,000 Poca, West Virginia .................................. Owned 264,000 Dunbar, West Virginia (1) ............................ Leased 61,000 South Nitro, West Virginia (1) ....................... Leased 50,000 Perryman, Maryland ................................... Leased 885,000 Tuscaloosa, Alabama .................................. Owned 238,000 Tuscaloosa, Alabama (1) .............................. Leased 27,000 Cottondale, Alabama (1) .............................. Leased 125,000 Pontiac, Michigan .................................... Owned 362,000 Woodland, California ................................. Owned 521,300 Woodland, California (1) ............................. Leased 200,000 Wilsonville, Oregon .................................. Leased 518,000 Lancaster, California ................................ Leased 917,000
- --------------- (1) Overflow storage locations. The original terms of the leases for our distribution centers range from 5 to 22 years. In addition to minimum rental payments, certain distribution centers require tax reimbursement, maintenance and insurance. Most leases contain renewal options, some of which involve rent increases. Although, from time to time, we 36 may be near capacity at some of our distribution facilities, particularly our older facilities, we believe that the capacity of our facilities is adequate. As part of our ongoing efforts to improve our supply chain, we are studying ways to optimize capacity utilization and management of our facilities. We also own a 52,200 square-foot ice cream manufacturing facility located in El Monte, California. On a regular basis and as part of our normal business, we evaluate store performance and may reduce in size, close or relocate a store if the store is redundant, under-performing or otherwise deemed unsuitable. When we reduce in size, close or relocate a store, we often continue to have leasing obligations or own the property, but we attempt to sublease the space. As of March 3, 2001, we subleased 5,558,000 square feet of space and an additional 4,019,000 square feet of space in closed or relocated stores was not subleased. Legal Proceedings Federal Investigations There are currently pending federal governmental investigations, both civil and criminal, by the SEC and the United States Attorney, involving our financial reporting and other matters. We are cooperating fully with the SEC and the United States Attorney. We have begun settlement discussions with the United States Attorney for the Middle District of Pennsylvania. The United States Attorney has proposed that the government would not institute any criminal proceeding against the company if we enter into a consent judgment providing for a civil penalty payable over a period of years. The amount of the civil penalty has not been agreed to and there can be no assurance that a settlement will be reached or that the amount of such penalty will not have a material adverse effect on our financial condition and result of operations. The U.S. Department of Labor has commenced an investigation of matters relating to our employee benefit plans, including our principal 401(k) plan, which permitted employees to purchase our common stock. Purchases of our common stock under the plan were suspended in October 1999. In January 2001, we appointed an independent trustee to represent the interests of these plans in relation to us and to investigate possible claims the plans may have against us. Both the independent trustee and the Department of Labor have asserted that the plans may have claims against us. The investigations, with which we are cooperating fully, are ongoing and we cannot predict their outcomes. In addition, a purported class action lawsuit on behalf of the plans and their participants has been filed by a participant in the plans in the United States District Court for the Eastern District of Pennsylvania. These investigations and settlement discussions are ongoing and we cannot predict their outcomes. If we were convicted of any crime, certain licenses and government contracts such as Medicaid plan reimbursement agreements that are material to our operations may be revoked, which would have a material adverse effect on our results of operations and financial condition. In addition, substantial penalties, damages or other monetary remedies assessed against us, including a settlement, could also have a material adverse effect on our results of operations, financial condition and cash flows. Stockholder Litigation We, certain of our directors, our former chief executive officer Martin Grass, our former president Timothy Noonan, our former chief financial officer Frank Bergonzi, and our former auditor KPMG LLP, have been sued in a number of actions, most of which purport to be class actions, brought on behalf of stockholders who purchased our securities on the open market between May 2, 1997 and November 10, 1999. Most of the complainus asserted claims under Sections 10 and 20 of the Securities Exchange Act of 1934, based upon the allegation that our financial statements for fiscal 1997, fiscal 1998 and fiscal 1999 fraudulently misrepresented our financial position and results of operation for those periods. All of these cases have been consolidated in the U.S. District Court for the Eastern District of Pennsylvania. On November 9, 2000, we announced that we had reached an agreement to settle the consolidated securities class action lawsuits pending against us in the U.S. District Court for the Eastern District of Pennsylvania and the derivative lawsuits pending there and in the Delaware Court of Chancery. Under the agreement, which has been submitted to the U.S. District Court for the Eastern District of Pennsylvania for approval, we will pay $45.0 million in cash, which will be fully funded by our officers' and directors' liability insurance, and issue shares of common stock in 2002. The shares will be valued over a 10 day trading period in January 2002. If the 37 value determined is at least $7.75 per share, we will issue 20 million shares. If the value determined is less than $7.75 per share, we have the option to deliver any combination of common stock, cash and short-term notes, with a total value of $155.0 million. As additional consideration for the settlement, we have assigned to the plaintiffs all of our claims against the above named executives and KPMG LLP. Several members of the class have elected to "opt- out" of the class and, as a result, if the settlement is approved by the court, they will be free to individually pursue their claims. Management believes that their claims, individually and in the aggregate, are not material. On June 8, 2001, the court issued a ruling indicating that it was prepared to approve the settlement if certain technical changes were made in the order that the plaintiffs and settling defendants requested be issued by the court. We have worked with the plaintiffs to modify the requested order and resubmitted it for court approval. We anticipate that the nonsettling defendants will appeal any approved order. We cannot predict the outcome of any such appeal or whether, if the settlement does not become final, this litigation would result in a material adverse effect on our results of operations, financial condition or cash flows. A purported class action has been instituted by a stockholder against us in Delaware state court on behalf of stockholders who purchased shares of our common stock prior to May 2, 1997, and who continued to hold them after November 10, 1999, alleging claims similar to the claims alleged in the consolidated securities class action lawsuits described above. The amount of damages sought was not specified and may be material. We have filed a motion to dismiss this claim which is pending before the court. These claims are ongoing and we cannot predict their outcome. Drug Pricing and Reimbursement Matters On October 5, 2000, we settled, for an immaterial amount, and without admitting any violation of the law, the lawsuit filed by the Florida Attorney General alleging that our non-uniform pricing policy for cash prescription purchases was unlawful under Florida law. The filing of the complaint by the Florida Attorney General, and our press release issued in conjunction therewith, precipitated an investigation by the New Jersey Attorney General which is ongoing and the filing of a purported federal class action in California and several purported state class actions, all of which (other than those pending in New York that were filed on October 5, 1999 and those pending in California that were filed on January 3, 2000) have been dismissed. A motion to dismiss the action in New York is currently pending and the plaintiffs in the California action have agreed to a voluntary dismissal of their complaint. On May 30, 2001, a complaint filed in New Jersey in which the plaintiff made similar allegation and which the trial court dismissed for failing to state a claim upon which relief could be based was reinstated by the appellate court. We believe that the remaining lawsuits are without merit under applicable state consumer protection laws. As a result, we intend to continue to vigorously defend against them and we do not anticipate that if fully adjudicated, they will result in an award of damages. However, such outcomes cannot be assured and a ruling against us could have a material adverse effect on the financial position and results of operations of the company as well as necessitate substantial additional expenditures to cover legal costs as we pursue all available defenses. We are being investigated by multiple state attorneys general for our reimbursement practices relating to partially-filled prescriptions and fully- filled prescriptions that are not picked up by ordering customers. We are supplying similar information with respect to these matters to the Department of Justice. We believe that these investigations are similar to investigations which were, and are being, undertaken with respect to the practices of others in the retail drug industry. We also believe that our existing policies and procedures fully comply with the requirements of applicable law and intend to fully cooperate with these investigations. We cannot, however, predict their outcomes at this time. An individual acting on behalf of the United States of America, has filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania under the Federal False Claims Act alleging that we defrauded federal healthcare plans by failing to appropriately issue refunds for partially filled prescriptions and prescriptions which were not picked up by customers. The Department of Justice has advised the court that it intends to join this lawsuit, as is its right under the law; its investigation is continuing. We have filed a motion to dismiss the complaint for failure to state a claim. 38 These claims are ongoing and we cannot predict their outcome. If any of these cases result in a substantial monetary judgment against us or is settled on unfavorable terms, our results of operations, financial position and cash flows could be materially adversely affected. Store Management Overtime Litigation We are a defendant in a class action pending in the California Superior Court in San Diego with three subclasses, comprised of our California store managers, assistant managers and managers-in-training. The plaintiffs seek back pay for overtime not paid to them and injunctive relief to require us to treat our store management as non-exempt. They allege that we decided to minimize labor costs by causing managers, assistant managers and managers-in- training to perform the duties and functions of associates for in excess of forty hours per week without paying them overtime. We believe that in-store management were and are properly classified as exempt from the overtime provisions of California law. On May 21, 2001, we entered into a Memorandum of Agreement with the plaintiffs under which, subject to approval of the court, we will settle this lawsuit for a maximum of $25.0 million, a charge for which was taken in fiscal 2000. The settlement amount is payable in four equal installments of 25%, the first of which is payable upon final court approval of the settlement and the balance is payable 6, 12 and 18 months thereafter. On June 1, 2001, the court entered an order granting preliminary approval of the settlement and authorizing notice to the class. Other We, together with a significant number of major U.S. retailers, have been sued by the Lemelson Foundation in a complaint which alleges that portions of the technology included in our point-of-sale system infringe upon a patent held by the plaintiffs. The amount of damages sought is unspecified and may be material. We cannot predict the outcome of this litigation or whether it could result in a material adverse effect on our results of operations, financial conditions or cash flows. We are subject from time to time to lawsuits arising in the ordinary course of business. In the opinion of our management, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve amounts that would not have a material adverse effect on our financial condition, results of operations or cash flows if decided adversely. 39 MANAGEMENT The following table sets forth certain information regarding our directors, executive officers and key employees as of June 30, 2001.
Name Age Office and Position ---- --- ------------------- Robert G. Miller....................... 57 Chairman and Chief Executive Officer Mary F. Sammons........................ 54 Director, President and Chief Operating Officer David R. Jessick....................... 47 Senior Executive Vice President and Chief Administrative Officer Elliot S. Gerson....................... 59 Senior Executive Vice President and General Counsel John T. Standley....................... 38 Senior Executive Vice President and Chief Financial Officer James P. Mastrian...................... 58 Senior Executive Vice President -- Marketing and Logistics Christopher Hall....................... 36 Executive Vice President Finance and Accounting Mark Panzer............................ 44 Executive Vice President, Store Operations Eric Sorkin............................ 52 Executive Vice President Pharmacy Services Kevin Twomey........................... 51 Senior Vice President and Chief Accounting Officer Robert B. Sari......................... 45 Senior Vice President, Deputy General Counsel and Secretary William J. Bratton..................... 53 Director Alfred M. Gleason...................... 71 Director Leonard I. Green....................... 67 Director Nancy A. Lieberman..................... 44 Director Stuart M. Sloan........................ 57 Director Jonathan D. Sokoloff................... 43 Director Leonard N. Stern....................... 63 Director
Robert G. Miller. Mr. Miller has been our Chairman and Chief Executive Officer since December 5, 1999. Previously, Mr. Miller served as Vice Chairman and Chief Operating Officer of The Kroger Company, a retail food company. Mr. Miller joined Kroger in May 1999, when The Kroger Company acquired Fred Meyer, Inc., a food, drug and general merchandise chain. From 1991 until the acquisition, he served as Chief Executive Officer of Fred Meyer, Inc. Mr. Miller also serves as a director of Harrah Entertainment, Inc., PathMark Stores, Inc. and AdvancePCS. Mary F. Sammons. Ms. Sammons has been our President and Chief Operating Officer and a member of our Board of Directors since December 5, 1999. From April 1999 to December 1999, Ms. Sammons served as President and Chief Executive Officer of Fred Meyer Stores, Inc., a subsidiary of The Kroger Company. From January 1998 to April 1999, Ms. Sammons served as President and Chief Executive Officer of Fred Meyer Stores, Inc., a subsidiary of Fred Meyer, Inc. From 1985 through 1997, Ms. Sammons held several senior level positions with Fred Meyer Inc., the last being that of Executive Vice President. Ms. Sammons is also a director of drugstore.com and of the National Association of Chain Drugstores. David R. Jessick. Mr. Jessick has been our Senior Executive Vice President and our Chief Administrative Officer since December 5, 1999. From 1997 to July 1999, Mr. Jessick served as Executive Vice President of Finance and Investor Relations of Fred Meyer, Inc. From 1979 to 1997, Mr. Jessick held several senior management positions at Thrifty PayLess Holdings, Inc., a west coast- based drugstore chain that had annual sales of $5.0 billion before being acquired by Rite Aid in 1996. Mr. Jessick was Executive Vice President and Chief Financial Officer of Thrifty PayLess Holdings, Inc. before Thrifty PayLess was acquired by Rite Aid. Mr. Jessick serves as a Director of AdvancePCS. Elliot S. Gerson. Mr. Gerson is a Senior Executive Vice President and our General Counsel. He has held those positions since October 1999 and July 1997, respectively. Mr. Gerson also served as our Secretary 40 from July 1997 to May 2000. Mr. Gerson joined Rite Aid in November 1995 as Senior Vice President and Assistant Chief Legal Counsel. Prior to joining Rite Aid, Mr. Gerson was a partner in the law firm of Bolger, Picker, Hankin & Tannenbaum from May 1993 to November 1995. John T. Standley. Mr. Standley was appointed as a Senior Executive Vice President and our Chief Financial Officer in September 2000. He had been an Executive Vice President and our Chief Financial Officer since December 5, 1999. Previously, he was Executive Vice President and Chief Financial Officer of Fleming Companies, Inc., a food marketing and distribution company from May 1999 to December 1999. Between July 1998 and May 1999, Mr. Standley was Senior Vice President and Chief Financial Officer of Fred Meyer, Inc. Mr. Standley served as Chief Financial Officer of Ralphs Grocery Company between January 1997 and July 1998 and of Food 4 Less between January 1997 to July 1998. Mr. Standley also served in an executive position at Smith's Food & Drug from May 1996 to February of 1997 and as Chief Financial Officer of Smitty's Supervalue, Inc. from December 1994 to May 1996. James P. Mastrian. Mr. Mastrian was appointed as our Senior Executive Vice President, Marketing and Logistics in October 2000. He had been our Executive Vice President, Marketing since November 15, 1999. Mr. Mastrian was also our Executive Vice President, Category Management from July 1998 to November 1999. Mr. Mastrian was Senior Executive Vice President, Merchandising and Marketing of OfficeMax from June 1997 to July 1998 and Executive Vice President, Marketing of Revco D.S., Inc. from September 1990 to June 1997. Christopher Hall. Mr. Hall has been our Executive Vice President Finance and Accounting since January 10, 2001. Prior to that, he served as our Senior Vice President and Chief Accounting Officer from January 25, 2000. From April 1999 to January 2000, Mr. Hall was Executive Vice President and Chief Financial Officer at Golden State Foods. Between July 1998 and March 1999, Mr. Hall served as Senior Vice President of Finance at Ralphs Grocery Company. Mr. Hall joined Ralphs Grocery as Vice President of Accounting in June 1995. Mark Panzer. Mr. Panzer joined us on June 28, 2001 as Executive Vice President, Store Operations. From 1989 until joining us, Mr. Panzer held several operations and marketing positions of increasing responsibility at Albertson's and predecessor companies acquired by Albertson's. Mr. Panzer was Corporate Vice President of Marketing and Sales, General Merchandise at Albertson's at the time of his departure. Eric Sorkin. Mr. Sorkin has been our Executive Vice President, Pharmacy Services since February 2001. From February 2000 to February 2001 he served as our Senior Vice President, Pharmacy, and from May 1997 to February 2000 he served as our Vice President, Pharmacy Purchasing. Prior to rejoining Rite Aid in 1997, Mr. Sorkin served in senior positions at Express Scripts, Pathmark, Thrifty Drugs and Pharmacy Direct Network, and as President of Sorkin Consulting. In his first 19 years with Rite Aid, he held executive positions in operations, personnel, third party, information systems and pharmacy services. Mr. Sorkin has served on pharmacy benefit management, H.M.O. and pharmaceutical manufacturer advisory panels, and on national and state healthcare and government affairs committees. Kevin Twomey. Mr. Twomey has been our Senior Vice President and Chief Accounting Officer since December 2000. From September 1989 to November 2000, Mr. Twomey held several accounting and finance management positions at Fleming Companies, Inc., a food wholesaler and grocery store chain. He was Senior Vice President and Chief Accounting Officer at Fleming when he left. Prior to joining Fleming, he was an audit partner at Deloitte & Touche. Robert B. Sari. Mr. Sari has been our Senior Vice President, Deputy General Counsel and Secretary since October 2000. From May 2000 to October 2000, he served as our Deputy General Counsel and Secretary. Mr. Sari also served as Vice President, Law from May 2000 to October 2000 and as Associate General Counsel from May 1997 to May 2000. Prior to May 1997, Mr. Sari was Vice President, Legal Affairs for Thrifty PayLess, Inc. William J. Bratton. Mr. Bratton has served as a director since 1997. Prior to August 2000, when Mr. Bratton became President of Bratton Group LLC, which provides criminal justice consulting services, he was a self-employed criminal justice consultant. From January 1998 to March 2000, Mr. Bratton was President and Chief Operating Officer of Carco Group, Inc., a provider of employment background screening services. 41 From April 1996 through 1997, he was Vice Chairman of First Security Services Corporation and President of its subsidiary, First Security Consulting, Inc. Mr. Bratton was Police Commissioner of the City of New York from 1994 through April 1996. Alfred M. Gleason. Mr. Gleason has served as a director since January 2000. Mr. Gleason is currently a self-employed consultant. Mr. Gleason served as the President of the Port of Portland Commission in Portland, Oregon, from October 1995 until June 1999. From 1985 until 1995, Mr. Gleason held several positions with PacifiCorp, including Chief Executive Officer, President and Director. Mr. Gleason served as a Director of Fred Meyer, Inc. until June 1999. Leonard I. Green. Mr. Green has served as a director since 1999. Mr. Green has been an executive officer of Leonard Green & Partners, L.P., an affiliate of Green Equity Investors III, L.P., since its formation in 1994. Mr. Green has also been, individually or through a corporation, a partner in a merchant banking firm affiliated with Leonard Green & Partners, L.P., since its inception in 1989. Mr. Green is also a director of Communications & Power Industries, Inc., Liberty Group Publishing, Inc. and Dollar Financial Group, Inc. Mr. Green was elected as a director pursuant to the October 1999 agreement of Green Equity Investors III, L.P. to purchase 3,000,000 shares of preferred stock of Rite Aid. Nancy A. Lieberman. Ms. Lieberman has served as a director since 1996. Ms. Lieberman has been a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP since 1987. Skadden, Arps, Slate, Meagher & Flom LLP provides legal services to Rite Aid. Stuart M. Sloan. Mr. Sloan has served as a director since June 2000. Mr. Sloan has been a principal of Sloan Capital Companies, a private investment company since 1984. Mr. Sloan was also the Chairman of the Board from 1986 to 1998 and the Chief Executive Officer from 1991 to 1996 of Quality Food Centers, Inc., a supermarket chain. He currently serves on the board of directors of Anixter International Inc. Jonathan D. Sokoloff. Mr. Sokoloff has served as a director since 1999. Mr. Sokoloff has been an executive officer of Leonard Green & Partners, L.P., an affiliate of Green Equity Investors III, L.P. since its formation in 1994. Since 1990, Mr. Sokoloff has also been a partner in a merchant banking firm affiliated with Leonard Green & Partners, L.P. Mr. Sokoloff is also a director of Twinlab Corporation, Diamond Triumph Auto Glass, Inc., Dollar Financial Group, Inc. and Gart Sports Company. Mr. Sokoloff was elected as a director pursuant to the October 1999 agreement of Green Equity Investors III, L.P. to purchase 3,000,000 shares of preferred stock of Rite Aid. Leonard N. Stern. Mr. Stern has served as a director since 1986. Mr. Stern is Chairman of the Board and Chief Executive Officer of The Hartz Group, Inc. and affiliated companies, a position he has held since 1970. These companies are engaged in the businesses of the manufacture and sale of pet supplies, ownership and operation of hotels, real estate development and investing. Rite Aid purchases pet supplies from The Hartz Mountain Corporation, Inc., which was owned by the Hartz Group, Inc. until December 31, 2000. Mr. Stern is also a director of Homes for the Homeless, a nonprofit organization. 42 Executive Officer Compensation The following table provides a summary of compensation paid during the last three fiscal years to our current chief executive officer and the four most highly compensated executive officers who were serving as executive officers at the end of fiscal 2001. Summary Compensation Table
Annual Compensation Long-Term Compensation --------------------------------------- ---------------------------------- Securities Underlying Restricted Option All Other Name and Principal Other Annual Stock Grants/ LTIP Compensation Position Fiscal Year Salary (1) Bonus Compensation Awards (2) SARs Payouts (3) - ------------------ ----------- ---------- ---------- ------------ ---------- ---------- ------- ------------ Robert G. Miller .... 2001 $1,398,654 $1,268,991 $111,100(4) $6,248,438(5) 8,700,000(14) $-- $ -- Chairman & Chief Executive Officer 2000 328,462 -- -- 4,950,000(6) 3,000,000(15) -- 600,000(21) Mary F. Sammons ..... 2001 1,013,654 768,930 -- 5,092,186(7) 6,550,000(16) -- 1,447 Director, President & Chief Operating 2000 203,076 -- -- 1,650,000(8) 2,000,000(15) -- 200,000(22) Officer David R. Jessick .... 2001 731,538 575,192 -- 2,734,946(9) 4,025,000(17) -- 609 Senior Executive Vice President & 2000 158,461 -- -- 825,000(10) 1,000,000(15) -- 150,000(23) Chief Administrative Officer Elliot S. Gerson .... 2001 511,982 341,106 -- 128,125(11) 491,278(18) -- 2,245 Senior Executive Vice President & 2000 408,393 100,000 -- -- 535,000(19) -- -- General Counsel 1999 375,000 -- -- -- 75,000 -- -- John T. Standley .... 2001 675,769 528,317 -- 2,734,946(12) 4,025,000(20) -- 85,708 Senior Executive Vice President and 2000 135,385 -- -- 825,000(13) 1,000,000(15) -- 150,000(24) Chief Financial Officer
- --------------- (1) Mr. Miller, Ms. Sammons, Mr. Jessick and Mr. Standley commenced employment with us on December 5, 1999. Salary amounts for Mr. Miller, Ms. Sammons, Mr. Jessick and Mr. Standley include amounts contributed by us to each such executive officer's account under our special deferred compensation plan. (2) Each named executive officer has the right to vote the shares of restricted stock and to receive any dividends paid on such shares. (3) "All Other Compensation" includes the following for 2001: For Ms. Sammons, $1,447 in supplemental life insurance premiums paid by us. For Mr. Jessick, $609 in supplemental life insurance premiums paid by us. For Mr. Gerson, $2,245 in supplemental life insurance premiums paid by us. For Mr. Standley, $85,617 in moving expenses and $91 in supplemental life insurance premiums paid by us. (4) Includes $100,424 Mr. Miller received as gross up to cover taxes on restricted stock granted to him in December 1999 when he commenced employment. (5) On June 15, 2000, Mr. Miller was awarded 600,000 shares of restricted common stock; restrictions on 240,000 shares lapse on June 15, 2001, and restrictions on 120,000 shares lapse on each of December 15, 2001, June 15, 2002 and December 15, 2002. On November 29, 2000, Mr. Miller was awarded 75,000 shares of restricted common stock; restrictions on 9,375 shares lapse ratably on a quarterly basis from March 3, 2001 through June 1, 2002, and restrictions on 9,375 shares lapse on each of August 31, 2002 and November 30, 2002. On January 10, 2001, Mr. Miller was awarded 409,091 shares of restricted common stock; restrictions on 163,637 shares will lapse on June 15, 2001, and restrictions on 81,818 shares will lapse on each of December 15, 2001, June 15, 2002 and December 15, 2002. At the end of fiscal year 2001, Mr. Miller held 1,441,383 restricted shares with an aggregate market value of $8,778,022. 43 (Footnotes continued from previous page) (6) On December 5, 1999, pursuant to his employment agreement with us, Mr. Miller was awarded 600,000 shares of restricted common stock. The restrictions on those shares lapse in thirty-six equal monthly installments commencing January 7, 2000, unless accelerated upon a change of control of us. (7) On June 15, 2000, Ms. Sammons was awarded 600,000 shares of restricted common stock; restrictions on 240,000 shares lapse on June 15, 2001, and restrictions on 120,000 shares lapse on each of December 15, 2001, June 15, 2002 and December 15, 2002. On November 29, 2000, Ms. Sammons was awarded 75,000 shares of restricted common stock; restrictions on 9,375 shares of common stock lapse ratably on a quarterly basis from March 3, 2001 through June 1, 2002 and restrictions on 9,375 shares lapse on each of August 31, 2002 and November 30, 2002. On January 10, 2001, Ms. Sammons was awarded 72,727 shares of restricted common stock; restrictions on 29,091 shares lapse on June 15, 2001, restrictions on 14,546 shares lapse on December 15, 2001 and restrictions on 14,545 shares lapse on each of June 15, 2002 and December 15, 2002. At the end of fiscal 2001, Ms. Sammons held 860,574 restricted shares with an aggregate market value of $5,240,896. (8) On December 5, 1999, pursuant to her employment agreement with us, Ms. Sammons was awarded 200,000 shares of restricted common stock. The restrictions on those shares lapse in thirty-six equal monthly installments commencing January 7, 2000, unless accelerated upon a change of control of us. (9) On June 15, 2000, Mr. Jessick was awarded 336,364 shares of restricted common stock; restrictions on 134,546 shares lapse on June 15, 2001, and restrictions on 67,273 shares lapse on each of December 15, 2001, June 15, 2002 and December 15, 2002. On November 29, 2000, Mr. Jessick was awarded 50,000 shares of restricted common stock; restrictions on 6,250 shares of common stock lapse ratably on a quarterly basis from March 3, 2001 through June 1, 2002 and restrictions on 6,250 shares lapse on each of August 31, 2002 and November 30, 2002. At the end of fiscal 2001, Mr. Jessick held 441,225 restricted shares with an aggregate market value of $2,687,060. (10) On December 5, 1999, pursuant to his employment agreement with us, Mr. Jessick was awarded 100,000 shares of restricted common stock. The restrictions on those shares lapse in thirty-six equal monthly installments January 7, 2000, unless accelerated upon a change of control of us. (11) On November 29, 2000, Mr. Gerson was awarded 50,000 shares of restricted common stock; restrictions on 6,250 shares of common stock lapse ratably on a quarterly basis from March 3, 2001 through June 1, 2002 and restrictions on 6,250 shares lapse on each of August 31, 2002 and November 30, 2002. At the end of fiscal year 2001, Mr. Gerson held 43,750 restricted shares with an aggregate market value of $266,437. (12) On June 15, 2000, Mr. Standley was awarded 336,364 shares of restricted common stock; restrictions on 134,546 shares lapse on June 15, 2001, and restrictions on 67,273 shares lapse on each of December 15, 2001, June 15, 2002 and December 15, 2002. On November 29, 2000, Mr. Standley was awarded 50,000 shares of restricted common stock; restrictions on 6,250 shares of common stock lapse ratably on a quarterly basis from March 3, 2001 through June 1, 2002 and restrictions on 6,250 shares lapse on each of August 31, 2002 and November 30, 2002. At the end of fiscal 2001, Mr. Standley held 441,225 restricted shares with an aggregate market value of $2,687,060. (13) On December 5, 1999, pursuant to his employment agreement with us, Mr. Standley was awarded 100,000 shares of restricted common stock. The restrictions on those shares lapse in thirty-six equal monthly installments commencing January 7, 2000, unless accelerated upon a change of control of us. (14) 4,200,000 of these options replace options that were cancelled on November 20, 2000. For more information, refer to the Option Grants in the 2001 Fiscal Year and the 10 Year Option/SAR Repricing tables herein. (15) These options were cancelled on November 20, 2000. (16) 3,050,000 of these options replace options that were cancelled on November 20, 2000. For more information, refer to the Option Grants in the 2001 Fiscal Year and the 10 Year Option/SAR Repricing tables herein. 44 (17) 1,525,000 of these options replace options that were cancelled on November 20, 2000. For more information, refer to the Option Grants in the 2001 Fiscal Year and the 10 Year Option/SAR Repricing tables herein. (18) 241,278 of these options replace options that were cancelled on November 20, 2000. For more information, refer to the Option Grants in the 2001 Fiscal Year and the 10 Year Option/SAR Repricing tables herein. (19) 241,278 of these options were cancelled on November 20, 2000. (20) 1,525,000 of these options replace options that were cancelled on November 20, 2000. For more information, refer to the Option Grants in the 2001 Fiscal Year and the 10 Year Option/SAR Repricing tables herein. (21) Represents a guaranteed bonus in the amount of $600,000 paid in April 2000 in respect of calendar year 1999 to compensate Mr. Miller for lost bonus opportunities with his prior employer. (22) Represents a guaranteed bonus in the amount of $200,000 paid in April 2000 in respect of calendar year 1999 to compensate Ms. Sammons for lost bonus opportunities with her prior employer. (23) Represents a guaranteed bonus in the amount of $150,000 paid in April 2000 in respect of calendar year 1999. (24) Represents a guaranteed bonus in the amount of $150,000 paid in April 2000 in respect of calendar year 1999. Option Grants in the 2001 Fiscal Year The following table sets forth certain information regarding options granted during fiscal year 2001 to the named executive officers, including options that were granted and cancelled during the fiscal year in connection with the repricing of such options on November 20, 2000.
Number of % of Total Securities Options Underlying Granted to Total Name Options Employees in Exercise Expiration Grant Date ---- Granted Fiscal Year Price (1) Date Present Value (2) ---------- ------------ --------- ---------- ----------------- Robert G. Miller................... 1,200,000(3) 2.5% $6.50 6/29/10 $3,568,948 1,200,000 2.5% $2.75 6/29/10 775,672 3,000,000(4) 6.3% $2.75 12/05/09 1,406,500 4,500,000 9.4% $4.05 2/13/11 8,825,100 Mary F. Sammons.................... 2,000,000(4) 4.2% $2.75 12/05/09 937,666 1,050,000(3) 2.2% $6.50 6/29/10 3,122,831 1,050,000 2.2% $2.75 6/29/10 678,712 3,500,000 7.3% $4.05 2/13/11 6,863,966 David R. Jessick................... 525,000(3) 1.1% $6.50 6/29/10 1,561,416 525,000 1.1% $2.75 6/29/10 339,356 1,000,000(4) 2.1% $2.75 12/05/09 468,833 2,500,000 5.2% $4.05 2/13/11 4,902,833 Elliot S. Gerson................... 26,278(3) 0.1% $8.00 1/17/10 111,899 26,278 0.1% $2.75 1/17/10 14,420 215,000(3) 0.4% $6.50 6/29/10 133,542 215,000 0.4% $2.75 6/29/10 722,195 250,000 0.5% $4.05 2/13/11 490,283 John T. Standley................... 525,000(3) 1.1% $6.50 6/29/10 1,561,415 525,000 1.1% $2.75 6/29/10 339,356 1,000,000(4) 2.1% $2.75 12/05/09 468,833 2,500,000 5.2% $4.05 2/13/11 4,902,833
45 - --------------- (1) All options have an exercise price equal to the fair market value on the date of grant. Mr. Miller's option for 3,000,000 shares, Ms. Sammons' option for 2,000,000 shares, Mr. Jessick's option for 1,000,000 shares and Mr. Standley's option for 1,000,000 shares vest in monthly installments over a 36-month period beginning on January 5, 2000. Mr. Miller's option for 1,200,000 shares, Ms. Sammons' option for 1,050,000 shares, Mr. Jessick's option for 525,000 shares and Mr. Standley's option for 525,000 shares vest in monthly installments over a 29-month period beginning on June 29, 2000. Mr. Miller's option for 4,500,000 shares, Ms. Sammons' option for 3,500,000 shares, Mr. Jessick's option for 2,500,000 shares, Mr. Gerson's option for 250,000 shares and Mr. Standley's option for 2,500,000 shares vest ratably over a three-year period beginning on the first anniversary of the date the option was granted. Mr. Gerson's options for 215,000 shares and 26,278 shares vest ratably over a four-year period beginning on the first anniversary of the date such options were granted. (2) The hypothetical present values on the grant date were calculated under the Black-Scholes option pricing model, which is a mathematical formula used to value options traded on stock exchanges. The formula considers a number of assumptions in hypothesizing an option's present value. Assumptions used to value the options include the stock's expected volatility rate of 67.17%, projected dividend yield of 0%, a risk-free rate of return of 6.25% and projected time of exercise being one year after vesting. The ultimate realizable value of an option will depend on the actual market value of the common stock on the date of exercise as compared to the exercise price of the option. Consequently, there is no assurance that the hypothetical present value of the stock options reflected in this table will be realized. (3) These options were cancelled in connection with the repricing of such options on November 20, 2000 and were replaced with a grant for the same number of shares as set forth in the next entry on the table. (4) These options replace options that were granted on December 5, 1999 with an exercise price of $7.35 that were cancelled in connection with the repricing of such options on November 20, 2000. Option Exercises and Year-end Value Table The following table summarizes the value at March 3, 2001 of all shares subject to options granted to the named executive officers. No options were exercised during fiscal year 2001.
Number of Securities Value of Underlying Unexercised In-the-Money Options Shares Options at March 3, 2001 at March 3, 2001 Acquired on Value ------------------------- -------------------------- Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- -------- ----------- ------------- ----------- ------------- Robert G. Miller ................... 0 $0 1,497,701 7,202,299 $5,002,321 $18,205,678 Mary F. Sammons .................... 0 0 1,067,433 5,482,567 3,565,226 13,761,773 David R. Jessick ................... 0 0 533,716 3,491,284 1,782,615 8,410,885 Elliot S. Gerson ................... 0 0 556,252 678,748 273,754 1,405,851 John T. Standley ................... 0 0 533,716 3,491,284 1,782,615 8,410,885
- --------------- (1) "In-the-Money" options are options with a base (or exercise) price less than the market price of the common stock on March 3, 2001. The value of such options is calculated using a stock price of $6.09, which was the closing price of our common stock on the NYSE on March 2, 2001. 46 10-year Option/SAR Repricings The following table sets forth, for all of our executive officers, all option repricings during the period March 3, 1991 through March 3, 2001. During such period, there was one repricing of options with respect to the options set forth below.
Length of Number of Market Price Exercise Original Securities of Stock At Price At Option Term Underlying Time of Time of New Remaining At Options/SARs Repricing Or Repricing or Exercise Date of Repriced or Amendment Amendment Price Repricing Or Name(1) Date Amended (#) ($) ($) ($) Amendment - ------- -------- ------------ ------ ------ ------ ----------------- Robert G. Miller ...... 11/20/00 3,000,000 $ 2.75 $ 7.35 $ 2.75 9 years 11/20/00 1,200,000 $ 2.75 $ 6.50 $ 2.75 9 years, 7 months Mary F. Sammons ....... 11/20/00 2,000,000 $ 2.75 $ 7.35 $ 2.75 9 years 11/20/00 1,050,000 $ 2.75 $ 6.50 $ 2.75 9 years, 7 months David R. Jessick ...... 11/20/00 1,000,000 $ 2.75 $ 7.35 $ 2.75 9 years 11/20/00 525,000 $ 2.75 $ 6.50 $ 2.75 9 years, 7 months Elliot S. Gerson ...... 11/20/00 215,000 $ 2.75 $ 6.50 $ 2.75 9 years, 7 months 11/20/00 26,278 $ 2.75 $ 8.00 $ 2.75 9 years, 2 months John T. Standley ...... 11/20/00 1,000,000 $ 2.75 $ 7.35 $ 2.75 9 years 11/20/00 525,000 $ 2.75 $ 6.50 $ 2.75 9 years, 7 months James P. Mastrain ..... 11/20/00 33,546 $ 2.75 $7.935 $ 2.75 9 years, 2 months 11/20/00 300,000 $ 2.75 $ 6.50 $ 2.75 9 years, 7 months Christopher Hall....... 11/20/00 350,000 $ 2.75 $ 7.00 $ 2.75 9 years, 2 months 11/20/00 250,000 $ 2.75 $ 6.50 $ 2.75 9 years, 7 months Eric Sorkin........... 11/20/00 75,000 $ 2.75 $5.625 $ 2.75 9 years, 4 months 11/20/00 235,000 $ 2.75 $ 6.50 $ 2.75 9 years, 7 months Robert B. Sari........ 11/20/00 100,000 $ 2.75 $ 7.00 $ 2.75 9 years, 6 months 11/20/00 50,000 $ 2.75 $ 6.50 $ 2.75 9 years, 7 months Alex Grass(2)......... 2/7/94 400,000 $18.50 $20.50 $18.50 9 years Martin Grass(2)....... 2/7/94 500,000 $18.50 $20.50 $18.50 9 years Franklin Brown(2)..... 2/7/94 137,500 $18.50 $20.50 $18.50 9 years Timothy Noonan(2)..... 2/7/94 137,500 $18.50 $20.50 $18.50 9 years Alex Schamroth(2)..... 2/7/94 137,500 $18.50 $20.50 $18.50 9 years
- --------------- (1) See the table of directors, executive officers and key employees for titles of the current executive officers. (2) In connection with our consummation of a "dutch auction" self tender offer, in which we repurchased from our stockholders an aggregate of 2,077,271 shares of our common stock at a purchase price of $18.50 per share, on February 7, 1994, we repriced outstanding stock options to purchase an aggregate of 2,157,250 shares of our common stock. On the date of such repricing, the closing sale price of our common stock as reported on the NYSE was $18.50. At such time, Alex Grass was the Chairman and Chief Executive Officer; Martin Grass was President and Chief Operating Officer; Franklin Brown was Executive Vice President; Timothy Noonan was Executive Vice President and Alex Schamroth was Executive Vice President. The market and exercise prices in the table have been adjusted to reflect the two-for- one stock split on the Common Stock that occurred on February 3, 1998. The Executive Retirement Plan We have established the Non-Qualified Executive Retirement Plan (the "Plan") to provide retirement benefits to long-term employees who hold a position of executive vice president or higher and to select executives who may, pursuant to their employment agreements, be deemed to be long term employees. Participants generally are entitled to receive benefits upon retirement after age 65 or upon death, in which case any length of service requirement is disregarded. 47 Generally, eligible participants receive an annual benefit, payable monthly over 15 years, equal to a percentage, ranging from 40% to 60%, of the highest base salaries and highest bonus paid or accrued for each participant within the 10 fiscal years prior to the date of the event giving rise to payment of the benefit. The Plan provides that benefits will not be paid to employees whose employment is terminated for any reason other than retirement, disability or death. Additionally, if, during the time a benefit is being paid to a former employee, it is determined that the former employee committed an act that could have resulted in a good cause discharge, we will cease paying benefits to the former employee. Mr. Miller, Ms. Sammons, Mr. Jessick and Mr. Standley were credited with 15 years of service under the Plan effective in December 1999 pursuant to their employment agreements. Because it is not possible to determine what the individual annual base salary and annual bonus of the named executive officers will be assuming retirement at normal retirement age, we cannot estimate the annual benefits payable at normal retirement age for each of the named executive officers. However, by way of example, if each were to have attained normal retirement age and 20 or more years of credited service under the Plan, based upon last year's annual salary and annual bonus, it is estimated that Mr. Miller would be entitled to receive $1,361,395, Ms. Sammons would be entitled to receive $1,001,358, Mr. Jessick would be entitled to receive $705,115, Mr. Standley would be entitled to receive $676,990 and Mr. Gerson would be entitled to receive $504,664 as annual benefits payable upon retirement. Executive Employment Agreements On December 5, 1999, we entered into employment agreements with Robert G. Miller, Mary F. Sammons, David R. Jessick and John T. Standley, and, on November 16, 2000, we entered into an employment agreement with Elliot S. Gerson. Pursuant to their individual employment agreements: o Mr. Miller was appointed as our Chief Executive Officer and elected as Chairman of our Board of Directors; o Ms. Sammons was appointed as our President and Chief Operating Officer and was appointed to our Board of Directors; o Mr. Jessick was appointed as our Senior Executive Vice President and Chief Administrative Officer; o Mr. Gerson was appointed as our Senior Executive Vice President and General Counsel; and o Mr. Standley was appointed as our Executive Vice President and Chief Financial Officer and is now our Senior Executive Vice President and Chief Financial Officer. Term. The term of each executive's employment agreement commenced on the date of his or her employment agreement and, unless terminated earlier, will terminate on the third anniversary (second anniversary in the case of Mr. Gerson), but will automatically renew for an additional year on each anniversary of the effective date of the agreement unless either we or the executive provides the other with notice of non-renewal at least 180 days prior to such an anniversary. Salary and Incentive Bonus. The respective agreements provide each executive with a base salary and incentive compensation, including, with respect to the 2001 fiscal year: o Mr. Miller was entitled to receive an annual base salary of not less than $1,250,000, however, Mr. Miller volunteered to receive a base salary of not less than $1,000,000. Mr. Miller received a bonus of $868,991 and a special bonus of $400,000 in recognition of his efforts in connection with our refinancing efforts in the 2001 fiscal year, and he has the opportunity to receive future annual bonuses that shall equal or exceed his annual base salary then in effect if our performance meets certain annual target goals based on the business plan developed by Management and the Board of Directors. o Ms. Sammons was entitled to receive an annual base salary of not less than $900,000. She received a bonus of $468,930 pursuant to her employment agreement and a special bonus of $300,000 in connection with the refinancing and in the future may, if our performance meets the targets, receive an annual bonus that, if paid, will equal or exceed 75% of her annual base salary then in effect. 48 o Mr. Jessick was entitled to receive an annual base salary of not less than $600,000. He was awarded a bonus of $275,192 pursuant to his employment agreement and a special bonus of $300,000 in connection with the refinancing. If our performance meets the targets, Mr. Jessick will be paid an annual bonus that will equal or exceed 60% of his annual base salary then in effect. o Mr. Gerson was entitled to receive an annual base salary of not less than $500,000. He was awarded a bonus of $191,106 pursuant to his employment agreement and a special bonus of $150,000 in connection with the refinancing. If our performance meets the targets, Mr. Gerson will be paid an annual bonus that will equal or exceed 50% of his annual base salary then in effect. o Mr. Standley was entitled to receive an annual base salary of not less than $600,000. He was awarded a bonus of $228,317 pursuant to his employment agreement and a special bonus of $300,000 in connection with the refinancing. If our performance meets the targets, Mr. Standley will be paid an annual bonus that will equal or exceed 50% of his annual base salary then in effect. Other Benefits. Pursuant to their employment agreements, each of the executives is also entitled to participate in our fringe benefit and perquisite programs and savings plans. Restricted Stock and Options. Pursuant to their employment agreements and individual stock option agreements, in December 1999, Mr. Miller, Ms. Sammons, Mr. Jessick and Mr. Standley also received awards of restricted common stock and were granted options to purchase additional shares of our common stock as follows: o Mr. Miller was granted an option to purchase 3,000,000 shares of common stock and was awarded 600,000 shares of restricted common stock. o Ms. Sammons was granted an option to purchase 2,000,000 shares of common stock and was awarded 200,000 shares of restricted common stock. o Mr. Jessick was granted an option to purchase 1,000,000 shares of common stock and was awarded 100,000 shares of restricted common stock. o Mr. Standley was granted an option to purchase 1,000,000 shares of common stock and was awarded 100,000 shares of restricted common stock. All of the options granted and restricted common stock awarded to each of such executives listed above vest in thirty-six equal monthly installments commencing January 5, 2000. Other Provisions. Each of Mr. Miller's and Mr. Jessick's employment agreement provides for him to be based in Portland, Oregon and that he be provided, for our convenience, with an apartment in the vicinity of our corporate headquarters in the Harrisburg, Pennsylvania area. Pursuant to his employment agreement, Mr. Miller is entitled to recommend two persons to serve on our Board of Directors. Mr. Miller has made two Board of Directors recommendations to date and as a result, Alfred Gleason and Stuart Sloan were appointed to the Board of Directors in January 2000 and June 2000, respectively. Termination of Employment. Upon written notice, the employment agreement of each of the executives is terminable by either us or the individual executive seeking termination. If Mr. Miller, Ms. Sammons, Mr. Jessick or Mr. Standley is terminated by us "without cause" or by an executive for "good reason" (in each case, as defined in their employment agreement), then the terminated executive will be entitled to receive: o an amount equal to three times the sum of the individual executive's annual base salary and target bonus plus any accrued but unpaid salary and bonus, with the maximum bonus that the executive is eligible to earn being pro-rated through the date of termination; o the deferred compensation amounts that would otherwise have been credited to the executive pursuant to the Special Deferred Compensation Plan referred to below had the executive continued employment 49 with us through the end of the then-remaining term of the employment agreement and certain medical benefits; and o all of the executive's stock options will immediately vest and be exercisable for the remainder of their stated terms, the restrictions on the restricted common stock will immediately lapse and any performance or other conditions applicable to any other equity incentive awards will be considered to have been satisfied. If Mr. Gerson is terminated by us "without cause" or by him for "good reason" (as such terms are defined in his employment agreement), then he will be entitled to receive: o an amount equal to two times the sum of his annual base salary and target bonus plus any accrued but unpaid salary and bonus, with the maximum bonus that the executive is eligible to earn being pro-rated through the date of termination; and o all of his stock options will immediately vest and be exercisable, generally, for a period of 90 days following the termination of employment and the restrictions on the restricted common stock will immediately lapse to the extent his options would have vested and restrictions would have lapsed had he remained employed by us for two years following the termination. If we terminate any of the executives "for cause" (as defined in the employment agreements), o we will pay him or her all accrued benefits, o any portion of any then-outstanding stock option grant that was not exercised prior to the date of termination will immediately terminate, and o any portion of any restricted stock award, or other equity incentive award, as to which the restrictions have not lapsed or as to which any other conditions were not satisfied prior to the date of termination will be forfeited. Under Mr. Miller's, Ms. Sammons's, Mr. Jessick's and Mr. Standley's employment agreements, any termination of employment by the executive within the six month period commencing on the date of a "change in control" of us will be treated as a termination of employment by the executive for "good reason." Under Mr. Gerson's employment agreement, upon a "change in control" of us, all of his stock options will immediately vest and be exercisable and any restrictions on the restricted stock will immediately lapse. Each employment agreement provides that the executive will receive an additional payment to reimburse the executive for any excise taxes imposed pursuant to Section 4999 of the Internal Revenue Code. Each employment agreement also provides for certain benefits upon termination of the executive by reason of death or disability, by us "for cause" or by the executive other than for "good reason." The employment agreement of each executive prohibits the executive from competing with us during his or her employment and for a period of one year, or with respect to Mr. Gerson, two years, thereafter. Pursuant to amendments to the employment agreements with Mr. Miller and Ms. Sammons dated May 7, 2001, we have agreed to pay them, as an additional incentive bonus, the difference between the amount called for under their severance agreements with their prior employer and the amount they actually receive from that employer, plus interest at the rate of 9% per annum from December 5, 1999. Mr. Miller and Ms. Sammons were to receive $5,022,685 and $1,624,000, respectively, under those severance agreements, and they each retain control over their claims against their former employer. The amendments to the employment agreements provide generally that we will pay such bonuses within five days after January 1, 2002 if the executive is still employed (or, in Mr. Miller's case, a member of the Board of Directors) on that date. However, the bonuses will be paid within five days after an earlier termination of employment (i) by reason of death or disability, by us without "cause" or by the executive for "good reason," or (ii) for any reason upon or following a "change in control" (all as defined in the executive's employment agreement). Finally, in the case of Mr. Miller, the payment will be made before January 1, 2002 within five days after the date he ceases to be both an employee and a Director (provided he does not cease to be a Director by reason of either a voluntary resignation or simultaneously with or following his termination of employment for cause). No bonus payment will be made if the executive's employment is terminated for cause before January 1, 2002 and before a change in control. 50 If either executive is paid any of the bonus prior to the final determination of his or her claim against the prior employer, the executive must repay to us any amount that is paid to him or her by the former employer, net of any excess taxes payable by the executive on account of the repayment and any legal expenses not reimbursed by us under the employment agreement. Neither executive is obligated to reimburse us more than the amount of the bonus paid to him or her. If Mr. Miller's employment is terminated by him without good reason or by us for cause between January 1, 2002 and December 5, 2002, there has not been a change in control of us, and Mr. Miller no longer serves as a Director (by reason of a voluntary resignation or a removal simultaneous with an employment termination for cause), Mr. Miller will be entitled to retain only a portion of the bonus that is prorated for the number of days between December 5, 1999 and the date of termination. Special Deferred Compensation Plan In addition to the base salary and bonus provisions of the executives' employment agreements, we established the Special Deferred Compensation Plan for the benefit of select members of its management team, including Mr. Miller, Ms. Sammons, Mr. Jessick and Mr. Standley. Under this plan, we credit a specific sum to individual accounts established for each of Mr. Miller, Ms. Sammons, Mr. Jessick and Mr. Standley. The sums are credited on the first day of each month during the term of their employment with us. Each of Mr. Miller, Ms. Sammons, Mr. Jessick and Mr. Standley is fully vested, at all times, in his or her account balance; although, generally they may not receive payments from their accounts until three years after an election to receive a payment. Each month, $20,000 is credited to Mr. Miller's account, $15,000 is credited to Ms. Sammons' account and $10,000 is credited to each of Mr. Jessick's and Mr. Standley's account. Under this plan, the Executives are able to direct the investment of the amounts credited to their individual accounts by selecting one or more investment vehicles from a group of deemed investments offered pursuant to the plan. Compensation Committee Interlocks and Insider Participation None of our executive officers, directors or Compensation Committee members currently serve, or have in the past served, on the compensation committee of any other company whose directors and executive officers have served on our Compensation Committee. 51 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of June 30, 2001, certain information concerning the beneficial shareholdings of (a) each director, (b) each nominee for director, (c) each executive officer named in our summary compensation table appearing elsewhere herein, (d) each holder of more than five percent of our common stock and (e) all directors and executive officers as a group (based on 493,346,010 shares of common stock outstanding as of such date). Each of the persons named below has sole voting power and sole investment power with respect to the shares set forth opposite his or her name, except as otherwise noted.
Number of Common Shares Beneficial Owners Beneficially Owned (1) Percentage of Class - ----------------- ----------------------- -------------------- Executive Officers and Directors: William J. Bratton ........... 14,889(2) * Elliot S. Gerson ............. 665,004(3) * Alfred M. Gleason ............ 106,189(4) * Leonard I. Green ............. 65,429,905(5) 11.7% David R. Jessick ............. 1,307,498(6) * Nancy A. Lieberman ........... 7,000 * Robert G. Miller ............. 3,940,068(7) * Mary F. Sammons .............. 2,565,735(8) * Stuart M. Sloan .............. 10,989 * Jonathan D. Sokoloff ......... 64,941,341(9) 11.6% John T. Standley ............. 1,295,368(10) * Leonard N. Stern ............. 50,989 * All executive officers and directors (18 persons) ....... 77,133,093 13.8% 5% Stockholders: FMR Corporation .............. 45,627,250(11) 9.2% Green Equity Investors III, L.P. ......................... 64,435,905(12) 11.5%(13) J.P. Morgan Chase & Co. ...... 38,923,836(14) 7.9%
- --------------- * Percentage less than 1% of class. (1) Beneficial ownership has been determined in accordance with Rule 13d-3 under Exchange Act, thereby including options exercisable within 60 days of June 30, 2001. (2) This amount includes 400 shares owned by Mr. Bratton's wife. (3) This amount includes 610,002 shares which may be acquired within 60 days by exercising stock options, 1,002 shares in Mr. Gerson's 401(k) account and 43,750 restricted shares. (4) This amount includes 16,000 shares owned by Mr. Gleason's wife. (5) This amount includes 64,435,905 shares beneficially owned by Green Equity Investors III, L.P., which is affiliated with Leonard Green & Partners, L.P., of which Mr. Green is an executive officer and equity owner, 990,000 shares owned by Verdi Group, Inc., over which Mr. Green has beneficial ownership. (6) This amount includes 809,004 shares which may be acquired within 60 days by exercising stock options and 486,364 restricted shares. (7) This amount includes 2,245,977 shares which may be acquired within 60 days by exercising stock options and 1,684,091 restricted shares. (8) This amount includes 1,618,008 shares which may be acquired within 60 days by exercising stock options and 947,727 restricted shares. (9) This amount includes 64,435,905 shares beneficially owned by Green Equity Investors III, L.P., which is affiliated with Leonard Green & Partners, L.P., of which Mr. Sokoloff is an executive officer and equity owner. (10) This amount includes 809,004 shares which may be acquired within 60 days by exercising stock options and 486,364 restricted shares. 52 (11) This amount, which is disclosed in a report on Schedule 13G dated June 12, 2001 by FMR Corporation, includes 38,957,260 shares in respect of which Fidelity Management & Research Company holds sole dispositive power and 4,316,090 shares over which Fidelity Management Trust Company holds sole dispositive power (including 1,691,890 shares over which it also holds voting power). Both Fidelity Management Research Company and Fidelity Management Trust Company are wholly-owned subsidiaries of FMR Corporation. This amount also includes 2,353,900 shares over which Fidelity International Limited holds sole voting and dispositive power. A partnership controlled by Edward C. Johnson 3d, who also controls FMR Corporation, has the right to cast 39.89% of the votes cast by holders of Fidelity International Limited voting stock. FMR Corporation and Fidelity International Limited state that the shares held by Fidelity International Limited need not be aggregated for the purposes of Section 13(d) of the Securities Act of 1934, as amended, however, FMR Corporation has voluntarily filed its report as if all the shares were beneficially owned by FMR Corporation. Abigail P. Johnson and Edward C. Johnson 3d, together with members of their family, are the predominant owners of the Class B shares of common stock of FMR Corporation, representing approximately 49% of the voting power of FMR Corporation. Ms. Johnson owns 24.5% of the voting stock and is a director of FMR Corporation. Mr. Johnson owns 12.0% of the voting stock and is Chairman of FMR Corporation. Members of the Johnson family and other Class B Stockholders are parties to a voting agreement under which each party agrees to vote its Class B Shares in accordance with the vote of the majority vote of shares of the parties. (12) Green Equity Investors III, L.P. beneficially owns 64,435,905 shares of common stock. This number represents the number of shares issuable within 60 days of June 30, 2001 upon the conversion of convertible preferred stock. (13) Based upon the number of shares outstanding as of June 30, 2001 and assuming conversion of all Class B preferred stock by Green Equity Investors III, L.P. (14) This amount, as reflected in a report on Schedule 13G/A dated February 14, 2001 and Forms 4 filed on March 12, March 13 and April 10, 2001 filed by J.P. Morgan Chase & Co., consists of 38,923,836 shares of common stock, including 2,500,000 shares where there is a right to acquire, of which the reporting person claims sole voting and dispositive power over 38,923,836 shares. 53 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In fiscal 2001, we paid to J.P. Morgan Chase & Co., ("JPMorganChase") and its affiliates fees and other amounts in connection with our financing activities, including the refinancing in June 2000, of $20.5 million. JPMorganChase is a beneficial owner of more than 5% of our common stock and is the parent company of the Chase Manhattan Bank, one of our lenders. We anticipate paying JPMorganChase and its affiliates additional fees and other amounts for services in connection with the financing activities described under "Prospectus Summary--Refinancing Transactions" and related transactions in the aggregate of approximately $13.7 million and may pay it additional compensation for services in connection therewith in amounts to be determined. In June 2001, an affiliate of JPMorganChase exchanged $9,825,000 aggregate principal amounts of our 10.5% Notes due 2002 for 1,136,108 shares of our common stock. In June 2000, an affiliate of JPMorganChase and another financial institution participated in the refinancing of certain of our debt by agreeing to purchase $93.2 million of 10.50% senior secured notes due September 2002 when the 5.5% notes matured in December 2000. In June 2000, certain lenders, including J.P. Morgan Ventures Corporation, an affiliate of JPMorganChase, exchanged an aggregate of $284.8 million of their loans outstanding under the PCS credit facility, the RCF credit facility and a $300.0 million demand note into an aggregate of 51,785,434 shares of our common stock at an exchange rate of $5.50 per share. Leonard Green and Jonathan D. Sokoloff, members of our Board of Directors, are equity owners of Leonard Green & Partners, L.P. During fiscal year 2001, we paid Leonard Green & Partners, L.P. a $3,000,000 fee for services provided in connection with the financial restructuring transactions which we completed in June 2000 and reimbursed its out-of-pocket expenses. We also paid Leonard Green & Partners, L.P. a $2,500,000 fee for services provided in connection with the sale of PCS Health Services, Inc. In October 1999, we agreed to pay Leonard Green & Partners, L.P. an annual fee of $1 million for its consulting services. This fee was increased to $1.5 million at the time of the June 2000 restructuring transactions. The consulting agreement also provides for the reimbursement of out-of-pocket expenses incurred by Leonard Green & Partners, L.P. We have agreed to register the common stock issuable upon conversion of the Series B preferred stock and to pay all expenses and fees (other than underwriting discounts and commission) related to any registration. In addition, we may pay Leonard Green & Partners, L.P. a fee for financial advisory services in connection with the refinancing. The Hartz Mountain Corporation, which was owned and controlled by Leonard N. Stern, sold merchandise in the ordinary course of business to us and our subsidiaries in the approximate amount of $5,000,000 during the year ended December 31 2000. Mr. Stern sold his interest in The Hartz Mountain Corporation on December 29, 2000. On June 27, 2001 we sold an aggregate of 28,948,300 shares of our common stock to affiliates of FMR Corporation at a purchase price of $7.50 per share. FMR Corporation voluntarily filed a report on Schedule 13d dated June 12, 2001 disclosing that it may be deemed to beneficially own more than 5% of our common stock. On June 27, 2001, we exchanged an aggregate of $152.025 million principal amount of our 10.5% senior secured notes due 2002 for $152.025 million of new 12.5% notes due 2006 to affiliates of FMR Corporation. In connection with such exchange, we also issued to the exchanging holders common stock purchase warrants to purchase an aggregate of 3.0 million shares of our common stock at an exercise price of $6.00 per share. The law firm of Skadden, Arps, Slate, Meagher & Flom LLP provides legal services to us. Nancy Lieberman, one of our directors, is a partner of that law firm. Fees paid by us to Skadden, Arps, Slate, Meagher & Flom LLP did not exceed five percent of the law firm's gross revenues for its last fiscal year. Commencing May 2001 and in connection with our grant of certain restricted shares of our common stock to our executive officers and each such officer's agreement not to sell these shares earlier than the expiration of the third trading day following the date we announce our earnings for our fiscal year 2002, we have made loans to each of these 54 officers in order to cover the officer's federal and state withholding taxes. Each loan is non-recourse and is secured solely by the shares of common stock to which the loan relates. Each loan bears interest at the rate of 4.25% per annum and is due and payable upon the earlier of June 15, 2002 or the date the officer sells the awarded shares of common stock. As of June 30, 2001, we had outstanding $5.5 million of these loans, including accrued and unpaid interest. The following are loans in excess of $60,000 as of June 30, 2001.
Executive Officer Loan Amount ----------------- ----------- Robert G. Miller $2,092,180 Mary F. Sammons $1,250,336 David R. Jessick $ 637,645 John T. Standley $ 637,645 Christopher Hall $ 156,547
55 DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 1,000,000,000 shares of common stock and 20,000,000 shares of preferred stock. Common Stock As of June 30, 2001, there were 493,346,010 shares of common stock issued and outstanding. The holders of common stock are entitled to receive ratably, from funds legally available for the payment thereof, dividends when and as declared by resolution of our Board of Directors, subject to any preferential dividend rights granted to the holders of any outstanding preferred stock. Each holder of common stock is entitled to one vote for such share registered in his name on our books on all matters submitted to a vote of stockholders. Except as otherwise provided by law, the holders of common stock vote as one class. The shares of common stock do not have cumulative voting rights. As a result, subject to the voting rights of the holders of any shares of our preferred stock, including the voting rights of the Series B preferred stock, which may at the time be outstanding, the holders of common stock entitled to exercise more than 50% of the voting rights in an election of directors can elect 100% of the directors to be elected in a particular year if they choose to do so. In such event, the holders of the remaining common stock voting for the election of directors will not be able to elect any persons to our Board of Directors. Holders of our common stock do not have preemptive, subscription, redemption or conversion rights. The outstanding shares of common stock are duly authorized, validly issued, fully paid and nonassessable. Preferred Stock Under the Rite Aid Charter, our Board has the authority, without further stockholder action, to issue from time to time up to a maximum of 20,000,000 shares of preferred stock, in one or more series and for such consideration as may be fixed from time to time by the Board, and to fix before the issuance of any shares of preferred stock of a particular series, the designation of such series, the number of shares to comprise such series, the dividend rate or rates payable with respect to the shares of such series, the redemption price or prices, if any, and the terms and conditions of any redemption, the voting rights, any sinking fund provisions for the redemption or purchase of the shares of such series, the terms and conditions upon which the shares are convertible or exchangeable, if they are convertible or exchangeable, and any other relative rights, preferences and limitations pertaining to such series. Series B Cumulative Pay-In-Kind Preferred Stock As of June 30, 2001, there were 3,427,441.7884 shares of Series B cumulative pay-in-kind preferred stock outstanding. As of such date, the outstanding shares of Series B preferred stock were convertible into 62,317,123 shares of our common stock. The outstanding shares of Series B preferred stock are duly authorized, validly issued, fully paid and nonassessable. In the event of any voluntary or involuntary liquidation, dissolution or winding up of us, holders of Series B preferred stock shall be entitled to receive out of our assets legally available for distribution to stockholders, before any distribution of assets is made to holders of common stock or any other class or series of capital stock ranking junior to the Series B preferred stock, a liquidation preference of $100, subject to certain adjustments, plus all accrued and unpaid dividends thereon. If, upon any voluntary or involuntary liquidation, dissolution or winding up of us, the amounts payable to holders of Series B preferred stock and any other shares of preferred stock ranking as to such distribution on a parity with the Series B preferred stock are not paid in full, the holders of Series B preferred stock and of such other shares of preferred stock will share ratably in any such distribution of our assets in proportion to the full respective preferential amounts to which they are entitled. Each holder of Series B preferred stock is entitled to vote with holders of common stock and each holder of Series B preferred stock is entitled to one vote for each share of common stock issuable upon conversion of such holder's Series B preferred stock. The holders of Series B preferred stock are entitled to 56 vote separately as a class to elect two directors to our Board of Directors. Leonard T. Green and Jonathan D. Sokoloff are the directors elected by the holders of Series B preferred stock. Each share of Series B preferred stock is convertible into the number of shares of our common stock equal to the liquidation preference divided by the conversion price, which is $5.50 per share, subject to certain anti-dilution adjustments. Without the prior consent of the holders of a majority of the Series B preferred stock, we may not authorize, create or issue any securities that are senior or pari passu to the Series B preferred stock, or take certain other actions that would adversely affect the rights, privileges and preferences of the Series B preferred stock. Each holder of Series B preferred stock is entitled to receive cumulative preferential dividends at the rate of 8.0% on the liquidation preference, payable quarterly in arrears. Dividends shall be paid, at our option, either in cash, additional shares of Series B preferred stock, or a combination thereof. From time to time, on or after October 25, 2004, we may redeem shares of Series B preferred stock at 105% of the liquidation preference plus any unpaid partial dividends to the applicable redemption date. Holders of Series B preferred stock have no preemptive rights to subscribe for any additional securities which we may issue. We have granted the holders of Series B preferred stock certain registration rights with respect to the Series B preferred stock and the common stock into which the Series B preferred stock may be converted. Series C Convertible Preferred Stock On June 27, 2001, we issued 2,121,677 shares of Series C convertible preferred stock. The Series C preferred stock is convertible into common stock immediately upon the earlier of (i) the effectiveness of a registration statement registering the shares of common stock into which the Series C preferred stock are convertible for resale under the Securities Act, and (ii) a merger or consolidation of us with or into any other corporation in which we are not the surviving corporation or the sale, lease or conveyance of all or substantially all of our property, assets or business. Each share of Series C preferred stock is convertible into 10 shares of common stock, subject to anti-dilution adjustments to the conversion rate. Accordingly, upon effectiveness of the registration statement of which this prospectus forms a part, the Series C preferred stock will convert into 21,216,770 shares of our common stock. With respect to dividends and any distributions upon liquidation, the Series C preferred stock ranks senior to our common stock but junior to the Series B preferred stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of us, holders of the Series C preferred stock will be entitled to receive, in preference to any payments on our common stock but after payments on the Series B preferred stock, a liquidation preference of $62.52 per share, plus any accrued and unpaid dividends. Each holder of Series C preferred stock is entitled to receive cumulative dividends at the rate of 8.7455% per annum of the liquidation preference, payable quarterly in arrears. If we declare a distribution in securities of other persons, debt instruments issued by us or any other person or any other assets, holders of the Series C preferred stock will be entitled to participate in the distribution proportionately as though those holders were holders of the common stock into which the Series C preferred stock is convertible as of the record date for the distribution. Each holder of Series C preferred stock is entitled to vote with the holders of common stock and each holder is entitled to one vote for each whole share of common stock issuable upon conversion of the holder's Series C preferred stock. Charter and By-Law Provisions The Rite Aid Charter specifies that our Board of Directors shall be divided into three classes, as nearly equal in number as possible, and shall consist of not less than three nor more than 15 directors elected for three-year staggered terms. The term of one class of directors expires at each annual meeting of stockholders. Our By-laws provide that the number of directors on the Board may be fixed by the Board only, or if the number is not fixed, the number will be seven. The number of directors may be increased or decreased by the Board only. In the interim period between annual meetings of stockholders or of special meetings of 57 stockholders, vacancies and newly created directorships may be filled by the Board. Any directors so elected will hold office until the next election of the class to which such directors have been elected. The Board has been fixed at and currently consists of 9 directors. The Rite Aid Charter requires that any mergers, consolidations asset dispositions and other transactions involving a beneficial owner of 10% or more of the voting power of the then outstanding classes of stock entitled to vote in the election of directors be approved, unless certain conditions are satisfied, by the affirmative vote of the holders of shares representing not less than 75% of the voting stock. These special voting requriements do not apply if the transaction is approved by a majority of the Continuing Directors (as defined below) or the consideration offered to our stockholders meets specified fair price standards (including related procedural requirements as to the form of consideration and continued payment of dividends). "Continuing Director" as defined in the Rite Aid Charter means a member of our Board who was not affiliated with a Related Person (as defined below) and was a member of the Board prior to the time that the Related Person acquired the last shares of common stock entitling such Related Person to exercise, in the aggregate, in excess of 10% of the total voting power of all classes of voting stock, or any individual, corporation, partnership, person or other entity ("Person") recommended to succeed a Continuing Director by a majority of Continuing Directors. "Related Person," as defined in the Rite Aid Charter, means any Person or affiliate or associate of such Person, which has beneficial ownership directly or indirectly of shares of stock of Rite Aid entitling such Person to exercise more than 10% of the total voting power of all classes of voting stock. The Rite Aid Charter also provides that any corporate action either (i) taken at a special meeting of stockholders called by the Board, a majority of whose members are not Continuing Directors, or (ii) approved by written consent of stockholders, shall require the approval of not less than 75% of the then outstanding voting stock. Change of Control Section 203 of the DGCL prohibits generally a public Delaware corporation, including Rite Aid, from engaging in a business combination (as defined below) with an interested stockholder (as defined below) for a period of three years after the date of the transaction in which an interested stockholder became such, unless: (i) the board of directors of such corporation approved, prior to the date such interested stockholder became such, either such business combination or such transaction; (ii) upon consummation of such transaction, such interested stockholder owns at least 85% of the voting shares of such corporation (excluding specified shares) outstanding at the time the transaction commenced; or (iii) such business combination is approved by the board of directors of such corporation and authorized by the affirmative vote (at an annual or special meeting and not by written consent) of at least 66 2/3% of the outstanding voting shares of such corporation (excluding shares held by such interested stockholder). A "business combination" includes (i) mergers, consolidations and sales or other dispositions of 10% or more of the assets of a corporation to or with an interested stockholder, (ii) certain transactions resulting in the issuance or transfer to an interested stockholder of any stock of such corporation or its subsidiaries, and (iii) certain other transactions resulting in a financial benefit to an interested stockholder. An "interested stockholder" is a person who owns (or, if such person is an affiliate or associate of the corporation, within a three-year period did own) 15% or more of a corporation's stock entitled to vote generally in the election of directors and, the affiliates and associates of such person. Indemnification of Officers and Directors Under Section 145 of the Delaware General Corporation Law ("DGCL"), a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding (i) if such person acted in good faith and in a manner that person reasonably believed to be in or not opposed to the best interests of the corporation and 58 (ii) with respect to any criminal action or proceeding, if he or she had no reasonable cause to believe such conduct was unlawful. In actions brought by or in the right of the corporation, a corporation may indemnify such person against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner that person reasonable believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which that person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person in fairly and reasonable entitled to indemnification for such expenses which the Court of Chancery or other such court shall deem proper. To the extent that such person has been successful on the merits or otherwise in defending any such action, suit or proceeding referred to above or any claim, issue or matter therein, he or she is entitled to indemnification for expenses (including attorneys' fees) actually and reasonable incurred by such person in connection therewith. The indemnification and advancement of expenses provided for or granted pursuant to Section 145 is not exclusive of any other rights of indemnification or advancement of expenses to which those seeking indemnification or advancement of expenses may be entitled, and a corporation may purchase and maintain insurance against liabilities asserted against any former or current, director, officer, employee or agent of the corporation, or a person who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not the power to indemnify is provided by the statute. Article Tenth of our Certificate of Incorporated and Article VII of our By- laws provide for the indemnification of its directors and officers as authorized by Section 145 of the DGCL. The directors and officers of us and our subsidiaries are insured (subject to certain exceptions and deductions) against liabilities which they may incur in their capacity as such including liabilities under the Securities Act, under liability insurance policies carried by us. 59 SELLING STOCKHOLDERS The following table sets forth information regarding each selling stockholder and the amount of our common stock that it may offer under this prospectus. When we refer to the "selling stockholders" in this prospectus, we mean those persons listed in the table below, as well as the pledgees, donees, assignees, transferees, successors and others who hold any of the selling securityholders' interest. The shares of our common stock offered by this prospectus were originally sold by us in a number of private placements and privately negotiated debt for equity exchanges. Since the date that we received the information from the selling stockholders, one or more selling stockholders identified below may have sold, transferred or otherwise disposed of all or a substantial portion of the shares of our common stock held by it in one or a series of transactions exempt from the Securities Act. Information regarding the selling stockholders may change from time to time and any changed information will be set forth in a prospectus supplement to the extent required. Unless set forth below, to the best of our knowledge, none of the selling stockholders has, or within the past three years has had, any material relationship with us, any of our predecessors or affiliates, or beneficially owns in excess of 1% of our outstanding common stock. J.P. Morgan Securities Inc. is an affiliate of JPMorganChase, a beneficial owner of more than 5% of our common stock and the parent of the Chase Manhattan Bank, one of our lenders. A selling stockholder may from time to time offer and sell any or all of its securities under this prospectus. Because a selling stockholder is not obligated to sell the shares of our common stock held by it, we cannot estimate the number of shares of our common stock that a selling stockholder will beneficially own after this offering. Beneficial ownership is based upon 493,346,010 shares of common stock outstanding as of June 30, 2001. *Represents less than one per cent of our outstanding common stock.
Numbers of shares Number of shares of of common stock common stock owned Percentage of covered by this Name prior to this offering outstanding shares prospectus - ---- ---------------------- ------------------ ----------------- Allmerica Investment Trust..................................... 149,200 * 149,200 American Century Mutual Funds, Inc............................ 5,025,000 1.0 3,000,000 American Century World Mutual Funds, Inc....................... 947,500 * 400,000 Asset Allocation............................................... 269,900 * 269,900 AUSA Life Insurance Co.-TIM.................................... 1,256,209 * 1,256,209 Balanced Investment Growth Fund................................ 85,000 * 85,000 Bessent Global Equity Master Fund.............................. 2,563,821 * 2,310,000 Broadsworth Limited............................................ 16,100 * 16,100 Canadian Balanced Fund......................................... 706,625 * 706,625 Canadian Balanced GIF.......................................... 11,400 * 11,400 Canadian Equity Fund........................................... 549,800 * 549,800 Canadian Equity GIF............................................ 6,500 * 6,500 Chesapeake Partners International Ltd.......................... 1,925,000(1) * 704,515 Chesapeake Partners Institutional Fund Limited Partnership..... 1,925,000(2) * 31,762 Chesapeake Partners Limited Partnership........................ 1,925,000(3) * 1,188,723 Cisalpina Core Growth Equity................................... 14,300 * 14,300 Cisalpina/Putnam Global Value.................................. 389,400 * 389,400 Cisalpina USA Equity Fund...................................... 89,400 * 89,400 Cisalpina US Equity Value...................................... 63,000 * 63,000
60
Numbers of shares Number of shares of of common stock common stock owned Percentage of covered by this Name prior to this offering outstanding shares prospectus - ---- ---------------------- ------------------ ----------------- Commonwealth of Massachusetts Pension Reserve Investment Management Board(4).......................................... 35,821 * 35,821 Commonwealth of Puerto Rico State Ins. Corp.................... 7,600 * 7,600 Connecticut General Life Insurance Co.......................... 203,000 * 203,000 Curators Of The University Of Missouri(4)...................... 6,000 * 6,000 Diversified Equity Trust....................................... 1,033,300 * 1,033,300 Diversified Investment Advisors, Inc........................... 185,100 * 185,100 EQ Putnam Investors Growth..................................... 62,500 * 62,500 Equitable Advisors Trust-FI Mid Cap(4)......................... 9,000 * 9,000 Evergreen Masters Fund......................................... 10,100 * 10,100 Fidelity Advisor Series I: Fidelity Advisor Asset Allocation Fund(5)...................................................... 10,268 * 10,268 Fidelity Advisor Series I: Fidelity Advisor Balanced Fund(5)... 212,000 * 212,000 Fidelity Advisor Series I: Fidelity Advisor Dividend Growth Fund(5)...................................................... 193,000 * 193,000 Fidelity Advisor Series I: Fidelity Advisor Dynamic Capital Appreciation Fund(5)......................................... 47,000 * 47,000 Fidelity Advisor Series I: Fidelity Advisor Equity Growth Fund(5)...................................................... 1,300,000 * 1,300,000 Fidelity Advisor Series I: Fidelity Advisor Growth & Income Fund(5)...................................................... 240,000 * 240,000 Fidelity Advisor Series I: Fidelity Advisor Growth Opportunities Fund(5)........................................ 1,143,000 * 1,143,000 Fidelity Advisor Series I: Fidelity Advisor Mid Cap Fund(5).... 249,000 * 249,000 Fidelity Advisor Series II: Fidelity Advisor High Income Fund(5)...................................................... 3,012 * 3,012 Fidelity Advisor Series II: Fidelity Advisor High Yield Fund(5) 616,472 * 616,472 Fidelity Advisor Series VIII: Fidelity Advisor Global Equity Fund(5)...................................................... 2,000 * 2,000 Fidelity American Opportunities Fund(5)........................ 5,000 * 5,000 Fidelity Beacon Street Trust: Fidelity Tax Managed Stock Fund(5)...................................................... 10,000 * 10,000 Fidelity Canadian Asset Allocation Fund(5)..................... 428,000 * 428,000 Fidelity Canadian Balanced Fund(5)............................. 1,109 * 1,109 Fidelity Capital Trust: Fidelity Value Fund(5)................. 452,000 * 452,000
61
Numbers of shares Number of shares of of common stock common stock owned Percentage of covered by this Name prior to this offering outstanding shares prospectus - ---- ---------------------- ------------------ ----------------- Fidelity Charles Street Trust: Fidelity Asset Manager(5)....... 1,249,574 * 1,249,574 Fidelity Charles Street Trust: Fidelity Asset Manager: Aggressive(5)................................................ 41,558 * 41,558 Fidelity Charles Street Trust: Fidelity Asset Manager: Growth(5).................................................... 477,959 * 477,959 Fidelity Charles Street Trust: Fidelity Asset Manager: Income(5).................................................... 3,821 * 3,821 Fidelity Commonwealth Trust: Fidelity Mid-Cap Stock Fund(5).... 688,000 * 688,000 Fidelity Contrafund(5)......................................... 3,366,000 * 3,366,000 Fidelity Devonshire Trust: Fidelity Equity-Income Fund(5)...... 16,226 * 16,226 Fidelity Financial Trust: Fidelity Independence Fund(5)........ 670,000 * 670,000 Fidelity Fixed-Income Trust: Fidelity High Income Fund(5)...... 68,468 * 68,468 Fidelity Global Asset Allocation Fund(5)....................... 8,019 * 8,019 Fidelity Hastings Street Trust: Fidelity Fund(5)............... 1,339,000 * 1,339,000 Fidelity High Yield Collective Trust(5)........................ 17,619 * 17,619 Fidelity International Portfolio Fund(5)....................... 508,000 * 508,000 Fidelity Investment Trust: Fidelity Worldwide Fund(5).......... 85,000 * 85,000 Fidelity Magellan Fund(5)...................................... 8,621,300 1.7 8,621,300 Fidelity Securities Fund: Fidelity Blue Chip Growth Fund(5).... 2,254,000 * 2,254,000 Fidelity Securities Fund: Fidelity Dividend Growth Fund(5)..... 1,404,000 * 1,404,000 Fidelity Summer Street Trust: Fidelity Capital & Income Fund(5) 306,000 * 306,000 Fidelity Trend Fund(5)......................................... 435,000 * 435,000 Fidelity Union Street Trust: Fidelity Export and Multinational Fund(5)...................................................... 52,000 * 52,000 Fir Tree Institutional Value Fund, L.P......................... 9,459,417 1.8 6,300,260(6) Fir Tree Recovery Master Fund, L.P............................. 2,021,860 * 1,295,470(6) Fir Tree Value Fund, L.P....................................... 18,710,291 3.6 12,385,440(6) Fir Tree Value Partners LDC.................................... 1,825,550 * 1,235,600(6) Ford Motor Company Master Trust Fund(4)........................ 208,000 * 208,000 Global Growth & Income (Global Value Equity)................... 1,900 * 1,900 Global Small Cap Core Equity Fund.............................. 2,533 * 2,533
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Numbers of shares Number of shares of of common stock common stock owned Percentage of covered by this Name prior to this offering outstanding shares prospectus - ---- ---------------------- ------------------ ----------------- Idex Equity Fund............................................... 55,000 * 55,000 I.G. Global Equity Fund-U.S.(4)................................ 2,000 * 2,000 Illinois Wesleyan-Core Growth.................................. 5,700 * 5,700 ING Select Large Cap(4)........................................ 1,000 * 1,000 International Balanced Fund.................................... 100,000 * 100,000 International Investment Fund: Global Core..................... 1,113,667 * 1,113,667 International Investment Fund: Putnam Core Equity A (EX Japan). 223,100 * 223,100 International Investment Fund-Putnam Global Growth Equity A Fund......................................................... 6,800 * 6,800 International Investment Fund: Putnam GLB ASS ALL FD B2 Non-US. 32,900 * 32,900 International Investment Fund-Putnam US Core Growth Equity Fund 14,200 * 14,200 JHV-Health Sciences Fund....................................... 3,900 * 3,900 JNL Series Trust-JNL/Putnam Growth Series...................... 65,000 * 65,000 J.P. Morgan Securities Inc..................................... 1,148,808 * 1,136,108 LibertyView Funds, L.P......................................... 4,016,211 * 4,016,211 LibertyView Fund, LLC.......................................... 721,606 * 721,606 LibertyView Global Volatility Fund, L.P........................ 1,020,453 * 1,020,453 Lincoln National Global Asset Allocation Fund Inc.............. 3,100 * 3,100 Manufacturers Investment Trust - Equity Trust Mid Cap Growth Sub Portfolio(4)............................................. 59,000 * 59,000 Manufacturers Investment Trust - Equity Trust Mid Cap Value Sub Portfolio(4)................................................. 71,000 * 71,000 Manulife-Global Equity Trust................................... 542,100 Marathon Master Fund Ltd....................................... 1,473,405 * 1,473,405 Marathon Special Opportunity Fund Ltd.......................... 785,000 * 785,000 Marsh & McLennan Equity Income................................. 27,600 * 27,600 Marsh & McLennan Quality Growth................................ 15,900 * 15,900 Mass Mutual Blue Chip Growth Fund(4)........................... 46,000 * 46,000 MCN Energy Group Employee Benefit Plans Master Trust........... 7,800 * 7,800 Michigan BAC Pension Fund...................................... 3,000 * 3,000
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Numbers of shares Number of shares of of common stock common stock owned Percentage of covered by this Name prior to this offering outstanding shares prospectus - ---- ---------------------- ------------------ ----------------- Nissay-Putnam Foreign Equity Mother Fund....................... 20,300 * 20,300 Oregon Community Foundation.................................... 3,400 * 3,400 OZF Credit Opportunities Master Fund, Ltd...................... 1,479,537 * 1,171,353 OZ Master Fund, Ltd............................................ 7,068,097 1.4 6,033,090 Parker-Hannifin Corporation.................................... 14,300 * 14,300 Penn Series Fund Inc Value Equity Fund......................... 46,700 * 46,700 Pension Investment Committee of General Motors for General Motors Employees Domestic Group Pension Trust(4)............. 105,525 * 105,525 Pirelli Armstrong Tire Corp.................................... 4,200 * 4,200 Putnam Advisory Acct #13480.................................... 3,500 * 3,500 Putnam Asset Allocation Funds-Balanced Portfolio............... 63,300 * 63,300 Putnam Asset Allocation Funds-Balanced Portfolio............... 25,000 * 25,000 Putnam Asset Allocation Funds-Conservative Portfolio........... 19,100 * 19,100 Putnam Asset Allocation Funds-Conservative Portfolio........... 8,000 * 8,000 Putnam Asset Allocation Funds-Growth Portfolio................. 34,100 * 34,100 Putnam Balanced Retirement..................................... 58,900 * 58,900 Putnam Canadian Global Trust................................... 29,400 * 29,400 Putnam Canadian Global Trust: Global Core Equity............... 212,400 * 212,400 Putnam Capital Appreciation Small Cap.......................... 518,700 * 518,700 Putnam Convertible Income-Growth............................... 167,700 * 167,700 Putnam Convertible Opportunities & Income Trust................ 6,500 * 6,500 Putnam Core Growth Equity Fund LLC............................. 60,400 * 60,400 Putnam Core Growth Trust....................................... 119,800 * 119,800 Putnam/Dublin George Putnam Fund............................... 2,300 * 2,300 Putnam Equity Income Fund...................................... 315,100 * 315,100 Putnam Global Core Equity Fund LLC............................. 17,100 * 17,100 Putnam Global Growth & Income Fund Foreign..................... 117,000 * 117,000 Putnam Health Sciences Dublin.................................. 400 * 400 Putnam Health Sciences Trust................................... 1,151,400 * 1,151,400
64
Numbers of shares Number of shares of of common stock common stock owned Percentage of covered by this Name prior to this offering outstanding shares prospectus - ---- ---------------------- ------------------ ----------------- Putnam Investors-Dublin........................................ 17,400 * 17,400 Putnam Investors Fund.......................................... 1,956,867 * 1,956,867 Putnam Large Cap Value Trust................................... 7,700 * 7,700 Putnam Oddo USA................................................ 15,100 * 15,100 Putnam Tax Smart Equity Fund................................... 227,000 * 227,000 Putnam Tobacco-Free Core Growth Equity Fund LLC................ 9,700 * 9,700 Putnam US Core Fund............................................ 18,200 * 18,200 Putnam US Core II Fund......................................... 455,500 * 455,500 Putnam Variable Trust-Putnam VT Capital Appreciation Fund...... 3,400 * 3,400 Putnam Variable Trust-Putnam VT The George Putnam Fund of Boston....................................................... 25,500 * 25,500 Putnam Variable Trust-Putnam VT Global Asset Allocation Fund... 6,600 * 6,600 Putnam Variable Trust-Putnam VT Investors Fund................. 182,400 * 182,400 Putnam Voyager-Core Diversified................................ 3,375,833 * 3,375,833 Putnam Voyager-Core Diversified................................ 2,142,800 * 2,142,800 Putnam Voyager-Core Diversified................................ 159,900 * 159,900 Putnam VT Health Sciences Fund-Sector B........................ 88,700 * 88,700 Putnam VT Voyager-Core Diversified............................. 697,500 * 697,500 Putnam VT Voyager-Core Diversified............................. 472,500 * 472,500 Putnam VT Voyager-Core Diversified............................. 34,900 * 34,900 Putnam World Trust-CG Equity Fund.............................. 17,600 * 17,600 Putnam World Trust Global Core Equity.......................... 19,200 * 19,200 Quantum Partners Bessent Global................................ 398,979 * 358,000 Roman Catholic Archbishop of Boston............................ 15,600 * 15,600 Salomon Smith Barney Inc....................................... 4,681,221 * 4,681,221 Sceptre Global Equity Fund..................................... 39,200 * 39,200 Sceptre Pooled Investment Fund................................. 687,100 * 687,100 Seasons Series Trust-Core Growth............................... 10,500 * 10,500 Segregated Fund "1"............................................ 1,400 * 1,400 Segregated Fund "A"............................................ 6,200 * 6,200 Society For Preservation Of NE Antiquities Inc................. 4,900 * 4,900 Stichting Pensionenfonds Voor De Woningcorporateis............. 23,600 * 23,600 Strategic Global Fund: Core Growth Equity...................... 9,600 * 9,600
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Numbers of shares Number of shares of of common stock common stock owned Percentage of covered by this Name prior to this offering outstanding shares prospectus - ---- ---------------------- ------------------ ----------------- SunAmerica Series Trust........................................ 111,300 * 111,300 TALIAC-Corporate............................................... 625,668 * 625,668 TALIAC-Separate Account TBAL................................... 1,225,400 * 1,225,400 TALIAC-Separate Account TEF.................................... 7,000,000 1.4 7,000,000 The George Putnam Fund of Boston............................... 295,900 * 295,900 The Robert Wood Johnson Foundation............................. 15,100 * 15,100 TOLIC-Corporate................................................ 3,539,433 * 3,539,433 TOLIC-Separate Account A....................................... 5,500,000 1.1 5,500,000 TOLIC-Separate Account B....................................... 540,000 * 540,000 Transamerica Aggressive Growth Fund............................ 426,000 * 426,000 Transamerica Growsafe US Bal USD............................... 86,800 * 86,800 Transamerica Growsafe US Eq Fd 2............................... 9,354 * 9,354 Transamerica Growsafe US Eq USD................................ 320,000 * 320,000 Transamerica Premier Agg. Growth............................... 720,838 * 720,838 Transamerica Premier Balanced.................................. 494,000 * 494,000 Transamerica Premier Equity.................................... 950,000 * 950,000 Transamerica Premier Value..................................... 112,400 * 112,400 Transamerica Value Fund........................................ 675,000 * 675,000 TVIF-Growth Portfolio.......................................... 1,300,000 * 1,300,000 University of Missouri Retirement, Disability and Death Benefit Trust Fund(4)................................................ 28,000 * 28,000 US Chamber of Commerce......................................... 4,700 * 4,700 Variable Insurance Products Fund: Equity-Income Portfolio(5)... 8,323 * 8,323 Variable Insurance Products Fund: Growth Portfolio(5).......... 1,450,000 * 1,450,000 Variable Insurance Products Fund III: Balanced Portfolio(5).... 30,392 * 30,392 Variable Insurance Products Fund II: Contrafund Portfolio(5)... 849,000 * 849,000 Variable Insurance Products Fund III: Dynamic Capital Appreciation Portfolio(5).................................... 1,000 * 1,000 Variable Insurance Products Fund III: Growth Opportunities Portfolio(5)................................................. 108,000 * 108,000 Variable Insurance Products Fund III: Mid Cap Portfolio(5)..... 98,000 * 98,000 Wisconsin Physicians Service Ins Corp.......................... 3,300 * 3,300 Woolworth Group - Global Core ex Australia..................... 26,700 * 26,700
66 - --------------- (1) Beneficial ownership includes shares held by Chesapeake Partners Limited Partnership and Chesapeake Partners Institutional Fund Limited Partnership. (2) Beneficial ownership includes shares held by Chesapeake Partners Limited Partnership and Chesapeake Partners International Ltd. (3) Beneficial ownership includes shares held by Cheaspeake Partners International Limited and Chesapeake Partners Institutional Fund Limited Partnership. (4) Shares indicated as owned by such entity are owned directly by various private investment accounts, primarily employee benefit plans for which Fidelity Management Trust Company ("FMTC") serves as trustee or managing agent. FMTC is a wholly-owned subsidiary of FMR (as defined in footnote 5) and a bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, as amended. These holdings are as of July 9, 2001. (5) The entity is either an investment company or a portfolio of an investment company registered under Section 8 of the Investment Company Act of 1940, as amended, or a private investment account advised by Fidelity Management & Research Company ("FMR Co."). FMR Co. is a Massachusetts corporation and an investment advisor registered under Section 203 of the Investment Advisers Act of 1940, as amended, and provides investment advisory services to each of such Fidelity entities identified above, and to other registered investment companes and to certain other funds which are generally offered to a limited group of investors. FMR Co. is a wholly-owned subsidiry of FMR Corp. ("FMR"), a Massachusetts corporation. These holdings are as of July 9, 2001. (6) Represents shares of our common stock issuable on conversion of shares of Series C preferred stock. Each share of Series C preferred stock shall automatically convert into ten shares of common stock upon the effectiveness of the registration statement of which this prospectus forms a part. 67 PLAN OF DISTRIBUTION The selling stockholders, or their pledgees, donees, transferees, or any of their successors in interest selling shares received from a named selling stockholder as a gift, partnership distribution or other non-sale-related transfer after the date of this prospectus (all of whom may be selling stockholders), may sell the shares of common stock from time to time on any stock exchange or automated interdealer quotation system on which the common stock is listed, in the over-the-counter market, in privately negotiated transactions or otherwise, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at prices otherwise negotiated. The selling stockholders may sell the shares of common stock by one or more of the following methods, without limitation: (a) block trades in which the broker or dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by the broker or dealer for its own account pursuant to this prospectus; (c) an exchange distribution in accordance with the rules of any stock exchange on which the common stock is listed; (d) ordinary brokerage transactions and transaction in which the broker solicits purchases; (e) privately negotiated transactions; (f) short sales; (g) through the writing of options on the shares, whether or the options are listed on an options exchange; (h) through the distribution of the shares by any selling stockholder to its partners, members or stockholders; (i) one or more underwritten offerings on a firm commitment or best efforts basis; and (j) any combination of any of these methods of sale. The selling stockholder may also transfer the shares by gift. We do not know of any arrangements by the selling stockholders for the sale of any of the shares. The selling stockholders may engage brokers and dealers, and any brokers or dealers may arrange for other brokers or dealers to participate in effecting sales of the shares. These brokers, dealers or underwriters may act as principals, or as an agent of a selling stockholder. Broker-dealers may agree with a selling stockholder to sell a specified number of the shares at a stipulated price per share. If a broker-dealer is unable to sell shares acting as agent for a selling stockholder, it may purchase as principal any unsold shares at the stipulated price. Broker-dealers that acquire shares as principals may thereafter resell the shares from time to time in transactions on any stock exchange or automated interdealer quotation system on which the shares are then listed, at prices and on terms then prevailing at the time of sale, at prices related to the then-current market price or in negotiated transactions. Broker-dealers may use block transactions and sales to and through broker-dealers, including transactions of the nature described above. The selling stockholders may also sell the shares in accordance with Rule 144 under the Securities Act, rather than pursuant to this prospectus, regardless of whether the shares are covered by this prospectus. From time to time, one or more of the selling stockholders may pledge, hypothecate or grant a security interest in some or all of the shares owned by them. The pledgees, secured parties or persons to whom the shares have been hypothecated will, upon foreclosure in the event of default, be deemed to be selling stockholders. The number of a selling stockholder's shares offered under this prospectus will decrease as and when it takes such actions. The plan of distribution for the selling stockholder's shares will otherwise remain unchanged. In addition, a selling stockholder may, from time to time, sell the shares short, and, in those instances, this prospectus may be delivered in connection with the short sales and the shares offered under this prospectus may be used to cover short sales. 68 To the extent required under the Securities Act, the aggregate amount of selling stockholders' shares being offered and the terms of the offering, the names of any agents, brokers, dealers or underwriters and any applicable commission with respect to a particular offer will be set forth in an accompanying prospectus supplement. Any underwriters, dealers, brokers or agents participating in the distribution of the shares may received compensation in the form of underwriting discounts, concessions, commissions or fees from a selling stockholder and/or purchasers of selling stockholders' shares of common stock, for whom they may act, which compensation as to a particular broker-dealer might be in excess of customary commissions. The selling stockholders and any underwriters, broker, dealers or agents that participate in the distribution of the shares may be deemed to be "underwriters" within the meaning of the Securities Act, and any discounts, concessions, commissions or fees received by them and any profit on the resale of the shares sold by them may be deemed to be underwriting discounts and commissions. A selling stockholder may enter into hedging transactions with broker- dealers and the broker-dealers may engage in short sales of the shares in the course of hedging the positions they assume with the selling stockholder, including, without limitation, in connection with distributions of the shares by those broker-dealers. A selling stockholder may enter into option or other transactions with one or more broker-dealers that involve the delivery of the shares offered hereby to the broker-dealers, who may then resell or otherwise transfer those shares. A selling stockholder may also loan or pledge the shares offered hereby to a broker-dealer and the broker-dealer may sell the shares offered hereby so loaned or upon a default may sell or otherwise transfer the pledged shares offered hereby. The selling stockholder and other persons participating in the sale or distribution of the shares will be subject to applicable provisions on the Securities Exchange Act, as amended, and the rules and regulations thereunder, including Regulation M. This regulation may limit the timing of purchases and sales of any of the shares by the selling stockholders and any other person. The anti-manipulation rules under the Securities Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliate. Furthermore, Regulation M may restrict the ability of any person engaged in the distribution of the shares to engage in market-making activities with respect to the particular shares being distributed for a period of up to five business days before the distribution. These restrictions may affect the marketability of the shares and the ability of any person or entity to engage in market-making activities with respect to the shares. In order to comply with the securities laws of certain states, if applicable, the shares must be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the shares may not be sold unless thay have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with. We have agreed to indemnify in certain circumstances the selling stockholders and any brokers, dealers and agents who may be deemed to be underwriters, if any, of the shares covered by the registration statement, against certain liabilities, including liabilities under the Securities Act. The selling stockholders have agreed to indemnify us in certain circumstances against certain liabilities, including liabilities under the Securities Act. The shares of common stock offered hereby originally issued to the selling stockholders pursuant to an exemption from the registration requirements of the Securities Act. We agreed to register the shares under the Securities Act and to keep the registration statement of which this prospectus is a part effective until the earlier of the date on which the selling stockholders have sold all of the shares, the shares covered hereby are no longer outstanding or the holders are entitled to sell their shares under Rule 144 under the Securities Act. We have agreed to pay certain expenses in connection with this offering, including, in certain circumstances, the fees and expenses of counsel to the selling stockholders, but not including underwriting discounts, concessions, commissions or fees of the selling stockholders. We will not receive any proceeds from sales of any shares by the selling stockholders. We can not assure you that the selling stockholders will sell all or any portion of the shares offered hereby. We may suspend the use of this prospectus by the selling stockholder under certain circumstances. Any common stock sold by a selling stockholder pursuant to a prospectus supplement will be listed on the NYSE, subject to official notice of issuance. 69 LEGAL MATTERS Certain legal matters as to the validity of the shares offered by this prospectus will be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Nancy A. Lieberman, a partner of Skadden, Arps, Slate, Meagher & Flom LLP, is a director and stockholder of Rite Aid. EXPERTS The consolidated financial statements of the Company and its consolidated subsidiaries, except PCS Holding Corporation and subsidiaries which has been included in discontinued operations in such consolidated financial statements, as of March 3, 2001 and February 26, 2000, and for each of the three years in the period ended March 3, 2001 included in this prospectus and related financial statement schedule included elsewhere in the registration statement have been audited by Deloitte & Touche LLP as stated in their reports appearing herein and elsewhere in the registration statement. The financial statements of PCS Holding Corporation and subsidiaries for the year ended February 26, 2000 and the thirty-six days ended February 27, 1999, not separately included herein or elsewhere in the registration statement have been audited by Ernst & Young LLP, as stated in their report, which is included herein. Such financial statements and related financial statement schedule of the Company and its consolidated subsidiaries are included herein and elsewhere in the registration statement in reliance upon the respective reports of such firms given upon their authority as experts in accounting and auditing. All of the foregoing firms are independent auditors. 70 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Reports ............................................ F-2 Consolidated Balance Sheets as of March 3, 2001 and February 26, 2000 .... F-4 Consolidated Statements of Operations for the fiscal years ended March 3, 2001, February 26, 2000 and February 27, 1999........................... F-5 Consolidated Statements of Stockholders' Equity (Deficit) for the fiscal years ended March 3, 2001, February 26, 2000 and February 27, 1999...... F-6 Consolidated Statements of Cash Flows for the fiscal years ended March 3, 2001, February 26, 2000 and February 27, 1999........................... F-7 Notes to Consolidated Financial Statements ............................... F-8
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Rite Aid Corporation Camp Hill, Pennsylvania We have audited the accompanying consolidated balance sheets of Rite Aid Corporation and subsidiaries as of March 3, 2001 and February 26, 2000, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended March 3, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the consolidated financial statements of PCS Holding Corporation (a consolidated subsidiary of Rite Aid Corporation), which has been included in discontinued operations in the accompanying consolidated financial statements, which statements reflect total assets constituting 17% of consolidated total assets as of February 26, 2000, and revenues of $1,264.7 million and $104.3 million for the years ended February 26, 2000 and February 27, 1999, respectively. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for PCS Holding Corporation, is based solely on the report of such other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of Rite Aid Corporation and subsidiaries at March 3, 2001, and February 26, 2000, and the results of their operations and their cash flows for each of the three years in the period ended March 3, 2001, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 3 to the consolidated financial statements, the Company changed its application of the last-in, first-out ("LIFO") method of accounting for inventory in 2000. /s/ DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania May 8, 2001, except for Note 25, as to which the date is May 16, 2001 F-2 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholder PCS Holding Corporation We have audited the consolidated balance sheets of PCS Holding Corporation and Subsidiaries (the Company) as of February 27, 1999 and February 26, 2000, and the related consolidated statements of operations, shareholder's equity, and cash flows for the thirty-six days ended February 27, 1999 and the year ended February 26, 2000 (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 consolidated financial position of PCS Holding Corporation and Subsidiaries at February 27, 1999 and February 26, 2000, and the consolidated results of their operations and their cash flows for the thirty-six days ended February 27, 1999 and the year ended February 26, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP April 21, 2000 F-3 RITE AID CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except share amounts)
March 3, 2001 February 26, 2000 ------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents ............... $ 92,290 $ 179,757 Accounts receivable, net ............... 503,527 152,035 Inventories, net ....................... 2,444,525 2,472,437 Investment in AdvancePCS ............... 491,198 -- Refundable income taxes ................. -- 147,599 Prepaid expenses and other current assets.................................. 85,292 63,659 ----------- ----------- Total current assets .................. 3,616,832 3,015,487 PROPERTY, PLANT AND EQUIPMENT, NET ....... 3,041,008 3,445,828 GOODWILL AND OTHER INTANGIBLES ........... 1,067,339 1,258,108 OTHER ASSETS ............................. 188,732 235,398 DEFERRED TAX ASSET ....................... -- 146,917 NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS.............................. -- 1,743,828 ----------- ----------- Total assets .......................... $ 7,913,911 $ 9,845,566 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current lease financing obligations ..... $ 28,603 $ 25,964 Short-term debt and current maturities of long-term debt ...................... 8,353 76,086 Accounts payable ....................... 896,390 854,062 Sales and other taxes payable ........... 31,562 33,662 Accrued salaries, wages and other current liabilities .................... 696,047 883,003 Net current liabilities of discontinued operations.............................. -- 390,053 ----------- ----------- Total current liabilities ............. 1,660,955 2,262,830 CONVERTIBLE SUBORDINATED NOTES .......... 357,324 649,986 LONG-TERM DEBT LESS CURRENT MATURITIES .. 4,428,871 4,738,661 LEASE FINANCING OBLIGATIONS LESS CURRENT MATURITIES.............................. 1,071,397 1,122,171 OTHER NONCURRENT LIABILITIES ............. 730,342 619,952 ----------- ----------- Total liabilities ..................... 8,248,889 9,393,600 COMMITMENTS AND CONTINGENCIES ........... -- -- REDEEMABLE PREFERRED STOCK ............... 19,457 19,457 STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock, par value $1 per share; liquidation value $100 per share; 20,000,000 shares authorized: shares issued -- 3,340,000 and 3,083,000 ......................... 333,974 308,250 Common stock, par value $1 per share; 600,000,000 shares authorized: shares issued and outstanding -- 348,055,000 and 259,927,000 ....................... 348,055 259,927 Additional paid-in capital .............. 2,065,301 1,292,337 Accumulated deficit ..................... (3,171,956) (1,421,817) Deferred compensation ................... 19,782 (6,188) Accumulated other comprehensive income .. 50,409 -- ----------- ----------- Total stockholders' equity (deficit) .. (354,435) 432,509 ----------- ----------- Total liabilities and stockholders' equity (deficit).................... $ 7,913,911 $ 9,845,566 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 RITE AID CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands of dollars, except per share amounts)
Year Ended ------------------------------------------ March 3, February 26, February 27, 2001 2000 1999 (53 weeks) (52 weeks) (52 weeks) ----------- ------------ ------------ REVENUES.......................................... $14,516,865 $13,338,947 $12,438,442 COSTS AND EXPENSES: Cost of goods sold, including occupancy costs ... 11,151,490 10,213,428 9,406,831 Selling, general and administrative expenses .... 3,458,307 3,607,810 3,200,563 Goodwill amortization ........................... 20,670 24,457 26,055 Store closing and impairment charges ............ 388,078 139,448 195,359 Interest expense ................................ 649,926 542,028 274,826 Loss on debt conversions and modifications ...... 100,556 -- -- Share of loss from equity investments ........... 36,675 15,181 448 Gain on sale of fixed assets .................... (6,030) (80,109) -- ----------- ------------ ------------ 15,799,672 14,462,243 13,104,082 ----------- ------------ ------------ Loss from continuing operations before income taxes and cumulative effect of accounting change......... (1,282,807) (1,123,296) (665,640) INCOME TAX EXPENSE (BENEFIT)...................... 148,957 (8,375) (216,941) ----------- ----------- ----------- Loss from continuing operations before cumulative effect of accounting change.......... (1,431,764) (1,114,921) (448,699) INCOME (LOSS) FROM DISCONTINUED OPERATIONS, including income tax expense (benefit) of $13,846, $30,903, and $(5,925).................. 11,335 9,178 (12,823) LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS, net of income tax benefit of $734............... (168,795) -- -- CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net of income tax benefit of $18,200............ -- (27,300) -- ----------- ------------ ------------ NET LOSS ..................................... $(1,589,224) $(1,133,043) $ (461,522) =========== ============ ============ COMPUTATION OF LOSS APPLICABLE TO COMMON STOCKHOLDERS: Net loss ........................................ $(1,589,224) $(1,133,043) $ (461,522) Accretion of redeemable preferred stock ......... -- (97) -- Preferred stock conversion reset ................ (160,915) -- -- Cumulative preferred stock dividends ............ (25,724) (10,110) (627) ----------- ------------ ------------ Loss applicable to common stockholders ....... $(1,775,863) $(1,143,250) $ (462,149) =========== ============ ============ BASIC AND DILUTED (LOSS) INCOME PER SHARE: Loss from continuing operations ................. $ (5.15) $ (4.34) $ (1.74) Income (loss) from discontinued operations ...... (0.50) 0.04 (0.05) Cumulative effect of accounting change, net ..... -- (0.11) -- ----------- ------------ ------------ Net loss per share ........................... $ (5.65) $ (4.41) $ (1.79) =========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 RITE AID CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands, except per share amounts)
Preferred Stock Common Stock Additional Retained ------------------------------- ------------------ Paid-in Earnings Shares Class A Class B Shares Issued Capital (Deficit) ------ --------- --------- ------- -------- ---------- ----------- BALANCE FEBRUARY 28, 1998 .................... -- -- -- 258,214 $258,214 $1,354,917 $ 285,859 Net loss ..................................... (461,522) Other comprehensive income -- Minimum pension liability adjustment ........ Comprehensive loss .......................... Stock options exercised ...................... 633 633 8,603 Stock option income tax benefit .............. 5,807 Stock grants ................................. 14 14 669 Bond conversion .............................. 9 Cash dividends paid on common stock ($.4375 per share).................................. (113,111) ----- --------- --------- ------- -------- ---------- ----------- BALANCE FEBRUARY 27, 1999 .................... -- -- -- 258,861 258,861 1,370,005 (288,774) Net loss ..................................... (1,133,043) Other comprehensive income -- Minimum pension liability adjustment ........ Comprehensive loss .......................... Issuance of preferred shares ................. 3,000 300,000 Exchange of preferred shares ................. (300,000) 300,000 Stock options exercised ...................... 66 66 814 Stock option income tax benefit .............. 243 Stock grants ................................. 1,000 1,000 7,250 Issuance of common stock warrants ............ 8,500 Bond conversion .............................. 5 Dividends on preferred stock ................. 83 8,250 (8,250) Increase resulting from sale of stock by equity method investee...................... 2,929 Cash dividends paid on common stock ($.3450 per share).................................. (89,159) ----- --------- --------- ------- -------- ---------- ----------- BALANCE FEBRUARY 26, 2000 .................... 3,083 -- 308,250 259,927 259,927 1,292,337 (1,421,817) Net loss ..................................... (1,589,224) Other comprehensive (loss) -- Minimum pension liability adjustment ........ Appreciation of investment in AdvancePCS .... Comprehensive loss .......................... Preferred stock conversion reset ............. (160,915) 160,915 Accretion of convertible preferred stock ..... 160,915 (160,915) Stock grants ................................. 4,004 4,004 18,793 Bond conversion .............................. 84,124 84,124 604,574 Deferred compensation plans .................. Dividends on preferred stock ................. 257 25,724 (25,724) Increase resulting from sale of stock by equity method investee...................... 14,406 ----- --------- --------- ------- -------- ---------- ----------- BALANCE MARCH 3, 2001 ........................ 3,340 $ -- $ 333,974 348,055 $348,055 $2,065,301 $(3,171,956) ===== ========= ========= ======= ======== ========== ===========
Accumulated Other Deferred Comprehensive Compensation Income Total ------------ ------------- ----------- BALANCE FEBRUARY 28, 1998 .................... -- $ (787) $ 1,898,203 Net loss ..................................... (461,522) Other comprehensive income -- Minimum pension liability adjustment ........ 312 312 ----------- Comprehensive loss .......................... (461,210) Stock options exercised ...................... 9,236 Stock option income tax benefit .............. 5,807 Stock grants ................................. 683 Bond conversion .............................. 9 Cash dividends paid on common stock ($.4375 per share).................................. (113,111) -------- ------- ----------- BALANCE FEBRUARY 27, 1999 .................... -- (475) 1,339,617 Net loss ..................................... (1,133,043) Other comprehensive income -- Minimum pension liability adjustment ........ 475 475 ----------- Comprehensive loss .......................... (1,132,568) Issuance of preferred shares ................. 300,000 Exchange of preferred shares ................. -- Stock options exercised ...................... 880 Stock option income tax benefit .............. 243 Stock grants ................................. (6,188) 2,062 Issuance of common stock warrants ............ 8,500 Bond conversion .............................. 5 Dividends on preferred stock ................. -- Increase resulting from sale of stock by equity method investee...................... 2,929 Cash dividends paid on common stock ($.3450 per share).................................. (89,159) -------- ------- ----------- BALANCE FEBRUARY 26, 2000 .................... (6,188) -- 432,509 Net loss ..................................... (1,589,224) Other comprehensive (loss) -- Minimum pension liability adjustment ........ (622) (622) Appreciation of investment in AdvancePCS .... 51,031 51,031 ----------- Comprehensive loss .......................... (1,538,815) Preferred stock conversion reset ............. -- Accretion of convertible preferred stock ..... -- Stock grants ................................. (10,410) 12,387 Bond conversion .............................. 688,698 Deferred compensation plans .................. 36,380 36,380 Dividends on preferred stock ................. -- Increase resulting from sale of stock by equity method investee...................... 14,406 -------- ------- ----------- BALANCE MARCH 3, 2001 ........................ $ 19,782 $50,409 $ (354,435) ======== ======= ===========
The accompanying notes are an integral part of these consolidated financial statements F-6 RITE AID CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars)
Year Ended ------------------------------------------ March 3, February 26, February 27, 2001 2000 1999 ----------- ------------ ------------ OPERATING ACTIVITIES: Net loss ................................................ $(1,589,224) $(1,133,043) $ (461,522) Income (loss) from discontinued operations .............. 11,335 9,178 (12,823) Loss on disposal of discontinued operations ............. (168,795) -- -- ----------- ----------- ----------- Loss from continuing operations ......................... (1,431,764) (1,142,221) (448,699) Adjustments to reconcile to net cash (used in) provided by operations: Cumulative effect of change in accounting method....... -- 27,300 -- Depreciation and amortization.......................... 384,066 443,974 379,793 Store closings and impairment loss..................... 388,078 139,448 195,359 Gain on sale of fixed assets........................... (6,030) (80,109) -- Stock based compensation............................... 45,865 -- -- Write-off of deferred tax asset........................ 146,917 -- -- Loss on debt conversions and modifications............. 100,556 -- -- Changes in operating assets and liabilities, net of acquisitions: Accounts receivable................................... (351,492) (79,156) (3,833) Inventories........................................... 27,912 77,963 415,459 Income taxes receivable/payable....................... 147,599 25,390 (278,652) Accounts payable...................................... (66,462) (278,073) (129,500) Other liabilities..................................... (148,880) 196,938 103,836 Other................................................. 59,081 45,448 43,092 ----------- ----------- ----------- Net cash (used in) provided by continuing operations.. (704,554) (623,098) 276,855 Net cash provided by (used in) discontinued operations 3,758 365,375 (227,925) ----------- ----------- ----------- Net cash (used in) provided by operating activities... (700,796) (257,723) 48,930 ----------- ----------- ----------- INVESTING ACTIVITIES: Expenditures for property, plant and equipment .......... (132,504) (573,287) (1,222,674) Purchases of businesses, net of cash acquired ........... -- (24,454) (1,390,620) Net investment in equity method investee ................ -- (8,125) -- Intangible assets acquired .............................. (9,000) (67,783) (91,749) Proceeds from sale of discontinued operations ........... 710,557 -- -- Proceeds from dispositions .............................. 108,600 169,537 -- ----------- ----------- ----------- Net cash provided by (used in) continuing operations.. 677,653 (504,112) (2,705,043) Net cash used in discontinued operations.............. -- (48,021) (4,205) ----------- ----------- ----------- Net cash provided by (used in) investing activities... 677,653 (552,133) (2,709,248) ----------- ----------- ----------- FINANCING ACTIVITIES: Net proceeds from the issuance of long-term debt ........ -- 1,600,000 895,878 Net change in bank credit facilities .................... 324,899 716,073 -- Net (payments) proceeds of commercial paper borrowings .. (192,000) (1,591,125) 1,383,125 Net proceeds from the issuance of preferred stock ....... -- 300,000 -- Net proceeds from the issuance of redeemable preferred stock................................................... -- -- 23,559 Repurchase of redeemable preferred stock ................ -- (10,000) -- Proceeds from leasing obligations ....................... 6,992 74,898 504,990 Principal payments on long-term debt .................... (126,122) (68,113) (39,557) Cash dividends paid ..................................... -- (89,159) (113,111) Net proceeds from the issuance of common stock .......... -- 880 683 Deferred financing costs paid ........................... (78,093) (34,984) (5,928) Other ................................................... -- 6,621 10,702 ----------- ----------- ----------- Net cash provided by (used in) financing activities... (64,324) 905,091 2,660,341 ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... (87,467) 95,235 23 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.............. 179,757 84,522 84,499 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR.................... $ 92,290 $ 179,757 $ 84,522 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-7 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 1. Results of Operations and Financing During fiscal 2001, 2000 and 1999, the Company incurred net losses of $1,589,224, $1,133,043 and $461,522, respectively, and during fiscal 2001 net cash used in operating activities from continuing operations was $704,554. Since December 1999, management of the Company has taken a series of steps intended to stabilize and improve the operating results of the Company. Management believes that available cash and cash equivalents together with cash flow from operations, available borrowings under the senior credit facility and other sources of liquidity (including asset sales) will be sufficient to fund the Company's operating activities, investing activities and debt maturities for fiscal 2002. In addition, management believes that the Company will be in compliance with its existing debt covenant requirements throughout fiscal 2002. However, a substantial portion of its indebtedness which matures in August and September 2002 will require the Company to refinance the indebtedness at or before that time. 2. Summary of Significant Accounting Policies Description of Business The Company is a Delaware corporation and through its wholly-owned subsidiaries, operates retail drugstores in the United States. It is one of the largest retail drugstore chains in the United States, with 3,648 stores in operation as of March 3, 2001. The Company's drugstores' primary business is pharmacy services. It also sells a full selection of health and beauty aids and personal care products, seasonal merchandise and a large private label product line. The Company's continuing operations consists solely of the retail drug segment. Revenues from its retail drug stores are derived from:
Year Ended ------------------------------------------------------ March 3, 2001 February 26, 2000 February 27, 1999 ------------- ----------------- ----------------- Pharmacy..................... $ 8,639,288 $ 7,788,404 $ 6,737,710 Front-end.................... 5,877,577 5,550,543 5,700,732 ----------- ----------- ----------- $14,516,865 $13,338,947 $12,438,442 =========== =========== ===========
Discontinued Operations On October 2, 2000, the Company sold its wholly owned subsidiary PCS Health Systems, Inc. ("PCS"), a pharmacy benefits manager ("PBM"). Accordingly, for financial statement purposes, the assets, liabilities, results of operations and cash flows of this business have been segregated from those of continuing operations and are presented in the Company's financial statements as discontinued operations (see Note 24). Fiscal Year The Company's fiscal year ends on the Saturday closest to February 28. The fiscal year ended March 3, 2001 included 53 weeks. The fiscal years ended February 26, 2000 and February 27, 1999 both included 52 weeks. Reclassifications Certain reclassifications have been made to prior years' amounts to conform to current year classifications. Principles of Consolidation The consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. F-8 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 2. Summary of Significant Accounting Policies -- (Continued) Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, and highly liquid investments which are readily convertible to known amounts of cash and which have original maturities of three months or less when purchased. Inventories Inventories are stated at the lower of cost or market. Inventory balances include capitalization of certain costs related to purchasing, freight, and handling costs associated with placing inventory in its location and condition for sale. The Company uses the last-in, first-out ("LIFO") method of accounting for substantially all of its inventories (see Note 3). At March 3, 2001 and February 26, 2000, inventories were $381,466 and $340,740, respectively, lower than the amounts that would have been reported using the first-in, first-out ("FIFO") method. The Company calculates its FIFO inventory valuation using the retail method for store inventories and the cost method for warehouse inventories. The LIFO charge was $40,726, $34,614 and $36,469 for fiscal years 2001, 2000 and 1999, respectively. Impairment of Long-Lived Assets Asset impairments are recorded when the carrying value of assets are not recoverable. For purposes of recognizing and measuring impairment of long- lived assets, the Company categorizes assets of operating stores as "Assets to Be Held and Used" and assets of stores that have been closed as "Assets to Be Disposed Of". The Company evaluates assets at the store level because this is the lowest level of identifiable cash flows ascertainable to evaluate impairment. Assets being tested for recoverability at the store level include tangible long-lived assets, identifiable intangibles and allocable goodwill that arose in purchase business combinations. Corporate assets to be held and used are evaluated for impairment based on excess cash flows from the stores that support those assets. Enterprise goodwill not associated with assets being tested for impairment is evaluated based on a comparison of undiscounted future cash flows of the enterprise compared to the related net book value of the enterprise. The Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, the Company recognizes an impairment loss. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset. Property, Plant and Equipment Property, plant and equipment are stated at cost. The Company provides for depreciation using the straight-line method over the following useful lives: buildings - 30 to 45 years; equipment - 3 to 15 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful life of the asset or the term of the lease. Capitalized lease assets are recorded at the present value of minimum lease payments and amortized over the estimated economic life of the related property or term of the lease. The Company capitalizes direct internal and external development costs and direct external application development costs associated with internal-use software. Neither preliminary evaluation costs nor costs associated with the software after implementation are capitalized. For fiscal years 2001, 2000 and 1999, the Company capitalized costs of approximately $1,227, $4,595 and $9,667, respectively. F-9 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 2. Summary of Significant Accounting Policies -- (Continued) Intangible Assets Goodwill represents the excess of acquisition cost over the fair value of the net assets of acquired entities and is being amortized on a straight-line basis over 40 years. The value of favorable and unfavorable leases on stores acquired in business combinations are amortized over the terms of the leases on a straight-line basis. Patient prescription files purchased and those acquired in business combinations are amortized over their estimated useful lives of five to fifteen years. The value of assembled workforce acquired is amortized over its useful life of five years. Investments in Fifty Percent or Less Owned Subsidiaries Investments in affiliated entities for which the Company has the ability to exercise significant influence, but not control over the investee, and generally an ownership interest of the common stock of between 20% and 50%, are accounted for under the equity method of accounting and are included in other assets. Under the equity method of accounting, the Company's share of the investee's earnings or loss is included in the consolidated statements of operations. The portion of the Company's investment in an equity-method investee that exceeds its share of the underlying net equity of the investee, if any, is amortized over 7 to 30 years. Revenue Recognition The Company recognizes revenue from the sale of merchandise at the time the merchandise is sold. The Company records revenue net of an allowance for estimated future returns. Return activity is immaterial to revenues and results of operations in all periods presented. Vendor Rebates and Allowances Rebates and allowances received from vendors that are based on future purchases are initially deferred and are recognized as a reduction of cost of goods sold when the related inventory is sold. Rebates and allowances not tied directly to purchases are recognized as a reduction of selling, general and administrative expense on a straight-line basis over the related contract term. Stock-Based Compensation The Company accounts for its employee and director stock-based compensation plans under APB Opinion No. 25. Store Preopening Expenses and Closing Costs Costs incurred prior to the opening of a new store, associated with a remodeled store or related to the opening of a distribution facility, are charged against earnings as administrative and general expenses when incurred. When a store is closed, the Company expenses unrecoverable costs and accrues a liability equal to the present value of the remaining lease obligations, net of expected sublease income. Other store closing and liquidation costs are expensed when incurred and included in cost of goods sold. Advertising Advertising costs are expensed as incurred. Advertising expenses, net of reimbursements, for fiscal 2001, 2000 and 1999 were $214,891, $194,880 and $223,000, respectively. Insurance The Company is self-insured for certain general liability and workers' compensation claims. For claims that are self-insured, stop-loss insurance coverage is maintained for workers' compensation occurrences exceeding $250 and general liability occurrences exceeding $1,000. The Company utilizes actuarial studies as the basis for developing reported claims and estimating claims incurred but not reported relating to the Company's self-insurance. Workers' compensation claims are discounted to present value using a risk-free interest rate. F-10 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 2. Summary of Significant Accounting Policies -- (Continued) The Company is self-insured for all covered employee medical claims. Income Taxes Deferred income taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities. Deferred income tax expense (benefit) represents the change during the reporting period in the deferred tax assets and deferred tax liabilities, net of the effect of acquisitions and dispositions. Deferred tax assets include tax loss and credit carryforwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant Concentrations During fiscal 2001, the Company purchased approximately 93% of the dollar volume of its prescription drugs from a single supplier, McKesson HBOC, Inc. ("McKesson"), under a contract expiring April 2004. With limited exceptions, the Company is required to purchase all of its branded pharmaceutical products from McKesson. If the Company's relationship with McKesson was disrupted, the Company could have difficulty filling prescriptions, which would negatively impact the business. Derivatives The Company enters into interest rate swap agreements to hedge the exposure to increasing rates with respect to its variable rate debt. The differential to be paid or received as a result of these swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense related to the variable rate debt. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended by SFAS 138, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, will be required to be recorded on the balance sheet at fair value. If the derivative is designated and effective as a fair value hedge, the changes in the fair value of the derivative and the changes in the hedged item attributable to the hedged risk will be recognized in earnings. If the derivative is designated and effective as a cash-flow hedge, changes in the fair value of the effective portion of the derivative will be recorded in other comprehensive income ("OCI") and will be recognized in the income statement when the hedged item affects earnings. SFAS 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value will be recognized in earnings. On March 4, 2001, in connection with the adoption of the new Statement, the Company will record a reduction of approximately $29,000 in OCI as a cumulative transition adjustment for derivatives designated as cash flow-type hedges prior to adopting SFAS 133. Certain issues currently under consideration by the Derivatives Implementation Group ("DIG") may make it more difficult to qualify for cash flow hedge accounting in the future. Pending the results of the DIG deliberations, changes in the fair value of the Company's interest rate swaps may be recorded as a component of net income. F-11 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 3. Change in Accounting Method In fiscal 2000, the Company changed its application of the LIFO method of accounting by restructuring its LIFO pool structure through a combination of certain existing geographic pools. The reduction in the number of LIFO pools was made to more closely align the LIFO pool structure to the Company's store merchandise categories. The effect of this change in fiscal 2000 was a charge of $6,840 (net of income tax benefit of $4,560), or $.03 per diluted common share. The cumulative effect of the accounting change on periods prior to fiscal 2000 was a charge of $27,300 (net of income tax benefit of $18,200), or $.11 per diluted common share. The pro forma effect of this accounting change would have been a reduction in income of $6,360 (net of income tax benefit of $4,240) or $.02 per diluted common share for fiscal 1999. 4. Acquisitions and Dispositions On March 3, 1999, the Company purchased 25 drugstores from Edgehill Drugs, Inc. The purchase price was $24,454, net of cash acquired of $12. This acquisition was accounted for under the purchase method of accounting. The results of operations have been included in these consolidated financial statements since the date of acquisition. In September 1999, the Company signed a contract to sell 38 drugstores in California to Longs Drug Stores California, Inc. (Longs). During the third quarter of fiscal 2000, 32 stores were transferred to Longs and two stores were transferred in the first quarter of fiscal 2001. The remaining four stores were retained by the Company. A pre-tax gain of $80,109 was recognized in the third quarter of fiscal 2000 for the stores that were sold in that year. The immaterial gain on the sale of the two stores was recognized by the Company in fiscal 2001. 5. Earnings Per Share Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company subject to anti-dilution limitations. F-12 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 5. Earnings Per Share -- (Continued)
Year Ended ------------------------------------------- March 3, February 26, February 27, 2001 2000 1999 ------------ ------------ ------------ Numerator for earnings per share: Loss from continuing operations before cumulative effect of accounting change, net of tax ................... $ (1,431,764) $ (1,114,921) $ (448,699) Accretion of redeemable preferred stock ................................ (97) -- Preferred stock conversion reset ...... (160,915) Cumulative preferred stock dividends .. (25,724) (10,110) (627) ------------ ------------ ------------ Loss before cumulative effect of accounting change attributable to common stockholders .................. (1,618,403) (1,125,128) (449,326) Net income (loss) from discontinued operations, net of tax ............... 11,335 9,178 (12,823) Loss on disposal of discontinued operations, net of tax ............... (168,795) -- -- ------------ ------------ ------------ Total income (loss) from discontinued operations ........................... (157,460) 9,178 (12,823) Cumulative effect of accounting change -- (27,300) -- ------------ ------------ ------------ Net loss attributable to common stockholders............................ $ (1,775,863) $ (1,143,250) $ (462,149) ============ ============ ============ Denominator: Basic weighted average shares ......... 314,189,280 259,139,000 258,516,000 Diluted weighted average shares ....... 314,189,280 259,139,000 258,516,000 Basic and diluted loss per share: Loss from continuing operations ....... $ (5.15) $ (4.34) $ (1.74) Income (loss) from discontinued operations ........................... (0.50) 0.04 (0.05) Cumulative effect of accounting change, net .......................... -- (0.11) -- ------------ ------------ ------------ Net loss per share .................... $ (5.65) $ (4.41) $ (1.79) ============ ============ ============
In fiscal 2001, 2000 and 1999, no potential shares of common stock have been included in the calculation of diluted earnings per share because of the losses reported. At March 3, 2001, an aggregate of 126,526,540 potential common shares related to stock options, convertible preferred stock, convertible notes, warrants, stock appreciation rights and other have been excluded from the computation of diluted earnings per share. 6. Store Closing and Impairment Charges Store closing and impairment charges consist of:
Year Ended --------------------------------------- March 3, February 26, February 27, 2001 2000 1999 -------- ------------ ------------ Impairment charges ....................... $214,224 $120,593 $ 87,666 Store lease exit costs ................... 57,668 18,855 107,693 Impairment of investments ................ 116,186 -- -- -------- -------- -------- $388,078 $139,448 $195,359 ======== ======== ========
Impairment charges In fiscal 2001, 2000, and 1999 store closing and impairment charges include non-cash charges of $214,224, $120,593 and $87,666 respectively, for the impairment of long-lived assets (including allocable F-13 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 6. Store Closing and Impairment Charges -- (Continued) goodwill) at 495, 249 and 270 stores. These amounts include the write-down of long-lived assets at stores that were assessed for impairment because of management's intention to relocate or close the store or because of changes in circumstances that indicate the carrying value of an asset may not be recoverable. Store lease exit costs During fiscal 2001, 2000, and 1999, the Company recorded charges for 144, 224, and 422 stores, respectively, to be closed or relocated that were under long-term leases. Costs incurred to close a store, which principally include lease termination costs, are recorded at the time management commits to closing the store, which is the date the closure is formally approved by senior management, or in the case of a store to be relocated, the date the new property is leased or purchased. The Company calculates its liability for closed stores on a store-by-store basis. The calculation includes future minimum lease payments and related ancillary costs, from the date of closure to the end of the remaining lease term, net of estimated cost recoveries that may be achieved through subletting properties or through favorable lease terminations. As a result of focused efforts on cost recoveries for closed stores during fiscal 2001, the Company has experienced improved results, which has been reflected in the assumptions about future sublease income. This liability is discounted using a risk-free rate of interest. The Company evaluates these assumptions each quarter and adjusts the liability accordingly. The discount rates used to determine the liability were 4.71%, 6.60% and 5.22% at March 3, 2001, February 26, 2000 and February 27, 1999, respectively. Subsequent to the recording of lease accruals, management determined that certain stores would remain open or would not relocate. Accordingly, the Company reversed charges of $13,232 and $10,490 in fiscal 2001 and 2000, respectively, for lease accruals previously established for those stores. The reserve for store lease exit costs includes the following activity:
Year Ended --------------------------------------- March 3, February 26, February 27, 2001 2000 1999 -------- ------------ ------------ Balance--beginning of year .............. $212,812 $ 246,805 $ 191,453 Provision for present value of noncancellable lease payments of stores designated to be closed ....... 102,495 58,324 94,404 Changes in assumptions about future sublease income, terminations, etc. and change of interest rate (31,595) (28,979) 13,289 Reversals of reserves for stores that management has determined will remain open ................................. (13,232) (10,490) -- Interest accretion .................... 11,552 13,251 8,069 Cash payments, net of sublease income . (49,024) (66,099) (60,410) -------- --------- --------- Balance--end of year .................... $233,008 $212,812 $246,805 ======== ========= =========
In addition to store closings, the Company also closed or relocated certain distribution centers in its efforts to consolidate operations. During the second quarter of fiscal 2000, management approved a plan to close its leased distribution center in Las Vegas, Nevada and terminate all of its employees and, as a result, accrued termination benefit payments of $1,634 in the second quarter of 2000, with the charge included in selling, general and administrative expenses. Severance payments of $1,165 were made during fiscal year 2000 leaving a remaining liability of $469 at February 26, 2000, with remaining payments made during fiscal 2001. The operating lease for the distribution center was terminated in May 2000 at the end of the lease term with no additional liability to the Company. F-14 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 6. Store Closing and Impairment Charges -- (Continued) In the third quarter of fiscal 2000, management announced plans to close its South Nitro, West Virginia distribution center in the summer of 2000. As a result of this exit plan, the Company accrued termination benefits of $3,858 in the third quarter of fiscal 2000 for all of the 480 employees with the charge included in selling, general and administrative expenses. In the fourth quarter of fiscal 2000 management decided to not close the facility. However, prior to this decision the Company became obligated to pay $1,040 in severance costs related to 102 employees. The Company paid $540 in the fourth quarter of fiscal 2000 and the remaining $500 was paid in fiscal 2001. The remaining reserve of $2,818 was reversed to selling, general and administrative expenses in the fourth quarter of fiscal 2000. In the third quarter of fiscal 2000, management approved a plan to close and sell its Ogden, Utah distribution center. As a result of this exit plan, a liability of $2,256 for termination benefits for 500 employees were recorded through selling, general and administrative expenses in the third quarter of fiscal 2000 which were subsequently paid. Additionally, an impairment charge of $7,600 for long-lived assets was recorded in the third quarter of fiscal 2000. The facility was sold in March 2000. Impairment of investments The Company has an investment in the common stock of drugstore.com, which is accounted for under the equity method. The initial investment was valued based upon the initial public offering price of drugstore.com. During fiscal 2001, the Company recorded an impairment of its investment in drugstore.com of $112,123. This impairment charge was based upon a decline in the market value of drugstore.com's stock that the Company believes to be other than temporary. Additionally, the company recorded impairment charges of $4,063 for other investments. 7. Accounts Receivable During November 1997, the Company and certain of its subsidiaries entered into an agreement to sell, on an ongoing basis, a pool of accounts receivable to a wholly owned bankruptcy-remote special purpose funding subsidiary (the funding subsidiary) of the Company. The funding subsidiary sold an undivided fractional ownership interest in the pool of receivables to a securitization company. The accounts receivable sold to the funding subsidiary were not recognized on the Company's consolidated balance sheet. Under the terms of the agreement, new receivables were added to the pool as collections reduced previously sold accounts receivable. The Company serviced, administered and collected the receivables on behalf of the purchaser. The Company recognized no servicing asset or liability because the benefits of servicing were expected to represent adequate compensation for the services performed. In connection with the Company's refinancing in June 2000, all borrowings under the securitization program were repaid and the program was terminated. At the date of termination, $300,000 of receivables were recognized on the Company's consolidated balance sheet. Expenses of $7,855 and $18,052 associated with the securitization program through the date of termination were recognized for the years ended March 3, 2001 and February 26, 2000, respectively. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. The allowance for uncollectible accounts at March 3, 2001 and February 26, 2000 was $37,050 and $43,371, respectively. The Company's accounts receivable are due primarily from third-party providers (e.g., insurance companies and governmental agencies) under third-party payment plans and are booked net of any allowances provided for under the respective plans. Since payments due from third-party payers are sensitive to payment criteria changes and legislative actions, the allowance is reviewed continually and adjusted for accounts deemed uncollectible by management. F-15 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 8. Property, Plant and Equipment Following is a summary of property, plant and equipment, including capital lease assets, at March 3, 2001 and February 26, 2000:
2001 2000 ----------- ----------- Land ............................................. $ 668,561 $ 733,979 Buildings ........................................ 932,083 1,010,133 Leasehold improvements ........................... 1,192,815 1,262,590 Equipment ........................................ 1,413,890 1,469,881 Construction in progress ......................... 49,182 85,484 ----------- ----------- 4,256,531 4,562,067 Accumulated depreciation ......................... (1,215,523) (1,116,239) ----------- ----------- Property, plant and equipment, net.............. $ 3,041,008 $ 3,445,828 =========== ===========
Depreciation expense, which includes the depreciation of assets recorded under capital leases, was $285,886 in fiscal 2001, $326,873 in fiscal 2000 and $269,184 in fiscal 1999. Substantially all of the Company's owned properties on which it operates stores are pledged as collateral under the Company's debt agreements. The carrying amount of assets to be disposed of is $64,131 and $113,454 at March 3, 2001 and February 26, 2000, respectively. 9. Investments in Fifty Percent or Less Owned Subsidiaries In July 1999, the Company purchased 9,334,746 of Series E Convertible Preferred Shares in drugstore.com, an on-line pharmacy, for cash of $8,125, including legal costs, and the Company's agreement to provide access to the Company's networks of pharmacies and third-party providers, advertising commitments and exclusivity agreements. Each of the Series E Convertible Preferred Shares were converted to one share of common stock at the time of drugstore.com's initial public offering late in July 1999 and represented 21.6% of the voting stock immediately after the initial public offering. The investment is recorded in other assets, was initially valued at $168,025, equal to the initial public offering price of $18 per share multiplied by the Company's shares. The Company accounts for the investment on the equity method because the Company has significant influence over drugstore.com resulting from its share of the voting stock, its right to appoint one board member and a number of significant operating agreements. Included in other noncurrent liabilities is the unamortized portion of the fair value of the operating agreements of $133,916 that is being amortized over 10 years, the life of the arrangements described above. As a result of the start-up nature of the drugstore.com, the Company recorded an increase to its investment of $14,406 and $2,929 and corresponding increases to equity in connection with the sale of stock by drugstore.com during fiscal 2001 and 2000, respectively. During fiscal 2001, the Company recorded an impairment of its investment in drugstore.com of $112,123. This impairment charge was based upon a decline in the market value of drugstore.com's stock that the Company believes to be other than temporary. F-16 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 9. Investments in Fifty Percent or Less Owned Subsidiaries -- (Continued) In June 1999, the Company sold its investment in Diversified Prescription Delivery LLC, a provider of mail order prescription delivery services. The sales price was $22,860 and resulted in a loss of $811. The investment was accounted for on the equity method with a carrying amount of $23,671 at the date of sale. In February 2000, the Company sold its investment in Stores Automated Systems, Inc. a manufacturer of integrated point of sale systems. The investment was accounted for on the equity method with a carrying amount of $8,005 at the date of sale. The $8,805 sales price included cash and forgiveness of payables, and resulted in a gain of $800. 10. Goodwill and Other Intangibles Following is a summary of intangible assets at March 3, 2001 and February 26, 2000:
2001 2000 ---- ---- Goodwill ............................................ $ 848,121 $ 920,241 Lease acquisition costs and favorable leases ........ 670,789 713,970 Prescription files .................................. 137,700 136,434 Assembled workforce ................................. 47,133 51,021 ---------- ---------- 1,703,743 1,821,666 Accumulated amortization ............................ (636,404) (563,558) ---------- ---------- $1,067,339 $1,258,108 ========== ==========
11. Accrued Salaries, Wages, and Other Current Liabilities Accrued salaries wages and other current liabilities consist of the following at March 3, 2001 and February 26, 2000:
2001 2000 ---- ---- Accrued wages, benefits and other personnel costs ....... $280,126 $254,738 Accrued legal and other professional fees ............... 67,621 161,143 Accrued taxes payable ................................... 2,012 111,805 Accrued interest ........................................ 85,307 61,427 Accrued lease exit costs ................................ 37,042 42,413 Accrued rent and other occupancy costs .................. 79,111 62,087 Deferred income ......................................... 24,543 19,143 Accrued store expense ................................... 30,057 38,443 Accrued property taxes .................................. 43,367 44,490 Other ................................................... 46,861 87,314 -------- -------- $696,047 $883,003 ======== ========
F-17 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 12. Income Taxes The provision for income taxes from continuing operations was as follows:
Year Ended ------------------------------------------------------ March 3, 2001 February 26, 2000 February 27, 1999 ------------- ----------------- ----------------- Current tax expense (benefit): Federal ............................... $ -- $(19,017) $ 22,163 State ................................. 3,078 -- -- -------- -------- --------- 3,078 (19,017) 22,163 Deferred tax (benefit): Federal ............................... 146,773 20,677 (228,776) State ................................. (894) (10,035) (10,328) -------- -------- --------- 145,879 10,642 (239,104) -------- -------- --------- Total income expense (benefit) ........ $148,957 $ (8,375) $(216,941) ======== ======== =========
A reconciliation of the provision for income taxes as presented on the consolidated statements of operations is as follows:
Year Ended ------------------------------------------------------ March 3, 2001 February 26, 2000 February 27, 1999 ------------- ----------------- ----------------- Income tax expense (benefit) from continuing operations................... $148,957 $ (8,375) $ (216,941) Income tax expense (benefit) from discontinued operations................. 13,846 30,903 (5,925) Income tax (benefit) from loss on disposal of discontinued operations..... (734) -- -- Income tax (benefit) related to cumulative effect of accounting change.. -- (18,200) -- -------- -------- ---------- Total income tax expense (benefit) .... $162,069 $ 4,328 $ (222,866) ======== ======== ==========
A reconciliation of the statutory federal rate and the effective rate, for continuing operations, is as follows:
Year Ended ------------------------------------------------------ Percentage ---------- March 3, 2001 February 26, 2000 February 27, 1999 ------------- ----------------- ----------------- Federal statutory rate ................... (35.0)% (35.0)% (35.0)% Nondeductible expenses ................... 6.0 3.4 3.7 State income taxes, net .................. (6.8) (4.1) (4.5) Tax credits .............................. -- (.8) (1.4) Valuation allowance ...................... 47.4 34.9 3.6 Other .................................... -- .9 1.0 ----- ----- ----- Effective tax rate ....................... 11.6 % (0.7)% (32.6)% ===== ===== =====
The difference between the statutory federal rate and the reported amount of income tax expense attributable to discontinued operations is primarily due to nondeductible goodwill. The effective rate for fiscal 2001 reflects an increase in the valuation allowance due to the elimination of PCS deferred tax liabilities, resulting from its disposition. F-18 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 12. Income Taxes -- (Continued) The tax effect of temporary differences that give rise to significant components of deferred tax assets and liabilities consist of the following at March 3, 2001 and February 26, 2000:
2001 2000 ---- ---- Deferred tax assets: Accounts receivable............................... $ 31,113 $ 43,762 Accrued expenses.................................. 147,427 141,332 Liability for lease exit costs.................... 125,284 113,907 Pension, retirement and other benefits............ 96,338 69,476 Investment impairment............................. 108,733 59,863 Other ............................................ 370 -- Credits .......................................... 58,533 69,840 Net operating losses.............................. 724,177 466,451 ----------- --------- Total gross deferred tax assets ................. 1,291,975 964,631 Valuation allowance ................................. (1,031,287) (475,174) ----------- --------- Net deferred tax assets ......................... 260,688 489,457 Deferred tax liabilities: Inventory......................................... 123,584 121,119 Long-lived assets................................. 137,104 218,793 Other............................................. -- 2,628 ----------- --------- Total gross deferred tax liabilities ............ 260,688 342,540 ----------- --------- Net deferred tax assets, all noncurrent ............. $ -- $ 146,917 =========== =========
Net Operating Losses, Capital Losses and Tax Credits At March 3, 2001 and February 26, 2000, the Company had federal net operating loss (NOL) carryforwards of $1,572,818 and $841,059, respectively, the majority of which expire between fiscal 2017 and 2021. At March 3, 2001 and February 26, 2000, the Company had state NOL carryforwards of $1,718,513 and $1,662,602, respectively, the majority of which expire by fiscal 2005 and the remaining balance by fiscal 2015. At March 3, 2001, due to the disposition of PCS, the Company incurred a $406,220 capital loss which will expire, if not offset by future capital gains, by fiscal 2006. At March 3, 2001 and February 26, 2000, the Company had federal business tax credit carryforwards of $49,597 and $61,394, the majority of which expire between fiscal 2017 and 2020. In addition to these credits, the Company has alternative minimum tax credit carryforwards of $8,935 and $7,512 at fiscal 2001 and 2000, respectively. Valuation Allowances The valuation allowances as of March 3, 2001, and February 26, 2000 were $1,031,287 and $475,174 respectively, and principally apply to NOL and tax credit carryforwards. The Company believes that it is more likely than not that those carryovers will not be realized. As a result of the decision to dispose of PCS, the Company recognized an increase in the valuation allowance of $146,917 in fiscal 2001. F-19 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 13. Indebtedness and Credit Agreements Following is a summary of indebtedness and lease financing obligations at March 3, 2001 and February 26, 2000:
2001 2000 ---- ---- Commercial paper borrowings. ........................ $ -- $ 192,000 Term loan due 2000 .................................. -- 272,422 5.50% fixed-rate senior notes due 2000 .............. -- 200,000 6.70% notes due 2001 ................................ 7,342 350,000 5.25% convertible subordinated notes due 2002 ....... 357,324 649,986 Senior Facility ..................................... 682,000 -- Revolving Credit facility due 2002 (amended and restated) ("RCF").................................. 730,268 716,073 Term loan due 2002 (amended and restated) ("PCS") ... 591,391 1,300,000 Exchange Debt ....................................... 216,126 -- 10.50% notes due 2002 ............................... 467,500 -- 6.00% dealer remarketable securities due 2003 ....... 187,650 200,000 6.00% fixed-rate senior notes due 2005 .............. 194,500 200,000 7.625% senior notes due 2005 ........................ 198,000 200,000 7.125% notes due 2007 ............................... 350,000 350,000 6.125% fixed-rate senior notes due 2008 ............. 150,000 150,000 6.875% senior debentures due 2013 ................... 200,000 200,000 3.50% to 10.475% industrial development bonds due through 2009....................................... 4,740 5,196 7.70% notes due 2027 ................................ 300,000 300,000 6.875% fixed-rate senior notes due 2028 ............. 150,000 150,000 Lease financing obligations ......................... 1,100,000 1,148,135 Other ............................................... 7,707 29,056 ---------- ---------- 5,894,548 6,612,868 Short-term debt, current maturities of long-term debt and lease financing obligations............... (36,956) (102,050) ---------- ---------- Long-term debt and lease financing obligations, less current maturities................................. $5,857,592 $6,510,818 ========== ==========
In June 2000, the Company entered into an interest rate swap contract that fixes the LIBOR component of $500,000 of the Company's variable rate debt at 7.083% for a two-year period. In July 2000, the Company entered into an additional interest rate swap that fixes the LIBOR component of an additional $500,000 of variable rate debt at 6.946% for a two-year period. The Company entered into these contracts to hedge its exposure to fluctuations in market interest rates. The differential to be paid or received as a result of these swap agreements was recorded as an adjustment to interest expense. At March 3, 2001, the Company would have had to pay $29,000 if it had terminated these contracts on that date. Refinancings On June 14, 2000, the Company obtained a $1,000,000 (increased to $1,100,000 in November 2000) senior secured credit facility (the Senior Facility) from a syndicate of banks. The Senior Facility is guaranteed by substantially all of the Company's wholly-owned subsidiaries, and the banks have a security interest in substantially all of those subsidiaries' accounts receivable, inventory, and intellectual property and a security interest in certain of their real property. Of this amount, $600,000 is in the form of a term loan and $500,000 is in the form of a revolving credit facility both due in August 2002 and both with interest at LIBOR plus 3.00%. Funds drawn under the term loan were used to repay $300,000 of drawings under the accounts receivable securitization program and to pay $200,000 for working capital and transaction expenses which are F-20 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 13. Indebtedness and Credit Agreements -- (Continued) being amortized over the term of the Senior Facility. Funds drawn from time to time under the revolving credit facility are used to fund current operations. In connection with the $100,000 term loan in November 6, 2000, the Company incurred fees of $3,528 which are being amortized over the period of the new term loans. The Senior Facility contains customary covenants, which place restrictions on the assumption of debt, the payment of dividends, mergers, liens and sale and leaseback transactions. The facility requires the Company to meet various financial ratios and limits capital expenditures. The Company was in compliance with its debt covenants as of March 3, 2001. For the three fiscal quarters ended March 3, 2001, those covenants required the company to maintain a minimum interest coverage ratio and a minimum fixed charge coverage ratio of .95:1, increasing to a minimum interest coverage ratio of 1.40:1 and a minimum fixed charge ratio of 1.19:1 for the four quarters ending June 1, 2002. For the three fiscal quarters ended March 3, 2001, the Company was required to have consolidated EBITDA (as defined in the Senior Facility) of no less than $364,000, increasing to $720,000 for the four fiscal quarters ending on June 1, 2002. For the three fiscal quarters ended March 3, 2001, capital expenditures were limited to $186,000, increasing to $243,000 for the four fiscal quarters ending June 1, 2002. As of March 3, 2001, the Company had additional borrowing capacity under the Senior Facility of $394,600. Also on June 14, 2000, the Company extended the maturity dates of the RCF credit facility and the PCS credit facility to August 2002. Borrowings under the PCS credit facility bear interest at LIBOR plus 3.25% and borrowings under the RCF credit facility bear interest at LIBOR plus 3.75%. These credit facilities contain restrictive covenants that place restrictions on the assumption of debt, the payment of dividends, mergers, liens and sale- leaseback transactions. These credit facilities also require the Company to satisfy financial covenants that are generally slightly less restrictive than the covenants in the Senior Facility. The facilities also limit the amount of our capital expenditures to $186,000 for the three quarters ended March 3, 2001, increasing to $243,000 for the four quarters ending June 1, 2002. Under the terms of these facilities, after giving effect to the $100,000 increase in the term loan, the Company is permitted to incur up to an additional $35,000 of indebtedness under the Senior Facility without the further consent of lenders. The PCS credit facility was originally secured by a first lien on the stock of PCS Health Systems, Inc. and the RCF credit facility was originally secured by a first lien on the stock of drugstore.com and a second lien on the stock of PCS Health Systems, Inc. Any amounts repaid under these facilities with the proceeds of asset sales may not be borrowed. In addition, on June 14, 2000 certain affiliates of J.P. Morgan Chase, which had lent the Company $300,000 under a demand note in June 1999 and who was also a lender under the RCF and PCS credit facilities, together with certain other lenders under the two credit facilities, agreed to exchange $274,782 of their loans for a new secured exchange debt obligation. The terms of the exchange debt are substantially the same as the terms of our RCF and PCS credit facilities and the interest rate is currently LIBOR plus 3.25%. The lenders of the exchange debt have the same collateral as they did with respect to their loans under the RCF and PCS credit facilities or demand note, as applicable, as well as a first lien on the Company's prescription files. Additionally, the Company issued three-year warrants to purchase 2,500,000 shares of common stock at $11.00 per share. The fair value assigned to the warrants was $8,500 and amortization was completed during fiscal 2001. The Company also paid and expensed $4,000 of advisory fees over a period of one year. Upon consummation of the sale of PCS on October 2, 2000, $575,000 of the cash portion of the proceeds was applied to reduce the outstanding balances of the PCS credit facility and the PCS exchange debt. In February 2001, the Company also applied $34,504 received from the final settlement of the PCS sale to reduce the PCS facilities. At March 3, 2001, the Company had $1,537,785 of borrowings outstanding under the PCS, RCF and related exchange debt facilities. Subsequent to March 3, 2001, the Company further F-21 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 13. Indebtedness and Credit Agreements -- (Continued) reduced the borrowings outstanding under the PCS and related exchange debt facilities by $484,104 utilizing the proceeds from the sale of AdvancePCS stock and repayment of AdvancePCS senior subordinated notes which it had received as part of the consideration for the sale. The Company also amended its existing guarantees of two synthetic lease transactions to provide substantially the same terms of our RCF and PCS credit facilities. In connection with modifications to the RCF and PCS credit facilities, the debt exchange for the 10.5% notes due 2002, the guarantee of the Prudential note, the exchange for exchange debt and the guarantee of the synthetic lease transactions, substantially all wholly-owned subsidiaries guaranteed the Company's obligations thereunder on a second priority basis. These subsidiary guarantees are secured by a second priority lien on the inventory, accounts receivable, intellectual property and some of the real estate assets of the subsidiary guarantors. Except to the extent previously secured, the Company's direct obligations under those facilities and guarantees remain unsecured. Exchange Offers In connection with the above refinancing on June 14, 2000, the Company exchanged $52,500 of its 5.5% fixed-rate senior notes due in December 2000 and $321,800 of its 6.7% notes due in December 2001 for $374,300 of 10.5% senior secured notes due 2002. The Company arranged with certain financial institutions to refinance $93,200 of the 5.5% notes when they become due with the 10.5% senior secured notes due 2002. These financial institutions purchased $16,710 of the 5.5% notes and $20,390 of the 6.7% notes on July 27, 2000; $53,814 of the 5.5% notes on September 13, 2000; and $476 of the 6.7% notes on December 14, 2000; and exchanged the purchased notes with the Company for the 10.5% senior secured notes due 2002. The remaining 5.5% notes were retired in December 2000 with the Company's general corporate funds and the remaining forward purchase commitment. The Company recognized an aggregate loss of $6,200 in connection with the exchange and refinancing. Exchange of Debt for Equity Throughout and subsequent to fiscal 2001, the Company exchanged debt for equity as outlined in the table below:
Carrying Additional Debt Exchanged Amount Common Paid-In Gain -------------- Exchanged Stock Capital (Loss) --------- ------- ---------- ---------- Exchanged during the year ended March 3, 2001: PCS and RCF facilities and J.P. Morgan demand note............................................ $284,820 $51,785 $220,088 $ 5,189 5.25% convertible subordinated notes ............ 292,662 30,241 379,829 (118,769) 6.00% dealer remarketable securities ............ 17,850 1,868 4,053 11,868 7.625% senior notes ............................. 2,000 230 604 1,156 -------- ------- -------- ---------- For the year ended March 3, 2001 ................ $597,332 $84,124 $604,574 $ (100,556) ======== ======= ======== ========== Exchanges (including commitments) subsequent to March 3, 2001 through May 15, 2001 (unaudited): 5.25% convertible subordinated notes ............ $205,308 $29,750 $307,686 $ (133,129) 6.00% dealer remarketable securities ............ 79,885 12,382 55,633 11,427 10.5% notes ..................................... 56,300 8,467 47,461 (656) PCS facility .................................... 5,000 715 4,390 (105) RCF facility .................................... 164,858 25,878 150,186 (11,206) -------- ------- -------- ---------- Subsequent to March 3, 2001 ..................... $511,351 $77,192 $565,356 $ (133,669) ======== ======= ======== ==========
F-22 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 13. Indebtedness and Credit Agreements -- (Continued) Several of the exchanges subsequent to March 3, 2001 have not settled, including the exchanges for the 10.5% notes, the PCS facility and the RCF facility. Accordingly, the data presented in the above table for these exchanges is based on the best available estimates. Other In fiscal 2000, the Company was required to obtain waivers of compliance with, and modifications to certain of the covenants contained in its senior credit and loan agreements and public indentures. In connection with obtaining the waivers and modifications, the Company paid fees and transaction costs of $63,332. On September 10, 1997, the Company completed the sale of $650,000 of 5.25% convertible subordinated notes due September 15, 2002. The notes are convertible into shares of the Company's common stock at any time on or after the 90th day following the last issuance of notes and prior to the close of business on the maturity date, unless previously redeemed or repurchased. The conversion price is $36.14 per share (equivalent to a conversion rate of 27.67 shares per $1 principal amount of notes), subject to adjustment in certain events. Interest on the notes is payable semiannually on March 15 and September 15 of each year, commencing on March 15, 1998. The notes may be redeemed at the option of the Company on or after September 15, 2000, in whole or in part. On April 20, 1995, the Company issued $200,000 of 7.625% senior notes due April 15, 2005. The notes may not be redeemed prior to maturity and will not be entitled to any sinking fund. In August 1993, the Company issued 6.875% senior debentures having an aggregate principal amount of $200,000. These debentures are due August 15, 2013, may not be redeemed prior to maturity and are not entitled to any sinking fund. The Company had outstanding letters of credit of $46,952 at March 3, 2001 and $41,624, at February 26, 2000. Also, the Company had provided permanent financing guarantees to certain of its store construction developers to be effective, if such developers were unable to obtain their own permanent financing upon completion of the store construction. There were no guarantees outstanding at March 3, 2001. Guarantees of $33,774 were outstanding at February 26, 2000. The annual weighted average interest rate on the Company's indebtedness was 8.2%, 7.4% and 6.8% for fiscal 2001, fiscal 2000 and fiscal 1999, respectively. The aggregate annual principal payments of long-term debt and capital lease obligations for the five succeeding fiscal years are as follows: 2002, $36,956; 2003, $3,082,829; 2004, $218,355; 2005, $229,038; 2006, $216,398 and $2,110,972 in 2007 and thereafter. The Company is in compliance with restrictions and limitations included in the provisions of various loan and credit agreements. The subsidiary guarantees related to the Company's credit facilities are full and unconditional and joint and several and there are no restrictions on the ability of the parent to obtain funds from its subsidiaries. Also, the parent company's assets and operations are not material and subsidiaries not guaranteeing the credit facilities are minor. Accordingly, condensed consolidating financial information for the parent and subsidiaries is not presented. F-23 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 14. Leases The Company leases most of its retail stores and certain distribution facilities under noncancellable operating and capital leases, most of which have initial lease terms ranging from 10 to 22 years. The Company also leases certain of its equipment and other assets under noncancellable operating leases with initial terms ranging from 3 to 10 years. In addition to minimum rental payments, certain store leases require additional payments based on sales volume, as well as reimbursements for taxes, maintenance, and insurance. Most leases contain renewal options, certain of which involve rent increases. Total rental expense, net of sublease income of $10,930, $10,443 and $10,443, was $537,423, $500,782, and $477,537 in 2001, 2000 and 1999, respectively. These amounts include contingent rentals of $26,644, $28,625, and $32,960, in fiscal 2001, 2000 and 1999, respectively. The Company is a guarantor on certain leases transferred to third parties through sales or assignments. The Company leases certain facilities through sale-leaseback arrangements accounted for using the financing method. Proceeds from sale-leaseback programs were approximately $6,992 in 2001, $74,898 in 2000 and $504,990 in 1999. The net book values of assets under capital leases and sale-leasebacks accounted for under the financing method are summarized as follows:
March 3, February 26, 2001 2000 -------- ------------ Land ................................................ $326,304 $ 343,948 Buildings ........................................... 532,635 570,604 Leasehold improvements .............................. 128,122 152,347 Equipment ........................................... 2,644 757 Accumulated depreciation ............................ (63,097) (39,809) -------- ---------- $926,608 $1,027,847 ======== ==========
Following is a summary of lease finance obligations at March 3, 2001 and February 26, 2000:
2001 2000 ---------- ---------- Sale-leaseback obligations accounted for under the financing method ................................... $ 917,211 $ 944,805 Obligations under capital leases .................... 182,789 203,330 ---------- ---------- Total ............................................... 1,100,000 1,148,135 Less current obligation ............................. (28,603) (25,964) ---------- ---------- Long-term lease finance obligations ................. $1,071,397 $1,122,171 ========== ==========
F-24 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 14. Leases -- (Continued) Following are the minimum lease payments net of sublease income that will have to be made in each of the years indicated based on non-cancelable leases in effect as of March 3, 2001:
Fiscal year Lease Financing Operating ----------- Obligations Leases --------------- ---------- 2002 ........................................... $ 114,081 $ 511,105 2003 ........................................... 121,463 496,071 2004 ........................................... 113,327 459,983 2005 ........................................... 113,040 417,421 2006 ........................................... 96,382 372,843 Later years .................................... 1,321,703 3,325,522 ---------- ---------- Total minimum lease payments ................... 1,879,996 $5,582,945 ========== Amount representing interest ................... 779,996 ---------- Present value of minimum lease payments ........ $1,100,000 ==========
15. Redeemable Preferred Stock In March 1999 and February 1999, Rite Aid Lease Management Company, a wholly owned subsidiary of the Company, issued 63,000 and 150,000 shares of Cumulative Preferred Stock, Class A, par value $100 per share, respectively. The Class A Cumulative Preferred Stock is mandatorily redeemable on April 1, 2019 at a redemption price of $100 per share plus accumulated and unpaid dividends. The Class A Cumulative Preferred Stock pays dividends quarterly at a rate of 7.0% per annum of the par value of $100 per share when, as and if declared by the Board of Directors of Rite Aid Lease Management Company in its sole discretion. The amount of dividends payable in respect of the Class A Cumulative Preferred Stock may be adjusted under certain events. The outstanding shares of the Class A Preferred Stock were recorded at the estimated fair value of $5,695 for the 2000 issuances, which equaled the sale price on the date of issuance. Because the fair value of the Class A Preferred Stock was less than the mandatory redemption amount at issuance, periodic accretions to stockholders' equity using the interest method are made so that the carrying amount equals the redemption amount on the mandatory redemption date. There was no accretion in fiscal 2001; accretion was $97 in 2000. 16. Capital Stock In October 1999, the Company issued 3,000,000 shares of Series B preferred stock at $100 per share which is the liquidation preference. The Series B preferred stock pays dividends at 8% per year which is payable in cash or additional shares of Series B, at the Company's election. The Series B preferred stock, when issued, was convertible into shares of the Company's common stock at a conversion price of $11.00 per share of common stock. Pursuant to its terms, as a result of the issuance of shares at $5.50 per share on June 14, 2000, the per share conversion price for the Series B preferred stock was adjusted to $5.50. As a result of this adjustment the Company increased its paid in capital, its accumulated deficit, and its loss attributable to common stockholders by $160.9 million in June 2000 (representing the difference between $5.50 and the market price of the Company's common stock on the original date of issuance of the Series B preferred stock). For the years ended March 3, 2001 and February 26, 2000, the Company recognized an increase to its investment in drugstore.com of $14,406 and $2,929, respectively, and a corresponding increase to paid in capital, in connection with equity transactions of drugstore.com. F-25 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 16. Capital Stock -- (Continued) In April 2001, the Board of Directors approved, subject to stockholder approval, an amendment to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of common stock, $1.00 par value, from 600,000,000 to 1,000,000,000. If the stockholders approve the recommendation, the authorized capital stock of the Company will consist of 1,000,000,000 shares of common stock and 20,000,000 shares of preferred stock, both having a par value of $1.00 per share. Preferred stock is issued in series subject to terms established by the Board of Directors. At March 3, 2001, the Company has outstanding warrants to purchase 2,500,000 shares of common stock at $11.00 per share (see Note 13). The Company has no other warrants outstanding. 17. Stock Option and Stock Award Plans The Company reserved 22,000,000 shares of its common stock for the granting of stock options and other incentive awards to officers and key employees under the 1990 Omnibus Stock Incentive Plan (the 1990 Plan). Options may be granted, with or without SARs, at prices that are not less than the fair market value of a share of common stock on the date of grant. The exercise of either a SAR or option automatically will cancel any related option or SAR. Under the 1990 Plan, the payment for SARs will be made in shares, cash or a combination of cash and shares at the discretion of the Compensation Committee. In November 1999, the Company adopted the 1999 Stock Option Plan (the 1999 Plan), under which 10,000,000 shares of common stock are reserved for the granting of stock options at the discretion of the Board of Directors. In December 2000, the Company adopted the 2000 Omnibus Equity Plan (the 2000 Plan) under which 22,000,000 shares of common stock are reserved for granting of restricted stock, stock options, phantom stock, stock bonus awards and other stock awards at the discretion of the Board of Directors. In February 2001, the Company adopted the 2001 Stock Option Plan (the 2001 Plan) under which 20,000,000 shares of common stock are reserved for granting of stock options at the discretion of the Board of Directors. All of the plans provide for the Board of Directors (or at its election, the Compensation Committee) to determine both when and in what manner options may be exercised; however, it may not be more than 10 years from the date of grant. All of the plans provide that stock options may be granted at prices that are not less than the fair market value of a share of common stock on the date of grant. The aggregate number of shares reserved for issuance for all plans is 74,000,000 as of March 3, 2001. F-26 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 17. Stock Option and Stock Award Plans -- (Continued) Following is a summary of stock option transactions for the fiscal years ended March 3, 2001, February 26, 2000 and February 27, 1999:
Weighted Average Price Per Shares Shares ----------- ---------------- Balance, February 28, 1998 ................... 11,491,774 $ 13.96 Granted.................................... 4,054,000 32.74 Exercised.................................. (633,575) 14.58 Cancelled.................................. (241,500) 20.18 ----------- ------- Balance, February 27, 1999 ................... 14,670,699 19.02 Granted.................................... 18,687,562 7.95 Exercised.................................. (64,650) 13.61 Cancelled.................................. (7,488,707) 14.60 ----------- ------- Balance, February 26, 2000 ................... 25,804,904 12.30 Granted.................................... 47,830,762 4.03 Exercised.................................. -- -- Cancelled.................................. (20,438,867)(1) 7.57 ----------- ------- Balance, March 3, 2001 ....................... 53,196,799 $ 6.48 =========== =======
(1) Includes 16,683,962 stock options which have been cancelled and reissued. For various price ranges, weighted average characteristics of outstanding stock options at March 3, 2001 were as follows:
Outstanding Options Exercisable Options ---------------------------------------- --------------------- Number Outstanding Weighted Weighted Range of exercise prices as of Remaining Average Average - ------------------------ March 3, 2001 life (years) Price Shares Price ------------- ------------ -------- ---------- -------- $ 2.7500 to $ 2.7500 16,683,962 9.04 $ 2.7500 4,053,041 $ 2.7500 $ 3.0000 to $ 3.9375 1,221,500 9.79 $ 3.4217 -- -- $ 4.0500 to $ 4.0500 20,142,000 9.95 $ 4.0500 -- -- $ 4.0625 to $ 8.9125 6,280,788 8.52 $ 5.6437 1,999,813 $ 5.7054 $ 8.9150 to $ 16.9375 5,689,574 4.05 $13.5048 5,689,574 $13.5048 $18.2500 to $ 44.6875 2,940,475 7.39 $28.7612 1,518,475 $29.3870 $45.5625 to $ 45.5625 3,000 7.76 $45.5625 1,500 $45.5625 $47.5000 to $ 47.5000 220,000 7.87 $47.5000 127,500 $47.5000 $48.5625 to $ 48.5625 13,000 7.84 $48.5625 6,500 $48.5625 $48.8125 to $ 48.8125 2,500 7.85 $48.8125 1,250 $48.8125 ---------- ---------- $2.7500 to $ 48.8125 53,196,799 8.70 $ 6.4824 13,397,653 $11.2346 ========== ==== ======== ========== ========
In November 2000, the Company reduced the exercise price of 16,683,962 stock options issued after December 4, 1999 to $2.75 per share, which represents fair market value of a share of common stock on the date of the repricing. In connection with the repricing, the Company recognizes compensation expense for these options using variable plan accounting. Under variable plan accounting, the Company recognizes compensation expense over the option vesting period. In addition, subsequent changes in the market value of the Company's common stock during the option period, or until exercised, will generate changes in the F-27 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 17. Stock Option and Stock Award Plans -- (Continued) compensation expense recognized on the repriced options. The Company recognized expense of approximately $33,500 during fiscal 2001 related to the repriced options. The Company adopted SFAS No.123, "Accounting for Stock-Based Compensation," issued in October 1995. In accordance with the provisions of SFAS No. 123, the Company applies APB Opinion 25 and related interpretations in accounting for its stock option plans and, accordingly, does not recognize compensation cost. The pro forma impact on net loss and per share amounts are reported below as if the Company had elected to recognize compensation cost based upon the fair value of the options granted at the grant date as prescribed by SFAS No. 123 is outlined below:
March 3, February 26, February 27, 2001 2000 1999 ----------- ------------ ------------ Net loss............................................ $(1,589,224) $(1,133,043) $(461,522) Pro forma additional compensation expense under fair value method...................................... (46,842) (22,464) (10,463) ----------- ----------- --------- Pro forma net loss.................................. (1,636,066) (1,155,507) (471,985) Accretion of redeemable preferred stock............. -- (97) -- Preferred stock conversion reset.................... (160,915) -- -- Dividends on preferred stock........................ (25,724) (10,110) (627) ----------- ----------- --------- Pro forma net loss attributable to common stockholders...................................... $(1,822,705) $(1,165,714) $(472,612) =========== =========== ========= Pro forma basic and diluted loss per share.......... $ (5.80) $ (4.50) $ (1.83) =========== =========== =========
The pro forma amounts only take into account the options issued since March 5, 1995. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
2001 2000 1999 --------- --------- --------- Expected stock price volatility .......... 67.2% 58.0% 30.7% Expected dividend yield .................. 0.0% 0.0% 1.0% Risk-free interest rate .................. 6.25% 6.3% 5.6% Expected life of options ................. 2.8 years 4.2 years 6.7 years
The average fair value of each option granted during fiscal 2001, 2000 and 1999 was $1.91, $4.09 and $12.36, respectively. Restricted Stock In December 1999, certain executive officers received restricted stock grants of 1,000,000 shares. The Company recorded these grants at a fair value on the date of the grant of $8,250. During fiscal 2000, the Company also made tax payments on behalf of the executives to help defray the tax effects of the grants to the executives. Under the restricted stock agreement, the restrictions placed on the shares lapse in equal monthly installments over the period from December 1999 to November 2002. However, in most circumstances the executive would only have to provide one year of service to the Company to earn the total number of shares. Accordingly, the Company is amortizing the cost of the stock grant over one year. In fiscal 2001, restricted stock grants of 4,004,000 shares were awarded to key employees under plans approved by the stockholders. Shares vest in installments up to three years and unvested shares are forfeited upon termination of employment. The Company recorded the issuances at fair value on the date of grant of $22,797. F-28 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 17. Stock Option and Stock Award Plans -- (Continued) Compensation expense related to all restricted stock grants is being recorded over a one to three year vesting period of these grants. For the years ended March 3, 2001 and February 26, 2000, the Company recognized expense of $12,387 and $2,062 related to restricted share awards. The unearned compensation associated with these restricted stock shares was $16,598. This amount is included in stockholders equity as a component of deferred compensation. Stock Appreciation Units The Company has issued stock appreciation units to various members of field management. The grant price for each unit is the closing price of the Company's common stock on the date of grant. The units vest four years from the date of grant. For each outstanding unit, the Company is obligated to pay out the difference between the grant price and the average market price of one share of the Company's common stock for the last twenty trading days before the vesting date. The payment may be in cash or shares, at the discretion of the Company; however, the Company has historically made cash payments. The Company's obligations under the stock appreciation units are remeasured at each balance sheet date and amortized to compensation expense over the vesting period. At March 3, 2001 and February 26, 2000, there were 5.7 million and 7.0 million stock appreciation rights units outstanding, respectively. Grant prices for units outstanding at March 3, 2001 ranged from $5.38 to $48.56 per unit. Amounts charged or (credited) to expense relating to the stock appreciation rights units for fiscal 2001, 2000 and 1999 were $(407), $(45,500), $32,200, respectively. 18. Retirement Plans The Company and its subsidiaries have numerous retirement plans covering salaried employees and certain hourly employees. The retirement plans include a profit sharing retirement plan and other defined contribution plans. Contributions for the profit sharing plan are a discretionary percent of each covered employee's salary, as determined by the Board of Directors based on the Company's profitability. Total expenses recognized for the profit sharing plan were $5,350 in 2001, $9,945 in 2000, and $6,091 in 1999. Employer contributions for other defined contribution plans are generally based upon a percentage of employee contributions or, in the case of certain executive officers, in accordance with employment agreements. The expenses recognized for these plans were $9,141 in 2001, $7,925 in 2000, and $7,779 in 1999. There are also several defined benefit plans that require benefits to be paid to eligible employees based upon years of service with the Company or formulas applied to their compensation. The Company's funding policy is to contribute the minimum required by the Employee Retirement Income Security Act of 1974. F-29 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 18. Retirement Plans -- (Continued) Net periodic pension cost for the defined benefit plans includes the following components:
Defined Benefit Pension Nonqualified Executive Plans Retirement Plan ---------------------------- -------------------------- 2001 2000 1999 2001 2000 1999 ------- ------- ------- ------ ------- ------ Service cost ............................. $ 4,004 $ 4,441 $ 5,034 $ 908 $ 671 $ 514 Interest cost ............................ 4,248 4,166 3,935 2,642 1,497 1,424 Expected return on plan assets ........... (6,896) (5,723) (4,936) -- -- -- Amortization of unrecognized net transition (asset)/obligation........... (160) (160) (160) 1,162 1,163 1,163 Amortization of unrecognized prior service cost............................ 346 376 473 -- -- -- Amortization of unrecognized net gain .... (2,202) (226) (202) (193) -- -- Change due to plan amendment -- -- -- -- 18,891 -- ------- ------- ------- ------ ------- ------ Net pension (credit) expense ............. $ (660) $ 2,874 $ 4,144 $4,519 $22,222 $3,101 ======= ======= ======= ====== ======= ======
The table below sets forth a reconciliation from the beginning of the year for both the benefit obligation and plan assets of the Company's retirement and health benefits plans, as well as the funded status and amounts recognized in the Company's balance sheet as of March 3, 2001 and February 26, 2000: F-30 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 18. Retirement Plans -- (Continued)
Nonqualified Defined Benefit Executive Pension Plans Retirement Plan ------------------ -------------------- 2001 2000 2001 2000 ------- -------- --------- -------- Change in benefit obligations: Benefit obligation at end of prior year ......... $58,791 $ 62,885 $ 34,691 $ 21,891 Service cost .................................... 4,004 4,441 908 671 Interest cost ................................... 4,248 4,166 2,642 1,497 Distributions ................................... (5,349) (9,728) (1,429) (1,224) Change due to change in assumptions ............. 1,431 (4,580) 1,006 (1,281) Change due to plan amendment .................... -- 187 -- 18,891 Actuarial (gain) or loss ........................ 1,794 1,420 (6,179) (5,754) ------- -------- --------- -------- Benefit obligation at end of year................. $64,919 $ 58,791 $ 31,639 $ 34,691 ======= ======== ========= ======== Change in plan assets: Fair value of plan assets at beginning of year .. $81,718 $ 71,686 $ -- $ -- Employer contributions .......................... 4,211 4,213 1,429 1,224 Actual return on plan assets .................... (7,959) 18,671 -- -- Adjustment for fair value at 3/1/2000 ........... 5,932 -- -- -- Distributions (including assumed expenses) ...... (6,392) (10,485) (1,429) (1,224) ------- -------- --------- -------- Fair value of plan assets at end of year.......... $77,510 $ 84,085 $ -- $ -- ======= ======== ========= ======== Funded status..................................... $12,591 $ 25,294 $ (31,639) $(34,691) Unrecognized net gain............................. (5,723) (22,493) (10,952) (5,972) Unrecognized prior service cost................... 1,463 1,808 -- -- Unrecognized net transition (asset) or obligation. (179) (339) 11,628 12,790 ------- -------- --------- -------- Prepaid or (accrued) pension cost recognized...... $ 8,152 $ 4,270 $ (30,963) $(27,873) ======= ======== ========= ======== Amounts recognized in consolidated balance sheets consisted of: Prepaid (accrued) pension cost .................. $ 9,009 $ 4,796 $(30,963) $(27,873) Adjustment to recognize additional minimum liability...................................... (622) -- -- -- Accrued pension liability ....................... (857) (526) -- -- Accumulated other comprehensive income .......... 622 -- -- -- ------- -------- --------- -------- Net amount recognized............................. $ 8,152 $ 4,270 $ (30,963) $(27,873) ======= ======== ========= ========
The amounts recognized in the accompanying consolidated balance sheets as of March 3, 2001 and February 26, 2000 are as follows:
Nonqualified Defined Benefit Executive Pension Plans Retirement Plan --------------- ------------------- 2001 2000 2001 2000 ------ ------ -------- -------- Accrued benefit liability......................... $ (857) $ (526) $(30,963) $(27,873) Prepaid pension cost.............................. 9,009 4,796 -- -- ------ ------ -------- -------- Net amount recognized............................. $8,152 $4,270 $(30,963) $(27,873) ====== ====== ======== ========
The accumulated benefit obligation and fair value of plan assets for the defined benefit pension plans with plan assets in excess of accumulated benefit obligations were $56,272 and $69,873, respectively, as of March 3, 2001, and $58,791 and $84,085, respectively, as of February 26, 2000. F-31 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 18. Retirement Plans -- (Continued) The significant actuarial assumptions used for all defined benefit pension plans were as follows:
Nonqualified Defined Benefit Executive Pension Plans Retirement Plan ------------------- ------------------- 2001 2000 1999 2001 2000 1999 ---- ---- ---- ---- ---- ---- Discount rate ............................ 7.00 7.25 6.75 7.50 7.83 6.95 Rate of increase in future compensation levels.................................. 4.50 4.50 4.75 3.00 3.00 3.00 Expected long-term rate of return on plan assets.................................. 9.00 9.00 9.00 9.00 9.00 9.00
19. Commitments, Contingencies and Guarantees This Company is party to numerous legal proceedings, as discussed below. The Company has charged $232,778 and $7,916 to expense for the years ended February 26, 2000, and February 27, 1999, respectively, for various pending and actual claims, litigation, and assessments based upon its determination of its material, estimable and probable liabilities in regard to the portion of these claims, lawsuits, and assessments not covered by insurance. Based upon changes in estimates in fiscal 2001 relating primarily to resolution of insurance coverage disputes, the Company credited selling, general and administrative expenses by $19,625. Federal investigations There are currently pending federal governmental investigations, both civil and criminal, by the SEC and the United States Attorney, involving the Company's financial reporting and other matters. Management is cooperating fully with the SEC and the United States Attorney. The U.S. Department of Labor has commenced an investigation of matters relating to the Company's employee benefit plans, including the Company's principal 401(k) plan, which permitted employees to purchase the Company's common stock. Purchases of the Company's common stock under the plan were suspended in October 1999. In January 2001, the Company appointed an independent trustee to represent the interests of these plans in relation to the Company and to investigate possible claims the plans may have against the Company. Both the independent trustee and the Department of Labor have asserted that the plans may have claims against the Company. The investigations, with which management is cooperating fully, are ongoing and the Company cannot predict their outcomes. In addition, a purported class action lawsuit on behalf of the plans and their participants has been filed by a participant in the plans in the United States District in the Eastern District of Pennsylvania. These investigations are ongoing, and the Company cannot predict their outcomes. If the Company were convicted of any crime, certain contracts and licenses that are material to the Company's operations may be revoked, which would have a material adverse effect on the Company's results of operations and financial condition. In addition, substantial penalties, damages or other monetary remedies assessed against the Company could also have a material adverse effect on the Company's results of operations, financial condition and cash flows. Stockholder litigation The Company, its former chief executive officer Martin Grass, its former president Timothy Noonan, its former chief financial officer Frank Bergonzi, and its former auditor KPMG LLP, have been sued in a number of actions, most of which purport to be class actions, brought on behalf of stockholders who purchased the Company's securities on the open market between May 2, 1997 and November 10, 1999. All of these cases have been consolidated in the U.S. District Court for the Eastern District of Pennsylvania. On November 9, 2000, the Company announced that it had reached an agreement to settle the consolidated securities class action lawsuits pending against the Company in the U.S. District Court for the Eastern District of Pennsylvania and the derivative lawsuits pending there and in the U.S. District Court of Delaware. Under the agreement, which has been submitted to the U.S. District Court for the Eastern District of Pennsylvania F-32 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 19. Commitments, Contingencies and Guarantees -- (Continued) for approval, the Company will pay $45 million in cash, which will be fully funded by the Company's officers' and directors' liability insurance, and issue shares of common stock in 2002. The shares will be valued over a 10 day trading period in January 2002. If the value determined is at least $7.75 per share, the Company will issue 20 million shares. If the value determined is less than $7.75 per share, the Company has the option to deliver any combination of common stock, cash and short-term notes, with a total value of $155 million. As additional consideration for the settlement, the Company has assigned to the plaintiffs all of the Company's claims against the above named executives and KPMG LLP. Several members of the class have elected to "opt- out" of the class and, as a result, if the settlement is approved by the court, they will be free to individually pursue their claims. Management believes that their claims, individually and in the aggregate, are not material. In fiscal year 2000, the Company recorded a charge of $175,000 for this case. As a result of the agreement to settle reached in fiscal 2001 and resolution of insurance coverage disputes, the Company recorded $20,000 as a credit to selling, general and administrative expense. Drug pricing and reimbursement matters On October 5, 2000, the Company settled, for an immaterial amount, and without admitting any violation of the law, the lawsuit filed by the Florida Attorney General alleging that the Company's non-uniform pricing policy for cash prescription purchases was unlawful under Florida law. The filing of the complaint by the Florida Attorney General, and the Company's press release issued in conjunction therewith, precipitated the filing of a purported federal class action in California and several purported state class actions, all of which (other than those pending in New York that were filed on October 5, 1999 and those pending in California that were filed on January 3, 2000) have been dismissed. A motion to dismiss the action in New York is currently pending. Management believes that the remaining lawsuits are without merit under applicable state consumer protection laws. As a result, the Company intends to continue to vigorously defend them and the Company does not anticipate, that if fully adjudicated, they will result in an award of damages. However, such outcomes cannot be assured and a ruling against the Company could have a material adverse effect on the financial position and results of operations of the Company, as well as necessitate substantial additional expenditures to cover legal costs as the Company pursues all available defenses. The Company is being investigated by multiple state attorneys general for reimbursement practices relating to partially-filled prescriptions and fully- filled prescriptions that are not picked up by ordering customers. The Company is supplying similar information with respect to these matters to the Department of Justice. Management believes that these investigations are similar to investigations which were, and are being, undertaken with respect to the practices of others in the retail drug industry. Management also believes that existing policies and procedures fully comply with the requirements of applicable law and intend to fully cooperate with these investigations. Management cannot, however, predict their outcomes at this time. An individual, acting on behalf of the United States of America, has filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania under the Federal False Claims Act alleging that the Company defrauded federal health care plans by failing to appropriately issue refunds for partially filled prescriptions and prescriptions which were not picked up by customers. The Department of Justice has not decided whether to join this lawsuit, as is its right under the law; its investigation is continuing. The Company has filed a motion to dismiss the complaint for failure to state a claim. If any of these cases result in a substantial monetary judgment against the Company or is settled on unfavorable terms, the Company's results of operations, financial position, and cash flows could be materially adversely affected. F-33 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 19. Commitments, Contingencies and Guarantees -- (Continued) Store Management Overtime Litigation The Company is a defendant in a class action pending in the California Superior Court in San Diego with three subclasses, comprised of California store managers, assistant managers and managers-in-training. The plaintiffs seek back pay for overtime not paid to them and injunctive relief to require the Company to treat store management as non-exempt. They allege that the Company decided to minimize labor costs by causing managers, assistant managers and managers-in-training to perform the duties and functions of associates for in excess of forty hours per week without paying them overtime. Management believes that in-store management were and are properly classified as exempt from the overtime provisions of California law. The Company has filed a motion to decertify the class, which is currently pending. The Company's results of operations and financial position could be materially adversely affected by an adverse judgment in this matter. Other The Company is subject from time to time to lawsuits arising in the ordinary course of business. In the opinion of management, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve amounts that would not have a material adverse effect on the Company's financial condition, results of operations, or cash flows if decided adversely. Vendor Arrangements As of March 3, 2001, the Company had outstanding commitments to purchase $7,500 of merchandise inventory per year from a vendor for use in the normal course of business through fiscal 2005. Employment Agreements Employment agreements with executive officers and others contain change in control provisions that entitle them to receive two or three times the sum of their annual base salary and annual target bonus amount and provide for full vesting in all outstanding stock options and immediate renewal of restrictions on stock awards. In the event of change in control, certain executive officers also receive the total amount of contributions that would have been made to the special deferred compensation plan if they had been employed through the end of their employment contract. On May 7, 2001, the Company amended the employment agreements of two executive officers to provide for the payment, subject to certain conditions, of bonuses representing the difference between the amount called for under their severance agreements from a former employer and the amount they actually receive up to $6,647. The bonuses are payable on January 5, 2002 and will be reduced, and if fully paid are repayable, to the extent of each executives's recovery of severance due from a former employer. F-34 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 20. Supplementary Cash Flow Data
Year Ended ------------------------------------------------------ March 3, 2001 February 26, 2000 February 27, 1999 ------------- ----------------- ----------------- Cash paid for interest (net of capitalized amounts of $1,836, $5,292 and $7,069)........... $543,343 $501,813 $259,100 ======== ======== ======== Cash paid for (refunds from) income taxes......... $(88,078) $ 981 $ 47,667 ======== ======== ======== Notes received in connection with the disposition of discontinued operations...................... $200,000 $ -- $ -- ======== ======== ======== Stock received in connection with the disposition of discontinued operations...................... $231,000 $ -- $ -- ======== ======== ======== Change in market value of the stock received in connection with the disposition of discontinued operations...................................... $ 51,031 $ -- $ -- ======== ======== ======== Conversion of debt to common stock................ $597,332 $ -- $ -- ======== ======== ======== 10.50% notes due 2002 issued in exchange for 5.50% fixed rate senior notes due 2000 and 6.70% notes due 2001.................................. $467,500 $ -- $ -- ======== ======== ======== Exchange of preferred shares...................... $ -- $300,000 $ -- ======== ======== ========
21. Related Party Transactions Included in accounts receivable at March 3, 2001 and February 26, 2000 were receivables from related parties of $3,456, and $2,982, respectively, including employee loans. Included in accounts payable of March 3, 2001 and February 26, 2000 were payables from related parties of $421 and $3,475, respectively. During fiscal 2001, 2000 and 1999, the Company sold merchandise totaling $65,259, $16,280 and $6,225, respectively, to drugstore.com (or drugstore.com customers) and Diversified Prescription Delivery, LLC, equity-method investees. During fiscal 2000 and 1999, the Company purchased equipment totaling $26,115 and $27,119, respectively, from Stores Automated Systems, Inc., an equity-method investee. As of February 26, 2001, the Company had divested of its interest in Store Automated Systems, Inc. Therefore, purchases from Store Automated Systems, Inc. in fiscal 2001 are not considered related party purchases. In fiscal 2000 and 1999, the Company purchased $8,814 and $9,430, respectively, of product from a manufacturer of private label over the counter medications in which a director held an ownership interest until May 31, 1999. The Company leases for $154 per year a 43,920 square foot storage space in a warehouse in Camp Hill, Pennsylvania, from a partnership in which a former director has a 50% interest. The Company formerly operated an 8,000 square-foot store in a shopping center in which the former Chairman of the Board and Chief Executive Officer, has a 50% ownership interest. The rent paid by the Company was $96 per year. In February 1999, the lease was cancelled and the Company was released from its obligation to pay over $300 in remaining lease commitments. Beginning in January 1999, the Company leased for $188 per year a 10,750 square-foot store in Sinking Springs, Pennsylvania, which it leases from a relative of the former Chairman of the Board and Chief Executive Officer. The Company leases a 5,000 square-foot store in Mt. Carmel, Pennsylvania, from a partnership in which the former Chairman of the Board and Chief Executive Officer is or was a partner. The rent is $39 per year. F-35 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 21. Related Party Transactions -- (Continued) The Company paid Leonard Green & Partners L.P. (a) a $3,000 fee for service provided in connection with its preferred stock investment in October 1999 and reimbursed $240 of its out-of-pocket expenses; (b) a $3,000 fee for services provided in connection with the financial restructuring transactions which the Company completed in June 2000 and reimbursed its out-of-pocket expenses, and (c) a $2,500 fee for services provided in connection with the sale of PCS Health Services, Inc. In October 1999, the Company agreed to pay Leonard Green & Partners L.P. an annual fee of $1,000 for its consulting services. This fee was increased to $1,500 at the time of the June 2000 restructuring transactions. The consulting agreement also provides for the reimbursement of out-of-pocket expenses incurred by Leonard Green & Partners L.P. The Company has agreed to register the common stock issuable upon conversion of the series B preferred stock and to pay all expenses and fees (other than underwriting discounts and commission) related to any registration. The law firm of Skadden, Arps, Slate, Meagher & Flom LLP provides legal services to the Company. A director of the Company is a partner of that law firm. Fees paid by the Company to Skadden, Arps, Slate, Meagher & Flom LLP did not exceed five percent of the firm's gross revenues for its fiscal year. 22. Interim Financial Results (Unaudited)
Fiscal Year 2001 (53 Weeks) ----------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Year ---------- ---------- ---------- ---------- ----------- Revenues......................... $3,442,186 $3,439,469 $3,531,691 $4,103,519 $14,516,865 Costs and expenses excluding store closing and impairment charges........................ 3,685,301 3,776,210 3,677,367 4,272,716 15,411,594 Store closing and impairment charges........................ 15,879 88,292 95,571 188,336 388,078 ---------- ---------- ---------- ---------- ----------- Income (loss) from continuing operations before taxes........ (258,994) (425,033) (241,247) (357,533) (1,282,807) Income tax expense............... 144,382 -- -- 4,575 148,957 ---------- ---------- ---------- ---------- ----------- Income (loss) from continuing operations..................... (403,376) (425,033) (241,247) (362,108) (1,431,764) Income (loss) from discontinued operations, net of tax......... 11,335 -- -- -- 11,335 Loss on disposal of discontinued operations, net of tax......... (303,330) (31,433) 135,534 30,434 (168,795) ---------- ---------- ---------- ---------- ----------- Net loss......................... $ (695,371) $ (456,466) $ (105,713) $ (331,674) $(1,589,224) ========== ========== ========== ========== =========== Basic and diluted earnings (loss) per share: Loss from continuing operations.. $ (1.57) $ (1.87) $ (0.74) $ (1.07) $ (5.15) Income (loss) from discontinued operations..................... (1.12) (0.10) 0.40 0.09 (0.50) ---------- ---------- ---------- ---------- ----------- Net loss......................... $ (2.69) $ (1.97) $ (0.34) $ (0.98) $ (5.65) ========== ========== ========== ========== ===========
F-36 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 22. Interim Financial Results (Unaudited) -- (Continued)
Fiscal Year 2000 (52 Weeks) ----------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Year ---------- ---------- ---------- ---------- ----------- Revenues ............................. $3,354,621 $3,203,964 $3,279,138 $3,501,224 $13,338,947 Costs and expenses excluding store closing and impairment charges ...... 3,339,205 3,313,458 3,480,935 4,189,197 14,322,795 Store closing and impairment charges . 24,490 53,188 30,601 31,169 139,448 ---------- ---------- ---------- ---------- ----------- Income (loss) from continuing operations before taxes and cumulative effect of change in accounting method................... (9,074) (162,682) (232,398) (719,142) (1,123,296) Income tax expense (benefit) ......... (28,959) (8,280) 17,403 11,461 (8,375) ---------- ---------- ---------- ---------- ----------- Income (loss) from continuing operations before cumulative effect of change in accounting method, net. 19,885 (154,402) (249,801) (730,603) (1,114,921) Income (loss) from discontinued operations, net of tax.............. 3,345 4,247 (4) 1,590 9,178 Cumulative effect of change in accounting method, net of tax....... (27,300) -- -- -- (27,300) ---------- ---------- ---------- ---------- ----------- Net loss ............................. $ (4,070) $ (150,155) $ (249,805) $ (729,013) $(1,133,043) ========== ========== ========== ========== =========== Basic and diluted earnings (loss) per share: Loss from continuing operations ...... $ 0.08 $ (0.60) $ (1.00) $ (2.82) $ (4.34) Income (loss) from discontinued operations.......................... 0.01 0.02 -- 0.01 0.04 Cumulative effect of change in accounting method................... (0.11) -- -- -- (0.11) ---------- ---------- ---------- ---------- ----------- Net loss ............................. $ (0.02) $ (0.58) $ (1.00) $ (2.81) $ (4.41) ========== ========== ========== ========== ===========
Certain reclassifications have been made to the previously issued quarterly amounts to conform to fiscal 2001 year end classifications. During the third and fourth quarters of fiscal 2000, the Company incurred significant non-recurring charges. These included charges of $232,800 for litigation expenses, $63,300 for debt restructuring, $67,600 for sale of discontinued merchandise, and $49,800 for markdowns at retail stores. During the third quarter of fiscal 2001, the Company recorded a $20,000 credit for resolution of insurance coverage disputes and $20,000 credit for the reversal of previously amortized cost of issuance related to financings resulting from a contract settlement. During the fourth quarter of fiscal 2001 (the 14 week quarter), the Company incurred $188,336 of store closing and impairment charges and $33,500 of expense related to stock options under variable accounting plans. F-37 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 23. Financial Instruments The carrying amounts and fair values of financial instruments at March 3, 2001 and February 26, 2000 are listed as follows:
2001 2000 ----------------------- ----------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- ---------- ---------- ---------- Variable rate indebtedness........................ $1,219,785 $1,219,785 $2,480,495 $2,480,495 Fixed rate indebtedness........................... 3,574,763 2,824,904 2,984,238 1,959,252 Note receivable................................... 37,041 37,962 32,889 36,102 AdvancePCS securities............................. 491,198 491,198 -- -- Interest rate swaps............................... -- (29,000) -- --
Cash, trade receivables and trade payables are carried at market value, which approximates their fair values due to the short-term maturity of these instruments. The following methods and assumptions were used in estimating fair value disclosures for financial instruments: Commercial paper and LIBOR-based borrowings under credit facilities: The carrying amounts for commercial paper indebtedness and interest rate swaps and LIBOR-based borrowings under the credit facilities, term loans and term notes approximate their fair values due to the short-term nature of the obligations and the variable interest rates. Long-term indebtedness and interest rate swaps: The fair values of long-term indebtedness and interest rate swaps are estimated based on the quoted market prices of the financial instruments. If quoted market prices were not available, the Company estimated the fair value based on the quoted market price of a financial instrument with similar characteristics or based on the present value of estimated future cash flows using a discount rate on similar long-term indebtedness issued by the Company. Note receivable: The fair value of the fixed-rate note receivable was determined using the present value of projected cash flows, discounted at a market rate of interest for similar instruments. AdvancePCS Securities: The fair value of AdvancePCS securities are estimated based on the quoted market prices of the financial instruments. F-38 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 24. Discontinued Operations On October 2, 2000, the Company sold its wholly owned subsidiary, PCS Health Systems Inc., to Advance Paradigm, Inc. (now known as AdvancePCS). The proceeds from the sale of PCS consisted of $710,557 in cash, $200,000 in principal amount of AdvancePCS's unsecured 11% senior subordinated notes and equity securities of AdvancePCS. PCS is reported as a discontinued operation for all periods presented in the accompanying financial statements and the operating results of PCS through October 2, 2000, the date of sale, are reflected separately from the results of continuing operations. The loss on the disposal of PCS is $168,795. This loss includes net operating results of PCS from July 12, 2000 to October 2, 2000, transaction expenses, the final settlement of the purchase price between the Company and AdvancePCS and the fair value of the non-cash consideration received. As a result of the sale, the Company recorded an increase to the tax valuation allowance and income tax expense of $146,917 for the year ended March 3, 2001. Summarized operating results and net loss of PCS for thirty-one weeks ended October 2, 2000 and the years ended February 26, 2000, and February 27, 1999 were as follows:
Year Ended --------------------------- Thirty-One Weeks February 26, February 27, Ended October 2, 2000 2000 1999 --------------------- ------------ ------------ Net sales......................................... $ 779,748 $1,342,495 $ 344,448 Income (loss) from operations before income tax expense......................................... 25,181 40,081 (18,748) Income tax expense (benefit)...................... 13,846 30,903 (5,925) --------- ---------- --------- Income (loss) from discontinued operations........ 11,335 9,178 (12,823) Loss on disposal before income tax benefit........ (169,529) -- -- Income tax benefit................................ 734 -- -- --------- ---------- --------- Loss on disposal.................................. (168,795) -- -- --------- ---------- --------- Total income (loss) from discontinued operations.. $(157,460) $ 9,178 $(12,823) ========= ========== =========
February 26, 2000 ----------------- Net current liabilities: Cash and cash equivalents................................. $ 4,843 Accounts and other receivables, net....................... 614,432 Other currents assets..................................... 42,707 Claims and rebates payable................................ (924,951) Other current liabilities................................. (127,084) ---------- $ (390,053) ---------- Net non-current assets: Property and equipment, net............................... $ 147,733 Goodwill and intangibles, net............................. 1,816,221 Noncurrent liabilities.................................... (220,126) ---------- $1,743,828 ==========
Acquisition of Discontinued Operations On January 22, 1999, the Company purchased PCS for $1.5 billion, of which $1.3 billion was financed using commercial paper and $200 million was paid in cash. The PCS acquisition was accounted for using the F-39 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 24. Discontinued Operations -- (Continued) purchase method. In accordance with APB Opinion No. 16, the Company recorded the assets and liabilities of PCS at the date of acquisition at their fair values. The excess of the cost of PCS over the fair value of the acquired assets and liabilities of $1,286,089 was recorded as goodwill. Intangible Assets of Discontinued Operations
February 26, 2000 ----------------- Goodwill................................................... $1,298,520 Prescription files and customer lists...................... 434,100 Trade name................................................. 113,100 Internally developed software.............................. 21,900 Assembled workforce........................................ 13,400 ---------- 1,881,020 Accumulated amortization................................... (64,799) ---------- $1,816,221 ==========
At acquisition, the Company determined that the estimated useful life of the goodwill recorded with the PCS acquisition was primarily indeterminate and likely exceeded 40 years. This estimate was based upon a review of the anticipated future cash flows and other factors the Company considered in determining the amount that it was willing to incur for the purchase of PCS. Additionally, management found no persuasive evidence that any material portion of these intangible assets would be depleted in less than 40 years. Accordingly, the Company amortized goodwill over the maximum allowable period of 40 years on a straight-line basis. The value of the PCS trade name was amortized over its estimated useful life of 40 years. The value of the customer base and pharmacy network acquired in the purchase of PCS was amortized over their estimated lives of 30 years. The value of assembled workforce and internally developed software acquired was amortized over their useful lives of six and five years, respectively. Impairment of Long-Lived Assets Long-lived assets of PCS consist principally of intangibles. The Company compared the estimates of future undiscounted cash flows of its service lines to which the intangibles relate to the carrying amount of those intangibles to determine if impairment occurred. Long-lived assets and certain identifiable intangibles to be disposed of, whether by sale or abandonment, were reported at the lower of carrying amount or fair value less cost to sell. Revenue Recognition of Discontinued Operations Revenues were recognized from claims processing fees when the related claims were adjudicated and approved for payment. Certain of the agreements required the customers to pay a fee per covered member rather than a fee per claim. These fees were recognized monthly based upon member counts provided by the customers. Revenue from manufacturer programs were recognized when claims eligible for rebate were adjudicated by the Company. The customer portion of rebates collected was not included in revenue, and correspondingly payments of rebates to customers were not included in expenses. Mail order program revenue was recognized when prescriptions were shipped. 25. Subsequent Events In March 2001, the Company reduced the outstanding balances of the PCS credit facility and the PCS exchange debt by $484,104 with the net proceeds from the sale of equity securities of AdvancePCS and the repayment of AdvancePCS senior subordinated notes. F-40 RITE AID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) For the Years Ended March 3, 2001, February 26, 2000 and February 27, 1999 (In thousands of dollars, except per share amounts) 25. Subsequent Events -- (Continued) Subsequent to March 3, 2001, the Company committed to issue 77,192,000 shares of its common stock in exchange for $511,351 of debt (see Note 13). Subsequent to March 3, 2001, the Company committed to $149,600 private placements comprised of 26,500,000 shares of common stock. On May 15, 2001, the Company entered into a $1,900,000 commitment agreement with a group of banks whereby the Company and the banks would enter into a new senior secured credit facility to replace the existing Senior Credit facility. The closing of the new credit facility is subject to the satisfaction of customary closing conditions and the issuance by the Company of approximately $1,050,000 in new debt or equity securities, of which $527,000 has already been committed or arranged. The Company plans to raise the additional $523,000 by issuing equity and fixed income securities and through real estate mortgage financings. The new credit facility will be secured by inventory, accounts receivable and certain other assets of the Company. While management believes that it will be successful in completing the refinancing, there is no assurance that the refinancing transaction will be consummated. On May 16, 2001, the Company agreed to issue five year warrants to purchase 3,040,000 shares of common stock at $6.00 per share in connection with the exchange by a holder of $152,000 of 10.5% notes due 2002 for a like principal amount of new 12.5% notes due 2006. 26. Consummation of Refinancing (Unaudited) Subsequent to the Date of the Independent Auditors' Report On June 27, 2001, the Company completed a major refinancing that extended the maturity dates of the majority of debt to 2005 or beyond, provided additional equity, converted a portion of debt for equity and reclassified capital leases to operating leases. Major components of the refinancing are summarized below: New Secured Credit Facility: A new $1.9 billion syndicated senior secured credit facility was entered into with a syndicate of banks led by Citicorp USA, Inc. as senior agent. The new facility matures on June 27, 2005 unless more than $20.0 million of our 7.625% senior notes due April 15, 2005 are outstanding on December 31, 2004, then the maturity date becomes March 15, 2005. The new facility consists of a $1.4 billion term loan facility and a $500.0 million revolving credit facility. The term loan was used to prepay various outstanding debt balances. The Company's ability to borrow under the senior secured credit facility is based on a specified borrowing base consisting of eligible accounts receivable and inventory. At June 30, 2001, the term loan was fully drawn except for $21.9 million available on a delayed draw basis to pay for the remaining outstanding 10.5% senior notes when they mature on September 15, 2002. The Company had no outstanding draws on the revolving credit facility at June 30, 2001 and had $403.6 million in additional available borrowing capacity under the revolving credit facility at June 30, 2001, net of outstanding letters of credit of $96.4 million. High Yield Notes: $150.0 million of 11.25% notes due July 1, 2008 were issued in a private placement offering. These notes are unsecured, and subordinate to secured debt. Debt for Debt Exchange: $152.0 million of existing 10.5% notes were exchanged for an equal amount of 12.5% notes due September 15, 2006. These notes are secured by a second priority lien on the collateral of the senior secured credit facility. In addition, holders of these notes received 3.0 million warrants to purchase shares of common stock at $6.00 per share. On June 29, 2001, the warrant holders elected to exercise these warrants. Tender Offer: In connection with the refinancing, the Company announced a tender offer for the 10.50% Senior Secured Notes due 2002 at a price of 103% of face value on May 24, 2001. The tender offer was closed on June 27, 2001, at which time $174,462 principal was tendered. A tender offer premium of $5,670 was incurred as a result of the transaction. Proceeds from the new senior secured credit facility were used to fund the tender offer. Debt for Equity Exchanges: $212.5 million of debt was exchanged for 8.9 million shares of common stock and 2.1 million shares of Series C Convertible Preferred Stock. Sales of Common Stock: The Company sold 80.1 million shares of common stock for net proceeds of $528.2 million Lease Obligations: The terms of certain real estate leases on property previously sold and leased back were restructured, thereby reducing the outstanding capital lease obligations by $848.8 million. Impact on Results of Operations in Fiscal 2002: As a result of the refinancing activities in fiscal 2002, the Company will: i) record an extraordinary loss on early extinguishment of debt of approximately $66,000 subject to certain valuations; ii) record an approximate loss of $133,000 on debt for equity exchanges; iii) recognize a loss of $22,000 related to the reclassification of leases; and iv) defer debt issue costs of approximately $74,000. F-41 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses, other than underwriting discounts and commissions, to be paid in connection with the sale of the common stock being registered, all of which will be paid by the registrant. All amounts are estimates except the registration fee.
SEC registration fee ......................................... $246,255.39 Accounting fees and expenses ................................ $ 50,000.00 Legal fees and expenses ...................................... $150,000.00 Printing fees ................................................ $ 75,000.00 Miscellaneous ................................................ $ 25,000.00 ----------- Total ........................................................ $546,255.39 ===========
Item 14. Indemnification of Directors and Officers. Under the Section 145 of the Delaware General Corporation Law ("DGCL"), a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding (i) if such person acted in good faith and in a manner that person reasonably believed to be in or not opposed to the best interests of the corporation and (ii) with respect to any criminal action or proceeding, if he or she had no reasonable cause to believe such conduct was unlawful. In actions brought by or in the right of the corporation, a corporation may indemnify such person against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner that person reasonable believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which that person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person in fairly and reasonable entitled to indemnification for such expenses which the Court of Chancery or other such court shall deem proper. To the extent that such person has been successful on the merits or otherwise in defending any such action, suit or proceeding referred to above or any claim, issue or matter therein, he or she is entitled to indemnification for expenses (including attorneys' fees) actually and reasonable incurred by such person in connection therewith. The indemnification and advancement of expenses provided for or granted pursuant to Section 145 is not exclusive of any other rights of indemnification or advancement of expenses to which those seeking indemnification or advancement of expenses may be entitled, and a corporation may purchase and maintain insurance against liabilities asserted against any former or current, director, officer, employee or agent of the corporation, or a person who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not the power to indemnify is provided by the statute. Article Tenth of the Company's Certificate of Incorporated and Article VII of the Company's By-laws provide for the indemnification of its directors and officers as authorized by Section 145 of the DGCL. The directors and officers of the Company and its subsidiaries are insured (subject to certain exceptions and deductions) against liabilities which they may incur in their capacity as such including liabilities under the Securities Act, under liability insurance policies carried by the Company. II-1 Item 15. Recent Sales of Unregistered Securities o On October 27, 1999, we sold to Green Equity Investors III, L.P. 3,000,000 shares of our series A cumulative convertible pay-in-kind preferred stock at a purchase price of $100.00 per share, for an aggregate purchase price of $300.0 million. The series A preferred stock had an 8% cumulative pay-in-kind dividend paid quarterly. On December 10, 1999, Green Equity Investors III, L.P. exchanged all of its series A preferred stock for 3,000,000 shares of our series B cumulative convertible pay-in-kind preferred stock ("series B preferred stock"). The series B preferred stock has the same terms as the series A preferred stock except that the series B preferred stock votes with the holders of our common stock and each holder of series B preferred stock has one vote for each share of the common stock issuable upon conversion of the holder's series B preferred stock. The holders of our series B preferred stock are also entitled to vote separately as a class to elect two directors to our Board of Directors. Leonard I. Green and Jonathan D. Sokoloff are the series B directors. When issued, the series B preferred stock was convertible into shares of our common stock at a conversion price of $11.00 per share subject to adjustment. As a result of the exchange of our bank debt for shares of our common stock at an exchange rate of $5.50 per share, as discussed below, the conversion price for the series B preferred stock was adjusted to $5.50 per share. o On October 27, 1999, we issued a warrant to J.P. Morgan Ventures Corporation, an affiliate of J.P. Morgan, to purchase 2,500,000 shares of our common stock. The exercise price for the common stock is $11.00 per share, subject to certain adjustments. The warrant expires on September 23, 2002. The warrant was issued in connection with the extension and restructuring of our PCS and RCF facilities in October 1999. o On June 14, 2000, certain lenders, including J.P. Morgan Ventures Corporation, exchanged an aggregate of $284.8 million of their loans outstanding under the PCS credit facility, the RCF credit facility and the $300.0 million demand note into an aggregate of 51,785,434 shares of our common stock at an exchange rate of $5.50 per share. o On June 14, 2000, we issued $374.3 million of our 10.5% senior secured notes due 2002 in exchange for $52.5 million of our outstanding 5.5% notes due December 2000 and $321.8 million of our outstanding 6.7% notes due December 2001. We also entered into an agreement with J.P. Morgan and another financial institution under which they agreed to purchase $93.2 million of the 10.5% senior secured notes due 2002 when the 5.5% notes that remain outstanding mature in December 2000. The series A preferred stock, the series B preferred stock, the warrant, the 10.5% senior secured notes due 2002 and our common stock issued in exchange for certain of our bank debt were issued in transactions exempt from registration in reliance on Section 4(2) of the Securities Act. o On June 26, 2000, holders of approximately $177.8 million principal amount of our 5.25% convertible subordinated notes due 2002 exchanged these notes for an aggregate of 17,779,000 shares of our common stock. The common stock was issued in privately negotiated transactions exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On November 10, 2000, holders of approximately $79.9 million principal amount of our 5.25% convertible subordinated notes due 2002 and $12.3 million principal amount of our 6.0% dealer remarketable securities due 2003 exchanged these notes for an aggregate of 9,222,200 shares of our common stock. The common stock was issued in privately negotiated transactions exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On January 23, 2001, a holder of approximately $5.5 million principal amount of our 6.0% senior notes due 2005 and $2.0 million principal amount of our 7.625% senior notes due 2005 exchanged these notes for an aggregate of 862,500 shares of our common stock. The common stock was issued in a privately negotiated transaction exempt from registration in reliance on Section 3(a)(9) of the Securities Act. II-2 o On January 26, 2001, a holder of approximately $15.0 million principal amount of our 5.25% convertible subordinated notes due 2002 exchanged these notes for an aggregate of 1,875,000 shares of our common stock. The common stock was issued in a privately negotiated transaction exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On January 30, 2001, holders of approximately $20.0 million principal amount of our 5.25% convertible subordinated notes due 2002 exchanged these notes for an aggregate of 2,600,000 shares of our common stock. The common stock was issued in privately negotiated transactions exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On March 14, 2001, holders of approximately $201.4 million principal amount of our 5.25% convertible subordinated notes due 2002 exchanged these notes for an aggregate of 29,204,160 shares of our common stock. The common stock was issued in an exchange offer exempt from registration in reliance on section 3(a)(9) of the Securities Act. o On March 14, 2001, holders of approximately $77.9 million principal amount of our 6.0% dealer remarketable securities due 2003 exchanged these notes for an aggregate of 12,072,175 shares of our common stock. The common stock was issued in an exchange offer exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On April 6, 2001, holders of approximately $3.9 million principal amount of our 5.25% convertible subordinated notes due 2002 and $2.0 million principal amount of our 6.0% dealer remarketable securities due 2003 exchanged these notes for an aggregate of 856,000 shares of our common stock. The common stock was issued in privately negotiated transactions exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On April 25, 2001, holders of approximately $11.0 million principal amount of our 10.5% senior secured notes due 2002 exchanged these notes for an aggregate of 1,925,000 shares of our common stock. The common stock was issued in privately negotiated transactions exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On April 25, 2001, holders of approximately $5.0 million principal amount of our 10.5% senior secured notes due 2002 exchanged these notes for an aggregate of 785,000 shares of our common stock. The common stock was issued in a privately negotiated transaction exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On May 15, 2001, a holder of $10.0 million principal amount of indebtedness under our RCF credit facility exchanged this indebtedness for an aggregate of 1,473,405 shares of our common stock. The common stock was issued in a transaction exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On May 29, 2001, holders of $5.0 million principal amount of indebtedness under our PCS credit facility and $10.0 million principal amount of indebtedness under our RCF credit facility exchanged this indebtedness for an aggregate of 2,144,936 shares of common stock. The common stock was issued in privately negotiated transactions exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On May 29, 2001, holders of $40 million principal amount of our 10.5% senior secured notes due 2002 exchanged this indebtedness for an aggregate of 5,831,159 shares of our common stock. The common stock was issued in privately negotiated transactions exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On May 31, 2001, holders of $10.0 million principal amount of indebtedness under our RCF credit facility exchanged this indebtedness for an aggregate of 1,443,814 shares of common stock. The common stock was issued in privately negotiated transactions exempt from registration in reliance on Section 3(a)(9) of the Securities Act. II-3 o On June 22, 2001, a holder of $38.004 million principal amount of our 10.5% senior secured notes due 2002 exchanged these notes for an aggregate of 4,681,221 shares of common stock. The common stock was issued in privately negotiated transactions exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On June 25, 2001, a holder of $9.825 million principal amount of our 10.5% senior secured notes due 2002 exchanged these notes for an aggregate of 1,136,108 shares of common stock. The common stock was issued in a privately negotiated transaction exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On June 26, 2001, holders of $9,477,794 principal amount of our PCS credit facility, $7,247,300 principal amount of indebtedness under our RCF credit facility and $15,305,000 principal amount of our 10.5% senior secured notes due 2002 exchanged this indebtedness for an aggregate of 3,615,693 shares of common stock. The common stock was issued in privately negotiated transactions exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On June 27, 2001, holders of $132,658,503.67 principal amount of indebtedness under our RCF credit facility exchanged this indebtedness for an aggregate of 2,121,677 shares of our Series C preferred stock. The preferred stock was issued in privately negotiated transactions exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On June 27, 2001, we issued and sold to a group of institutional investors an aggregate of 80,082,727 shares of common stock for aggregate consideration of $551,319,750. The common stock was issued in privately negotiated transactions exempt from registration in reliance on Section 4(2) of the Securities Act. o On June 27, 2001, holders of $152.025 million principal amount of our 10.5% senior secured notes due 2002 exchanged these notes for $152.025 principal amount of new 12.5% senior secured notes due 2006 and the issuance to such holders of common stock purchase warrants exercisable to purchase 3,000,000 shares of common stock at an exercise price of $6.00 per share. The 12.5% senior secured notes due 2006 and the common stock purchase warrants were issued in a privately negotiated transaction exempt from registration in reliance on Section 3(a)(9) of the Securities Act. o On June 27, 2001, we issued and sold to a group of institutional investors $150 million aggregate principal amount of new 11.25% senior secured notes due 2008. The 11.25% senior secured notes due 2008 were issued in a privately negotiated transaction exempt from registration in reliance on Section 4(2) of the Securities Act. II-4 Item 16. Exhibits and Financial Statement Schedules. a. Exhibits
Exhibit Incorporation by Numbers Description Reference to ------- ----------- ------------ 3.1 Restated Certificate of Incorporation dated December 12, 1996 Exhibit 3(i) to Form 8-K filed on November 2, 1999 3.2 Certificate of Amendment to the Restated Certificate of Incorporation Exhibit 3(ii) to Form 8-K filed on November 2, dated October 25, 1999 1999 3.3 Series C Preferred Stock Certificate of Designation dated June 26, 2001 Filed herewith 3.4 Certificate of Amendment to Restated Certificate of Incorporation dated Filed herewith June 27, 2001 3.5 By-laws, as amended on November 8, 2000 Exhibit 3.1 to Form 8-K filed on November 13, 2000 4.1 Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Exhibit 4.2 to Form 8-K filed on February 7, Corporation and Harris Trust and Savings Bank to the Indenture, dated 2000 September 10, 1997, between Rite Aid Corporation and Harris Trust and Savings Bank 4.2 Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Exhibit 4.3 to Form 8-K filed on February 7, Corporation and Harris Trust and Savings Bank, to the Indenture, dated 2000 September 22, 1998, between Rite Aid Corporation and Harris Trust and Savings Bank 4.3 Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Exhibit 4.4 to Form 8-K filed on February 7, Corporation and Harris Trust and Savings Bank to the Indenture, dated 2000 December 21, 1998, between Rite Aid Corporation and Harris Trust and Savings Bank 4.4 Indenture, dated as of June 14, 2000, among Rite Aid Corporation, as Exhibit 4.1 to Form 8-K filed on Issuer, each of the Subsidiary Guarantors named therein and State June 21, 2000 Street Bank and Trust Company, as Trustee 4.5 Exchange and Registration Rights Agreement, dated as of June 14, 2000, Exhibit 4.2 to Form 8-K filed on by and among Rite Aid Corporation, State Street Bank and Trust Company June 21, 2000 and the Holders of the 10.50% Senior Secured Notes due 2002 4.6 Registration Rights Agreement, dated as of June 14, 2000, by and among Exhibit 4.3 to Form 8-K filed on Rite Aid Corporation and the Lenders listed therein June 21, 2000 4.7 Indenture, dated as of June 27, 2001, between Rite Aid Corporation, as Filed herewith issuer and State Street Bank and Trust Company, as trustee, related to the Company's 12.50% Senior Secured Notes due 2006.
II-5
Exhibit Incorporation by Numbers Description Reference to ------- ----------- ------------ 4.8 Indenture, dated as of June 27, 2001 between Rite Aid Corporation, as Filed herewith issuer and BNY Midwest Trust Company, as trustee, related to the Company's 11 1/4% Senior Notes due 2008. 4.9 Exchange and Registration Rights Agreement, dated as of June 27, 2001, Filed herewith between Rite Aid Corporation and Salomon Smith Barney Inc., Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc. and Fleet Securities, Inc., as initial purchasers, for the benefit of the holders of the Company's 11 1/4% Senior Notes due 2008. 5 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP To be filed by amendment 10.1 1999 Stock Option Plan Exhibit 10.1 to Form 10-K filed on May 21, 2001 10.2 2000 Omnibus Equity Plan Included in Proxy Statement dated October 24, 2000 10.3 2001 Stock Option Plan Exhibit 10.3 to Form 10-K filed on May 21, 2001 10.4 Registration Rights Agreement, dated as of October 27, 1999, by and Exhibit 4.1 to Form 8-K filed on November 2, between Rite Aid Corporation and Green Equity Investors III, L.P. 1999 10.5 Registration Rights Agreement, dated as of October 27, 1999, by and Exhibit 4.2 to Form 8-K filed on November 2, between Rite Aid Corporation and J.P. Morgan Ventures Corporation 1999 10.6 Warrant to purchase Common Stock, par value $1.00 per share, of Rite Exhibit 4.3 to Form 8-K filed on November 2, Aid Corporation, dated October 27, 1999, issued to J.P. Morgan Ventures 1999. Corporation 10.7 Employment Agreement by and between Rite Aid Corporation and Robert G. Exhibit 10.1 to Form 8-K filed on January 18, Miller, dated as of December 5, 1999 2000 10.8 Amendment No. 1 to Employment Agreement by and between Rite Aid Exhibit 10.9 to Form 10-K filed on May 21, Corporation and Robert G. Miller, dated as of May 7, 2001 2001 10.9 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, Exhibit 4.31 to Form 8-K filed on January 18, made as of December 5, 1999, by and between Rite Aid Corporation and 2000 Robert G. Miller 10.10 Employment Agreement by and between Rite Aid Corporation and Mary F. Exhibit 10.2 to Form 8-K filed on January 18, Sammons, dated as of December 5, 1999 2000 10.11 Amendment No. 1 to Employment Agreement by and between Rite Aid Exhibit 10.11 to Form 10-K filed on May 21, Corporation and Mary F. Sammons, dated as of May 7, 2001 2001
II-6
Exhibit Incorporation by Numbers Description Reference to ------- ----------- ------------ 10.12 Rite Aid Corporation Restricted Stock and Stock Exhibit 4.32 to Form 8-K filed on January 18, Option Award Agreement, made as of December 5, 1999, by and between 2000 Rite Aid Corporation and Mary F. Sammons 10.13 Employment Agreement by and between Rite Aid Corporation and David R. Exhibit 10.3 to Form 8-K filed on January 18, Jessick, dated as of December 5, 1999 2000 10.14 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, Exhibit 4.33 to Form 8-K filed on January 18, made as of December 5, 1999, by and between Rite Aid Corporation and 2000 David R. Jessick 10.15 Employment Agreement by and between Rite Aid Corporation and John T. Exhibit 10.4 to Form 8-K filed on January 18, Standley, dated as of December 5, 1999 2000 10.16 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, Exhibit 4.34 to Form 8-K filed on January 18, made as of December 5, 1999, by and between Rite Aid Corporation and 2000 John T. Standley 10.17 Employment Agreement by and between Rite Aid Corporation and Elliot S. Exhibit 10.18 to Form 10-K filed on May 21, Gerson, dated as of November 16, 2000 2001 10.18 Employment Agreement by and between Rite Aid Corporation and Eric Exhibit 10.19 to Form 10-K filed on May 21, Sorkin, dated as of April 2, 1999 2001 10.19 Employment Agreement by and between Rite Aid Corporation and James Exhibit 10.20 to Form 10-K filed on May 21, Mastrain, dated as of September 27, 2000 2001 10.20 Rite Aid Corporation Special Deferred Compensation Plan Exhibit 10.20 to Form 10-K filed on July 11, 2000 10.21 Executive Separation Agreement and General Release, dated February 28, Exhibit 10.46 to Form 10-K filed on July 11, 2000, between Rite Aid Corporation and Timothy Noonan 2000 10.22 Letter Agreement, dated February 28, 2000, between Rite Aid Corporation Exhibit 10.47 to Form 10-K filed on July 11, and Timothy Noonan, amending Executive Separation Agreement and General 2000 Release, dated February 28, 2000, between Rite Aid Corporation and Timothy Noonan 10.23 Equity for Bank Debt Exchange Agreement between Exhibit 10.45 to Form 10-K filed on May 21, Rite Aid Corporation, Fir Tree Value Fund, L.P., Fir Tree Institutional 2001 Value Fund, L.P., Fir Tree Value Partners LDC and Fir Tree Recovery Master Fund, L.P. 10.24 Side Letter to Equity for Bank Debt Exchange Agreement, dated April 30, Exhibit 10.46 to Form 10-K filed on May 21, 2001, between Rite Aid Corporation, Fir Tree Value Fund, L.P., Fir Tree 2001 Institutional Value Fund, L.P., Fir Tree Value Partners LDC and Fir Tree Recovery Master Fund, L.P.
II-7
Exhibit Incorporation by Numbers Description Reference to ------- ----------- ------------ 10.25 Employment Agreement by and between Rite Aid Corporation and Exhibit 10.46 to Form 10-K filed on May 21, Christopher Hall, dated as of January 26, 2001 2001 10.26 Employment Agreement by and between Rite Aid Corporation and Robert B. Exhibit 10.49 to Form 10-K filed on May 21, Sari, dated as of February 28, 2001 2001 10.27 Registration Rights Agreement dated as of June 14, 2001 by and between Filed herewith Rite Aid Corporation and Marathon Special Opportunity Fund Ltd. and Marathon Master Fund, Ltd. 10.28 Registration Rights Agreement dated as of June 19 2001 by and between Filed herewith Rite Aid Corporation and OZ Master Fund, Ltd. and OZF Credit Opportunities Master Fund, Ltd. 10.29 Registration Rights Agreement dated as of May 24, 2001 by and between Filed herewith Rite Aid Corporation and Liberty View Fund, LP, Liberty View Fund, LLC and Liberty View Global Volatility Fund LP 10.30 Senior Credit Agreement, dated as of June 27, 2001 among Rite Aid Filed herewith Corporation, the financial institutions party thereto, Citicorp USA, Inc., as senior administrative agent and as senior collateral agent, and The Chase Manhattan Bank, Credit Suisse First Boston and Fleet Retail Finance Inc., as syndication agents 10.31 Senior Subsidiary Guarantee Agreement, dated as of June 27, 2001 among Filed herewith the Subsidiary Guarantors (as defined therein) and Citicorp USA, Inc., as senior collateral agent. 10.32 Senior Subsidiary Security Agreement, dated as of June 27, 2001 by the Filed herewith Subsidiary Guarantors (as defined therein) in favor of the Citicorp USA (senior collateral agent). 10.33 Collateral Trust and Intercreditor Agreement, dated as of June 27, 2001 Filed herewith among Rite Aid Corporation, the Subsidiary Guarantors (as defined therein), Wilmington Trust Company, as collateral trustee for the holders from time to time of the Second Priority Debt Obligations (as defined therein), Citicorp USA, Inc., as collateral agent for the Senior Secured Parties (as defined therein) under the Senior Loan Documents (as defined therein), Citibank USA, Inc., as agent for the Synthetic Lease Parties (as defined therein), State Street Bank and Trust Company, as trustee under the Exchange Note Indenture (as defined therein) for the holders of the Exchange Notes (as defined therein), and each other Second Priority Representative (as defined therein) which from time to time becomes a party thereto.
II-8
Exhibit Incorporation by Numbers Description Reference to ------- ----------- ------------ 10.34 Second Priority Subsidiary Guarantee Agreement, dated as of June 27, Filed herewith 2001 among the Subsidiary Guarantors (as defined therein) and Wilmington Trust Company, as collateral agent. 10.35 Second Priority Subsidiary Security Agreement, dated as of June 27, Filed herewith 2001 by the Subsidiary Guarantors (as defined therein) in favor of Wilmington Trust Company, as collateral trustee. 10.36 Each of the Mortgages, Deeds of Trust, Assignments of Leases and Rents, Filed herewith Security Agreements, Financing Statements and Fixture Filings, dated June 27, 2001, from the Subsidiary Guarantors (as defined therein) listed therein, to Citicorp USA, Inc. as Senior Collateral Agent. 10.37 Each of the Mortgages, Deeds of Trust, Assignments of Leases and Rents, Filed herewith Security Agreements, Financing Statements and Fixture Filings, dated June 27, 2001, from the Subsidiary Guarantor listed therein, to Wilmington Trust Company, as Second Priority Collateral Trustee. 10.38 Participation Agreement, dated as of June 27, 2001 among Rite Aid Filed herewith Realty Corp., a Delaware corporation; Rite Aid Corporation, a Delaware corporation; Wells Fargo Northwest, National Association, not in its individual capacity except as expressly set forth therein but solely as trustee of the RAC Distribution Statutory Trust; the persons named therein as note holders and certificate holders; and Citicorp USA, Inc., in its capacity as administrative agent. 10.39 Lease, dated as of June 27, 2001 between Wells Fargo Northwest, Filed herewith National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust, and Rite Aid Realty Corp., a Delaware corporation. 10.40 Ground Lease Agreement dated as of June 27, 2001 between Thrifty Filed herewith Payless, Inc., a California corporation, and Wells Fargo Northwest, National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust. 10.41 Security Agreement, dated as of June 27, 2001, made by Rite Aid Realty Filed herewith Corp., a Delaware corporation in favor of Wells Fargo Northwest, National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust. 10.42 Parent Guarantee, dated as of June 27, 2001, by Rite Aid Corporation, a Filed herewith Delaware corporation to Wells Fargo Northwest, National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust.
II-9
Exhibit Incorporation by Numbers Description Reference to ------- ----------- ------------ 10.43 Instrument Guarantee, dated as of June 27, 2001, by Rite Aid Realty Filed herewith Corp., a Delaware corporation, to each of the Note Holders and Certificate Holders (each as defined in Participation Agreement, dated as of June 27, 2001 among Rite Aid Realty Corp., a Delaware corporation; Rite Aid Corporation, a Delaware corporation; Wells Fargo Northwest, National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust; the Persons named therein as note holders and certificate holders; and Citicorp USA, Inc., in its capacity as administrative agent). 10.44 Loan Agreement dated as of June 27, 2001 among Wells Fargo Northwest, Filed herewith National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust, the Persons named therein as note holders and/or any assignee thereof. 10.45 Assignment and Security Agreement, dated as of June 27, 2001, by Wells Filed herewith Fargo Northwest, National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust, in favor of Citicorp USA, Inc., as Agent. 10.46 Amended and Restated Declaration of Trust dated as of June 27, 2001, Filed herewith between Wells Fargo Northwest, National Association and the Certificate Holders as defined therein. 10.47 Stock Purchase Agreement dated June 12, 2001 by and between Rite Aid Filed herewith Corporation, American Century Mutual Funds, Inc. and American Century World Mutual Funds, Inc. 10.48 Stock Purchase Agreement dated June 12, 2001 by and between Rite Aid Filed herewith Corporation, Bessent Global Equity Master and Quantum Partners Bessent Global. 10.49 Stock Purchase Agreement dated June 12, 2001 by and between Rite Aid Filed herewith Corporation and Fidelity. 10.50 Stock Purchase Agreement dated June 12, 2001 by and between Rite Aid Filed herewith Corporation; Putnam Investment Management, LLC; The Putnam Advisory Company, LLC; and Putnam Fiduciary Trust Company. 10.51 Stock Purchase Agreement dated May 17, 2001 by and between Rite Aid Filed herewith Corporation and Transamerica Investment Management, LLC. 10.52 Exchange and Registration Rights Agreement dated as of June 27, 2001 by Filed herewith and between Rite Aid and the Fidelity holders. 10.53 Registration Rights Agreement dated June 27, 2001 by and between Rite Filed herewith Aid Corporation and Fidelity holders.
II-10
Exhibit Incorporation by Numbers Description Reference to ------- ----------- ------------ 10.54 Registration Rights Agreement dated June 27, 2001 by and between Rite Filed herewith Aid Corporation, American Century Mutual Funds, Inc.; American Century World Mutual Funds, Inc.; Bessent Global Equity Master; Quantum Partners Bessent Global; Fidelity; Putnam Investment Management, LLC; The Putnam Advisory Company, LLC; and Putnam Fiduciary Trust Company. 10.55 Registration Rights Agreement dated June 27, 2001 by and between Rite Filed herewith Aid Corporation and Transamerica Investment Management, LLC. 10.56 Registration Rights Agreement dated May 31, 2001 by and between Rite Filed herewith Aid Corporation; Fir Tree Value Fund, L.P; Fir Tree Institutional Value Fund, L.P.; Fir Tree Value Partners LDC; and Fir Tree Recovery Master Fund, L.P.; 10.57 Note Exchange Agreement dated June 27, 2001 by and between Rite Aid Filed herewith Corporation and the Fidelity holders. 10.58 Form of Common Stock Purchase Warrant dated June 27, 2001 issued by Rite Aid Corporation to Fidelity and funds affiliated with or controlled by Fidelity. 10.59 Purchase Agreement dated June 20, 2001 between Rite Aid Corporation and Filed herewith Salomon Smith Barney Inc., Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc. and Fleet Securities Inc. as representatives of the initial purchasers of the Company's 11 1/4% Senior Notes due 2008. 21 Subsidiaries of the registrant Exhibit 19 to the Form 10-K filed on July 11, 2000 23.1 Independent Auditors' Consent Filed herewith 23.2 Independent Auditors' Consent Filed herewith
II-11 b. Financial Statement Schedules Independent Auditors' Report and Schedule II - Valuation and Qualifying Accounts (see pages II-15 and II-16) All other schedules are omitted because they are not applicable, not required or the required information is included in the consolidated financial statements or notes thereto. Financial statements of 50% or less owned companies have been omitted since they do not constitute significant subsidiaries. Item 17. Undertakings. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-12 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Camp Hill, State of Pennsylvania, on July 10, 2001. RITE AID CORPORATION By: /s/ ROBERT G. MILLER ---------------------------------------------- Robert G. Miller Chairman of the Board of Directors and Chief Executive Officer Each person whose signature appears below hereby constitutes and appoints Elliot S. Gerson and Kevin Twomey, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all (1) amendments (including post-effective amendments) and additions to this Registration Statement and (2) Registration Statements, and any and all amendments thereto (including post- effective amendments), relating to the offering contemplated pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in- fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ------------ ---- /s/ ROBERT G. MILLER Chairman of the Board and July 10, 2001 ------------------------------------ Chief Executive Officer Robert G. Miller /s/ MARY F. SAMMONS President, Chief Operating July 10, 2001 ------------------------------------ Officer and Director Mary F. Sammons /s/ JOHN T. STANDLEY Chief Financial Officer and Senior July 10, 2001 ------------------------------------ Executive Vice President John T. Standley /s/ CHRISTOPHER HALL Executive Vice President, July 10, 2001 ------------------------------------ Finance and Accounting Christopher Hall
II-13
Signature Title Date --------- ------------ ---- /s/ KEVIN TWOMEY Chief Accounting Officer and July 10, 2001 ------------------------------------ Senior Vice President Kevin Twomey /s/ WILLIAM J. BRATTON Director July 10, 2001 ------------------------------------ William J. Bratton /s/ ALFRED M. GLEASON Director July 10, 2001 ------------------------------------ Alfred M. Gleason /s/ LEONARD I. GREEN Director July 10, 2001 ------------------------------------ Leonard I. Green /s/ NANCY A. LIEBERMAN Director July 10, 2001 ------------------------------------ Nancy A. Lieberman /s/ STUART M. SLOAN Director July 10, 2001 ------------------------------------ Stuart M. Sloan /s/ JONATHAN D. SOKOLOFF Director July 10, 2001 ------------------------------------ Jonathan D. Sokoloff /s/ LEONARD N. STERN Director July 10, 2001 ------------------------------------ Leonard N. Stern
II-14 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Rite Aid Corporation Camp Hill, Pennsylvania We have audited the consolidated financial statements of Rite Aid Corporation and subsidiaries as of March 3, 2001 and February 26, 2000, and for each of the three years in the period ended March 3, 2001, and have issued our report thereon dated May 8, 2001, except for Note 25, as to which the date is May 16, 2001 (included elsewhere in this Registration Statement). Our audits also included the financial statement schedule of Rite Aid Corporation, listed in Item 16 of this Registration Statement. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania May 8, 2001 II-15 RITE AID CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS For the Years Ended March 3, 2001, February 26, 2000, and February 27, 1999 (dollars in thousands)
Additions Balance at Charged to Balance at Allowances deducted from accounts receivable Beginning Costs and End of for estimated uncollectible amounts: of Period Expenses Deductions Period - -------------------------------------------- ---------- ---------- ---------- ---------- Year ended March 3, 2001 .................................................... $43,371 $21,147 $27,468 $37,050 Year ended February 26, 2000 ................................................ 30,296 29,268 16,193 43,371 Year ended February 27, 1999 ................................................ 47,268 15,916 32,888 30,296
II-16 EXHIBIT INDEX
Exhibit Incorporation by Numbers Description Reference to ------- ----------- --------------- 3.1 Restated Certificate of Incorporation dated Exhibit 3(i) to Form 8-K filed on November 2, December 12, 1996 1999 3.2 Certificate of Amendment to the Restated Certificate of Incorporation Exhibit 3(ii) to Form 8-K filed on November 2, dated October 25, 1999 1999 3.3 Series C Preferred Stock Certificate of Designation dated June 26, 2001 Filed herewith 3.4 Certificate of Amendment to Restated Certificate of Incorporation dated Filed herewith June 27, 2001 3.5 By-laws, as amended on November 8, 2000 Exhibit 3.1 to Form 8-K filed on November 13, 2000 4.1 Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Exhibit 4.2 to Form 8-K filed on February 7, Corporation and Harris Trust and Savings Bank to the Indenture, dated 2000 September 10, 1997, between Rite Aid Corporation and Harris Trust and Savings Bank 4.2 Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Exhibit 4.3 to Form 8-K filed on February 7, Corporation and Harris Trust and Savings Bank, to the Indenture, dated 2000 September 22, 1998, between Rite Aid Corporation and Harris Trust and Savings Bank 4.3 Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Exhibit 4.4 to Form 8-K filed on February 7, Corporation and Harris Trust and Savings Bank to the Indenture, dated 2000 December 21, 1998, between Rite Aid Corporation and Harris Trust and Savings Bank 4.4 Indenture, dated as of June 14, 2000, among Rite Aid Corporation, as Exhibit 4.1 to Form 8-K filed on Issuer, each of the Subsidiary Guarantors named therein and State June 21, 2000 Street Bank and Trust Company, as Trustee 4.5 Exchange and Registration Rights Agreement, dated as of June 14, 2000, Exhibit 4.2 to Form 8-K filed on by and among Rite Aid Corporation, State Street Bank and Trust Company June 21, 2000 and the Holders of the 10.50% Senior Secured Notes due 2002 4.6 Registration Rights Agreement, dated as of June 14, 2000, by and among Exhibit 4.3 to Form 8-K filed on Rite Aid Corporation and the Lenders listed therein June 21, 2000 4.7 Indenture, dated as of June 27, 2001, between Rite Aid Corporation, as Filed herewith issuer and State Street Bank and Trust Company, as trustee, related to the Company's 12.50% Senior Secured Notes due 2006.
Exhibit Incorporation by Numbers Description Reference to ------- ----------- --------------- 4.8 Indenture, dated as of June 27, 2001 between Rite Aid Corporation, as Filed herewith issuer and BNY Midwest Trust Company, as trustee, related to the Company's 11 1/4% Senior Notes due 2008. 4.9 Exchange and Registration Rights Agreement, dated as of June 27, 2001, Filed herewith between Rite Aid Corporation and Salomon Smith Barney Inc., Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc. and Fleet Securities, Inc., as initial purchasers, for the benefit of the holders of the Company's 11 1/4% Senior Notes due 2008. 5 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP To be filed by amendment 10.1 1999 Stock Option Plan Exhibit 10.1 to Form 10-K filed on May 21, 2001 10.2 2000 Omnibus Equity Plan Included in Proxy Statement dated October 24, 2000 10.3 2001 Stock Option Plan Exhibit 10.3 to Form 10-K filed on May 21, 2001 10.4 Registration Rights Agreement, dated as of October 27, 1999, by and Exhibit 4.1 to Form 8-K filed on November 2, between Rite Aid Corporation and Green Equity Investors III, L.P. 1999 10.5 Registration Rights Agreement, dated as of October 27, 1999, by and Exhibit 4.2 to Form 8-K filed on November 2, between Rite Aid Corporation and J.P. Morgan Ventures Corporation 1999 10.6 Warrant to purchase Common Stock, par value $1.00 per share, of Rite Exhibit 4.3 to Form 8-K filed on November 2, Aid Corporation, dated October 27, 1999, issued to J.P. Morgan Ventures 1999. Corporation 10.7 Employment Agreement by and between Rite Aid Corporation and Robert G. Exhibit 10.1 to Form 8-K filed on January 18, Miller, dated as of December 5, 1999 2000 10.8 Amendment No. 1 to Employment Agreement by and between Rite Aid Exhibit 10.9 to Form 10-K filed on May 21, Corporation and Robert G. Miller, dated as of May 7, 2001 2001 10.9 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, Exhibit 4.31 to Form 8-K filed on January 18, made as of December 5, 1999, by and between Rite Aid Corporation and 2000 Robert G. Miller 10.10 Employment Agreement by and between Rite Aid Corporation and Mary F. Exhibit 10.2 to Form 8-K filed on January 18, Sammons, dated as of December 5, 1999 2000 10.11 Amendment No. 1 to Employment Agreement by and between Rite Aid Exhibit 10.11 to Form 10-K filed on May 21, Corporation and Mary F. Sammons, dated as of May 7, 2001 2001
Exhibit Incorporation by Numbers Description Reference to ------- ----------- --------------- 10.12 Rite Aid Corporation Restricted Stock and Stock Option Award Exhibit 4.32 to Form 8-K filed on January 18, Agreement, made as of December 5, 1999, by and between Rite Aid 2000 Corporation and Mary F. Sammons 10.13 Employment Agreement by and between Rite Aid Corporation and David R. Exhibit 10.3 to Form 8-K filed on January 18, Jessick, dated as of December 5, 1999 2000 10.14 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, Exhibit 4.33 to Form 8-K filed on January 18, made as of December 5, 1999, by and between Rite Aid Corporation and 2000 David R. Jessick 10.15 Employment Agreement by and between Rite Aid Corporation and John T. Exhibit 10.4 to Form 8-K filed on January 18, Standley, dated as of December 5, 1999 2000 10.16 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, Exhibit 4.34 to Form 8-K filed on January 18, made as of December 5, 1999, by and between Rite Aid Corporation and 2000 John T. Standley 10.17 Employment Agreement by and between Rite Aid Corporation and Elliot S. Exhibit 10.18 to Form 10-K filed on May 21, Gerson, dated as of November 16, 2000 2001 10.18 Employment Agreement by and between Rite Aid Corporation and Eric Exhibit 10.19 to Form 10-K filed on May 21, Sorkin, dated as of April 2, 1999 2001 10.19 Employment Agreement by and between Rite Aid Corporation and James Exhibit 10.20 to Form 10-K filed on May 21, Mastrain, dated as of September 27, 2000 2001 10.20 Rite Aid Corporation Special Deferred Compensation Plan Exhibit 10.20 to Form 10-K filed on July 11, 2000 10.21 Executive Separation Agreement and General Release, dated February 28, Exhibit 10.46 to Form 10-K filed on July 11, 2000, between Rite Aid Corporation and Timothy Noonan 2000 10.22 Letter Agreement, dated February 28, 2000, between Rite Aid Corporation Exhibit 10.47 to Form 10-K filed on July 11, and Timothy Noonan, amending Executive Separation Agreement and General 2000 Release, dated February 28, 2000, between Rite Aid Corporation and Timothy Noonan 10.23 Equity for Bank Debt Exchange Agreement between Exhibit 10.45 to Form 10-K filed on May 21, Rite Aid Corporation, Fir Tree Value Fund, L.P., Fir Tree Institutional 2001 Value Fund, L.P., Fir Tree Value Partners LDC and Fir Tree Recovery Master Fund, L.P. 10.24 Side Letter to Equity for Bank Debt Exchange Agreement, dated April 30, Exhibit 10.46 to Form 10-K filed on May 21, 2001, between Rite Aid Corporation, Fir Tree Value Fund, L.P., Fir Tree 2001 Institutional Value Fund, L.P., Fir Tree Value Partners LDC and Fir Tree Recovery Master Fund, L.P.
Exhibit Incorporation by Numbers Description Reference to ------- ----------- --------------- 10.25 Employment Agreement by and between Rite Aid Corporation and Exhibit 10.46 to Form 10-K filed on May 21, Christopher Hall, dated as of January 26, 2001 2001 10.26 Employment Agreement by and between Rite Aid Corporation and Robert B. Exhibit 10.49 to Form 10-K filed on May 21, Sari, dated as of February 28, 2001 2001 10.27 Registration Rights Agreement dated as of June 14, 2001 by and between Filed herewith Rite Aid Corporation and Marathon Special Opportunity Fund Ltd. and Marathon Master Fund, Ltd. 10.28 Registration Rights Agreement dated as of June 19 2001 by and between Filed herewith Rite Aid Corporation and OZ Master Fund, Ltd. and OZF Credit Opportunities Master Fund, Ltd. 10.29 Registration Rights Agreement dated as of May 24, 2001 by and between Filed herewith Rite Aid Corporation and Liberty View Fund, LP, Liberty View Fund, LLC and Liberty View Global Volatility Fund LP 10.30 Senior Credit Agreement, dated as of June 27, 2001 among Rite Aid Filed herewith Corporation, the financial institutions party thereto, Citicorp USA, Inc., as senior administrative agent and as senior collateral agent, and The Chase Manhattan Bank, Credit Suisse First Boston and Fleet Retail Finance Inc., as syndication agents 10.31 Senior Subsidiary Guarantee Agreement, dated as of June 27, 2001 among Filed herewith the Subsidiary Guarantors (as defined therein) and Citicorp USA, Inc., as senior collateral agent. 10.32 Senior Subsidiary Security Agreement, dated as of June 27, 2001 by the Filed herewith Subsidiary Guarantors (as defined therein) in favor of the Citicorp USA (senior collateral agent). 10.33 Collateral Trust and Intercreditor Agreement, dated as of June 27, 2001 Filed herewith among Rite Aid Corporation, the Subsidiary Guarantors (as defined therein), Wilmington Trust Company, as collateral trustee for the holders from time to time of the Second Priority Debt Obligations (as defined therein), Citicorp USA, Inc., as collateral agent for the Senior Secured Parties (as defined therein) under the Senior Loan Documents (as defined therein), Citibank USA, Inc., as agent for the Synthetic Lease Parties (as defined therein), State Street Bank and Trust Company, as trustee under the Exchange Note Indenture (as defined therein) for the holders of the Exchange Notes (as defined therein), and each other Second Priority Representative (as defined therein) which from time to time becomes a party thereto.
Exhibit Incorporation by Numbers Description Reference to ------- ----------- --------------- 10.34 Second Priority Subsidiary Guarantee Agreement, dated as of June 27, Filed herewith 2001 among the Subsidiary Guarantors (as defined therein) and Wilmington Trust Company, as collateral agent. 10.35 Second Priority Subsidiary Security Agreement, dated as of June 27, Filed herewith 2001 by the Subsidiary Guarantors (as defined therein) in favor of Wilmington Trust Company, as collateral trustee. 10.36 Each of the Mortgages, Deeds of Trust, Assignments of Leases and Rents, Filed herewith Security Agreements, Financing Statements and Fixture Filings, dated June 27, 2001, from the Subsidiary Guarantors (as defined therein) listed therein, to Citicorp USA, Inc. as Senior Collateral Agent. 10.37 Each of the Mortgages, Deeds of Trust, Assignments of Leases and Rents, Filed herewith Security Agreements, Financing Statements and Fixture Filings, dated June 27, 2001, from the Subsidiary Guarantor listed therein, to Wilmington Trust Company, as Second Priority Collateral Trustee. 10.38 Participation Agreement, dated as of June 27, 2001 among Rite Aid Filed herewith Realty Corp., a Delaware corporation; Rite Aid Corporation, a Delaware corporation; Wells Fargo Northwest, National Association, not in its individual capacity except as expressly set forth therein but solely as trustee of the RAC Distribution Statutory Trust; the persons named therein as note holders and certificate holders; and Citicorp USA, Inc., in its capacity as administrative agent. 10.39 Lease, dated as of June 27, 2001 between Wells Fargo Northwest, Filed herewith National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust, and Rite Aid Realty Corp., a Delaware corporation. 10.40 Ground Lease Agreement dated as of June 27, 2001 between Thrifty Filed herewith Payless, Inc., a California corporation, and Wells Fargo Northwest, National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust. 10.41 Security Agreement, dated as of June 27, 2001, made by Rite Aid Realty Filed herewith Corp., a Delaware corporation in favor of Wells Fargo Northwest, National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust. 10.42 Parent Guarantee, dated as of June 27, 2001, by Rite Aid Corporation, a Filed herewith Delaware corporation to Wells Fargo Northwest, National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust.
Exhibit Incorporation by Numbers Description Reference to ------- ----------- --------------- 10.43 Instrument Guarantee, dated as of June 27, 2001, by Rite Aid Realty Filed herewith Corp., a Delaware corporation, to each of the Note Holders and Certificate Holders (each as defined in Participation Agreement, dated as of June 27, 2001 among Rite Aid Realty Corp., a Delaware corporation; Rite Aid Corporation, a Delaware corporation; Wells Fargo Northwest, National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust; the Persons named therein as note holders and certificate holders; and Citicorp USA, Inc., in its capacity as administrative agent). 10.44 Loan Agreement dated as of June 27, 2001 among Wells Fargo Northwest, Filed herewith National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust, the Persons named therein as note holders and/or any assignee thereof. 10.45 Assignment and Security Agreement, dated as of June 27, 2001, by Wells Filed herewith Fargo Northwest, National Association, not in its individual capacity, but solely as trustee of the RAC Distribution Statutory Trust, in favor of Citicorp USA, Inc., as Agent. 10.46 Amended and Restated Declaration of Trust dated as of June 27, 2001, Filed herewith between Wells Fargo Northwest, National Association and the Certificate Holders as defined therein. 10.47 Stock Purchase Agreement dated June 12, 2001 by and between Rite Aid Filed herewith Corporation, American Century Mutual Funds, Inc. and American Century World Mutual Funds, Inc. 10.48 Stock Purchase Agreement dated June 12, 2001 by and between Rite Aid Filed herewith Corporation, Bessent Global Equity Master and Quantum Partners Bessent Global. 10.49 Stock Purchase Agreement dated June 12, 2001 by and between Rite Aid Filed herewith Corporation and Fidelity. 10.50 Stock Purchase Agreement dated June 12, 2001 by and between Rite Aid Filed herewith Corporation; Putnam Investment Management, LLC; The Putnam Advisory Company, LLC; and Putnam Fiduciary Trust Company. 10.51 Stock Purchase Agreement dated May 17, 2001 by and between Rite Aid Filed herewith Corporation and Transamerica Investment Management, LLC. 10.52 Exchange and Registration Rights Agreement dated as of June 27, 2001 by Filed herewith and between Rite Aid and the Fidelity holders. 10.53 Registration Rights Agreement dated June 27, 2001 by and between Rite Filed herewith Aid Corporation and Fidelity holders.
Exhibit Incorporation by Numbers Description Reference to ------- ----------- --------------- 10.54 Registration Rights Agreement dated June 27, 2001 by and between Rite Filed herewith Aid Corporation, American Century Mutual Funds, Inc.; American Century World Mutual Funds, Inc.; Bessent Global Equity Master; Quantum Partners Bessent Global; Fidelity; Putnam Investment Management, LLC; The Putnam Advisory Company, LLC; and Putnam Fiduciary Trust Company. 10.55 Registration Rights Agreement dated June 27, 2001 by and between Rite Filed herewith Aid Corporation and Transamerica Investment Management, LLC. 10.56 Registration Rights Agreement dated May 31, 2001 by and between Rite Filed herewith Aid Corporation; Fir Tree Value Fund, L.P; Fir Tree Institutional Value Fund, L.P.; Fir Tree Value Partners LDC; and Fir Tree Recovery Master Fund, L.P.; 10.57 Note Exchange Agreement dated June 27, 2001 by and between Rite Aid Filed herewith Corporation and the Fidelity holders. 10.58 Form of Common Stock Purchase Warrant dated June 27, 2001 issued by Rite Aid Corporation to Fidelity and funds affiliated with or controlled by Fidelity. 10.59 Purchase Agreement dated June 20, 2001 between Rite Aid Corporation and Filed herewith Salomon Smith Barney Inc., Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc. and Fleet Securities Inc. as representatives of the initial purchasers of the Company's 11 1/4% Senior Notes due 2008. 21 Subsidiaries of the registrant Exhibit 19 to the Form 10-K filed on July 11, 2000 23.1 Independent Auditors' Consent Filed herewith 23.2 Independent Auditors' Consent Filed herewith
EX-3.3 2 ex3-3.txt EXHIBIT 3.3 CERTIFICATE OF DESIGNATION OF SERIES C CONVERTIBLE PREFERRED STOCK OF RITE AID CORPORATION ------------------------ Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------ Rite Aid Corporation (the "Company"), a corporation organized and existing under the General Corporation Law of the State of Delaware, certifies that pursuant to the authority contained in Article Fourth of its Restated Certificate of Incorporation (the "Certificate of Incorporation") and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Company, at a meeting duly called and held on April 20, 2001 and pursuant to actions by written consent of the Executive Committee of the Board of Directors of the Corporation dated June 20, 2001 duly approved and adopted the following resolution which resolution remains in full force and effect on the date hereof: RESOLVED, that, pursuant to the authority vested in the Board of Directors by the Certificate of Incorporation, the Board of Directors does hereby designate, create, authorize and provide for the issuance of Series C Convertible Preferred Stock (the "Series C Preferred Stock"), par value $1.00 per share, with the liquidation preference set forth herein, initially consisting of 2,250,000 shares, which number may be increased from time to time by the Board of Directors upon any issuance of Series C Preferred Stock in accordance with Section 3 of this Certificate of Designation, having the following voting powers, preferences and relative, optional and other special rights, and qualifications, limitations and restrictions thereof as follows: 1. Certain Definitions. Unless the context otherwise requires, the terms defined in this Section 1 shall have, for all purposes of this resolution, the meanings herein specified (with terms defined in the singular having comparable meanings when used in the plural). "Board of Directors" means the Board of Directors of the Company or any authorized committee of the Board of Directors. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Common Stock" means the common stock, par value $1.00 per share, of the Company. "DGCL" means the Delaware General Corporation Law. "Dividend Payment Date" has the meaning set forth in Section 3(a) below. "Dividend Rate" means 8.7455% per annum, payable quarterly in arrears. "Issue Date" means the first date on which any shares of Series C Preferred Stock are released from escrow and issued. "Liquidation Date" has the meaning set forth in Section 4(a) below. "Liquidation Preference" means $62.52. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Record Date" has the meaning set forth in Section 3(a) below. 2. Ranking. Except as otherwise provided herein, the Series C Preferred Stock shall, with respect to dividend rights and distributions upon the liquidation, winding-up or dissolution of the Company, rank (i) senior to all classes of Common Stock of the Company and to each other class of Capital Stock or series of preferred stock established after the Issue Date by the Board of Directors, the terms of which do not expressly provide that it ranks senior to or on a parity with the Series C Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively, the "Junior Securities"); (ii) on a parity with any additional shares of Series C Preferred Stock issued by the Company in the future in accordance with Section 3 hereof and any other class of Capital Stock or series of preferred stock 2 established after the Issue Date by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Series C Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively, the "Parity Securities"); and (iii) junior to the Company's Series B Cumulative Convertible Pay-In-Kind Stock and any other class of Capital Stock or series of preferred stock established after the Issue Date by the Board of Directors, the terms of which expressly provide that such class or series will rank senior to the Series C Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively, the "Senior Securities"). 3. Dividends; Other Distributions. (a) The holders of the Series C Preferred Stock shall be entitled to receive cumulative dividends at the Dividend Rate on the Liquidation Preference out of funds legally available thereafter, payable quarterly in arrears on each March 31, June 30, September 30 and December 31 or, if any such date is not a business day, on the next succeeding business day (each, a "Dividend Payment Date"), to the holders of record as of the next preceding March 15, June 15, September 15 and December 15 (each, a "Record Date"). (b) In the event the Company shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends) or options or rights to purchase any such securities or evidences of indebtedness, then, in each case the holders of the Series C Preferred Stock shall be entitled to a proportionate share of any such distribution as though the holders of the Series C Preferred Stock were the holders of the number of shares of Common Stock of the Company into which their shares of Series C Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Company entitled to receive such distribution. (c) In the case of shares of Series C Preferred Stock issued on the Issue Date, dividends shall accrue and be cumulative from such date. In the case of shares of Series C Preferred Stock issued as a dividend on shares of Series C Preferred Stock, dividends shall accrue and be cumulative from the Dividend Payment Date in respect of which such shares were issued or were scheduled to be paid pursuant to Section 3(a) hereof as a dividend. (d) Each fractional share of Series C Preferred Stock outstanding shall be entitled to a ratably proportionate amount of all dividends accruing with respect to each outstanding or due to be issued and outstanding share of Series C Preferred Stock pursuant to paragraph (a) of this Section 3, and all such dividends with respect to such outstanding fractional shares shall be cumulative and shall accrue (whether or not declared); and shall be payable in the same manner and at such times as provided for in paragraph (a) of this Section 3 with respect to dividends on each outstanding or due to be issued and outstanding share of Series C Preferred Stock. Each fractional share of Series C Preferred Stock outstanding shall also be entitled to a ratably proportionate amount of any other distributions made with respect to each outstanding or 3 due to be issued and outstanding share of Series C Preferred Stock, and all such distributions shall be payable in the same manner and at the same time as distributions on each outstanding or due to be issued and outstanding share of Series C Preferred Stock. (e) Accrued but unpaid dividends for any past dividend periods may be declared by the Board of Directors and paid on any date fixed by the Board of Directors, whether or not a regular Dividend Payment Date, to Holders of record on the books of the Company on such record date as may be fixed by the Board of Directors, which record date shall be no more than 60 days prior to the payment date thereof. 4. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company or reduction or decrease in its Capital Stock resulting in a distribution of assets to the holders of any class or series of the Company's Capital Stock (the date of such occurrence, the "Liquidation Date"), the Company shall, out of the assets of the Company available for distribution, make the following payments in respect of its Capital Stock: a. first, payments due in connection with the Senior Securities on the Liquidation Date, including any accumulated and unpaid dividends, if any, on such Senior Securities, to the Liquidation Date; b. second, on a pro rata basis, payments (i) on shares of the Series C Preferred Stock equal to the Liquidation Preference per share of Series C Preferred Stock, plus all accrued and unpaid dividends, if any, thereon to the Liquidation Date and (ii) due on Parity Securities; and c. third, payments on any Junior Securities, including, without limitation, the Common Stock. After payment in full in cash of the Liquidation Preference and all accumulated dividends, if any, to which holders of Series C Preferred Stock are entitled, such holders shall not be entitled to any further participation in any distribution of assets of the Company. 5. Voting Rights. General Voting Rights. Except as otherwise provided herein, and except as otherwise required by law, the holder of each share of Series C Preferred Stock shall be entitled to the number of votes as is equal to the number of shares of Common Stock into which such holder's shares of Series C Preferred Stock would be converted in accordance with Section 6(b) below, at the record date for determination of the stockholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited, and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or required by 4 law), such votes to be counted together with all other shares of stock of the Company having general voting power and not separately as a class. Holders of Common Stock and Series C Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the By-Laws of the Company. Fractional votes by the holders of Series C Preferred Stock shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares Series C Preferred Stock held by each holder could be converted) shall be rounded to the nearest lower whole number. 6. Conversion. The holders of the Series C Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) No Optional Conversion. Each share of Series C Preferred Stock shall not be convertible at the option of the holder. (b) Automatic Conversion. Each share of Series C Preferred Stock shall automatically be converted into ten shares (the "Conversion Rate", which Conversion Rate is subject to adjustment as provided herein) of Common Stock immediately upon the earlier of (i) the effectiveness of a registration statement pursuant to the Securities Act of 1933, as amended, registering for resale the shares of Common Stock into which the shares of Series C Preferred Stock are convertible (the "Registration Statement"), and (ii) the Company's merger or consolidation with or into any other corporation whereby the Company is not the surviving corporation, or any sale, lease or conveyance of all or substantially all of the Company's property, assets or business. Upon any such conversion, the Company will pay holders of Series C Preferred Stock any accrued and unpaid dividends in cash. (c) Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Series C Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Company shall, in lieu of issuing any fractional shares to which the holder would be otherwise entitled, pay cash equal to the fair market value of such fractional share on the date of conversion, which fair market value shall be determined in good faith by the Board of Directors of the Company. In the case of a conversion pursuant to Section 6(b) above, immediately upon effectiveness of the Registration Statement the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock on the date of such conversion. (d) Adjustment of Conversion Price. The Conversion Rate shall be subject to adjustment from time to time as follows: (i) Adjustments for Subdivisions, Combinations or Consolidation of Common Stock. In the event the outstanding Common Stock shall be subdivided (by split 5 or otherwise), into a greater number of shares of Common Stock, the Conversion Rate then in effect shall, concurrently with the effectiveness of such subdivision, be proportionately adjusted. In the event the outstanding Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Rate then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately adjusted. (ii) Adjustments for Reclassification, Exchange and Substitution. If the Common Stock issuable upon conversion of the Series C Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), the Conversion Rate then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Series C Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, that number of shares of such other class or classes of stock equal to the number of shares of Common Stock issuable upon conversion of the Series C Preferred Stock (adjusted for any combinations, consolidations, stock splits, or stock distributions or dividends with respect to such shares) immediately prior to such capital reorganization or reclassification as would have been subject to receipt by the holders upon conversion of the Series C Preferred Stock immediately before that change. (iii) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time, there is a capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section 6, as a part of such capital reorganization, provision shall be made so that the holders of the Series C Preferred Stock shall thereafter be entitled to receive upon conversion of the Series C Preferred Stock the number of shares of stock or other securities or property of the Company to which a holder of the number of shares of Common Stock deliverable upon conversion of the Series C Preferred Stock, would have been entitled on such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 6 with respect to the rights of the holders of Series C Preferred Stock after the capital reorganization to the end that the provisions of this Section 6 (including adjustment of the Conversion Rate (as defined herein), the Conversion Rate then in effect, and the number of shares issuable upon conversion of the Series C Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable. 7. General Provisions. (a) No Impairment. The Company shall not, by amendment of the Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder 6 by the Company but shall at all times in good faith assist in the carrying out of all the provisions of Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series C Preferred Stock against impairment. (b) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Rate pursuant to Section 6, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of shares of Series C Preferred Stock, a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of any holder of Series C Preferred Stock furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the conversion price at the time in effect with respect to such Series C Preferred Stock, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of shares of such Series C Preferred Stock. (c) Notices of Record Date. In the event that the Company shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether or not a regular cash dividend or a dividend payable in shares of Common Stock, and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up; then, in connection with each such event, the Company shall send to the holders of the Preferred Stock: (1) at least 20 days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to 7 vote in respect of the matters referred to in (iii) and (iv) above; and (2) in the case of the matters referred to in (iii) and (iv) above, in the event a record date is taken with respect to any such matter, at least 20 days' prior written notice of such record date or, if no such record date is taken, at least 20 days' prior written notice of the date when such matters shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon the occurrence of such event). Each such written notice shall be delivered personally or sent by first class mail, postage prepaid, addressed to the holders of the Series C Preferred Stock at the address for each such holder as shown on the books of the Company. (d) Issue Taxes. The Company shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series C Preferred Stock pursuant hereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (e) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series C Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series C Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all of the then outstanding shares of the Preferred Stock, the Company shall take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, utilizing its best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. 8. Increasing Common Stock. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by an affirmative vote of the holders of a majority of the stock of the Company. 9. No Reissuance of Preferred Stock. No shares of Series C Preferred Stock acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be reissued, and any such shares shall be cancelled, retired, and eliminated from the shares which the Company shall be authorized to issue; provided, however, that any such redeemed or 8 purchased shares of Series C Preferred Stock shall be eliminated from the shares which the Company shall be authorized to issue only upon the filing with the Secretary of State of the State of Delaware a certificate of amendment of the Certificate of Incorporation in compliance with the General Corporation Law of the State of Delaware. 9 IN WITNESS WHEREOF, the Company has caused this certificate to be duly executed this 26 day of June, 2001. RITE AID CORPORATION By: ---------------------------------- Name: Elliot S. Gerson Title: Senior Executive Vice President and General Counsel 10 EX-3.4 3 ex3-4.txt EXHIBIT 3.4 CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF RITE AID CORPORATION ----------------------------------------- Pursuant to Section 242 of the General Corporation Law of the State of Delaware ----------------------------------------- Rite Aid Corporation, a Delaware corporation (hereinafter called the "Corporation"), does hereby certify as follows: FIRST: The first paragraph of Article FOURTH of the Corporation's Restated Certificate of Incorporation, as amended February 22, 1999, is hereby further amended to read in its entirety as set forth below: "FOURTH: The total number of shares of stock which the corporation shall have authority to issue shall be one billion twenty million (1,020,000,000) shares of which one billion (1,000,000,000) shares shall be Common Stock of the par value of $1.00 per share, and twenty million (20,000,000) shares shall be Preferred Stock of the par value of $1.00 per share." SECOND: This amendment to the Restated Certificate of Incorporation, as amended, was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Rite Aid Corporation has caused this Certificate to be duly executed in its corporate name this 27th day of June, 2001. RITE AID CORPORATION By: --------------------------------------- Name: Elliot S. Gerson Title: Senior Executive Vice President and General Counsel EX-4 4 exh4-7.txt EXHIBIT 4.7 RITE AID CORPORATION as Issuer TO STATE STREET BANK AND TRUST COMPANY as Trustee -------------------- Indenture Dated as of June 27, 2001 -------------------- $152,025,000 12.50% Senior Secured Notes due 2006
TABLE OF CONTENTS Page ---- ARTICLE I Definitions and Other Provisions of General Application..................................................................1 SECTION 1.01. Definitions.......................................................................................................1 SECTION 1.02. Compliance Certification and Opinions............................................................................21 SECTION 1.03. Form of Documents Delivered To Trustee...........................................................................21 SECTION 1.04. Acts of Holders; Record Date.....................................................................................22 SECTION 1.05. Notices, Etc., To Trustee and the Company........................................................................23 SECTION 1.06. Notice To Holders; Waiver........................................................................................23 SECTION 1.07. Conflict with Trust Indenture Act................................................................................23 SECTION 1.08. Effect of Headings and Table of Contents.........................................................................24 SECTION 1.09. Successors and Assigns...........................................................................................24 SECTION 1.10. Separability Clause..............................................................................................24 SECTION 1.11. Benefits of Indenture............................................................................................24 SECTION 1.12. Governmental Law.................................................................................................24 SECTION 1.13. Legal Holidays...................................................................................................24 ARTICLE II Security Forms.........................................................................................................24 SECTION 2.01. Forms Generally; Initial Forms of Exempt Securities..............................................................24 SECTION 2.02. Form of Face of Security.........................................................................................25 ARTICLE III The Securities........................................................................................................33 SECTION 3.01. Title and Terms..................................................................................................33 SECTION 3.02. Denominations....................................................................................................33 SECTION 3.03. Execution, Authentication, Delivery and Dating...................................................................33 SECTION 3.04. Temporary Securities.............................................................................................34 SECTION 3.05. Global Securities................................................................................................35 SECTION 3.06. Registration, Registration of Transfer and Exchange; Restricted Securities Legends...............................36 SECTION 3.07. Mutilated, Destroyed, Lost and Stolen Securities.................................................................38 SECTION 3.08. Payment of Interest; Interest Rights Preserved...................................................................39 SECTION 3.09. Persons Deemed Owners............................................................................................40 SECTION 3.10. Cancellation.....................................................................................................40 SECTION 3.11. Computation of Interest..........................................................................................40 SECTION 3.12. Cusip Numbers....................................................................................................41 ARTICLE IV Satisfaction and Discharge.............................................................................................41 SECTION 4.01. Satisfaction and Discharge of Indenture..........................................................................41 SECTION 4.02. Application of Trust Money.......................................................................................42 ARTICLE V Remedies................................................................................................................42 SECTION 5.01. Events of Default................................................................................................42 SECTION 5.02. Acceleration of Maturity; Rescission and Annulment...............................................................45 SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee..................................................46 SECTION 5.04. Trustee May File Proofs of Claim.................................................................................46 SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities......................................................47 SECTION 5.06. Application of Money Collected...................................................................................47 SECTION 5.07. Limitation on Suits..............................................................................................47
i
SECTION 5.08. Unconditional Right of Holders To Receive Principal, Premium and Interest........................................48 SECTION 5.09. Restoration of Rights and Remedies...............................................................................48 SECTION 5.10. Rights and Remedies Cumulative...................................................................................48 SECTION 5.11. Delay or Omission Not Waiver.....................................................................................48 SECTION 5.12. Control by Holders...............................................................................................49 SECTION 5.13. Waiver of Past Defaults..........................................................................................49 SECTION 5.14. Undertaking for Costs............................................................................................49 SECTION 5.15. Waiver of Stay or Extension Laws.................................................................................49 SECTION 5.16. Enforcement of Remedies..........................................................................................50 ARTICLE VI The Trustee............................................................................................................50 SECTION 6.01. Certain Duties and Responsibilities..............................................................................50 SECTION 6.02. Notice of Defaults...............................................................................................50 SECTION 6.03. Certain Rights of Trustee........................................................................................50 SECTION 6.04. Not Responsible for Recitals or Issuance of Securities...........................................................52 SECTION 6.05. May Hold Securities..............................................................................................52 SECTION 6.06. Money Held in Trust..............................................................................................52 SECTION 6.07. Compensation and Reimbursement...................................................................................52 SECTION 6.08. Disqualification; Conflicting Interest...........................................................................53 SECTION 6.09. Corporate Trustee Required; Eligibility..........................................................................53 SECTION 6.10. Resignation and Removal; Appointment of Successor................................................................53 SECTION 6.11. Acceptance of Appointment by Successor...........................................................................55 SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business......................................................55 SECTION 6.13. Preferential Collection of Claims Against Company................................................................55 ARTICLE VII Holders' Lists and Reports by Trustee and Company.....................................................................55 SECTION 7.01. Company To Furnish Trustee Names and Addresses of Holders........................................................56 SECTION 7.02. Preservation of Information; Communications to Holders...........................................................56 SECTION 7.03. Reports by Trustee...............................................................................................56 SECTION 7.04. Reports by Company...............................................................................................57 ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease.................................................................57 SECTION 8.01. Company and the Subsidiary Guarantors May Consolidate, Etc., Only on Certain Terms...............................57 SECTION 8.02. Successor Substituted............................................................................................59 ARTICLE IX Supplemental Indentures................................................................................................60 SECTION 9.01. Supplemental Indentures Without Consent of Holders...............................................................60 SECTION 9.02. Supplemental Indentures with Consent of Holders..................................................................60 SECTION 9.03. Execution of Supplemental Indentures.............................................................................62 SECTION 9.04. Effect of Supplemental Indentures................................................................................62 SECTION 9.05. Conformity with Trust Indenture Act..............................................................................62 SECTION 9.06. Reference in Securities to Supplemental Indentures...............................................................62 ARTICLE X Covenants...............................................................................................................62 SECTION 10.01. Payment of Principal, Premium and Interest.......................................................................62 SECTION 10.02. Maintenance of Office or Agency..................................................................................62 SECTION 10.03. Money for Security Payments To Be Held in Trust..................................................................63 SECTION 10.04. Corporate Existence..............................................................................................64 SECTION 10.05. Maintenance of Properties........................................................................................64
SECTION 10.06. Payment of Taxes and Other Claims................................................................................64 SECTION 10.07. Insurance........................................................................................................65 SECTION 10.08. Restrictions on Funded Debt of Restricted Subsidiaries...........................................................65 SECTION 10.09. Restriction on Sales with Leases Back............................................................................65 SECTION 10.10. Restrictions on Secured Debt.....................................................................................66 SECTION 10.11. Restrictions on Impairment of Security Interest..................................................................67 SECTION 10.12. Restrictions on Amendments to Collateral Documents...............................................................67 SECTION 10.13. Future Subsidiary Guarantors.....................................................................................68 SECTION 10.14. Application of Collateral Proceeds...............................................................................68 SECTION 10.15. Restrictions on Permitting Unrestricted Subsidiaries To Become Restricted Subsidiaries...........................70 SECTION 10.16. Statement by Officers as to Default..............................................................................70 SECTION 10.17. Waiver of Certain Covenants......................................................................................71 ARTICLE XI Redemption of Securities...............................................................................................71 SECTION 11.01. Right of Redemption..............................................................................................71 SECTION 11.02. Election To Redeem; Notice To Trustee............................................................................71 SECTION 11.03. Selection by Trustee of Securities To Be Redeemed................................................................71 SECTION 11.04. Notice of Redemption.............................................................................................72 SECTION 11.05. Deposit of Redemption Price......................................................................................72 SECTION 11.06. Securities Payable on Redemption Date............................................................................72 SECTION 11.07. Securities Redeemed in Part......................................................................................73 ARTICLE XII Defeasance and Covenant Defeasance....................................................................................73 SECTION 12.01. Company's Option To Effect Defeasance or Covenant Defeasance.....................................................73 SECTION 12.02. Defeasance and Discharge.........................................................................................73 SECTION 12.03. Covenant Defeasance..............................................................................................74 SECTION 12.04. Conditions to Defeasance or Covenant Defeasance..................................................................74 SECTION 12.05. Deposited Money and U.S. Government Obligations To Be Held in Trust; Other Miscellaneous Provisions..............75 SECTION 12.06. Reinstatement....................................................................................................76
Reconciliation and tie between Trust Indenture Act of 1939 and Indenture dated as of June 27, 2001
Trust Indenture Indenture Act Section Section - -------------------------- ------------------------- 310 (a)(1) ......................................................... 6.09 (a)(2) ......................................................... 6.09 (a)(3) ......................................................... Not Applicable (a)(4) ......................................................... Not Applicable (b) ......................................................... 6.08 ......................................................... 6.10 311 (a) ......................................................... 6.13 (b) ......................................................... 6.13 (b) (2) ......................................................... 7.03 312 (a) ......................................................... 7.01 ......................................................... 7.02 (a) (b) ......................................................... 7.02 (b) (c) ......................................................... 7.02 (c) 313 (a) ......................................................... 7.03 (a) (b) ......................................................... 7.03 (a) (c) ......................................................... 7.03 (a) (d) ......................................................... 7.03 (b) 314 (a) ......................................................... 7.04 (b) ......................................................... Not Applicable (c) (1) ......................................................... 1.02 (c) (2) ......................................................... 1.02 (c) (3) ......................................................... Not Applicable (d) ......................................................... Not Applicable (e) ......................................................... 1.02 315 (a) ......................................................... 6.01 (b) ......................................................... 6.02 ......................................................... 7.03 (a) (c) ......................................................... 6.01 (d) ......................................................... 6.01 (d) (1) ......................................................... 6.03 (d) (2) ......................................................... 6.03 (d) (3) ......................................................... 6.03 (e) ......................................................... 5.14
Trust Indenture Indenture Act Section Section - -------------------------- ------------------------- 316 (a) (1) (A) ......................................................... 5.12 (a) (1) (B) ......................................................... 5.13 (a) (2) ......................................................... Not Applicable (b) ......................................................... 5.08 317 (a) (1) ......................................................... 5.03 (a) (2) ......................................................... 5.04 (b) ......................................................... 10.03 318 (a) ......................................................... 1.07
- ----------------------- Note: This is reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. INDENTURE, dated as of June 27, 2001, among Rite Aid Corporation, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at 30 Hunter Lane, Camp Hill, Pennsylvania, 17011, each of the Subsidiary Guarantors named herein and State Street Bank and Trust Company, a Massachusetts trust company, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of $152,025,000 aggregate principal amount of its 12.50% Senior Secured Notes due 2006 (the "Securities") in substantially the tenor and amount hereinafter set forth, and to provide therefore, the Company has duly authorized the execution and delivery of this Indenture. All things necessary (i) to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company and (ii) to make this Indenture a valid agreement of the Company and the Subsidiary Guarantors, all in accordance with their respective terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE I Definitions and Other Provisions of General Application SECTION 1.01. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles (whether or not such is indicated herein), and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted as consistently applied by the Company at the date of such computation; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder, has the meaning specified in Section 1.04. "Additional Second Priority Debt" means any indebtedness incurred by Rite Aid and guaranteed by the Subsidiary Guarantors after the Closing Date pursuant to the Second Priority Subsidiary Guarantee Agreement which is secured by the Second Priority Collateral on a pari passu basis with the other Second Priority Debt Obligations; provided, however, that (i) such indebtedness is permitted to be incurred, secured and guaranteed on such basis by each Senior Debt Document and each Second Priority Debt Document, (ii) the aggregate amount of such Additional Second Priority Debt does not exceed $300,000,000 at any time outstanding (it being understood that any amounts incurred in excess of such amount will not at any time qualify as Additional Second Priority Debt) and (iii) the Representative for the holders of such Additional Second Priority Debt shall have become party to the Intercreditor Agreement pursuant to, and by satisfying the conditions set forth in, Section 10.12 thereof. Additional Second Priority Debt shall include any Registered Equivalent Notes issued in exchange for Additional Second Priority Debt initially sold in a Rule 144A or other private placement transaction. "Additional Second Priority Debt Documents" means, with respect to any series, issue or class of Additional Second Priority Debt, the promissory notes, indentures or other operative agreements evidencing or governing such indebtedness, as furnished pursuant to Section 10.12 of the Intercreditor Agreement. "Additional Second Priority Debt Facility" means the indenture or other governing agreement with respect to any Additional Second Priority Debt. "Additional Second Priority Debt Obligations" means, with respect to any series, issue or class of Additional Second Priority Debt, (i) all principal of and interest (including without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on such Additional Second Priority Debt, (ii) all other amounts payable by the Borrower to the related Additional Second Priority Debt Parties under the related Additional Second Priority Debt Documents and (iii) any renewals or extensions of the foregoing. "Additional Second Priority Debt Parties" means, with respect to any series, issue or class of Additional Second Priority Debt, the holders of such indebtedness, any trustee or agent therefor under any related Additional Second Priority Debt Documents and the beneficiaries of each indemnification 2 obligation undertaken by Rite Aid or any Obligor under any related Additional Second Priority Debt Documents, but shall not include the Obligors or any controlled Affiliates thereof. "Additional Senior Second Priority Debt" means any indebtedness incurred by Rite Aid and guaranteed by the Subsidiary Guarantors pursuant to the Second Priority Subsidiary Guarantee Agreement after the Closing Date which is secured by the Second Priority Collateral on a pari passu basis with the Synthetic Lease Obligations; provided, however, that (i) such indebtedness is permitted to be incurred, secured and guaranteed on such basis by each Senior Debt Document and each Second Priority Debt Document, (ii) the aggregate amount of such Additional Senior Second Priority Debt does not exceed $93,000,000 at any time outstanding (it being understood that any amounts incurred in excess of such amount will not at any time qualify as Additional Senior Second Priority Debt) and (iii) the Representative for the holders of such Additional Senior Second Priority Debt shall have become party to the Intercreditor Agreement pursuant to, and by satisfying the conditions set forth in, Section 10.12 thereof. Additional Senior Second Priority Debt shall include any Registered Equivalent Notes issued in exchange for Additional Senior Second Priority Debt initially sold in a Rule 144A or other private placement transaction. "Additional Senior Second Priority Debt Documents" means, with respect to any series, issue or class of Additional Senior Second Priority Debt, the promissory notes, indentures or other operative agreements evidencing or governing such indebtedness, as furnished pursuant to Section 10.12 of the Intercreditor Agreement. "Additional Senior Second Priority Debt Facility" means the indenture or other governing agreement with respect to any Additional Senior Second Priority Debt. "Additional Senior Second Priority Debt Obligations" means, with respect to any series, issue or class of Additional Senior Second Priority Debt, (i) all principal of and interest (including without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on such Additional Senior Second Priority Debt, (ii) all other amounts payable by the Company to the related Additional Senior Second Priority Debt Parties under the related Additional Senior Second Priority Debt Documents and (iii) any renewals or extensions of the foregoing. "Additional Senior Second Priority Debt Parties" means, with respect to any series, issue or class of Additional Senior Second Priority Debt, the holders of such indebtedness, any trustee or agent therefore under any related Additional Senior Second Priority Debt Documents and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any Obligor under any related Additional Senior Second Priority Debt Documents, but shall not include the Obligors or any controlled Affiliates thereof. "Affiliate" of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control" when 3 used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent Member" means any member of, or participant in, the Depositary. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Security to the extent applicable to such transaction and as in effect at the time of such transfer or transaction. "Attributable Debt" means, as to any particular Sale and Leaseback Transaction under which the Company or any Restricted Subsidiary is at the time liable, at any date as of which the amount thereof is to be determined (i) in the case of any such transaction involving a Capital Lease, the amount on such date of the Capital Lease Obligation thereunder, or (ii) in the case of any other such Sale and Leaseback Transaction, the then present value of the minimum rental obligation under such transaction during the remaining term thereof (after giving effect to any extensions at the option of the lessor) computed by discounting the respective rental payments at the actual interest factor included in such payment, or, if such interest factor included in such payment, or, if such interest factor cannot be readily determined, at the rate per annum equal to the rate of interest on the Securities. The amount of any rental payment required to be made under any such Sale and Leaseback Transaction not involving a Capital Lease may exclude amounts required to be paid by the lessee on account of maintenance and repairs, insurance, taxes, assessments, utilities, operating and labor costs and similar charges. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "Bankruptcy Proceeding" means any proceeding under Title 11 of the U.S. Code or any other Federal, state or foreign bankruptcy, insolvency, reorganization, receivership or similar law. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York, New York, Hartford, Connecticut or Boston, Massachusetts are authorized or obligated by law, regulation, executive order or governmental decree to close. "Capital Lease" means any lease of property which, in accordance with generally accepted accounting principles, should be capitalized on the lessee's balance sheet; and "Capital Lease Obligation" means the amount of the liability so capitalized or disclosed (or which should be so disclosed) in a note in respect of a Capital Lease. 4 "Capital Stock" means, with respect to any Person, any shares or other equivalents (however designated) of any class of corporate stock or partnership interests or any other participations, rights, warrants, options or other interests in the nature of an equity interest in such Person, including preferred stock, but excluding any debt security convertible or exchangeable into such equity interest. "Casualty/Condemnation" means any action or proceeding for the taking of any assets of the Company or its Subsidiaries, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any similar public improvement or condemnation proceeding. "Closing Date" means June 27, 2001. "Collateral" means the Senior Collateral and the Second Priority Collateral. "Collateral Documents" means (a) the Senior Collateral Documents and (b) the Second Priority Collateral Documents. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee. "Consolidated Funded Debt" means the total of all outstanding Funded Debt of the Company and its Restricted Subsidiaries, determined on a consolidated basis in accordance with generally accepted accounting principles. "Consolidated Net Tangible Assets" means (a) the total amount of assets (less applicable reserves and other properly deductible items) which under generally accepted accounting principles would be included on a consolidated balance sheet of the Company and its Restricted Subsidiaries after deducting therefrom (i) all liabilities and liability items, including amounts in respect of obligations or guarantees of obligations under leases, which under generally accepted accounting principles would be included on such balance sheet, except Funded Debt, capital stock and surplus, surplus reserves and provisions for deferred income taxes, and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, which in each case under generally accepted accounting principles 5 would be included on such consolidated balance sheet, less (b) the amount which would be so included on such consolidated balance sheet for Investments (less applicable reserves) (i) made in Unrestricted Subsidiaries or (ii) made in corporations while they were Unrestricted Subsidiaries but which at the time of computation are not Subsidiaries of the Company. "Corporate Trust Office" means the principal corporate trust office of the Trustee in the City of Boston, State of Massachusetts, at which at any particular time its corporate trust business shall be administered. "corporation" means a corporation, association, company, limited liability company, joint-stock company, partnership or business trust. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 3.08. "Depositary" means, with respect to any Securities, a clearing agency that is registered as such under the Exchange Act and is designated by the Company to act as Depositary for such Securities (or any successor securities clearing agency so registered). "DTC" means The Depository Trust Company, a New York corporation. "Event of Default" has the meaning specified in Section 5.01. "Exchange Act" refers to the Securities Exchange Act of 1934 as it may be amended and any successor act thereto. "Exchange and Registration Rights Agreement" means the Exchange and Registration Rights Agreement, dated as of June 27, 2001, among the Company, each of the Subsidiary Guarantors and the Holders from time to time as provided therein, as such agreement may be amended from time to time. "Exchange Note Documents" means the Securities, this Indenture and the Exchange and Registration Rights Agreement. "Exchange Note Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on the Securities, (ii) all other amounts payable by the Company to the Exchange Note Parties under the Exchange Note Documents, and (iii) any renewals and extensions of the foregoing. "Exchange Note Parties" means the Holders, the Trustee and the beneficiaries of each indemnification obligation undertaken by the Company or any other Obligor under any Exchange Note Document but shall not include the Obligors or any controlled Affiliate thereof. 6 "Exchange Offer" means an offer made by the Company pursuant to the Exchange and Registration Rights Agreement under an effective registration statement under the Securities Act to exchange securities substantially identical to Outstanding Securities (except for the differences provided for herein) for Outstanding Securities. "Exchange Registration Statement" means a registration statement of the Company under the Securities Act registering Exchange Securities for distribution pursuant to the Exchange Offer. "Exchange Securities" means the Securities issued pursuant to the Exchange Offer and their Successor Securities. "Exempt Securities" means the Securities acquired by Holders from the Company pursuant to the Note Exchange Agreement. "Funded Debt" means any indebtedness for money borrowed, created, issued, incurred, assumed or guaranteed, whether secured or unsecured, maturing more than one year after the date of determination thereof and any indebtedness, regardless of its term, renewable pursuant to the terms thereof or of a revolving credit or similar agreement effective for more than one year after the date of the creation of the indebtedness, which would, in accordance with generally accepted accounting practice, be classified as funded debt but shall not include: (a) any indebtedness for the payment, redemption or satisfaction of which money (or evidences of indebtedness, if permitted under the instrument creating such indebtedness) in the necessary amount shall have been deposited in trust with the Trustee or proper depository either at or before maturity or redemption date thereof; or (b) guarantees arising in connection with the sale, discount, guarantee or pledge of Securities, chattel mortgages, leases, accounts receivable, trade acceptances and other paper arising, in the ordinary course of business, out of installment or conditional sales to or by, or transactions involving title retention with, distributors, dealers or other customers of merchandise, equipment or services or guarantees other than guarantees of indebtedness for borrowed money; or (c) any liability resulting from the capitalization of lease rentals. "Global Security" means a Security that is registered in the Security Register in the name of a Depositary or a nominee thereof. "Holder" means a Person in whose name a Security is registered in the Security Register. 7 "indebtedness" means (i) all items of indebtedness or liability (except capital and surplus) which in accordance with generally accepted accounting principles would be included in determining total liabilities as shown on the liability side of a balance sheet as at the date as of which indebtedness is to be determined, (ii) indebtedness secured by any Mortgage existing on property owned subject to such Mortgage, whether or not the indebtedness secured thereby shall have been assumed, and (iii) guarantees, endorsements (other than for purposes of collection) and other contingent obligations in respect of, or to purchase or otherwise acquire, indebtedness of others, unless the amount thereof is included in indebtedness under the preceding clauses (i) or (ii); provided, however, that any obligations or guarantees of such obligations or guarantees of obligations in respect of lease rentals, whether or not such obligations or guarantees of obligations would be included as liabilities on a consolidated balance sheet of the Company and its Restricted Subsidiaries, shall not be included in indebtedness. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Intercreditor Agreement" means the Collateral Trust and Intercreditor Agreement, dated as of June 27, 2001, among the Company, the Subsidiary Guarantors, the Second Priority Collateral Trustee, the Senior Collateral Agent, State Street Bank and Trust Company, as trustee under the Company's 10.5% Senior Secured Notes due 2002, Wells Fargo Bank Northwest, National Association, as collateral agent for the Synthetic Lease Parties under the Synthetic Lease Documents, the Trustee and each Second Priority Representative. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Investments" mean and include all investments, whether by acquisition of stock or indebtedness, or by loan, advance, transfer of property, capital contribution or otherwise, made by the Company or by any Restricted Subsidiary, and shall include all guarantees, direct or indirect, by the Company or any Restricted Subsidiary of any indebtedness of an Unrestricted Subsidiary which by its term matures 12 months or less from the time of computation of the amount thereof to the extent not included as a liability or liability item on the consolidated balance sheet of the Company and its Restricted Subsidiaries, but shall not include accounts receivable of the Company or of any Restricted Subsidiary arising from the sale of merchandise in the ordinary course of business. "Maturity", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. 8 "Mortgage" means and includes any mortgage, pledge, lien, security interest, conditional sale or other title retention agreement or other similar encumbrance. "Note Exchange Agreement" means the agreement between the Company and the entities party thereto, dated as of June 27, 2001 pursuant to which the Company has issued the Original Securities in exchange for $152,025,000 aggregate principal amount of the 10.50% Notes. "Notice of Default" shall have the meaning specified in Section 5.01(4). "Obligors" means the Company, the Subsidiary Guarantors and any other Person who is liable for any of the Secured Obligations. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company and delivered to the Trustee. "Opinion of Counsel" means a written opinion in form and substance reasonably satisfactory to the Trustee, of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. "Original Securities" means all Securities other than Exchange Securities. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Securities which have been transferred pursuant to Section 3.06 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (iv) Securities paid pursuant to Section 3.07; 9 provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.07 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Refinance" means, in respect of any indebtedness, to refinance, extend, renew, refund, repay, prepay, repurchase, redeem, defease or retire, or to issue other indebtedness, in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Registered Equivalent Notes" means, with respect to any notes originally issued in a Rule 144A or other private placement transaction under the Securities Act of 1933, substantially identical notes issued in a dollar for dollar exchange therefor pursuant to an exchange offer registered with the SEC. "Registration Default" means the occurrence of any of the following events: (i) the Company has not filed the Exchange Registration Statement or Shelf Registration Statement on or before the date on which such registration statement is required to be filed pursuant to the Exchange and Registration Rights Agreement, (ii) the Exchange Registration Statement or Shelf 10 Registration Statement has not become effective or been declared effective by the Commission on or before the date on which such registration statement is required to become or be declared effective under the requirements of the Exchange and Registration Rights Agreement, (iii) the Exchange Offer has not been completed on or before the date required by the Exchange and Registration Rights Agreement or (iv) any Exchange Registration Statement or Shelf Registration Statement required to be filed pursuant to the Exchange and Registration Rights Agreement is filed and declared effective but shall thereafter cease to be effective without being again effective within 30 days or being succeeded within 30 days by an additional Exchange Registration Statement or Shelf Registration Statement filed and declared effective. "Registration Default Period" means any period during which a Registration Default has occurred and is continuing. "Regular Record Date" means the date that is the fifteenth calendar day (whether or not a Business Day) immediately preceding the related Interest Payment Date. "Replacement Second Priority Debt" means indebtedness incurred by Rite Aid after the Closing Date in exchange for, or the proceeds of which are used to repay and refinance, any Exchange Notes, any Additional Second Priority Debt or any other Replacement Second Priority Debt theretofore issued, and which is guaranteed by the Subsidiary Guarantors pursuant to the Second Priority Subsidiary Guarantee Agreement and secured on a pari passu basis with any such Exchange Notes, Additional Second Priority Debt or previously issued Replacement Second Priority Debt; provided, however, that (i) the terms of any such Replacement Second Priority Debt and of the related Replacement Second Priority Debt Documents are permitted by the Senior Loan Documents, (ii) the maturity of such Replacement Second Priority Debt is no earlier than the later of the maturity of the indebtedness being refinanced and January 1, 2006, and the weighted average life thereof is no less than that of the indebtedness being refinanced, (iii) the terms relating to amortization and the other material terms of such Replacement Second Priority Debt are no less favorable in any material respect of the Company and the Subsidiaries or the Senior Bank Parties than the terms of any agreement or instrument governing the indebtedness being refinanced and the interest rate applicable thereto does not exceed then current market interest rates and (iv) the principal amount of such Replacement Second Priority Debt does not exceed the principal amount of the indebtedness being refinanced which is outstanding immediately prior to such refinancing. Replacement Second Priority Debt shall include any Registered Equivalent Notes issued in exchange for Replacement Second Priority Debt initially sold in a Rule 144A or other private placement transaction. "Replacement Second Priority Debt Documents" means, with respect to any series, issue or class of Replacement Second Priority indebtedness, the promissory notes, indentures or other operative agreements evidencing or governing such indebtedness, as furnished pursuant to Section 10.12 of the Intercreditor Agreement. 11 "Replacement Second Priority Debt Facility" means the indenture or other governing agreement with respect to any Replacement Second Priority Debt. "Replacement Second Priority Debt Obligations" means, with respect to any series, issue or class of Replacement Second Priority Debt, (i) all principal of and interest (including without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on such Replacement Second Priority Debt, (ii) all other amounts payable by the Company to the related Replacement Second Priority Debt parties under the related Replacement Second Priority Debt Documents and (iii) any renewals or extensions of the foregoing. "Replacement Second Priority Debt Parties" means, with respect to any series, issue or class of Replacement Second Priority Debt, the holders of such indebtedness, any trustee or agent therefor under any related Replacement Second Priority Debt Documents and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any Obligor under any related Replacement Second Priority Debt Documents, but shall not include the Obligors or any controlled Affiliates thereof. "Replacement Senior Second Priority Debt" means indebtedness incurred by Rite Aid after the Closing Date in exchange for, or the proceeds of which are used to repay and refinance, any Attributable Debt in respect of Synthetic Lease Obligations, any Additional Senior Second Priority Debt or any other Replacement Senior Second Priority Debt theretofore issued, and which is guaranteed by the Subsidiary Guarantors pursuant to the Second Priority Subsidiary Guarantee Agreement and secured on a pari passu basis with any such Synthetic Lease Obligations, Additional Senior Second Priority Debt or previously issued Replacement Senior Second Priority Debt; provided, however, that (i) the terms of any such Replacement Senior Second Priority Debt and of the related Replacement Senior Second Priority Debt Documents are permitted by the Senior Loan Documents, (ii) the maturity of such Replacement Senior Second Priority Debt is no earlier than the later of the maturity of the indebtedness being refinanced and January 1, 2006, and the weighted average life thereof is no less than that of the indebtedness being refinanced, (iii) the terms relating to amortization and the other material terms of such Replacement Senior Second Priority Debt are no less favorable in any material respect to the Company and the Subsidiaries or the Senior Bank Parties than the terms of any agreement or instrument governing the indebtedness being refinanced and the interest rate applicable thereto does not exceed then current market interest rates and (iv) the principal amount (or Attributable Debt amount) of such Replacement Senior Second Priority Debt does not exceed the principal amount (or Attributable Debt amount) of the indebtedness or Attributable Debt being refinanced which is outstanding immediately prior to such refinancing. Replacement Senior Second Priority Debt shall include any Registered Equivalent Notes issued in exchange for Replacement Senior Second Priority Debt initially sold in a Rule 144A or other private placement transaction. "Replacement Senior Second Priority Debt Documents" means, with respect to any series, issue or class of Replacement Senior Second Priority Debt, the promissory notes, indentures or other operative agreements evidencing 12 or governing such indebtedness, as furnished pursuant to Section 10.12 of the Intecreditor Agreement. "Replacement Senior Second Priority Debt Facility" means the indenture or other governing agreement with respect to any Replacement Senior Second Priority Debt. "Replacement Senior Second Priority Debt Obligations" means, with respect to any series, issue or class of Replacement Senior Second Priority Debt, (i) all principal of and interest (including without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on such Replacement Senior Second Priority Debt, (ii) all other amounts payable by the Company to the related Replacement Senior Second Priority Debt Parties under the related Replacement Senior Second Priority Debt Documents and (iii) any renewals or extensions of the foregoing. "Replacement Senior Second Priority Debt Parties" means, with respect to any series, issue or class of Replacement Senior Second Priority Debt, the holders of such indebtedness, any trustee or agent therefor under any related Replacement Senior Second Priority Debt Documents and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any Obligor under any related Replacement Senior Second Priority Debt Documents, but shall not include the Obligors or any controlled Affiliates thereof. "Representatives" means each of the Senior Collateral Agent, the trustee under the 10.5% Note Indenture and the Second Priority Representatives. "Responsible Officer", when used with respect to the Trustee, means any vice president, any assistant vice president, any assistant secretary, any assistant treasurer, any trust officer or assistant trust officer, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Global Securities" means all Global Securities required pursuant to Section 3.06(c) to bear a Restricted Securities Legend. "Restricted Securities" means all Securities required pursuant to Section 3.06(c) to bear a Restricted Securities Legend. Such term includes the Restricted Global Securities. "Restricted Securities Legend" means a legend substantially in the form of the legend required in the form of Security set forth in Section 2.02 to be placed upon a Restricted Security. "Restricted Subsidiary" means any Subsidiary, whether existing on or after the date of this Indenture, unless such Subsidiary is an Unrestricted Subsidiary. 13 "Sale and Leaseback Transaction" has the meaning specified in Section 10.09. "Second Priority Collateral" means all the "Second Priority Collateral" as defined in any Second Priority Collateral Document and shall also include the mortgaged properties described in the Senior Credit Facility and the proceeds thereof. "Second Priority Collateral Documents" means the Second Priority Mortgages, the Second Priority Subsidiary Security Agreement, the Second Priority Subsidiary Guarantee Agreement, the Second Priority Indemnity, Subrogation and Contribution Agreement, the Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing for purposes of providing collateral security or credit support for any Second Priority Debt Obligation or obligation under the Second Priority Subsidiary Guarantee Agreement. "Second Priority Collateral Trustee" means Wilmington Trust Company, in its capacity as collateral trustee under the Intercreditor Agreement and the Second Priority Collateral Documents, and its successors. "Second Priority Debt Documents" means the Exchange Note Documents, the Synthetic Lease Documents, the Additional Senior Second Priority Debt Documents, if any, the Additional Second Priority Debt Documents, if any, the Replacement Senior Second Priority Debt Documents, if any, the Replacement Second Priority Debt Documents, if any, and the Second Priority Collateral Documents. "Second Priority Debt Obligations" means the collective reference to the Exchange Note Obligations, the Synthetic Lease Obligations, the Additional Senior Second Priority Debt Obligations, if any, the Additional Second Priority Debt Obligations, if any, the Replacement Senior Second Priority Debt Obligations, if any, and the Replacement Second Priority Debt Obligations, if any. "Second Priority Debt Parties" means the Exchange Note Parties, the Synthetic Lease Parties, the Additional Senior Second Priority Debt Parties, if any, the Additional Second Priority Debt Parties, if any, the Replacement Senior Second Priority Debt Parties, if any, the Replacements Second Priority Debt Parties, if any, and the Second Priority Collateral Trustee. "Second Priority Facilities" means this Indenture, the Synthetic Lease Facilities, any Additional Senior Second Priority Debt Facilities, any Additional Second Priority Debt Facilities, any Replacement Senior Second Priority Debt Facilities and any Replacement Second Priority Debt Facilities. "Second Priority Indemnity, Subrogation and Contribution Agreement" means the Second Priority Indemnity, Subrogation and Contribution Agreement, dated as of June 27, 2001, among the Company, the Subsidiary Guarantors and the Second Priority Collateral Trustee. 14 "Second Priority Lien" means the liens on the Second Priority Collateral in favor of the Second Priority Debt Parties under the Second Priority Collateral Documents. "Second Priority Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents which create a lien in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties, delivered pursuant to the Second Priority Debt Documents. "Second Priority Representative" means, in respect of a Second Priority Facility, the Trustee, the collateral agent under the Synthetic Lease Facility and the administrative agent or agent under each other Second Priority Facility, as the case may be, and each of their successors in such capacities. "Second Priority Subsidiary Guarantee Agreement" means the Second Priority Subsidiary Guarantee Agreement, dated as of June 27, 2001, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Second Priority Subsidiary Security Agreement" means the Second Priority Subsidiary Security Agreement, dated as of June 27, 2001, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Secured Debt" means indebtedness for money borrowed which is secured by a mortgage, pledge, lien, security interest or encumbrance on property of the Company or any Restricted Subsidiary, but shall not include guarantees arising in connection with the sale, discount, guarantee or pledge of notes, chattel mortgages, leases, accounts receivable, trade acceptances and other paper arising, in the ordinary course of business, out of installment or conditional sales to or by, or transactions involving title retention with, distributors, dealers or other customers, of merchandise, equipment or services. "Secured Obligations" means the Senior Obligations and the Second Priority Debt Obligations. "Securities" means Securities designated in the first paragraph of the RECITALS OF THE COMPANY and includes the Original Securities and the Exchange Securities. "Securities Act" means the Securities Act of 1933, as it may be amended and any successor act thereto. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.06 Ca). 15 "Senior Bank" means a "Bank" as defined in the Senior Credit Facility. "Senior Bank Obligations" means (i) the principal of each loan made under the Senior Credit Facility, (ii) all reimbursement and cash collateralization obligations in respect of letters of credit issued under the Senior Credit Facility, (iii) all monetary obligations of the Company or any Subsidiary under each Senior Interest Rate Agreement (as defined in the Senior Credit Facility) entered into (x) prior to the Closing Date with any counterparty that was a Senior Bank (or an Affiliate thereof) on the Closing Date or (y) on or after the Closing Date with any counterparty that was a Senior Bank (or an Affiliate thereof) at the time such Senior Interest Rate Agreement was entered into, (iv) all interest on the loans, letter of credit reimbursement and other obligations under the Senior Credit Facility or such Senior Interest Rate Agreements (including, without limitation) any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company or any Subsidiary Guarantor, whether or not allowed or allowable as a claim in such proceeding), (v) all other amounts payable by the Company under the Senior Loan Documents and (vi) all increases, renewals, extensions and refinancings of the foregoing; provided, however, that the principal amount of the indebtedness under the Senior Credit Facility included in the Senior Bank Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Intercreditor Agreement as in effect on the Closing Date. "Senior Bank Parties" means each party to the Senior Credit Facility other than any Obligor, each counterparty to a Senior Interest Rate Agreement, the beneficiaries of each indemnification obligation undertaken by the Company or any other Obligor under any Senior Loan Document, and the successors and permitted assigns of each of the foregoing. "Senior Collateral" means all the "Senior Collateral" as defined in any Senior Collateral Document and shall also include the mortgaged properties described in the Senior Credit Facility and the proceeds thereof. "Senior Collateral Agent" means Citicorp USA, Inc., in its capacity as Senior Collateral Agent under the Senior Collateral Documents, and its successors. "Senior Collateral Disposition" means (i) any sale, transfer or other disposition of Senior Collateral (including any property or assets that would constitute Senior Collateral but for the release of the Senior Lien and the Second Priority Lien with respect thereto in connection with such sale, transfer or other disposition), other than a Permitted Disposition (as defined in the Collateral Documents), or (ii) a Casualty/Condemnation with respect to Senior Collateral. "Senior Collateral Documents" means the Senior Mortgages, the Senior Subsidiary Security Agreement, the Senior Subsidiary Guarantee Agreement, the Senior Indemnity, Subrogation and Contribution Agreement, the Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing or pursuant to the Senior Credit Facility or for purposes of 16 providing collateral security or credit support for any Senior Obligation or obligation under the Senior Subsidiary Guarantee Agreement. "Senior Credit Facility" means the Senior Credit Agreement, dated as of June 27, 2001 (as amended, modified, supplemented or Refinanced from time to time), among the Company, the Senior Banks and the Senior Collateral Agent. "Senior Debt Documents" means the Senior Loan Documents and the 10.50% Note Documents. "Senior Facilities" means the Senior Credit Facility and the 10.50% Note Indenture. "Senior Indemnity, Subrogation and Contribution Agreement" means the Senior Indemnity, Subrogation and Contribution Agreement, dated as of June 27, 2001 among the Company, the Subsidiary Guarantors (including Subsidiary Guarantors becoming party thereto after the Closing Date) and the Senior Collateral Agent. "Senior Lien" means the liens on the Senior Collateral in favor of the Senior Secured Parties under the Senior Collateral Documents. "Senior Loan Documents" means the Senior Credit Facility, the Notes referred to in the Senior Credit Facility, each Senior Interest Rate Agreement, and the Senior Collateral Documents. "Senior Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents delivered pursuant to the Senior Credit Agreement. "Senior Obligations" means (a) the Senior Bank Obligations and (b) the 10.5% Note Obligations. "Senior Secured Parties" means (a) the Senior Bank Parties and (b) the 10.5% Note Parties. "Senior Subsidiary Guarantee Agreement" means the Senior Subsidiary Guarantee Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Parties. "Senior Subsidiary Security Agreement" means the Senior Subsidiary Security Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "Shelf Registration Statement" means a shelf registration statement under the Securities Act filed by the Company, if required by, and meeting the requirements of, the Exchange and Registration Rights Agreement, registering Original Securities for resale. 17 "Specified Debt Financings" means the Additional Senior Second Priority Debt, the Additional Second Priority Debt and any Debt or Attributable Debt permitted by Section 5.20(i) of the Senior Credit Facility. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by Trustee pursuant to Section 3.08. "Stated Maturity" means, with respect to any Security, the date specified in such Security as the fixed date on which the final payment of principal of such Security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subsidiary" of any Person means (i) a corporation more than 50% of the combined voting power of the outstanding Voting Stock of which is owned, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person or by such Person and one or more Subsidiaries thereof or (ii) any other Person (other than a corporation) in which such Person, or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, has at least a majority ownership and power to direct the policies, management and affairs thereof. "Subsidiary Guarantor" means each Subsidiary that is party to the Senior Subsidiary Guarantee Agreement, the Second Priority Subsidiary Guarantee Agreement or any other Senior Collateral Document or Second Priority Collateral Document. "Successor Security" of any particular Security means every Security issued after, and evidencing all or a portion of the same debt as that evidenced by, such particular Security; and, for the purpose of this definition, any Security authenticated and delivered under Section 3.07 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Synthetic Lease" means a lease which is treated as an operating lease under generally accepted accounting principles but as ownership of the leased asset by the lessee for purposes of the Internal Revenue Code. "Synthetic Lease Documents" means the documents governing the Synthetic Lease Facility. "Synthetic Lease Facility" means the Synthetic Lease entered into by Rite Aid Realty Corp. and guaranteed by Rite Aid on the Closing Date having an aggregate discounted present value of approximately $107,000,000. 18 "Synthetic Lease Obligations" means all rent and supplemental rent, all fees and all other expenses or amounts payable by Rite Aid Realty Corp. or Rite Aid to any Synthetic Lease Parties under any Synthetic Lease Document. "Synthetic Lease Parties" means all parties to the Synthetic Lease Documents other than the Obligors. "10.50% Note Documents" means the 10.50% Notes and the 10.50% Note Indenture and Exchange and Registration Rights Agreement among the State Street Bank and Trust Company, as trustee, Rite Aid and the Subsidiary Guarantors. "10.50% Note Indenture" means the Indenture dated as of June 14, 2000, among Rite Aid, the Subsidiary Guarantors and State Street Bank and Trust Company, as trustee, relating to the 10.50% Notes. "10.50% Note Obligation Payment Date" means the date on which all 10.50% Note Obligations have been paid in full. "10.50% Note Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on the 10.50% Notes, (ii) all other amounts payable by the Company to the 10.50% Note Parties under the 10.50% Note Documents, and (iii) any renewals or extensions of any of the foregoing. "10.50% Note Parties" means the holders from time to time of the 10.50% Notes, the trustee under the 10.50% Note Indenture and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any 10.50% Note Document, but shall not include the Obligors or any controlled Affiliate thereof. "10.50% Notes" means the 10.50% Senior Secured Notes Due 2002 of Rite Aid issued pursuant to the 10.50% Note Indenture prior to the Closing Date and any Registered Equivalent Notes issued in exchange therefor. "Triggering Event" means (x) the occurrence of any Event of Default and, as a result thereof, (A) the acceleration (including any automatic acceleration in connection with any Bankruptcy Proceeding) of the principal amount of any Senior Obligations or Second Priority Debt Obligations under the terms of any Senior Loan Document or any Second Priority Debt Document or (B) the commencement of the exercise of remedies in respect of Collateral, and (y) in either case, receipt by the Second Priority Collateral Trustee of written notice thereof from the Senior Collateral Agent (in the case of any such Event of Default arising under the Senior Debt Documents) or receipt by the Senior Collateral Agent and the Second Priority Collateral Trustee of written notice thereof from any Second Priority Representative (in the case of any such Event of Default arising under any Second Priority Debt Document) 19 "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed, except as provided in Section 9.05; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Unrestricted Subsidiary" means (a) any Subsidiary which, in accordance with the provisions of this Indenture, has been designated by a Board Resolution as an Unrestricted Subsidiary, in each case unless and until such Subsidiary shall, in accordance with the provisions of this Indenture, be designated by Board Resolution as a Restricted Subsidiary; and (b) any Subsidiary a majority of the Voting Stock of which shall at the time be owned directly or indirectly by one or more Unrestricted Subsidiaries. "U.S. Government Obligations" means securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such obligation evidenced by such depository receipt or a specific payment of interest on or principal of any such obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the obligation set forth in (i) or (ii) above or the specific payment of interest on or principal of such obligation evidenced by such depository receipt "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Voting Stock" of any Person means Capital Stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Wholly-owned Restricted Subsidiary" means a Restricted Subsidiary of which at least 99% of the outstanding Voting Stock (other than directors' qualifying shares) is at the time, directly or indirectly, owned by the Company, or by one or more Wholly-owned Restricted Subsidiaries, or by the Company and one or more Wholly-owned Restricted Subsidiaries. 20 SECTION 1.02. Compliance Certification and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required by the Trustee under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.03. Form of Documents Delivered To Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. 21 Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04. Acts of Holders; Record Date. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are received by the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act." of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 7.01) prior to such first solicitation or vote, as the case may be. With regard to any record date, only the Holders on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action. (d) The ownership of Securities shall be proved by the Security Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon 22 the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 1.05. Notices, Etc., To Trustee and the Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration, or (2) the Company or any Subsidiary Guarantor by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.06. Notice To Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 1.07. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act, that is required under such Act to be part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case 23 may be. Until such time as this Indenture shall be qualified under the Trust Indenture Act, this Indenture, the Company and the Trustee shall be deemed for all purposes hereof to be subject to and governed by the Trust Indenture Act to the same extent as would be the case if this Indenture were so qualified on the date hereof. SECTION 1.08. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.09. Successors and Assigns. All covenants and agreements in this Indenture by the Company or any Subsidiary Guarantor shall bind its successors and assigns, whether so expressed or not. SECTION 1.10. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12. Governmental Law. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of laws principles thereof. SECTION 1.13. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, or Redemption Date, or at the Stated Maturity, as the case may be, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. ARTICLE II Security Forms SECTION 2.01. Forms Generally; Initial Forms of Exempt Securities. The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, 24 consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Upon their original issuance, the Exempt Securities shall be issued in the form of one or more Global Securities without interest coupons registered in the name of DTC, as Depositary, or its nominee and deposited with the Trustee, as custodian for DTC, in New York, New York, for credit by DTC to the respective accounts of beneficial owners of the Securities represented thereby (or such other accounts as they may direct). Such Global Securities, together with their Successor Securities which are Global Securities, are collectively herein called the "Restricted Global Securities". SECTION 2.02. Form of Face of Security. [If the Security is a Restricted Security, then insert - - THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER (I) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THIS SECURITY OR THE LAST DATE ON WHICH THIS SECURITY WAS HELD BY THE COMPANY OR ANY AFFILIATE OF THE COMPANY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE UNDER RULE 144A, TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANY OTHER EXEMPTION FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT (IF AVAILABLE); AND (II) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS CERTIFICATE (UNLESS THIS CERTIFICATE IS HELD IN GLOBAL FORM) WITHIN TWO YEARS (OR SUCH SHORTER PERIOD AS MAY BE PRESCRIBED BY RULE 144(k) (OR ANY SUCCESSOR PROVISION) UNDER THE SECURITIES ACT) AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THIS SECURITY OR THE LAST DATE ON WHICH THIS SECURITY WAS HELD BY THE COMPANY OR ANY AFFILIATE OF THE COMPANY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS SECURITY TO THE TRUSTEE. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS; AND THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUER THAT THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY 25 ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN THE ABOVE PARAGRAPH. THIS SECURITY WILL NOT BE ACCEPTED FOR REGISTRATION OF TRANSFER UNLESS THE REGISTRAR OR TRANSFER AGENT IS SATISFIED THAT THE RESTRICTIONS ON TRANSFER SET FORTH ABOVE HAVE BEEN COMPLIED WITH, ALL AS PROVIDED IN THE INDENTURE.] [If the Security is a Global Security, then insert - - THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.] [If the Security is a Global Security and The Depository Trust Company is to be the Depositary therefor, then insert - - UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] RITE AID CORPORATION $___,000,000...... 12.50% Senior Secured Notes due 2006 No. CUSIP: ______ Rite Aid Corporation, a Delaware corporation (hereinafter called the "Company"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum set forth on Schedule A hereof on September 15, 2006, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on March 15 and September 15 of each year (each, an "Interest Payment Date"), on said principal sum at a rate of 12.50% per annum, at such office or agency, in like coin or currency, from the March 15 or September 15, as the case may be, to which interest on the 26 Securities has been paid preceding the date hereof (unless the date hereof is a March 15 or a September 15 to which interest has been paid, in which case from the date hereof, or unless the date hereof is prior to any interest having been paid, in which case from June 27, 2001) until payment of said principal sum has been made or duly provided for. If the Company shall default in the payment of interest when due on such March 15 or September 15, then this Security shall bear interest from the next preceding date to which interest has been paid, or, if no interest has been paid, from June 27, 2001. The interest so payable on any March 15 or September 15 shall be paid to the person in whose name this Security shall be registered at the close of business on the fifteenth calendar day (whether or not a Business Day) immediately preceding the related Interest Payment Date (each, a "Regular Record Date"). For purposes of this Security, "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York, New York, Hartford, Connecticut or Boston, Massachusetts are authorized or obligated by law, regulation, executive order or governmental decree to be closed. If and to the extent the Company shall default in the payment of the interest due on any interest payment date, such defaulted interest shall be paid to the person in whose name this Security is registered at the close of business on a record date established for such payment by notice by or on behalf of the Company to the holders of the Securities mailed by first-class mail not less than fifteen days prior to such record date to their last address as they shall appear upon the Security register, such record date to be not less than five days preceding the date of payment of such defaulted interest. The Company may pay interest by check mailed to the holder's address as it appears on the Security register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Security shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been executed by the Trustee under the Indenture referred to on the reverse hereof. IN WITNESS WHEREOF, the Company has caused this Security to be signed by its duly authorized officers and has caused its corporate seal to be affixed hereunto. RITE AID CORPORATION, By: ___________________________ Title: 27 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee, --------------------------- Authorized Officer 28 Form of Reverse of Security RITE AID CORPORATION 12.50% Senior Secured Notes due 2006 Indenture. (a) This Security is the duly authorized issue of debt securities of the Company (herein referred to as the "Securities"), all issued or to be issued under and pursuant to an indenture, dated as of June 27, 2001 (as amended, modified and supplemented from time to time, the "Indenture"), among the Company, certain Subsidiaries of the Company party thereto (the "Subsidiary Guarantors") and State Street Bank and Trust Company, as Trustee (herein referred to as the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company, the Subsidiary Guarantors and the holders (the words "holders", "holder", "Securityholders" or "Securityholder" mean the registered holder(s)) of the Securities. This Security is the 12.50% Senior Secured Notes due 2006 of the Company and is limited in aggregate principal amount to $152,025,000. All capitalized terms used in this Security which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. Certain Covenants. The Indenture restricts the Company's and each of the Subsidiary Guarantor's ability to merge, consolidate or sell substantially all of its assets. In addition, the Company is obliged to abide by certain covenants, including covenants limiting the amount of debt it may incur, as well as its ability to enter into sale and leaseback transactions, a covenant requiring it to maintain its material properties, and a covenant requiring it to pay or discharge all taxes, all as more fully described in the Indenture. All of such covenants are subject to the covenant defeasance procedures outlined in the Indenture. In the event of certain sales, transfers, or other dispositions of, or casualties or other insured damages to, or any takings under power of eminent domain or by condemnation or similar proceedings of, certain assets that constitute Collateral, under certain circumstances, a portion of the proceeds of such sales, transfers, dispositions, casualties or condemnations shall be deposited into an account held by the Trustee in accordance with the terms of the Indenture. When the proceeds in such account exceed $10,000,000, the Company shall make an offer to purchase the Securities in accordance with the terms of the Indenture. Guarantees; Security. To guarantee the due and punctual payment of the principal and interest on the Securities and all other amounts payable by the Company under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the 29 Subsidiary Guarantors have, subject to certain limitations, jointly and severally guaranteed such payment obligations pursuant to the terms of the Second Priority Subsidiary Guarantee Agreement. The guarantees under the Second Priority Subsidiary Guarantee Agreement are secured by Second Priority Liens on the Collateral pursuant to the terms of the Second Priority Collateral Documents. The Second Priority Liens will be shared equally and ratably with future lenders under the Additional Second Priority Debt Facilities, if any, as and to the extent provided in the Second Priority Subsidiary Guarantee Agreement, the Second Priority Collateral Documents and the Intercreditor Agreement. The actions of the holders of any debt (including, but not limited to, the Securities) secured by such Second Priority Liens and the application of proceeds from the enforcement of any remedies with respect to such Collateral are limited pursuant to the terms of the Collateral Documents and the Intercreditor Agreement. Effect of Event of Default. If an Event of Default shall have occurred and be continuing under the Indenture, the principal hereof may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. Amendments and Waivers. Modifications and amendments of the Indenture will be permitted to be made only with the consent of the holders of not less than a majority in principal amount of all outstanding Securities issued under the Indenture that are affected by such modification or amendment; provided that no such modification or amendment may, without the consent of the holder of each such Security affected thereby, (a) change the stated maturity of the principal of, or any installment of interest or principal on, any such Security; (b) reduce the principal of, or the rate or amount of interest on, or any amount payable upon redemption of, any such Security, or adversely affect any right of repayment of the holder of any such Security; (C) change the place of payment, or the coin or currency, for payment of principal of or interest on any such Security; (d) impair the right to institute suit for the enforcement of any payment on or with respect to any such Security; (e) reduce the above-stated percentage of outstanding Securities necessary to modify or amend the Indenture, or to waive compliance with certain provisions thereof or certain defaults and consequences thereunder; (f) release any security interest that may have been granted in favor of the Holders, other than in accordance with the terms of the applicable Second Priority Collateral Document governing the grant of such security interest or the Intercreditor Agreement that are in effect on the Closing Date; provided, however, that to the extent (i) the applicable terms of such agreements cross-reference the terms of the Second Priority Debt Documents and (ii) all of the Second Priority Debt Obligations, other than the Exchange Note Obligations, have been paid in full, such cross-references shall refer to the terms of the Second Priority Debt Documents, other than the Exchange Note Documents, that were in effect as of the Closing Date; (g) make any change in any Second Priority Collateral Document or any change in this Indenture with respect to the Collateral that would adversely affect the Holders, except for any such change made in accordance with the terms of the Intercreditor Agreement or the applicable Collateral Documents, as the case may be, that are in effect on the Closing Date; provided, however, that to the extent (i) the applicable 30 terms of such agreements cross-reference the terms of the Second Priority Debt Documents and (ii) all of the Second Priority Debt Obligations, other than the Exchange Note Obligations, have been paid in full, such cross-references shall refer to the terms of the Second Priority Debt Documents, other than the Exchange Note Documents, that were in effect as of the Closing Date; (h) reduce the Redemption Price payable upon the redemption of any Securities or change the time at which any Securities may be redeemed; or (i) modify any of the foregoing provisions or any of the provisions relating to the waiver of certain past defaults or certain covenants, except to increase the required percentage to effect such action or to provide that certain other provisions may not be modified or waived without the consent of the holder of such Security. Modifications and amendments of the Indenture will be permitted to be made by the Company and the Trustee without the consent of any holder of Securities for any of the following purposes: (a) to evidence the succession of another person to the Company as obligor under the Indenture; (b) to add to the covenants, agreements and obligations of the Company for the benefit of the holders of all Securities or to surrender any right or power conferred upon the Company in the Indenture; (c) to provide for the acceptance of appointment by a successor Trustee or facilitate the administration of the trusts under the Indenture by more than one Trustee; (d) to cure any ambiguity, defect or inconsistency in the Indenture; (e) to add guarantees with respect to the Securities or to secure the Securities; or (f) to make any other change that does not adversely affect the rights of any Holder of Securities. Denominations; Transfer. (a) The Securities are issuable in registered form without coupons in denominations of $1,000 and any integral multiple thereof. A certificate in global form representing all or a portion of the Securities may not be transferred except as a whole by the Depositary to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary for such Securities or a nominee of such successor Depositary. No Liability of Certain Persons. No past, present or future stockholder, employee, officer or director of the Company or any successor thereof shall have any liability for any obligation, covenant or agreement of the Company contained under this Security or the Indenture. Each holder by accepting this Security waives and releases all such liability. This waiver and release are part of the consideration for the issue of this Security. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK GOVERN THE INDENTURE AND THIS SECURITY. 31 SCHEDULE A SCHEDULE OF CHANGES IN OUTSTANDING PRINCIPAL AMOUNT The following notations in respect of changes in the outstanding principal amount of this Security have been made: Change in Initial Outstanding Outstanding Principal Principal Principal Date Amount Amount Amount Notation - ---- ------ ------ ------ -------- 32 ARTICLE III The Securities SECTION 3.01. Title and Terms. The Securities shall be known and designated as the "12.50% Senior Secured Notes due 2006". The aggregate amount of Securities which may be authenticated and delivered hereunder is limited to $152,025,000, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 3.04, 3.05 or 9.06. Unless the context otherwise requires, the Original Securities and the Exchange Securities shall constitute Securities for all purposes under the Indenture, including with respect to any amendment, waiver, acceleration or other Act of Holders or redemption. SECTION 3.02. Denominations. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and integral multiples thereof. SECTION 3.03. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman, its President, one of its Vice Presidents or its Secretary. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and make available for delivery such Securities as provided in this Indenture and not otherwise. At any time and from time to time after the execution and delivery of this Indenture and after the effectiveness of a registration statement under the Securities Act with respect thereto, the Company may deliver Exchange Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Exchange Securities and a like principal amount of Original Securities for cancellation in accordance with this Indenture, and the Trustee in accordance with the Company Order shall authenticate and make available for delivery such Securities. Prior to authenticating such Exchange Securities, and accepting any additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, if requested, and (subject to Section 33 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating in substance: (a) that all conditions hereunder precedent to the authentication and delivery of such Exchange Securities have been complied with and that such Exchange Securities, when such Securities have been duly authenticated and delivered by the Trustee (and subject to any other conditions specified in such Opinion of Counsel), have been duly issued and delivered and will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; and (b) that the issuance of the Exchange Securities in exchange for Original Securities has been effected in compliance with the Securities Act. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. SECTION 3.04. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall, as soon as practicable thereafter, authenticate and deliver, temporary Securities, which Securities are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution thereof. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 10.02, without charge to the Holder. Upon receipt of notice of surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall, as soon as practicable thereafter, authenticate and make available for delivery in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. 34 SECTION 3.05. Global Securities. (a) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated by the Company for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (b) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (i) such Depositary (A) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (B) has ceased to be a clearing agency registered as such under the Exchange Act, and in either case the Company fails to appoint a successor Depositary, (ii) the Company executes and delivers to the Trustee a Company Order stating that it elects to cause the issuance of the Securities in certificated form and that all Global Securities shall be exchanged in whole for Securities that are not Global Securities (in which case such exchange shall be effected by the Trustee) or (iii) there shall have occurred and be continuing an Event of Default with respect to the Securities. (c) If any Global Security is to be exchanged for other Securities or canceled in whole, it shall be surrendered by or on behalf of the Depositary or its nominee to the Trustee, as Security Registrar, for exchange or cancellation as provided in this Article III. If any Global Security is to be exchanged for other Securities or canceled in part, or if another Security is to be exchanged in whole or in part for a beneficial interest in any Global Security, then either (i) such Global Security shall be so surrendered for exchange or cancellation as provided in this Article III or (ii) the principal amount thereof shall be reduced or increased by an amount equal to the portion thereof to be so exchanged or canceled, or equal to the principal amount of such other Security to be so exchanged for a beneficial interest therein, as the case may be, by means of an appropriate adjustment made on the records of the Trustee, as Security Registrar, whereupon the Trustee, in accordance with the Applicable Procedures, shall instruct the Depositary or its authorized representative to make a corresponding adjustment to its records. Upon receipt of notice of any such surrender or adjustment of a Global Security, the Trustee shall, subject to Section 3.06(c) and as otherwise provided in this Article III, as soon as practicable thereafter, authenticate and deliver any Securities issuable in exchange for such Global Security (or any portion thereof) to or upon the order of, and registered in such names as may be directed by, the Depositary or its authorized representative. Upon the request of the Trustee in connection with the occurrence of any of the events specified in the preceding paragraph, the Company shall promptly make available to the Trustee a reasonable supply of Securities that are not in the form of Global Securities. The Trustee shall be entitled to rely upon any order, direction or request of the Depositary or its authorized representative which is given or made pursuant to this Article III if such order, direction or request is given or made in accordance with the Applicable Procedures. 35 (d) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Article III or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. (e) The Depositary or its nominee, as registered owner of a Global Security, shall be the Holder of such Global Security for all purposes under the Indenture and the Securities and owners of beneficial interests in a Global Security shall hold such interests pursuant to the Applicable Procedures. Accordingly, any such owner's beneficial interest in a Global Security will be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its Agent Members. SECTION 3.06. Registration, Registration of Transfer and Exchange; Restricted Securities Legends. (a) Registration, Registration of Transfer and Exchange Generally. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company designated pursuant to Section 10.02 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers and exchanges of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers and exchanges of Securities as herein provided. Such Security Register shall distinguish between Original Securities and Exchange Securities. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 10.02 for such purpose, the Company shall execute, and the Trustee shall, as soon as practicable thereafter, authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations, of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture. At the option of the Holder, and subject to the other provisions of this Section 3.06, Securities may be exchanged for other Securities of any authorized denominations, of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture upon surrender of the Securities to be exchanged at any such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall, as soon as practicable thereafter, authenticate and make available for delivery, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and (except for the differences between Original Securities and Exchange Securities provided for herein) entitled to the same benefits under 36 this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Sections 3.03, 3.04, 3.05, 3.06, or 9.06 not involving any transfer. (b) Certain Transfers and Exchanges. Notwithstanding any other provision of this Indenture or the Securities, transfers and exchanges of Securities and beneficial interests in a Global Security of the kinds specified in this Section 3.06(b) shall be made only in accordance with this Section 3.06(b). (i) Exchanges between Global Security and Non-Global Security. A beneficial interest in a Global Security may be exchanged for a Security that is not a Global Security as provided in Section 3.05; provided that, if such interest is a beneficial interest in a Restricted Global Security, then such interest shall be exchanged for a Restricted Security (subject in each case to Section 3.06(c)). (c) Restricted Securities Legends. Exempt Securities and their respective Successor Securities shall bear a Restricted Securities Legend, subject to the following: (i) subject to the following clauses of this Section 3.06(c), a Security or any portion thereof which is exchanged, upon transfer or otherwise, for a Global Security or any portion thereof shall bear the Restricted Securities Legend borne by such Global Security while represented thereby; (ii) subject to the following clauses of this Section 3.06(c), a new Security which is not a Global Security and is issued in exchange for another Security (including a Global Security) or any portion thereof, upon transfer or otherwise, shall bear the Restricted Securities Legend borne by such other Security; (iii) Exchange Securities shall not bear a Restricted Securities Legend; (iv) at any time after the Securities may be freely transferred without registration under the Securities Act or without being subject to transfer restrictions pursuant to the Securities Act, a new Security which does not bear a Restricted Securities Legend may be issued in exchange for or in lieu of a Security (other than a Global Security) or any portion thereof which bears such a legend if the Trustee has received an unlegended Security, duly executed by the Holder of such legended Security or his attorney 37 duly authorized in writing, and after such date and receipt of such certificate, the Trustee shall, as soon as practicable thereafter, authenticate and deliver such a new Security in exchange for or in lieu of such other Security as provided in this Article III; (v) a new Security which does not bear a Restricted Securities Legend may be issued in exchange for or in lieu of a Security (other than a Global Security) or any portion thereof which bears such a legend if, in the Company's judgment, placing such a legend upon such new Security is not necessary to ensure compliance with the registration requirements of the Securities Act, and the Trustee, at the direction of the Company, shall authenticate and deliver such a new Security as provided in this Article III; and (vi) notwithstanding the foregoing provisions of this Section 3.06(c), a Successor Security of a Security that does not bear a particular form of Restricted Securities Legend shall not bear such form of legend unless the Company has reasonable cause to believe that such Successor Security is a "restricted security" within the meaning of Rule 144, in which case the Trustee, at the direction of the Company, shall authenticate and deliver a new Security bearing a Restricted Securities Legend in exchange for such Successor Security as provided in this Article III. SECTION 3.07. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall, as soon as practicable thereafter, authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by either of them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall, as soon as practicable thereafter, authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. 38 Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.08. Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). 39 (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.09. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.08) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. None of the Company, the Trustee or any agent of the Company or the Trustee shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Security in global form, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Notwithstanding the foregoing, with respect to any Security in global form, nothing herein shall prevent the Company or the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by any Depositary (or its nominee), as a Holder, with respect to such Security in global form or impair, as between such Depositary and owners of beneficial interests in such Security in global form, the operation of customary practices governing the exercise of the rights of such Depositary (or its nominee) as Holder of such Security in global form. SECTION 3.10. Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by the Trustee. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures. SECTION 3.11. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360 day year of twelve 30-day months. 40 SECTION 3.12. Cusip Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. ARTICLE IV Satisfaction and Discharge SECTION 4.01. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to (i) rights of registration of transfer and exchange and the Company's right of optional redemption, (ii) substitution of apparently mutilated, defaced, destroyed, lost or stolen Securities, (iii) rights of Holders to receive payment of principal and interest on the Securities, (iv) rights, obligations and immunities of the Trustee under the Indenture and (v) rights of the Holders of the Securities as beneficiaries of the Indenture with respect to any property deposited with the Trustee payable to all or any of them), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.07 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.03) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has 41 deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture pursuant to this Section 4.01, the obligations of the Company to the Trustee under Section 6.07 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 4.02 and the last paragraph of Section 10.03 shall survive. SECTION 4.02. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee but such money need not be separated from other funds except to the extent required by law. ARTICLE V Remedies SECTION 5.01. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) failure to pay the principal of (or premium, if any, on) any Security at its Maturity; or (2) failure to pay any interest upon any Security when it becomes due and payable, and continuance of such default for a period of 30 days; or 42 (3) failure of the Company or any of the Subsidiary Guarantors to perform or comply with the provisions of Section 8.01 or (4) failure to perform any other covenant or agreement of the Company or any of the Subsidiary Guarantors in this Indenture or the Securities (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company or such Subsidiary Guarantor, as the case may be, by the Trustee or to the Company or such Subsidiary Guarantor, as the case may be, and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) a default under any bond, debenture, note or other evidence of indebtedness of the Company or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness of the Company, whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay an aggregate principal amount exceeding $10,000,000 of such indebtedness when due and payable after the expiration of any applicable grace period with respect thereto and shall have resulted in such indebtedness in an aggregate principal amount exceeding $10,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 10 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Securities a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; provided, however, that if such default under such bond, debenture, note, mortgage, indenture or other instrument or evidence of indebtedness shall be remedied or cured by the Company or waived pursuant to such agreement or instrument, then, unless the maturity of the Securities shall have been accelerated as provided herein, the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of either the Trustee or the Holders; or (6) any event of default or condition shall occur under the Second Priority Facilities which results in the acceleration of the maturity of any of the Second Priority Facilities or permits the lenders under any of the Second Priority Facilities, or any Person acting on such Person's behalf, to accelerate the maturity thereof, and such event or condition has continued for a period of 25 days after the occurrence thereof; provided, however, that if such event of default or condition under such Second Priority Facility shall be remedied or cured by the Company or waived pursuant to such agreement or instrument, then, unless the maturity of the Securities shall have been accelerated as provided herein, the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of either the Trustee or the Holders; or 43 (7) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (8) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to have a case commenced against it or to seek an order for relief under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law or the taking of corporate action by the Company in furtherance of any such action; or (9) any guarantee under the Second Priority Subsidiary Guarantee Agreement ceases to be in full force and effect (other than in accordance with the terms of this Indenture and the Second Priority Subsidiary Guarantee Agreement) or any Subsidiary Guarantor denies or disaffirms its obligations under the Second Priority Subsidiary Guarantee Agreement; or (10) the material impairment of the security interests under the Second Priority Collateral Documents for any reason other than the satisfaction in full of all obligations thereunder and under this Indenture and discharge of the Second Priority Collateral Documents and this Indenture, or any security interest created 44 hereunder or thereunder being declared invalid or unenforceable, or the Company or any of its Subsidiaries asserting, in any pleading in any court of competent jurisdiction, that any such security interest is invalid or unenforceable. SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 5.01(7) or (8) occurs and is continuing, then and in every such case the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities may direct the Trustee to declare all of the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee), and upon any such declaration such principal and any accrued interest, if any, shall become immediately due and payable. If an Event of Default specified in Section 5.01(7) or (8) occurs, the principal and any accrued interest, on the Securities then Outstanding shall ipso facto become immediately due and payable without any declaration or other Act on the part of the Trustee or any Holder. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in aggregate principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (i) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Securities, (B) the principal of (and premium, if any, on) any Securities which have become due otherwise than by such declaration of acceleration and, to the extent that payment of such interest is lawful, interest thereon at the rate provided by the Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate provided by the Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (ii) all Events of Default, other than the non-payment of the principal of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. No such rescission shall affect any subsequent default or impair any right consequent thereon. 45 SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate provided by the Securities, if any, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.04. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company or any other obligor upon the Securities, or upon the property of the Company or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07. 46 No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 5.06. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.07; and SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively. SECTION 5.07. Limitation on Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have agreed to indemnify the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; 47 (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in aggregate principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 5.08. Unconditional Right of Holders To Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.08) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.07, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. 48 SECTION 5.12. Control by Holders. The Holders of a majority in aggregate principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 5.13. Waiver of Past Defaults. The Holders of not less than a majority in aggregate principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of (or premium, if any) or interest on any Security, or (2) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.14. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, including attorney's fees and expenses in the manner and to the extent provided in the Trust Indenture Act; provided, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Trustee or the Company. SECTION 5.15. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein 49 granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 5.16. Enforcement of Remedies. Notwithstanding any of the foregoing, any enforcement of the guarantees under the Second Priority Guarantee Agreement or any remedies with respect to the Second Priority Collateral under the Second Priority Collateral Documents is subject to the provisions of the Intercreditor Agreement. ARTICLE VI The Trustee SECTION 6.01. Certain Duties and Responsibilities. Except during the continuance of an Event of Default, the duties and responsibilities of the Trustee shall be as provided by the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 6.02. Notice of Defaults. The Trustee shall give the Holders notice of any default hereunder as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 5.01(4), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 6.03. Certain Rights of Trustee. Subject to the provisions of Section 6.01: (a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any 50 resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate or opinion; (d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by the Trustee in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for, and shall be fully protected from, any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (i) the Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture; 51 (j) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder; and (k) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Intercreditor Agreement or any of the Second Priority Collateral Documents with respect to voting or approving any amendments, consents or waivers in connection with such agreements unless the approval of such amendment, consent or waiver would not otherwise be so determined without the vote of the Trustee. SECTION 6.04. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture, the Second Priority Subsidiary Guarantee Agreement or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.05. May Hold Securities. The Trustee, any Paying Agent, any Security Registrar or any other agent of the Company, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other agent. SECTION 6.06. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 6.07. Compensation and Reimbursement. The Company and each Subsidiary Guarantor, jointly and severally, agrees (1) to pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture, including, but not limited to the costs incurred in connection with collection (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense disbursement or advance as may be attributable to its negligence or bad faith; and 52 (3) to indemnify the Trustee and its agents, employees, officers, directors and shareholders for, and to hold the same harmless against, any and all loss, liability damage, claim or expense, including, without limitation, reasonable attorney's fees and expenses, and taxes (other than taxes based on the income of the Trustee) incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against or investigating any claim (including any claim by the Company) or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall have a lien prior to the Securities as to all property and funds held by it hereunder for any amount owing it or any predecessor Trustee pursuant to this Section 6.07, except with respect to funds held in trust for the benefit of the Holders of particular Securities. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.01(7) or Section 5.01(8), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or State bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the resignation or removal of the Trustee and/or the satisfaction and discharge or termination of this Indenture. SECTION 6.08. Disqualification; Conflicting Interest. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 6.09. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 6.10. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11. (b) The Trustee may resign at any time with respect to the Securities by giving written notice thereof to the Company. If an instrument of 53 acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in aggregate principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to such Securities. (d) If at any time: (i) the Trustee shall fail to comply with Section 6.08 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (ii) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee with respect to such Securities. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in aggregate principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. 54 (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders of Securities in the manner provided in Section 1.06. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 6.11. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee and the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 6.13. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company or any such other obligor). 55 ARTICLE VII Holders' Lists and Reports by Trustee and Company SECTION 7.01. Company To Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee (a) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities as of such Regular Record Date, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar. SECTION 7.02. Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders of Securities contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders of Securities received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished. (b) The rights of Holders of Securities to communicate with other Holders of Securities with respect to their rights under this Indenture or under the Securities and the corresponding rights and duties of the Trustee, shall be provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to the names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 7.03. Reports by Trustee. (a) The Trustee shall transmit to Holders of Securities such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within sixty days after each May 15, following the date of this Indenture deliver to Holders of Securities a brief report, dated as of such May 15, which complies with the provisions of such Section 313(a). (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will promptly notify the Trustee when the Securities are listed on any stock exchange or of any delisting thereof. 56 SECTION 7.04. Reports by Company. On and after August 1, 2001, the Company shall file with the Trustee and the Commission, and transmit to Holders of Securities, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 30 days after the same is so required to be filed with the Commission. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease SECTION 8.01. Company and the Subsidiary Guarantors May Consolidate, Etc., Only on Certain Terms. (a) The Company shall not consolidate with or merge into any other corporation or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (1) in case the Company shall consolidate with or merge into another corporation or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee by the Person (if other than the Company) formed by such consolidation or into which the Company shall have been merged or by the corporation which shall have acquired the Company's assets; 57 (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing with respect to any Securities; (3) if, as a result of any such consolidation or merger or such conveyance, transfer or lease, properties or assets of the Company would become subject to a mortgage, pledge, lien, security interest or other encumbrance which would not be permitted by this Indenture, the Company or such successor corporation or Person, as the case may be, shall take such steps as shall be necessary effectively to secure the Securities of each sites equally and ratably with (or prior to) all indebtedness secured thereby; and (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. (b) Except as otherwise provided in the Second Priority Subsidiary Guarantee Agreement, the Company shall not permit any Subsidiary Guarantor to consolidate with or merge into any other corporation or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into any Subsidiary Guarantor or convey, transfer or lease its properties and assets substantially as an entirety to any Subsidiary Guarantor, unless: (1) in case such Subsidiary Guarantor shall consolidate with or merge into another corporation or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the corporation formed by such consolidation or into which such Subsidiary Guarantor is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of such Subsidiary Guarantor substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by a supplement to the Second Priority Subsidiary Guarantee Agreement and an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual performance and observance of all obligations of such Subsidiary Guarantor under the Second Priority Subsidiary Guarantee Agreement and the performance of every covenant of this Indenture on the part of such Subsidiary Guarantor to be performed or observed by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee by the Person (if other than such Subsidiary Guarantor) formed by such 58 consolidation or into which such Subsidiary Guarantor shall have been merged or by the corporation which shall have acquired such Subsidiary Guarantor's assets; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of such Subsidiary Guarantor as a result of such transaction as having been incurred by such Subsidiary Guarantor at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing with respect to any Securities; (3) if, as a result of any such consolidation or merger or such conveyance, transfer or lease, properties or assets of such Subsidiary Guarantor would become subject to a mortgage, pledge, lien, security interest or other encumbrance which would not be permitted by this Indenture, such Subsidiary Guarantor or such successor corporation or Person, as the case may be, shall take such steps as shall be necessary effectively to secure the Securities of each sites equally and ratably with (or prior to) all indebtedness secured thereby; and (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 8.02. Successor Substituted. Upon any consolidation of the Company or any Subsidiary Guarantor with, or merger of the Company or any Subsidiary Guarantor into, any other Person or any transfer, conveyance, sale, lease or other disposition of all or substantially all of the properties and assets of the Company or any Subsidiary Guarantor as an entirety in accordance with Section 8.01, the successor Person shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Subsidiary Guarantor, as the case may be, under this Indenture and the Second Priority Subsidiary Guarantee Agreement with the same effect as if such successor Person had been named as the Company or such Subsidiary Guarantor, as the case may be, herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture, the Securities and the Second Priority Subsidiary Guarantee Agreement. Such successor Person may cause to be signed, and may issue either in its own name or in the name of the Company prior to such succession, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication pursuant to such provisions and any Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee on its behalf for that purpose pursuant to such provisions. All 59 Securities so issued in all respects have the same legal rank and benefit under this Indenture as Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all such Securities had been issued prior to the date of such succession. In case of any such consolidation, merger, sale or conveyance, such changes in phraseology and form may be made in the Securities thereafter to be issued as may be appropriate. ARTICLE IX Supplemental Indentures SECTION 9.01. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution of the Company, any of the Subsidiary Guarantors and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company or to any Subsidiary Guarantor and the assumption by any such successor of the covenants of the Company or such Subsidiary Guarantor, as the case may be, herein and in the Securities; or (2) to add to the covenants of the Company or any of the Subsidiary Guarantors for the benefit of the Holders of Securities, or to surrender any right or power herein conferred upon the Company or any of the Subsidiary Guarantors; or (3) to add Subsidiary Guarantors with respect to the Securities or to secure the Securities; or (4) to comply with any requirements of the Commission in order to effect and maintain the qualification of this Indenture under the Trust Indenture Act; or (5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided such action pursuant to this clause (5) shall not adversely affect the interests of the Holders of Securities in any material respect. SECTION 9.02. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities affected by such supplemental indenture (voting as one class), by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution of the Company, the Subsidiary Guarantors and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in 60 any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable thereon, or change the place of payment where, or the coin or currency in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof, or (2) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) release any security interest that may have been granted in favor of the Holders, other than in accordance with the terms of the Collateral Documents or the Intercreditor Agreement that are in effect on the Closing Date; provided, however, that to the extent (i) the applicable terms of such agreements cross-reference the terms of the Second Priority Debt Documents and (ii) all of the Second Priority Debt Obligations, other than the Exchange Note Obligations, have been paid in full, such cross-references shall refer to the terms of the Second Priority Debt Documents, other than the Exchange Note Documents, that were in effect as of the Closing Date, or (4) make any change in any Second Priority Collateral Document or any change in this Indenture with respect to the Collateral that would adversely affect the Holders, except for any such change made in accordance with the terms of the Intercreditor Agreement or the applicable Collateral Document, as the case may be, that are in effect on the Closing Date; provided, however, that to the extent (i) the applicable terms of such agreements cross-reference the terms of the Second Priority Debt Documents and (ii) all of the Second Priority Debt Obligations, other than the Exchange Note Obligations, have been paid in full, such cross-references shall refer to the terms of the Second Priority Debt Documents, other than the Exchange Note Documents, that were in effect as of the Closing Date, or (5) reduce the Redemption Price payable upon the redemption of any Securities or change the time at which any Securities may be redeemed, or (6) modify any of the provisions of this Section 9.02 or Section 10.17, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby. 61 It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.03. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.04. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.05. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 9.06. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture relating to Securities pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. ARTICLE X Covenants SECTION 10.01. Payment of Principal, Premium and Interest. The Company will duly and punctually pay the principal of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities and this Indenture. SECTION 10.02. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or 62 agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside the Borough of Manhattan, The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 10.03. Money for Security Payments To Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the principal of (and premium, if any) or interest on Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. 63 The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 10.04. Corporate Existence. Subject to Article VIII, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors in good faith shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 10.05. Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary of the Company to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, as determined by the Board of Directors in good faith, desirable in the conduct of its business or the business of any Subsidiary of the Company and not disadvantageous in any material respect to the Holders. SECTION 10.06. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or 64 imposed upon the Company or any of its Subsidiaries or upon the income, profits or property of the Company or any of its Subsidiaries, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any of its Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 10.07. Insurance. The Company covenants and agrees that it will, and will cause each Subsidiary to, insure and keep insured, with reputable insurance companies, their principal properties, and such insurance shall be in such amounts (and with such deductibles) as companies engaged in a similar business in accordance with good business practice customarily insure properties of a similar character against loss by fire and from other causes or, in lieu thereof, in the case of itself or of any one or more of its Subsidiaries, it will maintain or cause to be maintained a program of self-insurance in accordance with good business practices. SECTION 10.08. Restrictions on Funded Debt of Restricted Subsidiaries. The Company covenants and agrees that it will not permit any Restricted Subsidiary to create, issue, incur, assume, or many other way become liable for any unsecured Funded Debt unless the Company would be entitled under subparagraph (e) of Section 10.10 of this Indenture to create, issue, incur, assume or guarantee any Secured Debt not specifically permitted under Section 10.10 of this Indenture but for subparagraph (e) thereof in an amount equal to such Funded Debt; provided, however, that the foregoing restriction shall not prevent (i) any Restricted Subsidiary from becoming liable to the Company or to a Wholly-owned Restricted Subsidiary for Funded Debt or (ii) the extension, renewal or refunding of any Funded Debt of any Restricted Subsidiary so long as Consolidated Funded Debt is not thereby increased. SECTION 10.09. Restriction on Sales with Leases Back. Except for a sale or transfer by a Restricted Subsidiary to the Company or a Wholly-owned Restricted Subsidiary, the Company covenants and agrees that it will not, and will not permit any Restricted Subsidiary to, sell or transfer any manufacturing plant, warehouse, retail store or equipment owned and operated or hereafter owned and operated by the Company or a Restricted Subsidiary, with the intention that the Company or any Restricted Subsidiary take back a lease thereof, except a lease for a period, including renewals, not exceeding 24 months, by the end of which period it is intended that the use of such property or equipment by the lessee will be discontinued (any such transaction being herein referred to as a "Sale and Leaseback Transaction" ); provided, notwithstanding the foregoing, the Company or any Restricted Subsidiary may enter into a Sale and Leaseback Transaction if the Company or a Restricted Subsidiary would be entitled under subparagraph (e) of Section 10.10 to create, issue, incur, assume or guarantee any Secured Debt not specifically permitted under Section 10.10 of this Indenture but for subparagraph (e) thereof in an amount equal to the Attributable Debt respecting such Sale and Leaseback Transaction; provided further that, notwithstanding the foregoing, the Company or any Restricted Subsidiary may enter into a Sale and Leaseback Transaction if entered into in respect of property acquired by the Company or a Restricted 65 Subsidiary if such Sale and Leaseback Transaction is entered into within 24 months from the date of such acquisition; and provided further that, notwithstanding the foregoing, the Company or any Restricted Subsidiary may enter into a Sale and Leaseback Transaction if the Company, within 120 days before or after the sale or transfer shall have been made by the Company or by any Restricted Subsidiary, applied or applies an amount equal to the greater of (i) the net proceeds of the sale of the property sold and leased back pursuant to such arrangement or (ii) the fair market value of the property so sold and leased back at the time of entering into such arrangement (as determined by any two of the following: the Chairman of the Board of the Company, its Chief Executive Officer, its President, any Vice President of the Company, its Treasurer and its Controller) to the retirement of Secured Debt of the Company other than at maturity or pursuant to any mandatory sinking fund payment or any mandatory prepayment provision. SECTION 10.10. Restrictions on Secured Debt. The Company covenants and agrees that it will not, and will not permit any Restricted Subsidiary to, create, issue, incur, assume or guarantee any Secured Debt without making effective provision (and the Company covenants that in such case it will make or cause to be made effective provision) whereby the Securities then Outstanding and any other indebtedness of or guaranteed by the Company or such Restricted Subsidiary then entitled thereto, shall be secured by such mortgage, pledge, lien or encumbrance equally and ratably with (or prior to) any and all other obligations and indebtedness thereby secured for so long as any such other obligations and indebtedness shall be so secured; provided, however, that the foregoing covenants shall not be applicable to the following: (a) any mortgage, pledge, lien or other encumbrance on any property that secures the Secured Obligations, in each case, in accordance with the terms of the Collateral Documents that are in effect on the Closing Date; provided that such mortgages, pledges, liens or encumbrances are otherwise permitted under this Indenture, the Second Priority Collateral Documents and the Intercreditor Agreement. (b) (i) any mortgage, pledge, lien or other encumbrance on any property acquired or constructed by the Company or a Restricted Subsidiary and created contemporaneously with, or within 24 months after, such acquisition or the completion of such construction and commencement of full operation of such property, whichever is later, to secure or provide for the payment of any part of the purchase or construction price of such property, or (ii) the acquisition by the Company or a Restricted Subsidiary of property subject to any mortgage, pledge, lien or other encumbrance upon such property existing at the time of acquisition thereof, whether or not assumed by the Company or such Restricted Subsidiary, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired, provided that the lien of any such mortgage, pledge, lien or other encumbrance or agreement does not spread to other property except unimproved real property previously owned upon which any new construction has taken place and subsequent additions to such acquired or constructed property. 66 (c) any mortgage, pledge, lien, or other encumbrance created for the sole purposes of extending, renewing or refunding, in whole or part, any mortgage, lien or other encumbrance permitted by this Section 10.10 or any mortgage, pledge, lien or other encumbrance securing the indebtedness of the Company or of any Restricted Subsidiary on the date of this Indenture or of a corporation at the time such corporation becomes a Subsidiary, or any extensions, renewals or refundings of any such mortgage, pledge, lien or other encumbrance; provided, however, that the principal amount of indebtedness secured thereby shall not exceed the principal amount of indebtedness so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding mortgage, pledge, lien or other encumbrance shall be limited to all or that part of the same properties which secured the mortgage, pledge, lien or other encumbrance extended, renewed or refunded. (d) any Secured Debt of a Restricted Subsidiary owing to the Company or a Wholly-owned Restricted Subsidiary. (e) Secured Debt of the Company and its Restricted Subsidiaries which would otherwise be prohibited by the foregoing restrictions (not including Secured Debt permitted to be secured under subparagraphs (a) through (d) above, so long as the sum of any such Secured Debt hereafter incurred plus Attributable Debt of the Company and any Restricted Subsidiaries in respect of existing Sale and Leaseback Transactions hereafter entered into (excluding Attributable Debt incurred in respect of any Sale and Leaseback Transaction entered into in respect of property acquired by the Company or a Restricted Subsidiary not more than 24 months prior to the date such Transaction is entered into) plus unsecured Funded Debt of any Restricted Subsidiary hereafter incurred (excluding unsecured Funded Debt incurred through the extension, renewal or refunding of Funded Debt where Consolidated Funded Debt was not thereby increased and excluding any Funded Debt owed to the Company or a Wholly-owned Restricted Subsidiary) does not at the time exceed 20% of Consolidated Net Tangible Assets. SECTION 10.11. Restrictions on Impairment of Security Interest. Neither the Company nor any Subsidiary of the Company is permitted to take or omit to take any action that would materially impair the security interest with respect to the Collateral for the benefit of the Trustee and the Holders of the Securities, and neither the Company nor any Subsidiary is permitted to grant to any person any security interest whatsoever in any of the Collateral; provided, however, that the Company and such Subsidiaries may take any such actions and grant any such security interests in accordance with the Collateral Documents and the Intercreditor Agreement. SECTION 10.12. Restrictions on Amendments to Collateral Documents. Neither the Company nor any Subsidiary of the Company is permitted to amend, waive or otherwise modify, or permit or consent to any amendment, waiver or other modification of the Collateral Documents in any way that would be adverse to the Holders of the Securities, except for any such amendment, waiver or modification entered into in accordance with the terms of the Intercreditor 67 Agreement or the applicable Collateral Document, as the case may be, that are in effect on the Closing Date. SECTION 10.13. Future Subsidiary Guarantors. The Company shall cause each Person that either (a) becomes a domestic Subsidiary following the Closing Date or (b) otherwise becomes a Subsidiary Guarantor with respect to any of the Secured Obligations, in each case, to execute and deliver a supplement to the Second Priority Subsidiary Guarantee Agreement and the applicable Second Priority Collateral Documents at the time such Person becomes a Subsidiary or Subsidiary Guarantor, as the case may be. SECTION 10.14. Application of Collateral Proceeds. (a) At any time when the Company or any Subsidiary Guarantor receives proceeds from a Senior Collateral Disposition (the "Collateral Proceeds"), the Collateral Proceeds shall be applied in accordance with Section 4.05 of the Intercreditor Agreement so that after giving effect to any required prepayment of the Senior Obligations, the Synthetic Lease Obligations and the Additional Senior Second Priority Obligations, if any, in connection with such Senior Collateral Disposition in accordance with Section 4.05 of the Intercreditor Agreement, a pro rata portion of such Collateral Proceeds will be allocated to repurchase the Securities based on the outstanding principal amount of the Second Priority Debt Obligations required to be prepaid with such proceeds, such amount to be measured on the date of such Senior Collateral Disposition; provided, however, that in the event any such Senior Collateral Disposition occurs following the occurrence of a Triggering Event, whether the Holders shall be entitled to prepayment shall be determined in accordance with the terms of the Second Priority Collateral Documents and the Intercreditor Agreement. (b) Any Collateral Proceeds that are available to repurchase the Securities (the "Securities Collateral Proceeds") will be deposited into an account held by the Trustee (the "Securities Collateral Account"). When the aggregate amount of Securities Collateral Proceeds in the Securities Collateral Account exceeds $10,000,000 (taking into account income earned on such Securities Collateral Proceeds, if any), the Company shall make an offer to purchase (the "Prepayment Offer") the Securities, which offer shall be in the amount of the Securities Collateral Proceeds, on a pro rata basis according to principal amount at maturity, at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), in accordance with the procedures (including prorating in the event of oversubscription) set forth herein. To the extent that any portion of the amount of Securities Collateral Proceeds remains after compliance with the preceding sentence and provided that all Holders have been given the opportunity to tender their Securities for purchase in accordance with this Indenture, the Company may use such excess only to repurchase Securities in open market transactions, and otherwise such excess must remain deposited in an account, for the sole benefit of the Securities, which is controlled by the Trustee. The Securities will be secured by a first priority security interest in such account. Following the completion of a 68 Prepayment Offer, the amount of Securities Collateral Proceeds will be reset to zero. (c) (1) Within five Business Days after the Company makes a Prepayment Offer in accordance with paragraph (b) above, the Company shall send a written notice, by first-class mail, to the Holders, accompanied by such information regarding the Company and its Subsidiaries as the Company in good faith believes will enable such Holders to make an informed decision with respect to such Prepayment Offer. Such notice shall state, among other things, the purchase price and the purchase date (the "Purchase Date"), which shall be, subject to any contrary requirements of applicable law, a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed. (2) Not later than the date upon which written notice of a Prepayment Offer is delivered to the Trustee as provided above, the Company shall deliver to the Trustee written instructions as to (i) the amount of the Prepayment Offer (the "Offer Amount") and (ii) the allocation of the Collateral Proceeds from the Senior Collateral Disposition, pursuant to which such Prepayment Offer is being made. On or before the Purchase Date, the Company shall also irrevocably deposit with the Trustee or with the Paying Agent (or, if the Company is the Paying Agent, shall segregate and hold in trust) in U.S. Government Obligations, maturing on the last day prior to the Purchase Date or on the Purchase Date if funds are immediately available by open of business, an amount equal to the Offer Amount to be held for payment in accordance with the provisions of this Section. Upon the expiration of the period for which the Prepayment Offer remains open (the "Offer Period"), the Company shall deliver to the Trustee for cancellation the Securities or portions thereof that have been properly tendered to and are to be accepted by the Company. The Trustee or the Paying Agent shall, on the Purchase Date, mail or deliver payment to each tendering Holder in the amount of the purchase price. In the event that the aggregate purchase price of the Securities delivered by the Company to the Trustee is less than the Offer Amount, the Trustee or the Paying Agent shall deliver the excess to the Company immediately after the expiration of the Offer Period for application in accordance with this Section. (3) Holders electing to have a Security purchased pursuant to the Prepayment Offer shall be required to surrender the Security, with an appropriate form duly completed, to the Company or its agent at the address specified in the notice at least five Business Days prior to the Purchase Date. Holders shall be entitled to withdraw their election if the Trustee or the Company receives not later than three Business Days prior to the Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security that was delivered for purchase by the Holder and a statement that such Holder is withdrawing its election to have such Security purchased. If at the expiration of the Offer Period the aggregate principal amount of Securities surrendered by Holders exceeds the Offer Amount, the Company shall select the Securities to be purchased on pro rata basis for all Securities (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased). Holders whose Securities are 69 purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (4) At the time the Company delivers Securities to the Trustee that are to be accepted for purchase, the Company shall also deliver an Officers' Certificate stating that such Securities are to be accepted by the Company pursuant to and in accordance with the terms of this Section. A Security shall be deemed to have been accepted for purchase at the time the Trustee or the Paying Agent mails or delivers payment therefor to the surrendering Holder. (d) The Company will comply, to the extent applicable, with the requirements of Section 14 (e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of the Securities pursuant to any Prepayment Offer conducted in accordance with this Section 10.14. To the extent that the provisions of any securities laws or regulations conflict with the procedures with respect to a Prepayment Offer as set forth herein, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the covenant described hereunder by virtue thereof. SECTION 10.15. Restrictions on Permitting Unrestricted Subsidiaries To Become Restricted Subsidiaries. (a) The Company will not permit any Unrestricted Subsidiary to be designated as a Restricted Subsidiary unless such Subsidiary has outstanding no Secured Debt, Funded Debt and/or Attributable Debt in respect of Sale and Leaseback Transactions except such Secured Debt, Funded Debt and Attributable Debt as the Company could permit it to become liable for immediately after becoming a Restricted Subsidiary under the provisions of Sections 10.08, 10.09 and 10.10 of this Indenture. (b) Promptly after the adoption of any Board Resolution designating a Restricted Subsidiary as an Unrestricted Subsidiary or an Unrestricted Subsidiary as a Restricted Subsidiary, a copy thereof shall be filed with the Trustee, together, in the case of the designation of an Unrestricted Subsidiary as a Restricted Subsidiary, with an Officers' Certificate stating that the provisions of this Section have been complied with in connection with such designation. SECTION 10.16. Statement by Officers as to Default. Reference is made to Section 314(a)(4) of the Trust Indenture Act. 70 SECTION 10.17. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition set forth in Sections 10.07 to 10.14, if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities affected thereby (voting as a class) shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect. ARTICLE XI Redemption of Securities SECTION 11.01. Right of Redemption. Securities are redeemable before their maturity only pursuant to the terms of this Indenture and the Securities or the provisions of applicable law. If less than all the Securities are to be redeemed, the Trustee shall select, in such manner as it shall deem fair and appropriate, the particular Securities to be redeemed or any portion thereof that is an integral multiple of $1,000. The Securities will not have the benefit of any sinking fund. SECTION 11.02. Election To Redeem; Notice To Trustee. The election of the Company to redeem any Securities pursuant to Section 11.01 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 90 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed. SECTION 11.03. Selection by Trustee of Securities To Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 90 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of Securities of a denomination larger than $1,000. The Trustee shall promptly notify the Company and each Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. 71 SECTION 11.04. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 90 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price (or formula for calculating the same), (3) if less than all the Outstanding Securities are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and that interest thereon will cease to accrue on and after said date, (5) the place or places where such Securities are to be surrendered for payment of the Redemption Price, and (6) CUSIP numbers of the Securities to be redeemed (if any). Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 11.05. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. SECTION 11.06. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price plus accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Securities for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.07. 72 If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate provided by the Security. SECTION 11.07. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 10.02 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. ARTICLE XII Defeasance and Covenant Defeasance SECTION 12.01. Company's Option To Effect Defeasance or Covenant Defeasance. The Company may at its option by Board Resolution, at any time, in accordance with the Exchange and Registration Rights Agreement, elect to have either Section 12.02 or Section 12.03 applied to the Outstanding Securities upon compliance with the conditions set forth below in this Article XII. SECTION 12.02. Defeasance and Discharge. Upon the Company's exercise of the option provided in Section 12.01 applicable to this Section, the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "defeasance") If the Company exercises its defeasance option or its covenant defeasance option, each Subsidiary Guarantor, if any, shall be released from all its obligations under (i) the Subsidiary Guarantee Agreement and the Second Priority Collateral Documents, and (ii) the Second Priority Lien and the Second Priority Mortgages, as they pertain to the Securities, shall be released. For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same) except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of such Securities to receive, solely from the trust fund described in Section 12.04 and as more fully set forth in such Section, payments in respect of the principal of (and premium, if any) and interest on such Securities when such payments are due, (B) the Company's obligations with respect to such Securities under Sections 3.04, 3.05, 3.06, 10.02 and 10.03, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article XII. Subject to compliance with this Article XII, the Company may exercise its option under this Section 12.02 notwithstanding the prior exercise of its option under Section 12.03. 73 SECTION 12.03. Covenant Defeasance. Upon the Company's exercise of the option provided in Section 12.01 applicable to this Section, (i) the Company and each Subsidiary Guarantor shall be released from their respective obligations under Sections 10.05 through 10.14, inclusive, and clauses (3) and (4) of Sections 8.01(a) and (b), (ii) the occurrence of an event specified in Sections 5.01(3) (with respect to clause (1), (3) or (4) of Sections 8.01(a) and (b)), 5.01(4) (with respect to any of Sections 10.05 through 10.14, inclusive), 5.01(5), 5.01(6), 5.01(9) and 5.01(10) shall not be deemed to be an Event of Default shall cease to be effective on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"). For this purpose, such covenant defeasance means that the Company or the Subsidiary Guarantors, as the case may be, may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section, clause or Article, whether directly or indirectly by reason of any reference elsewhere herein to any such Section, clause or Article or by reason of any reference in any such Section, clause or Article to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby. SECTION 12.04. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 12.02 or Section 12.03 to the then Outstanding Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.09 who shall agree to comply with the provisions of this Article XII applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of, premium, if any, and each installment of interest on the Securities on the Stated Maturity of such principal or installment of interest in accordance with the terms of this Indenture and of such Securities. (2) In the case of an election under Section 12.02, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities will not recognize gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same 74 amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred. (3) In the case of an election under Section 12.03, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities will not recognize gain or loss for Federal income tax purposes as a result of such deposit and covenant defeasance and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and covenant defeasance had not occurred. (4) The Company shall have delivered to the Trustee an Officers' Certificate to the effect that the Securities, if then listed on any securities exchange, will not be delisted as a result of such deposit. (5) Such defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest as defined in Section 6.08 and for purposes of the Trust Indenture Act with respect to any securities of the Company. (6) No Event of Default or event which with notice or lapse of time or both would become an Event of Default shall have occurred and be continuing. (7) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. (8) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 12.02 or the covenant defeasance under Section 12.03 (as the case may be) have been complied with. (9) Such defeasance or covenant defeasance shall not result in the trust arising from such deposit constituting an investment company as defined in the Investment Company Act of 1940, as amended, or such trust shall be qualified under such act or exempt from regulation thereunder. SECTION 12.05. Deposited Money and U.S. Government Obligations To Be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 10.03, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee -- collectively, for purposes of this Section 12.05, the "Trustee") pursuant to Section 12.04 in respect of the Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. 75 The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 12.04 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities. Anything in this Article XII to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 12.04 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance. SECTION 12.06. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 12.02 or 12.03 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article XII until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 12.02 or 12.03; provided, however, that if the Company makes any payment of principal of (and premium, if any) or interest on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Security to receive such payment from the money held by the Trustee or the Paying Agent. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 76 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. RITE AID CORPORATION, By:______________________________ Name: Elliot Gerson Title: Authorized Signatory THRIFTY PAYLESS, INC., as a Subsidiary Guarantor, By:______________________________ Name: Elliot Gerson Title: Authorized Signatory EACH OF THE SUBSIDIARY GUARANTORS LISTED ON SCHEDULE A HERETO, By:______________________________ Name: Elliot Gerson Title: Authorized Signatory STATE STREET BANK AND TRUST COMPANY, as Trustee By:______________________________ Name: Mark A. Forgetta Title: Vice President SCHEDULE A 112 Burleigh Avenue Norfolk, LLC 1515 West State Street Boise, Idaho, LLC 1525 Cortyou Road-Brooklyn Inc. 1740 Associates, LLC 3581 Carter Hill Road-Montgomery Corp. 4042 Warrensville Center Road-Warrensville Ohio, Inc. 5277 Associates, Inc. 537 Elm Street Corporation 5600 Superior Properties, Inc. 657-659 Broadway St. Corp. 764 South Broadway-Geneva, Ohio, LLC Ann & Government Streets-Mobile, Alabama, LLC Apex Drug Stores, Inc. Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC Broadview and Wallings-Broadview Heights Ohio, Inc. Central Avenue and Main Street-Petal, MS, LLC Dominion Action Four Corporation Dominion Action One Corporation Dominion Action Three Corporation Dominion Action Two Corporation Dominion Drug Stores Corporation Drug Fair of PA, Inc. Drug Fair, Inc. Eagle Managed Care Corp. Eighth and Water Streets-Ulrichsville, Ohio, LLC England Street-Asheland Corporation GDF, Inc. Gettysburg and Hoover-Dayton, Ohio, LLC Gratiot & Center-Saginaw Township, Michigan, LLC Harco, Inc. Jaime Nathan Travis Corporation K&B Alabama Corporation K&B Florida Corporation K&B Louisiana Corporation K&B Mississippi Corporation K&B Services, Inc. K&B Tennessee Corporation K&B Texas Corporation K&B Trainees, Inc. K&B, Incorporated Katz & Besthoff, Inc. Keystone Centers, Inc. Lakehurst and Broadway Corporation Mayfield & Chillicothe Roads-Chesterland, LLC Munson & Andrews LLC Name Rite, LLC Northline & Dix-Toledo-Southgate, LLC Ocean Acquisition Corporation P.L.D. Enterprises, Inc. Patton Drive and Navy Boulevard Property Corporation Paw Paw Lake Road & Paw Paw Avenue-Coloma, Michigan, LLC PDS-1 Michigan, Inc. Perry Distributors, Inc. Perry Drug Stores, Inc. PL Xpress, Inc. Portfolio Medical Services, Inc. Rack Rite Distributors, Inc. Ram-Utica, Inc. RDS Detroit, Inc. Reads, Inc. Rite Aid Drug Palace, Inc. Rite Aid Hdqtrs. Corp. Rite Aid of Alabama, Inc. Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Florida, Inc. Rite Aid of Georgia, Inc. Rite Aid of Illinois, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Massachusetts, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of North Carolina, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. Rite Aid of South Carolina, Inc. Rite Aid of Tennessee, Inc. Rite Aid of Vermont, Inc. Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Rite Aid Realty Corp. Rite Aid Rome Distribution Center, Inc. Rite Aid Transport, Inc. 2 Rite Aid Venturer #1, Inc. Rite Fund, Inc. Rite Investments Corporation RX Choice, Inc. Script South Seven Mile and Evergreen-Detroit, LLC Silver Springs Road-Baltimore, Maryland/One, LLC Silver Springs Road-Baltimore, Maryland/Two, LLC Sophie One Corp. State & Fortification Streets-Jackson, Mississippi, LLC State Street and Hill Road-Gerard, Ohio, LLC Super Distributors, Inc. Super Ice Cream Suppliers, Inc. Super Laboratories, Inc. Super Pharmacy Network, Inc. Super Tobacco Distributors, Inc The Lane Drug Company The Muir Company Thrifty Corporation Thrifty Payless, Inc Thrifty Wilshire, Inc. Tyler and Sanders Roads, Birmingham- Alabama, LLC Virginia Corporation W.R.A.C., Inc. Fairground, LLC Laverdiere's Enterprises, Inc. Leader Drugs, Inc. 3 EX-4 5 exh4-8.txt EXHIBIT 4.8 EXECUTION COPY RITE AID CORPORATION 11 1/4% Senior Notes due 2008 ------------------------------- INDENTURE Dated as of June 27, 2001 ------------------------------- BNY Midwest Trust Company, Trustee 2 TABLE OF CONTENTS Page ---- ARTICLE I Definitions and Incorporation by Reference SECTION 1.01. Definitions....................................................1 SECTION 1.02. Other Definitions.............................................35 SECTION 1.03. Incorporation by Reference of Trust Indenture Act........................................36 SECTION 1.04. Rules of Construction.........................................36 ARTICLE II The Securities SECTION 2.01. Amount of Securities; Issuable in Series.......................................................................37 SECTION 2.02. Form and Dating...............................................38 SECTION 2.03. Execution and Authentication..................................39 SECTION 2.04. Registrar and Paying Agent....................................40 SECTION 2.05. Paying Agent To Hold Money in Trust......................................................40 SECTION 2.06. Securityholder Lists..........................................41 SECTION 2.07. Replacement Securities........................................41 SECTION 2.08. Outstanding Securities........................................41 SECTION 2.09. Temporary Securities..........................................42 SECTION 2.10. Cancellation..................................................42 SECTION 2.11. Defaulted Interest............................................42 SECTION 2.12. CUSIP Numbers.................................................42 ARTICLE III Redemption SECTION 3.01. Notices to Trustee............................................43 SECTION 3.02. Selection of Securities To Be Redeemed......................................................43 SECTION 3.03. Notice of Redemption..........................................43 SECTION 3.04. Effect of Notice of Redemption................................44 SECTION 3.05. Deposit of Redemption Price...................................44 SECTION 3.06. Securities Redeemed in Part...................................45 3 ARTICLE IV Covenants SECTION 4.01. Payment of Securities.........................................45 SECTION 4.02. SEC Reports...................................................45 SECTION 4.03. Limitation on Debt............................................46 SECTION 4.04. Limitation on Restricted Payments.............................50 SECTION 4.05. Limitation on Liens...........................................54 SECTION 4.06. Limitation on Asset Sales.....................................54 SECTION 4.07. Limitation on Restrictions on Distributions from Restricted Subsidiaries..................................................58 SECTION 4.08. Limitation on Transactions with Affiliates....................................................60 SECTION 4.09. Limitation on Guarantees by Restricted Subsidiaries.......................................62 SECTION 4.10. Limitation on Sale and Leaseback Transactions..................................................63 SECTION 4.11. Designation of Restricted and Unrestricted Subsidiaries.....................................64 SECTION 4.12. Change of Control.............................................65 SECTION 4.13. Further Instruments and Acts..................................67 ARTICLE V Successor Company SECTION 5.01. (a) When Company May Merge or Transfer Assets...............................................67 ARTICLE VI Defaults and Remedies SECTION 6.01. Events of Default.............................................69 SECTION 6.02. Acceleration..................................................71 SECTION 6.03. Other Remedies................................................72 SECTION 6.04. Waiver of Past Defaults.......................................72 SECTION 6.05. Control by Majority...........................................72 SECTION 6.06. Limitation on Suits...........................................73 SECTION 6.07. Rights of Holders to Receive Payment.......................................................73 SECTION 6.08. Collection Suit by Trustee....................................73 SECTION 6.09. Trustee May File Proofs of Claim..............................73 SECTION 6.10. Priorities....................................................74 SECTION 6.11. Undertaking for Costs.........................................74 SECTION 6.12. Waiver of Stay or Extension Laws..........................................................75 4 ARTICLE VII Trustee SECTION 7.01. Duties of Trustee.............................................75 SECTION 7.02. Rights of Trustee.............................................76 SECTION 7.03. Individual Rights of Trustee..................................77 SECTION 7.04. Trustee's Disclaimer..........................................77 SECTION 7.05. Notice of Defaults............................................78 SECTION 7.06. Reports by Trustee to Holders.................................78 SECTION 7.07. Compensation and Indemnity....................................78 SECTION 7.08. Replacement of Trustee........................................79 SECTION 7.09. Successor Trustee by Merger...................................80 SECTION 7.10. Eligibility; Disqualification.................................80 SECTION 7.11. Preferential Collection of Claims Against Company...............................................81 ARTICLE VIII Discharge of Indenture; Defeasance SECTION 8.01. Discharge of Liability on Securities; Defeasance........................................81 SECTION 8.02. Conditions to Defeasance......................................82 SECTION 8.03. Application of Trust Money....................................84 SECTION 8.04. Repayment to Company..........................................84 SECTION 8.05. Indemnity for Government Obligations...................................................84 SECTION 8.06. Reinstatement.................................................84 ARTICLE IX Amendments SECTION 9.01. Without Consent of Holders....................................85 SECTION 9.02. With Consent of Holders.......................................85 SECTION 9.03. Compliance with Trust Indenture Act...........................................................87 SECTION 9.04. Revocation and Effect of Consents and Waivers...................................................87 SECTION 9.05. Notation on or Exchange of Securities....................................................87 SECTION 9.06. Trustee To Sign Amendments....................................88 SECTION 9.07. Payment for Consent...........................................88 5 ARTICLE X Miscellaneous SECTION 10.01. Trust Indenture Act Controls.................................88 SECTION 10.02. Notices......................................................88 SECTION 10.03. Communication by Holders with Other Holders................................................89 SECTION 10.04. Certificate and Opinion as to Conditions Precedent.........................................89 SECTION 10.05. Statements Required in Certificate or Opinion...................................................90 SECTION 10.06. When Securities Disregarded..................................90 SECTION 10.07. Rules by Trustee, Paying Agent and Registrar................................................91 SECTION 10.08. Legal Holidays...............................................91 SECTION 10.09. Governing Law................................................91 SECTION 10.10. No Recourse Against Others...................................91 SECTION 10.11. Successors...................................................91 SECTION 10.12. Multiple Originals...........................................91 SECTION 10.13. Table of Contents; Headings..................................91 6 Appendix A - Provisions Relating to Initial Securities and Exchange Securities Exhibit 1 to Appendix A - Form of Initial Security Exhibit A - Form of Exchange Security Exhibit B - Form of Transferee Letter of Representation CROSS-REFERENCE TABLE TIA Indenture Section Section - ------- ------- 310 (a)(1)...............................................................7.10 (a)(2)...............................................................7.10 (a)(3)...............................................................N.A. (a)(4)...............................................................N.A. (b) ..............................................................7.08; 7.10 (c) ...............................................................N.A. 311 (a) ...............................................................7.11 (b) ...............................................................7.11 (c) ...............................................................N.A. 312 (a) ...............................................................2.06 (b) ..............................................................10.03 (c) ..............................................................10.03 313 (a) ...............................................................7.06 (b)(1)...............................................................N.A. (b)(2)...............................................................7.06 (c) ..............................................................7.06; 10.02 (d) ...............................................................7.06 314 (a) ..............................................................4.02; 4.10; 10.02 (b) ...............................................................N.A. (c)(1)..............................................................10.04 (c)(2)............................................................. 10.04 (c)(3)...............................................................N.A. (d) ...............................................................N.A. (e) ..............................................................10.05 (f) ...............................................................4.10 315 (a) ...............................................................7.01 (b) ..............................................................7.05; 10.02 (c) ...............................................................7.01 (d) ...............................................................7.01 (e) ...............................................................6.11 316 (a) (last sentence) ....................................................10.06 (a)(1)(A)............................................................6.05 (a)(1)(B)............................................................6.04 (a)(2)...............................................................N.A. (b) ...............................................................6.07 317 (a)(1)...............................................................6.08 (a)(2)...............................................................6.09 (b) ...............................................................2.05 318 (a) ...............................................................10.01 N.A. Means Not Applicable. Note: This Cross-Reference Table shall not, for any purposes, be deemed to be part of this Indenture. INDENTURE dated as of June 27, 2001, RITE AID CORPORATION, a Delaware corporation (the "Company") and BNY MIDWEST TRUST COMPANY, an Illinois trust company, as Trustee (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 11 1/4% Senior Notes due 2008, to be issued, from time to time, in one or more series as provided in this Indenture (the "Initial Securities") and, if and when issued pursuant to a registered or private exchange for the Initial Securities, the Company's 11 1/4% Senior Notes due 2008 (the "Exchange Securities" and, together with the Initial Securities, the "Securities"): ARTICLE I Definitions and Incorporation by Reference SECTION 1.01. Definitions. "Additional Assets" means: (a) any Property (other than cash, cash equivalents and securities) to be owned by the Company or any Restricted Subsidiary and used in a Related Business; or (b) Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary from any Person other than the Company or an Affiliate of the Company; provided, however, that, in the case of clause (b), such Restricted Subsidiary is primarily engaged in a Related Business. "Affiliate" of any specified Person means: (a) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; or (b) any other Person who is a director or executive officer of: (1) such specified Person; 2 (2) any Subsidiary of such specified Person; or (3) any Person described in clause (a) above. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Annualized EBITDA" and "Annualized Interest Expense" means, as of any date of determination: (a) if the most recent fiscal quarter for which financial statements have been filed with the SEC is the Company's fourth fiscal quarter of 2001, the product of EBITDA or Consolidated Interest Expense, as the case may be, for that fiscal quarter multiplied by four; (b) if the most recent fiscal quarter for which financial statements have been filed with the SEC is the Company's first fiscal quarter of 2002, the product of the aggregate amount of EBITDA or Consolidated Interest Expense, as the case may be, for the most recent two consecutive quarters multiplied by two; (c) if the most recent fiscal quarter for which financial statements have been filed with the SEC is the Company's second fiscal quarter of 2002, the product of the aggregate amount of EBITDA or Consolidated Interest Expense, as the case may be, for the most recent three consecutive fiscal quarters multiplied by 4/3; and (d) if the most recent fiscal quarter for which financial statements have been filed with the SEC is any subsequent fiscal quarter of the Company, the aggregate amount of EBITDA or Consolidated Interest Expense, as the case may be, for the most recent four consecutive fiscal quarters ending on the last day of the most recent fiscal quarter for which financial statements have been filed with the SEC. "Asset Sale" means any sale, lease, transfer, issuance or other disposition (or series of related sales, leases, transfers, issuances or dispositions) by the Company or any Restricted Subsidiary, including any disposition by 3 means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of: (a) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares); or (b) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary, in the case of either clause (a) or clause (b) above, whether in a single transaction or a series of related transactions, (i) that have a Fair Market Value in excess of $10 million or (ii) for aggregate consideration in excess of $10 million, other than, in the case of clause (a) or (b) above: (1) any disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Restricted Subsidiary; (2) any disposition that constitutes a Permitted Investment or Restricted Payment permitted by Section 4.04; (3) any disposition effected in compliance with Section 5.01(a); (4) a sale of accounts receivable and related assets of the type specified in the definition of "Qualified Receivables Transaction" to a Receivables Entity; (5) a transfer of accounts receivable and related assets of the type specified in the definition of "Qualified Receivables Transaction" (or a fractional undivided interest therein) by a Receivables Entity in connection with a Qualified Receivables Transaction; or (6) a sale by the Company or a Restricted Subsidiary of Property by way of a Sale and Leaseback Transaction but only if (A) such Property was owned by the Company or a Restricted Subsidiary on the Issue Date, (B) the requirements of Section 4.11 are satisfied with respect to such Sale and Leaseback Transaction, (C) the requirements of Section 4.06(a), (b) and (c) are 4 satisfied as though such Sale and Leaseback Transaction constituted an Asset Sale and (D) the aggregate Fair Market Value of such Property, when added to the Fair Market Value of all other sales of Property pursuant to this clause (6) since the Issue Date, does not exceed $150 million. "Attributable Debt" in respect of a Sale and Leaseback Transaction or Synthetic Lease means, at any date of determination: (a) if such Sale and Leaseback Transaction is a Capital Lease Obligation, the amount of Debt represented thereby according to the definition of "Capital Lease Obligation," and (b) in all other instances, the greater of: (1) the Fair Market Value of the Property subject to such Sale and Leaseback Transaction or Synthetic Lease; and (2) the present value (discounted at the interest rate borne by the Securities, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction or such Synthetic Lease (in each case including any period for which such lease has been extended). "Average Life" means, as of any date of determination, with respect to any Debt or Preferred Stock, the quotient obtained by dividing: (a) the sum of the product of the numbers of years (rounded to the nearest one-twelfth of one year) from the date of determination to the dates of each successive scheduled principal payment of such Debt or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (b) the sum of all such payments. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly constituted and duly authorized to act on behalf of such Board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the 5 Company to have been duly adopted by the Board of Directors or a duly authorized committee therof and to be in full force and effect on the date of such certification. "Business Day" means each day that is not a Legal Holiday. "Capital Lease Obligations" means any obligation under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP; and the amount of Debt represented by such obligation shall be the capitalized amount of such obligations determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. For purposes of Section 4.05, a Capital Lease Obligation shall be deemed secured by a Lien on the Property being leased. "Capital Stock" means, with respect to any Person, any shares or other equivalents (however designated) of any class of corporate stock or partnership interests or any other participations, rights, warrants, options or other interests in the nature of an equity interest in such Person, including Preferred Stock, but excluding any debt security convertible or exchangeable into such equity interest. "Capital Stock Sale Proceeds" means the aggregate cash proceeds received by the Company from the issuance or sale (other than to a Subsidiary of the Company or an employee stock ownership plan or trust established by the Company or any such Subsidiary for the benefit of their employees) by the Company of its Capital Stock (other than Disqualified Stock) after the Issue Date (and excluding any issuance or sale as part of the Refinancing Transactions), net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Change of Control" means the occurrence of any of the following events: (a) if any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act or any successor provisions to either of the foregoing), including any group acting for the purpose of acquiring, holding, voting or disposing of securities 6 within the meaning of Rule 13d-5(b)(1) under the Exchange Act (other than one or more Permitted Holders), becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 40% or more of the total voting power of the Voting Stock of the Company (for purposes of this clause (a), such person or group shall be deemed to beneficially own any Voting Stock of a corporation held by any other corporation (the "parent corporation") so long as such person or group beneficially owns, directly or indirectly, in the aggregate a majority of the total voting power of the Voting Stock of such parent corporation); or (b) the sale, transfer, assignment, lease, conveyance or other disposition, directly or indirectly, of all or substantially all the assets of the Company and the Restricted Subsidiaries, considered as a whole (other than a disposition of such assets as an entirety or virtually as an entirety to a Wholly Owned Restricted Subsidiary) shall have occurred, or the Company merges, consolidates or amalgamates with or into any other Person or any other Person merges, consolidates or amalgamates with or into the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is reclassified into or exchanged for cash, securities or other Property, other than any such transaction where: (1) the outstanding Voting Stock of the Company is reclassified into or exchanged for other Voting Stock of the Company or for Voting Stock of the surviving corporation; and (2) the holders of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than a majority of the Voting Stock of the Company or the surviving corporation immediately after such transaction and in substantially the same proportion as before the transaction; or (c) during any period of two consecutive years commencing after June 30, 2001, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election or appointment by such Board or whose nomination for election by the shareholders of the Company was approved by a vote of not less than three-fourths of the directors then still in office who were either directors at the beginning of such period or 7 whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (d) the shareholders of the Company shall have approved any plan of liquidation or dissolution of the Company. "Class A Cumulative Preferred Stock" means Rite Aid Lease Management Company's Preferred Stock, par value $100.00 per share, designated as Class A Cumulative. "Class C Cumulative Preferred Stock" means the Rite Aid Risk Management Corp.'s Preferred Stock, par value $1.00 per share, designated as Class C Cumulative Participating Voting. "Class D Cumulative Preferred Stock" means the Rite Aid Risk Management Corp.'s Preferred Stock, par value $100.00 per share, designated as Class D Cumulative Participating Voting. "Code" means the Internal Revenue Code of 1986, as amended. "Commodity Price Protection Agreement" means, in respect of a Person, any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in commodity prices. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to the applicable provisions hereof and, thereafter, means the successor and, for purposes of any provision contained herein and expressly required by the TIA, each other obligor on the indenture securities. "Consolidated Interest Coverage Ratio" means, as of any date of determination, the ratio of: (a) Annualized EBITDA; to (b) Annualized Interest Expense; 8 provided, however, that: (1) if (A) since the beginning of the period used to calculate Annualized EBITDA and Annualized Interest Expense the Company or any Restricted Subsidiary has Incurred any Debt that remains outstanding or Repaid any Debt; or (B) the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio is an Incurrence or Repayment of Debt, Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Incurrence or Repayment as if such Debt was Incurred or Repaid on the first day of such period, provided that, in the event of any such Repayment of Debt, EBITDA for such period shall be calculated as if the Company or such Restricted Subsidiary had not earned any interest income actually earned during such period in respect of the funds used to Repay such Debt, and (2) if (A) since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Sale or an Investment (by merger or otherwise) in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of Property which constitutes all or substantially all of an operating unit of a business; (B) the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio is such an Asset Sale, Investment or acquisition; or (C) since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made such an Asset Sale, Investment or acquisition, 9 EBITDA for such period shall be calculated after giving pro forma effect to such Asset Sale, Investment or acquisition as if such Asset Sale, Investment or acquisition occurred on the first day of such period. If any Debt bears a floating rate of interest and is being given pro forma effect, the interest expense on such Debt shall be calculated as if the base interest rate in effect for such floating rate of interest on the date of determination had been the applicable base interest rate for the entire period (taking into account any Interest Rate Agreement applicable to such Debt if such Interest Rate Agreement has a remaining term in excess of 12 months). In the event the Capital Stock of any Restricted Subsidiary is sold during the period, the Company shall be deemed, for purposes of clause (1) above, to have Repaid during such period the Debt of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Debt after such sale. "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries (excluding the non-cash interest expense related to (x) litigation reserves, (y) closed store liability reserves and (z) self-insurance reserves), plus, to the extent not included in such total interest expense, and to the extent Incurred by the Company or its Restricted Subsidiaries, and without duplication: (a) interest expense attributable to Capital Lease Obligations; (b) amortization of debt discount and debt issuance cost, including commitment fees; (c) capitalized interest; (d) non-cash interest expense other than expenses under clauses (x), (y) and (z) above; (e) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; (f) net costs associated with Hedging Obligations (including amortization of fees but excluding costs associated with forward contracts for inventory in the ordinary course of business); (g) Disqualified Stock Dividends; 10 (h) Preferred Stock Dividends; (i) interest Incurred in connection with Investments in discontinued operations; (j) interest accruing on any Debt of any other Person to the extent such Debt is Guaranteed by the Company or any Restricted Subsidiary; and (k) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Debt Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income (loss) of the Company and its consolidated Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income: (a) any net income (loss) of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that: (1) subject to the exclusion contained in clause (d) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (c) below); and (2) the Company's equity in a net loss of any such Person other than an Unrestricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (b) for purposes of Section 4.04 only, any net income (loss) of any Person acquired by the Company or any of its consolidated Subsidiaries in a pooling of interests transaction for any period prior to the date of such acquisition; (c) any net income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of 11 dividends or the making of distributions, directly or indirectly, to the Company, except that: (1) subject to the exclusion contained in clause (d) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to another Restricted Subsidiary, to the limitation contained in this clause); and (2) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (d) any gain or loss realized upon the sale or other disposition of any Property of the Company or any of its consolidated Subsidiaries (including pursuant to any Sale and Leaseback Transaction) that is not sold or otherwise disposed of in the ordinary course of business; (e) any extraordinary gain or loss; (f) the cumulative effect of a change in accounting principles; (g) any non-cash compensation expense realized for grants of performance shares, stock options or other rights to officers, directors and employees of the Company or any Restricted Subsidiary, provided that such shares, options or other rights can be redeemed at the option of the holder only for Capital Stock of the Company (other than Disqualified Stock); (h) store closing costs; (i) non-cash charges or credits that relate to use of the last-in-first-out method of accounting for inventory; and (j) loss on debt modifications. Notwithstanding the foregoing, for purposes of Section 4.04 only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other 12 transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted by Section 4.04 pursuant to clause (c)(4) thereof. "Credit Facilities" means, with respect to the Company or any Restricted Subsidiary, one or more debt or commercial paper facilities with banks or other institutional lenders (including the Senior Credit Facilities), providing for revolving credit loans, term loans, receivables or inventory financing (including through the sale of receivables or inventory to such lenders or to special purpose, bankruptcy remote entities formed to borrow from such lenders against such receivables or inventory), Synthetic Leases or trade letters of credit, in each case together with Refinancings thereof on any basis so long as such Refinancing constitutes Debt. "Currency Exchange Protection Agreement" means, in respect of a Person, any foreign exchange contract, currency swap agreement, currency option or other similar agreement or arrangement designed to protect such Person against fluctuations in currency exchange rates. "Debt" means, with respect to any Person on any date of determination (without duplication): (a) the principal of and premium (if any) in respect of: (1) debt of such Person for money borrowed; and (2) debt evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (b) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale and Leaseback Transactions and Synthetic Leases entered into by such Person; (c) all obligations of such Person issued or assumed as the deferred purchase price of Property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); 13 (d) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (a) through (c) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (e) the amount of all obligations of such Person with respect to the Repayment of any Disqualified Stock or, with respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in each case, any accrued dividends); (f) all obligations of the type referred to in clauses (a) through (e) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (g) all obligations of the type referred to in clauses (a) through (f) of other Persons secured by any Lien on any Property of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such Property or the amount of the obligation so secured; and (h) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Debt of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. The amount of Debt represented by a Hedging Obligation shall be equal to: (1) zero if such Hedging Obligation has been Incurred pursuant to clause (g) or (h) of Section 4.03 or 14 (2) the notional amount of such Hedging Obligation if not Incurred pursuant to such clauses. "Debt Issuances" means, with respect to the Company or any Restricted Subsidiary, one or more issuances of Debt evidenced by notes, debentures, bonds or other similar securities or instruments. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Stock" means, with respect to any Person, any Capital Stock that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable, in either case at the option of the holder thereof) or otherwise: (a) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise; (b) is or may become redeemable or repurchaseable at the option of the holder thereof, in whole or in part; or (c) is convertible or exchangeable at the option of the holder thereof for Debt or Disqualified Stock; on or prior to, in the case of clause (a), (b) or (c), the first anniversary of the Stated Maturity of the Securities. "Disqualified Stock Dividends" means all dividends with respect to Disqualified Stock of the Company held by Persons other than a Wholly Owned Restricted Subsidiary. The amount of any such dividend shall be equal to the quotient of such dividend divided by the difference between one and the maximum statutory federal income tax rate (expressed as a decimal number between 1 and 0) then applicable to the Company. "EBITDA" means, for any period, an amount equal to, for the Company and its consolidated Restricted Subsidiaries: (a) the sum of Consolidated Net Income for such period, plus the following to the extent reducing Consolidated Net Income for such period: (1) the provision for taxes based on income or profits or utilized in computing net loss; 15 (2) Consolidated Interest Expense and non-cash interest expense related to litigation reserves, closed store liability reserves and self-insurance reserves, to the extent excluded from Consolidated Interest Expense; (3) depreciation; (4) amortization of intangibles; (5) non-cash impairment charges; (6) non-cash losses relating to the Investment in drugstore.com resulting from accounting for drugstore.com on the equity method of accounting, except to the extent such losses relate to Investments made after the Issue Date; (7) charges relating to the investigations of the Company pending on the Issue Date by the United States Attorney and by the U.S. Department of Labor and amounts paid in satisfaction of any judgment, fine or settlement resulting therefrom; and (8) any other non-cash items (other than any such non-cash item to the extent that it represents an accrual of or reserve for cash expenditures in any future period), minus (b) all non-cash items increasing Consolidated Net Income for such period (other than any such non-cash item to the extent that it will result in the receipt of cash payments in any future period). Notwithstanding the foregoing clause (a), the provision for taxes and the depreciation, amortization and non-cash items of a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its shareholders. "Equipment Financing Transaction" means any arrangement (together with any Refinancing thereof) with any 16 Person pursuant to which the Company or any Restricted Subsidiary Incurs Debt secured by a Lien on equipment or equipment related property of the Company or any Restricted Subsidiary. "Equity Offering" means (i) an underwritten offering of common stock of the Company by the Company pursuant to an effective registration statement under the Securities Act or (ii) so long as the Company's common stock is, at the time, listed or quoted on a national securities exchange (as such term is defined in the Securities Exchange Act of 1934), an offering of common stock by the Company in a transaction exempt from or not subject to the registration requirements of the Securities Act. "Event of Default" has the meaning set forth under Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934. "Existing 5.25% Convertible Notes" means the Company's 5.25% Convertible Subordinated Notes Due 2002 issued under the indenture dated as of September 10, 1997 between the Company and Harris Trust and Savings Bank as trustee. "Existing 10.5% Notes" means the Company's 10.50% Senior Secured Notes Due 2002 issued under the indenture dated as of June 14, 2000, among the Company, the subsidiary guarantors named therein and State Street Bank and Trust Company, as trustee, and the Exchange Notes (as defined therein) that may be issued in exchange therefore. "Expansion Capital Expenditure" means any capital expenditure incurred by the Company or any Restricted Subsidiary in developing, relocating, remodeling and refurbishing a warehouse, distribution center, store or other facility (other than ordinary course maintenance) for carrying on the business of the Company and its Restricted Subsidiaries that the Board of Directors determines in good faith will enhance the income generating ability of the warehouse, distribution center, store or other facility. "Fair Market Value" means, with respect to any Property, the price that could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair 17 Market Value shall be determined, except as otherwise provided: (a) if such Property has a Fair Market Value equal to or less than $25 million, by any Officer of the Company; or (b) if such Property has a Fair Market Value in excess of $25 million, by a majority of the Board of Directors and evidenced by a Board Resolution, dated within 30 days of the relevant transaction, delivered to the Trustee. "GAAP" means United States generally accepted accounting principles as in effect on the Issue Date, including those set forth: (a) in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants; (b) in the statements and pronouncements of the Financial Accounting Standards Board; (c) in such other statements by such other entity as approved by a significant segment of the accounting profession; and (d) the rules and regulations of the Commission governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the Commission. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Debt of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person: (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise); or 18 (b) entered into for the purpose of assuring in any other manner the obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include: (1) endorsements for collection or deposit in the ordinary course of business; or (2) a contractual commitment by one Person to invest in another Person for so long as such Investment is reasonably expected to constitute a Permitted Investment under clause (b) of the definition of "Permitted Investment." The term "Guarantee" used as a verb has a corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing any obligation. "Hedging Obligation" of any Person means any obligation of such Person pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement, Commodity Price Protection Agreement or any other similar agreement or arrangement. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Security register described in Section 2.04. "Incur" means, with respect to any Debt or other obligation of any Person, to create, issue, incur (by merger, conversion, exchange or otherwise), extend, assume, Guarantee or become liable in respect of such Debt or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Debt or obligation on the balance sheet of such Person (and "Incurrence" and "Incurred" shall have meanings correlative to the foregoing); provided, however, that a change in GAAP that results in an obligation of such Person that exists at such time, and is not theretofore classified as Debt, becoming Debt shall not be deemed an Incurrence of such Debt; provided further, however, that any Debt or other obligations of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary; and provided further, however, that solely for purposes of determining compliance with Section 4.03, amortization of debt discount shall not be deemed to be the Incurrence of Debt, provided that in the case of Debt sold at a discount, the amount of such Debt 19 Incurred shall at all times be the aggregate principal amount at Stated Maturity. "Indenture" means this Indenture as amended or supplemented from time to time. "Independent Financial Advisor" means an investment banking firm of national standing or any third party appraiser of national standing, provided that such firm or appraiser is not an Affiliate of the Company. "Interest Rate Agreement" means, for any Person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement designed to protect against fluctuations in interest rates. "Investment" by any Person means any direct or indirect loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person), advance or other extension of credit or capital contribution (by means of transfers of cash or other Property to others or payments for Property or services for the account or use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities or evidence of Debt issued by, any other Person. For purposes of Sections 4.04 and 4.10 and the definition of "Restricted Payment," "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary of an amount (if positive) equal to: (a) the Company's "Investment" in such Subsidiary at the time of such redesignation; less (b) the portion (proportionate to the Company's equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation. In determining the amount of any Investment made by transfer of any Property other than cash, such Property shall be valued at its Fair Market Value at the time of such Investment. 20 "Issue Date" means the date on which the Offered Securities are initially issued. "Lien" means, with respect to any Property of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement (other than any easement not materially impairing usefulness or marketability), encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such Property (including any Capital Lease Obligation, conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing or any Sale and Leaseback Transaction). "Moody's" means Moody's Investors Service, Inc. or any successor to the rating agency business thereof. "Net Available Cash" from any Asset Sale means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Debt or other obligations relating to the Property that is the subject of such Asset Sale or received in any other non-cash form), in each case net of: (a) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Sale; (b) all payments made on any Debt that is secured by any Property subject to such Asset Sale, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such Property, or which must by its terms, or in order to obtain a necessary consent to such Asset Sale, or by applicable law, be repaid out of the proceeds from such Asset Sale; (c) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale; and (d) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the Property 21 disposed in such Asset Sale and retained by the Company or any Restricted Subsidiary after such Asset Sale. "New 12.5% Notes" means the Company's 12.5% Senior Secured Notes due 2006 to be issued as part of the Refinancing Transactions in exchange for a portion of the Existing 10.5% Notes, and the exchange notes that may be issued in exchange therefor pursuant to the terms thereof. "Offering Memorandum" means the Company's offering memorandum dated June 20, 2001 in respect of the $150,000,000 11 1/4% Senior Notes due 2008. "Officer" means the Chief Executive Officer, the President, the Chief Financial Officer or any Executive Vice President of the Company. "Officers' Certificate" means a certificate signed by two Officers of the Company, at least one of whom shall be the principal executive officer or principal financial officer of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Permitted Holder" means Leonard Green & Partners L.P. or any of its Affiliates. "Permitted Investment" means any Investment by the Company or a Restricted Subsidiary in: (a) (i) the Company, (ii) any Restricted Subsidiary or (iii) any Person that will, upon the making of such Investment, become a Restricted Subsidiary; (b) any Person if as a result of such Investment such Person is merged or consolidated with or into, or transfers or conveys all or substantially all its Property to, the Company or a Restricted Subsidiary; (c) cash and Temporary Cash Investments; (d) receivables owing to the Company or a Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or such Restricted Subsidiary deems reasonable under the circumstances; 22 (e) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (f) loans and advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary, as the case may be, provided that such loans and advances do not exceed $25 million at any one time outstanding; (g) stock, obligations or other securities received in settlement of debts created in the ordinary course of business and owing to the Company or a Restricted Subsidiary or in satisfaction of judgments; (h) any Person to the extent such Investment represents the non-cash portion of the consideration received in connection with an Asset Sale consummated in compliance with Section 4.06; (i) Hedging Obligations permitted under clause (g), (h) or (i) of Section 4.03; (j) any Person if the Investments are outstanding on the Issue Date and not otherwise described in clauses (a) through (i) above; (k) Investments in Unrestricted Subsidiaries or joint venture entities (including purchasing cooperatives) that do not exceed $10 million outstanding at any one time in the aggregate; (l) other Investments that do not exceed $5 million outstanding at any one time in the aggregate; and (m) Investments in any entity, formed by the Company or a Restricted Subsidiary, organized under Section 501(c)(3) of the Code, that do not exceed an aggregate amount of $5 million in any fiscal year. "Permitted Liens" means: (a) Liens to secure Debt permitted to be Incurred under clause (b),(c),(d) or (l) of Section 4.03; 23 (b) Liens to secure Debt permitted to be Incurred under clause (e), (p), (q) or (r) of Section 4.03; provided that (i) any such Lien may not extend to any Property of the Company or any Restricted Subsidiary, other than the Property acquired, developed, constructed or leased with the proceeds of such Debt and any improvements or additions to such Property; (c) Liens for taxes, assessments or governmental charges or levies on the Property of the Company or any Restricted Subsidiary if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision that shall be required in conformity with GAAP shall have been made therefor; (d) Liens imposed by law, such as carriers', warehousemen's and mechanics' Liens and other similar Liens, on the Property of the Company or any Restricted Subsidiary arising in the ordinary course of business and securing payment of obligations that are not more than 60 days past due or are being contested in good faith and by appropriate proceedings; (e) Liens on the Property of the Company or any Restricted Subsidiary Incurred in the ordinary course of business to secure performance of obligations with respect to statutory or regulatory requirements, performance or return-of-money bonds, surety bonds or other obligations of a like nature and Incurred in a manner consistent with industry practice, in each case which are not Incurred in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of Property and which do not in the aggregate impair in any material respect the use of Property in the operation of the business of the Company and the Restricted Subsidiaries taken as a whole; (f) Liens on Property at the time the Company or any Restricted Subsidiary acquired such Property, including any acquisition by means of a merger or consolidation with or into the Company or any Restricted Subsidiary; provided, however, that any such Lien may not extend to any other Property of the Company or any Restricted Subsidiary; provided further, however, that such Liens shall not have been Incurred in anticipation of or in connection with the transaction or series of transactions pursuant to which such Property was acquired by the Company or any Restricted Subsidiary; 24 (g) Liens on the Property of a Person at the time such Person becomes a Restricted Subsidiary; provided, however, that any such Lien may not extend to any other Property of the Company or any other Restricted Subsidiary that is not a direct Subsidiary of such Person; provided further, however, that any such Lien was not Incurred in anticipation of or in connection with the transaction or series of transactions pursuant to which such Person became a Restricted Subsidiary; (h) pledges or deposits by the Company or any Restricted Subsidiary under workmen's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Debt) or leases to which the Company or any Restricted Subsidiary is party, or deposits to secure public or statutory obligations of the Company or any Restricted Subsidiary, or deposits for the payment of rent, in each case Incurred in the ordinary course of business; (i) utility easements, building restrictions and such other encumbrances or charges against real Property as are of a nature generally existing with respect to properties of a similar character; (j) Liens arising out of judgments or awards against the Company or a Restricted Subsidiary with respect to which the Company or the Restricted Subsidiary shall then be proceeding with an appeal or other proceeding for review and which do not give rise to an Event of Default; (k) leases or subleases of real property granted by the Company or a Restricted Subsidiary to any other Person in the ordinary course of business and not materially impairing the use of the real property in the operation of the business of the Company or the Restricted Subsidiary; (l) Liens existing on the Issue Date not otherwise described in clauses (a) through (k) above; (m) Liens on the Property of the Company or any Restricted Subsidiary to secure any Refinancing, in whole or in part, of any Debt secured by Liens referred to in clause (a) (but only to the extent it relates to clause (d) referred to therein), (b) (other than Liens 25 securing Debt Incurred pursuant to clause (p) or (r) referred to therein), (f), (g), or (l) above; provided, however, that any such Lien shall be limited to all or part of the same Property that secured the original Lien (together with improvements and accessions to such Property) and the aggregate principal amount of Debt that is secured by such Lien shall not be increased to an amount greater than the sum of: (1) the outstanding principal amount, or, if greater, the committed amount, of the Debt secured by Liens described under clause (b) (except as referred to above), (f), (g), or (l) above, as the case may be, at the time the original Lien became a Permitted Lien under the Indenture; and (2) an amount necessary to pay any fees and expenses, including premiums and defeasance costs, incurred by the Company or such Restricted Subsidiary in connection with such Refinancing; and (n) Liens not otherwise permitted by clauses (a) through (m) above encumbering assets that have an aggregate Fair Market Value not in excess of $2 million. "Permitted Refinancing Debt" means any Debt that Refinances any other Debt, including any successive Refinancings, so long as: (a) such Debt is in an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) not in excess of the sum of: (1) the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding of the Debt being Refinanced; and (2) an amount necessary to pay any fees and expenses, including premiums and defeasance costs, related to such Refinancing; (b) the Average Life of such Debt is equal to or greater than the Average Life of the Debt being Refinanced; (c) the Stated Maturity of such Debt is no earlier than the Stated Maturity of the Debt being Refinanced; and 26 (d) the new Debt shall not be senior in right of payment to the Debt that is being Refinanced; provided, however, that Permitted Refinancing Debt shall not include: (x) Debt of a Subsidiary that Refinances Debt of the Company, or (y) Debt of the Company or a Restricted Subsidiary that Refinances Debt of an Unrestricted Subsidiary. "Person" means any individual, corporation, company (including any limited liability company), association, partnership, joint venture, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock" means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of any other class of Capital Stock issued by such Person. "Preferred Stock Dividends" means all dividends with respect to Preferred Stock of Restricted Subsidiaries held by Persons other than the Company or a Wholly Owned Restricted Subsidiary. The amount of any such dividend shall be equal to the quotient of such dividend divided by the difference between one and the maximum statutory federal income rate (expressed as a decimal number between 1 and 0) then applicable to the issuer of such Preferred Stock. "principal" of any Debt (including the Securities) means the principal amount of such Debt plus the premium, if any, on such Debt. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms hereof, a calculation performed in accordance with Article 11 of Regulation S-X promulgated under the Securities Act, as interpreted in good faith by the Board of Directors after consultation with the independent certified public accountants of the Company, or otherwise a calculation made in good faith by the Board of Directors after consultation with the independent certified public accountants of the Company, as the case may be. "Property" means, with respect to any Person, any interest of such Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including Capital Stock in, and other securities of, any 27 other Person. For purposes of any calculation required pursuant to the Indenture, the value of any Property shall be its Fair Market Value. "Purchase Money Debt" means Debt Incurred to finance the acquisition, development, construction or lease by the Company or a Restricted Subsidiary of Property, including additions and improvements thereto, where the maturity of such Debt does not exceed the anticipated useful life of the Property being financed; provided, however, that such Debt is Incurred within 24 months after the acquisition, development construction or lease of such Property by the Company or such Restricted Subsidiary. "Qualified Consideration" means, with respect to any Asset Sale (or any other transaction or series of related transactions required to comply with clause (b) of the first paragraph of Section 4.06), any one or more of (a) cash or cash equivalents, (b) notes or obligations that are converted into cash (to the extent of the cash received) within 90 days of such Asset Sale, (c) equity securities listed on a national securities exchange (as such term is defined in the Securities Exchange Act of 1934) or quoted on the Nasdaq National Market and converted into cash (to the extent of the cash received) within 120 days of such Asset Sale, (d) the assumption by the purchaser of liabilities of the Company or any Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Securities) as a result of which the Company and the Restricted Subsidiaries are no longer obligated with respect to such liabilities, (e) Additional Assets or (f) other Property, provided that the aggregate Fair Market Value of all Property received since the Issue Date by the Company and its Restricted Subsidiaries pursuant to Asset Sales (or such other transactions) that is used to determine Qualified Consideration pursuant to this clause (f) does not exceed $100 million. "Qualified Receivables Transaction" means any transaction or series of transactions that may be entered into by the Company or any of its Subsidiaries pursuant to which the Company or any of its Subsidiaries may sell, convey or otherwise transfer to: (a) a Receivables Entity (in the case of a transfer by the Company or any of its Subsidiaries); and (b) any other Person (in the case of a transfer by a Receivables Entity), 28 or may grant a security interest in, any accounts receivable (whether now existing or arising in the future) of the Company or any of its Subsidiaries, and any assets related thereto including, without limitation, all collateral securing those accounts receivable, all contracts and all Guarantees or other obligations in respect of those accounts receivable, proceeds of those accounts receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable; provided that: (1) if the transaction involves a transfer of accounts receivable with Fair Market Value equal to or greater than $25.0 million, the Board of Directors shall have determined in good faith that the Qualified Receivables Transaction is economically fair and reasonable to the Company and the Receivables Entity; (2) all sales of accounts receivable and related assets to or by the Receivables Entity are made at Fair Market Value; and (3) the financing terms, covenants, termination events and other provisions thereof shall be market terms (as determined in good faith by the Board of Directors). "Rating Agencies" means Moody's and S&P. "Real Estate Financing Transaction" means any arrangement with any Person pursuant to which the Company or any Restricted Subsidiary Incurs Debt secured by a Lien on real property of the Company or any Restricted Subsidiary and related personal property together with any Refinancings thereof. "Receivables Entity" means a Wholly Owned Subsidiary of the Company (or another Person formed for the purposes of engaging in a Qualified Receivables Transaction with the Company in which the Company or any Subsidiary of the Company makes an Investment and to which the Company or any Subsidiary of the Company transfers accounts receivable and related assets) which engages in no activities other than in connection with the financing of accounts receivable of the Company and its Subsidiaries, all proceeds thereof and all rights (contractual or other), collateral and other assets relating thereto, and any business or activities incidental or related to that business, and (with respect to any Receivables Entity formed after the Issue Date) which is 29 designated by the Board of Directors (as provided below) as a Receivables Entity and: (a) no portion of the Debt or any other obligations (contingent or otherwise) of which: (1) is Guaranteed by the Company or any Subsidiary of the Company (excluding Guarantees of obligations (other than the principal of, and interest on, Debt) pursuant to Standard Securitization Undertakings); (2) is recourse to or obligates the Company or any Subsidiary of the Company in any way other than pursuant to Standard Securitization Undertakings; or (3) subjects any property or asset of the Company or any Subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings; (b) with which neither the Company nor any Subsidiary of the Company has any material contract, agreement, arrangement or understanding other than on terms which the Company reasonably believes to be no less favorable to the Company or the Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company; and (c) to which neither the Company nor any Subsidiary of the Company has any obligation to maintain or preserve the entity's financial condition or cause the entity to achieve certain levels of operating results other than pursuant to Standard Securitization Undertakings. Any designation of this kind by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors giving effect to the designation and an Officers' Certificate certifying that the designation complied with the foregoing conditions. "Refinance" means, in respect of any Debt, to refinance, extend, renew, refund, repay, prepay, repurchase, redeem, defease or retire, or to issue other Debt, in exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall have correlative meanings. 30 "Refinancing Transactions" has the meaning given to the term "Refinancing" in the Offering Memorandum. "Related Business" means any business that is related, ancillary or complementary to the businesses of the Company and the Restricted Subsidiaries on the Issue Date. "Repay" means, in respect of any Debt, to repay, prepay, repurchase, redeem, legally defease or otherwise retire such Debt. "Repayment" and "Repaid" shall have correlative meanings. For purposes of Section 4.06 and the definition of "Consolidated Interest Coverage Ratio," Debt shall be considered to have been Repaid only to the extent the related loan commitment, if any, shall have been permanently reduced in connection therewith. "Restricted Payment" means: (a) any dividend or distribution (whether made in cash, securities or other Property) declared or paid on or with respect to any shares of Capital Stock of the Company or any Restricted Subsidiary (including any payment in connection with any merger or consolidation with or into the Company or any Restricted Subsidiary), except for any dividend or distribution that is made solely to the Company or a Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, to the other shareholders of such Restricted Subsidiary on a pro rata basis or on a basis that results in the receipt by the Company or a Restricted Subsidiary of dividends or distributions of greater value than it would receive on a pro rata basis) or any dividend or distribution payable solely in shares of Capital Stock (other than Disqualified Stock) of the Company; (b) the purchase, repurchase, redemption, acquisition or retirement for value of any Capital Stock of the Company or any Restricted Subsidiary (other than from the Company or a Restricted Subsidiary) or any securities exchangeable for or convertible into any such Capital Stock, including the exercise of any option to exchange any Capital Stock (other than for or into Capital Stock of the Company that is not Disqualified Stock); (c) the purchase, repurchase, redemption, acquisition or retirement for value, prior to the date for any scheduled maturity, sinking fund or amortization or other installment payment, of any Subordinated Obligation (other than the purchase, 31 repurchase or other acquisition of any Subordinated Obligation purchased in anticipation of satisfying a scheduled maturity, sinking fund or amortization or other installment obligation, in each case due within one year of the date of acquisition); (d) any Investment (other than Permitted Investments) in any Person; or (e) the issuance, sale or other disposition of Capital Stock of any Restricted Subsidiary to a Person other than the Company or another Restricted Subsidiary if the result thereof is that such Restricted Subsidiary shall cease to be a Restricted Subsidiary, in which event the amount of such "Restricted Payment" shall be the Fair Market Value of the remaining interest, if any, in such former Restricted Subsidiary held by the Company and the other Restricted Subsidiaries. Notwithstanding the foregoing, no payment or other transaction permitted by clause (c) or (f) under the caption "Limitation on Transactions with Affiliates" will be considered a Restricted Payment. For the avoidance of doubt, it is understood that the exercise of the warrants and the issuance of Capital Stock of the Company to FMR Corp. or any of its Affiliates pursuant to the Warrant dated as of June 27, 2001, are not Restricted Payments. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "S&P" means Standard & Poor's Ratings Service or any successor to the rating agency business thereof. "Sale and Leaseback Transaction" means any direct or indirect arrangement relating to Property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such Property to another Person and the Company or a Restricted Subsidiary leases it from such Person. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933. "Senior Credit Facility" means the Senior Credit Agreement dated as of June 27, 2001 (as amended, modified, supplemented or Refinanced from time to time), among the Company, the Banks as defined therein, Citicorp USA, Inc. as 32 senior administrative agent, Citicorp USA, Inc. as senior collateral agent, and the Chase Manhattan Bank, Credit Suisse First Boston and Fleet Retail Finance Inc. as the syndication agents. "Series B Preferred Stock" means the Company's Preferred Stock, par value $1.00 per share, designated as Series B. "Series C Preferred Stock" means the Company's Preferred Stock, par value $1.00 per share, designated as Series C. "Significant Subsidiary" means any Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the Commission. "Standard Securitization Undertakings" means representations, warranties, covenants and indemnities entered into by the Company or any Subsidiary of the Company which are customary in an accounts receivable securitization transaction involving a comparable company. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). "Subordinated Obligation" means any Debt of the Company (whether outstanding on the Issue Date or thereafter Incurred) that is subordinate or junior in right of payment to the Securities pursuant to a written agreement to that effect. "Subsidiary" means, in respect of any Person, any corporation, company (including any limited liability company), association, partnership, joint venture or other business entity of which a majority of the total voting power of the Voting Stock is at the time owned or controlled, directly or indirectly, by: (a) such Person; (b) such Person and one or more Subsidiaries of such Person; or 33 (c) one or more Subsidiaries of such Person. "Synthetic Lease" means a lease which is treated as an operating lease under generally accepted accounting principles but as ownership of the leased asset by the lessee for purposes of the Internal Revenue Code of 1986, as amended, or any successor statute. "Temporary Cash Investments" means any of the following: (a) Investments in U.S. Government Obligations maturing within 365 days of the date of acquisition thereof; (b) Investments in time deposit accounts, certificates of deposit, money market deposits maturing within 90 days of the date of acquisition thereof issued by a bank or trust company organized under the laws of the United States of America or any state thereof having capital, surplus and undivided profits aggregating in excess of $500 million and whose long- term debt is rated "A-3" or "A-" or higher according to Moody's or S&P (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)); (c) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (a) entered into with: (1) a bank meeting the qualifications described in clause (b) above; or (2) any primary government securities dealer reporting to the Market Reports Division of the Federal Reserve Bank of New York; (d) Investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America with a rating at the time as of which any Investment therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)); 34 (e) direct obligations (or certificates representing an ownership interest in such obligations) of any state of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of such state is pledged and which are not callable or redeemable at the issuer's option, provided that: (1) the long-term debt of such state is rated "A-3" or "A-" or higher according to Moody's or S&P (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)); and (2) such obligations mature within 180 days of the date of acquisition thereof; and (f) money market funds at least 95% of the assets of which constitute Temporary Cash Equivalents of the kinds described in clauses (a) through (e) of this definition. "TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture, except as provided in Section 9.03. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor. "Trust Officer" means any officer within the Corporate Trust department of the Trustee (or any successor group of the Trustee) with direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Unrestricted Subsidiary" means: (a) any Subsidiary of the Company that is designated after the Issue Date as an Unrestricted Subsidiary as permitted or required pursuant to Section 4.11 and is not thereafter redesignated as a Restricted Subsidiary as permitted pursuant thereto; and 35 (b) any Subsidiary of an Unrestricted Subsidiary. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Voting Stock" of any Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Restricted Subsidiary" means, at any time, a Restricted Subsidiary all the Voting Stock of which (except directors' qualifying shares) is at such time owned, directly or indirectly, by the Company and its other Wholly Owned Subsidiaries. SECTION 1.02. Other Definitions. Defined in Term Section ---- ------- "Affiliate Transaction"......................................... 4.08 "Bankruptcy Law"................................................ 6.01 "Change of Control Offer"....................................... 4.12 "Change of Control Payment Date"................................ 4.12 "Change of Control Purchase Price".............................. 4.12 "covenant defeasance option".................................... 8.01 "Custodian"..................................................... 6.01 "Event of Default".............................................. 6.01 "Exchange Security"............................................. Appendix A "Global Security"............................................... Appendix A "legal defeasance option"....................................... 8.01 "Legal Holiday"................................................. 10.08 "Offer Amount".................................................. 4.06 "Offer Period".................................................. 4.06 "OID"........................................................... 2.01 "Original Securities............................................ 2.01 36 "Paying Agent".................................................. 2.04 "Prepayment Offer".............................................. 4.06 "Registered Exchange Offer...................................... Appendix A "Registrar"..................................................... 2.04 "Securities Custodian".......................................... Appendix A "Shelf Registration statement................................... Appendix A "Surviving Person".............................................. 5.01 SECTION 1.03. Incorporation by Reference of Trust Indenture Act. This Indenture is subject to the mandatory provisions of the TIA, which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including without limitation; 37 (5) words in the singular include the plural and words in the plural include the singular; (6) unsecured Debt shall not be deemed to be subordinate or junior to secured Debt merely by virtue of its nature as unsecured Debt; (7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; and (8) the principal amount of any Preferred Stock shall be the greater of (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock. ARTICLE II The Securities SECTION 2.01. Amount of Securities; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. All Securities shall be identical in all respects other than issue prices and issuance dates. The Securities may be issued in one or more series; provided, however, that any Securities issued with original issue discount ("OID") for Federal income tax purposes shall not be issued as part of the same series as any Securities that are issued with a different amount of OID or are not issued with OID. All Securities of any one series shall be substantially identical except as to denomination. Subject to Section 2.03, the Trustee shall authenticate Securities for original issue on the Issue Date in the aggregate principal amount of $150,000,000 (the "Original Securities"). With respect to any Securities issued after the Issue Date (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, Original Securities pursuant to Section 2.07, 2.08, 2.09 or 3.06 or Appendix A), there shall be established in or pursuant to a resolution of the Board of Directors, and subject to Section 2.03, set forth, or determined in the manner provided in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of such Securities: 38 (1) whether such Securities shall be issued as part of a new or existing series of Securities and, if issued as part of a new series, the title of such Securities (which shall distinguish the Securities of the series from Securities of any other series); (2) the aggregate principal amount of such Securities to be authenticated and delivered under this Indenture, which may be issued for an unlimited aggregate principal amount (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the same series pursuant to Section 2.07, 2.08, 2.09 or 3.06 or Appendix A and except for Securities which, pursuant to Section 2.03, are deemed never to have been authenticated and delivered hereunder); (3) the issue price and issuance date of such Securities, including the date from which interest on such Securities shall accrue; (4) if applicable, that such Securities shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective depositories for such Global Securities; the form of any legend or legends that shall be borne by any such Global Security in addition to or in lieu of that set forth in Exhibit 1 to Appendix A and any circumstances in addition to or in lieu of those set forth in Section 2.3 of Appendix A in which any such Global Security may be exchanged in whole or in part for Securities registered; and any transfer of such Global Security in whole or in part may be registered in the name or names of Persons other than the depository for such Global Security or a nominee thereof; and (5) if applicable, that such Securities shall not be issued in the form of Initial Securities subject to Appendix A, but shall be issued in the form of Exchange Securities as set forth in Exhibit A. If any of the terms of any series are established by action taken pursuant to a resolution of the Board of Directors, a copy of an appropriate record of such action shall be certified by the Secretary or any Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate or the trust indenture supplemental hereto setting forth the terms of the series. 39 SECTION 2.02. Form and Dating. Provisions relating to the Initial Securities of each series and the Exchange Securities are set forth in Appendix A, which is hereby incorporated in and expressly made part of this Indenture. The Initial Securities of each series and the Trustee's certificate of authentication shall be substantially in the form of Exhibit 1 to Appendix A which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A, which is hereby incorporated in and expressly made a part of this Indenture. The Securities of each series may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage, provided that any such notation, legend or endorsement is in a form reasonably acceptable to the Company. Each Security shall be dated the date of its authentication. The terms of the Securities of each series set forth in Exhibit 1 to Appendix A and Exhibit A are part of the terms of this Indenture. SECTION 2.03. Execution and Authentication. An Officer shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a written order of the Company in the form of an Officers' Certificate for the authentication and delivery of such Securities, and the Trustee in accordance with such written order of the Company shall authenticate and deliver such Securities. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be con clusive evidence that the Security has been authenticated under this Indenture. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate the Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authen tication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands. 40 SECTION 2.04. Registrar and Paying Agent. The Company shall maintain an office or agency in the city of New York where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency in the city of New York where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar, co-registrar or transfer agent. The Company initially appoints the Trustee as Registrar and Paying Agent in connection with the Securities. SECTION 2.05. Paying Agent To Hold Money in Trust. Prior to each due date of the principal and interest on any Security, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal and interest when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities and shall notify the Trustee of any default by the Company in making any such payment. If the Company or a Wholly Owned Subsidiary acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying Agent shall have no further liability for the money delivered to the Trustee. 41 SECTION 2.06. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.07. Replacement Securities. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security claims that such Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies any other reasonable requirements of the Trustee. If required by the Trustee or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss which any of them may suffer if a Security is replaced. The Company and the Trustee may charge the Holder for their expenses in replacing a Security. Every replacement Security is an additional obligation of the Company. SECTION 2.08. Outstanding Securities. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. 42 SECTION 2.09. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities and deliver them in exchange for temporary Securities. SECTION 2.10. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel and destroy (subject to the record retention requirements of the Exchange Act) all Securities surrendered for registration of transfer, exchange, payment or cancellation and deliver a certificate of such destruction to the Company unless the Company directs the Trustee to deliver canceled Securities to the Company. The Company may not issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancellation. SECTION 2.11. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, the Company shall pay the defaulted interest (plus interest on such defaulted interest to the extent lawful) in any lawful manner. The Company may pay the defaulted interest to the persons who are Securityholders on a subsequent special record date. The Company shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee and shall promptly mail to each Securityholder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, however, that neither the Company nor the Trustee shall have any responsibility for any defect in the "CUSIP" number that appears on any Security, check, advice of payment or redemption notice, and any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers 43 printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE III Redemption SECTION 3.01. Notices to Trustee. If the Company elects to redeem Securities pursuant to paragraph 5 of the Securities or is required to redeem Securities pursuant to paragraph 8 of the Securities, it shall notify the Trustee in writing of the redemption date, the principal amount of Securities to be redeemed and that such redemption is being made pursuant to either paragraph 5 or paragraph 8 of the Securities. The Company shall give each notice to the Trustee provided for in this Section at least 45 days before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate from the Company to the effect that such redemption will comply with the conditions herein. SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than all the Securities are to be redeemed pursuant to paragraph 5 of the Securities, the Trustee shall select the Securities to be redeemed pro rata or by lot or by a method that complies with applicable legal and securities exchange requirements, if any, and that the Trustee considers fair and appropriate and in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a date for redemption of Securities, the Company shall mail a notice of redemption by first-class mail to each Holder of Securities to be redeemed at such Holder's registered address. 44 The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) if fewer than all the outstanding Securities are to be redeemed, the identification and principal amounts of the particular Securities to be redeemed; (6) that, unless the Company defaults in making such redemption payment, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date, and the only remaining right of the Holders is to receive payment of the redemption price upon surrender to the Paying Agent; and (7) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. In such event, the Company shall provide the Trustee with the information required by this Section at least 45 days before the redemption date. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price stated in the notice. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price stated in the notice, plus accrued interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date that is on or prior to the date of redemption). Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION 3.05. Deposit of Redemption Price. Prior to the redemption date, the Company shall deposit with the Paying Agent (or, if the Company or a Wholly Owned 45 Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest, if any (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date that is on or prior to the date of redemption), on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption that have been delivered by the Company to the Trustee for cancellation. SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder (at the Company's expense) a new Security equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE IV Covenants SECTION 4.01. Payment of Securities. The Company shall promptly pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest then due. The Company shall pay interest on overdue principal at the rate per annum specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the rate borne by the Securities, to the extent lawful. SECTION 4.02. SEC Reports. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the Commission and provide the Trustee and Holders of Securities with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections; provided, however, that the Company will not be so obligated to file such information, documents and reports with the Commission 46 if the Commission does not permit such filings. The Company shall also comply with the other provisions of TIA ss. 314(a). SECTION 4.03. Limitation on Debt. The Company will not, and will not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Debt unless, after giving effect to the application of the proceeds thereof, no Default or Event of Default would occur as a consequence of such Incurrence and no Default or Event of Default would be continuing following such Incurrence and application of proceeds and either: (1) after giving effect to the Incurrence of such Debt and the application of the proceeds thereof, the Consolidated Interest Coverage Ratio would be greater than (i) if such Incurrence occurs within two years of the Issue Date, 1.75 to 1.00 or (ii) if such Incurrence occurs at any time thereafter, 2.00 to 1.00 provided that, if such Debt is Debt of a Restricted Subsidiary then, simultaneously with the Incurrence of such Debt, the Restricted Subsidiary executes and delivers a supplemental indenture providing for a full and unconditional Guarantee of payment of the Securities by such Restricted Subsidiary; or (2) such Debt is Permitted Debt. The term "Permitted Debt" is defined to include the following: (a) Debt of the Company evidenced by the Original Securities and of Restricted Subsidiaries evidenced by guarantees relating to the Securities; (b) Debt of the Company or a Restricted Subsidiary (including Guarantees thereof) (i) under any Credit Facilities, (ii) Incurred pursuant to a Real Estate Financing Transaction, a Sale and Leaseback Transaction or an Equipment Financing Transaction, (iii) Incurred in respect of Capital Lease Obligations, (iv) Incurred pursuant to Debt Issuances or (v) Incurred by a Receivables Entity in a Qualified Receivables Transaction that is not recourse to the Company or any other Restricted Subsidiary (except for Standard Securitization Undertakings), provided that the aggregate principal amount of all such Debt in clauses (i) through (v) hereof at any one time outstanding together with the aggregate principal amount of all Debt described in clause (c) below shall not exceed the greater of (1) $2,500 million, which amount shall be permanently reduced by the amount of 47 Net Available Cash used to Repay Debt under the Credit Facilities, and not subsequently reinvested in Additional Assets or used to purchase Securities or Repay other Debt, pursuant to Section 4.06 and (2) the sum of the amount equal to (A) 60% of the book value of the inventory (determined using the first-in-first-out method of accounting) of the Company and the Restricted Subsidiaries and (B) 85% of the book value of the accounts receivables of the Company and the Restricted Subsidiaries, in each case as of the most recently ended quarter of the Company for which financial statements have been filed with the SEC; (c) Debt of the Company outstanding on the Issue Date after giving effect to the Refinancing Transactions and evidenced by the Existing 10.5% Notes and of Restricted Subsidiaries evidenced by guarantees relating to the Existing 10.5% Notes; (d) Debt of the Company evidenced by the New 12.5% Notes and of Restricted Subsidiaries evidenced by guarantees relating to the New 12.5% Notes; (e) Debt Incurred after the Issue Date in respect of Purchase Money Debt, provided that the aggregate principal amount of such Debt does not exceed 80% of the Fair Market Value (on the date of the Incurrence thereof) of the Property acquired, constructed, developed or leased, including additions and improvements thereto; (f) Debt of the Company owing to and held by any consolidated Restricted Subsidiary and Debt of a Restricted Subsidiary owing to and held by the Company or any consolidated Restricted Subsidiary; provided, however, that any subsequent issue or transfer of Capital Stock or other event that results in any such consolidated Restricted Subsidiary ceasing to be a consolidated Restricted Subsidiary or any subsequent transfer of any such Debt (except to the Company or a consolidated Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Debt by the issuer thereof; (g) Debt under Interest Rate Agreements entered into by the Company or a Restricted Subsidiary for the purpose of limiting interest rate risk in the ordinary course of the financial management of the Company or such Restricted Subsidiary and not for speculative purposes, provided that the obligations under such agreements are directly related to payment obligations 48 on Debt otherwise permitted by the terms of this covenant; (h) Debt under Currency Exchange Protection Agreements entered into by the Company or a Restricted Subsidiary for the purpose of limiting currency exchange rate risks directly related to transactions entered into by the Company or such Restricted Subsidiary in the ordinary course of business and not for speculative purposes; (i) Debt under Commodity Price Protection Agreements entered into by the Company or a Restricted Subsidiary in the ordinary course of the financial management of the Company or that Restricted Subsidiary and not for speculative purposes; (j) Debt in connection with one or more standby letters of credit, banker's acceptance, performance or surety bonds or completion guarantees issued by the Company or a Restricted Subsidiary in the ordinary course of business or pursuant to self-insurance obligations and not in connection with the borrowing of money or the obtaining of advances or credit; (k) Debt outstanding on the Issue Date not otherwise described in clauses (a) through (j) above, excluding any Debt being Refinanced in connection with the Refinancing Transactions but including Debt Incurred in connection with the Refinancing Transactions; (l) other Debt of the Company or a Restricted Subsidiary (including Guarantees thereof) in an aggregate principal amount outstanding at any one time not to exceed $400 million; (m) Debt of a Restricted Subsidiary outstanding on the date on which that Restricted Subsidiary was acquired by the Company or otherwise became a Restricted Subsidiary (other than Debt Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of transactions pursuant to which that Restricted Subsidiary became a Subsidiary of the Company or was otherwise acquired by the Company), provided that at the time that Restricted Subsidiary was acquired by the Company or otherwise became a Restricted Subsidiary and after giving effect to the Incurrence of that Debt, the Company would have been 49 able to Incur $1.00 of additional Debt pursuant to clause (1) of the first paragraph of this covenant; (n) Debt arising from the honoring by a bank or other financial institution of a check or draft or other similar instrument inadvertently drawn against insufficient funds in the ordinary course of business, provided that such Debt is extinguished within five business days of its Incurrence; (o) endorsements of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (p) Debt of the Company or a Restricted Subsidiary (including Guarantees thereof) Incurred in respect of Synthetic Leases in an aggregate principal amount outstanding at any one time not to exceed $107 million; (q) Debt in respect of Sale and Leaseback Transactions or Real Estate Financing Transactions involving only real property (and the related personal property) owned by the Company or a Restricted Subsidiary on the Issue Date in an aggregate principal amount outstanding at any one time not to exceed $150 million, provided that such Sale and Leaseback Transactions or Real Estate Financing Transactions may involve Property other than real property (and the related personal property) owned on the Issue Date to the extent the portion of the Debt related to such Property is permitted by another provision of this covenant at the time of Incurrence; (r) Debt in respect of Sale and Leaseback Transactions that are not Capital Lease Obligations Incurred to finance the acquisition, construction and development of Property after the Issue Date, including additions and improvements thereto, provided that any reclassification of such Debt as a Capital Lease Obligation shall be deemed an Incurrence of such Debt; (s) Permitted Refinancing Debt Incurred in respect of Debt Incurred pursuant to clause (1) of the first paragraph of this covenant and clauses (a), (d), (e), (k) and (q) above; and (t) Debt arising from agreements of the Company or any Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, Incurred or assumed in connection with the disposition of any business, 50 assets or a Subsidiary, other than Guarantees of Debt incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition; provided that (a) such Debt is not reflected on the balance sheet of the Company or any Restricted Subsidiary (contingent obligations referred to in a footnote or footnotes to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (a)) and (b) the maximum assumable liability in respect of such Debt will at no time exceed the gross proceeds including non-cash proceeds (the fair market value of such non-cash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by the Company or such Restricted Subsidiary in connection with such disposition. For purposes of determining compliance with this covenant, (1) in the event that an item of Debt meets the criteria of more than one of the types of Debt described herein, the Company, in its sole discretion, will classify such item of Debt at the time of Incurrence and only be required to include the amount and type of such Debt in one of the above clauses and (2) the Company will be entitled at the time of such Incurrence to divide and classify an item of Debt in more than one of the types of Debt described herein; provided, however, that (x) all outstanding Debt under the Senior Credit Facility immediately following the Issue Date will be deemed to have been incurred pursuant to clause (b) of this Section 4.03 and (y) any Permitted Debt may later be reclassified as having been Incurred pursuant to any other clause of the second paragraph of this covenant to the extent such Debt could be Incurred pursuant to such clause at the time of such reclassification. SECTION 4.04. Limitation on Restricted Payments. The Company will not make, and will not permit any Restricted Subsidiary to make, directly or indirectly, any Restricted Payment if at the time of, and after giving effect to, such proposed Restricted Payment: (a) a Default or Event of Default shall have occurred and be continuing; (b) the Company could not Incur at least $1.00 of additional Debt pursuant to clause (1) of the first paragraph of Section 4.03; or 51 (c) the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made since the Issue Date (the amount of any Restricted Payment, if made other than in cash, to be based upon Fair Market Value) would exceed an amount equal to the sum of: (1) 50% of the aggregate amount of Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the first fiscal quarter that commences after the Issue Date occurs to the end of the most recent fiscal quarter for which financial statements have been filed with the SEC (or if the aggregate amount of Consolidated Net Income for such period shall be a deficit, minus 100% of such deficit); plus (2) 100% of Capital Stock Sale Proceeds; plus (3) the sum of: (A) the aggregate net cash proceeds received by the Company or any Restricted Subsidiary from the issuance or sale after the Issue Date of convertible or exchangeable Debt that has been converted into or exchanged for Capital Stock (other than Disqualified Stock) of the Company; and (B) the aggregate amount by which Debt (other than Subordinated Obligations) of the Company or any Restricted Subsidiary is reduced on the Company's consolidated balance sheet after the Issue Date upon the conversion or exchange of any Debt (other than convertible or exchangeable debt issued or sold after the Issue Date) for Capital Stock (other than Disqualified Stock) of the Company; excluding, in the case of clause (A) or (B): (x) any such Debt issued or sold to the Company or a Subsidiary of the Company or an employee stock ownership plan or trust established by the Company or any such Subsidiary for the benefit of their employees; and 52 (y) the aggregate amount of any cash or other Property distributed by the Company or any Restricted Subsidiary upon any such conversion or exchange; plus (4) an amount equal to the sum of: (A) the net reduction in Investments in any Person other than the Company or a Restricted Subsidiary resulting from dividends, repayments of loans or advances or other transfers of Property, in each case to the Company or any Restricted Subsidiary from such Person less the cost of the disposition of such Investments; and (B) the portion (proportionate to the Company's equity interest in such Unrestricted Subsidiary) of the Fair Market Value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that the foregoing sum shall not exceed, in the case of any Person, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person. Notwithstanding the foregoing limitation, the Company may: (a) pay dividends on its Capital Stock within 60 days of the declaration thereof if, on said declaration date, such dividends could have been paid in compliance with the Indenture; provided, however, that at the time of such payment of such dividend, no other Default or Event of Default shall have occurred and be continuing (or result therefrom); provided further, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; (b) purchase, repurchase, redeem, legally defease, acquire or retire for value Capital Stock of the Company or Subordinated Obligations in exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued 53 or sold to a Subsidiary of the Company or an employee stock ownership plan or trust established by the Company or any such Subsidiary for the benefit of their employees); provided, however, that: (1) such purchase, repurchase, redemption, legal defeasance, acquisition or retirement shall be excluded in the calculation of the amount of Restricted Payments; and (2) the Capital Stock Sale Proceeds from such exchange or sale shall be excluded from the calculation pursuant to clause (c)(2) above; (c) purchase, repurchase, redeem, legally defease, acquire or retire for value any Subordinated Obligations in exchange for, or out of the proceeds of the substantially concurrent sale of, Permitted Refinancing Debt; provided, however, that such purchase, repurchase, redemption, legal defeasance, acquisition or retirement shall be excluded in the calculation of the amount of Restricted Payments; (d) so long as no Default or Event of Default shall have occurred or be continuing, declare and pay dividends to the holders of Series B Preferred Stock, Series C Preferred Stock, Class A Cumulative Preferred Stock, Class C Cumulative Preferred Stock and Class D Cumulative Preferred Stock outstanding on the Issue Date or issued after the Issue Date solely in payment of dividends on the same class of stock; provided, however, that such dividends shall be included in the calculation of the amount of Restricted Payments; (e) so long as no Default or Event of Default has occurred and is continuing the repurchase or other acquisition of shares of or options to purchase shares of, Capital Stock of the Company or any of its Subsidiaries from employees, former employees, directors or former directors of the Company or any of its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such Capital Stock; provided, however, that the aggregate amount of such repurchases and other acquisitions shall not exceed $10 million; provided further, however, that such repurchases and other acquisitions shall be 54 included in the calculation of the amount of Restricted Payments; (f) make payments not to exceed $1 million in the aggregate to enable the Company to make payments to holders of its Capital Stock in lieu of the issuance of fractional shares of its Capital Stock; provided, however, that such payments shall be included in the calculation of the amount of Restricted Payments; and (g) make any other Restricted Payments not to exceed an aggregate amount of $25 million; provided, however, that such payments shall be included in the calculation of the amount of Restricted Payments. SECTION 4.05. Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any Lien (other than Permitted Liens) upon any of its Property (including Capital Stock of a Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired, or any interest therein or any income or profits therefrom, unless it has made or will make effective provision whereby the Securities will be secured by such Lien equally and ratably with (or prior to) all other Debt of the Company or any Restricted Subsidiary secured by such Lien. SECTION 4.06. Limitation on Asset Sales. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale unless: (a) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the Property subject to such Asset Sale; (b) at least 75% of the consideration paid to the Company or such Restricted Subsidiary in connection with such Asset Sale is in the form of Qualified Consideration; and (c) the Company delivers an Officers' Certificate to the Trustee certifying that such Asset Sale complies with the foregoing clauses (a) and (b). The Net Available Cash (or any portion thereof) from Asset Sales may be applied by the Company or a Restricted Subsidiary, to the extent the Company or such 55 Restricted Subsidiary elects (or is required by the terms of any Debt): (a) to Repay the Credit Facilities, the Existing 10.5% Notes, the New 12.5% Notes or any other Debt of the Company or any Restricted Subsidiary secured by a Lien on Property of the Company or any Restricted Subsidiary of the Company (excluding, in any such case, any Debt owed to the Company or an Affiliate of the Company); or (b) to reinvest in Additional Assets or Expansion Capital Expenditures (including by means of an Investment in Additional Assets or Expansion Capital Expenditures by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary); provided, however, that the Net Available Cash (or any portion thereof) from Asset Sales from the Company to any Subsidiary must be reinvested in Additional Assets or Expansion Capital Expenditures of the Company. Pending application of Net Available Cash pursuant to this covenant, which shall not be required in respect of an Asset Sale if the Net Available Cash from such Asset Sale is less than $1 million, such Net Available Cash shall be invested in Temporary Cash Investments or applied to temporarily reduce revolving credit indebtedness. If the Net Available Cash from an Asset Sale equals or exceeds $1 million, any Net Available Cash from an Asset Sale not applied in accordance with the preceding paragraph within 270 days from the date of the receipt of such Net Available Cash or that is not segregated from the general funds of the Company for investment in identified Additional Assets in respect of a project that shall have been commenced, and for which binding contractual commitments have been entered into, prior to the end of such 270-day period and that shall not have been completed or abandoned shall constitute "Excess Proceeds"; provided, however, that the amount of any Net Available Cash that ceases to be so segregated as contemplated above and any Net Available Cash that is segregated in respect of a project that is abandoned or completed shall also constitute "Excess Proceeds" at the time any such Net Available Cash ceases to be so segregated or at the time the relevant project is so abandoned or completed, as applicable; provided further, however, that the amount of any Net Available Cash that continues to be segregated for investment and that is not actually reinvested within 24 months from the date of the receipt of such Net Available Cash shall also constitute "Excess Proceeds". 56 When the aggregate amount of Excess Proceeds exceeds $20.0 million (taking into account income earned on such Excess Proceeds, if any), the Company will be required to make an offer to purchase (the "Prepayment Offer") the Securities which offer shall be in the amount of the Allocable Excess Proceeds, on a pro rata basis according to principal amount, at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. To the extent that any portion of the amount of Net Available Cash remains after compliance with the preceding sentence and provided that all Holders of Securities have been given the opportunity to tender their Securities for purchase in accordance with the Indenture, the Company or such Restricted Subsidiary may use such remaining amount for any purpose permitted by the Indenture and the amount of Excess Proceeds will be reset to zero. The term "Allocable Excess Proceeds" will mean the product of: (a) the Excess Proceeds and (b) a fraction, (1) the numerator of which is the aggregate principal amount of the Securities outstanding on the date of the Prepayment Offer, and (2) the denominator of which is the sum of the aggregate principal amount of the Securities outstanding on the date of the Prepayment Offer and the aggregate principal amount of other Debt of the Company outstanding on the date of the Prepayment Offer that is pari passu in right of payment with the Securities and subject to terms and conditions in respect of Asset Sales similar in all material respects to this covenant and requiring the Company to make an offer to purchase such Debt or otherwise repay such Debt at substantially the same time as the Prepayment Offer. Within five business days after the Company is obligated to make a Prepayment Offer as described in the preceding paragraph, the Company shall send a written notice, by first-class mail, to the holders of Securities, 57 accompanied by such information regarding the Company and its Subsidiaries as the Company in good faith believes will enable such Holders to make an informed decision with respect to such Prepayment Offer. Such notice shall state, among other things, the purchase price and the purchase date, which shall be, subject to any contrary requirements of applicable law, a business day no earlier than 30 days nor later than 60 days from the date such notice is mailed. Not later than the date upon which written notice of a Prepayment Offer is delivered to the Trustee as provided above, the Company shall deliver to the Trustee an Officers' Certificate as to (i) the amount of the Prepayment Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset Sales pursuant to which such Prepayment Offer is being made and (iii) the compliance of such allocation with the provisions of clause (b) of the second paragraph of Section 4.06. On or before the Purchase Date, the Company shall also irrevocably deposit with the Trustee or with the Paying Agent (or, if the Company or a Wholly Owned Subsidiary is the Paying Agent, shall segregate and hold in trust) in Temporary Cash Investments (other than in those enumerated in such clause (b) of the definition of Temporary Cash Investments), maturing on the last day prior to the Purchase Date or on the Purchase Date if funds are immediately available by open of business, an amount equal to the Offer Amount to be held for payment in accordance with the provisions of this Section. Upon the expiration of the period for which the Prepayment Offer remains open (the "Offer Period"), the Company shall deliver to the Trustee for cancellation the Securities or portions thereof that have been properly tendered to and are to be accepted by the Company. The Trustee or the Paying Agent shall, on the Purchase Date, mail or deliver payment to each tendering Holder in the amount of the purchase price. In the event that the aggregate purchase price of the Securities delivered by the Company to the Trustee is less than the Offer Amount, the Trustee or the Paying Agent shall deliver the excess to the Company immediately after the expiration of the Offer Period for application in accordance with this Section. Holders electing to have a Security purchased shall be required to surrender the Security, with an appropriate form duly completed, to the Company or its agent at the address specified in the notice at least three Business Days prior to the Purchase Date. Holders shall be entitled to withdraw their election if the Trustee or the Company receives not later than one Business Day prior to the Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the 58 principal amount of the Security that was delivered for purchase by the Holder and a statement that such Holder is withdrawing its election to have such Security purchased. If at the expiration of the Offer Period the aggregate principal amount of Securities surrendered by Holders exceeds the Offer Amount, the Company shall select the Securities to be purchased on a pro rata basis for all Securities (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased). Holders whose Securities are purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. At the time the Company delivers Securities to the Trustee that are to be accepted for purchase, the Company shall also deliver an Officers' Certificate stating that such Securities are to be accepted by the Company pursuant to and in accordance with the terms of this Section. A Security shall be deemed to have been accepted for purchase at the time the Trustee or the Paying Agent mails or delivers payment therefor to the surrendering Holder. The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof. SECTION 4.07. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist any consensual restriction on the right of any Restricted Subsidiary to: (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock, or pay any Debt or other obligation owed, to the Company or any other Restricted Subsidiary; (b) make any loans or advances to the Company or any other Restricted Subsidiary; or (c) transfer any of its Property to the Company or any other Restricted Subsidiary. 59 The foregoing limitations will not apply: (1) with respect to clauses (a), (b) and (c), to restrictions: (A) in effect on the Issue Date including those under the Refinancing Transactions; (B) relating to Debt of a Restricted Subsidiary and existing at the time it became a Restricted Subsidiary if such restriction was not created in connection with or in anticipation of the transaction or series of transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company; (C) that result from the Refinancing of Debt Incurred pursuant to an agreement referred to in clause (1)(A) or (B) above or in clause (2)(A) or (B) below, provided such restriction is no less favorable to the Holders of Securities in any material respect, as reasonably determined by the Board of Directors (as evidenced by a resolution of the Board of Directors), than those under the agreement evidencing the Debt so Refinanced; (D) resulting from the Incurrence of any Permitted Debt described in Section 4.03, provided that (i) the restriction is no less favorable to the Holders of Securities in any material respect, as reasonably determined by the Board of Directors (as evidenced by a resolution of the Board of Directors), than the restrictions of the same type contained in the Indenture and (ii) the Board of Directors determines (as evidenced by a resolution of the Board of Directors) in good faith that such restrictions will not impair the ability of the Company to make payments of principal and interest on the Securities when due; (E) existing by reason of applicable law; or (F) any contractual requirements incurred with respect to Qualified Receivables Transactions relating exclusively to a Receivables Entity that, in the good faith determination of the Board of Directors of the Company, are customary for Qualified Receivables Transactions; and 60 (2) with respect to clause (c) only, to restrictions: (A) relating to Debt that is permitted to be Incurred and secured without also securing the Securities pursuant to Sections 4.03 and 4.05 that limit the right of the debtor to dispose of the Property securing such Debt; (B) encumbering Property at the time such Property was acquired by the Company or any Restricted Subsidiary, so long as such restriction relates solely to the Property so acquired and was not created in connection with or in anticipation of such acquisition; (C) resulting from customary provisions restricting subletting or assignment of leases or customary provisions in other agreements that restrict assignment of such agreements or rights thereunder; or (D) customary restrictions contained in agreements relating to the sale or other disposition of Property limiting the transfer of such Property pending the closing of such sale. SECTION 4.08. Limitation on Transactions with Affiliates. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, conduct any business or enter into or suffer to exist any transaction or series of transactions (including the purchase, sale, transfer, assignment, lease, conveyance or exchange of any Property or the rendering of any service) with, or for the benefit of, any Affiliate of the Company (an "Affiliate Transaction"), unless: (a) the terms of such Affiliate Transaction are: (1) set forth in writing; (2) in the best interest of the Company or such Restricted Subsidiary, as the case may be; and (3) no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained in a comparable arm's-length transaction with a Person that is not an Affiliate of the Company; 61 (b) if such Affiliate Transaction involves aggregate payments or value in excess of $25.0 million, the Board of Directors (including a majority of the disinterested members of the Board of Directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (a)(2) and (3) of this paragraph as evidenced by a Board Resolution promptly delivered to the Trustee; and (c) if such Affiliate Transaction involves aggregate payments or value to the Affiliate in excess of $50.0 million in any 12-month period, the Company obtains a written opinion from an Independent Financial Advisor to the effect that the consideration to be paid or received in connection with such Affiliate Transaction is fair, from a financial point of view, to the Company and the Restricted Subsidiaries, taken as a whole. Notwithstanding the foregoing limitation, the Company or any Restricted Subsidiary may enter into or suffer to exist the following: (a) any transaction or series of transactions between the Company and one or more Restricted Subsidiaries or between two or more Restricted Subsidiaries in the ordinary course of business, provided that no more than 5% of the total voting power of the Voting Stock (on a fully diluted basis) of any such Restricted Subsidiary is owned by an Affiliate of the Company (other than a Restricted Subsidiary); (b) any Restricted Payment permitted to be made pursuant to Section 4.04 or any Permitted Investment (other than pursuant to clauses (a)(iii), (b), (g), (h), (i), (k) or (l) of the definition of "Permitted Investment"); (c) the payment of compensation (including amounts paid pursuant to employee benefit plans) for the personal services of and related indemnities provided to officers, directors, consultants and employees of the Company or any of the Restricted Subsidiaries, so long as the Board of Directors in good faith shall have approved the terms thereof and deemed the services theretofore or thereafter to be performed for such compensation to be fair consideration therefor; (d) loans and advances to employees made in the ordinary course of business and consistent with the 62 past practices of the Company or such Restricted Subsidiary, as the case may be, provided that such loans and advances do not exceed $25 million in the aggregate at any one time outstanding; (e) any transaction effected as part of a Qualified Receivables Transaction or any transaction involving the transfer of accounts receivable of the type specified in the definition of "Credit Facilities" and permitted under clause (b) of Section 4.03; (f) payments of customary fees by the Company or any of its Restricted Subsidiaries to Leonard Green & Partners L.P. or any of its Affiliates made for any corporate advisory services or financial advisory, financing, underwriting or placement services or in respect of other investment banking activities including, without limitation, in connection with acquisitions or divestitures, which are approved by a majority of the Board of Directors in good faith; (g) if such Affiliate Transaction is with any Person solely in its capacity as a holder of Debt or Capital Stock of the Company or any of its Restricted Subsidiaries, where such Person is treated no more favorably than any other holder of such Debt or Capital Stock of the Company or any of its Restricted Subsidiaries; and (h) any agreement as in effect on the Issue Date or any amendment thereto (so long as such amendment is not disadvantageous to the Holders of the Securities in any material respect) or any transaction contemplated thereby. SECTION 4.09. Limitation on Guarantees by Restricted Subsidiaries. The Company shall not permit any Restricted Subsidiary to Guarantee the payment of any Debt or Capital Stock of the Company (other than Guarantees of Debt incurred under clause (a), (b), (c), (d) or (l) of Section 4.03 or Guarantees permitted pursuant to clause (j) of Section 4.03 or Guarantees permitted by clause (s) of Section 4.03 as it relates to clause (d) of Section 4.03), except that a Restricted Subsidiary may Guarantee Debt of the Company provided that: (a) such Debt and the Debt represented by such Guarantee is permitted by Section 4.03; (b) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the 63 Indenture providing for a Guarantee of payment of the Securities by such Restricted Subsidiary and such Guarantee of Debt of the Company: (1) unless such Debt is a Subordinated Obligation, shall be pari passu (or subordinate) in right of payment to and on substantially the same terms as (or less favorable to such Debt than) such Restricted Subsidiary's Guarantee with respect to the Securities; and (2) if such Debt is a Subordinated Obligation, shall be subordinated in right of payment to such Restricted Subsidiary's Guarantee with respect to the Securities to at least the same extent as such Debt is subordinated to the Securities; and (c) such Restricted Subsidiary shall deliver to the trustee an Opinion of Counsel to the effect that: (1) such Guarantee of the Securities has been duly executed and authorized; and (2) such Guarantee of the Securities constitutes a valid, binding and enforceable obligation of such Restricted Subsidiary, except insofar as enforcement thereof may be limited by bankruptcy, insolvency or similar laws (including, without limitation, all laws relating to fraudulent transfers) and except insofar as enforcement thereof is subject to general principles of equity. SECTION 4.10. Limitation on Sale and Leaseback Transactions. The Company shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction with respect to any Property unless: (a) the Company or such Restricted Subsidiary would be entitled to: (1) Incur Debt in an amount equal to the Attributable Debt with respect to such Sale and Leaseback Transaction pursuant to Section 4.03; and (2) create a Lien on such Property securing such Attributable Debt without also securing the Securities pursuant to Section 4.05; and 64 (b) such Sale and Leaseback Transaction is effected in compliance with Section 4.06; provided that such Sale and Leaseback Transaction constitutes an Asset Sale. SECTION 4.11. Designation of Restricted and Unrestricted Subsidiaries. The Board of Directors may designate any Subsidiary of the Company to be an Unrestricted Subsidiary if: (a) the Subsidiary to be so designated does not own any Capital Stock or Debt of, or own or hold any Lien on any Property of, the Company or any other Restricted Subsidiary; and (b) either: (1) the Subsidiary to be so designated has total assets of $1,000 or less; or (2) such designation is effective immediately upon such entity becoming a Subsidiary of the Company. Unless so designated as an Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company will be classified as a Restricted Subsidiary; provided, however, that such Subsidiary shall not be designated a Restricted Subsidiary and shall be automatically classified as an Unrestricted Subsidiary if either of the requirements set forth in clauses (x) and (y) of the second immediately following paragraph will not be satisfied after giving pro forma effect to such classification as a Restricted Subsidiary or if such Person is a Subsidiary of an Unrestricted Subsidiary. Except as provided in the first sentence of the preceding paragraph, no Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary. In addition, neither the Company nor any Restricted Subsidiary shall at any time be directly or indirectly liable for any Debt that provides that the holder thereof may (with the passage of time or notice or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its Stated Maturity upon the occurrence of a default with respect to any Debt, Lien or other obligation of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary). The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary if, 65 immediately after giving pro forma effect to such designation, (x) the Company could Incur at least $1.00 of additional Debt pursuant to clause (1) of the first paragraph of Section 4.03 and (y) no Default or Event of Default shall have occurred and be continuing or would result therefrom. Any such designation or redesignation by the Board of Directors will be evidenced to the Trustee by filing with the Trustee a Board Resolution giving effect to such designation or redesignation and an Officers' Certificate that: (a) certifies that such designation or redesignation complies with the foregoing provisions; and (b) gives the effective date of such designation or redesignation, such filing with the Trustee to occur within 45 days after the end of the fiscal quarter of the Company in which such designation or redesignation is made (or, in the case of a designation or redesignation made during the last fiscal quarter of the Company's fiscal year, within 90 days after the end of such fiscal year). SECTION 4.12. Change of Control. (a) Upon the occurrence of a Change of Control, each Holder of Securities shall have the right to require the Company to repurchase all or any part of such Holder's Securities pursuant to the offer described below (the "Change of Control Offer") at a purchase price (the "Change of Control Purchase Price") equal to 101.0% of the principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). If the purchase date is on or after a record date and on or before the relevant interest payment date, the accrued and unpaid interest, if any, will be paid to the person or entity in whose name the Security is registered at the close of business on that record date, and no additional interest will be payable to Holders whose Securities shall be subject to redemption. (b) Within 30 days following any Change of Control, the Company shall (i) cause a notice of the Change of Control Offer to be sent at least once to the Dow Jones News Service or similar business news service in the United States and (ii) send, by first-class mail, with a copy to the Trustee, to each Holder of Securities, at such Holder's 66 address appearing in the Security Register, a notice stating: (A) that a Change of Control Offer is being made pursuant to this Section and that all Securities timely tendered will be accepted for payment; (B) the Change of Control Purchase Price and the purchase date, which shall be, subject to any contrary requirements of applicable law, a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (C) the circumstances and relevant facts regarding the Change of Control (including, to the extent reasonably practicable, information with respect to pro forma historical income, cash flow and capitalization after giving effect to the Change of Control); and (D) the procedures that Holders of Securities must follow in order to tender their Securities (or portions thereof) for payment and the procedures that Holders of Securities must follow in order to withdraw an election to tender Securities (or portions thereof) for payment. (c) Holders electing to have a Security purchased shall be required to surrender the Security, with an appropriate form duly completed, to the Company or its agent at the address specified in the notice at least three Business Days prior to the Change of Control Payment Date. Holders shall be entitled to withdraw their election if the Trustee or the Company receives not later than one Business Day prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security that was delivered for purchase by the Holder and a statement that such Holder is withdrawing its election to have such Security purchased. (d) On or prior to the Change of Control Payment Date, the Company shall irrevocably deposit with the Trustee or with the Paying Agent (or, if the Company or any of its Wholly Owned Subsidiaries is acting as the Paying Agent, segregate and hold in trust) in cash an amount equal to the Change of Control Purchase Price payable to the Holders entitled thereto, to be held for payment in accordance with the provisions of this Section. On the Change of Control Payment Date, the Company shall deliver to the Trustee the Securities or portions thereof that have been properly tendered to and are to be accepted by the Company for payment. The Trustee or the Paying Agent shall, on the Change of Control Payment Date, mail or deliver payment to each tendering Holder of the Change of Control Purchase Price. In the event that the aggregate Change of Control Purchase Price is less than the amount delivered by the Company to the Trustee or the Paying Agent, the Trustee or the Paying Agent, as the case may be, shall deliver the 67 excess to the Company immediately after the Change of Control Payment Date. (e) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the purchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 4.13. Further Instruments and Acts. Upon request of the Trustee, the Company shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. ARTICLE V Successor Company SECTION 5.01. (a) When Company May Merge or Transfer Assets. The Company will not merge, consolidate or amalgamate with or into any other Person (other than a merger of a Wholly Owned Restricted Subsidiary into the Company) or sell, transfer, assign, lease, convey or otherwise dispose of all or substantially all its Property in any one transaction or series of transactions unless: (a) the Company will be the surviving Person (the "Surviving Person") or the Surviving Person (if other than the Company) formed by such merger, consolidation or amalgamation or to which such sale, transfer, assignment, lease, conveyance or disposition is made will be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia; (b) the Surviving Person (if other than the Company) expressly assumes, by supplemental indenture in form satisfactory to the Trustee, executed and delivered to the Trustee by such Surviving Person, the due and punctual payment of the principal of, and interest on, all the Securities, according to their tenor, and the due and punctual performance and 68 observance of all the covenants and conditions of the Indenture to be performed by the Company; (c) in the case of a sale, transfer, assignment, lease, conveyance or other disposition of all or substantially all the Property of the Company, such Property shall have been transferred as an entirety or virtually as an entirety to one Person; (d) immediately before and after giving effect to such transaction or series of transactions on a pro forma basis (and treating, for purposes of this clause (d) and clause (e) below, any Debt that becomes, or is anticipated to become, an obligation of the Surviving Person or any Restricted Subsidiary as a result of such transaction or series of transactions as having been Incurred by the Surviving Person or such Restricted Subsidiary at the time of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing; (e) immediately after giving effect to such transaction or series of transactions on a pro forma basis, either (i) the Company or the Surviving Person, as the case may be, would be able to Incur at least $1.00 of additional Debt under clause (1) of Section 4.03 or (ii) the Surviving Person would have a Consolidated Interest Coverage Ratio which is not less than the Consolidated Interest Coverage Ratio of the Company immediately prior to such transaction or series of transactions; and (f) the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such transaction and the supplemental indenture, if any, in respect thereto comply with this covenant and that all conditions precedent herein provided for relating to such transaction have been satisfied. The Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of the Company under the Indenture, but the predecessor Company in the case of: (a) a sale, transfer, assignment, conveyance or other disposition (unless such sale, transfer, assignment, conveyance or other disposition is of all the assets of the Company as an entirety or virtually as an entirety); or 69 (b) a lease, shall not be released from any obligation to pay the principal of, and interest on, the Securities. ARTICLE VI Defaults and Remedies SECTION 6.01. Events of Default. The following events shall be "Events of Default": (1) the Company fails to make the payment of interest on any Security when the same becomes due and payable, and such failure continues for a period of 30 days; (2) the Company fails to make the payment of principal of any Security when the same becomes due and payable at its Stated Maturity, upon acceleration, redemption, optional redemption, required repurchase or otherwise; (3) the Company fails to comply with Article 5; (4) the Company fails to comply with any covenant or agreement in the Securities or in this Indenture (other than a failure that is the subject of the foregoing clauses (1), (2) or (3)) and such failure continues for 30 days after written notice is given to the Company as specified below; (5) a default by the Company or any Restricted Subsidiary under any Debt of the Company or any Restricted Subsidiary which results in acceleration of the final maturity of such Debt, or the failure to pay any such Debt at final maturity (giving effect to applicable grace periods), in an aggregate amount in excess of $35,000,000 or its foreign currency equivalent at the time; (6) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; 70 (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary in an involuntary case; (B) appoints a Custodian of the Company or any Significant Subsidiary or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company or any Significant Subsidiary; and in each such case the order or decree remains unstayed and in effect for 45 days; or (8) any judgment or judgments for the payment of money in an unsecured aggregate amount in excess of $35,000,000 or its foreign currency equivalent at the time is entered against the Company or any Restricted Subsidiary and shall not be waived, satisfied or discharged for any period of 30 consecutive days during which a stay of enforcement shall not be in effect. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. A Default under clause (4) is not an Event of Default until the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding notify the Company (and in the case of such 71 notice by Holders, the Trustee) of the Default and the Company does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any Event of Default and any event that with the giving of notice or the lapse of time would become an Event of Default, its status and what action the Company is taking or proposes to take with respect thereto. SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.01(6) or (7) with respect to the Company) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding by notice to the Company and the Trustee, may declare the principal of and accrued and unpaid interest to the date of acceleration on all the Securities to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.01(6) or (7) with respect to the Company occurs, the principal of and accrued and unpaid interest on all the Securities shall, automatically and without any action by the Trustee or any Holder, become and be immediately due and payable. The Holders of a majority in aggregate principal amount of the outstanding Securities by notice to the Trustee and the Company may rescind any declaration of acceleration if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquies cence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. 72 SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in aggregate principal amount of the Securities then outstanding by notice to the Trustee may waive an existing Default and its consequences except (i) a Default in the payment of the principal of or interest on a Security or (ii) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 6.05. Control by Majority. The Holders of a majority in aggregate principal amount of the Securities then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee with respect to the Securities. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.01, that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action or following any direction hereunder, the Trustee shall be entitled to reasonable indemnification against all losses and expenses caused by taking or not taking such action. SECTION 6.06. Limitation on Suits. A Security holder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) such Holder shall have previously given to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in aggregate principal amount of the Securities then outstanding shall have made a written request, and such Holder of or Holders shall have offered reasonable indemnity, to the Trustee to pursue a remedy; and (3) the Trustee has failed to institute such proceeding and has not received from the Holders of at least a majority in aggregate principal amount of the Securities outstanding a direction inconsistent with 73 such request, within 60 days after such notice, request and offer. The foregoing limitations on the pursuit of remedies by a Securityholder shall not apply to a suit instituted by a Holder of Securities for the enforcement of payment of the principal of or interest on such Security on or after the applicable due date specified in such Security. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.07. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, its creditors or its property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.07. 74 SECTION 6.10. Priorities. If the Trustee collects any money or property pursuant to this Article 6, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under Section 7.07; SECOND: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and THIRD: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including rea sonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in aggregate principal amount of the Securities. SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. 75 ARTICLE VII Trustee SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. 76 (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers. (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA, and the provisions of this Article VII shall apply to the Trustee in its role as Registrar, Paying Agent and Security Custodian. (i) The Trustee shall not be deemed to have notice of a Default or an Event of Default unless (a) the Trustee has received written notice thereof from the Company or any Holder or (b) a Trust Officer shall have actual knowledge thereof. SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. The Trustee may, however, in its discretion make such further inquiry or investigation into such facts or matters as it may see fit and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care and with the consent of the Company. 77 (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers; provided, however, that the Trustee's conduct does not constitute wilful misconduct or negligence. (e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it here-under in good faith and in accordance with the advice or opinion of such counsel. (f) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty unless so specified herein. SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar or co-registrar may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity, priority or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. SECTION 7.05. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the Default or Event of Default within 30 days after it is known to a Trust Officer or written notice of it is received by the Trustee. Except in the case of a Default or Event of Default in payment of principal of or interest on any Security, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Securityholders. SECTION 7.06. Reports by Trustee to Holders. Within 60 days after June 1 each year beginning with June 1, 78 2002, the Trustee shall mail to each Securityholder a brief report dated as of such June 1 that complies with TIA ss. 313(a), if and to the extent required by such subsection. The Trustee shall also comply with TIA ss. 313(b). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Company shall indemnify the Trustee against any and all loss, liability or expense (including reasonable attorneys' fees) incurred by it in connection with the acceptance and administration of this trust and the performance of its duties hereunder. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder unless the Company has been prejudiced thereby. The Company shall defend the claim, and the Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own wilful misconduct, negligence or bad faith. The Company need not pay for any settlement made by the Trustee without the Company's consent, such consent not to be unreasonably withheld. All indemnifications and releases from liability granted hereunder to the Trustee shall extend to its officers, directors, employees, agents, successors and assigns. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Securities. 79 The Company's payment obligations pursuant to this Section shall survive the resignation or removal of the Trustee and the discharge of this Indenture. When the Trustee incurs expenses after the occurrence of a Default specified in Section 6.01(6) or (7) with respect to the Company, the expenses are intended to constitute expenses of administration under the Bankruptcy Law. SECTION 7.08. Replacement of Trustee. The Trustee may resign at any time by so notifying the Company. The Holders of a majority in aggregate principal amount of the Securities the outstanding may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee, provided that so long as no Default or Event of Default has occurred and is continuing, the Company shall have the right to consent to the successor Trustee, such consent not to be unreasonably withheld. The Company shall remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed by the Company or by the Holders of a majority in aggregate principal amount of the Securities then outstanding, and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, 80 the retiring Trustee or the Holders of 10% in aggregate principal amount of the Securities then outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder who has been a bona fide Holder of a Security for at least six months may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation or banking association without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any such successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least $50,000,000 as set forth in its (or its related bank holding company's) most recent published annual report of condition. The Trustee shall comply with TIA ss. 310(b), subject to the penultimate paragraph thereof; provided, however, that there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures under which other securities or certificates of interest or 81 participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. SECTION 7.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated. ARTICLE VIII Discharge of Indenture; Defeasance SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a) When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.07) for cancellation or (ii) all outstanding Securities have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article III and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities, including interest thereon to maturity or such redemption date (other than Securities replaced pursuant to Section 2.07), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 8.01(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Company. (b) Subject to Sections 8.01(c) and 8.02, the Company at any time may terminate (i) all of its obligations under the Securities and this Indenture ("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12 and 4.13 and the operation of Sections 6.01(5), 6.01(6), 6.01(7) and 6.01(8) (but, in the case of Sections 6.01(6) and (7), with respect only to Restricted Subsidiaries) and the limitations contained in clauses (e) and (f) of Article 5 ("covenant defeasance option"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default. If the Company exercises 82 its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 6.01(4) (with respect to the covenants of Article IV identified in the immediately preceding paragraph), 6.01(5), 6.01(6), 6.01(7) and 6.01(8) (with respect only to Significant Subsidiaries in the case of Sections 6.01(6) and 6.01(7)) or because of the failure of the Company to comply with the limitations contained in clauses (e) and (f) of Article 5. Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Company's obligations in Sections 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.05 and 8.06 shall survive until the Securities have been paid in full. Thereafter, the Company's obligations in Sections 7.07 and 8.05 shall survive. SECTION 8.02. Conditions to Defeasance. The Company may exercise its legal defeasance option or its covenant defeasance option only if: (1) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal of and interest on the Securities to maturity or redemption, as the case may be; (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Securities to maturity or redemption, as the case may be; (3) 123 days pass after the deposit is made and during the 123-day period no Default specified in Section 6.01(6), (7) or (8) with respect to the Company occurs that is continuing at the end of the period; (4) no Default or Event of Default has occurred and is continuing on the date of the deposit and after giving effect thereto; 83 (5) the deposit does not constitute a default under any other agreement binding on the Company; (6) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (7) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (8) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and (9) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article VIII have been complied with. Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article III. SECTION 8.03. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article VIII. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in 84 accordance with this Indenture to the payment of principal of and interest on the Securities. SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent shall promptly turn over to the Company upon request any excess money or securities held by them at any time. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. SECTION 8.05. Indemnity for Government Obligations. The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article VIII by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article VIII until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article VIII; provided, however, that, if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE IX Amendments SECTION 9.01. Without Consent of Holders. The Company and the Trustee may amend this Indenture or the 85 Securities without notice to or consent of any Security holder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Article V; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code; (4) to add Guarantees with respect to the Securities or to secure the Securities; (5) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (6) to make any change to comply with any requirements of the SEC in connection with qualifying, or maintaining the qualification of, this Indenture under the TIA; or (7) to make any change that does not adversely affect the rights of any Securityholder. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.02. With Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Securities). However, without the consent of each Securityholder affected thereby, an amendment may not: (1) reduce the amount of Securities whose Holders must consent to an amendment or waiver; 86 (2) reduce the rate of or extend the time for payment of interest on any Security; (3) reduce the principal of or extend the Stated Maturity of any Security; (4) impair the right of any Holder to receive payment of principal of and interest on such Holder's Securities on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder's Securities; (5) reduce the amount payable upon the redemption of any Security under Article III or change the time at which any Security may or shall be redeemed in accordance with Article III; (6) reduce the premium payable upon a Change of Control or, at any time after a Change of Control has occurred, amend the definition of "Change of Control" or change the time at which any Change of Control Offer must be made or at which the Securities must be repurchased pursuant to such Change of Control Offer; (7) at any time after the Company is obligated to make a Prepayment Offer with the Excess Proceeds from Asset Sales, change the time at which such Prepayment Offer must be made or at which the Securities must be repurchased pursuant to such Prepayment Offer; (8) make any Security payable in money other than that stated in the Security; (9) release any security interest that may have been granted in favor of the Holders; (10) make any change in Section 6.04 or 6.07 or the second sentence of this Section; or (11) subordinate the Securities to any other obligation of the Company. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to 87 give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents and Waivers. A consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder. An amendment or waiver becomes effective upon the execution of such amendment or waiver by the Trustee. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. SECTION 9.05. Notation on or Exchange of Securities. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver such Security to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return such Security to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. 88 SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any amendment authorized pursuant to this Article IX if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If such amendment does adversely affect the rights, duties, liabilities or immunities of the Trustee, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture. SECTION 9.07. Payment for Consent. Neither the Company nor any Affiliate of the Company shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. ARTICLE X Miscellaneous SECTION 10.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with another provision that is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 10.02. Notices. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail or sent by facsimile (with a hard copy delivered in person or by mail promptly thereafter) and addressed as follows: if to the Company: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 facsimile: 717-760-7867 Attention of: Elliot S. Gerson, Esq. 89 if to the Trustee: BNY Midwest Trust Company 2 North LaSalle Street, Suite 1020 Chicago, IL 60602 facsimile: 312-827-8542 Attention of: Corporate Trust The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 10.03. Communication by Holders with Other Holders. Securityholders may communicate pursuant to TIA ss. 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). SECTION 10.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) except in the case of Section 3.01 under which an opinion will not be required, an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with; provided, however, that with respect to matters of fact 90 an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 10.05. Statements Required in Certificate or Opinion. Each certificate with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that the individual making such certificate has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements contained in such certificate are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with, Each opinion with respect to compliance with a covenant or condition provided for in this Indenture shall be in form and substance reasonably satisfactory to the party requesting such opinion and the party giving such opinion. SECTION 10.06. When Securities Disregarded. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 10.07. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent or co-registrar may make reasonable rules for their functions. 91 SECTION 10.08. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York or the State of Illinois. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. SECTION 10.09. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW. SECTION 10.10. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 10.11. Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 10.12. Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 10.13. Table of Contents; Headings. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 92 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. RITE AID CORPORATION, by --------------------------------- Name: Title: BNY MIDWEST TRUST COMPANY, by ---------------------------------- Name: Title: APPENDIX A FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A, TO CERTAIN PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S AND, SUBJECT TO THE APPLICABLE PURCHASE AGREEMENT, TO INSTITUTIONAL ACCREDITED INVESTORS. PROVISIONS RELATING TO INITIAL SECURITIES AND EXCHANGE SECURITIES 1. Definitions 1.1 Definitions For the purposes of this Appendix A the following terms shall have the meanings indicated below: "Cedel" means Cedel Bank, S.A., or any successor securities clearing agency. "Definitive Security" means a certificated Initial Security or Exchange Security or Private Exchange Security bearing, if required, the restricted securities legend set forth in Section 2.3(d). "Depository" means The Depository Trust Company, its nominees and their respective successors. "Distributed Compliance Period", with respect to any Securities, means the period of 40 consecutive days beginning on and including the later of (i) the day on which such Securities are first offered to persons other than distributors (as defined in Regulation S under the Securities Act) in reliance on Regulation S and (ii) the Issue Date with respect to such Securities. "Exchange Securities" means the 11 1/4% Senior Notes due 2008 to be issued pursuant to the Indenture in connection with a Registered Exchange Offer pursuant to the Registration Agreement. "Euroclear" means the Euroclear Clearance System or any successor securities clearing agency. "IAI" means an institutional "accredited investor" as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Initial Purchasers" means Salomon Smith Barney Inc., Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc. and Fleet Securities, Inc. 2 "Initial Securities" means the 11 1/4% Senior Notes due 2008, to be issued from time to time, in one or more series as provided for in this Indenture. "Original Securities" means Initial Securities in the aggregate principal amount of $150,000,000 issued on June 27, 2001. "Private Exchange" means the offer by the Company, pursuant to Section 2 of the Registration Agreement, or pursuant to any similar provision of any other Registration Agreement, to issue and deliver to certain purchasers, in exchange for the Initial Securities held by such purchasers as part of their initial distribution, a like aggregate principal amount of Private Exchange Securities. "Private Exchange Securities" means the 11 1/4% Senior Notes due 2008 to be issued pursuant to this Indenture in connection with a Private Exchange pursuant to a Registration Agreement. "Purchase Agreement" means the Purchase Agreement dated June 20, 2001, among the Company and the Initial Purchasers relating to the Original Securities, or any similar agreement relating to any future sale of Initial Securities by the Company. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registered Exchange Offer" means the offer by the Company, pursuant to a Registration Agreement, to certain Holders of Initial Securities, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of Exchange Securities registered under the Securities Act. "Registration Agreement" means the Exchange and Registration Rights Agreement dated June 27, 2001, among the Company and the Initial Purchasers relating to the Original Securities, or any similar agreement relating to any additional Initial Securities. "Rule 144A Securities" means all Initial Securities offered and sold to QIBs in reliance on Rule 144A. "Securities" means the Initial Securities and the Exchange Securities, treated as a single class. 3 "Securities Act" means the Securities Act of 1933, as amended. "Securities Custodian" means the custodian with respect to a Global Security (as appointed by the Depository) or any successor person thereto, who shall initially be the Trustee. "Shelf Registration Statement" means a registration statement issued by the Company in connection with the offer and sale of Initial Securities or Private Exchange Securities pursuant to the Registration Agreement. "Transfer Restricted Securities" means Definitive Securities and any other Securities that bear or are required to bear the legend set forth in Section 2.3(c) hereto. 1.2 Other Definitions Defined in Term Section: ---- ------- "Agent Members"..........................................................2.1(b) "Global Security"........................................................2.1(a) "IAI Global Security"....................................................2.1(a) "Regulation S" ..........................................................2.1 "Regulation S Global Security" ..........................................2.1(a) "Rule 144A"..............................................................2.1 "Rule 144A Global Security"..............................................2.1(a) 2. The Securities 2.1 Form and Dating The Initial Securities will be offered and sold by the Company, from time to time, pursuant to one or more Purchase Agreements. The Initial Securities will be resold initially only to QIBs in reliance on Rule 144A under the Securities Act ("Rule 144A") and in reliance on Regulation S under the Securities Act ("Regulation S"). Initial Securities may thereafter be transferred to, among others, QIBs, purchasers in reliance on Regulation S and IAIs under Rule 501(a)(1), (2), (3) or (7) under the Securities Act, subject to the restrictions on transfer set forth herein. (a) Global Securities. Initial Securities initially resold pursuant to Rule 144A shall be issued initially in the form of one or more permanent global Securities in definitive, fully registered form (collectively, the "Rule 144A Global Security"), Initial Securities initially 4 resold pursuant to Regulation S shall be issued initially in the form of one or more global securities (collectively, the "Regulation S Global Security") and, subject to Section 2.4 hereof, Initial Securities transferred subsequent to the initial resale thereof to IAIs shall be issued initially in the form of one or more permanent global securities in definitive, fully registered form (collectively, the "IAI Global Security"), in each case without interest coupons and with the global securities legend and restricted securities legend set forth in Exhibit 1 hereto, which shall be deposited on behalf of the purchasers of the Initial Securities represented thereby with the Securities Custodian, and registered in the name of the Depository or a nominee of the Depository, duly executed by the Company and authenticated by the Trustee as provided in this Indenture. The Rule 144A Global Security, IAI Global Security, and Regulation S Global Security are collectively referred to herein as "Global Securities." The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee as hereinafter provided. (b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a Global Security deposited with or on behalf of the Depository. The Company shall execute and the Trustee shall, in accordance with this Section 2.1(b) and pursuant to an order of the Company, authenticate and deliver initially one or more Global Securities that (a) shall be registered in the name of the Depository for such Global Security or Global Securities or the nominee of such Depository and (b) shall be delivered by the Trustee to such Depository or pursuant to such Depository's instructions or held by the Trustee as Securities Custodian. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depository or by the Trustee as Securities Custodian or under such Global Security, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices of such Depository governing the exercise of the rights of a holder of a beneficial interest in any Global Security. 5 (c) Definitive Securities. Except as provided in Section 2.3 or 2.4, owners of beneficial interests in Global Securities will not be entitled to receive physical delivery of Definitive Securities. 2.2 Authentication. The Trustee shall authenticate and deliver: (1) Original Securities for original issue in an aggregate principal amount of $150,000,000, (2) additional Initial Securities, if and when issued, in an unlimited aggregate principal amount, and (3) the Exchange Securities or Private Exchange Securities for issue only in a Registered Exchange Offer or a Private Exchange, respectively, pursuant to the Registration Agreement, for a like principal amount of Initial Securities or Private Exchange Securities, as applicable, upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities or Exchange Securities. 2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive Securities. When Definitive Securities are presented to the Registrar or a co-registrar with a request: (x) to register the transfer of such Definitive Securities; or (y) to exchange such Definitive Securities for an equal principal amount of Definitive Securities of other authorized denominations, the Registrar or co-registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Definitive Securities surrendered for transfer or exchange: (i) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Registrar or co-registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (ii) if such Definitive Securities bear a restricted securities legend, they are being transferred or exchanged pursuant to an effective registration statement under the Securities Act or pursuant to clause (A), (B) 6 or (C) below, and are accompanied by the following additional information and documents, as applicable: (A) if such Definitive Securities are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect; or (B) if such Definitive Securities are being transferred to the Company, a certification to that effect; or (C) if such Definitive Securities are being transferred pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act, (i) a certification to that effect and (ii) if the Company so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the legend set forth in Section 2.3(c)(i). (b) Transfer and Exchange of Global Securities. (i) The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depository, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depository therefor. A transferor of a beneficial interest in a Global Security shall deliver a written order given in accordance with the Depository's procedures containing information regarding the participant account of the Depository to be credited with a beneficial interest in the Global Security, and such account shall be credited in accordance with such instructions with a beneficial interest in the Global Security, and the account of the Person making the transfer shall be debited by an amount equal to the beneficial interest in the Global Security being transferred. In the case of a transfer of a beneficial interest in a Global Security to an IAI, the transferee must furnish a signed letter to the Trustee containing certain representations and agreements in the form of Exhibit B hereto. (ii) If the proposed transfer is a transfer of a beneficial interest in one Global Security to a beneficial interest in another Global Security, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Security to which such interest is being transferred in an amount equal to the principal amount of the interest to be so transferred, and the Registrar shall reflect on 7 its books and records the date and a corresponding decrease in the principal amount of the Global Security from which such interest is being transferred. (iii) Notwithstanding any other provisions of this Appendix A (other than the provisions set forth in Section 2.4), a Global Security may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (iv) In the event that a Global Security is exchanged for Definitive Securities pursuant to Section 2.4 prior to the consummation of a Registered Exchange Offer or the effectiveness of a Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.3 (including the certification requirements set forth on the reverse of the Initial Securities intended to ensure that such transfers comply with Rule 144A, Regulation S or such other applicable exemption from registration under the Securities Act, as the case may be) and such other procedures as may from time to time be adopted by the Company. (c) Legend. (i) Except as permitted by the following paragraphs (ii), (iii) and (iv), each certificate evidencing the Global Securities and the Definitive Securities (and all Securities issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form: "THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS NOTE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT 8 ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE), (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE) THAT IS ACQUIRING THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A CERTIFICATE WHICH MAY BE OBTAINED FROM THE COMPANY OR THE TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND TRUSTEE, (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS NOTE AGREES THAT IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS NOTE COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) PURCHASING FROM A PERSON NOT PARTICIPATING IN THE INITIAL DISTRIBUTION OF THIS SECURITY (OR ANY PREDECESSOR SECURITY), THAT IT IS AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (k)(2)(i) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT." Each Definitive Security will also bear the following additional legend: "IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS." 9 (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act: (A) in the case of any Transfer Restricted Security that is a Definitive Security, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Security that does not bear the legends set forth above and rescind any restriction on the transfer of such Transfer Restricted Security; and (B) in the case of any Transfer Restricted Security that is represented by a Global Security, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Security that does not bear the legends set forth above and rescind any restriction on the transfer of such Transfer Restricted Security, in either case, if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Initial Security). (iii) After a transfer of any Initial Securities or Private Exchange Securities, as the case may be, during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Securities or Private Exchange Securities, all requirements pertaining to restricted securities legends on such Initial Security or such Private Exchange Security will cease to apply, and an Initial Security or Private Exchange Security, as the case may be, in global form without restricted security legends will be available to the transferee of the beneficial interests of such Initial Securities or Private Exchange Securities. Upon the occurrence of any of the circumstances described in this paragraph, the Company will deliver an Officers' Certificate to the Trustee instructing the Trustee to issue Securities without restricted security legends. (iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Securities pursuant to which certain Holders of such Initial Securities are offered Exchange Securities in exchange for their Initial Securities, Exchange Securities in global form without the restricted security legends will be available to Holders or beneficial owners that exchange such Initial Securities (or beneficial interests therein) in such 10 Registered Exchange Offer. Upon the occurrence of any of the circumstances described in this paragraph, the Company will deliver an Officers' Certificate to the Trustee instructing the Trustee to issue Securities without restricted security legends. (d) Cancellation or Adjustment of Global Security. At such time as all beneficial interests in a Global Security have either been exchanged for Definitive Securities, redeemed, repurchased or canceled, such Global Security shall be returned by the Depository to the Trustee for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Security is exchanged for Definitive Securities, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced, and an adjustment shall be made on the books and records of the Trustee (if it is then the Securities Custodian for such Global Security) with respect to such Global Security, by the Trustee or the Securities Custodian, to reflect such reduction. (e) Obligations with Respect to Transfers and Exchanges of Securities. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Definitive Securities and Global Securities at the Registrar's or co-registrar's request. (ii) No service charge shall be made for any registration of transfer or exchange, but the Company or the Trustee may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.06, 4.06, 4.12 and 9.05 of this Indenture). (iii) The Registrar or co-registrar shall not be required to register the transfer of or exchange of any Security for a period beginning 15 days before the mailing of a notice of redemption or an offer to repurchase Securities or 15 days before an interest payment date. (iv) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is 11 registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. (v) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. (f) No Obligation of the Trustee. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in the Depository or any other Person with respect to the accuracy of the records of the Depository or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depository) of any notice (including any notice of redemption or repurchase) or the payment of any amount, under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Securities shall be given or made only to the registered Holders (which shall be the Depository or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through the Depository subject to the applicable rules and procedures of the Depository. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depository participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine 12 substantial compliance as to form with the express requirements hereof. 2.4 Definitive Securities (a) A Global Security deposited with the Depository or with the Trustee as Securities Custodian pursuant to Section 2.1 shall be transferred to the beneficial owners thereof in the form of Definitive Securities in an aggregate principal amount equal to the principal amount of such Global Security, in exchange for such Global Security, only if such transfer complies with Section 2.3 and (i) the Depository notifies the Company that it is unwilling or unable to continue as a Depository for such Global Security or if at any time the Depository ceases to be a "clearing agency" registered under the Exchange Act, and a successor Depository is not appointed by the Company within 90 days of such notice, or (ii) a Default or an Event of Default has occurred and is continuing or (iii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Securities under this Indenture. (b) Any Global Security that is transferable to the beneficial owners thereof pursuant to this Section 2.4 shall be surrendered by the Depository to the Trustee, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of Definitive Securities of authorized denominations. Definitive Securities issued in exchange for any portion of a Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depository shall direct. Any Definitive Security delivered in exchange for an interest in the Global Security shall, except as otherwise provided by Section 2.3(d), bear the restricted securities legend set forth in Exhibit 1 hereto. (c) The registered Holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action that a Holder is entitled to take under this Indenture or the Securities. (d) In the event of the occurrence of any of the events specified in Section 2.4(a)(i), (ii) or (iii), the Company will promptly make available to the Trustee a reasonable supply of Definitive Securities in definitive, fully registered form without interest coupons. EXHIBIT 1 to APPENDIX A [FORM OF FACE OF INITIAL SECURITY] [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. [Restricted Securities Legend] THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS NOTE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE, OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE), (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a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a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (k)(2)(i) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. [Definitive Securities Legend] [IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.] [FORM OF FACE OF INITIAL SECURITY] No.:__________ [up to]**$__________ 11 1/4% Senior Note due 2008 CUSIP No. ______ RITE AID CORPORATION, a Delaware corporation, promises to pay to [Cede & Co.]**, or registered assigns, the principal sum [of [ ] Dollars]* [as set forth on the Schedule of Increases or Decreases annexed hereto]** on July 1, 2008. Interest Payment Dates: January 1 and July 1, commencing on January 1, 2002. Record Dates: June 15 and December 15. - ------------------------ * Insert for Definitive Securities. ** Insert for Global Securities. If the Security is to be issued in global form, add the Global Securities Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1 captioned "TO BE ATTACHED TO GLOBAL SECURITIES - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY". 2 Additional provisions of this Security are set forth on the other side of this Security. IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed. RITE AID CORPORATION, by ----------------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION Dated: [TRUSTEE], as Trustee, certifies that this is one of the Securities referred to in the Indenture. by:_________________________ Authorized Signatory 3 [FORM OF REVERSE SIDE OF INITIAL SECURITY] 11 1/4% Senior Note due 2008 1. Interest (a) RITE AID CORPORATION, a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on January 1 and July 1 of each year, commencing January 1, 2002. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from June 27, 2001. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate per annum borne by the Securities plus 1% per annum, and it shall pay interest on overdue installments of interest at the rate per annum borne by the Securities to the extent lawful. (b) Special Interest. The holder of this Security is entitled to the benefits of a Exchange and Registration Rights Agreement, dated as of June 27, 2001, among the Company and the Purchasers named therein (the "Registration Agreement"). Capitalized terms used in this paragraph (b) but not defined herein have the meanings assigned to them in the Registration Agreement. In the event that (i) neither the Exchange Offer Registration Statement nor the Shelf Registration Statement, as the case may be, is filed with the Commission on or prior to the date which is 90 days following the date of the original issuance of the Securities, (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective within 180 days after the original issuance of the Securities, (iii) if the Exchange Offer Registration Statement is declared effective, the Registered Exchange Offer is not consummated on or prior to 210 days after the date of the original issuance of Securities, (iv) if the Company is required to file the Shelf Registration Statement in accordance with Section 2 of the Registration Agreement, the Company does not so file the Shelf Registration Statement on or prior to the 30th day after the Company's obligation to file such Shelf Registration Statement arises, (v) the applicable Registration Statement is filed and declared effective but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being again effective within 30 days or being succeeded within 30 days by an additional 4 Registration Statement filed and declared effective, provided that such 30-day period shall toll during a Suspension Period, or (vi) the periods referred to in the second paragraph of Section 2(b) of the Registration Agreement exceed, in the aggregate, 75 days during any 365-day period (each such event referred to in clauses (i) through (vi), a "Registration Default"), interest (the "Special Interest") shall accrue (in addition to stated interest on the Securities) from and including the date on which the first such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured, at a rate of 0.25% per annum on the applicable principal amount of Securities held by such Holder for the first 90-day period immediately following the occurrence of a Registration Default, and such rate will increase by an additional 0.25% with respect to each subsequent 90-day period until all Registration Defaults have been cured, provided that the maximum additional rate may in no event exceed 0.50% per annum. The Special Interest will be payable in cash semiannually in arrears each January 1 and July 1. 2. Method of Payment The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered holders of Securities at the close of business on the December 15 or June 15 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Securities represented by a Global Security (including principal and interest) will be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company will make all payments in respect of a Definitive Security (including principal and interest), by mailing a check to the registered address of each Holder thereof; provided, however, that payments on the Securities may also be made, in the case of a Holder of at least $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 5 3. Paying Agent and Registrar Initially, BNY Midwest Trust Company, an Illinois trust company (the "Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. Indenture The Company issued the Securities under an Indenture dated as of June 27, 2001 (the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms defined in the Indenture and not defined in the Securities have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the TIA for a statement of those terms. The Securities are senior unsecured obligations of the Company. This Security is one of the Original Securities referred to in the Indenture issued in an aggregate principal amount of $150,000,000. The Securities include the Original Securities, an unlimited aggregate principal amount of additional Initial Securities that may be issued under the Indenture, and any Exchange Securities issued in exchange for Initial Securities. The Original Securities, such additional Initial Securities and the Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries to, among other things, make certain Investments and other Restricted Payments, pay dividends and other distributions, incur Debt, enter into consensual restrictions upon the payment of certain dividends and distributions by such Restricted Subsidiaries, enter into or permit certain transactions with Affiliates, create or incur Liens and make Asset Sales. The Indenture also imposes limitations on the ability of the Company to consolidate or merge with or into any other Person or sell, transfer, assign, lease, convey or otherwise dispose of all or substantially all of the Property of the Company. 5. Optional Redemption The Company may choose to redeem the Securities at any time. If it does so, it may redeem all or any portion of 6 the Securities, at once or over time, after giving the required notice under the Indenture. To redeem the Securities prior to July 1, 2005, the Company must pay a redemption price equal to 100% of the principal amount of the Securities to be redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption). Any notice to holders of Securities of such a redemption needs to include the appropriate calculation of the redemption price, but does not need to include the redemption price itself. The actual redemption price must be set forth in an Officers' certificate delivered to the Trustee no later than two business days prior to the redemption date. "Applicable Premium" means, with respect to any Security on any redemption date, the greater of (1) 1.0% of the principal amount of such Security and (ii) the excess of (A) the present value at such redemption date of (1) the redemption price of such Security at July 1, 2005 (such redemption price being set forth in the table below) plus (2) all required interest payments due on such Security through July 1, 2005 (excluding accrued but unpaid interest), computed using a discount rate equal to the Treasury Rate on such redemption date plus 75 basis points over (B) the principal amount of such Security. "Treasury Rate" means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the redemption date (or, if such statistical release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to July 1, 2005; provided, however, that if the period from the redemption date to July 1, 2005 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. On and after July 1, 2005, the Company may redeem the Securities in whole at any time or in part from time to time at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive 7 interest due on the relevant interest payment date that is on or prior to the date of redemption), if redeemed during the 12-month period beginning on July 1 of the years set forth below: Redemption Period Price - ------ ---------- 2005................................................... 105.625% 2006................................................... 102.813% 2007................................................... 100.000% Notwithstanding the foregoing, at any time and from time to time prior to July 1, 2004, the Company may redeem up to 35% of the original aggregate principal amount of the Securities (including Securities issued after June 27, 2001) with the proceeds from one or more Equity Offerings by the Company, at a redemption price equal to 111.25% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption); provided, however, that after giving effect to any such redemption, at least 65% of the original aggregate principal amount of the Securities (including Securities issued after June 27, 2001) remains outstanding. Any such redemption shall be made within 75 days of such Equity Offering. If the optional redemption date is on or after a record date and on or before the relevant interest payment date, the accrued and unpaid interest if any, will be paid to the person or entity in whose name the Security is registered at the close of business on that record date, and no additional interest will be payable to holders whose Securities shall be subject to redemption. 6. Sinking Fund The Securities are not subject to any sinking fund. 7. Notice of Redemption Notice of redemption will be mailed by first-class mail at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his or her registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the redemption date is 8 deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 8. (a) Repurchase of Securities at the Option of Holders upon Change of Control Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions specified in the Indenture, to cause the Company to repurchase all or any part of the Securities of such Holder at a purchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of purchase) as provided in, and subject to the terms of, the Indenture. 8. (b) Prepayment Offer Upon Asset Sale When the aggregate amount of Excess Proceeds exceeds $20.0 million (taking into acccount income earned on such Excess Proceeds, if any), the Company will be required to make an offer to purchase (the "Prepayment Offer") the Securities, which offer shall be in the amount of the Allocable Excess Proceeds, on a pro rata basis according to principal amount at maturity, at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. To the extent that any portion of the amount of Net Available Cash remains after compliance with the preceding sentence and provided that all Holders have been given the opportunity to tender their Securities for purchase in accordance with the Indenture, the Company or such Restricted Subsidiary may use such remaining amount for any purpose premitted by the Indenture and the amount of Excess Proceeds will be reset to zero. 9. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer 9 documents and to pay any taxes required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or to transfer or exchange any Securities for a period of 15 days prior to a selection of Securities to be redeemed or 15 days before an interest payment date. 10. Persons Deemed Owners The registered Holder of this Security may be treated as the owner of it for all purposes. 11. Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its written request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 12. Discharge and Defeasance Subject to certain conditions, the Company at any time may terminate some of or all its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 13. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended without prior notice to any Securityholder but with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder of Securities, the Company and the Trustee may amend the Indenture or the Securities (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to comply with Article V of the Indenture; (iii) to provide for uncertificated Securities in addition to or in place of certificated Securities; (iv) to add Guarantees with respect to the Securities; (v) to secure the Securities; (vi) to add additional covenants or to surrender rights and 10 powers conferred on the Company; (vii) to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA; or (viii) to make any change that does not adversely affect the rights of any Securityholder. 14. Defaults and Remedies If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding, subject to certain limitations, may declare all the Securities to be immediately due and payable. Certain events of bankruptcy or insolvency are Events of Default and shall result in the Securities being immediately due and payable upon the occurrence of such Events of Default without any further act of the Trustee or any Holder. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power under the Indenture. The Holders of a majority in aggregate principal amount of the Securities then outstanding, by written notice to the Company and the Trustee, may rescind any declaration of acceleration and its consequences if the rescission would not conflict with any judgment or decree, and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration. 15. Trustee Dealings with the Company Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 16. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a 11 Security, each Securityholder waives and releases all such liability. The waiver and release are part of the considera tion for the issue of the Securities. 17. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 18. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 19. Governing Law THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW. 20. CUSIP Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder of Securities upon written request and without charge to the Holder a copy of the Indenture which has in it the text of this Security. 12 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint as agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. - ----------------------------------------------------------------------------- Date: ________________ Your Signature: ______________________________________ - ----------------------------------------------------------------------------- Sign exactly as your name appears on the other side of this Security. In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being transferred in accordance with its terms: CHECK ONE BOX BELOW (1) [ ] to the Company; or (2) [ ] pursuant to an effective registration statement under the Securities Act of 1933; or (3) [ ] inside the United States to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in 13 each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (4) [ ] outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933; or (5) [ ] to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee or the Company); or (6) [ ] pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (4), (5) or (6) is checked, the Trustee may require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933. -------------------------- Your Signature Signature Guarantee: Date: ___________________ __________________________ Signature must be guaranteed Signature of Signature by a participant in a Guarantee recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee - ------------------------------------------------------------------------------- 14 TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ________________ ______________________________ NOTICE: To be executed by an executive officer 15 [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The initial principal amount of this Global Security is $[ ]. The following increases or decreases in this Global Security have been made:
Date of Amount of decrease Amount of increase Principal amount Signature of Exchange in Principal in Principal of this Global authorized Amount of this Amount of this Security following signatory of Global Security Global Security such decrease or Trustee or increase Securities Custodian
16 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.06 (Asset Sale) or 4.12 (Change of Control) of the Indenture, check the box: --- / / --- If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.06 or 4.12 of the Indenture, state the amount: $ Date: __________________ Your Signature: _______________________________ (Sign exactly as your name appears on the other side of the Security) Signature Guarantee:_______________________________________ Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. EXHIBIT A [FORM OF FACE OF EXCHANGE SECURITY] No.___________ [Up to]** $__________ 11 1/4% Senior Note due 2008 CUSIP No. ______ RITE AID CORPORATION, a Delaware corporation, promises to pay to [Cede & Co.]**, or registered assigns, the principal sum [of [ ] Dollars]* [as set forth on the Schedule of Increases or Decreases annexed hereto]** on July 1, 2008. Interest Payment Dates: January 1 and July 1, commencing on January 1, 2002. Record Dates: June 15 and December 15. - ------------------------- * Insert for Definitive Securities. ** Insert for Global Securities. If the Security is to be issued in global form, add the Global Securities Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1 captioned "TO BE ATTACHED TO GLOBAL SECURITIES - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY." 2 Additional provisions of this Security are set forth on the other side of this Security. IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed. RITE AID CORPORATION, by ------------------------------ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION Dated: [TRUSTEE], as Trustee, certifies that this is one of the Securities referred to in the Indenture. by: ----------------------- Authorized Signatory 3 [FORM OF REVERSE SIDE OF EXCHANGE SECURITY] 11 1/4% Senior Note due 2008 1. Interest. RITE AID CORPORATION, a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on January 1 and July 1 of each year, commencing January 1, 2002. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from June 27, 2001. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate per annum borne by the Securities plus 1% per annum, and it shall pay interest on overdue installments of interest at the rate per annum borne by the Securities to the extent lawful. 2. Method of Payment The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered holders of Securities at the close of business on the December 15 or June 15 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Securities represented by a Global Security (including principal and interest) will be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company will make all payments in respect of a Definitive Security (including principal and interest), by mailing a check to the registered address of each Holder thereof; provided, however, that payments on the Securities may also be made, in the case of a Holder of at least $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 4 3. Paying Agent and Registrar Initially, BNY Midwest Trust Company, an Illinois trust company (the "Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. Indenture The Company issued the Securities under an Indenture dated as of June 27, 2001 (the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms defined in the Indenture and not defined in the Securities have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the TIA for a statement of those terms. The Securities are senior unsecured obligations of the Company. This Security is one of the Exchange Securities referred to in the Indenture issued in exchange for Initial Securities. The Securities include the Exchange Securities, the Original Securities in the aggregate principal amount of $150,000,000 and up to an unlimited aggregate principal amount of additional Initial Securities. The Exchange Securities, the Original Securities and such additional Initial Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries to, among other things, make certain Investments and other Restricted Payments, pay dividends and other distributions, incur Debt, enter into consensual restrictions upon the payment of certain dividends and distributions by such Restricted Subsidiaries, enter into or permit certain transactions with Affiliates, create or incur Liens and make Asset Sales. The Indenture also imposes limitations on the ability of the Company to consolidate or merge with or into any other Person or sell, transfer, assign, lease, convey or otherwise dispose of all or substantially all of the Property of the Company. 5 5. Optional Redemption The Company may choose to redeem the Securities at any time. If it does so, it may redeem all or any portion of the Securities, at once or over time, after giving the required notice under the Indenture. To redeem the Securities prior to July 1, 2005, the Company must pay a redemption price equal to 100% of the principal amount of the Securities to be redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption). Any notice to holders of Securities of such a redemption needs to include the appropriate calculation of the redemption price, but does not need to include the redemption price itself. The actual redemption price must be set forth in an Officers' certificate delivered to the Trustee no later than two business days prior to the redemption date. "Applicable Premium" means, with respect to any Security on any redemption date, the greater of (1) 1.0% of the principal amount of such Security and (ii) the excess of (A) the present value at such redemption date of (1) the redemption price of such Security at July 1, 2005 (such redemption price being set forth in the table below) plus (2) all required interest payments due on such Security through July 1, 2005 (excluding accrued but unpaid interest), computed using a discount rate equal to the Treasury Rate on such redemption date plus 75 basis points over (B) the principal amount of such Security. "Treasury Rate" means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the redemption date (or, if such statistical release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to July 1, 2005; provided, however, that if the period from the redemption date to July 1, 2005 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. On and after July 1, 2005, the Company may redeem the Securities in whole at any time or in part from time to 6 time at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption), if redeemed during the 12-month period beginning on July 1 of the years set forth below: Redemption Period Price - ------ ----- 2005............................................... 105.625% 2006............................................... 102.813% 2007 and thereafter................................ 100.000% Notwithstanding the foregoing, at any time and from time to time prior to July 1, 2004, the Company may redeem up to 35% of the original aggregate principal amount of the Securities (including Securities issued after June 27, 2001) with the proceeds from one or more Equity Offerings by the Company, at a redemption price equal to 111.25% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption); provided, however, that after giving effect to any such redemption, at least 65% of the original aggregate principal amount of the Securities (including Securities issued after June 27, 2001) remains outstanding. Any such redemption shall be made within 75 days of such Equity Offering. If the optional redemption date is on or after a record date and on or before the relevant interest payment date, the accrued and unpaid interest, if any, will be paid to the person or entity in whose name the Security is registered at the close of business on that record date, and no additional interest will be payable to holders whose Securities shall be subject to redemption. 6. Sinking Fund The Securities are not subject to any sinking fund. 7. Notice of Redemption Notice of redemption will be mailed by first-class mail at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his or her registered address. Securities in denominations 7 larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 8. (a) Repurchase of Securities at the Option of Holders upon Change of Control Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions specified in the Indenture, to cause the Company to repurchase all or any part of the Securities of such Holder at a purchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of purchase) as provided in, and subject to the terms of, the Indenture. 8. (b) Prepayment Offer Upon Asset Sale When the aggregate amount of Excess Proceeds exceeds $20.0 million (taking into acccount income earned on such Excess Proceeds, if any), the Company will be required to make an offer to purchase (the "Prepayment Offer") the Securities, which offer shall be in the amount of the Allocable Excess Proceeds, on a pro rata basis according to principal amount at maturity, at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. To the extent that any portion of the amount of Net Available Cash remains after compliance with the preceding sentence and provided that all Holders have been given the opportunity to tender their Securities for purchase in accordance with the Indenture, the Company or such Restricted Subsidiary may use such remaining amount for any purpose premitted by the Indenture and the amount of Excess Proceeds will be reset to zero. 8 9. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or to transfer or exchange any Securities for a period of 15 days prior to a selection of Securities to be redeemed or 15 days before an interest payment date. 10. Persons Deemed Owners The registered Holder of this Security may be treated as the owner of it for all purposes. 11. Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its written request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 12. Discharge and Defeasance Subject to certain conditions, the Company at any time may terminate some of or all its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 13. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended without prior notice to any Securityholder but with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities. Subject to certain exceptions set forth in the Indenture, 9 without the consent of any Holder of Securities, the Company and the Trustee may amend the Indenture or the Securities (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to comply with Article V of the Indenture; (iii) to provide for uncertificated Securities in addition to or in place of certificated Securities; (iv) to add Guarantees with respect to the Securities; (v) to secure the Securities; (vi) to add additional covenants or to surrender rights and powers conferred on the Company; (vii) to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA; or (viii) to make any change that does not adversely affect the rights of any Securityholder. 14. Defaults and Remedies If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding, subject to certain limitations, may declare all the Securities to be immediately due and payable. Certain events of bankruptcy or insolvency are Events of Default and shall result in the Securities being immediately due and payable upon the occurrence of such Events of Default without any further act of the Trustee or any Holder. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power under the Indenture. The Holders of a majority in aggregate principal amount of the Securities then outstanding, by written notice to the Company and the Trustee, may rescind any declaration of acceleration and its consequences if the rescission would not conflict with any judgment or decree, and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration. 15. Trustee Dealings with the Company Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 10 16. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the considera tion for the issue of the Securities. 17. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 18. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 11 19. Governing Law THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW. 20. CUSIP Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder of Securities upon written request and without charge to the Holder a copy of the Indenture which has in it the text of this Security. 12 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint as agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. - ----------------------------------------------------------------------------- Date: ________________ Your Signature: ______________________________________ - ----------------------------------------------------------------------------- Sign exactly as your name appears on the other side of this Security. Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. 13 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.06 (Asset Sale) or 4.12 (Change of Control) of the Indenture, check the box: --- / / --- If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.06 or 4.12 of the Indenture, state the amount: $ Date: __________________ Your Signature: ___________________________________ (Sign exactly as your name appears on the other side of the Security) Signature Guarantee:_______________________________________ Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. EXHIBIT B Form of Transferee Letter of Representation [Company] In care of [ ] [ ] [ ] Ladies and Gentlemen: This certificate is delivered to request a transfer of $[ ] principal amount of the 11 1/4% Senior Notes due 2008 (the "Securities") of Rite Aid Corporation (the "Company"). Upon transfer, the Securities would be registered in the name of the new beneficial owner as follows: Name:________________________ Address:_____________________ Taxpayer ID Number:__________ The undersigned represents and warrants to you that: 1. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the "Securities Act")), purchasing for our own account or for the account of such an institutional "accredited investor" at least $250,000 principal amount of the Securities, and we are acquiring the Securities not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we invest in or purchase securities similar to the Securities in the normal course of our business. We, and any accounts for which we are acting, are each able to bear the economic risk of our or its investment. 2. We understand that the Securities have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing 2 Securities to offer, sell or otherwise transfer such Securities prior to the date that is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Securities (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement that has been declared effective under the Securities Act, (c) in a transaction complying with the requirements of Rule 144A under the Securities Act ("Rule 144A"), to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB") that is purchasing for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its own account or for the account of such an institutional "accredited investor," in each case in a minimum principal amount of Securities of $100,000, or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Securities is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Company and the Trustee, which shall provide, among other things, that the transferee is an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring such Securities for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Company and the Trustee reserve the right prior to the offer, sale or other transfer prior to the Resale Restriction Termination Date of the 3 Securities pursuant to clause (d), (e) or (f) above to require the delivery of an opinion of counsel, certifications or other information satisfactory to the Company and the Trustee. TRANSFEREE:_________________, by:_______________________ EX-4 6 exh4-9.txt EXH4-9.TXT EXECUTION COPY RITE AID CORPORATION $150,000,000 11 1/4% Senior Notes due 2008 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT June 27, 2001 Salomon Smith Barney Inc. Credit Suisse First Boston Corporation J.P. Morgan Securities Inc. Fleet Securities, Inc. As Representatives of the Initial Purchasers c/o Salomon Smith Barney Inc. 388 Greenwich Street New York, New York 10013 Ladies and Gentlemen: Rite Aid Corporation, a Delaware corporation (the "Company"), proposes to issue and sell, upon the terms set forth in a purchase agreement of even date herewith (the "Purchase Agreement"), to the initial purchasers set forth in the Purchase Agreement (the "Initial Purchasers"), $150,000,000 aggregate principal amount of its 11 1/4% Senior Notes due 2008 (the "Securities") relating to the initial placement of the Securities (the "Initial Placement"). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Purchase Agreement. As an inducement to the Initial Purchasers to enter into the Purchase Agreement, and as satisfaction of the conditions thereunder, the Company agrees with you for your benefit and the benefit of the holders from time to time of the Securities (including the Initial Purchasers) and the Exchange Securities (as defined herein) (each a "Holder" and collectively, the "Holders"), as follows: 1. Registered Exchange Offer. Unless the Registered Exchange Offer shall not be permitted by applicable law or applicable interpretation of the staff of the Securities and Exchange Commission (the "SEC" or "Commission"), the Company shall (i) prepare and, not later than 90 days following the date of the original issuance of the Securities (the date of such filing being referred to herein as the "Filing Date"), file with the Commission a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act with respect to a proposed offer to the Holders of the Securities (the "Registered Exchange Offer") to issue and deliver to such Holders, in exchange for the Securities a like aggregate principal amount of debt securities of the Company (the "Exchange Securities") that are identical in all material respects to the Securities, except for the transfer restrictions relating to the Securities, (ii) use their best efforts to cause the Exchange Offer Registration Statement to become effective under the Securities Act no later than 180 days after the Filing Date, (iii) as soon as practicable after the effectiveness of the Exchange Offer Registration Statement, initiate the Registered Exchange Offer as set forth in the following paragraph. The Exchange Securities will be issued under the same indenture as the Securities (the "Indenture") between and the Trustee or such other bank or trust company that is reasonably satisfactory to the Initial Purchasers, as trustee (the "Trustee"), as the Securities, with such modifications as may be appropriate to account for the registration of the Exchange Securities under the Securities Act. Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company or an Exchanging Dealer (as defined herein) not complying with the requirements of the next sentence, (b) is not holding Securities that have, or that are reasonably likely to have, the status of an unsold allotment in the Initial Placement, (c) acquires the Exchange Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any person to participate, and is not participating, in the distribution of the Exchange Securities) and to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company, the Holders and each Exchanging Dealer (as defined herein) acknowledge that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, each Holder that is a broker-dealer electing to exchange Securities, acquired for its own account as a result of market-making activities or other trading activities, for Exchange Securities (an "Exchanging Dealer"), is required, in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer, to deliver a prospectus containing substantially the information set forth (i) in Annex A hereto on the cover of such prospectus, 2 (ii) in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section of such prospectus and (iii) in Annex C hereto in the "Plan of Distribution" section of such prospectus. In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder of Securities a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days and not more than 45 business days (or, in each case, longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders of Securities and the Purchasers; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; (d) permit Holders to withdraw tendered Securities at any time prior to the end of the Registered Exchange Offer, as set forth in the materials originally mailed to Holders of Securities or otherwise extended by the Company; (e) comply with all requests of the Securities and Exchange Commission in order to consummate the Registered Exchange Offer; and (f) comply in all respects with all laws that are applicable to the Registered Exchange Offer. As soon as practicable after the close of the Registered Exchange Offer, the Company shall: (a) accept for exchange all Securities tendered and not validly withdrawn pursuant to the Registered Exchange Offer; (b) deliver to the Trustee for due cancelation all Securities so accepted for exchange; and (c) cause the Trustee for the Exchange Securities promptly to authenticate and deliver to each Holder, Exchange Securities equal in principal amount to the Securities of such Holder so accepted for exchange. 3 The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein in order to permit such prospectus to be used by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer, such period shall be the earlier of 180 days from the close of the Registered Exchange Offer and the date on which all Exchanging Dealers have sold all Exchange Securities held by them and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 90 days after the consummation of the Registered Exchange Offer. The Indenture shall provide that the Securities and the Exchange Securities shall vote and consent together on all matters as to which the Indenture provides for voting and consent as one class and that neither the Securities nor the Exchange Securities will have the right to vote or consent as a separate class on any matter. Interest on each Exchange Security issued pursuant to the Registered Exchange Offer will accrue from the last interest payment date on which interest was paid on the Securities surrendered in exchange therefor or, if no interest has been paid on the Securities, from the date of the closing of the Exchange Offer. Each Holder hereby acknowledges and agrees that any such Holder using the Registered Exchange Offer to participate in a distribution of the Exchange Securities (x) could not under Commission policy as in effect on the date of this Agreement rely on the position of the Commission in Morgan Stanley and Co., Inc. (pub. avail. June 5, 1991) and Exxon Capital Holdings Corporation (pub. avail. May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993 and similar no-action letters; and (y) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction which must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K under the Securities Act if the resales are of Exchange Securities obtained by such Holder in exchange for Securities acquired by such Holder directly from the Company or one of its 4 affiliates. Accordingly, each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate and is not participating in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an affiliate of the Company or, if it is such an affiliate (as defined in Section 10(e)), such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) it is not acting on behalf of any person who, to its knowledge, could not truthfully make the foregoing representations and (v) it shall have made such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to render the use of Form S-4 or another appropriate form under the Securities Act available or for the Exchange Offer Registration Statement to be declared effective. To the extent permitted by law, upon the written request of the Initial Purchasers, the Company shall inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to contact such Holders and otherwise facilitate the tender of Securities in the Exchange Offer. Notwithstanding any other provisions hereof, (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto shall comply in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto shall not, when it becomes effective, contain 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 not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, shall not, as of the consummation of the Registered Exchange Offer, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) If any Initial Purchaser determines that it is not eligible to participate in the Registered Exchange Offer with respect to the exchange of Securities constituting any portion of an unsold allotment, at the 5 written request of such Initial Purchaser, the Company shall issue and deliver to such Initial Purchaser or the person purchasing Exchange Securities registered under a Shelf Registration Statement as contemplated by Section 2 hereof from such Initial Purchaser, in exchange for such Securities, a like principal amount of Exchange Securities. The Company shall use its best efforts to cause the CUSIP Service Bureau to issue the same CUSIP number for such Exchange Securities as for Exchange Securities issued pursuant to the Registered Exchange Offer. If any Initial Purchaser determines that it is not eligible to participate in the Registered Exchange Offer with respect to the exchange of Securities constituting any portion of an unsold allotment, at the request of such Initial Purchaser, the Company shall issue and deliver to such Initial Purchaser or the person purchasing Exchange Securities registered under a Shelf Registration Statement as contemplated by Section 2 hereof from such Initial Purchaser, in exchange for such Securities, a like principal amount of Exchange Securities. The Company shall use its best efforts to cause the CUSIP Service Bureau to issue the same CUSIP number for such Exchange Securities as for Exchange Securities issued pursuant to the Registered Exchange Offer. 2. Shelf Registration. If (i) because of any change in law or applicable interpretations thereof by the Commission's staff the Company is not permitted to effect the Registered Exchange Offer as contemplated by Section 1 hereof, or (ii) the Exchange Offer Registration Statement is not declared effective within 180 days after the original issuance of the Securities or the Registered Exchange Offer is not consummated within 210 days after the original issuance of the Securities, or (iii) a Holder (including an Initial Purchaser) of Securities notifies the Company following the completion of the Registered Exchange Offer that the Securities held by such Holder are not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer, (iv) certain Holders (other than the Initial Purchasers) of the Securities are prohibited by law or the policy of the Commission from participating in the Registered Exchange Offer or the Exchange Securities may not be freely transferable by such Holders other than by reason of such Holder being an affiliate of the Company (it being understood that the requirement that a participating Broker- Dealer deliver the prospectus contained in the Exchange Offer Registration Statement in connection with sales of Exchange Notes shall not result in such Exchange Notes being not "freely transferable"), or (v) in the case of any Initial Purchaser that participates in the Registered 6 Exchange Offer or acquires Exchange Securities pursuant to Section 1(d) hereof, such Initial Purchaser does not receive freely tradeable Exchange Securities in exchange for Securities constituting any portion of an unsold allotment (it being understood that (x) the requirement that an Initial Purchaser deliver a Prospectus containing the information required by Item 507 or 508 of Regulation S-K under the Securities Act in connection with sales of Exchange Securities acquired in exchange for such Securities shall result in such Exchange Securities being not "freely transferable"; and (y) the requirement that an Exchanging Dealer deliver an Exchange Offer Prospectus in connection with sales of Exchange Securities acquired in the Registered Exchange Offer in exchange for Securities acquired as a result of market-making activities or other trading activities shall not result in such Exchange Securities being not "freely transferable"), then the following provisions shall apply: (a) The Company shall promptly file (but in no event more than 30 days after so required or requested pursuant to this Section 2) with the Commission, and thereafter shall use its reasonable best efforts to cause to be declared effective, a shelf registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined below) by the Holders thereof from time to time in accordance with the methods of distribution set forth in such registration statement (hereafter, a "Shelf Registration Statement" and, together with any Exchange Offer Registration Statement, a "Registration Statement"). (b) The Company shall keep the Shelf Registration Statement continuously effective, supplemented and amended as required by the Securities Act, in order to permit the prospectus forming part thereof to be used by Holders of Transfer Restricted Securities for a period ending on the earlier of (i) two years from the effective date of the Shelf Registration Statement or such shorter period that will terminate when all the Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant thereto, (ii) the date the Transfer Restricted Securities cease to be outstanding, and (ii) the date on which the Securities become eligible for resale without volume restrictions pursuant to Rule 144 under the Securities Act (in any such case, such period being called the "Shelf Registration Period"). The Company shall be deemed not to have complied with this paragraph (b) if it voluntarily takes any action that would result in Holders of Transfer Restricted Securities covered thereby not being able to offer and sell such Transfer Restricted Securities 7 during that period, unless such action is required by applicable law. Notwithstanding the foregoing, during any 365-day period, the Company may suspend the effectiveness of the Exchange Offer Registration Statement for up to 2 periods (each a "Suspension Period") of up to 45 consecutive days (except for the consecutive 45-day period immediately prior to maturity of the Securities), but no more than an aggregate of 75 days during any 365-day period, if there is a possible acquisition or business combination or other transaction, business development or event involving the Company that may require disclosure in the Exchange Offer Registration Statement and the Company determines in the exercise of its reasonable judgment that such disclosure is not in the best interests of the Company and its stockholders or obtaining any financial statements relating to an acquisition or business combination required to be included in the Exchange Offer Registration Statement would be impracticable. In such a case, the Company shall promptly notify any such broker-dealers of the suspension of the Exchange Offer Registration Statement's effectiveness, provided that such notice shall not require the Company to disclose the possible acquisition or business combination or other transaction, business development or event if the Company determines in good faith that such acquisition or business combination or other transaction, business development or event should remain confidential. Upon the abandonment, consummation or termination of the possible acquisition or business combination or other transaction, business development or event or the availability of the required financial statements with respect to a possible acquisition or business combination, the suspension of the use of the Exchange Offer Registration Statement pursuant to this paragraph shall cease and the Company shall promptly comply with the first paragraph of Section 6(b) hereof and notify such broker-dealers that the use of the prospectus contained in the Exchange Offer Registration Statement, as amended or supplemented, as applicable, may resume. The Company shall provide sufficient copies of the latest version of such prospectus to such broker-dealers, promptly upon written request, and in no event later than one day after such request, at any time during such period.. (c) Notwithstanding any other provisions hereof, the Company shall ensure that (i) any Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Shelf Registration Statement and any amendment thereto (in either 8 case, other than with respect to information included therein in reliance upon or in conformity with written information furnished to the Company by or on behalf of any Holder specifically for use therein (the "Holders' Information")) does not, when it becomes effective, contain 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 not misleading and (iii) any prospectus forming part of any Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to Holders' Information), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 3. Additional Interest. (a) If (i) neither the Exchange Offer Registration Statement nor the Shelf Registration Statement, as the case may be, is filed with the Commission on or prior to the date which is 90 days following the date of the original issuance of the Securities, (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective within 180 days after the original issuance of the Securities, (iii) if the Exchange Offer Registration Statement is declared effective, the Registered Exchange Offer is not consummated on or prior to 210 days after the date of the original issuance of Securities, (iv) if the Company is required to file the Shelf Registration Statement in accordance with Section 2, the Company does not so file the Shelf Registration Statement on or prior to the 30th day after the Company's obligation to file such Shelf Registration Statement arises, (v) the applicable Registration Statement is filed and declared effective but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being again effective within 30 days or being succeeded within 30 days by an additional Registration Statement filed and declared effective, provided that such 30-day period shall toll during a Suspension Period, or (vi) the periods referred to in the second paragraph of Section 2(b) exceed, in the aggregate, 75 days during any 365-day period (each such event referred to in clauses (i) through (vi), a "Registration Default"), the Company shall be obligated to pay additional interest ("Additional Interest") to each Holder of Transfer Restricted Securities, during the period of one or more such Registration Defaults, at a rate of 0.25% per annum on the applicable principal amount of Transfer Restricted Securities held by such Holder for the first 90-day period immediately following the occurrence of a Registration 9 Default, and such rate will increase by an additional 0.25% with respect to each subsequent 90-day period until all Registration Defaults have been cured, provided that the maximum additional rate may in no event exceed 0.50% per annum. Such obligation to pay Additional Interest shall survive until (i) the applicable Registration Statement is filed, (ii) the Exchange Offer Registration Statement is declared effective and the Registered Exchange Offer is consummated with respect to all properly tendered Securities, (iii) the Shelf Registration Statement is declared effective or (iv) the Shelf Registration Statement again becomes effective (or is superseded by another effective Shelf Registration Statement), as the case may be. Following the cure of all Registration Defaults, the accrual of Additional Interest will cease. As used herein, the term "Transfer Restricted Securities" means (i) each Security until the date on which such Security has been exchanged for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) each Security until the date on which it has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) each Security until the date on which it is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary in this Section 3(a), the Company shall not be required to pay Additional Interest to a Holder of Transfer Restricted Securities if such Holder failed to comply with its obligations to make the representations set forth in the second to last paragraph of Section 1 or failed to provide the information required to be provided by it, if any, pursuant to Section 4(n). (b) The Company shall notify the Trustee and the paying agent under the Indenture immediately upon the happening of each and every Registration Default. The Company shall pay the Additional Interest due on the Transfer Restricted Securities by depositing with the paying agent (which may not be the Company for these purposes), in trust, for the benefit of the Holders thereof, prior to 10:00 a.m., New York City time, on the next applicable interest payment date specified by the Indenture and the Securities, sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each applicable interest payment date specified by the Indenture and the Securities to the record holder entitled to receive the interest payment to be made on such date. Each obligation to pay Additional Interest shall be deemed to accrue from and including the date of the applicable Registration Default. 10 (c) The parties hereto agree that the Additional Interest provided for in this Section 3 constitute a reasonable estimate of and are intended to constitute the sole damages that will be suffered by Holders of Transfer Restricted Securities by reason of the failure of (i) the Shelf Registration Statement or the Exchange Offer Registration Statement to be filed, (ii) the Shelf Registration Statement to remain effective or (iii) the Exchange Offer Registration Statement to be declared effective and the Registered Exchange Offer to be consummated, in each case to the extent required by this Agreement. 4. Registration Procedures. In connection with ny Registration Statement, the following provisions shall apply: (a) The Company shall (i) furnish to each of the Representatives for the Initial Purchasers a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and shall use its reasonable best efforts to reflect in each such document, when so filed with the Commission, such comments as any Initial Purchaser or any Holder may reasonably propose; (ii) include the information set forth (A) in Annex A hereto on the cover of such prospectus, (B) in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section of such prospectus and (C) in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement, and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; and (iii) if requested by an Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement. (b) The Company shall advise each of Representatives for the Initial Purchasers, each Exchanging Dealer and the Holders (if applicable) and, if requested by any such person, confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when any Registration Statement and any amendment thereto has been filed with the Commission and 11 when such Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to any Registration Statement or the prospectus included therein or for additional information; (iii) if known by the Company, of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities or the Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the making of any changes in any Registration Statement or the prospectus included therein in order that the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time of any order suspending the effectiveness of any Registration Statement or qualifying the Securities therein for sale in any jurisdiction. (d) The Company shall furnish to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, upon the written request of such Holder, at least one conformed copy of such Shelf Registration Statement and any post- effective amendment thereto, including all material incorporated therein by reference, including financial statements and schedules and, if any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall, during the Shelf Registration Period, promptly deliver to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, as many copies of the prospectus (including each preliminary prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Company consents to the use of 12 such prospectus or any amendment or supplement thereto by each of the selling Holders of Transfer Restricted Securities in connection with the offer and sale of the Transfer Restricted Securities covered by such prospectus or any amendment or supplement thereto. (f) The Company shall furnish to each Exchanging Dealer who so requests in writing, without charge, at least one conformed copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any Exchanging Dealer so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (g) The Company shall, during the Exchange Offer Registration Period or the Shelf Registration Period, as applicable, promptly deliver to each Initial Purchaser, each Exchanging Dealer and such other persons that are required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement or the Shelf Registration Statement and any amendment or supplement thereto as such Initial Purchaser, Exchanging Dealer or other persons may reasonably request; and the Company consents to the use of such prospectus or any amendment or supplement thereto by any such Initial Purchaser, Exchanging Dealer or other persons, as applicable, as aforesaid. (h) Prior to the effective date of any Registration Statement, the Company shall use its reasonable best efforts to register or qualify, or cooperate with the Holders of Securities or Exchange Securities included therein and their respective counsel in connection with the registration or qualification of, such Securities or Exchange Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any such Holder reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities or Exchange Securities covered by such Registration Statement; provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of Securities or Exchange Securities to facilitate the timely preparation and delivery of certificates representing 13 Securities or Exchange Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders thereof may request in writing at least one business day prior to sales of Securities or Exchange Securities pursuant to such Registration Statement. (j) If any event contemplated by Section 4(b)(ii) through (v) occurs during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file with the Commission a post-effective amendment to the Registration Statement or an amendment or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to purchasers of the Securities or Exchange Securities from a Holder, the prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In such circumstances, the period of effectiveness of the Exchange Offer Registration Statement provided for in Section 1 and the Shelf Registration Statement provided for in Section 2(b) shall each be extended by the number of days from and including the date of the giving of a notice of suspension pursuant to Section 4(b) to and including the date when the Initial Purchasers, the Holders of the Securities and any known Exchanging Dealer shall have received such amended or supplemented Prospectus pursuant to this Section. (k) Not later than the effective date of the applicable Registration Statement, the Company shall obtain a CUSIP number for the Securities and the Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Securities or the Exchange Securities as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company shall comply with all applicable rules and regulations of the Commission and make generally available to the Company's security holders as soon as reasonably practicable after the effective date of the applicable Registration Statement an earning statement satisfying the provisions of Section 11(a) of the Securities Act; provided that in no event shall such earning statement be delivered later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the 14 applicable Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act as required by applicable law in a timely manner. (n) The Company may require each Holder of Transfer Restricted Securities to be registered pursuant to any Shelf Registration Statement to furnish to the Company such information concerning the Holder and the distribution of such Transfer Restricted Securities as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement, and the Company may exclude from such registration the Transfer Restricted Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) In the case of a Shelf Registration Statement, each Holder of Transfer Restricted Securities to be registered pursuant thereto agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company pursuant to Section 4(b)(ii) through (v), such Holder will discontinue disposition of such Transfer Restricted Securities until such Holder's receipt of copies of the supplemental or amended prospectus contemplated by Section 4(j) or until advised in writing (the "Advice") by the Company that the use of the applicable prospectus may be resumed. If the Company shall give any notice under Section 4(b)(ii) through (v) during the period that the Company is required to maintain an effective Registration Statement (the "Effectiveness Period"), such Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Transfer Restricted Securities covered by such Registration Statement shall have received (x) the copies of the supplemental or amended prospectus contemplated by Section 4(j) (if an amended or supplemental prospectus is required) or (y) the Advice (if no amended or supplemental prospectus is required). (p) In the case of a Shelf Registration Statement, the Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as Holders of a majority in aggregate principal amount of the Securities or Exchange Securities being sold or the managing underwriters, if any, shall reasonably request in order to facilitate any disposition of Securities or Exchange Securities pursuant to such Shelf Registration Statement. 15 (q) In the case of any Shelf Registration Statement, the Company shall: (i) make reasonably available for inspection by the Holders of, representatives and counsel to, a majority in aggregate principal amount of the Securities to be registered thereunder, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by such Holders or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries; (ii) cause the Company's officers, directors and employees to supply all relevant information reasonably requested by the Holders or any such underwriter, attorney, accountant or agent in connection with any such Shelf Registration Statement as is customary for similar due diligence examinations; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by Salomon Smith Barney Inc. in connection with any underwritten Shelf Registration Statement to which it is a party, and on behalf of the Holders by one counsel designated by the Holders of a majority of the Securities; provided, further, that any information provided pursuant to Section 4(q)(i) and (ii) that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such information shall be kept confidential by the Holders or any such underwriter, attorney, accountant or agent, and shall be used only in connection with such Shelf Registration and the transactions contemplated thereby unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; (iii) make such representations and warranties to the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings and covering matters including, but not limited to, those set forth in the Purchase Agreement; 16 (iv) obtain opinions of its counsel and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the underwriters, if any) addressed to each selling Holder and the underwriters, if any, covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (v) if requested in writing by Holders of a majority in aggregate principal amount of the Securities to be registered thereunder or by any underwriter participating in any disposition pursuant to such Shelf Registration Statement, to use its reasonable best efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company, addressed to each selling Holder of Securities registered thereunder and the underwriters, if any, in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings; and (vi) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities being sold and the underwriters, if any, and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The actions set forth in clauses (iii), (iv) and (v) of this subsection shall be performed at (A) the effectiveness of such Registration Statement and, if applicable, each post-effective amendment thereto; and (B) each closing under any underwriting or similar agreement as and to the extent required thereunder. (r) If a Registered Exchange Offer is to be consummated, upon delivery of the Securities by Holders to the Company (or to such other person as directed by the Company) in exchange for the Exchange Securities, the Company shall mark, or cause to be marked, on the Securities so exchanged that such Securities are being canceled in exchange for the Exchange Securities. In no event shall the Securities be marked as paid or otherwise satisfied. (s) The Company will use its reasonable best efforts to cause the Securities covered by a Registration Statement to be rated with at least one nationally recognized statistical rating agency, if so requested by 17 Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities being sold with respect to the related Registration Statement or by any underwriters. (t) In the event that any broker-dealer shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the National Association of Securities Dealers, Inc.) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Rules and By-Laws, including, without limitation, by: (i) if such Rules or By-Laws shall so require, engaging a "qualified independent underwriter" (as defined in such Rules) to participate in the preparation of the Registration Statement, to exercise usual standards of due diligence with respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities; (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 6 hereof; and (iii) providing such information to such Broker- Dealer as may be required in order for such Broker- Dealer to comply with the requirements of such Rules. 5. Registration Expenses. The Company shall bear all expenses incurred in connection with the performance of its obligations under Sections 1, 2, 3 and 4 and, in the case of a Shelf Registration Statement, the Company shall reimburse the Holders for the reasonable fees and disbursements of one firm of attorneys (in addition to any local counsel) chosen by the Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities to be sold pursuant to each Registration Statement acting for the Holders and the Initial Purchasers in connection therewith and, in the case of any Exchange Offer Registration Statement, will reimburse the Initial Purchasers for the reasonable fees and disbursements of counsel acting in connection therewith. 18 6. Indemnification. (a) In the event of a Shelf Registration Statement or in connection with any prospectus delivery pursuant to an Exchange Offer Registration Statement by an Exchanging Dealer, the Company shall indemnify and hold harmless each Holder (including, without limitation, each Initial Purchaser, any such Exchanging Dealer), their affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6 and Section 7 as a Holder from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of Securities or Exchange Securities), to which that Holder may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming a part thereof or in any amendment or supplement thereto or (ii) 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 light of the circumstances under which they were made, not misleading, and shall reimburse each indemnified party promptly upon demand for any legal or other expenses reasonably incurred by that indemnified party in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with any Holders' Information; and provided further, however, that with respect to any such untrue statement in or omission from any related preliminary prospectus, the indemnity agreement contained in this Section 6(a) shall not inure to the benefit of any Holder from whom the person asserting any such loss, claim, damage, liability or action received Securities or Exchange Securities to the extent that such loss, claim, damage, liability or action of or with respect to such Holder results from the fact that both (A) a copy of the final prospectus was not sent or given to such person at or prior 19 to the written confirmation of the sale of such Securities or Exchange Securities to such person and (B) the untrue statement in or omission from the related preliminary prospectus was corrected in the final prospectus unless, in either case, such failure to deliver the final prospectus was a result of non-compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g). (b) In the event of a Shelf Registration Statement, each Holder severally and not jointly shall indemnify and hold harmless the Company, its affiliates, its respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Company, within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6(b) and Section 7 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming a part thereof or in any amendment or supplement thereto or (ii) 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 light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Holders' Information furnished to the Company by such Holder, and shall reimburse the Company, for any legal or other expenses reasonably incurred by the Company, in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that no such Holder shall be liable for any indemnity claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Securities or Exchange Securities pursuant to such Shelf Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing of the claim or the 20 commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. 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. After notice from the indemnifying party to the 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 other than the reasonable costs of investigation; provided, however, that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of 21 the indemnity agreements contained in Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability or claims that were raised or could have been raised by such plaintiff in such proceeding. 7. Contribution. If the indemnification provided for in Section 6 is unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the indemnified party, on the one hand, and the indemnifying party, on the other hand, from the Initial Placement and the Registration Statement which resulted in such loss, claim, damage or liability, or action in respect thereof, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and such Holder, on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the Initial Placement (before deducting expenses) received by the Company, and benefits received by the Initial Purchasers shall be deemed to be equal to the total purchase discounts and commissions in each case set forth on the cover of the Final Memorandum. Benefits received by any other Holders shall be deemed to be equal to the value of receiving Securities or Exchange Securities, as applicable, registered under the Securities Act. The 22 relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Company or information supplied by the Company on the one hand or to any Holders' Information supplied by such Holder on the other, the intent of the parties and their relative 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 7 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7 shall be deemed to include, for purposes of this Section 7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 7, an indemnifying party that is a Holder of Securities or Exchange Securities shall not be required to contribute any amount in excess of the amount by which (A) with respect to any Holder, the total price at which the Securities or Exchange Securities sold by such indemnifying party to any purchaser, (B) with respect to a Purchaser, the total consideration received by such Purchaser pursuant to the Purchase Agreement, as the case may be, exceeds the amount of any damages which such indemnifying party has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. 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. 8. Rules 144 and 144A. So long as Transfer Restricted Securities remain outstanding, the Company shall use its reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the written request of any Holder of Transfer Restricted Securities, make publicly available other information so long as necessary to permit sales of such Holder's securities pursuant to Rules 144 and 144A. So long as Transfer Restricted Securities remain outstanding, the Company covenants that after June 27, 2001 it will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to 23 time to enable such Holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including, without limitation, the requirements of Rule 144A(d)(4)). So long as Transfer Restricted Securities remain outstanding, upon the written request of any Holder of Transfer Restricted Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 9. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities included in such offering, subject to the consent of the Company (which shall not be unreasonably withheld or delayed), and such Holders shall be responsible for all underwriting commissions and discounts in connection therewith. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 10. Miscellaneous. (a) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities; provided that, with respect to any matter that directly or indirectly affects the rights of any Initial Purchaser hereunder, the Company shall obtain the written consent of each such Initial Purchaser against which such amendment, qualification, supplement, waiver or consent is to be effective. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose 24 Securities or Exchange Securities, as the case may be, are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities being sold by such Holders pursuant to such Registration Statement. (b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telecopier or any courier guaranteeing next-day delivery: (1) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 10(b), which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture; (2) if to you, initially at the respective addresses set forth in the Purchase Agreement; and (3) if to the Company, initially at the address of the Company set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being delivered to a next-day air courier; five business days after being deposited in the mail; and when receipt is acknowledged by the recipient's telecopier machine, if sent by telecopier. (c) Successors And Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without the need for an express assignment or any consent by the Company thereto, subsequent Holders of Securities and the Exchange Securities. The Company hereby agrees to extend the benefits of this Agreement to any Holder of Securities and the Exchange Securities, and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto. (d) Counterparts. This Agreement may be executed in any number of counterparts (which may be delivered in original form or by telecopier) and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 25 (e) Definition of Terms. For purposes of this Agreement, (a) the term "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act, (d) the term "Broker-Dealer" shall mean any broker or dealer registered as such under the Exchange Act, (e) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder, (f) the term "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder, (g) the term "Exchange Offer Registration Period" shall mean the one-year period following the consummation of the Registered Exchange Offer, exclusive of any period during which any stop order shall be in effect suspending the effectiveness of the Exchange Offer Registration Statement, and (h) the term "Shelf Registration" shall mean a registration effected pursuant to Section 2 hereof. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. (h) No Inconsistent Agreements. The Company has not entered into, and shall not, on or after the date of this Agreement, enter into any agreement that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. (i) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, 26 provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Securities Held by the Company, etc. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities or Exchange Securities is required hereunder, Securities or Exchange Securities, as applicable, held by the Company or its Affiliates shall be disregarded and deemed not to be outstanding in determining whether such consent or approval was given by the Holders of such required percentage. 27 Please confirm that the foregoing correctly sets forth the agreement among the Company and the several Initial Purchasers. Very truly yours, RITE AID CORPORATION, By ---------------------------------- Name: Title: Accepted: Salomon Smith Barney Inc. Credit Suisse First Boston Corporation J.P. Morgan Securities Inc. Fleet Securities, Inc. By: Salomon Smith Barney Inc. By -------------------------------------------- Name: Title: For themselves and the other several Initial Purchasers named in Schedule I to the Purchase Agreement. 28 ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker- dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired by such broker-dealer as a result of market- making activities or other trading activities. The Company has agreed that, starting on the Expiration Date (as defined herein) and ending on the close of business 180 days after the Expiration Date, it will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution". ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Securities, where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities See "Plan of Distribution." ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker- dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, starting on the Expiration Date (as defined herein) and ending on the close of business 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until _______________, 200__, all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Registered Exchange Offer may be sold from time to time in one or more transactions in the over-the- counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker- dealer that resells Exchange Securities that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of one year after the Expiration Date the Company will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Registered Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any broker-dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 2 ANNEX D o CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: Address: If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-10 7 exh10-27.txt EXHIBIT 10.27 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of June 14, 2001, by and between RITE AID CORPORATION, a Delaware corporation (the "Company"), and MARATHON SPECIAL OPPORTUNITY FUND LTD. ("Marathon Special") and MARATHON MASTER FUND LTD. ("Marathon Master" and together with Marathon Special, "Marathon"). W I T N E S S E T H: WHEREAS, the Company has issued to Marathon, in exchange for certain outstanding indebtedness of the Company, the Exchange Shares (as defined below) in accordance with the terms of two Equity for Debt Exchange Agreements between the Company and each of (i) Marathon Master, and (ii) Marathon Special, such exchange agreements dated as of April 20, 2001 and April 27, 2001 respectively (collectively, the "Exchange Agreements"); WHEREAS, in connection with the sale of the Exchange Shares to Marathon, the Company has agreed to provide Marathon with the registration rights set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to and on the terms and conditions herein set forth, the parties hereto hereby agree as follows: ARTICLE I Certain Definitions As used in this Agreement, the following terms shall have the meanings ascribed to them below: 1.1 "Commission" shall mean the Securities and Exchange Commission or any federal agency at the time administering the Securities Act. 1.2 "Common Stock" shall mean the common stock of the Company, par value $1.00 per share. 1.3 "Deferral Period" shall have the meaning set forth in Section 2.1(d). 1.4 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any federal statute then in effect which has replaced such statute. 1.5 "Exchange Shares" shall mean the shares of Common Stock acquired by Marathon pursuant to the Exchange Agreements. 1.6 "Holder" shall mean Marathon for so long as it owns any Registrable Securities and any other Person who is a holder or beneficial owner of Registrable Securities for so long as such Person owns any Registrable Securities. 1.7 "Person" shall mean an individual, corporation, limited liability company, joint venture, partnership, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity that may be treated as a person under applicable law. 1.8 "Registrable Securities" shall mean the Exchange Shares, provided that such securities shall cease to be Registrable Securities when (i) a registration statement registering such Registrable Securities under the Securities Act has been declared or becomes effective and such Registrable Securities have been sold or otherwise transferred by the Holder thereof pursuant to such effective registration statement; (ii) such Registrable Securities are sold pursuant to Rule 144 under circumstances in which any legend borne by such Registrable Securities relating to restrictions on the transferability thereof, under the Securities Act or otherwise, is removed by the Company or such Registrable Securities are eligible to be sold pursuant to paragraph (k) of Rule 144; or (iii) such Registrable Securities shall cease to be outstanding. 1.9 "Rule 144" shall mean Rule 144 promulgated under the Securities Act. 1.10 "Securities Act" shall mean Securities Act of 1933, as amended, or any federal statute then in effect which has replaced such statute. 1.11 "Shelf Registration Statement" shall have the meaning set forth in Section 2.1(a). 2 ARTICLE II Registration Rights 2.1 Shelf Registration (a) As soon as is reasonably practicable but not later than sixty (60) days after the Company files its Annual Report on Form 10-K for the fiscal year ended March 3, 2001, the Company will file a shelf registration statement with the Commission on Form S-1 or any other appropriate form (it being understood by all parties that the Company will not be eligible to use Form S-3 prior to October 11, 2001) under Rule 415 of the Securities Act, or any similar rule that may be adopted by the Commission relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such shelf registration statement (together with all amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference thereto, the "Shelf Registration Statement"), provided that the Company may also register for sale on its own account or that of any other holder of equity securities of the Company pursuant to the Shelf Registration Statement such additional shares of the Company's stock as it shall desire. (b) The Company will use its reasonable best efforts to cause the registration statement filed pursuant to Section 2.1(a) to be declared effective as son as reasonably practicable, and to remain effective for a period ending on the earlier of (i) the date two years after the effective date of the Registration Statement and (ii) the date on which there cease to be any Registrable Securities outstanding. (c) Each Holder of Registrable Securities that wishes to sell Registrable Securities pursuant to a Shelf Registration Statement and related prospectus agrees to deliver a notice and questionnaire in the form attached hereto as Exhibit A (a "Notice and Questionnaire") at least 5 business days prior to the intended distribution of Registrable Securities under the Shelf Registration State ment. Provided that the Shelf Registration Statement has been declared effective, the Company shall, as promptly as is practicable after a Holder has delivered a Notice and Questionnaire and such other information as the Company may reasonably require, (i) if required by applicable law, file with the Commission a post-effective amendment to the Shelf Registration Statement or prepare and, if required by 3 applicable law, file a supplement to the related prospectus or amendment to any document incorporated therein by reference or file any other required document so that such Holder is named as a selling security holder in the Shelf Registration Statement and the related prospectus in such a manner as to permit such Holder to deliver such prospectus to purchasers of the Registrable Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use its best efforts to cause such post-effective amend ments to be declared effective under the Act as promptly as is practicable, (ii) provide such Holder copies of any documents filed pursuant to the foregoing and (iii) notify such Holder as promptly as practicable after the effectiveness of any post- effective amendment filed hereunder, provided, however, that if the Notice and Questionnaire is delivered during a Deferral Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Deferral Period in accordance with Section 2.1(d) hereof. (d) Notwithstanding anything in Section 2.1(b), 2.1(c) or 2.4 hereof, the Company may take action that would result in the Holders of Registrable Securities being unable to offer and sell Registrable Securities under a Shelf Registration Statement that has been filed pursuant to this Section 2.1 (i) if such action is required by applicable law, (ii) upon the occurrence of any event that requires any change to be made to the Shelf Registration Statement so that, as of such date, the Shelf Registration Statement does not contain 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 not misleading, or (iii) if the continued effectiveness of the Shelf Registration Statement would require the Company to disclose a material financing, acquisition or other corporate development, and the Board of Directors of the Company has determined in good faith that such disclosure would be detrimental to the interests of the Company. The period during which the Company is required to maintain the effectiveness of the Shelf Registration Statement pursuant to Section 2.1(b)(i) shall be extended by the duration of all periods during which the availability of the Shelf Registration Statement and prospectus is suspended in accordance with the foregoing (each such period of suspension being referred to herein as a "Deferral Period"). Except as set provided below, in no event will the Deferral Periods exceed, in the aggregate, ninety (90) days in any 365 day period. Notwithstanding anything to the contrary contained in this Agreement, the Company may at any time, or from time to time, cause one or more additional Deferral Periods (each, an "Additional Deferral Period"), in order to file a post effective amendment to the Shelf Registra tion Statement to (i) include and update the Company's financial statements for the Company's first fiscal quarter ending June 2, 2001; (ii) include and update the 4 Company's financial statements for the Company's second fiscal quarter ending September 1, 2001, or (iii) effectuate an offering pursuant to Section 2.1(e) below. No Additional Deferral Period shall count against the 90 day limitation above. (e) The Holders may elect to sell Registrable Securities in an underwritten offering in accordance with the conditions set forth in this Section 2.1(e). In any such underwritten offering, the investment banker or bankers and manager or managers that will administer the offering will be selected by, and the underwriting arrangements with respect thereto will be approved by a majority in interest of the Holders, subject, in each case, to the consent of the Company, which consent will not be unreasonably withheld, and the Holders will be responsible for all underwriting commissions and discounts in connection therewith. The Company shall not be obligated to arrange for more than one underwritten offering pursuant to the Shelf Registration Statement. No Holder may participate in any underwritten offering hereunder unless the Holder (i) agrees to sell the Holder's Registrable Securities on the basis provided in any underwriting arrangements approved pursuant hereto and (ii) completes and executes all other questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 2.2 Piggyback Registration. (a) If the Company has not filed the Shelf Registration Statement, and the Company shall determine to register any equity securities of the Company for its own account or for the account of other holders of equity securities of the Company on any registration form (other than Form S-4 or S-8 or other successor forms) which permits the inclusion of Registrable Securities held by any Holder (a "Piggyback Registration"), the Company will promptly give each Holder written notice thereof and, subject to Section 2.2(c), shall include in such registration all Registrable Securities requested to be included therein pursuant to the written requests of Holders received within 20 days after delivery of the Company's notice. (b) If the Piggyback Registration relates to an underwritten public offering, the Company shall so advise the Holders as part of the written notice given pursuant to Section 2.2(a). In such event, the right of any Holder to participate in such registration shall be conditioned upon such Holder's participation in such underwriting in accordance with the terms and conditions thereof. The Board shall have the right to select the managing underwriter(s) for any underwritten Piggyback Registration. All Holders proposing to distribute their Registrable Securities through 5 such underwriting shall (together with the Company) enter into an underwriting agreement in customary form. (c) If such proposed Piggyback Registration is an under written offering, and the managing underwriter for such offering advises the Com pany that the securities requested to be included therein exceeds the amount of securities that can be sold in such offering, any securities to be sold by the Company or other holders of the Company's securities initiating such offering or otherwise contractually entitled to be included in such offering prior to the Holders of the Registrable Securities shall have priority over any Registrable Securities held by Holders, and the number of shares to be included by a Holder and other holders of the Company's securities that did not initiate the offering in such registration shall be reduced pro rata on the basis of the percentage of the then outstanding Registrable Securities held by each such Holder and all other holders exercising similar registra tion rights. (d) Notwithstanding the provisions of this Section 2.2, the Company shall have the right at any time after it shall have given written notice to the Holders pursuant to Section 2.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after filing but prior to effectiveness. 2.3 Expenses of Registration. All expenses incurred in connection with the registrations described herein shall be borne by the Company, provided that the expenses borne by the Company shall not include the fees or disbursements of any counsel to or any other adviser of any Holder; provided, however, in the case of an underwritten offering pursuant to Section 2.1(e) herein, the Company shall pay the fees of one counsel selected by a majority of the Holders of the Registrable Securities participating in such underwritten offering, up to a maximum of $25,000. All underwriting discounts, selling commissions and other similar fees relating to Registrable Securities included in registration statement of the Company shall be borne by the Holders of such Registrable Securities pro rata on the basis of the amount of Registrable Securities sold by them. 2.4 Registration Procedures. In the case of each registration effected by the Company pursuant to this Article II involving the registration of Registrable Securities, the Company will keep each Holder advised in writing as to the initiation of such registration and as to the completion thereof. At its expense, the Company will use its best efforts to: 6 (a) cause such registration to be declared effective by the Commission; (b) as soon as reasonably possible, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus included therein (including post-effective amendments, prospec tus supplements and pricing supplements) as may be necessary, including in the case of a Shelf Registration Statement such amendments and supplements as are neces sary to effect and maintain the effectiveness of such registration statement for the period specified in Section 2.1(b); (c) provide (i) the Holders of the Registrable Securities to be included in such registration statement, (ii) the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act) if any, thereof, (iii) the sales or placement agent therefor, if any, (iv) counsel for such underwriters or agent, and (v) not more than one counsel for all the Holders of such Registrable Securities the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; (d) (i) register or qualify the Registrable Securities to be included in such registration statement under such securities laws or blue sky laws of such jurisdictions as any Holder of such Registrable Securities and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, and (ii) take any and all other actions as may be reasonably necessary or advisable to enable each such Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that the Company shall not be required for any other purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 2.4(d) or (2) consent to general service of process or taxation in any such jurisdiction; (e) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as any Holder from time to time may reasonably request; (f) promptly notify the selling Holders of Registrable Securities, the sales or placement agent, if any, therefor and the managing under writer or underwriters, if any, thereof and confirm such advice in writing, (i) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment 7 has been filed, and with respect to such registration statement or any post-effective amendment, when the same has become effective, (ii) of any comments by the Commission, the Blue Sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such registration statement or prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for the sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (v) at any time when a prospectus is required to be delivered under the Securities Act, that such registra tion statement, prospectus, prospectus amendment or supplement or post-effective amendment, or any document incorporated by reference in any of the foregoing, contains 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 not mislead ing in light of the circumstances then existing; (g) obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (h) if requested by any managing underwriter or underwrit ers, any placement or sales agent or any Holder of Registrable Securities, promptly incorporate in a prospectus supplement or post-effective amendment such informa tion as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold by such Holder or agent or to any underwriters, the name and description of such Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such Holder or agent or to such underwriters; (i) furnish to each Holder of Registrable Securities included in such registration statement, each placement or sales agent, if any, 8 therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 2.4(c) an executed copy of such registration statement, each such amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and such number of copies of such registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically and reasonably so requested by such Holder, agent or underwriter, as the case may be) and 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 the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Holder and by any such agent and underwriter, if any, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (j) cause all Registrable Securities covered by such registration to be listed on each securities exchange or inter-dealer quotation system on which similar securities issued by the Company are then listed; (k) provide a transfer agent and registrar for all Registrable Securities covered by such registration and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (l) cooperate with the Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certifi cates shall not bear any restrictive legends; (m) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Conduct (the "Rules of Conduct") of the National Association of Securities Dealers, Inc. ("NASD") thereof, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise use its reasonable best efforts to assist such broker-dealer in complying with the requirements of such Rules of Conduct, including, without limitation, by providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Conduct; and 9 (n) otherwise comply with all applicable rules and regula tions of the Commission and make available to its security holders, as soon as reasonably practicable but in no event later than eighteen months after the effective date of such registration statement, an earnings statement covering the period of at least twelve months, but not more than 18 months, beginning with the first month after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). 2.5 Delivery of Prospectus Supplement. Subject to Section 2.1(d) herein, in the event that the Company would be required, pursuant to Section 2.4(f) above, to notify the selling Holders of Registrable Securities, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company shall as soon as reasonably practicable prepare and furnish to each such Holder, to each placement or sales agent, if any, and to each underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to initial purchasers of Registrable Securities, such prospectus shall not contain 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 not misleading in light of the circumstances then existing. Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company pursuant to Section 2.4(f) hereof, such Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the registration statement applicable to such Registrable Securities until such Holder shall have received copies of such amended or supple mented prospectus, and if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. 2.6 Furnishing Information by the Holders. The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such Holder and such Holder's intended method of distribution of such Registrable Securities as the Company may from time to time request in writing. Each such Holder agrees to promptly notify the Company of any inaccuracy or change in information previously furnished by such Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities or omits to 10 state any material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish information so required so that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, 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 not mislead ing in light of the circumstances then existing. 2.7 Indemnification. (a) The Company will indemnify each Holder whose Registrable Securities are to be included in a registration pursuant to this Article II, each of such Holder's officers, directors, partners, agents, employees and representa tives and each person controlling such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, with respect to each registra tion, qualification or compliance effected pursuant to this Article II, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settle ments in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospec tus, or other document incorporated by reference therein, or compliance, 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, and will reim burse each such indemnified person for any reasonable legal and other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to a Holder to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement (or alleged untrue statement) or omission (or alleged omission) based upon information furnished to the Company by such Holder and provided for use in such registration statement, prospectus, offering circular or other document or the Holder delivered a registration or prospectus in violation of Section 2.5 hereof after notice was provided by the Company as provided in Section 2.5. It is agreed that the indemnity agree ment contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). (b) Each Holder whose Registrable Securities are included in any registration effected pursuant to this Article II shall indemnify the Company, 11 each of its directors, officers, agents, employees and representatives, and each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, each other such Holder and each of their officers, directors, partners, agents, employees and representatives and each person controlling such Holder, and each underwriter, if any, of such Registrable Securities and each Person who controls any such underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document incident to such registration, qualification or compliance, 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, and will reim burse such indemnified persons for any reasonable legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in strict conformity with written information furnished to the Company by such Holder and provided specifically for use therein; provided, however, that (x) no Holder shall be liable hereunder for any amounts in excess of the gross proceeds received by such Holder pursuant to such registration, and (y) the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 2.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed), and the Indemnified Party may participate in such defense with counsel reasonably acceptable to and paid for by the Indemnifying Party but other wise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnify ing Party of its obligations under this Section 2.7 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or 12 litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 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. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in an underwriting agree ment entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 2.8 Other Obligations. With a view to making available the benefits of certain rules and regulations of the Commission which may effectuate the registration of Registrable Securities or permit the sale of Registrable Securities to the public without registration, the Company agrees to: (a) at such time as any Registrable Securities are eligible for transfer under Rule 144(k), upon the request of the holder of such Registrable 13 Securities, remove any restrictive legend from the certificates evidencing such Registrable Securities at no cost to such holder; (b) make and keep available public information as defined in Rule 144 under the Securities Act at all times; (c) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and (d) furnish any Holder upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after 90 days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the Commission (including Rule 144A) allowing a holder of Registrable Securities to sell any such Registrable Securities without registration. ARTICLE III Termination This Agreement shall terminate immediately following the moment at which there exist no securities of the Company that constitute Registrable Securities; provided, however, that Section 2.7 hereof shall survive indefinitely. ARTICLE IV Miscellaneous 4.1 Recapitalization, Exchanges, etc. Affecting the Common Stock. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (a) the Registrable Securities and (b) any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, 14 in exchange for, or in substitution for the Registrable Securities, by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. In the event of any change in the capitalization of the Company as a result of any stock split, stock dividend or stock combination, the provisions of this Agreement shall be appropriately adjusted. 4.2 Injunctive Relief. It is hereby agreed and acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved Person will be irreparably damaged and will not have an adequate remedy at law. Any such Person shall, therefore, in addition to any other remedies available under applicable law, be entitled to injunc tive relief, including specific performance, to enforce such obligations, without the posting of any bond, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 4.3 Parties in Interest. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforce able by the respective successors and assigns of the parties hereto. In the event that any transferee of any Holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing of any kind, be deemed a party hereto for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of and be conclu sively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. 4.4 Survival. The respective indemnities, agreements, representa tions, warranties and each other provision set forth in this Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statements as to the results thereto) made by or on behalf of any Holder of Registrable Securities, any director, officer or partner of such Holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive the transfer of Registrable Securities by such Holder. 4.5 Amendment; Waiver. 15 (a) This Agreement may be amended only by a written instrument signed by the Company and by Holders holding more than 66% of the then outstanding Registrable Securities and, in the case of any amendment that adversely affects any Holder or all of the members of any group of Holders differ ently from any of the other Holders, by such Holder or the holders of more than 66% in interest of the securities of the Company held by such group of Holders. (b) No provision of this Agreement may be waived orally, but only by a written instrument signed by the party against whom enforcement of such waiver is sought. Holders shall be bound from and after the date of the receipt of a written notice from the Company setting forth such amendment or waiver, whether or not the Registrable Securities shall have been marked to indicate such amendment or waiver. 4.6 Notices. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing (includ ing a writing delivered by facsimile transmission) and shall be deemed to have been duly given if delivered personally, or sent by either certified or registered mail, return receipt requested, postage prepaid, or by overnight courier guaranteeing next day delivery, or by telex or telecopier, at the following addresses: 16 if to the Company: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq., Senior Executive Vice President and General Counsel Telecopier: (717) 975-3762 with a copy to Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attention: Stacy J. Kanter Telecopier: (212) 735-2000 if to Marathon: with a copy to: Marathon may, by written notice given to the Company in accordance with this Section 4.6, change the address to which such notice or other communications are to be sent to it. All such notices and communications shall be deemed to have been given on the date of delivery thereof, if delivered by hand, on the fifth day after the mailing thereof, if mailed, on the next day after the sending thereof, if by overnight courier and when receipt is acknowledged, if telecopied. 4.7 Inspection. So long as this Agreement shall be in effect, this Agreement and any amendments hereto shall be made available for inspection by any Holder at the principal offices of the Company. 4.8 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 4.9 Headings. Article, section and paragraph headings are inserted for convenience only and do not constitute a part of this Agreement. 17 4.10 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof. There are no restrictions, agreements, promises, representations, warranties, covenants or under takings with respect to the subject matter hereof other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and under standings between the parties with respect to this subject matter. 4.11 Illegality. In case any provision in this Agreement shall be declared or held invalid, illegal or unenforceable, in whole or in part, whether generally or in any particular jurisdiction, such provision shall be deemed amended to the extent, but only to the extent, necessary to cure such invalidity, illegality or unenforceability, and the validity, legality and enforceability of the remaining provisions, both generally and in every other jurisdiction, shall not in any way be affected or impaired thereby. 4.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 18 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above. RITE AID CORPORATION By: --------------------------------------- Name: Elliot S. Gerson Title: Senior Executive Vice President and General Counsel MARATHON SPECIAL OPPORTUNITY FUND LTD. By: --------------------------------------- Name: Title: MARATHON MASTER FUND LTD. By: --------------------------------------- Name: Title: 19 EXHIBIT A Selling Securityholder Notice and Questionnaire The undersigned holder of shares of the common stock of Rite Aid Corporation (the "Company") that are Registrable Securities (as that term is defined in the Registra tion Rights Agreement, dated as of June 14, 2001 (the "Registration Rights Agree ment") by and among the Company and Marathon Special Opportunity Fund Ltd. and Marathon Master Fund Ltd, and understands that the Company has filed with the Securities and Exchange Commission (the "Commission" a registration statement (the "Shelf Registration Statement" for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"). All capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in the Registration Rights Agreement. Each beneficial owner of Registrable Securities is entitled to the benefits of the Registration Rights Agreement. In order to sell or otherwise dispose of any Registrable Securities pursuant to the Shelf Registration Statement, a beneficial owner of Registrable Securities generally will be required to be named as a selling securityholder in the related prospectus, deliver a prospectus to purchasers of Registrable Securities and be bound by those provisions of the Registration Rights Agreement applicable to such beneficial owner (including certain indemnification provisions, as described below). Beneficial owners are required to complete and deliver this Notice and Questionnaire prior to the effectiveness of the Shelf Registra tion Statement so that such beneficial owners may be named as selling securityholders in the related prospectus at the time of effectiveness. Upon receipt of a completed Notice and Questionnaire from a beneficial owner following the effectiveness of the Shelf Registration Statement, the Company will, as promptly as practicable, file such amendments to the Shelf Registration Statement or supplements to the related prospec tus as are necessary to permit such holder to deliver such prospectus to purchasers of Registrable Securities. The Company has agreed to pay liquidated damages pursuant to the Registration Rights Agreement under certain circumstances as set forth therein. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named A-1 as a selling securityholder in the Shelf Registration Statement and the related prospectus. Notice The undersigned beneficial owner (the "Selling Securityholder") of Registrable Securities hereby gives notice to the Company of its intention to sell or otherwise dispose of Registrable Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under Item 3) pursuant to the Shelf Registration Statement. The undersigned, by signing and returning this Notice and Questionnaire, understands that it will be bound by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement. The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: Questionnaire 1. (a) Full Legal Name of Selling Securityholder: ______________________________________________________________________ (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities listed in (3) below are held: ______________________________________________________________________ (c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) through which Registrable Securities listed in (3) below are held: 2. Address for Notices to Selling Securityholder: ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Telephone: ___________________________________________________________ Fax: _________________________________________________________________ Contact Person: ______________________________________________________ 3. Beneficial Ownership of Registrable Securities: A-2 (a) Type and Principal Amount of Registrable Securities beneficially owned: ______________________________________________________________________ ______________________________________________________________________ (b) CUSIP No(s). of such Registrable Securities beneficially owned: ______________________________________________________________________ ______________________________________________________________________ 4. Beneficial Ownership of the Company's securities owned by the Selling Securityholder: Except as set forth below in this Item (4), the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securi ties listed above in Item (3). (a) Type and Amount of Other Securities beneficially owned by the Selling Securityholder: (b) CUSIP No(s). of such Other Securities beneficially owned: ______________________________________________________________________ ______________________________________________________________________ 5. Relationship with the Company: Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or their predecessors or affiliates) during the past three years. State any exceptions here: ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 6. Plan of Distribution: Except as set forth below, the undersigned (including its donees or pledgees) intends to distribute the Registrable Securities listed above in Item (3) pursuant to the Shelf Registration Statement only as follows if at all): such Registrable A-3 Securities may be sold from time to time directly by the undersigned or alterna tively, through underwriters, broker-dealers or agents. If the Registrable Securities are sold through underwriters or broker-dealers, the Selling Securityholder will be responsible for underwriting discounts or commissions or agent's commissions. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve block transac tions) (i) on any national securities exchange or quotation service on which the Registrable Securities may be listed or quoted at the time of sale,. (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services, or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of Registrable Securities or otherwise, the undersigned may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities. State any exceptions here: ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Note: In no event will such method(s) of distribution take the form of an underwritten offering of the Registrable Securities without the prior agree ment of the Company. The undersigned acknowledges that it understands its obligation to comply with the provisions of the Exchange Act and the rules thereunder relating to stock manipulation, particularly Regulation M thereunder (or any successor rules or regula tions), in connection with any offering of Registrable Securities pursuant to the Shelf Registration Statement. The undersigned agrees that neither it nor any person acting on its behalf will engage in any transaction in violation of such provisions. The Selling Securityholder hereby acknowledges its obligations under the Registration Rights Agreement to indemnify and hold harmless certain persons as set forth therein. A-4 Pursuant to the Registration Rights Agreement, the Company has agreed under certain circumstances to indemnify the Selling Securityholders against certain liabilities. In accordance with the undersigned's obligation under the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided. herein that may occur subsequent to the date hereof at anytime while the Shelf Registration Statement remains effective. All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing at the address set forth below. By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and the related prospectus. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Shelf Registration Statement and the related prospectus. A-5 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Dated: Beneficial Owner By: ------------------------------- Name: Title: PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO RITE AID CORPORATION. AT: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq, Senior Executive Vice President and General Counsel Facsimile: (717) 975-3762 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, NY 10036 Attention: Michael Zeidel Facsimile: (212) 735-2000 A-6 EX-10 8 exh10-28.txt EXHIBIT 10.28 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of June 19, 2001, by and between RITE AID CORPORATION, a Delaware corporation (the "Company"), and OZ MASTER FUND, LTD. ("OZ Master") and OZF CREDIT OPPORTUNITIES MASTER FUND, LTD. ("OZF Credit" and together with OZ Master, "OZ"). W I T N E S S E T H: WHEREAS, the Company has issued to OZ, in exchange for certain outstanding indebtedness of the Company, the Exchange Shares (as defined below) in accordance with the terms of the following Equity for Debt Exchange Agreements: (i) that certain Equity for Bank Debt Exchange Agreement, dated as of May 8, 2001 by and between the Company and OZ Master; (ii) that certain Equity for Bank Debt Exchange Agreement, dated as of May 8, 2001 by and between the Company and OZF Credit; (iii) that certain Equity for Bank Debt Exchange Agreement, dated as of May 21, 2001 by and between the Company and OZ Master; (iv) that certain Equity for Bank Debt Exchange Agreement, dated as of May 21, 2001 by and between the Company and OZF Credit; (v) that certain Equity for Bank Debt Exchange Agreement, dated as of June 14, 2001 by and between the Company and OZ Master (relating to the exchange of RCF debt);(vi) that certain Equity for Bank Debt Exchange Agreement, dated as of June 14, 2001 by and between the Company and OZ Credit (relating to the exchange of RCF debt); (vii) that certain Equity for Bank Debt Exchange Agreement, dated as of June 14, 2001 by and between the Company and OZ Master (relating to the exchange of PCS debt); (viii) that certain Exchange Agreement, dated as of June 14, 2001 by and between the Company and OZ Master (relating to the exchange of 10.5% Notes); and (ix) that certain Exchange Agreement, dated as of June 14, 2001 by and between the Company and OZF Credit (relating to the exchange of 10.5% Notes), (collectively, the "Exchange Agreements"); WHEREAS, in connection with the sale of the Exchange Shares to OZ, the Company has agreed to provide OZ with the registration rights set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to and on the terms and conditions herein set forth, the parties hereto hereby agree as follows: ARTICLE I Certain Definitions As used in this Agreement, the following terms shall have the meanings ascribed to them below: 1.1 "Commission" shall mean the Securities and Exchange Commission or any federal agency at the time administering the Securities Act. 1.2 "Common Stock" shall mean the common stock of the Company, par value $1.00 per share. 1.3 "Deferral Period" shall have the meaning set forth in Section 2.1(d). 1.4 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any federal statute then in effect which has replaced such statute. 1.5 "Exchange Shares" shall mean the shares of Common Stock acquired by OZ pursuant to the Exchange Agreement. 1.6 "Holder" shall mean OZ for so long as it owns any Registrable Securities and any other Person who is a holder or beneficial owner of Registrable Securities for so long as such Person owns any Registrable Securities. 1.7 "Person" shall mean an individual, corporation, limited liability company, joint venture, partnership, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity that may be treated as a person under applicable law. 1.8 "Registrable Securities" shall mean the Exchange Shares, provided that such securities shall cease to be Registrable Securities when (i) a registration statement registering such Registrable Securities under the Securities Act has been declared or becomes effective and such Registrable Securities have been sold or otherwise transferred by the Holder thereof pursuant to such effective registration statement; (ii) such Registrable Securities are sold pursuant to Rule 144 under circumstances in which any legend borne by such Registrable Securities relating to restrictions on the transferability thereof, under the Securities Act or otherwise, is removed by the Company or such Registrable Securities are eligible to 2 be sold by the holder thereof pursuant to paragraph (k) of Rule 144; or (iii) such Registrable Securities shall cease to be outstanding. 1.9 "Rule 144" shall mean Rule 144 promulgated under the Securities Act. 1.10 "Securities Act" shall mean Securities Act of 1933, as amended, or any federal statute then in effect which has replaced such statute. 1.11 "Shelf Registration Statement" shall have the meaning set forth in Section 2.1(a). ARTICLE II Registration Rights 2.1 Shelf Registration (i) As soon as is reasonably practicable but not later than forty-five (45) days after the Company files its Annual Report on Form 10-K for the fiscal year ended March 3, 2001, the Company will file a shelf registration statement with the Commission on Form S-1 or any other appropriate form (it being understood by all parties that the Company will not be eligible to use Form S-3 prior to October 11, 2001) under Rule 415 of the Securities Act, or any similar rule that may be adopted by the Commission relating to the offer and sale of all of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such shelf registration statement (together with all amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus con tained therein, all exhibits thereto and all material incorporated by reference thereto, the "Shelf Registration Statement"), provided that the Company may also register for sale on its own account or that of any other holder of equity securities of the Com pany pursuant to the Shelf Registration Statement such additional shares of the Company's stock as it shall desire. (ii) The Company will use its reasonable best efforts to cause the registration statement filed pursuant to Section 2.1(a) to be declared effective as soon as reasonably practicable but not later than one-hundred and twenty (120) days after the Company files its Annual Report on Form 10-K with the 3 Commission, and to remain effective for a period ending on the earlier of (i) the date two years after the effective date of the Registration Statement and (ii) the date on which there cease to be any Registrable Securities outstanding. (iii) Each Holder of Registrable Securities that wishes to sell Registrable Securities pursuant to a Shelf Registration Statement and related prospectus agrees to deliver a notice and questionnaire in the form attached hereto as Exhibit A (a "Notice and Questionnaire") at least 5 business days prior to the intended distribution of Registrable Securities under the Shelf Registration State ment. Provided that the Shelf Registration Statement has been declared effective, the Company shall, as promptly as is practicable after a Holder has delivered a Notice and Questionnaire and such other information as the Company may reasonably require, (i) if required by applicable law, file with the Commission a post-effective amendment to the Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related prospectus or amendment to any document incorporated therein by reference or file any other required document so that such Holder is named as a selling security holder in the Shelf Registration Statement and the related prospectus in such a manner as to permit such Holder to deliver such prospectus to purchasers of the Registrable Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use its best efforts to cause such post-effective amend ments to be declared effective under the Act as promptly as is practicable, (ii) provide such Holder copies of any documents filed pursuant to the foregoing and (iii) notify such Holder as promptly as practicable after the effectiveness of any post- effective amendment filed hereunder, provided, however, that if the Notice and Questionnaire is delivered during a Deferral Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Deferral Period in accordance with Section 2.1(d) hereof. (iv) Notwithstanding anything in Section 2.1(b), 2.1(c) or 2.4 hereof, the Company may take action that would result in the Holders of Registrable Securities being unable to offer and sell Registrable Securities under a Shelf Registration Statement that has been filed pursuant to this Section 2.1 (i) if such action is required by applicable law, (ii) upon the occurrence of any event that requires any change to be made to the Shelf Registration Statement so that, as of such date, the Shelf Registration Statement does not contain 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 not misleading, or (iii) if the continued effectiveness of the Shelf Registration Statement would require the Company to disclose a material 4 financing, acquisition or other corporate development, and the proper officers of the Company have determined, as certified in an officer's certificate, that such disclosure is not in the best interests of the Company. The period during which the Company is required to maintain the effectiveness of the Shelf Registration Statement pursuant to Section 2.1(b)(i) shall be extended by the duration of all periods during which the availability of the Shelf Registration Statement and prospectus is suspended in accordance with the foregoing (each such period of suspension being referred to herein as a "Deferral Period"). Except as provided below, in no event will the Deferral Periods exceed, in the aggregate, ninety (90) days in any 365 day period, and the Company will not exercise its rights under this Section 2.1(d) more than twice in any 365 day period. Except as provided below no Deferral Period shall begin within thirty (30) days of the last day of the immediately preceding Deferral Period. Notwithstanding anything to the contrary contained in this Agreement, the Company may at any time, or from time to time, cause one or more additional Deferral Periods (each, an "Additional Deferral Period"), in order to file a post effective amendment to the Shelf Registration Statement to (i) include and update the Company's financial statements for the Company's first fiscal quarter ending June 2, 2001; (ii) include and update the Company's financial statements for the Company's second fiscal quarter ending September 1, 2001, or (iii) effectuate an offering pursuant to Section 2.1(e) below. No Additional Deferral Period shall count against the Deferral Periods permitted above or the aggregate amount of all such Deferral Periods. (v) The Holders may elect to sell Registrable Securities in an underwritten offering in accordance with the conditions set forth in this Section 2.1(e). In any such underwritten offering, the investment banker or bankers and manager or managers that will administer the offering will be selected by, and the underwriting arrangements with respect thereto will be approved by a majority in interest of the Holders, subject, in each case, to the consent of the Company, which consent will not be unreasonably withheld, and the Holders will be responsible for all underwriting commissions and discounts in connection therewith. The Company shall not be obligated to arrange for more than one underwritten offering pursuant to the Shelf Registration Statement. No Holder may participate in any underwritten offering hereunder unless the Holder (i) agrees to sell the Holder's Registrable Securities on the basis provided in any underwriting arrangements approved pursuant hereto and (ii) completes and executes all other customary questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 5 2.2 Piggyback Registration. (i) If the Company has not filed the Shelf Registration Statement, and the Company shall determine to register any equity securities of the Company for its own account or for the account of other holders of equity securities of the Company on any registration form (other than Form S-4 or S-8 or other successor forms) which permits the inclusion of Registrable Securities held by any Holder (a "Piggyback Registration"), the Company will promptly give each Holder written notice thereof and, subject to Section 2.2(c), shall include in such registration all Registrable Securities requested to be included therein pursuant to the written requests of Holders received within 20 days after delivery of the Company's notice. (ii) If the Piggyback Registration relates to an underwritten public offering, the Company shall so advise the Holders as part of the written notice given pursuant to Section 2.2(a). In such event, the right of any Holder to participate in such registration shall be conditioned upon such Holder's participation in such underwriting in accordance with the terms and conditions thereof. The Board shall have the right to select the managing underwriter(s) for any underwritten Piggyback Registration. All Holders proposing to distribute their Registrable Securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form. (iii) If such proposed Piggyback Registration is an under written offering, and the managing underwriter for such offering advises the Com pany that the securities requested to be included therein exceeds the amount of securities that can be sold in such offering, any securities to be sold by the Company or other holders of the Company's securities initiating such offering or otherwise contractually entitled to be included in such offering prior to the Holders of the Registrable Securities shall have priority over any Registrable Securities held by Holders, and the number of shares to be included by a Holder and other holders of the Company's securities that did not initiate the offering in such registration shall be reduced pro rata on the basis of the percentage of the then outstanding Registrable Securities held by each such Holder and all other holders exercising similar registra tion rights. (iv) Notwithstanding the provisions of this Section 2.2, the Company shall have the right at any time after it shall have given written notice to the Holders pursuant to Section 2.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such 6 proposed registration statement, or to withdraw the same after filing but prior to effectiveness. 2.3 Expenses of Registration. All expenses incurred in connection with the registrations described herein shall be borne by the Company, provided that the expenses borne by the Company shall not include the fees or disbursements of any counsel to or any other adviser of any Holder. All underwriting discounts, selling commissions and other similar fees relating to Registrable Securities included in registration statement of the Company shall be borne by the Holders of such Registrable Securities pro rata on the basis of the amount of Registrable Securities sold by them. 2.4 Registration Procedures. In the case of each registration effected by the Company pursuant to this Article II involving the registration of Registrable Securities, the Company will keep each Holder advised in writing as to the initiation of such registration and as to the completion thereof. At its expense, the Company will use its best efforts to: (i) cause such registration to be declared effective by the Commission; (ii) as soon as reasonably possible, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus included therein (including post-effective amendments, prospec tus supplements and pricing supplements) as may be necessary, including in the case of a Shelf Registration Statement such amendments and supplements as are neces sary to effect and maintain the effectiveness of such registration statement for the period specified in Section 2.1(b); (iii) provide (i) the Holders of the Registrable Securities to be included in such registration statement, (ii) the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act) if any, thereof, (iii) the sales or placement agent therefor, if any, (iv) counsel for such underwriters or agent, and (v) not more than one counsel for all the Holders of such Registrable Securities the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; 7 (iv) (i) register or qualify the Registrable Securities to be included in such registration statement under such securities laws or blue sky laws of such jurisdictions as any Holder of such Registrable Securities and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, and (ii) take any and all other actions as may be reasonably necessary or advisable to enable each such Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that the Company shall not be required for any other purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 2.4(d) or (2) consent to general service of process or taxation in any such jurisdiction; (v) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as any Holder from time to time may reasonably request; (vi) promptly notify the selling Holders of Registrable Securities, the sales or placement agent, if any, therefor and the managing under writer or underwriters, if any, thereof and confirm such advice in writing, (i) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and with respect to such registration statement or any post-effective amendment, when the same has become effective, (ii) of any comments by the Commission, the Blue Sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such registration statement or prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for the sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (vi) at any time when a prospectus is required to be delivered under the Securities Act, that such registra tion statement, prospectus, prospectus amendment or supplement or post-effective amendment, or any document incorporated by reference in any of the foregoing, contains 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 not mislead ing in light of the circumstances then existing; 8 (vii) obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (viii) if requested by any managing underwriter or underwrit ers, any placement or sales agent or any Holder of Registrable Securities, promptly incorporate in a prospectus supplement or post-effective amendment such informa tion as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold by such Holder or agent or to any underwriters, the name and description of such Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such Holder or agent or to such underwriters; (ix) furnish to each Holder of Registrable Securities included in such registration statement, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 2.4(c) an executed copy of such registration statement, each such amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and such number of copies of such registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically and reasonably so requested by such Holder, agent or underwriter, as the case may be) and 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 the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Holder and by any such agent and underwriter, if any, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (x) cause all Registrable Securities covered by such registration to be listed on each securities exchange or inter-dealer quotation system on which similar securities issued by the Company are then listed; 9 (xi) provide a transfer agent and registrar for all Registrable Securities covered by such registration and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (xii) cooperate with the Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certifi cates shall not bear any restrictive legends; (xiii) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Conduct (the "Rules of Conduct") of the National Association of Securities Dealers, Inc. ("NASD") thereof, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise use its reasonable best efforts to assist such broker-dealer in complying with the requirements of such Rules of Conduct, including, without limitation, by providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Conduct; and (xiv) otherwise comply with all applicable rules and regula tions of the Commission and make available to its security holders, as soon as reasonably practicable but in no event later than eighteen months after the effective date of such registration statement, an earnings statement covering the period of at least twelve months, but not more than 18 months, beginning with the first month after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder); and (xv) in connection with an offering pursuant to Section 2.1(e) herein, enter into customary agreements, including an underwriting agreement, in customary form and that is reasonably satisfactory to the Company, and take such other actions as are reasonably required in order to expedite or facilitate the disposi tion of the Registrable Securities. 2.5 Delivery of Prospectus Supplement. Subject to Section 2.1(d) herein, in the event that the Company would be required, pursuant to Section 2.4(f) above, to notify the selling Holders of Registrable Securities, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company 10 shall as soon as reasonably practicable prepare and furnish to each such Holder, to each placement or sales agent, if any, and to each underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to initial purchasers of Registrable Securities, such prospectus shall not contain 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 not misleading in light of the circumstances then existing. Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company pursuant to Section 2.4(f) hereof, such Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the registration statement applicable to such Registrable Securities until such Holder shall have received copies of such amended or supple mented prospectus, and if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. 2.6 Furnishing Information by the Holders. The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such Holder and such Holder's intended method of distribution of such Registrable Securities as the Company may from time to time request in writing. Each such Holder agrees to promptly notify the Company of any inaccuracy or change in information previously furnished by such Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities or omits to state any material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish information so required so that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, 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 not mislead ing in light of the circumstances then existing. 2.7 Indemnification. (i) The Company will indemnify each Holder whose Registrable Securities are to be included in a registration pursuant to this Article II, each of such Holder's officers, directors, partners, agents, employees and representa tives and each person controlling such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange 11 Act, with respect to each registra tion, qualification or compliance effected pursuant to this Article II, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settle ments in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospec tus, amendment, or other document incident to such registration, qualification or compliance, or other document incorporated by reference therein, or compliance, 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, and will reimburse each such indemnified person for any reasonable legal and other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to a Holder to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement (or alleged untrue statement) or omission (or alleged omission) based upon information furnished to the Company by such Holder and provided for use in such registration statement, prospectus, offering circular, amendment, or other document incident to such registration, qualification or compliance, or other document or the Holder delivered a registration or prospectus in violation of Section 2.5 hereof after notice was provided by the Company as provided in Section 2.5. It is agreed that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreason ably withheld or delayed). (ii) Each Holder whose Registrable Securities are included in any registration effected pursuant to this Article II shall indemnify the Company, each of its directors, officers, agents, employees and representatives, and each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, each other such Holder and each of their officers, directors, partners, agents, employees and representatives and each person controlling such Holder, and each underwriter, if any, of such Registrable Securities and each Person who controls any such underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular, amendment, or other document incident to such registration, qualification or compli ance, 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, and will 12 reimburse such indemnified persons for any reasonable legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, amendment, or other document incident to such registration, qualification or compliance, or other document in reliance upon and in strict conformity with written information fur nished to the Company by such Holder and provided specifically for use therein; provided, however, that (x) no Holder shall be liable hereunder for any amounts in excess of the net proceeds received by such Holder pursuant to such registration, and (y) the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld). (iii) Each party entitled to indemnification under this Section 2.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed), and the Indemnified Party may participate in such defense with counsel reasonably acceptable to and paid for by the Indemnifying Party but other wise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnify ing Party of its obligations under this Section 2.7 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (iv) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then 13 the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 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. (v) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in an underwriting agree ment entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 2.8 Other Obligations. With a view to making available the benefits of certain rules and regulations of the Commission which may effectuate the registration of Registrable Securities or permit the sale of Registrable Securities to the public without registration, the Company agrees to: (i) at such time as any Registrable Securities are eligible for transfer under Rule 144(c) or 144(k), upon the request of the holder of such Registrable Securities, and upon the Company's receipt of evidence reasonably satisfactory to the Company that such Registrable Securities may be transferred pursuant to Rule 144, remove any restrictive legend from the certificates evidencing such Registrable Securities at no cost to such holder; (ii) make and keep available public information as defined in Rule 144 under the Securities Act at all times; (iii) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the 14 Exchange Act at any time after it has become subject to such reporting requirements; and (iv) furnish any Holder upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after 90 days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the Commission (including Rule 144A) allowing a holder of Registrable Securities to sell any such Registrable Securities without registration. ARTICLE III Termination This Agreement shall terminate immediately following the moment at which there exist no securities of the Company that constitute Registrable Securities; provided, however, that Section 2.7 hereof shall survive indefinitely ARTICLE IV Liquidated Damages The Company hereby confirms and agrees that if the Shelf Registra tion Statement is not declared effective by the Commission on or before August 15, 2001, the Company will pay liquidated damages as set forth in the Exchange Agreements. 15 ARTICLE V Miscellaneous 5.1 Recapitalization, Exchanges, etc. Affecting the Common Stock. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (a) the Registrable Securities and (b) any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for the Registrable Securities, by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. In the event of any change in the capitalization of the Company as a result of any stock split, stock dividend or stock combination, the provisions of this Agreement shall be appropriately adjusted. 5.2 Injunctive Relief. It is hereby agreed and acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved Person will be irreparably damaged and will not have an adequate remedy at law. Any such Person shall, therefore, in addition to any other remedies available under applicable law, be entitled to injunc tive relief, including specific performance, to enforce such obligations, without the posting of any bond, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 5.3 Parties in Interest. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforce able by the respective successors and assigns of the parties hereto. In the event that any transferee of any Holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing of any kind, be deemed a party hereto for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of and be conclu sively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. 5.4 Survival. The respective indemnities, agreements, representa tions, warranties and each other provision set forth in this Agreement or made 16 pursuant hereto shall remain in full force and effect regardless of any investigation (or statements as to the results thereto) made by or on behalf of any Holder of Registrable Securities, any director, officer or partner of such Holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive the transfer of Registrable Securities by such Holder. 5.5 Amendment; Waiver. (i) This Agreement may be amended only by a written instrument signed by the Company and by Holders holding more than 66% of the then outstanding Registrable Securities and, in the case of any amendment that adversely affects any Holder or all of the members of any group of Holders differ ently from any of the other Holders, by such Holder or the holders of more than 66% in interest of the securities of the Company held by such group of Holders. (ii) No provision of this Agreement may be waived orally, but only by a written instrument signed by the party against whom enforcement of such waiver is sought. Holders shall be bound from and after the date of the receipt of a written notice from the Company setting forth such amendment or waiver, whether or not the Registrable Securities shall have been marked to indicate such amendment or waiver. 5.6 Notices. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing (includ ing a writing delivered by facsimile transmission) and shall be deemed to have been duly given if delivered personally, or sent by either certified or registered mail, return receipt requested, postage prepaid, or by overnight courier guaranteeing next day delivery, or by telex or telecopier, at the following addresses: 17 if to the Company: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq., Senior Executive Vice President and General Counsel Telecopier: (717) 975-3762 with a copy to Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attention: Stacy J. Kanter Telecopier: (212) 735-2000 if to OZ: with a copy to: OZ may, by written notice given to the Company in accordance with this Section 5.6, change the address to which such notice or other communications are to be sent to it. All such notices and communications shall be deemed to have been given on the date of delivery thereof, if delivered by hand, on the fifth day after the mailing thereof, if mailed, on the next day after the sending thereof, if by overnight courier and when receipt is acknowledged, if telecopied. 5.7 Inspection. So long as this Agreement shall be in effect, this Agreement and any amendments hereto shall be made available for inspection by any Holder at the principal offices of the Company. 5.8 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 5.9 Headings. Article, section and paragraph headings are inserted for convenience only and do not constitute a part of this Agreement. 18 5.10 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof. There are no restrictions, agreements, promises, representations, warranties, covenants or under takings with respect to the subject matter hereof other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and under standings between the parties with respect to this subject matter. 5.11 Illegality. In case any provision in this Agreement shall be declared or held invalid, illegal or unenforceable, in whole or in part, whether generally or in any particular jurisdiction, such provision shall be deemed amended to the extent, but only to the extent, necessary to cure such invalidity, illegality or unenforceability, and the validity, legality and enforceability of the remaining provisions, both generally and in every other jurisdiction, shall not in any way be affected or impaired thereby. 5.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 19 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above. RITE AID CORPORATION By: ---------------------------------------- Name: Title: OZ MASTER FUND, LTD. By: ---------------------------------------- Name: Title: OZF CREDIT OPPORTUNITIES MASTER FUND LTD. By: ---------------------------------------- Name: Title: 20 EXHIBIT A Selling Securityholder Notice and Questionnaire The undersigned holder of shares of the common stock of Rite Aid Corporation (the "Company") that are Registrable Securities (as that term is defined in the Registra tion Rights Agreement, dated as of June o, 2001 (the "Registration Rights Agree ment") by and among the Company and OZ Master Fund Ltd., and OZF Credit Opportunities Master Fund, Ltd., and understands that the Company has filed with the Securities and Exchange Commission (the "Commission" a registration statement (the "Shelf Registration Statement" for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"). All capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in the Registration Rights Agreement. Each beneficial owner of Registrable Securities is entitled to the benefits of the Registration Rights Agreement. In order to sell or otherwise dispose of any Registrable Securities pursuant to the Shelf Registration Statement, a beneficial owner of Registrable Securities generally will be required to be named as a selling securityholder in the related prospectus, deliver a prospectus to purchasers of Registrable Securities and be bound by those provisions of the Registration Rights Agreement applicable to such beneficial owner (including certain indemnification provisions, as described below). Beneficial owners are required to complete and deliver this Notice and Questionnaire prior to the effectiveness of the Shelf Registra tion Statement so that such beneficial owners may be named as selling securityholders in the related prospectus at the time of effectiveness. Upon receipt of a completed Notice and Questionnaire from a beneficial owner following the effectiveness of the Shelf Registration Statement, the Company will, as promptly as practicable, file such amendments to the Shelf Registration Statement or supplements to the related prospec tus as are necessary to permit such holder to deliver such prospectus to purchasers of Registrable Securities. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and the related prospectus. A-1 Notice The undersigned beneficial owner (the "Selling Securityholder") of Registrable Securities hereby gives notice to the Company of its intention to sell or otherwise dispose of Registrable Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under Item 3) pursuant to the Shelf Registration Statement. The undersigned, by signing and returning this Notice and Questionnaire, understands that it will be bound by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement. The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: Questionnaire 1. (a) Full Legal Name of Selling Securityholder: _____________________________________________________________________ (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities listed in (3) below are held: _____________________________________________________________________ (c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) through which Registrable Securities listed in (3) below are held: 2. Address for Notices to Selling Securityholder: Telephone: __________________________________________________________ Fax: ________________________________________________________________ Contact Person: _____________________________________________________ 3. Beneficial Ownership of Registrable Securities: (a) Type and Principal Amount of Registrable Securities beneficially owned: _____________________________________________________________________ _____________________________________________________________________ A-2 (b) CUSIP No(s). of such Registrable Securities beneficially owned: _____________________________________________________________________ _____________________________________________________________________ 4. Beneficial Ownership of the Company's securities owned by the Selling Securityholder: Except as set forth below in this Item (4), the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securi ties listed above in Item (3). (a) Type and Amount of Other Securities beneficially owned by the Selling Securityholder: (b) CUSIP No(s). of such Other Securities beneficially owned: _____________________________________________________________________ _____________________________________________________________________ 5. Relationship with the Company: Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or their predecessors or affiliates) during the past three years. State any exceptions here: _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ 6. Plan of Distribution: Except as set forth below, the undersigned (including its donees or pledgees) intends to distribute the Registrable Securities listed above in Item (3) pursuant to the Shelf Registration Statement only as follows if at all): such Registrable Securities may be sold from time to time directly by the undersigned or alterna tively, through underwriters, broker-dealers or agents. If the Registrable A-3 Securities are sold through underwriters or broker-dealers, the Selling Securityholder will be responsible for underwriting discounts or commissions or agent's commissions. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve block transac tions) (i) on any national securities exchange or quotation service on which the Registrable Securities may be listed or quoted at the time of sale,. (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services, or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of Registrable Securities or otherwise, the undersigned may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities. State any exceptions here: _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ Note: In no event will such method(s) of distribution take the form of an underwritten offering of the Registrable Securities without the prior agree ment of the Company. The undersigned acknowledges that it understands its obligation to comply with the provisions of the Exchange Act and the rules thereunder relating to stock manipulation, particularly Regulation M thereunder (or any successor rules or regula tions), in connection with any offering of Registrable Securities pursuant to the Shelf Registration Statement. The undersigned agrees that neither it nor any person acting on its behalf will engage in any transaction in violation of such provisions. The Selling Securityholder hereby acknowledges its obligations under the Registration Rights Agreement to indemnify and hold harmless certain persons as set forth therein. Pursuant to the Registration Rights Agreement, the Company has agreed under certain circumstances to indemnify the Selling Securityholders against certain liabilities. A-4 In accordance with the undersigned's obligation under the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided. herein that may occur subsequent to the date hereof at anytime while the Shelf Registration Statement remains effective. All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing at the address set forth below. By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and the related prospectus. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Shelf Registration Statement and the related prospectus. A-5 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Dated: Beneficial Owner By: ----------------------------------- Name: Title: PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO RITE AID CORPORATION. AT: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq. Senior Executive Vice President and General Counsel Facsimile: (717) 975-3762 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, NY 10036 Attention: Stacy J. Kanter, Esq. Facsimile: (212) 735-2000 A-6 EX-10 9 exh10-29.txt EXHIBIT 10.29 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of May 24, 2001, by and between RITE AID CORPORATION, a Delaware corporation (the "Company"), and LIBERTYVIEW FUNDS L.P. ("LibertyView Funds"), LIBERTYVIEW GLOBAL VOLATILITY FUND L.P. ("LibertyView Volatility") and LIBERTYVIEW FUNDS LLC ("LibertyView" and together with LibertyView Funds and LibertyView Volatility, "Liberty"). W I T N E S S E T H: WHEREAS, the Company has agreed to issue to Liberty the Ex change Shares (as defined below) in accordance with the terms of an Exchange Term Sheet between the Company and Liberty dated as of April 11, 2001 as amended by that certain Side Letter dated May 16, 2001 (as amended, the "Exchange Agreement"); WHEREAS, in connection with the issuance of the Exchange Shares to Liberty, the Company has agreed to provide Liberty with the registration rights set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to and on the terms and conditions herein set forth, the parties hereto hereby agree as follows: ARTICLE I Certain Definitions As used in this Agreement, the following terms shall have the meanings ascribed to them below: 1.1 "Commission" shall mean the Securities and Exchange Commission or any federal agency at the time administering the Securities Act. 1.2 "Common Stock" shall mean the common stock of the Company, par value $1.00 per share. 1.3 "Deferral Period" shall have the meaning set forth in Section 2.1(d). 1.4 "Effectiveness Date" shall mean the date the Shelf Registration Statement must be declared effective pursuant to Section 2.1(b). 1.5 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any federal statute then in effect which has replaced such statute. 1.6 "Exchange Shares" shall mean the shares of Common Stock issued to Liberty pursuant to the Exchange Agreement. 1.7 "Holder" shall mean Liberty for so long as it owns any Registrable Securities and any other Person who is a holder or beneficial owner of Registrable Securities for so long as such Person owns any Registrable Securities. 1.8 "Person" shall mean an individual, corporation, limited liability company, joint venture, partnership, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity that may be treated as a person under applicable law. 1.9 "Registrable Securities" shall mean the Exchange Shares, provided that such securities shall cease to be Registrable Securities when (i) a registration statement registering such Registrable Securities under the Securities Act has been declared or becomes effective and such Registrable Securities have been sold or otherwise transferred by the Holder thereof pursuant to such effective registration statement; (ii) such Registrable Securities are sold pursuant to Rule 144 under circumstances in which any legend borne by such Registrable Securities relating to restrictions on the transferability thereof, under the Securities Act or otherwise, is removed by the Company or such Registrable Securities are eligible to be sold pursuant to paragraph (k) of Rule 144; or (iii) such Registrable Securities shall cease to be outstanding. 1.10 "Rule 144" shall mean Rule 144 promulgated under the Securities Act. 1.11 "Securities Act" shall mean Securities Act of 1933, as amended, or any federal statute then in effect which has replaced such statute. 2 1.12 "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company pursuant to Section 2.1 hereof filed with the Commission on Form S-1 or such other appropriate form (it being understood by all parties that the Company will not be eligible to use Form S-3 prior to October 11, 2001) under Rule 415 under the Act, or any similar rule that may be adopted by the Commission, amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference thereto. ARTICLE II Registration Rights 2.1 Shelf Registration (a) As soon as reasonably practicable following the date the Company files its Annual Report on Form 10-K for the fiscal year ended March 3, 2001 with the Securities and Exchange Commission, the Company will file a Shelf Registration Statement relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such Shelf Registration Statement, provided that the Company may also register for sale on its own account or that of any other holder of equity securities of the Company pursuant to the Shelf Registration Statement such additional shares of the Company's stock as it shall desire. (b) The Company will use its reasonable best efforts to cause the registration statement filed pursuant to Section 2.1(a) to be declared effective as soon as reasonably practicable, but not later than August 15, 2001, and, subject to Section 2.1(d), to remain effective for a period ending on the earlier of (i) the date two years after the effective date of the Registration Statement, (ii) the date on which there cease to be any Registrable Securities outstanding, and (iii) the date the Holders are eligible to sell the Registrable Securities pursuant to paragraph (k) of Rule 144. (c) Each Holder of Registrable Securities that wishes to sell Registrable Securities pursuant to a Shelf Registration Statement and related prospectus agrees to deliver a notice and questionnaire in the form attached hereto as Exhibit A (a "Notice and Questionnaire") at least five (5) business days prior to the intended distribution of Registrable Securities under 3 the Shelf Registration Statement. Provided that the Shelf Registration Statement has been declared effective, the Company shall, as promptly as is practicable after a Holder has delivered a Notice and Questionnaire and such other information as the Company may reasonably require, (i) if required by applicable law, file with the Commission a post-effective amendment to the Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related Prospectus or amendment to any document incorporated therein by reference or file any other required document so that such Holder is named as a selling security holder in the Shelf Registration Statement and the related prospectus in such a manner as to permit such Holder to deliver such prospectus to purchasers of the Registrable Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use its best efforts to cause such post-effective amendments to be declared effective under the Act as promptly as is practicable and maintain effectiveness as set forth in Section 2.1(b), (ii) provide such Holder copies of any documents filed pursuant to the foregoing and (iii) notify such Holder as promptly as practicable after the effectiveness of any post-effective amendment filed hereunder, provided, however, that if the Notice and Questionnaire is delivered during a Deferral Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Deferral Period in accordance with Section 2.1(d) hereof. (d) Notwithstanding anything in Section 2.1(b), 2.1(c) or 2.5 hereof, the Company may take action that would result in the Holders of Registrable Securities being unable to offer and sell Registrable Securities under a Shelf Registration Statement that has been filed pursuant to this Section 2.1 if in the good faith determination of the Board of Directors of the Company, as evidenced by an appropriate resolution of the Board, (i) such action is required by applicable law, (ii) upon the occurrence of any event that requires any change to be made to the Shelf Registration Statement so that, as of such date, the Shelf Registration Statement does not contain 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 not misleading, or (iii) the continued effectiveness of the Shelf Registration Statement would require the Company to disclose a material financing, acquisition or other corporate development. The period during which the Company is required to maintain the effectiveness of the Shelf Registration Statement pursuant to Section 2.1(b)(i) shall be extended by the duration of all periods during which the availability of the Shelf Registration Statement and prospectus is suspended in accordance with the foregoing (each such period of suspension being referred to herein as a "Deferral Period"). Nothing contained in this Section 2.1(d) 4 shall prevent the Holder from selling Registrable Securities pursuant to Rule 144, should the Holder be eligible to use Rule 144. (e) The Holders may elect to sell Registrable Securities in an underwritten offering in accordance with the conditions set forth in this Section 2.1(e). In any such underwritten offering, the investment banker or bankers and manager or managers that will administer the offering will be selected by, and the underwriting arrangements with respect thereto will be approved by a majority in interest of the Holders, subject, in each case, to the consent of the Company, which consent will not be unreasonably withheld, and the Holders will be responsible for all underwriting commissions and discounts in connection therewith. The Company shall not be obligated to arrange for more than one underwritten offering pursuant to the Shelf Registration Statement. No Holder may participate in any underwritten offering hereunder unless the Holder (i) agrees to sell the Holder's Registrable Securities on the basis provided in any underwriting arrangements approved pursuant hereto and (ii) completes and executes all other questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 2.2 Piggyback Registration. (a) If the Company has not filed the Shelf Registration Statement, and the Company shall determine to register any equity securities of the Company for its own account or for the account of other holders of equity securities of the Company on any registration form (other than Form S-4 or S-8 or other successor forms) which permits the inclusion of Registrable Securities held by any Holder (a "Piggyback Registration"), prior to the date the Company files the Shelf Registration Statement or at such time as the Shelf Registration Statement is not effective, the Company will promptly give each Holder written notice thereof and, subject to Section 2.2(c), shall include in such registration all Registrable Securities requested to be included therein pursuant to the written requests of Holders received within 20 days after delivery of the Company's notice. (b) If the Piggyback Registration relates to an underwritten public offering, the Company shall so advise the Holders as part of the written notice given pursuant to Section 2.2(a). In such event, the right of any Holder to participate in such registration shall be conditioned upon such Holder's participation in such underwriting in accordance with the terms and conditions thereof. The Company shall have the right to select the managing underwriter(s) for any underwritten Piggyback Registration. All Holders 5 proposing to distribute their Registrable Securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form. (c) If such proposed Piggyback Registration is an under written offering and the managing underwriter for such offering advises the Company that the securities requested to be included therein exceeds the amount of securities that can be sold in such offering, any securities to be sold by the Company or other holders of the Company's securities initiating such offering in such offering shall have priority over any Registrable Securities held by Holders, and the number of shares to be included by a Holder and other holders of the Company's securities that did not initiate the offering in such registration shall be reduced pro rata on the basis of the percentage of the then outstanding Registrable Securities held by each such Holder and all other holders exercising similar registration rights. (d) Notwithstanding the provisions of this Section 2.2, the Company shall have the right at any time after it shall have given written notice to the Holders pursuant to Section 2.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the date thereof. 2.3 Expenses of Registration. All expenses incurred in connection with the registrations described herein shall be borne by the Company, provided that the expenses borne by the Company shall not include the fees or disbursements of any counsel or other adviser of any Holder. All underwriting discounts, selling commissions and other similar fees relating to Registrable Securities included in registration statement of the Company shall be borne by the Holders of such Registrable Securities pro rata on the basis of the amount of Registrable Securities sold by them. 2.4 Registration Procedures. In the case of each registration effected by the Company pursuant to this Article II, the Company will keep each Holder advised in writing as to the initiation of such registration and as to the completion thereof. At its expense, the Company will use its best efforts to: (a) cause such registration to be declared effective by the Commission; 6 (b) as soon as reasonably possible, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus included therein (including post-effective amendments, prospectus supplements and pricing supplements) as may be necessary, including in the case of a Shelf Registration Statement such amendments and supplements as are necessary to effect and maintain the effectiveness of such registration statement for the period specified in Section 2.1(b); (c) subject to Section 2.2(b), enter into such customary agreements (including, if requested, an underwriting agreement in customary form) to take all other appropriate action as a majority in interest of the Holder shall reasonably request in order to facilitate any disposition of Registrable Securities by such Holder; (d) provide (A) the Holders of the Registrable Securities to be included in such registration statement, (B) the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act) if any, thereof, (C) the sales or placement agent therefor, if any, (D) counsel for such underwriters or agent, and (E) not more than one counsel for all the Holders of such Registrable Securities the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; (e) (i) register or qualify the Registrable Securities to be included in such registration statement under such securities laws or blue sky laws of such jurisdictions as any Holder of such Registrable Securities and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, and (B) take any and all other actions as may be reasonably necessary or advisable to enable each such Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that the Company shall not be required for any other purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 2.4(d) or (2) consent to general service of process or taxation in any such jurisdiction; (f) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as any Holder from time to time may reasonably request; 7 (g) promptly notify the selling Holders of Registrable Securities, the sales or placement agent, if any, therefor and the managing under writer or underwriters, if any, thereof and confirm such advice in writing, (i) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and with respect to such registration statement or any post-effective amendment, when the same has become effective, (ii) of any comments by the Commission, the Blue Sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such registration statement or prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation or threatening of any proceedings for that purpose, (iv) if at any time the representations and warranties of the Company contemplated by Section 3 cease to be true and correct in all material respects, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for the sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (vi) at any time when a prospectus is required to be delivered under the Securities Act, that such registration statement, prospectus, prospectus amendment or supplement or post-effective amendment, or any document incorporated by reference in any of the foregoing, contains 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 not misleading in light of the circumstances then existing; (h) obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (i) if requested by any managing underwriter or underwriters, any placement or sales agent or any Holder of Registrable Securities, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold by such Holder or agent or to any underwriters, the name and description of such Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any 8 other terms of the offering of the Registrable Securities to be sold by such Holder or agent or to such underwriters; (j) furnish to each Holder of Registrable Securities included in such registration statement, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 2.4(c) an executed copy of such registration statement, each such amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and such number of copies of such registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically and reasonably so requested by such Holder, agent or underwriter, as the case may be) and 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 the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Holder and by any such agent and underwriter, if any, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (k) cause all Registrable Securities covered by such registration to be listed on each securities exchange or inter-dealer quotation system on which similar securities issued by the Company are then listed; (l) provide a transfer agent and registrar for all Registrable Securities covered by such registration and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (m) cooperate with the Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends; (n) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Conduct (the "Rules of Conduct") of the National Association of Securities Dealers, Inc. ("NASD") thereof, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect 9 thereof, or otherwise use its reasonable best efforts to assist such broker-dealer in complying with the requirements of such Rules of Conduct, including, without limitation, by providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Conduct; and (o) otherwise comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable but in no event later than eighteen months after the effective date of such registration statement, an earnings statement covering the period of at least twelve months, but not more than 18 months, beginning with the first month after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). 2.5 Delivery of Prospectus Supplement. In the event that the Company would be required, pursuant to Section 2.4(g) above, to notify the selling Holders of Registrable Securities, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company shall as soon as reasonably practicable prepare and furnish to each such Holder, to each placement or sales agent, if any, and to each underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to initial purchasers of Registrable Securities, such prospectus shall not contain 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 not misleading in light of the circumstances then existing. Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company pursuant to Section 2.4(g) hereof, such Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the registration statement applicable to such Registrable Securities until such Holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. 2.6 Furnishing Information by the Holders. The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such reasonable information regarding such Holder and such Holder's intended method of distribution of such Registrable Securities as the Company may from time to time request in writing. Each such Holder agrees to promptly notify the Company of any inaccuracy or change in information previously furnished by such Holder to the Company or of 10 the occurrence of any event in either case as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities or omits to state any material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish information so required so that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, 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 not misleading in light of the circumstances then existing. 2.7 Indemnification. (a) The Company will indemnify each Holder whose Registrable Securities are to be included in a registration pursuant to this Article II, each of such Holder's officers, directors, partners, agents, employees and representatives and each person controlling such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, with respect to each registration, qualification or compliance effected pursuant to this Article II, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement of a material fact contained in any registration statement, prospectus, or other document incorporated by reference therein, or compliance, or any omission to state therein a material fact required to be stated therein or incident to such registration, qualification or necessary to make the statements therein not misleading, and will reimburse each such indemnified person for any reasonable legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to a Holder to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon information furnished to the Company by such Holder and provided for use in such registration statement, prospectus, offering circular or other document or the Holder delivered a registration or prospectus in violation of Section 2.5 hereof after notice was provided by the Company as provided in Section 2.5. It is agreed that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). 11 (b) Each Holder whose Registrable Securities are included in any registration effected pursuant to this Article II shall indemnify the Company, each of its directors, officers, agents, employees and representatives, and each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, each other such Holder and each of their officers, directors, partners, agents, employees and representatives and each person controlling such Holder, and each underwriter, if any, of such Registrable Securities and each Person who controls any such underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement of a material fact contained in any registration statement, prospectus, offering circular or other document incident to such registration, qualification or compliance, or any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse such indemnified persons for any reasonable legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in strict conformity with written information furnished to the Company by such Holder and provided specifically for use therein; provided, however, that (x) no Holder shall be liable hereunder for any amounts in excess of the gross proceeds received by such Holder pursuant to such registration, and (y) the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 2.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed), and the Indemnified Party may participate in such defense with counsel reasonably acceptable to and paid for by the Indemnifying Party but otherwise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the 12 Indemnifying Party of its obligations under this Section 2.7 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 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. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in an underwriting agreement entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 2.8 Other Obligations. With a view to making available the benefits of certain rules and regulations of the Commission which may effectuate the registration of Registrable Securities or permit the sale of Registrable Securities to the public without registration, the Company agrees to: 13 (a) at such time as any Registrable Securities are eligible for transfer under Rule 144(k), upon the request of the holder of such Registrable Securities, remove any restrictive legend from the certificates evidencing such Registrable Securities at no cost to such holder; (b) make and keep available public information as defined in Rule 144 under the Securities Act at all times; (c) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and (d) furnish any Holder upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the Commission (including Rule 144A) allowing a holder of Registrable Securities to sell any such Registrable Securities without registration. 2.9 Hold-Back Agreements. If requested by the Company or any underwriter of securities of the Company, Holders shall not sell or otherwise transfer or dispose of any Common Stock (other than pursuant to such registration) during the period 15 days prior to and 180 days following the effective date of registration statement relating to the offering of the Company's securities for its own account or such longer period that the underwriters may reasonably request. The obligations described in this Section 2.9 shall not apply to a registration on Form S-4 or Form S-8 or similar forms which may be promulgated in the future and shall not apply to a Holder holding less than 2% of the then outstanding Common Stock of the Company. ARTICLE III Liquidated Damages 3.1 The parties agree that the Holders of Registrable Securities would suffer damages, the extent of which would not be feasible to determine, if the Company does not cause the Shelf Registration Statement to be declared effective by Effectiveness Date. Accordingly, in such event, the 14 Company will pay such holders an amount or amounts determined in accordance with Section 4.2, it being agreed that such payments shall be made by the Company as liquidated damages and not as a penalty. The liquidated damages will be payable in cash upon written notice of the Holders to the Company. No liquidated damages will accrue after the declaration of effectiveness of the Shelf Registration Statement. 3.2 If the Shelf Registration Statement is not declared effective on or before the Effectiveness Date, as described in Section 4.1, liquidated damages will accrue from the Effectiveness Date at the rate of 0.25% of the aggregate principal value of the 10.5% Senior Secured Notes due September 2002 surrendered by Liberty pursuant to the Exchange Agreement ("Aggregate Principal Value") per month, pro-rated for periods of less than a full month. If the Shelf Registration Statement is not declared effective on or prior to November 15, 2001, the rate of liquidated damages will increase to 0.50% per month, which rate will increase by an additional 0.25% at the end of each period of 90 days in which the Shelf Registration Statement is not declared effective, up to a maximum liquidated damages rate of 2.0% of the Aggregate Principal Value per month. ARTICLE IV Termination This Agreement shall terminate immediately following the moment at which there exist no securities of the Company that constitute Registrable Securities; provided, however, that Section 2.7 hereof shall survive indefinitely and any obligation of the Company to pay liquidated damages pursuant to Article IV shall survive until such obligation has been satisfied in full. ARTICLE V Miscellaneous 5.1 Recapitalization, Exchanges, etc. Affecting the Common Stock. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (a) the Registrable Securities and (b) any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for the Registrable 15 Securities, by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. In the event of any change in the capitalization of the Company as a result of any stock split, stock dividend or stock combination, the provisions of this Agreement shall be appropriately adjusted. 5.2 Injunctive Relief. It is hereby agreed and acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved Person will be irreparably damaged and will not have an adequate remedy at law. Any such Person shall, therefore, in addition to any other remedies available under applicable law, be entitled to injunctive relief, including specific performance, to enforce such obligations, without the posting of any bond, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 5.3 Parties in Interest. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforce able by the respective successors and assigns of the parties hereto. In the event that any transferee of any Holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing of any kind, be deemed a party hereto for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. 5.4 Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statements as to the results thereto) made by or on behalf of any Holder of Registrable Securities, any director, officer or partner of such Holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive the transfer of Registrable Securities by such Holder. 16 5.5 Amendment; Waiver. (a) This Agreement may be amended only by a written instrument signed by the Company and by Holders holding more than a majority in interest of the then outstanding Registrable Securities and, in the case of any amendment that adversely affects any Holder or all of the members of any group of Holders differently from any of the other Holders, by such Holder or the holders of more than a majority in interest of the securities of the Company held by such group of Holders. (b) No provision of this Agreement may be waived orally, but only by a written instrument signed by the party against whom enforcement of such waiver is sought. Holders shall be bound from and after the date of the receipt of a written notice from the Company setting forth such amendment or waiver, whether or not the Registrable Securities shall have been marked to indicate such amendment or waiver. 5.6 Notices. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing (including a writing delivered by facsimile transmission) and shall be deemed to have been duly given if delivered personally, or sent by either certified or registered mail, return receipt requested, postage prepaid, or by overnight courier guaranteeing next day delivery, or by telex or telecopier, at the following addresses: if to the Company: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq, Senior Executive Vice President and General Counsel Telecopier: (717) 975-3762 with a copy to Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attention: Stacy J. Kanter Telecopier: (212) 735-2000 17 if to Liberty : 101 Hudson Street, Suite 3700 Jersey City, NJ 07302-3915 Attention: Steve Rogers with a copy to: The Goldstein Law Group, P.C. 65 Broadway Tenth Floor New York, New York 10006 Attention: Jeffrey M. Stein, Esq. Telecopier: (212) 809-4228 Liberty may, by written notice given to the Company in accordance with this Section 6.6, change the address to which such notice or other communications are to be sent to it. All such notices and communications shall be deemed to have been given on the date of delivery thereof, if delivered by hand, on the fifth day after the mailing thereof, if mailed, on the next day after the sending thereof, if by overnight courier and when receipt is acknowledged, if telecopied. 5.7 Inspection. So long as this Agreement shall be in effect, this Agreement and any amendments hereto shall be made available for inspection by any Holder at the principal offices of the Company. 5.8 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 5.9 Headings. Article, section and paragraph headings are inserted for convenience only and do not constitute a part of this Agreement. 5.10 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof. There are no restrictions, agreements, promises, representations, warranties, covenants or under takings with respect to the subject matter hereof other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and under standings between the parties with respect to this subject matter. 18 5.11 Illegality. In case any provision in this Agreement shall be declared or held invalid, illegal or unenforceable, in whole or in part, whether generally or in any particular jurisdiction, such provision shall be deemed amended to the extent, but only to the extent, necessary to cure such invalidity, illegality or unenforceability, and the validity, legality and enforceability of the remaining provisions, both generally and in every other jurisdiction, shall not in any way be affected or impaired thereby. 5.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 19 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above. RITE AID CORPORATION By:__________________________ Name: Title: LIBERTYVIEW FUNDS L.P. By:__________________________ Name: Title: LIBERTYVIEW FUNDS L.L.C. By:__________________________ Name: Title: LIBERTYVIEW GLOBAL VOLATILITY FUND L.P. By:__________________________ Name: Title: 20 EXHIBIT A Selling Securityholder Notice and Questionnaire The undersigned holder of shares of the common stock of Rite Aid Corporation (the "Company") that are Registrable Securities (as that term is defined in the Registration Rights Agreement, dated as of May 24, 2001 (the "Registration Rights Agreement") by and among the Company and LibertyView Funds L.P., LibertyView Funds LLC, and LibertyView Global Volatility Fund and L.P., and understands that the Company has filed with the Securities and Exchange Commission (the "Commission" a registration statement (the "Shelf Registration Statement" for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"). All capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in the Registration Rights Agreement. Each beneficial owner of Registrable Securities is entitled to the benefits of the Registration Rights Agreement. In order to sell or otherwise dispose of any Registrable Securities pursuant to the Shelf Registration Statement, a beneficial owner of Registrable Securities generally will be required to be named as a selling securityholder in the related prospectus, deliver a prospectus to purchasers of Registrable Securities and be bound by those provisions of the Registration Rights Agreement applicable to such beneficial owner (including certain indemnification provisions, as described below). Beneficial owners are required to complete and deliver this Notice and Questionnaire prior to the effectiveness of the Shelf Registration Statement so that such beneficial owners may be named as selling securityholders in the related prospectus at the time of effectiveness. Upon receipt of a completed Notice and Questionnaire from a beneficial owner following the effectiveness of the Shelf Registration Statement, the Company will, as promptly as practicable, file such amendments to the Shelf Registration Statement or supplements to the related prospectus as are necessary to permit such holder to deliver such prospectus to purchasers of Registrable Securities. The Company has agreed to pay liquidated damages pursuant to the Registration Rights Agreement under certain circumstances as set forth therein. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and the related prospectus. Notice The undersigned beneficial owner (the "Selling Securityholder") of Registrable Securities hereby gives notice to the Company of its intention to sell or otherwise dispose of Registrable Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under Item 3) pursuant to the Shelf Registration Statement. The undersigned, by signing and returning this Notice and Questionnaire, understands that it will be bound by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement. The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: Questionnaire 1. (a) Full Legal Name of Selling Securityholder: ____________________________________________________________________________ (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities listed in (3) below are held: ____________________________________________________________________________ (c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) through which Registrable Securities listed in (3) below are held: 2. Address for Notices to Selling Securityholder: ____________________________________________________________________________ ____________________________________________________________________________ Telephone:__________________________________________________________________ Fax:________________________________________________________________________ Contact Person:_____________________________________________________________ 3. Beneficial Ownership of Registrable Securities: (a) Type and Principal Amount of Registrable Securities beneficially owned: _______________________________________________________________________ _______________________________________________________________________ (b) CUSIP No(s). of such Registrable Securities beneficially owned: _______________________________________________________________________ _______________________________________________________________________ 4. Beneficial Ownership of the Company's securities owned by the Selling Securityholder: Except as set forth below in this Item (4), the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securities listed above in Item (3). (a) Type and Amount of Other Securities beneficially owned by the Selling Securityholder: (b) CUSIP No(s). of such Other Securities beneficially owned: _______________________________________________________________________ _______________________________________________________________________ 5. Relationship with the Company: Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or their predecessors or affiliates) during the past three years. State any exceptions here: ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ 6. Plan of Distribution: Except as set forth below, the undersigned (including its donees or pledgees) intends to distribute the Registrable Securities listed above in Item (3) pursuant to the Shelf Registration Statement only as follows if at all): such Registrable Securities may be sold from time to time directly by the under signed or alternatively, through underwriters, broker-dealers or agents. If the Registrable Securities are sold through underwriters or broker-dealers, the Selling Securityholder will be responsible for underwriting discounts or commissions or agent's commissions. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve block transactions) (i) on any national securities exchange or quotation service on which the Registrable Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions other wise than on such exchanges or services, or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of Registrable Securities or otherwise, the undersigned may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities. State any exceptions here: ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ Note: In no event will such method(s) of distribution take the form of an underwritten offering of the Registrable Securities without the prior agreement of the Company. The undersigned acknowledges that it understands its obligation to comply with the provisions of the Exchange Act and the rules thereunder relating to stock manipulation, particularly Regulation M thereunder (or any successor rules or regulations), in connection with any offering of Registrable Securities pursuant to the Shelf Registration Statement. The undersigned agrees that neither it nor any person acting on its behalf will engage in any transaction in violation of such provisions. The Selling Securityholder hereby acknowledges its obligations under the Registration Rights Agreement to indemnify and hold harmless certain persons as set forth therein. Pursuant to the Registration Rights Agreement, the Company has agreed under certain circumstances to indemnify the Selling Securityholders against certain liabilities. In accordance with the undersigned's obligation under the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided. herein that may occur subsequent to the date hereof at anytime while the Shelf Registration Statement remains effective. All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing at the address set forth below. By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and the related prospectus. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Shelf Registration Statement and the related prospectus. IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Dated: Beneficial Owner By:_________________________________ Name: Title: PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO RITE AID CORPORATION. AT: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq, Senior Executive Vice President and General Counsel Facsimile: (717) 975-3762 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, NY 10036 Attention: Michael Zeidel Facsimile: (212) 735-2000 EX-10 10 exh10-30.txt EXHIBIT 10.30 EXECUTION COPY ================================================================================ SENIOR CREDIT AGREEMENT dated as of June 27, 2001 among RITE AID CORPORATION, The Banks Party Hereto, CITICORP USA, INC., as Senior Administrative Agent, CITICORP USA, INC., as Senior Collateral Agent, and THE CHASE MANHATTAN BANK, CREDIT SUISSE FIRST BOSTON and FLEET RETAIL FINANCE INC., as Syndication Agents, ================================================================================ TABLE OF CONTENTS ----------------------
PAGE ---- ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions.....................................................................................2 SECTION 1.02. Accounting Terms and Determinations............................................................29 SECTION 1.03. Classes and Types of Loans.....................................................................29 SECTION 1.04. Terms Defined in Definitions Annex.............................................................30 SECTION 1.05. Other Definitional Provisions..................................................................30 ARTICLE 2 THE CREDITS SECTION 2.01. Commitments....................................................................................30 SECTION 2.02. Loans ......................................................................................31 SECTION 2.03. Borrowing Procedure............................................................................34 SECTION 2.04. Notes and Records..............................................................................35 SECTION 2.05. Senior Fees....................................................................................36 SECTION 2.06. Interest on Loans..............................................................................37 SECTION 2.07. Default Interest...............................................................................38 SECTION 2.08. Termination and Reduction of Commitments.......................................................38 SECTION 2.09. Conversion and Continuation of Borrowings......................................................39 SECTION 2.10. Repayment of Borrowings........................................................................41 SECTION 2.11. Amortization of Term Loans.....................................................................41 SECTION 2.12. Optional Prepayment............................................................................43 SECTION 2.13. Mandatory Prepayments..........................................................................43 SECTION 2.14. Breakage ......................................................................................46 SECTION 2.15. Pro Rata Treatment.............................................................................46 SECTION 2.16. Payments ......................................................................................47 SECTION 2.17. Swingline Loans................................................................................48 SECTION 2.18. Letters of Credit..............................................................................50 SECTION 2.19. Adjustments to Borrowing Base Advance Rates....................................................56
PAGE ---- ARTICLE 3 CONDITIONS SECTION 3.01. First Credit Event.............................................................................57 SECTION 3.02. All Credit Events..............................................................................62 ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01. Corporate Existence and Power..................................................................63 SECTION 4.02. Corporate and Governmental Authorization; No Contravention.....................................63 SECTION 4.03. Binding Effect.................................................................................64 SECTION 4.04. Financial and Other Information................................................................64 SECTION 4.05. Accuracy of Information........................................................................65 SECTION 4.06. Litigation.....................................................................................65 SECTION 4.07. Compliance with ERISA..........................................................................66 SECTION 4.08. Taxes ......................................................................................66 SECTION 4.09. Subsidiaries...................................................................................66 SECTION 4.10. Environmental Matters..........................................................................66 SECTION 4.11. Other Representations..........................................................................67 SECTION 4.12. Insurance......................................................................................67 SECTION 4.13. Mellon Standby Letters of Credit...............................................................67 SECTION 4.14. Solvency ......................................................................................67 SECTION 4.15. Title to Properties............................................................................68 SECTION 4.16. Investment Company Act; Public Utility Holding Company Act.....................................68 SECTION 4.17. Labor Matters..................................................................................68 ARTICLE 5 COVENANTS SECTION 5.01. Information...........................................................................69 SECTION 5.02. Payment of Obligations................................................................72 SECTION 5.03. Maintenance of Property; Insurance....................................................73 SECTION 5.04. Conduct of Business and Maintenance of Existence......................................75
(ii)
PAGE ---- SECTION 5.05. Compliance with Laws..................................................................75 SECTION 5.06. Inspection of Property, Books and Records.............................................75 SECTION 5.07. Restriction on Other Agreements, Payment Limitations, Debt Prepayments, Amendments to Other Agreements...........................................75 SECTION 5.08. Further Assurances....................................................................77 SECTION 5.09. Collateral and Borrowing Base Reviews.................................................77 SECTION 5.10. Subsidiaries..........................................................................78 SECTION 5.11. Intercompany Transfers................................................................78 SECTION 5.12. Inventory Purchasing..................................................................78 SECTION 5.13. Cash Management System................................................................78 SECTION 5.14. Restriction on Sale and Leaseback Transactions........................................79 SECTION 5.15. Restriction on Liens..................................................................79 SECTION 5.16. Capital Expenditures..................................................................81 SECTION 5.17. Maximum Leverage Ratio................................................................82 SECTION 5.18. Minimum Interest Coverage Ratio.......................................................83 SECTION 5.19. Minimum Fixed Charge Coverage Ratio...................................................84 SECTION 5.20. Restriction on Debt...................................................................84 SECTION 5.21. Limitation on Investments and Acquisitions............................................88 SECTION 5.22. Consolidations and Mergers............................................................89 SECTION 5.23. Dispositions of Assets................................................................89 SECTION 5.24. Use of Proceeds.......................................................................90 SECTION 5.25. Restrictions on Asset Holdings by the Borrower........................................91 SECTION 5.26. Restricted Payments...................................................................91 SECTION 5.27. Business of Borrower and Subsidiaries.................................................92 SECTION 5.28. Transactions with Affiliates..........................................................92 SECTION 5.29. New Synthetic Leases..................................................................93 SECTION 5.30. Corporate Separateness................................................................93 SECTION 5.31. Limitation on Derivative Obligations..................................................93 SECTION 5.32. Delivery of Security Opinion..........................................................94 ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default.....................................................................94 SECTION 6.02. Notice of Default.....................................................................97
(iii)
PAGE ---- ARTICLE 7 THE AGENTS SECTION 7.01. Appointment and Authorization.........................................................97 SECTION 7.02. Agents and Affiliates.................................................................98 SECTION 7.03. Action by Agents......................................................................98 SECTION 7.04. Consultation with Experts.............................................................98 SECTION 7.05. Liability of Agents...................................................................98 SECTION 7.06. Indemnification.......................................................................99 SECTION 7.07. Credit Decision.......................................................................99 SECTION 7.08. Resignation of Agents.................................................................99 ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.............................100 SECTION 8.02. Illegality...........................................................................100 SECTION 8.03. Increased Cost and Reduced Return....................................................101 SECTION 8.04. Taxes................................................................................102 SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans...........................105 ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices..............................................................................105 SECTION 9.02. No Waivers...........................................................................106 SECTION 9.03. Expenses; Indemnification............................................................106 SECTION 9.04. Setoff; Sharing of Setoffs...........................................................106 SECTION 9.05. Amendments and Waivers; Release of Senior Collateral and Subsidiary Guarantors................................................................107 SECTION 9.06. Successors and Assigns...............................................................108 SECTION 9.07. Governing Law; Submission to Jurisdiction............................................111
(iv)
PAGE ---- SECTION 9.08. Counterparts; Integration............................................................111 SECTION 9.09. WAIVER OF JURY TRIAL.................................................................111 SECTION 9.10. Collateral Trust and Intercreditor Agreement.........................................111 SECTION 9.11. Cash Sweep...........................................................................112 Annexes Annex 1 - Initial Revolving Credit Commitments and Term Loan Commitments Annex 2 - Administrative Information Annex 3 - Description of the Transactions Annex 4 - Definitions Annex Schedules Schedule 1.01(a) - Existing Litigation Schedule 1.01(b) - Mortgaged Properties Schedule 1.01(c) - Subsidiaries Schedule 1.01(d) - Subsidiary Guarantors Schedule 4.07 - ERISA Matters Schedule 4.12 - Insurance Schedule 4.13 - Mellon Standby Letters of Credit Schedule 4.15(b)(i) - Leases on Mortgaged Properties Schedule 4.15(b)(ii) - Permitted Liens on Mortgaged Properties Schedule 4.15(c) - Leased Warehouses and Distribution Centers Schedule 5.08 - Excluded Subsidiaries Schedule 5.14(a) - Permitted Sale and Leaseback Transactions Schedule 5.15(g) - Permitted Liens Schedule 5.20(k) - Permitted Debt Schedule 5.24(b)(iv) - Permitted Dividends Payable on Capital Stock Schedule 5.28(b) - Permitted Affiliate Transactions
(v)
Exhibits Exhibit A-1 - Form of Term Note Exhibit A-2 - Form of Revolving Credit Note Exhibit A-3 - Form of Swingline Note Exhibit B - Form of Borrowing Request Exhibit C - Form of Continuation/Conversion Request Exhibit D - Form of Issuance Request Exhibit E - Form of Borrowing Base Certificate Exhibit F - Form of Assignment and Acceptance Agreement Exhibit G - Form of Senior Subsidiary Guarantee Agreement Exhibit H - Form of Senior Subsidiary Security Agreement Exhibit I - Form of Senior Indemnity, Subrogation and Contribution Agreement Exhibit J - Form of Senior Mortgage Exhibit K - Form of Second Priority Subsidiary Guarantee Agreement Exhibit L - Form of Second Priority Subsidiary Security Agreement Exhibit M - Form of Second Priority Indemnity, Subrogation and Contribution Agreement Exhibit N - Form of Second Priority Mortgage Exhibit O-1 - Form of Opinion of Skadden, Arps, Slate, Meagher & Flom, Special New York Counsel to the Borrower Exhibit O-2 - Form of Opinion of General Counsel of the Borrower Exhibit P - Form of Administrative Questionnaire Exhibit Q - Form of Opinion of Skadden, Arps, Slate, Meagher & Flom, Special New York Counsel to the Borrower, with respect to certain security matters
(vi) SENIOR CREDIT AGREEMENT dated as of June 27, 2001, among RITE AID CORPORATION, a Delaware corporation ("Rite Aid" or the "Borrower"), the Banks (as defined in Article 1), CITICORP USA, INC. ("Citicorp USA"), as a Swingline Bank, as an Issuing Bank, and as administrative agent for the Banks (in such capacity, the "Senior Administrative Agent"), CITICORP USA, INC., as collateral agent for the Banks (in such capacity, the "Senior Collateral Agent") and THE CHASE MANHATTAN BANK, CREDIT SUISSE FIRST BOSTON and FLEET RETAIL FINANCE INC., as syndication agents (in such capacity, the "Syndication Agents"). The Borrower has requested the Banks to extend credit in the form of (a) Term Loans on the Initial Borrowing Date in an aggregate principal amount not in excess of $1,204,000,000, (b) Term Loans at any time and from time to time prior to the final maturity of the Borrower's 10.5% Notes in an aggregate principal amount not in excess of $196,000,000 to (i) pay for such 10.5% Notes as were tendered in the Borrower's tender offer therefor consummated immediately prior to the Initial Borrowing Date and (ii) purchase at par any 10.5% Notes as were not tendered in such tender offer, and (c) Revolving Loans at any time and from time to time before the Maturity Date, in an aggregate principal amount at any time outstanding not in excess of $500,000,000. The Borrower has requested the Swingline Banks to extend credit, on an uncommitted basis, at any time and from time to time before the Maturity Date in the form of Swingline Loans, in an aggregate principal amount at any time outstanding not in excess of $100,000,000. The Borrower has requested the Issuing Banks to issue letters of credit, in an aggregate face amount at any time outstanding not in excess of $125,000,000, to support payment obligations incurred in the ordinary course of business by the Borrower on behalf of its Subsidiaries and by the Borrower's Subsidiaries. Proceeds of Loans made under this Agreement shall, among other things, be used to refinance, and this Agreement shall serve as a replacement for, the Senior Credit Agreement dated as of June 12, 2000, as amended (the "Existing Credit Agreement"), among the Borrower, the banks party thereto, Citicorp USA, Inc., as senior administrative agent, Citicorp USA, Inc., as senior collateral agent, and Heller Financial, Inc. and Fleet Retail Finance Inc., as syndication agents. The Banks and the Swingline Banks are willing to extend credit to the Borrower and the Issuing Banks are willing to issue letters of credit for the account of the Borrower on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "Account" means any right to payment for goods sold or leased or for services rendered, whether or not earned by performance. "Account Debtor" means, with respect to any Account, the obligor with respect to such Account. "Accounts Receivable Advance Rate" means the amount determined in accordance with Section 2.19. "Adjusted Consolidated Capital Expenditures" means, for any period, Consolidated Capital Expenditures (i) minus Excess Liquidity and (ii) minus any Carryforward Amount. "Adjusted London Interbank Offered Rate" means, with respect to any Euro-Dollar 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 London Interbank Offered Rate in effect for such Interest Period and (b) Statutory Reserves. "Adjusted Working Capital" means, for any date, current assets (other than cash and cash equivalents) less current liabilities (other than Debt permitted hereunder). "Administrative Questionnaire" means, with respect to each Bank, an Administrative Questionnaire in the form of Exhibit P, duly completed by such Bank and submitted to the Senior Administrative Agent (with a copy to the Borrower). "Affiliate Transaction" is defined in Section 5.28. 2 "Agents" means the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents. "Aggregate Revolving Credit Exposure" means the aggregate amount of the Banks' Revolving Credit Exposures. "Agreement" means this Agreement as the same may be amended from time to time in accordance with the terms hereof. "Applicable Date" is defined in Section 8.04(d). "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office. "Assessment Rate" means for any date the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Senior Administrative Agent as the then current net annual assessment rate that will be employed in determining amounts payable by any Bank to the Federal Deposit Insurance Corporation (or any successor thereto) for insurance by such Corporation (or such successor) of time deposits made in dollars at the Senior Administrative Agent's domestic offices. "Assignee" has the meaning set forth in Section 9.06(c). "Assignment and Acceptance Agreement" means an assignment and acceptance agreement in the form of Exhibit F or such other form as may be approved by the Senior Administrative Agent. "Bank" means each bank or other institution listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. Unless the context clearly indicates otherwise, the term "Bank" shall include the Swingline Banks. "Base CD Rate" means the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate. "Base Rate" means, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) Citibank Base Rate, (b) the Base CD Rate in effect 3 on such day plus 1/2 of 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Senior 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 Senior Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Base Rate shall be determined without regard to clause (b) or (c), or both, of the preceding sentence, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Citibank Base Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Citibank Base Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. "Base Rate Borrowing" means a Borrowing comprised of Base Rate Loans. "Base Rate Loan" means any Base Rate Term Loan or Base Rate Revolving Loan. "Base Rate Revolving Loan" means any Revolving Loan bearing interest at a rate determined by reference to the Base Rate in accordance with the provisions of Article 2. "Base Rate Term Borrowing" means a Borrowing comprised of Base Rate Term Loans. "Base Rate Term Loan" means any Term Loan bearing interest at a rate determined by reference to the Base Rate in accordance with the provisions of Article 2. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Borrowing" means a group of Loans of a single Type made by the Banks on a single date and as to which a single Interest Period is in effect. "Borrowing Base Amount" means, with respect to the Borrower, an amount in dollars equal to the sum of, without duplication, (a) the Accounts Receivable Advance Rate multiplied by the book value of Eligible Accounts Receivable; 4 (b) plus the Pharmaceutical Inventory Advance Rate multiplied by the Eligible Inventory Value of Eligible Inventory consisting of products that can be dispensed only on order of a licensed professional; (c) plus the Other Inventory Advance Rate multiplied by the Eligible Inventory Value of all other Eligible Inventory; (d) minus a reserve in an aggregate amount equal to the Borrower's then-current exposure upon early termination under each of its existing and future Senior Interest Rate Agreements; (e) minus a reserve in an amount equal to the aggregate principal amount then outstanding of the 10.5% Notes; (f) minus any other reserves established by the Senior Administrative Agent in the exercise of its reasonable judgment to reflect Borrowing Base Factors. The Borrowing Base Amount shall be computed weekly with respect to Eligible Accounts Receivable and with respect to Eligible Inventory stored at any location other than a distribution center, and monthly with respect to Eligible Inventory stored at a distribution center, in each case in accordance with Section 5.01(g). The Borrowing Base Amount at any time in effect shall be determined by reference to the Borrowing Base Certificate most recently delivered hereunder. "Borrowing Base Certificate" means a certificate substantially in the form of Exhibit E or such other form as the Senior Administrative Agent may approve. "Borrowing Base Factors" means landlord's liens affecting Eligible Inventory, factors affecting the saleability or collectability of Eligible Accounts Receivable and Eligible Inventory at retail or in liquidation, factors affecting the market value of Eligible Inventory or Eligible Accounts Receivable, other impediments to the Senior Collateral Agent's ability to realize upon the Eligible Accounts Receivable or the Eligible Inventory and other factors affecting the credit value to be afforded the Eligible Accounts Receivable and the Eligible Inventory. "Borrowing Request" means a request by the Borrower in accordance with the terms of Section 2.03 (or in the case of Swingline Loans, Section 2.17) and substantially in the form of Exhibit B. 5 "Business Acquisition" means (i) an Investment by the Borrower or any of its Subsidiaries in any other Person (including an Investment by way of acquisition of securities of any other Person) pursuant to which such Person shall become a Subsidiary or shall be merged into or consolidated with the Borrower or any of its Subsidiaries or (ii) an acquisition by the Borrower or any of its Subsidiaries of the property and assets of any Person (other than the Borrower or any of its Subsidiaries) that constitute substantially all the assets of such Person or any division or other business unit of such Person; provided, that the acquisition of prescription files and Stores and the acquisition of Persons substantially all of whose assets consist of fewer than ten Stores, in each case, in the ordinary course of business and not inconsistent with the Borrower's business plan delivered pursuant to Section 3.01(l), shall not be a Business Acquisition. "Carryforward Amount" is defined in Section 5.16. "Cash Management System" is defined in the Senior Subsidiary Security Agreement. "Cash Sweep Cash Collateral Account" is defined in the Senior Subsidiary Security Agreement. "Cash Sweep Notice" is defined in the Senior Subsidiary Security Agreement. "Cash Sweep Period" is defined in the Senior Subsidiary Security Agreement. "Citibank Base Rate" means the rate of interest publicly announced by Citibank, N.A., in New York City from time to time as its Citibank Base Rate. "Citibank Concentration Account" is defined in the Senior Subsidiary Security Agreement. "Citicorp Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Citicorp USA outstanding on the Closing Date in an aggregate face amount of $24,500,000. "Citicorp USA" is defined in the preamble. "Class" has the meaning set forth in Section 1.03. "Commitment" means, with respect to any Bank, such Bank's Revolving Credit Commitment or Term Loan Commitment. 6 "Concentration Account" is defined in the Senior Subsidiary Security Agreement. "Consolidated Capital Expenditures" means, for any period, the aggregate amount of expenditures by the Borrower and its Consolidated Subsidiaries for plant, property and equipment and prescription files during such period (including any such expenditure by way of acquisition of a Person or by way of assumption of indebtedness or other obligations of a Person, to the extent reflected as plant, property and equipment), but excluding (i) any such expenditures made for the replacement or restoration of assets to the extent financed by Casualty/Condemnation Proceeds relating to the asset or assets being replaced or restored, (ii) any amounts paid to any party under a Synthetic Lease in connection with the termination of such Synthetic Lease and the reacquisition by the Borrower or any of its Subsidiaries of the equipment or other property subject to such Synthetic Lease and (iii) any such expenditures made for the purchase or other acquisition from a third party of stores, leases and prescription files, but only to the extent an equivalent or greater amount is received from such third party as consideration for the sale or other disposition to such third party of stores, leases and/or prescription files of a substantially equivalent value closed at substantially the same time as, and entered into as part of a single related transaction with, such purchase or acquisition. "Consolidated Debt" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated EBITDA" means, for any period, without duplication, Consolidated Net Income for such period, plus (a) to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) consolidated interest expenses, whether cash or non-cash, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments which reduced such Consolidated Net Income, (v) store closing expenses and (vi) any other nonrecurring charge to the extent such nonrecurring charge does not involve any cash expenditure during such period, (vii) all fees, costs, charges and expenses in connection with the Transactions, (viii) all fees, costs, charges and expenses in connection with the restatement of the consolidated financial statements of the Borrower and its Consolidated Subsidiaries for periods before February 26, 2000 and litigation expenses (exclusive of damages or amounts paid in settlement of claims) incurred in connection with litigation, investigation (including internal review) or other proceedings relating to such restatement, (ix) non-cash compensation expenses related to stock option and restricted stock employee benefit plans, (x) the non-cash interest component, as adjusted from time to time, in respect of reserves and (xi) charges relating to the investigation of the Borrower pending on the Initial Borrowing Date by the United States Attorney and by the U.S. Department of Labor and amounts paid in satisfaction of any judgment, fine or settlement resulting therefrom, less (b) to the extent not deducted in determining 7 Consolidated Net Income for such period, the aggregate amount of (i) any cash expenditure during such period in connection with which a nonrecurring charge was taken and added back to Consolidated Net Income pursuant to clause (a) above in calculating Consolidated EBITDA in any prior period and (ii) LIFO Adjustments which increased such Consolidated Net Income. "Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio of (i) Consolidated EBITDA plus Consolidated Rent less Adjusted Consolidated Capital Expenditures to (ii) Consolidated Interest Charges plus Consolidated Rent plus scheduled amortization payments made pursuant to Section 2.11, in each case for such period. "Consolidated Interest Charges" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Borrower and its Consolidated Subsidiaries, solely to the extent paid or payable in cash, during such period minus non-cash interest expenses during such period related to (x) litigation reserves, (y) closed store liability reserves and (z) self-insurance reserves. "Consolidated Interest Coverage Ratio" means, with respect to any period, the ratio of Consolidated EBITDA for such period to Consolidated Interest Charges for such period. "Consolidated Net Income" means, for any period, the net income (or loss) of the Borrower and its Consolidated Subsidiaries (exclusive of (a) extraordinary items of gain or loss or gains or losses from debt modifications, (b) any gain or loss in connection with any sale of assets other than sales of inventory in the ordinary course of business, but in the case of loss only to the extent that such loss does not involve any cash expenditure during such period and (c) the Borrower's share of the net income (or loss) of Drugstore.com), determined on a consolidated basis for such period. "Consolidated Net Worth" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries determined as of such date. Consolidated Net Worth includes the Borrower's 8% Convertible Pay-In-Kind Preferred Stock. "Consolidated Rent" means, for any period, the consolidated rental expense of the Borrower and its Consolidated Subsidiaries for such period, and including in any event rental costs of closed stores for such period whether or not reflected as an expense in the determination of Consolidated Net Income for such period and including base or basic rent payments under Synthetic Leases. 8 "Consolidated Subsidiary" means, with respect to any Person, at any date any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "Continuation/Conversion Request" means a continuation/conversion request delivered by the Borrower to the Senior Administrative Agent, in the form of Exhibit C or such other form as shall be approved by the Senior Administrative Agent. "Credit Event" is defined in Section 3.02. "Credit Exposure" means, with respect to any Bank, the sum of its Revolving Credit Exposure and its Term Exposure. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Definitions Annex" means the Definitions Annex, attached hereto as Annex 4. "Delayed Draw Percentage" of any Bank at any time means the percentage of the total Delayed Draw Term Loan Commitments of all Banks represented by such Bank's Delayed Draw Term Loan Commitment. "Delayed Draw Term Loan Commitment" is defined in Section 2.01(b). "Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its 9 Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Senior Administrative Agent. "Drugstore.com" means Drugstore.com, Inc., a Delaware corporation, and its successors. "Eligible Accounts Receivable" means at the time of any determination thereof all Accounts that satisfy at the time of creation and continue to meet the same at the time of such determination the criteria established from time to time by the Agents in their reasonable judgment to reflect Borrowing Base Factors. Initially, those criteria are: (a) such Account constitutes an "account" or "chattel paper" within the meaning of the Uniform Commercial Code of the state in which the Account is located; (b) all payments on such Account are by the terms of such Account due not later than 90 days after the date stated in the original related invoice and are otherwise on terms that are normal and customary in the business of the Borrower and its Subsidiaries; (c) such Account has been invoiced and is not more than 90 days past due; (d) such Account is denominated in dollars; (e) such Account arose from a completed, outright and lawful sale of goods or the completed performance of services by the applicable Subsidiary Guarantor and accepted by the applicable Account Debtor, and the amount of such Account has been properly recognized as revenue on the books of the applicable Subsidiary Guarantor; (f) such Account is owned solely by a Subsidiary Guarantor; (g) such Account arose in the ordinary course of business of the applicable Subsidiary Guarantor; (h) not more than 50% of the aggregate amount of Accounts from the same Account Debtor and any Affiliates thereof are more than 90 days past due; (i) to the knowledge of the Borrower and its Subsidiaries, no event of death, bankruptcy, insolvency or inability to pay creditors generally of the Account Debtor of such Account has occurred, and no notice thereof has been received; 10 (j) payment of such Account is not being disputed by the Account Debtor thereof; (k) such Account complies in all material respects with the requirements of all applicable laws and regulations, whether Federal, state or local, including the Federal Consumer Credit Protection Act, the Federal Truth in Lending Act and Regulation Z of the Federal Reserve Board; (l) with respect to such Account, the Account Debtor (i) is organized in the United States (or, if such Account Debtor is not organized in the United States, such Account is supported by a letter of credit approved by the Senior Administrative Agent in favor of the applicable Subsidiary Guarantor) and (ii) is not an Affiliate or Subsidiary of the Borrower or an Affiliate of any of the Borrower's Subsidiaries; (m) such Account is subject to a perfected first priority security interest in favor of the Senior Collateral Agent for the benefit of the Senior Bank Parties pursuant to the Senior Collateral Documents and is not subject to any other Lien (other than the Second Priority Lien); (n) with respect to such Account (if such Account is for an amount greater than $5,000,000), the Account Debtor has not been disapproved by the Majority Banks (based, in such Banks' reasonable judgment, upon the creditworthiness of such Account Debtor); (o) the representations and warranties contained in the Senior Loan Documents with respect to such Account are true and correct in all material respects; and (p) such Account is in full force and effect and constitutes a legal, valid and binding obligation of the Account Debtor enforceable in accordance with its terms. "Eligible Inventory" means, at any date of determination thereof, all inventory (as defined in the Uniform Commercial Code) owned by any Subsidiary Guarantor that satisfies at the time of such determination the criteria established from time to time by the Agents in their reasonable judgment to reflect Borrowing Base Factors. Initially, Eligible Inventory shall exclude, without duplication: (a) any such inventory that has been shipped to a customer, even if on a consignment or "sale or return" basis or is otherwise not in the possession or control of or any Subsidiary Guarantor or a warehouseman or bailee of any Subsidiary Guarantor; 11 (b) any inventory against which Subsidiary Guarantor has taken a reserve, to the extent of such reserve, to the extent specified by the Senior Collateral Agent from time to time in its reasonable judgment to reflect Borrowing Base Factors; (c) any inventory that has been discontinued or is otherwise of a type (SKU) not currently offered for sale on a regular basis by the Subsidiary Guarantors (including any such inventory obtained in connection with a Business Acquisition) to the extent specified by the Senior Collateral Agent from time to time in its reasonable judgment to reflect Borrowing Base Factors; (d) any inventory not located in the United States or located in a jurisdiction as to which a UCC-1 financing statement has not been filed or otherwise not subject to a valid and perfected Lien under the Senior Collateral Documents, subject to no prior or equal Lien; (e) any supply, scrap or obsolete inventory or inventory that is otherwise unsaleable; (f) any inventory that is past its expiration date, is damaged or not in good condition, is a sample used for marketing purposes or does not meet all material standards imposed by any governmental authority having regulatory authority over such inventory, except in each case to the extent of its net realizable value as determined by the Senior Collateral Agent from time to time in its reasonable judgment; (g) any inventory that is subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third party from whom any of its Subsidiaries has received notice of a dispute in respect of such agreement to the extent that such dispute could reasonably be expected to prevent the sale of such inventory; (h) any inventory which is subject to a negotiable document of title and such document of title has not been delivered to the Senior Collateral Agent; (i) any inventory to the extent that such inventory is not comprised of readily marketable materials of a type manufactured, consumed or held for resale by the Subsidiary Guarantors in the ordinary course of business; (j) any inventory to the extent that such inventory consists of raw materials, component parts and/or work-in-progress; 12 (k) any inventory to which the representations and warranties of the Senior Loan Documents are not true and correct in all material respects; (l) any inventory to which the Subsidiary Guarantors do not have good title or any inventory which a Subsidiary Guarantor holds on consignment or on a "sale or return" basis; and (m) any inventory (as notified by the Senior Administrative Agent to the Borrower) that the Senior Administrative Agent has deemed is ineligible in its reasonable judgment to reflect Borrowing Base Factors; provided, however, that no inventory which is stored at a distribution center leased by the Borrower or any other Person shall be considered "Eligible Inventory" unless the Borrower shall have complied with Section 3.01(cc) (or the Senior Collateral Agent shall have granted a waiver to such compliance pursuant to Section 3.01(cc)). "Eligible Inventory Value" means at the time of any determination thereof the lower of cost (less any appropriate reserve for obsolete inventory and any profits accrued in connection with transfers of inventory between the Borrower and its Subsidiaries or between Subsidiaries of the Borrower) and fair market value of the Eligible Inventory at such time, in dollars, determined in accordance with generally accepted accounting principles consistently applied and on a basis consistent with that used in the preparation of the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. 13 "ERISA Group" means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "Euro-Dollar Borrowing" means a Borrowing comprised of Euro-Dollar Loans. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Senior Administrative Agent. "Euro-Dollar Loan" means any Euro-Dollar Revolving Loan or Euro-Dollar Term Loan. "Euro-Dollar Revolving Credit Borrowing" means a Borrowing comprised of Euro- Dollar Revolving Loans. "Euro-Dollar Revolving Loan" means any Revolving Loan bearing interest at a rate determined by reference to the Adjusted London Interbank Offered Rate in accordance with the provisions of Article 2. "Euro-Dollar Term Borrowing" means a Borrowing comprised of Euro-Dollar Term Loans. "Euro-Dollar Term Loan" means any Term Loan bearing interest at a rate determined by reference to the Adjusted London Interbank Offered Rate in accordance with the provisions of Article 2. "Event of Default" has the meaning set forth in Section 6.01. "Excess Cash Flow" means, for any period, the sum (without duplication) of Consolidated EBITDA for such period, plus 14 (a) to the extent not included in Consolidated Net Income in calculating Consolidated EBITDA, the sum of (1) any Casualty/Condemnation Proceeds previously received by the Borrower or any Subsidiary in respect of which the time for reinvestment thereof (in accordance with the proviso to the definition of Casualty/Condemnation in respect of Proceeds) has elapsed during such period without such reinvestment having been effected, and (2) any Net Cash Proceeds received during such period by the Borrower or any Subsidiary in respect of Asset Sales; plus (b) decreases in Adjusted Working Capital for such period (other than any portion of such decrease resulting solely from the reclassification of assets or liabilities as short- term or long-term) to the extent such decreases are in excess of $200,000,000 in the aggregate for all periods; provided that for the initial period ending March 2, 2002, decreases in Adjusted Working Capital shall include any such decreases occurring during the period from but excluding March 3, 2001 to and including March 2, 2002; plus (c) refunds of Taxes paid in prior periods to the extent such refunds are in excess of $50,000,000 in the aggregate for all periods; and minus (d) Taxes to the extent paid during such period in cash; minus (e) Consolidated Interest Charges to the extent paid during such period in cash; minus (f) increases in Adjusted Working Capital for such period (other than any portion of such increase resulting solely from the reclassification of assets or liabilities as short- term or long-term); provided that for the initial period ending March 2, 2002, increases in Adjusted Working Capital shall include any such increases occurring during the period from but excluding March 3, 2001 to and including March 2, 2002; 15 minus (g) to the extent paid in cash during such period, costs and expenses referred to in clauses (v), (vii), (viii) and (xi) of the definition of "Consolidated EBITDA" which were added back to Consolidated Net Income to calculate Consolidated EBITDA for such period; minus (h) Consolidated Capital Expenditures for such period (except to the extent attributable to the incurrence of Debt under Capital Leases, Attributable Debt under Synthetic Leases or otherwise financed by the incurrence of Debt and except to the extent made with Casualty/Condemnation Proceeds or Net Cash Proceeds from Basket Asset Sales); minus (i) cash consideration paid by the Borrower or its Subsidiaries for permitted Business Acquisitions or other capital acquisitions (except to the extent financed by the incurrence of Debt and except to the extent made with Casualty/Condemnation Proceeds or Net Cash Proceeds from Basket Asset Sales); minus (j) cash expenditures made during such period in respect of long-term liabilities (other than Debt) or long-term assets to the extent such expenditures were not deducted in determining Consolidated Net Income for such period; minus (k) the aggregate principal amount of Debt (including Attributable Debt in respect of Synthetic Leases) paid or prepaid in cash by the Borrower or its Subsidiaries during such period (or immediately after such period in the case of mandatory prepayment of Debt required to be made with Net Cash Proceeds from Asset Sales received during such period), in each case to the extent permitted or required by this Agreement, but excluding (i) Debt in respect of Revolving Credit Loans and Letters of Credit that can be reborrowed or otherwise incurred again, (ii) repayments of Debt made with Net Cash 16 Proceeds from Basket Asset Sales, and (iii) repayments or prepayments of Debt financed by incurring other Debt. "Excess Liquidity" means (i) for the twelve months ending March 2, 2002, the cash reflected on the consolidated balance sheet of the Borrower as of the Initial Borrowing Date minus $75,000,000 and (ii) for any other fiscal period, the cash reflected on the consolidated balance sheet of the Borrower as of the last day of such most recently ended fiscal year minus (x) the aggregate principal amount of Revolving Loans and Swingline Loans outstanding on the last day of the fiscal year of the Borrower most recently ended prior to such fiscal period and (y) minus $75,000,000; provided, however, that in the event the amount in clause (i) or (ii) above shall be negative for any period, then Excess Liquidity for such period shall be deemed to be zero. "Existing Credit Agreement" is defined in the preamble hereto. "Existing Litigation" means the matters identified in Schedule 1.01(a). "Federal Funds Effective Rate" means, 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 for such transactions received by the Senior Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System of the United States of America (or any successor thereto). "Financial Officer" of any person means the chief financial officer, principal accounting officer, Treasurer or any executive or senior vice president finance of such person. "Fleet National Bank" means Fleet National Bank and its successors. "Fleet Retail Finance Inc." means Fleet Retail Finance Inc. and its successors. "Fleet Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Fleet National Bank outstanding on the Closing Date in an aggregate face amount of $8,000,000. 17 "Government Lockbox Account" is defined in the Senior Subsidiary Security Agreement. "Government Lockbox Account Agreement" is defined in the Senior Subsidiary Security Agreement. "Government Lockbox Account Bank" is defined in the Senior Subsidiary Security Agreement. "Governmental Authority" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Granting Bank" is defined in Section 9.06(e). "Hazardous Materials" means all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Indemnitee" has the meaning set forth in Section 9.03(b). "Initial Borrowing Date" means the date of the first Credit Event. "Intercompany Inventory Purchase Agreement" means the Intercompany Inventory Purchase Agreement, dated as of June 12, 2000, among the Borrower, Rite Aid Hdqtrs. Corp., each of the Distribution Subsidiaries and each of the Operating Subsidiaries named therein. Interest Payment Date" means, the last day of the Interest Period applicable to any Loan and, in the case of a Euro-Dollar 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 Loan, and, in addition, the date of any prepayment of such Loan or continuation or conversion of such Loan as or to a Loan of a different Type. 18 "Interest Period" means (a) as to any Euro-Dollar Loan, the period commencing on the date of any Borrowing and ending on the seventh day thereafter or on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 1-1/2, 2, 3 or 6 months thereafter, in each case as the Borrower may elect; (b) as to any Base Rate Borrowing of a Term Loan or a Revolving Loan, the period commencing on the date of such Borrowing and extending through the earliest of (i) the next succeeding March 31, June 30, September 30 or December 31, (ii) the Maturity Date, and (iii) the date such Borrowing is converted to a Borrowing of a different Type in accordance with Section 2.09 or repaid or prepaid in accordance with Section 2.12 or 2.13; and (c) as to any Swingline Loan, a period of one week; 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 Euro-Dollar Borrowing having an interest period of one month or longer, 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 Rate Agreement" means, for any person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement designed to protect against fluctuations in interest rates. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "Investment" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. Any repurchase by the Borrower of its own capital stock shall not constitute an Investment for purposes of this Agreement. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of such transfer or exchange. 19 "Issuance Request" means a letter of credit issuance request delivered by the Borrower to the Senior Administrative Agent, in the form of Exhibit D or such other form as shall be approved by the Senior Administrative Agent and the applicable Issuing Bank. "Issuing Bank" is defined in Section 2.18(k), and shall include Citicorp USA, The Chase Manhattan Bank, Fleet National Bank and, with respect to the Mellon Standby Letters of Credit that become Letters of Credit under this Agreement pursuant to Section 2.18, Mellon Bank. "Issuing Bank Fees" is defined in Section 2.05(e). "Joint Venture" means with respect to any Person, at any date, any other Person in whom such Person directly or indirectly holds an Investment, and whose financial results would not be consolidated under GAAP with the financial results of such Person on the consolidated financial statements of such Person, if such statements were prepared as of such date. "L/C Cash Collateral Account" means the collateral account with Citibank, N.A., A/C 30429836, at its office at 399 Park Avenue, New York, New York 10043, in the name of the Senior Collateral Agent and under the sole control and dominion of the Senior Collateral Agent. "L/C Commitment" means the commitment of the Issuing Bank to issue Letters of Credit pursuant to Section 2.18. "L/C Disbursement" means a payment or disbursement made by an Issuing Bank pursuant to a Letter of Credit. "L/C Exposure" means at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time, plus (b) the aggregate principal amount of all L/C Disbursements that have not yet been reimbursed at such time. The L/C Exposure of any Revolving Credit Bank at any time means its Revolving Percentage of the aggregate L/C Exposure at such time. "L/C Participation Fee" is defined in Section 2.05(e). "Letter of Credit" means any letter of credit issued pursuant to Section 2.18 and includes any Citicorp Standby Letter of Credit, any Fleet Standby Letter of Credit and any Mellon Standby Letter of Credit that is deemed to be a Letter of Credit hereunder. 20 "Leverage Ratio" means, with respect to any date during any period, the ratio of Total Debt as of such date to Consolidated EBITDA for such period (or, in the case of a period of less than twelve months, annualized Consolidated EBITDA). "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. "LIFO Adjustments" means, for any period, the net adjustment to costs of goods sold for such period required by the Borrower's LIFO inventory method, determined in accordance with generally accepted accounting principles. "Loans" means the Revolving Loans, the Swingline Loans and the Term Loans. "London Interbank Offered Rate" means, with respect to any Euro-Dollar Borrowing, the rate (rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits approximately equal in principal amount to the Senior Administrative Agent's portion of such Euro-Dollar Borrowing, and for a maturity comparable to such Interest Period are offered to the principal London office of the Senior Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days before the commencement of such Interest Period. "Majority Banks" means, at any time, Banks having unused Revolving Credit Commitments, Revolving Credit Exposure, unused Term Loan Commitments and outstanding Term Loans representing greater than 50% of the sum of all unused Revolving Credit Commitments, Revolving Credit Exposures, unused Term Loan Commitments and outstanding Term Loans at such time. "Majority Revolving Credit Banks" means, at any time, Revolving Credit Banks having unused Revolving Credit Commitments and Revolving Credit Exposures representing greater than 50% of the sum of all unused Revolving Credit Commitments and Revolving Credit Exposures. "Material Adverse Effect" means (i) any material adverse effect on the business, assets, operations, properties, condition (financial or otherwise), contingent liabilities, prospects or material agreements of the Borrower and its Consolidated Subsidiaries, considered as a whole, 21 (ii) any material impairment of the legality, validity and enforceability of the Senior Loan Documents (including without limitation, the validity, enforceability or priority of security interests to be granted), or the rights and remedies of the Senior Secured Parties, or (iii) any material impairment of the Borrower's or the Subsidiary Guarantors' ability to perform its or their obligations under the Senior Loan Documents. "Material Financial Obligations" means, without duplication, (a) the Second Priority Debt Obligations, and (b) (i) a principal or face amount of Debt (except Debt outstanding hereunder) and/or (ii) payment or collateralization obligations in respect of Derivatives Obligations and/or (iii) payment or collateralization obligations in respect of leases (other than Capital Leases, which are Debt) of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $25,000,000. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000. "Maturity Date" means June 27, 2005; provided, however, that to the extent more than $20,000,000 of the Borrower's 7.625% Senior Notes due April 15, 2005 remain outstanding on December 31, 2004, the term "Maturity Date" shall mean March 15, 2005. "Mellon Bank" means Mellon Bank, N.A. "Mellon Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Mellon Bank outstanding on the Closing Date in an aggregate face amount of $16,500,000 specified on Schedule 4.13. "Mortgaged Properties" means the owned real properties of the Subsidiary Guarantors specified on Schedule 1.01(b). Each Mortgaged Property shall include any owned fixtures used in connection with the operation of such Mortgaged Property. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. 22 "Notes" means any Revolving Credit Notes, Swingline Notes or Term Notes. "Other Inventory Advance Rate" means the amount determined in accordance with Section 2.19. "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 9.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Perfection Certificate" means the Perfection Certificate substantially in the form of Annex 2 to the Senior Subsidiary Security Agreement. "Pharmaceutical Inventory Advance Rate" means the amount determined in accordance with Section 2.19. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Qualified Preferred Stock" means preferred stock of the Borrower that requires no cash payment before the date that is six months after the Maturity Date. "Refunding Borrowing" means a Borrowing which, after application of the proceeds thereof, results in no net increase in the outstanding principal amount of Loans of any Class made by any Bank. "Regulation T, U, or X" means Regulation T, U or X of the Federal Reserve Board, as in effect from time to time. 23 "Related Fund" means any fund regularly investing in loans of the type made hereunder that is administered or managed by (a) a Bank, (b) an Affiliate of a Bank or (c) an entity or an Affiliate of an entity that administers or manages a Bank. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. "Remedial Action" means (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, clause (i) or (ii). "Restricted Payment" means (a) any dividend or other distribution on any shares of the Borrower's or any Subsidiary's capital stock (except dividends payable solely in shares of the Borrower's common stock or Qualified Preferred Stock); or (b) any payment (other than a payment made solely with common equity) on account of the purchase, redemption, retirement or acquisition of (i) any shares of the Borrower's or any Subsidiary's capital stock or (ii) any option, warrant or other right to acquire shares of the Borrower's or any Subsidiary's capital stock (other than such payment in connection with employee benefit plans in the ordinary course of business). "Revolving Credit Bank" means a Bank with a Revolving Credit Commitment. "Revolving Credit Borrowing" means a Borrowing comprised of Revolving Loans. "Revolving Credit Commitment" means, with respect to each Bank, the commitment of such Bank to make Revolving Loans hereunder (or to participate in Letters of Credit) as set forth in Annex 1, or in the Assignment and Acceptance pursuant to which such Bank assumed its Revolving Credit Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.08, and (b) reduced or increased from time to time pursuant to assignments by or to such Bank pursuant to Section 9.06. 24 "Revolving Credit Exposure" means, with respect to any Bank at any time, the aggregate principal amount at such time of all outstanding Revolving Loans of such Bank, plus the aggregate amount at such time of such Bank's L/C Exposure, plus the aggregate amount at such time of such Bank's Swingline Exposure. "Revolving Credit Note" means a promissory note of the Borrower, substantially in the form of Exhibit A-2, evidencing Revolving Loans. "Revolving Loans" means the revolving loans made by the Banks to the Borrower pursuant to Section 2.01(c). "Revolving Percentage" of any Revolving Credit Bank at any time means the percentage of the total Revolving Credit Commitments of all Revolving Credit Banks represented by such Bank's Revolving Credit Commitment, or if the Revolving Credit Commitments shall have expired or terminated, the percentage of the aggregate Revolving Credit Exposures of all Banks represented by such Bank's Revolving Credit Exposure. "SEC" means the Securities and Exchange Commission, or any Person succeeding to its functions under the Securities Exchange Act of 1934, as amended. "Secured Debt" means Debt which is secured by a Lien on property of the Borrower or any Subsidiary, but shall not include guarantees arising in connection with the sale, discount, guarantee or pledge of notes, chattel mortgages, leases, accounts receivable, trade acceptances and other papers arising, in the ordinary course of business, out of installment or conditional sales to or by, or transactions involving title retention with, distributors, dealers or other customers, of merchandise, equipment or services. "Senior Administrative Agent" means Citicorp USA, in its capacity as agent for the Banks under the Senior Loan Documents, and its successors in such capacity. "Senior Administrative Agent's Account" means the account of the Administrative Agent maintained by the Administrative Agent with Citicorp Industrial Credit at 399 Park Avenue, New York, New York 10043, Account No. 38858061, ABA 021000089, Attention: Mae Wong, or such other account as the Administrative Agent shall specify in writing to the Banks. "Senior Administrative Agent's Fees" is defined in Section 2.05(c). 25 "Senior Fee Letter" means the Fee Letter dated May 15, 2001, between the Borrower and the Senior Administrative Agent, relating to this Agreement. "Senior Revolving Commitment Fee" is defined in Section 2.05(a). "Senior Term Commitment Fee" is defined in Section 2.05(b). "Senior Fees" means the L/C Participation Fees, the Issuing Bank Fees, the Senior Revolving Commitment Fees, the Senior Term Commitment Fees, the fees described in Section 2.05(d), and the Senior Administrative Agent's Fees. "SPC" is defined in Section 9.06(e). "Statutory Reserves" means 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 reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Federal Reserve Board and any other banking authority, domestic or foreign, to which the Senior Administrative Agent or any Bank (including any branch, Affiliate, or other fronting office making or holding a Loan) is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months, in the case of the Base CD Rate (as such term is used in the definition of "Base Rate"), and (b) with respect to the Adjusted London Interbank Offered Rate, for Euro-Dollar Liabilities (as defined in Regulation D of the Federal Reserve Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Euro-Dollar Loans shall be deemed to constitute Euro-Dollar 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 Bank under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Store" means any retail store (which may include any real property, fixtures, equipment, inventory and script files related thereto) operated, or to be operated, by any Subsidiary Guarantor. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. 26 "Subsidiary Guarantor" means, initially, each Subsidiary listed on Schedule 1.01(d), and each other Subsidiary that is or becomes a party to a Senior Subsidiary Guarantee Agreement. "Supermajority Banks" means, at any time, Banks having unused Revolving Credit Commitments, Revolving Credit Exposure, unused Term Loan Commitments and outstanding Term Loans representing at least 66-2/3% of the sum of all unused Revolving Credit Commitments, Revolving Credit Exposures, unused Term Loan Commitments and outstanding Term Loans at such time. "Swingline Bank" means, subject to Section 2.17(g), either Citicorp USA, or Fleet Retail Finance Inc. "Swingline Exposure" means at any time the aggregate principal amount at such time of all outstanding Swingline Loans. The Swingline Exposure of any Revolving Credit Bank at any time shall equal its Revolving Percentage of the aggregate Swingline Exposure at such time. "Swingline Loan" means any loan made by a Swingline Bank pursuant to Section 2.17. "Swingline Note" means a promissory note evidencing Swingline Loans, executed and delivered as provided in Section 2.17 in substantially the form of Exhibit A-3. "Syndication Agents" is defined in the preamble. "Taxes" is defined in Section 8.04(a). "Term Borrowing" means a Borrowing comprised of Term Loans. "Term Exposure" means, with respect to any Bank at any time, the aggregate principal amount at such time of all outstanding Term Loans of such Bank. "Term Loan Commitments" means, with respect to each Bank, the commitment of such Bank to make Term Loans hereunder as set forth on Annex 1, or in the Assignment and Acceptance pursuant to which such Bank assumed its Term Loan Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to assignments by or to such Bank pursuant to Section 9.06. "Term Loans" means the term loans made by the Banks to the Borrower pursuant Section 2.01(a) and (b). 27 "Term Note" means a promissory note of the Borrower, substantially in the form of Exhibit A-1, evidencing Term Loans. "The Chase Manhattan Bank" means The Chase Manhattan Bank and its successors. "Three-Month Secondary CD Rate" means, 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 Federal Reserve Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Federal Reserve 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 Senior Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. "Total Debt" means, as of any date, the aggregate principal amount of Debt of the Borrower and its Consolidated Subsidiaries outstanding as of such date that would be reflected on a balance sheet of the Borrower prepared on a consolidated basis as of such date. "Transactions" is defined in Annex 3. "Transaction Costs" is defined in Annex 3. "Transaction Documents" means the agreements evidencing the Transactions. "Type" has the meaning set forth in Section 1.03. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. 28 "United States" means the United States of America, including the States, the District of Columbia and Puerto Rico but excluding its other territories and possessions. "Unsecured Note Indenture" means the Indenture dated as of June 27, 2001, between Rite Aid and BNY Midwest Trust Company, as trustee, relating to the 11.25% Senior Notes due 2008 of the Borrower. "Wholly-Owned Consolidated Subsidiary" means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly (through Wholly-Owned Consolidated Subsidiaries) owned by the Borrower. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Borrower notifies the Senior Administrative Agent that the Borrower wishes to amend any covenant in Article 5 to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Senior Administrative Agent notifies the Borrower that the Majority Banks wish to amend Article 5 for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Majority Banks. SECTION 1.03. Classes and Types of Loans. Loans hereunder are distinguished by "Class" and by "Type". The "Class" of a Loan (or of a Commitment to make such a Loan or of a Borrowing comprised of such Loans) refers to the determination whether such Loan is a Revolving Loan or a Term Loan, each of which constitutes a Class. The "Type" of a Loan refers to the determination whether such Loan is a Euro-Dollar Loan or a Base Rate Loan. Identification of a Loan (or a Borrowing) by both Class and Type (e.g., a "Term Euro-Dollar Loan") indicates that such Loan is both a Term Loan and a Euro-Dollar Loan (or that such Borrowing is comprised of such Loans). 29 SECTION 1.04. Terms Defined in Definitions Annex. Capitalized terms used in this agreement that are not defined in Section 1.01 have the meanings provided in the Definitions Annex. SECTION 1.05. Other Definitional Provisions. References in this Agreement to "Articles", "Sections", "Annexes", "Schedules" or "Exhibits" shall be to Articles, Annexes, Sections, Schedules or Exhibits of or to this Agreement unless otherwise specifically provided. Any of the terms defined in Article 1 may, unless the context otherwise requires, be used in the singular or plural depending on the reference. "Include" or "includes" and "including" shall be deemed to be followed by "without limitation" whether or not they are in fact followed by such words or words of like import. "Writing", "written" and comparable terms refer to printing, typing and other means of reproducing words in a durable visible form, including telecopy. References to any agreement or contract are to such agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof; provided that amendments to the Indentures, the Unsecured Note Indenture, the 10.5% Note Documents, the Second Priority Debt Documents, the Synthetic Lease Documents and the other Transaction Documents after the Closing Date shall be effective for purposes of references thereto in this Agreement and the other Senior Loan Documents only if such amendments are permitted hereunder or are consented to in writing for such purpose by the Majority Banks (or such other percentage of the Banks as may be specified hereunder). References to any Person include the successors and assigns of such Person. References "from" or "through" any date mean, unless otherwise specified, "from and including" or "through and including", respectively. ARTICLE 2 THE CREDITS SECTION 2.01. Commitments. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, (a) each Bank agrees, severally and not jointly, to make Term Loans to the Borrower on the Initial Borrowing Date in an aggregate principal amount not to exceed its Term Loan Commitment, (b) each Bank indicated on Annex 1 agrees, severally and not jointly, to the extent the Term Loan Commitments are not fully drawn on the Initial Borrowing Date, to make Term Loans to the Borrower, at any time and from time to time after the date hereof, and until the earliest of (i) the date on which no 10.5% Notes remain outstanding, (ii) the final 30 maturity of the 10.5% Notes or (iii) the termination of the Term Loan Commitment of such Bank in accordance with the terms hereof, in an aggregate principal amount not to exceed the lesser of (x) the excess of its Term Loan Commitment over the amount of Term Loans made by such Bank on the Initial Borrowing Date (such Bank's "Delayed Draw Term Loan Commitment") and (y) such Bank's Delayed Draw Percentage of (A) the Borrowing Base Amount in effect at such time less (B) the aggregate Term Exposures and Revolving Credit Exposures at such time, and (c) to make Revolving Loans to the Borrower, at any time and from time to time on or after the date hereof, and until the earlier of the Maturity Date or the termination of the Revolving Credit Commitment of such Bank in accordance with the terms hereof in an aggregate principal amount at any time outstanding that will not result in such Bank's Revolving Credit Exposure exceeding the lesser of (i) such Bank's Revolving Credit Commitment, and (ii) such Bank's Revolving Percentage of (A) the Borrowing Base Amount in effect at such time less (B) the aggregate Term Exposures of the Banks at such time. Within the limits set forth above and subject to the terms, conditions and limitations set forth herein, the Borrower may borrow, pay or prepay and reborrow Revolving Loans. Amounts paid or prepaid in respect of Term Loans may not be reborrowed. SECTION 2.02. Loans. (a) (i) Each Revolving Loan (other than Swingline Loans) shall be made as part of a Borrowing consisting of Revolving Loans made by the Banks ratably in accordance with their applicable Revolving Credit Commitments, (ii) each Term Loan made on the Initial Borrowing Date shall be made as part of a Borrowing consisting of Term Loans made by the Banks ratably in accordance with their applicable Term Loan Commitments (excluding, in the case of any Bank indicated on Annex 1 as having a Delayed Draw Term Loan Commitment, such Bank's ratable share of the Term Loan Commitments not drawn on the Initial Borrowing Date) and (iii) each Term Loan made after the Initial Borrowing Date shall be made as part of one or more Borrowings consisting of Term Loans made by the Banks indicated on Annex 1 as having Delayed Draw Term Loan Commitments ratably in accordance with their applicable remaining Delayed Draw Term Loan Commitments; provided, however, that the failure of any Bank to make any Loan shall not in itself relieve any other Bank of its obligation to lend hereunder, and no Bank shall be responsible for the failure of any other Bank to make any Loan required to be made by such other Bank. Except for Loans deemed made pursuant to 31 Section 2.02(e) and Swingline Loans, the Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) a multiple of $1,000,000 and not less than $5,000,000, or (ii) equal to the remaining available balance of the applicable Commitments. (b) Subject to Sections 8.01 and 8.02, each Borrowing of Revolving Loans and Term Loans shall be comprised entirely of Base Rate Loans or Euro-Dollar Loans as the Borrower may request pursuant to Section 2.03 or Section 2.09. Each Bank may at its option make any Euro-Dollar Loan by causing any domestic or foreign branch or Affiliate of such Bank to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement and the applicable Note. Borrowings of more than one Type may be outstanding at the same time; provided, that the Borrower shall not be entitled to request any Borrowing that, if made, would result in more than 10 Euro-Dollar Borrowings outstanding hereunder at any time. For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings. (c) (i) Except with respect to Loans made pursuant to Section 2.02(e) and Section 2.03(b)(1), each Bank shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account as the Senior Administrative Agent may designate not later than 12:00 noon, New York City time, and the Senior Administrative Agent shall by 1:00 p.m., New York City time, credit the amounts so received to an account in the name of the Borrower and designated by the Borrower in the applicable Borrowing Request or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Banks. (ii) With respect to Loans made pursuant to Section 2.03(b)(1), each Bank shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account as the Senior Administrative Agent may designate not later than 3:00 p.m., New York City time, and the Senior Administrative Agent shall by 4:00 p.m., New York City time, credit the amounts so received to an account in the name of the Borrower and designated by the Borrower in the applicable Borrowing Request or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Banks. (d) Unless the Senior Administrative Agent shall have received notice from a Bank before the date of any Borrowing that such Bank will not make available to the Senior Administrative 32 Agent such Bank's portion of such Borrowing, the Senior Administrative Agent may assume that such Bank has made such portion available to the Senior Administrative Agent on the date of such Borrowing in accordance with clause (c) and the Senior Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If the Senior Administrative Agent shall have so made funds available then, to the extent that such Bank shall not have made such portion available to the Senior Administrative Agent, such Bank and the Borrower severally agree to repay to the Senior Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Senior Administrative Agent at (a) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (b) in the case of such Bank, a rate determined by the Senior Administrative Agent to represent its cost of overnight or short-term funds in dollars (which determination shall be conclusive absent manifest error). If such Bank shall repay to the Senior Administrative Agent such corresponding amount, such amount shall constitute such Bank's Loan as part of such Borrowing for purposes of this Agreement. (e) If an Issuing Bank shall not have received from the Borrower the payment required to be made by Section 2.18(e) within the time specified in such Section, such Issuing Bank will promptly notify the Senior Administrative Agent of the L/C Disbursement and the Senior Administrative Agent will promptly notify each Revolving Credit Bank of such L/C Disbursement and its Revolving Percentage thereof. Each Revolving Credit Bank shall pay by wire transfer of immediately available funds to the Senior Administrative Agent not later than 2:00 p.m., New York City time, on such date (or, if such Revolving Credit Bank shall have received such notice later than 12:00 (noon), New York City time, on any day, not later than 10:00 a.m., New York City time, on the immediately following Business Day), an amount equal to such Bank's Revolving Percentage of such L/C Disbursement (and such amount shall be deemed to constitute a Base Rate Revolving Loan of such Bank and such payment shall be deemed to have reduced the L/C Exposure), and the Senior Administrative Agent will promptly pay to the applicable Issuing Bank amounts so received by it from the Revolving Credit Banks. The Senior Administrative Agent will promptly pay to the applicable Issuing Bank any amounts received by it from the Borrower pursuant to Section 2.18(e) before the time that any Revolving Credit Bank makes any payment pursuant to this clause; any such amounts received by the Senior Administrative Agent thereafter will be promptly remitted by the Senior Administrative Agent to the Revolving Credit Banks that shall have made such payments and to such Issuing Bank, as their interests may appear. If any Revolving Credit Bank shall not have made its Revolving Percentage of such L/C Disbursement available to the Senior Administrative Agent as provided above, such Bank and the Borrower severally agree to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this clause to 33 but excluding the date such amount is paid, to the Senior Administrative Agent for the account of the applicable Issuing Bank at: (i) in the case of the Borrower, a rate per annum equal to the interest rate applicable to Revolving Loans pursuant to Section 2.06(a); and (ii) in the case of such Bank, for the first such day, the Federal Funds Effective Rate, and for each day thereafter, the Base Rate. SECTION 2.03. Borrowing Procedure. In order to request a Borrowing (other than a Swingline Loan or a deemed Borrowing pursuant to Section 2.02(e), as to which this Section shall not apply), the Borrower shall hand deliver or telecopy to the Senior Administrative Agent a duly completed Borrowing Request (a) in the case of a Euro-Dollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before a proposed Borrowing, and (b) in the case of a Base Rate Borrowing, not later than (1) 10:30 a.m., New York City time, on the Business Day of the proposed Borrowing, in the case of Borrowings to be made on the same day as such notice is given or (2) otherwise, 12:00 noon, New York City time, on the Business Day before the proposed Borrowing. Each Borrowing Request shall be irrevocable, shall be signed by or on behalf of the Borrower and shall specify the following information: (i) whether the Borrowing then being requested is to be a Term Borrowing or a Revolving Credit Borrowing, and whether such Borrowing is to be a Euro-Dollar Borrowing or a Base Rate Borrowing; (ii) the date of such Borrowing (which shall be a Business Day); (iii) the number and location of the account to which funds are to be disbursed; (iv) the amount of such Borrowing; and (v) if such Borrowing is to be a Euro-Dollar Borrowing, the Interest Period with respect thereto; provided, however, that, notwithstanding any contrary specification in any Borrowing Request, each requested Borrowing shall comply with the requirements set forth in Section 2.02. The Senior Administrative Agent shall promptly advise the applicable Banks of any notice given pursuant to this Section, and of each Bank's portion of the requested Borrowing. 34 SECTION 2.04. Notes and Records. (a) If any Bank so requests, the Revolving Loans made by such Bank shall be evidenced by a Revolving Credit Note duly executed on behalf of the Borrower, dated the Initial Borrowing Date, in the amount of such Bank's Revolving Credit Commitment. If any Bank so requests, the Term Loans made by such Bank shall be evidenced by a Term Note duly executed on behalf of the Borrower, dated the Initial Borrowing Date, in the amount of such Bank's Term Loan Commitment. If a Swingline Bank so requests, the Swingline Loans shall be evidenced by a Swingline Note duly executed on behalf of the Borrower, dated the Initial Borrowing Date, in the amount of $100,000,000. Loans not evidenced by a Note shall only be assigned or otherwise transferred by registration of such assignment or transfer of such Loans. (b) Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Bank resulting from each Loan made by such Bank from time to time, including the amounts of principal and interest payable and paid such Bank from time to time under this Agreement. Each Bank shall, and is hereby authorized by the Borrower to, endorse on the schedule attached to each Note delivered to such Bank (or on a continuation of such schedule attached to such Note and made a part thereof), or otherwise to record in such Bank's internal records, an appropriate notation evidencing the date and amount of each Loan from such Bank, each payment and prepayment of principal of any such Loan, each payment of interest on any such Loan and the other information provided for on such schedule; provided, however, that the failure of any Bank to make such a notation or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans made by such Bank in accordance with the terms of this Agreement and the applicable Note. (c) The Senior Administrative Agent shall maintain accounts in which it will record the name and address of each Bank issuing a Loan, the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Bank hereunder and the amount of any sum received by the Senior Administrative Agent hereunder from the Borrower or any other Obligor and each Bank's share thereof. (d) The entries made in the accounts maintained pursuant to clauses (b) and (c) shall be conclusive evidence, in the absence of demonstrable error, of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Bank or the Senior Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrower to repay the Loans in accordance with their terms. 35 (e) Promptly upon receipt and in any event not less often than once per week, the Senior Administrative Agent will distribute to each Bank its share of the net amount of payments received by the Senior Administrative Agent. SECTION 2.05. Senior Fees. (a) The Borrower agrees to pay to each Bank, through the Senior Administrative Agent, on January 1, April 1, July 1 and October 1 in each year and on each date on which any Revolving Credit Commitment of such Bank shall expire or be terminated as provided herein, a commitment fee (a "Senior Revolving Commitment Fee") equal to 0.50% per annum on the daily unused amount of the Revolving Credit Commitments of such Bank during the preceding quarter (or other period commencing with the date hereof or ending with the Maturity Date or the date on which the Revolving Credit Commitments of such Bank shall expire or be terminated). All Senior Revolving Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Senior Revolving Commitment Fee due to each Bank shall commence to accrue on the date hereof and shall cease to accrue on the date on which the Revolving Credit Commitment of such Bank shall expire or be terminated as provided herein. For purposes of calculating Senior Revolving Commitment Fees only, no portion of the Revolving Credit Commitments shall be deemed used as a result of outstanding Swingline Loans. (b) The Borrower agrees to pay to each Bank, through the Senior Administrative Agent, on January 1, April 1, July 1 and October 1 in each year and on each date on which any Term Loan Commitment of such Bank shall expire or be terminated as provided herein, a commitment fee (a "Senior Term Commitment Fee") equal to 0.75% per annum on the daily unused amount of the Term Loan Commitments of such Bank during the preceding quarter (or other period commencing with the date hereof or ending with the date on which the Term Loan Commitments of such Bank shall expire or be terminated). All Senior Term Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Senior Term Commitment Fee due to each Bank shall commence to accrue on the date hereof and shall cease to accrue on the date on which the Term Loan Commitment of such Bank shall expire or be terminated as provided herein. (c) The Borrower agrees to pay to the Senior Administrative Agent, for its own account, the administrative fees set forth in the Senior Fee Letter at the times and in the amounts specified therein (the "Senior Administrative Agent's Fee"). (d) The Borrower agrees to pay to the Senior Administrative Agent, for payment to the other Banks (to the extent applicable), on the Initial Borrowing Date, the other fees specified in 36 the Senior Fee Letter, and the Senior Administrative Agent shall pay to each Bank on the Initial Borrowing Date that portion of such fees that shall be owing to such Bank. (e) The Borrower agrees to pay (i) to each Revolving Credit Bank, through the Senior Administrative Agent, on January 1, April 1, July 1, and October 1 of each year and on the date on which the Revolving Credit Commitment of such Bank shall be terminated as provided herein, a fee (an "L/C Participation Fee") calculated on such Bank's Revolving Percentage of the daily aggregate L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C Disbursements) during the preceding quarter (or shorter period commencing with the date hereof or ending with the Maturity Date or the date on which all Letters of Credit have been canceled or have expired and the Revolving Credit Commitments of all Banks shall have been terminated) at a rate equal to 3.50% per annum, and (ii) to each Issuing Bank with respect to each Letter of Credit a fronting fee of 1/4% and customary issuance and drawing fees specified from time to time by such Issuing Bank (the "Issuing Bank Fees"). All L/C Participation Fees and Issuing Bank Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. All Senior Fees shall be paid on the dates due, in immediately available funds, to the Senior Administrative Agent for distribution, if and as appropriate, among the Banks, except that the Issuing Bank Fees shall be paid directly to the applicable Issuing Bank. Once paid, none of the Senior Fees shall be refundable under any circumstances. SECTION 2.06. Interest on Loans. (a) The Loans comprising each Base Rate Borrowing, including each Swingline Loan, shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when the Base Rate is determined by reference to the Citibank Base Rate and over a year of 360 days at all other times) at a rate per annum equal to the Base Rate plus 2.50%. (b) Subject to the provisions of Section 8.01, the Loans comprising each Euro-Dollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Adjusted London Interbank Offered Rate for the Interest Period in effect for such Borrowing plus 3.50%. (c) Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period, and shall be payable on outstanding amounts from and including the date such amount is borrowed to but excluding the day such amount is repaid. Interest on each Loan shall be payable on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement. The applicable Base Rate or Adjusted London 37 Interbank Offered Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Senior Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.07. Default Interest. Upon the occurrence and during the continuation of an Event of Default, at the option of the Administrative Agent or at the request of the Majority Banks, the Borrower shall on demand from time to time pay interest, to the extent permitted by law, on the Senior Bank Obligations to but excluding the date of actual payment (after as well as before judgment) in the case of principal, at the rate otherwise applicable to such Loan pursuant to Section 2.06 plus 2.00% per annum, and in all other cases, at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when determined by reference to the Citibank Base Rate and over a year of 360 days at all other times) equal to the sum of the Base Rate plus 2.00%. SECTION 2.08. Termination and Reduction of Commitments. (a) Except as set forth in the immediately succeeding sentence, the Term Loan Commitments hereunder shall terminate on the earliest of (i) the date on which the Borrower informs the Banks that it has decided not to proceed with the Transactions, or (ii) 5:00 p.m., New York City time, on the earlier of the Initial Borrowing Date or August 31, 2001, if the initial Credit Event is not made on or before such date. With respect to the Banks indicated on Annex 1, the Delayed Draw Term Loan Commitments of such Banks shall automatically terminate on the earliest of (i) the date on which no 10.5% Notes remain outstanding, (ii) the final maturity of the 10.5% Notes, (iii) the date on which the Borrower informs the Banks that it has decided not to proceed with the Transactions, or (iv) 5:00 p.m., New York City time, August 31, 2001, if the initial Credit Event shall not have occurred by such time. The L/C Commitment and the Revolving Credit Commitments shall automatically terminate on the earliest of (i) the Maturity Date, (ii) the date on which the Borrower informs the Banks that it has decided not to proceed with the Transactions, or (iii) 5:00 p.m., New York City time, August 31, 2001, if the initial Credit Event shall not have occurred by such time. (b) The Revolving Credit Commitments, subject to Section 2.13(a), shall be permanently reduced by the amount of any amount allocated to the Revolving Loans pursuant to Section 2.13(c); (c) Upon at least one Business Day prior irrevocable written or telecopy notice to the Senior Administrative Agent, the Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Term Loan Commitments or the Revolving Credit Commitments; provided, however, that (i) each partial reduction of the Term Loan 38 Commitments, the Delayed Draw Term Loan Commitments or the Revolving Credit Commitments shall be in (1) a multiple of $1,000,000 and in a minimum amount of $5,000,000 or (2) in the full remaining amount of the Term Loan Commitments or the Revolving Credit Commitments, as the case may be, and (ii) the total Revolving Credit Commitments shall not be reduced to an amount that is less than the sum of the Aggregate Revolving Credit Exposure. If no Term Loans are outstanding, the Revolving Credit Commitments shall automatically be reduced by the amount of any mandatory prepayment that would otherwise have been applied to the prepayment of Term Loans pursuant to Section 2.13(c). (d) Each reduction in the Term Loan Commitments or the Revolving Credit Commitments hereunder shall be made ratably among the Banks in accordance with their respective applicable Commitments. The Borrower shall pay to the Senior Administrative Agent for the account of the applicable Banks, on the date of each termination or reduction, the Senior Revolving Commitment Fees on the amount of the Revolving Credit Commitments so terminated or reduced, and the Senior Term Commitment Fees on the amount of the Term Loan Commitments so terminated or reduced, in each case accrued to but excluding the date of such termination or reduction. SECTION 2.09. Conversion and Continuation of Borrowings. The Borrower shall have the right at any time by delivery of a Continuation/Conversion Request to the Senior Administrative Agent (a) not later than 12:00 (noon), New York City time, one Business Day before conversion, to convert any Euro-Dollar Borrowing into a Base Rate Borrowing, (b) not later than 10:00 a.m., New York City time, three Business Days before conversion or continuation, to convert any Base Rate Borrowing into a Euro-Dollar Borrowing or to continue any Euro-Dollar Borrowing as a Euro-Dollar Borrowing for an additional Interest Period, and (c) not later than 10:00 a.m., New York City time, three Business Days before conversion, to convert the Interest Period with respect to any Euro-Dollar Borrowing to another permissible Interest Period, subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Banks in accordance with the respective principal amounts of the Loans comprising the converted or continued Borrowing; (ii) if less than all the outstanding principal amount of any Borrowing shall be converted or continued, then each resulting Borrowing shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b) regarding the principal amount and maximum number of Borrowings of the relevant Type; 39 (iii) each conversion shall be effected by each Bank and the Senior Administrative Agent by recording for the account of such Bank the new Loan of such Bank resulting from such conversion and reducing the Loan (or portion thereof) of such Bank being converted by an equivalent principal amount; accrued interest on any Euro-Dollar Loan (or portion thereof) being converted shall be paid by the Borrower at the time of conversion; (iv) if any Euro-Dollar Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the Borrower shall pay, upon demand, any amounts due to the Banks pursuant to Section 2.14; (v) any portion of a Borrowing maturing or required to be repaid in less than seven days may not be converted into or continued as a Euro-Dollar Borrowing; (vi) any portion of a Euro-Dollar Borrowing that cannot be converted into or continued as a Euro-Dollar Borrowing by reason of the two immediately preceding clauses shall be automatically converted at the end of the Interest Period in effect for such Borrowing into a Base Rate Borrowing; (vii) no Interest Period may end later than the Maturity Date; and (viii) upon notice to the Borrower from the Senior Administrative Agent given at the request of the Majority Banks, after the occurrence and during the continuance of a Default or Event of Default, no outstanding Loan may be converted into, or continued after the expiration of an Interest Period as, a Euro-Dollar Loan. Each notice pursuant to this Section shall be irrevocable and shall refer to this Agreement and specify (i) the identity and amount of the Borrowing that the Borrower requests be converted or continued, (ii) whether such Borrowing is to be converted to or continued as a Euro-Dollar Borrowing or a Base Rate Borrowing, (iii) if such notice requests a conversion, the date of such conversion (which shall be a Business Day), and 40 (iv) if such Borrowing is to be converted to or continued as a Euro-Dollar Borrowing, the Interest Period with respect thereto. If no election as to the Type of Borrowing is specified in any such notice, then the requested Borrowing shall be a Base Rate Borrowing. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Euro-Dollar Borrowing, the Borrower shall be deemed to have given notice for an Interest Period of one month's duration. The Senior Administrative Agent shall advise the Banks of any notice given pursuant to this Section and of each Bank's portion of any converted or continued Borrowing. If the Borrower shall not have given notice in accordance with this Section to continue any Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section to convert such Borrowing), such Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be continued into a new Interest Period as a Base Rate Borrowing. SECTION 2.10. Repayment of Borrowings. (a) To the extent not previously paid, all Term Loans shall be due and payable on the Maturity Date, (b) To the extent not previously paid, all Revolving Loans shall be due and payable on the Maturity Date. (c) To the extent not previously paid, all Swingline Loans shall be due and payable the earlier of (i) on the last day of the Interest Period applicable to such Loan, and (ii) the Maturity Date. (d) All repayments pursuant to this Section shall be subject to Section 2.14, but shall otherwise be without premium or penalty. SECTION 2.11. Amortization of Term Loans. (a) Subject to adjustment pursuant to Section 2.11(b), the Borrower shall repay Term Borrowings in quarterly installments of principal, payable on the first Business Day following the end of each fiscal quarter set forth below, and a final repayment on the Maturity Date, in each case in the amount set forth opposite such fiscal quarter below: 41 - -------------------------------------------------------------------------------- Date Amount - -------------------------------------------------------------------------------- March 2, 2002......................................... $5,000,000 - -------------------------------------------------------------------------------- May 31, 2002.......................................... $7,500,000 - -------------------------------------------------------------------------------- August 31, 2002....................................... $7,500,000 - -------------------------------------------------------------------------------- November 30, 2002..................................... $7,500,000 - -------------------------------------------------------------------------------- March 1, 2003......................................... $7,500,000 - -------------------------------------------------------------------------------- May 31, 2003.......................................... $7,500,000 - -------------------------------------------------------------------------------- August 31, 2003....................................... $7,500,000 - -------------------------------------------------------------------------------- November 30, 2003..................................... $15,000,000 - -------------------------------------------------------------------------------- February 28, 2004..................................... $15,000,000 - -------------------------------------------------------------------------------- May 31, 2004.......................................... $15,000,000 - -------------------------------------------------------------------------------- August 31, 2004....................................... $15,000,000 - -------------------------------------------------------------------------------- November 30, 2004..................................... $15,000,000 - -------------------------------------------------------------------------------- February 26, 2005..................................... $15,000,000 - -------------------------------------------------------------------------------- Maturity Date......................................... Remaining Outstanding Term Borrowings - -------------------------------------------------------------------------------- (b) Any mandatory prepayment of a Term Borrowing shall be applied to reduce the subsequent scheduled repayments of the Term Borrowings to be made pursuant to this Section as follows: (i) 50% of such prepayment amount shall be applied to reduce such subsequent scheduled repayments in direct order of maturity and (ii) after giving effect to the application as set forth in clause (i), 50% of such prepayment amount shall be applied to reduce any remaining scheduled repayments in inverse order of maturity. Any optional prepayment of a Term Borrowing shall be applied to reduce subsequent scheduled repayments of the Term Borrowings to be made pursuant to this Section in the manner selected by the Borrower. (c) Prior to any repayment of any Term Borrowing, the Borrower shall select the Borrowing or Borrowings to be repaid and shall notify the Senior Administrative Agent by prior written or telecopy notice (or telephone notice promptly confirmed by written or telecopy notice) of such selection not later than 11:00 a.m., New York City time, three Business Days before the scheduled date of such repayment. Each repayment of a Term Borrowing shall be applied ratably to the Term Loans included in the repaid Term Borrowing. Repayments of Term Borrowings shall be accompanied by accrued interest on the amount repaid. 42 SECTION 2.12. Optional Prepayment. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, upon at least one Business Day prior written or telecopy notice (or telephone notice promptly confirmed by written or telecopy notice) to the Senior Administrative Agent before 11:00 a.m., New York City time; provided, however, that each partial prepayment shall be in an amount that is a multiple of $1,000,000 and not less than $5,000,000. (b) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Borrower to prepay such Borrowing by the amount stated therein on the date stated therein. All prepayments under this Section shall be subject to Section 2.14 but otherwise without premium or penalty. All prepayments under this Section shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment. SECTION 2.13. Mandatory Prepayments. (a) In the event of any termination of all the Revolving Credit Commitments, the Borrower shall repay or prepay all its outstanding Revolving Credit Borrowings and all outstanding Swingline Loans on the date of such termination. In the event of any partial reduction of the Revolving Credit Commitments, then (i) at or before the effective date of such reduction, the Senior Administrative Agent shall notify the Borrower and the Revolving Credit Banks of the Aggregate Revolving Credit Exposure after giving effect thereto and (ii) if the Aggregate Revolving Credit Exposure at the time would exceed the total Revolving Credit Commitments after giving effect to such reduction or termination, then the Borrower shall, on the date of such reduction or termination, repay or prepay Revolving Credit Borrowings or Swingline Loans (or a combination thereof), or cash collateralize Letters of Credit in a dollar amount sufficient to eliminate such excess. (b) If on any date the Aggregate Revolving Credit Exposure and the aggregate Term Exposures of the Banks shall exceed the Borrowing Base Amount, the Borrower shall on such date apply an amount equal to such excess first, to prepay the then outstanding Revolving Loans (if any) and Swingline Loans (if any), second, to the extent of any remaining excess (after the prepayment of Revolving Loans and Swingline Loans), to replace outstanding Letters of Credit and/or deposit an amount in cash in a cash collateral account (to the extent such cash collateralization would not result in an obligation to grant a security interest in such cash collateral to the holders of notes under any Indenture) established with the Senior Collateral Agent for the benefit of the Senior Bank Parties, and third to prepay the then outstanding Term Loans (if any). 43 (c) Not later than two Business Days following the receipt of Net Cash Proceeds from any Reduction Event, the Borrower shall apply to the prepayment of the Loans and the permanent reduction of the Revolving Credit Commitments the entire amount of such Net Cash Proceeds, which shall be applied between Term Loans and Revolving Credit Commitments pro rata based on the Term Exposure and the Revolving Credit Commitments on the date the Net Cash Proceeds are paid to the Senior Administrative Agent; provided, however, that the foregoing prepayment and commitment reduction requirements shall be applicable only to the extent that the cumulative value of the proceeds received in respect of all such Reduction Events exceeds $50,000,000. Amounts allocated to the Revolving Credit Commitments shall be applied pursuant to Section 2.08(b), and if applicable, Section 2.13(a). Amounts allocated to the Term Exposure shall be applied to prepay the Term Loans in the manner set forth in Section 2.11(b). Notwithstanding the foregoing, after the occurrence of a Triggering Event, any proceeds in respect of the sale of, or other realization upon, any Collateral shall be applied in accordance with the provisions of Section 4.01(a) of the Collateral Trust and Intercreditor Agreement. (d) Not later than two Business Days following the receipt of Net Cash Proceeds from any Capital Markets Transaction, the Borrower shall apply the entire amount of such Net Cash Proceeds as follows: (i) first, if after giving effect to any prepayments made under Section 2.13(b) with funds other than Net Cash Proceeds from a Capital Markets Transaction, on the date such Net Cash Proceeds are paid to the Senior Administrative Agent the Aggregate Revolving Credit Exposure and the aggregate Term Exposures of the Banks shall exceed the Borrowing Base Amount, to prepay in an amount equal to such excess the then outstanding Revolving Loans (if any), Swingline Loans (if any) and Term Loans (if any), such amount to be applied pro rata based on the Revolving Credit Exposure and Term Exposure on such date; (ii) second, to the extent of any remaining Net Cash Proceeds in an amount not to exceed $300,000,000 in the aggregate from all Capital Markets Transactions, to (A) repay or defease the Borrower's 5.25% Convertible Subordinated Notes due 2002 and 6.00% Dealer Remarketable Securities due 2003; provided; however, that until such time as such securities by their terms may be called at par, the Borrower may deposit in a cash collateral account established with the Senior Collateral Agent for the benefit of the Senior Secured Parties an amount of such Net Cash Proceeds required to repay such securities in full at par and (B) to general corporate purposes of the Borrower in an amount not to exceed $300,000,000 less amounts applied as required by clause (A) above; and (iii) to the extent of any remaining Net Cash Proceeds (x) to prepay Term Loans in an amount equal to 75% of such remaining Net Cash Proceeds and (y) after application thereof pursuant to clause (x), any remaining Net Cash Proceeds may be retained by the Borrower for general corporate purposes. 44 (e) On each Business Day during a Cash Sweep Period, the Senior Collateral Agent will use funds on deposit in any Citibank Concentration Account as follows: (i) after the occurrence of a Triggering Event in accordance with the provisions of Section 4.01(a) of the Collateral Trust and Intercreditor Agreement; and (ii) at any other time, first to repay the Revolving Credit Borrowings (without any reduction of the Commitments) and second, to be deposited into the Cash Sweep Cash Collateral Account in accordance with the provisions of Section 2(c) (ii) of Schedule 5 of the Senior Subsidiary Security Agreement. Upon termination of any Cash Sweep Period, funds in the Cash Sweep Cash Collateral Account shall be released to the Concentration Account within three Business Days after the end of such Cash Sweep Period. (f) Not later than the earlier of (i) 120 days after the end of each fiscal year of the Borrower, beginning with the fiscal year ending March 2, 2002, and (ii) the date on which the financial statements for such fiscal year are delivered pursuant to Section 5.01(a), the Borrower shall make a prepayment of the Loans and a permanent reduction of the Revolving Credit Commitments in an amount equal to 50% of Excess Cash Flow for, in the case of the fiscal year ending March 2, 2002, the eight months ended March 2, 2002, and in the case of each fiscal year thereafter, such fiscal year, to be applied as follows: (i) at any time when the Loans have been accelerated pursuant to Section 6.01, to pay Senior Bank Obligations pro rata based on the amounts of such obligations; and (ii) at any other time, to be applied to prepay outstanding Term Loans in the manner set forth in Section 2.11(b) on the date the applicable amounts are paid to the Senior Administrative Agent. (g) The Borrower shall deliver to the Senior Administrative Agent, at the time of each Loan prepayment or Revolving Credit Commitment reduction required under this Section, (i) a certificate signed by a Financial Officer of the Borrower setting forth in reasonable detail the calculation of the amount of such prepayment and (ii) to the extent practicable, at least three days prior written notice of such prepayment. Each notice of prepayment shall specify the prepayment date, the Type of each Loan being prepaid and the principal amount of each Loan (or portion thereof) to be prepaid. All prepayments of Borrowings under this Section shall be subject to Section 2.14, but shall otherwise be without premium or penalty. 45 SECTION 2.14. Breakage. The Borrower shall indemnify each Bank against any loss or expense that such Bank may sustain or incur as a consequence of any event, other than a default by such Bank in the performance of its obligations hereunder, which results in such Bank receiving or being deemed to receive any amount on account of the principal of any Euro-Dollar Loan before the end of the Interest Period in effect therefor (including as a result of acceleration of a Loan), the conversion of any Euro-Dollar Loan to a Loan of another Type, or the conversion of the Interest Period with respect to any Euro-Dollar Loan other than on the last day of the Interest Period in effect therefor, or any Euro-Dollar Loan to be made by such Bank (including any Euro-Dollar Loan to be made pursuant to a conversion or continuation under Section 2.09) not being made after notice of such Loan shall have been given (or deemed given pursuant to Section 2.09) by the Borrower hereunder (any of the events referred to in this clause (a) being called a "Breakage Event") or (b) any default in the making of any payment or prepayment required to be made hereunder. In the case of any Breakage Event, such loss shall include an amount equal to the excess, as reasonably determined by such Bank, of (i) its cost of obtaining funds for Euro-Dollar Loans that is the subject of such Breakage Event for the period from the date of such Breakage Event to the last day of the Interest Period in effect (or that would have been in effect) for such Loan over (ii) the amount of interest likely to be realized by such Bank in redeploying the funds released or not utilized by reason of such Breakage Event for such period. A certificate of any Bank setting forth any amount or amounts which such Bank is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower may determine, in consultation with the Senior Administrative Agent, which Loans will be repaid with amounts to be applied to the repayment of Loans pursuant to Section 2.12 or 2.13, subject to Sections 2.13(c), (d) and (e) and Section 2.15. Any amount payable by the Borrower pursuant to this Section will be payable to the Senior Administrative Agent for the account of each applicable Bank. SECTION 2.15. Pro Rata Treatment. (a) Except as provided in this Section with respect to Swingline Loans and as provided in clause (b), each Borrowing, each payment or prepayment of principal of any Borrowing of a Class, each payment of interest on the Loans of a Borrowing, each payment of the Senior Revolving Commitment Fees or Senior Term Commitment Fees, each reduction of the Term Loan Commitments or the Revolving Credit Commitments and each conversion of any Borrowing to or continuation of any Borrowing as a Borrowing of any Type within a Class shall be allocated pro rata among the Banks in accordance with their respective applicable Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their applicable Loans). For purposes of determining the available Revolving Credit Commitments of the Banks at any time, each outstanding Swingline Loan shall be deemed to have utilized the Revolving Credit Commitments of the Banks (including those Banks which shall not have made Swingline Loans) 46 pro rata in accordance with such respective Revolving Credit Commitments. Each Bank agrees that in computing such Bank's portion of any Borrowing to be made hereunder, the Senior Administrative Agent may, in its discretion, round each Bank's percentage of such Borrowing to the next higher or lower whole dollar amount. (b) If any Bank shall obtain any payment of or recovery with respect to any Senior Bank Obligations with proceeds of any sale of or other realization on any Collateral (including any Mortgaged Property) in which the Banks as a whole do not have a pro rata Lien, and such payment or recovery is in excess of its pro rata share of payments or recovery with respect to all Senior Bank Obligations then outstanding, such Bank shall purchase from the other Banks such participations in Senior Bank Obligations made by such other Banks as shall be necessary to cause such purchasing Bank to share the excess payment or other recovery ratably with each of such other Banks; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Bank, the purchase shall be rescinded and each Bank which has sold a participation to the purchasing Bank shall repay to the purchasing Bank the purchase price to the ratable extent of such recovery together with an amount equal to such selling Bank's ratable share (according to the proportion of (a) the amount of such selling Bank's required repayment to the purchasing Bank to (b) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Borrower agrees that any Bank so purchasing a participation from another Bank pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Bank receives a secured claim in lieu of a setoff to which this Section applies, such Bank shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Banks entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 2.16. Payments. (a) The Borrower shall make each payment (including principal of or interest on any Borrowing or any L/C Disbursement or any Senior Fees or other amounts) hereunder and under any other Senior Loan Document not later than 12:00 (noon), New York City time, on the date when due in immediately available funds, without setoff, defense or counterclaim. Each such payment (other than Issuing Bank Fees, which shall be paid directly to the applicable Issuing Bank, and principal of and interest on Swingline Loans, which shall be paid directly to the applicable Swingline Bank except as otherwise provided in Section 2.17(e)) shall be made to the Senior Administrative Agent's Account. Each such payment shall be made in dollars. 47 (b) Whenever any payment (including principal of or interest on any Borrowing or any Senior Fees or other amounts) hereunder or under any other Senior Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Senior Fees, if applicable. SECTION 2.17. Swingline Loans. (a) Uncommitted Loans. Each Swingline Bank may, in its sole discretion, from time to time make Swingline Loans on an uncommitted basis. The Borrower acknowledges that neither Swingline Bank has any obligation to make any Swingline Loan, and that the Swingline Banks may decline to make any Swingline Loan at any time for any reason or no reason. The Swingline Banks are prohibited from making any Swingline Loan: (i) to refinance any outstanding Swingline Loan; (ii) on or after the Maturity Date or the termination of the Revolving Credit Commitments in accordance with the terms hereof; (iii) if at the time of the Borrowing of such Swingline Loans, the Borrower, in the Swingline Banks' reasonable judgment, does not or would be unable to satisfy the conditions set forth in Section 3.02; (iv) if after giving effect thereto, the aggregate principal amount of all Swingline Loans would exceed $100,000,000; or (v) if after giving effect thereto, the Aggregate Revolving Credit Exposure would exceed the lesser of (A) the total Revolving Credit Commitments; and (B) the Borrowing Base Amount in effect at such time less the aggregate Term Exposures of the Banks at such time. Each Swingline Loan shall be in a principal amount that is a multiple of $1,000,000. Within the foregoing limits, the Borrower may request, pay or prepay Swingline Loans hereunder, subject to the terms, conditions and limitations set forth herein. (b) Borrowing Procedure. The Borrower shall notify the Senior Administrative Agent by telecopy, or by telephone (confirmed by telecopy), not later than 1:00 p.m., New York City time, 48 on the day of a proposed Swingline Loan. Such notice shall be delivered on a Business Day, shall be irrevocable and shall refer to this Agreement and shall specify the requested date (which shall be a Business Day) and amount of such Swingline Loan. The Senior Administrative Agent will promptly advise the Swingline Banks of any notice received from the Borrower pursuant to this clause (b). If a Swingline Bank determines in its sole discretion to make a Swingline Loan, such Swingline Bank shall make such Swingline Loan available to the Borrower by means of a credit or wire transfer to the account of the Borrower referred to in Section 2.02(c) by 3:00 p.m. on the date such Swingline Loan is so requested. (c) Denomination and Prepayment. Each Swingline Loan shall be denominated in dollars. The Borrower shall have the right at any time and from time to time to prepay any Swingline Loan, in whole or in part, without premium or penalty upon giving written or telecopy notice (or telephone notice promptly confirmed by written or telecopy notice) to the applicable Swingline Bank and to the Senior Administrative Agent before 12:00 (noon), local time on the date of prepayment at such Swingline Bank's address for notices specified on Annex 2. (d) Interest. Each Swingline Loan denominated in dollars shall be a Base Rate Loan and, subject to the provisions of Section 2.07, shall bear interest as provided in Section 2.06(a). Interest on each Swingline Loan shall be payable on the Interest Payment Date with respect thereto. (e) Conversion to Revolving Loans. The Senior Administrative Agent shall (i) at any time when Swingline Loans in an aggregate principal amount of $10,000,000 or more are outstanding, at the request of either Swingline Bank that has made outstanding Swingline Loans in its sole discretion, or (ii) on the last day of the Interest Period of such Swingline Loan, deliver on behalf of the Borrower a Borrowing Request pursuant to Section 2.03 for a Base Rate Borrowing in the amount of such Swingline Loans; provided, however, that the obligations of the Banks to fund such Borrowing shall not be subject to Section 3.02. (f) Participations. If the Borrower does not fully repay a Swingline Loan on or before the last day of the Interest Period with respect thereto, the applicable Swingline Bank shall promptly notify the Senior Administrative Agent thereof (by telecopy or by telephone, confirmed in writing), and the Senior Administrative Agent shall promptly notify each Revolving Credit Bank thereof (by telecopy or by telephone, confirmed in writing) and of its Revolving Percentage of such Swingline Loan. Upon such notice but without any further action, such Swingline Bank hereby agrees to grant to each Bank, and each Bank hereby agrees to acquire from such Swingline Bank, a participation in such defaulted Swingline Loan equal to such Bank's Revolving Percentage of the aggregate principal amount of such defaulted Swingline Loan. In 49 furtherance of the foregoing, each Revolving Credit Bank hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Senior Administrative Agent, for the account of such Swingline Bank, such Bank's Revolving Percentage of each Swingline Loan that is not repaid on the last day of the Interest Period with respect thereto. Each Bank agrees that its obligation to acquire participations in Swingline Loans pursuant to this clause is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Bank shall comply with its obligation under this clause by wire transfer of immediately available funds, in the same manner as provided in Section 2.02(c) with respect to Loans made by such Bank (and Section 2.02(c) shall apply, mutatis mutandis, to the payment obligations of the Banks) and the Senior Administrative Agent shall promptly pay to such Swingline Bank the amounts so received by it from the Banks. The Senior Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this clause and thereafter payments in respect of such Swingline Loan shall be made to the Senior Administrative Agent and not to such Swingline Bank. Any amounts received by such Swingline Bank from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by such Swingline Bank of the proceeds of a sale of participations therein shall be promptly remitted to the Senior Administrative Agent; any such amounts received by the Senior Administrative Agent shall be promptly remitted by the Senior Administrative Agent to the Banks that shall have made their payments pursuant to this clause and to such Swingline Bank, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this clause shall not relieve the Borrower (or other party liable for obligations of the Borrower) of any default in the payment thereof. (g) Swingline Banks. As between themselves, Citicorp USA and Fleet Retail Finance Inc. agree that (i) Citicorp USA shall have the option of first refusal with respect to any request for a Swingline Loan, to the extent that after giving effect to the making of such Swingline Loan and all other Swingline Loans of Citicorp USA will not exceed $50,000,000, and (ii) Fleet Retail Finance Inc. shall have the option of first refusal with respect to any other request for a Swingline Loan. SECTION 2.18. Letters of Credit. (a) General. The Borrower may request the issuance of a Letter of Credit for its own account, by delivering an Issuance Request, at any time and from time to time while the Revolving Credit Commitments remain in effect. This Section shall not be construed to impose an obligation upon any Issuing Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement. Subject to clauses (b) and (c), and effective at the time of the initial Credit Event, the Citicorp Standby Letters of Credit, the Fleet 50 Standby Letters of Credit and the Mellon Standby Letters of Credit will be deemed to be Letters of Credit outstanding under this Agreement, issued by Citicorp USA, Fleet National Bank and Mellon Bank, respectively, as Issuing Bank. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. In order to request the issuance of a Letter of Credit (or to amend, renew or extend an existing Letter of Credit, or to cause a Citicorp Standby Letter of Credit, a Fleet Standby Letter of Credit or a Mellon Standby Letter of Credit to become a Letter of Credit under this Agreement), the Borrower shall hand deliver, electronically transmit or telecopy to the applicable Issuing Bank and the Senior Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) an Issuance Request requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with clause (c)), the amount of such Letter of Credit, the name and address of the beneficiary thereof, the applicable Issuing Bank (if other than Citicorp USA) and such other information as shall be necessary to prepare such Letter of Credit. By requesting the initial Credit Event, the Borrower will be deemed to have requested that each Citicorp Standby Letter of Credit, Fleet Standby Letter of Credit and Mellon Standby Letter of Credit be deemed to be issued under this Agreement. A Letter of Credit shall be issued, amended, renewed or extended or deemed to be issued under this Agreement only if, and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that, and it shall be the case that, after giving effect to such issuance, amendment, renewal or extension (and the making or repayment of any other Credit Events to be made at or before such time): (i) the L/C Exposure shall not exceed $125,000,000; and (ii) the Aggregate Revolving Credit Exposure shall not exceed the lesser of (A) the total Revolving Credit Commitments; and (B) the Borrowing Base Amount in effect at such time less the aggregate Term Exposures of the Banks at such time. (c) Expiration Date. Each Letter of Credit shall expire at the close of business on the earlier of the date one year after the date of the issuance of such Letter of Credit (subject to customary automatic renewal provisions) and the date that is five Business Days before the Maturity Date, unless such Letter of Credit expires by its terms on an earlier date. 51 (d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the applicable Issuing Bank or the Banks, the applicable Issuing Bank hereby grants to each Revolving Credit Bank, and each such Bank hereby acquires from the applicable Issuing Bank, a participation in such Letter of Credit equal to such Bank's Revolving Percentage of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Credit Bank hereby absolutely and unconditionally agrees to pay to the Senior Administrative Agent, for the account of such Issuing Bank, such Bank's Revolving Percentage of each L/C Disbursement made by such Issuing Bank and not reimbursed by the Borrower (or, if applicable, another party pursuant to its obligations under any other Senior Loan Document) forthwith on the date due as provided in Section 2.02(e), in dollars. Each Revolving Credit Bank agrees that its obligation to acquire participations pursuant to this clause in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If an Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, the Borrower shall pay to such Issuing Bank an amount equal to such L/C Disbursement not later than 3:30 p.m., New York City time, on the date that the Borrower shall have received notice from such Issuing Bank that payment of such draft will be made, or, if the Borrower shall have received such notice later than 10:00 a.m., New York City time, on any Business Day, not later than 1:00 p.m., New York City time, on the immediately following Business Day. (f) Obligations Absolute. The Borrower's obligations to reimburse L/C Disbursements as provided in clause (e) shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or any Senior Loan Document, or any term or provision therein; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Senior Loan Document; (iii) the existence of any claim, setoff, defense or other right that the Borrower, any other party guaranteeing, or otherwise obligated with, the Borrower, any Subsidiary or other Affiliate thereof or any other Person may at any time have against the beneficiary 52 under any Letter of Credit, the applicable Issuing Bank, the Senior Administrative Agent or any Bank or any other Person, whether in connection with this Agreement, any other Senior Loan Document or any other related or unrelated agreement or transaction; (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by the applicable Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and (vi) any other act or omission to act or delay of any kind of any Issuing Bank, the Banks, the Senior Administrative Agent or any other Person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the Borrower's obligations hereunder. Without limiting the generality of the foregoing, the absolute and unconditional obligation of the Borrower hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or wilful misconduct of any Issuing Bank. However, the foregoing shall not be construed to excuse the applicable Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by applicable Issuing Bank's gross negligence or wilful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The applicable Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the applicable Issuing Bank's exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be 53 deemed not to constitute wilful misconduct or gross negligence of the applicable Issuing Bank. Without limiting any other provision of this Agreement, the Senior Administrative Agent and any Issuing Bank and any of their correspondents may rely upon any oral, telephonic, telegraphic, facsimile, electronic, written or other communication believed in good faith to have been authorized by the Borrower, whether or not given or signed by an authorized person. (g) Disbursement Procedures. The applicable Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The applicable Issuing Bank shall as promptly as possible give telephonic notification, confirmed by telecopy or electronic transmission, to the Senior Administrative Agent and the Borrower of such demand for payment and whether such Issuing Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse such Issuing Bank and the Revolving Credit Banks with respect to any such L/C Disbursement. The Senior Administrative Agent shall promptly give each Revolving Credit Bank notice thereof. (h) Interim Interest. If the applicable Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, then, unless the Borrower shall reimburse such L/C Disbursement in full on such date, the unpaid amount thereof shall bear interest for the account of such Issuing Bank, for each day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by the Borrower or the date on which interest shall commence to accrue thereon as provided in Section 2.02(e), at the rate per annum that would apply to such amount if such amount were a Base Rate Loan. (i) Resignation or Removal of an Issuing Bank. Any Issuing Bank may resign at any time by giving 180 days prior written notice to the Senior Administrative Agent, the Banks and the Borrower, and may be removed at any time by the Borrower by notice to the applicable Issuing Bank, the Senior Administrative Agent and the Banks, to be effective only upon the appointment of a successor Issuing Bank pursuant to the following sentence. Subject to the next succeeding clause, upon the acceptance of any appointment as a successor Issuing Bank hereunder by a Bank that shall agree to serve as successor Issuing Bank, such successor shall succeed to and become vested with all the interests, rights and obligations of the retiring Issuing Bank and the retiring Issuing Bank shall be discharged from its obligations to issue additional Letters of Credit hereunder. At the time such removal or resignation shall become effective, the Borrower shall pay all accrued and unpaid fees pursuant to Section 2.05(e)(ii). The acceptance of any appointment as an Issuing Bank hereunder by a successor Bank shall be evidenced by an agreement entered into by such successor, in a form satisfactory to the Borrower and the Senior Administrative Agent, and, from and after the effective date of such agreement, such successor 54 Bank shall have all the rights and obligations of the previous Issuing Bank under this Agreement and the other Senior Loan Documents and references herein and in the other Senior Loan Documents to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the resignation or removal of an Issuing Bank hereunder, the retiring Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement and the other Senior Loan Documents with respect to Letters of Credit issued by it before such resignation or removal, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If any Event of Default shall occur and be continuing, and to the extent any such cash collateralization will not result in an obligation to grant a security interest in such cash collateral to holders of notes under any Indenture, the Borrower shall, on the Business Day it receives notice from the Senior Administrative Agent or the Majority Revolving Credit Banks (or, if the maturity of the Loans has been accelerated, Revolving Credit Banks holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit) thereof and of the amount to be deposited, deposit in the L/C Cash Collateral Account, for the benefit of the Revolving Credit Banks, an amount in cash equal to the L/C Exposure as of such date. Such deposits shall be held by the Senior Collateral Agent as collateral for the payment and performance of the Senior Obligations. The Senior Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Such deposits shall be invested in Temporary Cash Investments, to be selected by the Senior Collateral Agent in its sole discretion, and interest earned on such deposits shall be deposited in such account as additional collateral for the payment and performance of the Senior Obligations. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall (i) automatically be applied by the Senior Administrative Agent to reimburse the applicable Issuing Bank for L/C Disbursements for which it has not been reimbursed, (ii) be held for the satisfaction of the reimbursement obligations of the Borrower for the L/C Exposure at such time and (iii) if the maturity of the Loans has been accelerated, be applied to satisfy the Senior Obligations. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived (or during a Cash Sweep Period, paid into the Citibank Concentration Account). (k) Additional Issuing Banks. The Borrower may, at any time and from time to time with the consent of the Senior Administrative Agent (which consent shall not be unreasonably withheld) and such Bank, designate one or more additional Banks to act as an issuing bank under 55 the terms of the Agreement. Any Bank designated as an issuing bank pursuant to this clause (k) shall be deemed to be an "Issuing Bank" (in addition to being a Bank) in respect of Letters of Credit issued or to be issued by such Bank, and, with respect to such Letters of Credit, such term shall thereafter apply to the other Issuing Bank and such Bank. SECTION 2.19. Adjustments to Borrowing Base Advance Rates. (a) As of the Initial Borrowing Date, the Accounts Receivable Advance Rate will be 85%, the Pharmaceutical Inventory Advance Rate will be 59.9%, and the Other Inventory Advance Rate will be 51.4%. (b) Subject to clause (c), the Senior Collateral Agent may, in the exercise of its reasonable judgment, increase the Pharmaceutical Inventory Advance Rate up to a level of 63.9%, and increase the Other Inventory Advance Rate up to a level of 54.8%. (c) Any increase in the Pharmaceutical Inventory Advance Rate or the Other Inventory Advance Rate above 80% of orderly liquidation value thereof, as determined by periodic appraisals, or the Accounts Receivable Advance Rate above 85%, will require the consent of all of the Banks. (d) The Senior Collateral Agent, in the exercise of its reasonable judgment to reflect Borrowing Base Factors, may reduce the Accounts Receivable Advance Rate, the Pharmaceutical Inventory Advance Rate and the Other Inventory Advance Rate from time to time. (e) The Senior Collateral Agent will give prompt written notice to the Borrower and the Banks of any adjustments effected pursuant to this Section 2.19. 56 ARTICLE 3 CONDITIONS The obligations of the Banks to make Loans (other than a Borrowing pursuant to Section 2.02(e) or Section 2.17(e)) and of the Issuing Banks to issue Letters of Credit hereunder are subject to the satisfaction of the following conditions: SECTION 3.01. First Credit Event. On the Initial Borrowing Date, each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05): (a) Counterparts of this Agreement. The Senior Administrative Agent shall have received counterparts of this Agreement signed by each of the Borrower, the Agents and the Banks (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Senior Administrative Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party). (b) Notes. The Senior Administrative Agent shall have received for the account of each Bank which so requests pursuant to Section 2.04 a Revolving Credit Note, a Term Note and/or a Swingline Note, as applicable, in each case dated as of the Initial Borrowing Date and complying with the provisions of Section 2.04. (c) Senior Subsidiary Guarantee Agreement. The Senior Subsidiary Guarantee Agreement shall have been duly executed by each Subsidiary Guarantor, shall have been delivered to the Senior Collateral Agent and shall be in full force and effect. (d) Senior Indemnity, Subrogation and Contribution Agreement. The Senior Indemnity, Subrogation and Contribution Agreement shall have been duly executed by the parties thereto, shall have been delivered to the Senior Collateral Agent and shall be in full force and effect. (e) Senior Subsidiary Security Agreement. The Senior Subsidiary Security Agreement shall have been duly executed by each Subsidiary Guarantor and shall have been delivered to the Senior Collateral Agent and shall be in full force and effect on such date and each document (including each Uniform Commercial Code financing statement and in the case of Intellectual Property (as defined in the Senior Subsidiary Security Agreement) appropriate filings in United States Patent and Trademark Office and the United States Copyright Office) required by law to be filed, registered or recorded in order to create and perfect or continue in favor of the Senior Collateral Agent for the benefit of the Senior Bank Parties a valid, legal and perfected first-priority security interest in and lien on the Senior Collateral shall have been delivered to the Senior Collateral Agent. 57 (f) Senior Mortgages. (i) The Agents shall have received (i) counterparts of a Senior Mortgage with respect to each Mortgaged Property duly executed, acknowledged and delivered by the record owner of such Mortgaged Property and in recordable form, and (ii) mortgage and lien searches satisfactory to the Senior Administrative Agent; provided, however, that in the case of Mortgaged Properties in respect of which mortgage and lien searches were performed in connection with the Existing Credit Agreement, such searches shall be limited to updates of the searches previously performed. (g) Collateral Trust and Intercreditor Agreement. The Collateral Trust and Intercreditor Agreement shall have been duly executed by the Borrower and each other party thereto, shall have been delivered to the Senior Collateral Agent, and shall be in full force and effect. (h) Perfection Certificates. The Senior Collateral Agent shall have received a Perfection Certificate with respect to each Subsidiary Guarantor dated the Initial Borrowing Date and duly executed by a Financial Officer of the Borrower. (i) Lien Searches. The Senior Collateral Agent shall have received the results of a search of the Uniform Commercial Code (or equivalent filings) filings made with respect to the Borrower and each other Obligor in the states (or other jurisdictions) in which the chief executive office of each such Person is located, any offices of such Persons in which records have been kept relating to Accounts and the other jurisdictions in which Uniform Commercial Code filings (or equivalent filings) are to be made pursuant to the preceding clause, together with copies of the financing statements (or similar documents) disclosed by such search, and accompanied by evidence satisfactory to the Senior Collateral Agent that the Liens indicated in any such financing statement (or similar document) would be permitted under Section 5.15 or have been released (or arrangements shall have been made for the release or discharge thereof reasonably satisfactory to the Senior Administrative Agent). (j) Approvals and Consents. All requisite material governmental authorities and third parties shall have approved or consented to the transactions contemplated hereby to the extent required, all applicable appeal periods shall have expired and there shall be no governmental or judicial action, actual or threatened, that could reasonably be expected to restrain, prevent or impose burdensome conditions on the transactions contemplated hereby. 58 (k) Working Capital. The Agents shall be reasonably satisfied with the sufficiency of amounts available under this Agreement, and immediately following the consummation of the Transactions, actual borrowing availability under the Revolving Credit Commitments shall be at least $200,000,000. (l) Business Plan. There shall not have been any material changes to the five-year business plan of the Borrower which has been previously provided to the Agents. (m) 10.5% Notes. The tender offer for the 10.5% Notes shall have been consummated on an any and all basis by the Borrower, on terms reasonably satisfactory to the Senior Administrative Agent. (n) Borrowing Base Certificate. The Senior Administrative Agent shall have received a Borrowing Base Certificate dated the Initial Borrowing Date, containing information as of a date not more than eight Business Days (or, in the case of information with respect to Eligible Inventory stored at a distribution center, 30 days) before the Initial Borrowing Date, and executed by a Financial Officer of the Borrower. The Borrowing Base Amount shall be sufficient to support the initial Credit Events. (o) Collateral Appraisal and Field Examination. The Senior Administrative Agent shall have received such valuations and appraisals of the inventory and prescription files that are part of the Collateral by independent appraisal firms reasonably satisfactory to the Senior Administrative Agent as the Senior Administrative Agent shall reasonably request. The Senior Administrative Agent shall have completed a field examination, the results of which shall be satisfactory to the Agents. (p) Opinions of Borrower's Counsel. The Senior Administrative Agent shall have received opinions of: (i) Skadden, Arps, Slate, Meagher & Flom LLP, special New York counsel for the Borrower, substantially in the form of Exhibit O-1 hereto; and (ii) Elliot S. Gerson, General Counsel of the Borrower, substantially in the form of Exhibit O-2 hereto. The Borrower hereby requests such counsel to deliver such opinions. 59 (q) Corporate Documents. The Senior Administrative Agent shall have received all documents it may reasonably request relating to the existence of the Borrower and the Subsidiary Guarantors, the corporate authority for and the validity of this Agreement and the other Senior Loan Documents, and any other matters relevant hereto, all in form and substance satisfactory to the Senior Administrative Agent. (r) Payments of Senior Fees, Etc. The Senior Administrative Agent shall have received all Senior Fees and other amounts due and payable on or before the Initial Borrowing Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder or under any other Senior Loan Document. (s) Consummation of Transactions. The Transactions shall have been consummated substantially concurrently with the initial Credit Event in accordance with Annex 3, and the capital structure of the Borrower shall be as set forth in Annex 3. All of the conditions precedent set forth in the Transaction Documents shall have been satisfied or waived, and no material provision of the Transaction Documents shall have been amended, supplemented, waived or otherwise modified without the prior written consent of the Agents. The Agents shall be satisfied with the Transaction Documents in all respects. (t) Cash Management System. The Borrower shall have established a cash management system reasonably satisfactory to the Senior Administrative Agent that complies with Section 5.13. (u) Insurance. The Senior Administrative Agent shall have received a copy of, or a certificate as to coverage under, the insurance policies required by Section 5.03 and the applicable provisions of the Senior Collateral Documents, each of which shall be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement and to name the Senior Collateral Agent as additional insured, in form and substance satisfactory to the Senior Administrative Agent. (v) Environmental Assessment. The Agents shall have received such information as they may reasonably request, from an environmental consulting firm reasonably satisfactory to the Agents, as to any environmental hazards, liabilities or Remedial Action to which the Borrower or any of the Subsidiaries may be subject. (w) Environmental and Employee Matters. The Agents and the Banks shall be reasonably satisfied as to the amount and nature of any environmental and employee health and safety 60 exposures to which the Borrower and the Subsidiaries may be subject and the plans of the Borrower with respect thereto. (x) Officer's Certificate. The Senior Administrative Agent shall have received a certificate, dated the Initial Borrowing Date and signed by a Financial Officer of the Borrower, confirming compliance with the conditions precedent set forth in Section 3.02, and as to such other matters relating to the satisfaction of the conditions specified in this Section 3.01 as the Senior Administrative Agent may reasonably request. (y) Second Priority Collateral Documents. Each of the Second Priority Mortgages, the Second Priority Subsidiary Security Agreement, the Second Priority Subsidiary Guarantee Agreements shall be in form and substance satisfactory to the Agents, shall have been duly executed by each Subsidiary Guarantor, and by or on behalf of the Second Priority Debt Parties, and shall be in full force and effect and copies of such documents shall have been delivered to the Senior Collateral Agent. (z) Transaction Documents. The Senior Administrative Agent shall have received, with a copy for each Bank, a copy of each Transaction Document reasonably requested by the Senior Administrative Agent, certified by a Financial Officer of the Borrower. (aa) No Litigation. There shall be no litigation or administrative proceeding commenced (other than in connection with the Existing Litigation) that would have a Material Adverse Effect. (bb) No Material Adverse Change. There shall have been no material adverse change in the business, assets, operations, properties, condition (financial or otherwise), contingent liabilities, prospects or material agreements of the Borrower and its Subsidiaries considered as a whole since March 3, 2001. (cc) Landlord's Waivers. Each of the waivers from the lessor of each leased distribution center of the Subsidiary Guarantors of any statutory, common law or contractual landlord's lien with respect to any inventory of any Subsidiary Guarantor (other than with respect to inventory located at leased warehouses having a value in the aggregate not to exceed $40,000,000), as previously delivered to the Senior Administrative Agent, shall be in full force and effect. (dd) Intercompany Inventory Purchase Agreement. The Intercompany Inventory Purchase Agreement shall be in full force and effect. 61 (ee) Legal Matters. All legal matters incident to this Agreement, the Borrowings and extensions of credit hereunder and the other Senior Loan Documents shall be reasonably satisfactory to the Banks. (ff) Flood Hazard Certificates. The Senior Administrative Agent shall have received standard flood hazard determination certificates in the form required by 12 CFR 22.6 for each Mortgaged Property. (gg) Termination of Existing Credit Agreement. The Existing Credit Agreement shall have been or shall simultaneously be terminated, all amounts outstanding thereunder shall have been paid in full and all commitments thereunder terminated and all Liens securing the obligations thereunder shall have been released, and the Senior Administrative Agent shall have received such evidence as it shall reasonably have requested as to the satisfaction of such conditions. SECTION 3.02. All Credit Events. On the date of each issuance of a Letter of Credit and each Borrowing of a Loan (each such event being called a "Credit Event") (other than a Borrowing pursuant to Section 2.02(e) or a Borrowing pursuant to Section 2.17(e)) each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05): (a) Request. The Borrower shall have delivered a Borrowing Request to the Senior Administrative Agent, or an Issuance Request to the Senior Administrative Agent and the applicable Issuing Bank, or a Swingline Request to the Senior Administrative Agent and the Swingline Banks, as the case may be. (b) Representations and Warranties. The fact that the representations and warranties of the Borrower contained in this Agreement (except, in the case of a Refunding Borrowing, the representations and warranties set forth in Sections 4.04(iii) and Section 4.06 as to any matter which has theretofore been disclosed in writing by the Borrower to the Banks) shall be true in all material respects on and as of the date of such Credit Event (unless any representation expressly relates to an earlier date, in which case it shall be true in all material respects on and as of such earlier date). (c) No Default. The fact that, immediately after such Credit Event, no Default shall have occurred and be continuing. (d) Borrowing Base. The Borrowing Base Amount shall be sufficient to support such Credit Event. 62 Each Credit Event shall be deemed to constitute a representation and warranty by the Borrower on the date of such Credit Event as to the matters specified in clauses (b) (except as aforesaid) and (c) of this Section, and the Borrower expects the proceeds of such Credit Event (other than the issuance of a Letter of Credit) will be applied to uses of proceeds which are permitted pursuant to Section 5.24 and which are reasonably anticipated to be made within the five Business Days following such Credit Event. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation and each Subsidiary Guarantor is a corporation (or other entity) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization (except as otherwise indicated in Schedule 1.01(c)), and has all corporate (or other organizational) powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except, with respect to the Subsidiary Guarantors, where the failure to be so organized, validly existing or in good standing, or the failure to have such power and all such licenses, authorizations, consents and approvals, could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. (a) The execution, delivery and performance by the Borrower and each Subsidiary Guarantor of each Senior Loan Document to which it is a party are within the Borrower's corporate powers or such Subsidiary Guarantor's corporate (or other organizational) powers, have been duly authorized by all necessary corporate or other action, require no action by or in respect of, or filing with, any governmental body, agency or official (except as may be required to perfect Liens) and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws (or other organizational documents) of the Borrower or such Subsidiary Guarantor or of any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary or any other material agreement, instrument, judgment, injunction, order or decree binding upon the Borrower or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary pursuant to any such agreement, instrument, judgment, injunction, order or decree (other than the Liens created by the Senior Collateral Documents). None of the Borrower or any of the Subsidiaries is in default in any manner under any provision of any Material Financial Obligation, or any other 63 material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default could reasonably be expected to have a Material Adverse Effect. (b) The execution, delivery and performance by the Borrower and each Subsidiary Guarantor of each Transaction Document (other than the Senior Loan Documents) to which it is a party are within the Borrower's corporate powers or such Subsidiary Guarantor's corporate (or other organizational) powers, have been duly authorized by all necessary corporate or other action, require no action by or in respect of, or filing with, any governmental body, agency or official (except as may be required to perfect Liens) and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by- laws (or other organizational documents) of the Borrower or such Subsidiary Guarantor or of any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary or any other material agreement, instrument, judgment, injunction, order or decree binding upon the Borrower or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary pursuant to any such agreement, instrument, judgment, injunction, order or decree (other than the Liens permitted by Section 5.15). SECTION 4.03. Binding Effect. This Agreement and each other Senior Loan Document constitutes a valid and binding agreement of the Borrower and the Subsidiary Guarantors, and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms. SECTION 4.04. Financial and Other Information. (i) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of March 3, 2001 and each following fiscal year end of the Borrower and its Consolidated Subsidiaries and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by Deloitte & Touche (or other independent public accountants of nationally recognized standing) fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year; (ii) the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of such fiscal quarter end and each following fiscal quarter end of the Borrower and its Consolidated Subsidiaries (other than the fourth fiscal quarter of any fiscal year) and the related consolidated statements of income and cash flows for the fiscal quarter then ended, set forth in the Borrower's quarterly report on Form 10-Q for the fiscal quarter then ended, a copy of which 64 will be delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal period, subject to normal year-end adjustments; and (iii) there has been no material adverse change in the business, assets, operations, properties, condition (financial or otherwise), contingent liabilities, prospects or material agreements of the Borrower and its Consolidated Subsidiaries, considered as a whole since March 3, 2001. SECTION 4.05. Accuracy of Information. (a) All information (other than financial projections) that has been or will hereafter be made available to the Agents or any Bank by or on behalf of the Borrower or any of its representatives in connection with the transactions contemplated hereby is and will be complete and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances under which such statements were or are made. (b) Each Borrowing Base Certificate that has been or will hereafter be made available to the Agents or any Bank is and will be complete and correct in all material respects. (c) All financial projections, if any, that have been or will be prepared by or on behalf of the Borrower or any of its representatives and made available to the Agents or any Bank have been or will be prepared in good faith based upon assumptions that are reasonable at the time made and at the time the related financial projections are made available to the Agents. (d) The Borrower has disclosed to the Banks in writing any and all facts which materially and adversely affect the business, operations or condition, financial or otherwise, of the Borrower and its Subsidiaries or the Borrower's ability to perform its obligations under this Agreement. SECTION 4.06. Litigation. Other than the Existing Litigation, there has been no litigation or administrative proceeding that would have a Material Adverse Effect. There has been no litigation or administrative proceeding that could impair the validity, enforceability or priority of the security interests to be granted in favor of the Banks under the Senior Loan Documents. 65 SECTION 4.07. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and, except for events occurring prior to the Initial Borrowing Date and arising out of litigation described on Schedule 4.07, is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA, in each case except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all United States Federal income tax returns, and the Borrower and its Subsidiaries have filed all other material tax returns, which are required to be filed by them and have paid all material taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary Guarantor except where the payment of any such taxes is being contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Borrower and its Consolidated Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.09. Subsidiaries. Schedule 1.01(c) sets forth a complete and correct list of the Borrower's Subsidiaries as of the Initial Borrowing Date. Each of the Borrower's corporate Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except where the failure to be so incorporated, validly existing or in good standing, or the failure to have such power and all such licenses, authorizations, consents and approvals, could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each of the Borrower's Subsidiaries as of the Initial Borrowing Date is an "Unrestricted Subsidiary" as referred to in Section 5.10. SECTION 4.10. Environmental Matters. In the ordinary course of its business, the Borrower conducts an ongoing review of the effect of Environmental Laws on the business, 66 operations and properties of the Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or hazardous substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the Borrower has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a Material Adverse Effect. SECTION 4.11. Other Representations. The representations and warranties of the Borrower and each Subsidiary Guarantor set forth in each other Senior Loan Document and in each other Transaction Document are true and correct in all material respects on the date they were made. SECTION 4.12. Insurance. Schedule 4.12 sets forth a true, complete and correct description of all liability, property and casualty insurance maintained by the Borrower or by the Borrower for its Subsidiaries as of the Initial Borrowing Date. Such insurance is in full force and effect and all premiums have been duly paid. The Borrower and its Subsidiaries have insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice and as required by the Senior Loan Documents. SECTION 4.13. Mellon Standby Letters of Credit. Schedule 4.13 sets forth all of the Mellon Standby Letters of Credit of the Borrower and its Subsidiaries as of the Initial Borrowing Date which will continue to be outstanding in accordance with their terms after the Initial Borrowing Date. The Borrower and the Subsidiaries are account parties of no other letters of credit as of the Initial Borrowing Date other than letters of credit issued by an Issuing Bank other than Mellon Bank. SECTION 4.14. Solvency. Immediately after the consummation of the Transactions to occur on the Initial Borrowing Date and immediately following the making of each Loan made on the Initial Borrowing Date and after giving effect to the application of the proceeds of such Loans, the fair value of the assets of the Borrower and the other Obligors, taken as a whole, at a fair valuation, will exceed their debts and liabilities, subordinated, contingent or otherwise; the present fair saleable value of the property of the Borrower and the other Obligors, taken as a 67 whole will be greater than the amount that will be required to pay the probable liability of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; the Borrower and the other Obligors, taken as a whole will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and the Borrower and the other Obligors will not have unreasonably small capital with which to conduct the business in which they are engaged as such business is now conducted and is proposed to be conducted following the Initial Borrowing Date. SECTION 4.15. Title to Properties. (a) Each of the Borrower and the Subsidiaries has good and marketable title to, or valid leasehold interests in, all its material real properties (including all Mortgaged Properties) and valid title to all other assets material to the operation of their business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. All such material properties and assets are free and clear of Liens that secure indebtedness for borrowed money, other than Liens expressly permitted by Section 5.15 and as set forth in Schedule 4.15(b)(ii) (or arrangements reasonably satisfactory to the Senior Administrative Agent have been made for the release or discharge of such Liens). (b) Schedule 1.01(b) sets forth the address of each Mortgaged Property on the Initial Borrowing Date. As of the Initial Borrowing Date, none of the Mortgaged Properties are subject to leases, license agreements or subleases under which the Borrower or any Subsidiary is the lessor/licensor except as set forth on Schedule 4.15(b)(i). Each Mortgaged Property is free of Liens that secure indebtedness for borrowed money except for the Second Priority Mortgages and as set forth on Schedule 4.15(b)(ii) (or arrangements reasonably satisfactory to the Senior Administrative Agent have been made for the release of such Liens). (c) Schedule 4.15(c) sets forth the address of every leased warehouse or distribution center in which inventory owned by the Company and or any Subsidiary is located. SECTION 4.16. Investment Company Act; Public Utility Holding Company Act. None of the Borrower or any Subsidiary is an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 4.17. Labor Matters. As of the Initial Borrowing Date, there are no strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending or, to the knowledge of the Borrower, threatened which could result in a Material Adverse Effect. The hours worked by 68 and payments made to employees of the Borrower and the Subsidiaries have not been in violation in any material respect of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters. All payments due from the Borrower or any Subsidiary, or for which any claim may be made against the Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Borrower or such Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Borrower or any Subsidiary is bound. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any Loan or other amount payable remains unpaid or any Letter of Credit remains outstanding: SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) with respect to each fiscal year of the Borrower ended on or after March 2, 2002, as soon as available and in any event within 90 days (or within such longer period of time, not greater than 120 days, to which the SEC may extend the filing deadline for the Borrower's Annual Report on Form 10-K) after the end of each such fiscal year, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on without any material qualification by Deloitte & Touche (or other independent public accountants of nationally recognized standing); (b) with respect to each fiscal quarter of the Borrower (other than the last fiscal quarter of a fiscal year) as soon as available and in any event within 45 days (or within such longer period of time, not greater than 60 days, to which the SEC may extend the filing deadline for the Borrower's Quarterly Report on Form 10-Q) after the end of each such fiscal quarter, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in each case in comparative form (i) the figures for the corresponding quarter and the corresponding portion of the Borrower's 69 previous fiscal year and (ii) the figures for the corresponding periods in the forecast most recently delivered pursuant to Section 5.01(k), all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by a Financial Officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of a Financial Officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.11, 5.16, 5.17, 5.18 and 5.19 on the date of such financial statements, (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto and (iii) in the case of the certificate delivered together with the financial statements referred to in clause (a) above, a calculation of Excess Cash Flow for the applicable period specified in Section 2.13(f) and the amount required for Reductions hereunder, if any, in respect thereof; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above; (e) within three Business Days after the end of each fiscal month a certificate of a Financial Officer of the Borrower setting forth in reasonable detail, a description of each disposition of assets not in the ordinary course of business for which the book value or fair market value of the assets of the Borrower or the Subsidiaries disposed or the consideration received therefor was greater than $10,000,000; (f) (i) within five days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of a Financial Officer of the Borrower setting forth information with respect thereto in reasonable detail and the action which the Borrower is taking or proposes to take with respect thereto, and (ii) within five days after the general counsel of the Borrower obtains knowledge of the filing or commencement of any action, suit or proceeding, whether at law or in equity or by or before any court, governmental authority or other tribunal, against the Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect a 70 certificate of such general counsel of the Borrower setting forth information with respect thereto in reasonable detail and the action which the Borrower is taking or proposes to take with respect thereto; (g) (i) within four Business Days after the end of each fiscal week a Borrowing Base Certificate showing the Borrowing Base Amount as of the close of business on the last day of such fiscal week, each such Borrowing Base Certificate to be certified as complete and correct on behalf of the Borrower by a Financial Officer of the Borrower; provided that the amount with respect to Eligible Inventory stored at distribution centers included in such Borrowing Base Amount shall be the amount certified in the Borrowing Base Certificate most recently delivered pursuant to clause (ii), and (ii) within 14 days after the end of each fiscal month a Borrowing Base Certificate showing the Borrowing Base Amount with respect to Eligible Inventory stored at distribution centers as of the close of business on the last day of such fiscal month, each such Borrowing Base Certificate to be certified as complete and correct on behalf of the Borrower by a Financial Officer of the Borrower; (h) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (i) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the SEC; (j) within five days, if and when any member of the ERISA Group (i) gives or any Financial Officer becomes aware that such member is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or any Financial Officer knows that the plan administrator of any Plan has given or any Financial Officer becomes aware that such member is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer, any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding 71 standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of a Financial Officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; (k) on or prior to the 60 days following the end of each fiscal year of the Borrower (or, in the reasonable discretion of the Senior Administrative Agent, no later than 30 days thereafter), forecasts for the Borrower and its Consolidated Subsidiaries of (i) quarterly consolidated balance sheet data and related consolidated statements of income and cash flows for each quarter in the next succeeding fiscal year and (ii) consolidated balance sheet data and related consolidated statements of income and cash flows for each fiscal year ending on or prior to 2006 fiscal year; and (l) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries or the Collateral as the Senior Administrative Agent, at the request of any Bank, may reasonably request. Information required to be delivered pursuant to clauses (a), (b), (h) and (i) shall be deemed to have been delivered on the date on which the Borrower provides notice to the Banks that such information has been posted on the Borrower's website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux/searches.htm or at another website identified in such notice and accessible by the Banks without charge; provided that (i) such notice may be included in a certificate delivered pursuant to clause (c), and (ii) the Borrower shall deliver paper copies of the information referred to in clauses (a), (b), (h) and (i) to any Bank which requests such delivery. SECTION 5.02. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge, as the same shall become due and payable, (i) all material claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons prior to the time such claims or demands give rise to a material Lien upon any of its property or assets or a material risk of forfeiture of a Mortgaged Property, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except 72 where any of the items in clause (i) or (ii) above may be contested in good faith by appropriate proceedings, and the Borrower or such Subsidiary, as the case may be, shall have set aside on its books, in accordance with generally accepted accounting principles, appropriate reserves, if any, for the accrual of any such items. SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will, and will cause each of its Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to the Banks, upon request from the Senior Administrative Agent, information presented in reasonable detail as to the insurance so carried. The Borrower will, and will cause each of its Subsidiaries to, maintain such insurance in a coverage amount of not less than 90% of the coverage amount as of the Initial Borrowing Date, with deductibles, risks covered and other provisions (other than amount of premiums) not materially less favorable to the Borrower and its Subsidiaries as of the Initial Borrowing Date. (c) The Borrower will, and will cause each of the Subsidiary Guarantors to, 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 satisfactory to the Senior Administrative Agent and the Senior Collateral Agent, which endorsement shall provide that, from and after the Initial Borrowing Date, if the insurance carrier shall have received written notice from the Senior Administrative Agent or the Senior Collateral Agent of the occurrence of an Event of Default, the insurance carrier shall pay all proceeds otherwise payable to the Borrower and any other Obligor under such policies directly to the Senior Collateral Agent for application pursuant to the Collateral Trust and Intercreditor Agreement; cause all such policies to provide that neither the Borrower, the Senior Administrative Agent, the Senior 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 Senior Administrative Agent or the Senior Collateral Agent may reasonably require from time to time to protect their interests; deliver broker's certificates to the Senior Collateral Agent; cause each such policy to provide that it shall not be canceled or not renewed by reason of nonpayment of premium upon not less than 10 days prior written notice thereof by the insurer to the Senior Administrative Agent and the Senior Collateral Agent (giving the Senior Administrative Agent and the Senior Collateral Agent 73 the right to cure defaults in the payment of premiums) or for any other reason upon not less than 30 days' prior written notice thereof by the insurer to the Senior Administrative Agent and the Senior Collateral Agent; deliver to the Senior Administrative Agent and the Senior Collateral Agent, before the cancellation 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 Senior Administrative Agent and the Senior Collateral Agent) together with evidence reasonably satisfactory to the Senior Administrative Agent and the Senior Collateral Agent of payment of the premium therefor. (d) [Reserved]. (e) The Borrower will, and will cause each of the Subsidiary Guarantors to, with respect to any Mortgaged Property, carry and maintain comprehensive general liability insurance including the "broad form CGL 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 $10,000,000, naming the Senior Collateral Agent (for the benefit of the Senior Bank Parties) as an additional insured, on forms satisfactory to the Senior Collateral Agent. (f) The Borrower will notify the Senior Administrative Agent and the Senior Collateral Agent promptly whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section is taken out by the Borrower or its Subsidiaries; and promptly deliver to the Senior Administrative Agent and the Senior Collateral Agent a duplicate original copy of such policy or policies. (g) In connection with the covenants set forth in this Section, it is agreed that: (i) none of the Senior Administrative Agent, the Banks, or their respective agents or employees shall be liable for any loss or damage insured by the insurance policies required to be maintained under this Section, and (A) the Borrower and each other Obligor shall look solely to their insurance companies or any other parties other than the aforesaid parties for the recovery of such loss or damage and (B) such insurance companies shall have no rights of subrogation against the Senior Administrative Agent, the Senior Collateral Agent, the Banks or their agents or employees. If, however, the insurance policies do not provide waiver of subrogation rights against such parties, as required above, then the Borrower hereby agrees, to the extent permitted by law, to waive its right of recovery, if any, against the Senior Administrative Agent, the Senior Collateral Agent, the Banks and their agents and employees; and 74 (ii) the designation of any form, type or amount of insurance coverage by the Senior Administrative Agent, the Senior Collateral Agent or the Majority Banks under this Section shall in no event be deemed a representation, warranty or advice by the Senior Administrative Agent, the Senior Collateral Agent or the Banks that such insurance is adequate for the purposes of the business of the Borrower and the Subsidiaries or the protection of their properties. SECTION 5.04. Conduct of Business and Maintenance of Existence. Except as otherwise permitted in this Agreement, the Borrower will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary (except where such Subsidiary merges into a Subsidiary Guarantor) to preserve, renew and keep in full force and effect their respective legal existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that the foregoing will not prohibit any merger or liquidation of, or sale of assets by, a Subsidiary that is permitted by Section 5.22. SECTION 5.05. Compliance with Laws. The Borrower will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) applicable to it or its property except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply would not have a Material Adverse Effect. SECTION 5.06. Inspection of Property, Books and Records. The Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank (at such Bank's expense, unless a Default has occurred and is continuing, in which case at the Borrower's expense), after such Bank has consulted the Senior Administrative Agent with respect thereto, to visit and inspect any of their properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.07. Restriction on Other Agreements, Payment Limitations, Debt Prepayments, Amendments to Other Agreements. (a) The Borrower will not, and will not 75 permit any Subsidiary to, enter into any agreement which imposes a limitation on incurrence by the Borrower and its Subsidiaries of Liens that (i) would restrict any Subsidiary from granting Liens on any of its assets (including assets in addition to the then-existing Collateral to secure the Senior Obligations), or (ii) is more restrictive than the limitation on Liens set forth in this Agreement or (iii) imposes other covenants more restrictive than those set forth in this Agreement except, in each case, (A) agreements with respect to Debt secured by Liens permitted by Section 5.15 containing restrictions on the ability to transfer or grant Liens on the assets securing such Debt, (B) customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, (D) pursuant to applicable law, (E) agreements in effect as of the Initial Borrowing Date and not entered into in contemplation of the Transactions and (F) the 10.5% Note Documents, the Unsecured Note Indenture, the Exchange Note Documents and the Synthetic Lease Documents as in effect on the Initial Borrowing Date. (b) The Borrower will not, and will not permit any Subsidiary to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (i) make Restricted Payments in respect of any capital stock of such Subsidiary held by, or pay any Debt owed to, the Borrower or any other Subsidiary, (ii) make any Investment in the Borrower or any other Subsidiary, or (iii) transfer any of its assets to the Borrower or any other Subsidiary, except for such encumbrances or restrictions existing under or by reason (A) any restriction existing under the Senior Loan Documents, the 10.5% Note Documents, the Unsecured Note Indenture, the Exchange Note Documents, the Synthetic Lease Documents or the Indentures, (B) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, and (C) as required by applicable law. (c) Other than in respect of the 10.5% Note Obligations, the Synthetic Lease Obligations and, pursuant to Section 2.13(d), the obligations of the Borrower under its 5.25% Convertible Subordinated Notes due 2002 and 6.00% Dealer Remarketable Securities due 2003, the Borrower will not, and will not permit any Subsidiary to, make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption, or otherwise voluntarily or optionally defease, the obligations of the Borrower under the Unsecured Notes Indenture, the Exchange Note Obligations, any Additional Senior Second Priority Debt Obligations, any Additional Second Priority Debt Obligations or any other Debt for borrowed money of the Borrower or any Subsidiary, or segregate funds for any such payment, prepayment, repurchase, redemption or defeasance, except for refinancings, refundings and exchanges pursuant to Section 5.20(d), (e), (f), (g), (h) or (i) or repurchases or redemption of such Debt for consideration consisting solely of 76 common stock of the Borrower or Qualified Preferred Stock or prepayments of Capital Leases in connection with the sale, closing or relocation of Stores; or (d) The Borrower shall not, and will not permit any Subsidiary party to the Intercompany Inventory Purchase Agreement to, amend, terminate, or otherwise modify the Intercompany Inventory Purchase Agreement in any manner materially adverse to the Senior Bank Parties or their interests under the Senior Loan Documents without the prior written approval of the Senior Collateral Agent, provided, however, the foregoing shall not limit the Borrower's responsibilities pursuant to Section 3.2 of the Intercompany Inventory Purchase Agreement. SECTION 5.08. Further Assurances. The Borrower will cause each of the Subsidiary Guarantors to execute any and all further documents, financing statements, recordations, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements, recordations, mortgages and deeds of trust) that may be required under applicable law, or that the Majority Banks, the Syndication Agents, the Senior Administrative Agent or the Senior Collateral Agent may reasonably request, in order to effectuate the transactions contemplated by the Senior Loan Documents and in order to grant, preserve, protect and perfect the validity and first priority of the security interests created or intended to be created by the Senior Collateral Documents. The Borrower will cause any subsequently acquired or organized Domestic Subsidiary to execute a Senior Subsidiary Guarantee Agreement, Senior Indemnity, Subrogation and Contribution Agreement, Senior Subsidiary Security Agreement and any applicable financing statement or other recordation from time to time, and to comply with the terms thereof. The Borrower agrees to cause to be provided such evidence as the Senior Collateral Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. Notwithstanding any other provision of this Agreement, (i) no Subsidiary listed on Schedule 5.08 shall be required to be a Subsidiary Guarantor and (ii) no other Subsidiary shall be required to be a Subsidiary Guarantor unless and until such time as such Subsidiary has assets in excess of $1,000,000 or acquires assets in excess of $1,000,000 or has revenue in excess of $500,000 per annum. SECTION 5.09. Collateral and Borrowing Base Reviews. (a) The Borrower will, and will cause each of the Subsidiary Guarantors to, from time to time upon the request of the Senior Collateral Agent or the Majority Banks through the Senior Administrative Agent, or upon any request to increase the Pharmaceutical Advance Rate above 63.9%, the Other Inventory Advance Rate above 54.8% or the Accounts Receivable Advance Rate above 85%, permit the Senior Collateral Agent or professionals (including field examiners, investment bankers, consultants, accountants, lawyers and appraisers) retained by the Senior Collateral Agent to conduct evaluations and appraisals of (i) the Borrower's practices in the computation of the Borrowing 77 Base Amount and (ii) the assets included in the Senior Collateral, and pay the reasonable fees and expenses of such professionals. (b) The Borrower will, and will cause each of the Subsidiary Guarantors to, in connection with any evaluation and appraisal relating to the computation of the Borrowing Base Amount, maintain such additional reserves (for purposes of computing the Borrowing Base Amount) in respect of Eligible Accounts Receivable and Eligible Inventory and make such other adjustments to its parameters for including Eligible Accounts Receivable and Eligible Inventory in the Borrowing Base Amount as the Senior Collateral Agent shall require based upon the results of such evaluation and appraisal in its reasonable judgment to reflect Borrowing Base Factors. SECTION 5.10. Subsidiaries. The Borrower will cause all of its Subsidiaries that own Eligible Accounts Receivable or Eligible Inventory to be "Unrestricted Subsidiaries" as defined in, and for all purposes of, each of the Indentures and will deliver such documents to the trustees under each of the Indentures and take such actions thereunder as may be necessary to effect the foregoing. SECTION 5.11. Intercompany Transfers. The Borrower shall maintain accounting systems capable of tracing intercompany transfers of funds and other assets. SECTION 5.12. Inventory Purchasing. (a) The Borrower shall, and shall cause each Subsidiary party to the Intercompany Inventory Purchase Agreement, at all times to maintain in all material respects the vendor inventory purchasing system and the intercompany inventory purchasing system in accordance with the terms of the Intercompany Inventory Purchase Agreement. (b) The Borrower shall not permit any Operating Subsidiary (as defined in the Intercompany Inventory Purchase Agreement) to purchase any Inventory (as defined in the Intercompany Inventory Purchase Agreement) from any Direct Delivery Vendor (as defined in the Intercompany Inventory Purchase Agreement) other than (i) acquisition of inventory from McKesson Corporation consistent with past practice, and (ii) foodstuffs, beverages, periodicals, greeting cards and similar items which are either paid for in cash substantially concurrently with the time of delivery or otherwise consistent with past practice. SECTION 5.13. Cash Management System. The Borrower will cause each Subsidiary Guarantor to at all times maintain a Cash Management System that complies with Schedule 5 of the Senior Subsidiary Security Agreement. The Borrower will cause each Subsidiary Guarantor 78 to comply with each obligation thereof under the Cash Management System. The Borrower will cause each Subsidiary Guarantor to comply with each of its obligations under the Cash Management System, and shall cause each Subsidiary Guarantor to use its best efforts to cause any applicable third party to effectuate the Cash Management System. SECTION 5.14. Restriction on Sale and Leaseback Transactions. Except for a sale or transfer by a Subsidiary to a Subsidiary Guarantor, the Borrower will not, and will not permit any Subsidiary to, enter into any Sale and Leaseback Transaction after the Closing Date other than (a) a Sale and Leaseback Transaction listed on Schedule 5.14(a), (b) with respect to any property other than a Mortgaged Property owned by the Borrower or any Subsidiary Guarantor as of the Initial Borrowing Date, for a lease for a period, including renewals, not exceeding 24 months, by the end of which period it is intended that the use of such property or equipment by the lessee will be discontinued; provided, however, that such Sale and Leaseback Transaction will be subject to Section 5.23(b), (c) with respect to any property other than a Mortgaged Property and other property owned by the Borrower or a Subsidiary Guarantor on the Initial Borrowing Date, if entered into in respect of property acquired, developed or constructed by the Borrower or a Subsidiary after the Initial Borrowing Date, if such Sale and Leaseback Transaction is entered into within 24 months from the date of completion of such acquisition, development or construction (which, in the case of any Store, shall be deemed to be 24 months from the date of the opening of such Store), (d) any Sale and Leaseback permitted by Section 5.20(i) or 5.20(o), or (e) if none of clauses (a) through (d) above are applicable, any other Sale and Leaseback Transaction not involving a Mortgaged Property, subject to Section 5.23(b). SECTION 5.15. Restriction on Liens. The Borrower will not, and will not permit any Subsidiary to, create, issue, incur, assume or guarantee any Secured Debt; provided that the foregoing covenant shall not apply to the following: (a) (i) any Lien on any property in connection with a Sale and Leaseback Transaction permitted by Section 5.14, (ii) the acquisition by the Borrower or a Subsidiary of property subject to any Lien upon such property existing at the time of 79 acquisition thereof, whether or not assumed by the Borrower or such Subsidiary and not created in anticipation of such acquisition which acquisition is not otherwise prohibited by this Agreement, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired; provided that the Lien does not attach to other property except unimproved real property previously owned upon which any new construction has taken place and subsequent additions to such acquired or constructed property; (b) any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 5.15 or any Lien securing the Debt of the Borrower or of any Subsidiary on the date of this Agreement or of a corporation at the time such corporation becomes a Subsidiary, or any extensions, renewals or refundings of any such Lien; provided that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding Lien shall be limited to all or that part of the same property which secured the Debt so extended, renewed or refunded; (c) any Lien securing Debt of a Subsidiary owing to a Subsidiary Guarantor; (d) any Lien created by the Senior Loan Documents; (e) any Lien created or permitted by the Second Priority Collateral Documents with respect to the Second Priority Debt Obligations in favor of the Second Priority Debt Parties; provided that such Lien is created simultaneously with or after an equivalent Lien under the Senior Collateral Documents on the applicable Collateral and is subject to the Collateral Trust and Intercreditor Agreement, and any Lien on the proceeds of such Collateral permitted by the Collateral Trust and Intercreditor Agreement; (f) Liens under the Synthetic Leases permitted pursuant to Sections 5.20(e)(i) and 5.29; (g) Liens identified on Schedule 5.15(g); provided, however, that such Liens do not attach to any other property other than that identified in such Schedule; (h) Liens in respect of secured Debt permitted under Sections 5.20(g), (h) and (i); (i) Liens in respect of Debt or Attributable Debt permitted under Sections 5.20(k), (l), (m), (n) and (o) so long as such Liens attach only to (i) the equipment subject to such 80 financing, (ii) the property to which they attach on the Initial Borrowing Date (or in the case of any lease which is reclassified as a Capital Lease, any property subject to such lease on the Initial Borrowing Date), or (iii) the property or assets constructed, developed or purchased with such financing; (j) any Lien on Net Cash Proceeds of Reduction Events allocated to the 10.5% Note Obligations or the Second Priority Debt Obligations in accordance with the Collateral Trust and Intercreditor Agreement, which Lien arises pursuant to Section 10.14 of the 10.5% Note Indenture or equivalent provisions in the Second Priority Debt Documents. SECTION 5.16. Capital Expenditures. The aggregate amount of Consolidated Capital Expenditures for any period set forth below shall not exceed the amount set forth below opposite such period, plus (a) Excess Liquidity for such period, plus (b) an amount (the "Carryforward Amount") equal to the sum of (i) any amount by which the amount set forth below opposite the immediately preceding period, if any, exceeds the Consolidated Capital Expenditures during such immediately preceding period and (ii) in the case of the twelve months ending February 28, 2004, any amount by which the sum of (x) the amount set forth below opposite the twelve months ending March 1, 2003 plus (y) any increase in such amount pursuant to clause (i) above exceeds the Consolidated Capital Expenditures for the twelve months ending March 1, 2003: - -------------------------------------------------------------------------------- Period Amount - -------------------------------------------------------------------------------- Twelve months ending March 2, 2002.............................. $200,000,000 - -------------------------------------------------------------------------------- Twelve months ending March 1, 2003.............................. $200,000,000 - -------------------------------------------------------------------------------- Twelve months ending February 28, 2004.......................... $200,000,000 - -------------------------------------------------------------------------------- Twelve months ending February 26, 2005.......................... $200,000,000 - -------------------------------------------------------------------------------- February 27, 2005 through June 27, 2005......................... $100,000,000 - -------------------------------------------------------------------------------- 81 SECTION 5.17. Maximum Leverage Ratio. At no time shall the Leverage Ratio as of any date during any period set forth below be greater than the amount set forth opposite such period: - -------------------------------------------------------------------------------- Period Amount - -------------------------------------------------------------------------------- Nine months ending December 1, 2001............................. 8.25 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending March 2, 2002.............................. 7.75 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending May 31, 2002............................... 7.75 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending August 31, 2002............................ 7.50 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending November 30, 2002.......................... 7.00 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending March 1, 2003.............................. 6.50 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending May 31, 2003............................... 6.00 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending August 31, 2003............................ 5.75 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending November 30, 2003.......................... 5.25 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending February 28, 2004.......................... 4.75 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending May 31, 2004............................... 4.50 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending August 31, 2004............................ 4.25 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending November 30, 2004.......................... 4.00 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending February 26, 2005.......................... 3.75 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending May 31, 2005............................... 3.50 to 1.00 - -------------------------------------------------------------------------------- 82 SECTION 5.18. Minimum Interest Coverage Ratio. At no time shall the Consolidated Interest Coverage Ratio for any period be less than the amount set forth below opposite such period: - -------------------------------------------------------------------------------- Period Amount - -------------------------------------------------------------------------------- Nine months ending December 1, 2001......................... 1.25 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending March 2, 2002.......................... 1.35 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending May 31, 2002........................... 1.35 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending August 31, 2002........................ 1.45 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending November 30, 2002...................... 1.60 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending March 1, 2003.......................... 1.75 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending May 31, 2003........................... 1.85 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending August 31, 2003........................ 2.00 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending November 30, 2003...................... 2.15 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending February 28, 2004...................... 2.25 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending May 31, 2004........................... 2.35 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending August 31, 2004........................ 2.50 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending November 30, 2004...................... 2.60 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending February 26, 2005...................... 2.70 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending May 31, 2005........................... 2.80 to 1.00 - -------------------------------------------------------------------------------- 83 SECTION 5.19. Minimum Fixed Charge Coverage Ratio. At no time shall the Consolidated Fixed Charge Coverage Ratio for any period set forth below be less than the amount set forth below opposite such period: - -------------------------------------------------------------------------------- Period Amount - -------------------------------------------------------------------------------- Nine months ending December 1, 2001.......................... 0.90 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending March 2, 2002........................... 0.90 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending May 31, 2002............................ 0.90 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending August 31, 2002......................... 0.95 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending November 30, 2002....................... 1.00 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending March 1, 2003........................... 1.00 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending May 31, 2003............................ 1.05 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending August 31, 2003......................... 1.05 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending November 30, 2003....................... 1.10 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending February 28, 2004....................... 1.15 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending May 31, 2004............................ 1.20 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending August 31, 2004......................... 1.20 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending November 30, 2004....................... 1.25 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending February 26, 2005....................... 1.25 to 1.00 - -------------------------------------------------------------------------------- Twelve months ending May 31, 2005............................ 1.25 to 1.00 - -------------------------------------------------------------------------------- SECTION 5.20. Restriction on Debt. The Borrower will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any Debt or any Attributable Debt in respect of any Sale and Leaseback Transaction except: (a) Debt under the Senior Loan Documents; 84 (b) 11.25% Senior Notes due 2008 of the Borrower issued under the Unsecured Note Indenture, and other unsecured Debt of the Borrower that is not Guaranteed by any Subsidiary of the Borrower and matures no earlier than, and has terms no more restrictive than those of, the 11.25% Senior Notes due 2008, in an aggregate principal amount not to exceed $400,000,000; (c) Debt under the 10.5% Note Documents in a principal amount not greater than the principal amount thereof on the Initial Borrowing Date after giving effect to the Transactions; (d) the Exchange Note Obligations (including any Replacement Second Priority Debt in respect thereof) and Debt under the Indentures, in each case in a principal amount not greater than the principal amount thereof on the Initial Borrowing Date after giving effect to the Transactions; provided that no Subsidiary Guarantor will have any liability thereon except its obligations under the Second Priority Collateral Agreements; (e) (i) the Synthetic Lease Obligations (including any Replacement Senior Second Priority Debt in respect thereof and any unsecured Debt extending, or having the effect of extending, the maturity of, or refunding, refinancing or exchanging, in whole or in part such Synthetic Lease Obligations, which unsecured Debt meets the requirements set forth in clauses (i) through (iv) of Section 5.20(f)) so long as the amount financed thereunder does not exceed $107,000,000, plus amounts permitted pursuant to Section 5.29 (including in each case Guarantees by the Borrower and Rite Aid Realty Corp. in respect of such Synthetic Leases); provided that no Subsidiary Guarantor (other than Rite Aid Realty Corp.) will have any liability thereon except its obligations under the Second Priority Collateral Agreements and (ii) Attributable Debt in respect of any Sale and Leaseback Transactions in existence on the Closing Date; (f) unsecured Debt of the Borrower extending, or having the effect of extending, the maturity of, or refunding, refinancing or exchanging, in whole or in part, Debt described in clauses (b), (c) and (d), provided that (i) the terms of any such extending, refunding, refinancing or exchanging Debt, and of any agreement entered into and of any instrument issued in connection therewith, are otherwise permitted by the Senior Loan Documents, (ii) the maturity of any such extending, refunding, refinancing or exchanging of Debt is no earlier than September 1, 2005, (iii) the terms relating to principal amount, amortization, convertibility and subordination (if any), and other material terms taken as a whole, of any such extending, refunding, refinancing or exchanging of Debt, and of any agreement entered into and of any instrument issued in connection therewith, are no less 85 favorable in any material respect to the Borrower and the Subsidiaries or the Senior Bank Parties than the terms of any agreement or instrument governing the Debt being extended, refunded, refinanced or exchanged and the interest rate applicable to such extending, refunding or refinancing Debt does not exceed the then applicable market interest rate, and (iv) the principal amount of such extending, refunding, refinancing or exchanging of Debt shall not be increased above the principal amount of the Debt being extended, refunded, refinanced or exchanged outstanding immediately prior to such extension, refunding, refinancing or exchanging; (g) Additional Senior Second Priority Debt of the Borrower (including any Replacement Senior Second Priority Debt in respect thereof and any unsecured Debt extending, or having the effect of extending, the maturity of, or refunding, refinancing or exchanging, in whole or in part such Additional Senior Second Priority Debt, which unsecured Debt meets the requirements set forth in clauses (i) through (iv) of Section 5.20(f)), in an aggregate principal amount at any time outstanding not to exceed $200,000,000 less the aggregate amount of Attributable Debt outstanding at any time in respect of the Synthetic Lease Obligations and Debt extending, refunding, refinancing or exchanging such Synthetic Lease Obligations incurred pursuant to clause (e) above (without regard to any amounts incurred thereunder and permitted by Section 5.29); provided that (i) the terms and conditions of such Debt shall be satisfactory to the Supermajority Banks and (ii) such Debt shall by its terms provide that it is subordinated only to the Senior Obligations; (h) Additional Second Priority Debt (including any Replacement Second Priority Debt in respect thereof and any unsecured Debt extending, or having the effect of extending, the maturity of, or refunding, refinancing or exchanging, in whole or in part such Additional Second Priority Debt, which unsecured Debt meets the requirements set forth in clauses (i) through (iv) of Section 5.20(f)) in an aggregate principal amount not exceeding $300,000,000 and having a final maturity date after January 1, 2006; (i) Debt or Attributable Debt, including any Debt or Attributable Debt extending, or having the effect of extending, the maturity of, or refunding, refinancing or exchanging, in whole or in part such Debt or Attributable Debt, in an aggregate principal amount not exceeding $150,000,000 at any time outstanding secured by Liens on real property or in the form of Sale and Leaseback Transactions in respect of such real property and having a final maturity date after January 1, 2006; provided that such Liens do not attach to, and such Sale and Leaseback Transactions shall not be in respect of, any 86 property or assets other than such real property and shall not, in any event, attach to, or be in respect of, any of the Mortgaged Properties; (j) indorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (k) Debt for borrowed money and Capital Leases existing on the date hereof and set forth in Schedule 5.20(k), but not any extensions, renewals or replacements of such Debt for borrowed money; (l) Debt or Attributable Debt in respect of Capital Leases (whether or not in the form of Sale and Leaseback Transactions or Synthetic Leases) so long as such Capital Leases were leases existing as of the Initial Borrowing Date, which are reclassified from operating leases to Capital Leases; (m) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions in respect of equipment financing or leasing in the ordinary course of business of the Borrower and its Subsidiaries consistent with past practices; (n) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions incurred to finance the acquisition, development, construction or opening of any Store after the Initial Borrowing Date which is not inconsistent with the Borrower's business plan referenced in Section 3.01(l); provided that such Debt or Attributable Debt is (A) incurred within 24 months of the completion of the acquisition, development, construction or opening thereof, and any Lien securing such Debt or Attributable Debt is limited to the Store financed with the proceeds thereof, or (B) in the case of a Sale and Leaseback Transaction, permitted under Section 5.14(a), (b) or (c); (o) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions incurred to finance the acquisition after the Initial Borrowing Date of property or assets provided that (i) such Debt or Attributable Debt is incurred within 24 months of the acquisition of such property or assets, (ii) any Lien securing such Debt or Attributable Debt is limited to the property or assets financed with the proceeds thereof and (iii) the aggregate principal amount of Debt and Attributable Debt incurred pursuant to this clause (o) shall not exceed $100,000,000 at any time outstanding; and 87 (p) Debt of the Borrower and its Subsidiaries in respect of intercompany investments permitted under Section 5.21(a). SECTION 5.21. Limitation on Investments and Acquisitions. (a) Neither the Borrower nor any Subsidiary will make or acquire any Investment in any Person other than: (i) Investments in Subsidiary Guarantors; (ii) Investments of the Borrower and the Subsidiary Guarantors in existence on the Initial Borrowing Date; (iii) Temporary Cash Investments; (iv) Investments received as consideration for any sale or other disposition permitted by Section 5.23; (v) Investments in Drugstore.com existing on the date hereof; (vi) Investments by the Subsidiaries of the Borrower in the Borrower, but only to the extent that the uses of the proceeds of such Investments would be permitted as uses of proceeds of the Loans pursuant to Section 5.24(b); (vii) any Investment by a Subsidiary Guarantor in a Person other than a Subsidiary that is not otherwise permitted by the foregoing clauses of this Section if, immediately after such Investment is made or acquired, the aggregate net book value of all Investments permitted by this clause (vii) does not exceed at any one time outstanding the greater of (A) $200,000,000 and (B) 10% of Consolidated Net Worth; and (viii) usual and customary loans and advances to employees, officers and directors; (ix) Investments by the Borrower or any of its Subsidiaries in Joint Ventures not to exceed $5,000,000 in the aggregate in any fiscal year of the Borrower; and (x) Investments in charitable foundations organized under Section 501(c) of the Internal Revenue Code not to exceed $1,000,000 in any calendar year. 88 (b) The Borrower will not, and will not permit any Subsidiary to, consummate any Business Acquisition to the extent that the aggregate consideration paid or payable by the Borrower or any Subsidiary (including Debt assumed or consolidated in accordance with generally accepted accounting principles) in connection with all such Business Acquisitions on or after the Initial Borrowing Date would exceed $50,000,000. SECTION 5.22. Consolidations and Mergers. (a) Without limiting the restrictions on Business Acquisitions set forth above, the Borrower will not consolidate or merge with or into any other Person; provided that the Borrower may merge with another Person if (i) the Borrower is the corporation surviving such merger, (ii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, and (iii) if such other Person is a Subsidiary Guarantor, such Subsidiary Guarantor shall have no property that constitutes Senior Collateral. (b) No Subsidiary Guarantor will consolidate or merge with or into any other Person, except, without limiting the restrictions on Business Acquisitions set forth above, a Subsidiary Guarantor may merge with another Person if (A) either (1) a Subsidiary Guarantor is the corporation surviving such merger, or (2) the Subsidiary Guarantor that merges with such Person shall have no property that constitutes Senior Collateral, and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing. SECTION 5.23. Dispositions of Assets. (a) The Borrower will not dispose of any capital stock of any Subsidiary Guarantor other than to another Subsidiary Guarantor, or permit any Subsidiary Guarantor to issue capital stock to any Person other than the Borrower or another Subsidiary Guarantor. (b) The Borrower will not, and will not permit any Subsidiary Guarantor to, dispose of any property or assets except (i) any Permitted Disposition; (ii) any sale or other disposition of the stock of Drugstore.com; (iii) any other disposition of property or assets of the Borrower or any Subsidiary for fair value not in the ordinary course of business; (iv) any sale or other disposition of the real property described as N.W. 96th Street and Mountainview Road, Scottsdale, Arizona, together with any improvements thereon; and 89 (v) any sale or disposition to a third party of stores, leases and prescription files closed at substantially the same time as, and entered into as part of a single related transaction with, the purchase or other acquisition from such third party of stores, leases and prescription files of a substantially equivalent value; provided that, with respect to sales or dispositions under clauses (ii) and (iii) and, with respect to any net consideration received from any transaction described in clause (v), (1) at least 75% of the consideration therefor shall consist of cash, and (2) the Net Cash Proceeds of such sale or disposition or consideration are applied as provided in Section 2.13(c). SECTION 5.24. Use of Proceeds. (a) The proceeds of the Term Loans will be used by the Borrower exclusively (i) to refinance outstanding Debt, (ii) to pay transaction costs for the Transactions, and (iii) for purposes set forth in clause (b). (b) The proceeds of the Revolving Loans and Swingline Loans will be used by the Borrower solely for the following purposes: (i) loans or other transfers to Rite Aid Hdqtrs. Corp. for purposes of financing inventory purchases pursuant to the Intercompany Inventory Purchase Agreement and advancing funds to Subsidiary Guarantors for their general corporate purposes, including working capital, permitted Capital Expenditures and permitted Business Acquisitions; (ii) transfers to an operating account for the payment of operating expenses (including rent, utilities, taxes, wages, repair and similar expenses) of, and intercompany Investments permitted under Section 5.21(a) in, the Borrower or any Subsidiary Guarantors; (iii) payment by the Borrower of principal, interest, fees and expenses with respect to its Debt when due (including associated costs, fees and expenses) and payment of the Borrower's taxes, administrative, operating and other expenses; and (iv) dividends required to be made in respect of the capital stock listed on Schedule 5.24(b)(iv) or described in Section 5.26(c). (c) Letters of Credit may be issued in the ordinary course of the Borrower's business for permitted general corporate purposes. 90 (d) No use of the proceeds of the Loans or the issuance of Letters of Credit will be for the purpose of prepaying commercial paper prior to the maturity thereof and no such use of proceeds will be, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation U. The Borrower will ensure that no such use of proceeds or issuance of Letters of Credit will violate Regulation T, U or X. SECTION 5.25. Restrictions on Asset Holdings by the Borrower. The Borrower will not at any time: (i) make or hold any Investments other than investments in the capital stock of Drugstore.com and its Subsidiaries (including any distributions or other assets received in respect thereto), Investments received as consideration in connection with a disposition of Drugstore.com, intercompany advances to Subsidiaries and Investments permitted by clause (iii) below; (ii) acquire or hold any Stores, other capital assets, inventory or accounts receivable, other than any real estate which the Borrower holds only as lessor, and which is leased and operated by another Person; or (iii) acquire or hold cash, cash equivalents, Temporary Cash Investments or balances in bank accounts other than such amounts as are reasonably anticipated (at the time so acquired or held) to be utilized within five Business Days to pay costs, expenses and other obligations of the Borrower referred to in Section 5.24(b). SECTION 5.26. Restricted Payments. After the date hereof, neither the Borrower nor any Subsidiary will declare or make any Restricted Payment other than (a) payments of dividends to Subsidiary Guarantors; (b) payments of cash dividends (i) to the Borrower for purposes permitted as uses of the proceeds of the Loans pursuant to Section 5.24(b), and (ii) required to be made in respect of the capital stock listed on Schedule 5.24(b)(iv); (c) payments of cash dividends required to be made in respect of capital stock issued in connection with exchanges of Debt for common stock of the Borrower in an aggregate amount not to exceed $1,000,000 in any calendar year; and 91 (d) so long as immediately prior and immediately after giving effect to any such repurchase or other acquisition, no Default or Event of Default has occurred and is continuing, the repurchase or other acquisition of shares of or options to purchase shares of, capital stock of the Borrower or any of its Subsidiaries from employees, former employees, directors or former directors of the Borrower or any of its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the board of directors of the Borrower under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such capital stock; provided, however, that the aggregate amount of such repurchases and other acquisitions shall not exceed $10,000,000. SECTION 5.27. Business of Borrower and Subsidiaries. The Borrower will not, and will not cause or permit any of the Subsidiaries to, engage at any time in any business or business activity other than the business conducted on the Initial Borrowing Date by it and business activities reasonably incidental thereto. SECTION 5.28. Transactions with Affiliates. The Borrower will not, and will not cause or permit any of the Subsidiaries to, directly or indirectly enter into or conduct any transactions or series of transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any Affiliate of the Borrower, other than the payment of transaction costs approved by the Senior Administrative Agent before the Initial Borrowing Date (an "Affiliate Transaction"), other than (a) the payment of compensation to directors, officers, and employees of the Borrower and its Subsidiaries in the ordinary course of business; (b) payments in respect of Affiliate Transactions required to be made pursuant to agreements or arrangements in effect on the Initial Borrowing Date and set forth in Schedule 5.28(b) hereto; (c) Affiliate Transactions involving the acquisition of inventory in the ordinary course of business, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Borrower or such Subsidiary as the case may be, and (C) no less favorable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Borrower, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000, the board of directors of the 92 Borrower (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (C) of this paragraph; (d) any other Affiliate Transaction, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Borrower or such Subsidiary, as the case may be, and (C) no less favorable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Borrower, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $25,000,000 in any 12-month period, the board of directors of the Borrower (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (C) of this paragraph and (iii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000 in any 12-month period, the Borrower obtains a written opinion from an independent investment banking firm or appraiser of national prominence, as appropriate to the effect that such transaction is fair to the Borrower or such Subsidiary, as the case may be, from a financial point of view; and (e) Affiliate Transactions between or among the Borrower and/or one or more Subsidiary Guarantors. SECTION 5.29. New Synthetic Leases. Neither the Borrower nor any Subsidiary will enter into any Synthetic Lease after the Initial Borrowing Date if, after giving effect thereto, the aggregate amount financed under all Synthetic Leases entered into in any period of twelve consecutive calendar months commencing after the date hereof would exceed $35,000,000 unless such Synthetic Lease is otherwise permitted under Section 5.20(m), (n) or (o). SECTION 5.30. Corporate Separateness. The Borrower will, and will cause each Subsidiary to, take all necessary steps to maintain its identity as a separate legal entity from other Persons and to make it manifest to third parties that it is an entity with assets and liabilities distinct from those of each of other Person. SECTION 5.31. Limitation on Derivative Obligations. The Borrower will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any monetary liability under any Derivative Obligations; unless such Derivative Obligations are entered into for bona fide hedging purposes of the Borrower or its Subsidiary Guarantors (as determined in good faith by the senior management of the Borrower) and correspond in terms of notional amount, 93 duration, currencies and interest rates, as applicable, to Debt of the Borrower or its Subsidiary Guarantors incurred without violation of this Agreement or to business transactions of the Borrower or its Subsidiary Guarantors on customary terms entered into in the ordinary course of business, and do not exceed an amount equal to the aggregate principal amount of the Loans and the Second Priority Debt Obligations. SECTION 5.32. Delivery of Security Opinion. On or prior to July 2, 2001, the Borrower shall deliver the opinion of Skadden, Arps, Slate, Meagher & Flom, Special New York Counsel to the Borrower, which opinion shall be dated July 2, 2001 and shall be substantially in the form of Exhibit Q hereto. ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within five days of the due date thereof any interest, fees or other amount payable hereunder; (b) the Borrower or any Subsidiary Guarantor shall fail to observe or perform any covenant contained in Sections 5.01(f)(i), 5.07, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17, 5.18, 5.19, 5.20, 5.21, 5.22, 5.23, 5.24, 5.26, 5.27, 5.28, 5.29 and 5.32; (c) the Borrower or any Subsidiary Guarantor shall fail to observe or perform any covenant or agreement contained in the Senior Loan Documents (other than those covered by clause (a) or (b) above) in the case of covenants contained in Section 5.06 or 5.09, for 5 days, in the case of covenants contained in Section 5.01 (other than Section 5.01(f)(i)), for 10 days, and in the case of any other covenant, for 20 days after written notice thereof has been given to the Borrower by the Senior Administrative Agent or by the Majority Banks acting through the Senior Administrative Agent; (d) any representation, warranty, certification or statement made (or deemed made) by the Borrower or any Subsidiary Guarantor in any Senior Loan Document or in any certificate, financial statement or other document delivered pursuant to any Senior 94 Loan Document shall prove to have been incorrect in any material respect when made (or deemed made); (e) the Borrower or any Subsidiary shall fail to make any payment in respect of any Material Financial Obligations, including any obligation to reimburse letter of credit obligations or to post cash collateral with respect thereto, when due or within any applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Financial Obligations or enables (or, if such event or condition does not otherwise give rise to a Default hereunder, which with the giving of notice or lapse of time or both would enable) the holder of such Material Financial Obligations or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) the Borrower or any Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $5,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV 95 of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer, any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000; (j) judgments or orders, individually or in the aggregate, for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; (k) (i) any Lien created by any Senior Collateral Document shall at any time fail to constitute a valid and (to the extent required by such Senior Collateral Document) perfected Lien on all of the Senior Collateral purported to be subject thereto, securing the obligations purported to be secured thereby, with the priority required by the Senior Loan Documents; provided, however, if such failure does not result in a prepayment obligation pursuant to Section 2.13(b), such failure continues uncured for 30 days, or (ii) the Borrower or any Subsidiary shall so assert in writing, or any Senior Loan Document shall become invalid or the Borrower or any Subsidiary shall so assert in writing; (l) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) other than Green Equity Investors III, L.P., and its Affiliates shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under said Act) of 20% or more of the outstanding shares of common stock of the Borrower; or, during any period of 12 consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; or (m) any Subsidiary Guarantor shall amend or revoke any instruction in the Government Lockbox Account Agreement to any Government Lockbox Account Bank in respect of a Government Lockbox Account unless the Senior Administrative Agent shall have given its prior written consent; then, and in every such event, the Senior Administrative Agent shall (i) if requested by the Majority Revolving Credit Banks, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, (ii) if requested by Banks holding more than 50% of the unused 96 Delayed Draw Term Loan Commitments, by notice to the Borrower terminate the Delayed Draw Term Loan Commitments and they shall thereupon terminate and (ii) if requested by Banks holding more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Loans (together with accrued interest thereon) to be, and the Loans (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Senior Administrative Agent or the Banks, the Commitments shall thereupon terminate and the Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.02. Notice of Default. The Senior Administrative Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE 7 THE AGENTS SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents to take such action as agent on its behalf and to exercise such powers under the Senior Loan Documents as are delegated to such Agent by the terms thereof, together with all such powers as are reasonably incidental thereto. The Senior Administrative Agent is hereby expressly authorized by the Banks and the Issuing Banks, without hereby limiting any implied authority, (a) to receive on behalf of the Banks and the Issuing Banks all payments of principal of and interest on the Loans, all payments in respect of L/C Disbursements and all other amounts due to the Banks hereunder, and promptly to distribute to each Bank its proper share of each payment so received; (b) to give notice on behalf of each of the Banks or the Issuing Banks to the Borrower of any Event of Default specified in this Agreement of which the Senior Administrative Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Bank copies of all notices, financial statements and other materials delivered by the Borrower or any other Obligor pursuant to this Agreement or the other Senior Loan Documents as received by the Senior Administrative Agent. Without limiting the generality of the foregoing, the Agents are hereby expressly authorized to execute any and all documents (including releases) with respect to the Senior Collateral and the rights of the Senior 97 Bank Parties with respect thereto, as contemplated by and in accordance with the provisions of this Agreement and the Senior Collateral Documents. SECTION 7.02. Agents and Affiliates. Each of Citicorp USA, The Chase Manhattan Bank, Credit Suisse First Boston and Fleet Retail Finance Inc. shall have the same rights and powers under the Senior Loan Documents as any other Bank and may exercise or refrain from exercising the same as though it were not an Agent, and Citicorp USA, The Chase Manhattan Bank, Credit Suisse First Boston and Fleet Retail Finance Inc. and their affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not an Agent. SECTION 7.03. Action by Agents. The obligations of the Agents under the Senior Loan Documents are only those expressly set forth therein. Without limiting the generality of the foregoing, no Agent shall be required to take any action with respect to any Default, except as expressly provided in the Senior Loan Documents. The Banks hereby acknowledge that no Agent shall be under any duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Majority Banks or the Supermajority Banks, as the case may be. SECTION 7.04. Consultation with Experts. Each of the Agents may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. Liability of Agents. Neither any Agent nor any of their affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it or any of them in connection herewith (i) with the consent or at the request of the Majority Banks (or such other number or percentage of Banks as may be specified in the Senior Loan Documents for particular purposes) or (ii) in the absence of its or their own gross negligence or willful misconduct. Neither any Agent nor any of their affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with the Senior Loan Documents or any Borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Agents; or (iv) the validity, effectiveness or genuineness of any Senior Loan Document or any other instrument or writing furnished in connection herewith. No Agent shall incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be 98 a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance with its Credit Exposure, indemnify the Agents, their affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any other Loan Document or any action taken or omitted by such indemnitees hereunder or thereunder. SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. Resignation of Agents. Subject to the appointment and acceptance of a successor Senior Administrative Agent or Senior Collateral Agent as provided in this paragraph, the Senior Administrative Agent or the Senior Collateral Agent, as the case may be, may resign at any time by notifying the Banks, the Swingline Banks, the Issuing Banks and the Borrower. Upon any such resignation, the Majority Banks shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Majority Banks and shall have accepted such appointment within 30 days after the retiring Senior Administrative Agent or Senior Collateral Agent, as the case may be, gives notice of its resignation, then the retiring Senior Administrative Agent or Senior Collateral Agent, as the case may be, may, on behalf of the Banks, the Swingline Banks and the Issuing Banks, appoint a successor Senior Administrative Agent or Senior Collateral Agent, as the case may be, which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Senior Administrative Agent or Senior Collateral Agent, as the case may be, hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Senior Administrative Agent or Senior Collateral Agent, as the case may be, and the retiring Senior Administrative Agent or Senior Collateral Agent, as the case may be, shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Senior Administrative Agent or Senior Collateral Agent, as the case may be, shall be the same as those payable to its predecessor 99 unless otherwise agreed between the Borrower and such successor. After the Senior Administrative Agent's or Senior Collateral Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Senior Administrative Agent or Senior Collateral Agent, as the case may be, its sub-agents and their respective Affiliates in respect of any actions taken or omitted to be taken by any of them while it was acting as Senior Administrative Agent or Senior Collateral Agent, as the case may be. ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Euro-Dollar Borrowing: (a) the Senior Administrative Agent determines that deposits in dollars (in the applicable amounts) are not being offered to the Senior Administrative Agent in the London interbank market for such Interest Period, or (b) Banks having 50% or more of the aggregate amount of the Commitments of the relevant Class advise the Senior Administrative Agent that the Adjusted London Interbank Offered Rate as determined by the Senior Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period, the Senior Administrative Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Senior Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make Euro-Dollar Loans or to continue or convert outstanding Loans as or into Euro-Dollar Loans, shall be suspended, and each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Senior Administrative Agent at least two Domestic Business Days before the date of any Euro-Dollar Borrowing for which a Borrowing Request has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing. SECTION 8.02. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by 100 any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Senior Administrative Agent, the Senior Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Senior Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before giving any notice to the Senior Administrative Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day. Interest and principal on any such Base Rate Loan shall be payable on the same dates as, and on a pro rata basis with, the interest and principal payable on the related Euro-Dollar Loans of the other Banks. SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Federal Reserve Board, but excluding any such requirement included in Statutory Reserves), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Euro-Dollar Lending Office) or shall impose on any Bank (or its Euro-Dollar Lending Office) or on the London interbank market any other condition affecting its Euro-Dollar Loans, its Note or its obligation to make Euro-Dollar Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Euro-Dollar Lending Office) of making or maintaining any Euro-Dollar Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Euro-Dollar Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Senior Administrative Agent), the Borrower shall pay to such Bank (on an 101 after-tax basis) such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Senior Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) (on an after-tax basis) for such reduction. (c) Each Bank will promptly notify the Borrower and the Senior Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Euro-Dollar Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of clearly demonstrable error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. SECTION 8.04. Taxes. (a) Any and all payments by the Borrower to or for the account of any Bank or the Senior Administrative Agent hereunder or under any Note shall be made free 102 and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, (i) in the case of each Bank and the Senior Administrative Agent, taxes imposed on its income, and franchise or similar taxes imposed on its net income, (A) by the jurisdiction or any political subdivision thereof under the laws of which such Bank or the Senior Administrative Agent (as the case may be) is organized, or (B) by any jurisdiction or any political subdivision thereof in which such Bank or the Senior Administrative Agent (as the case may be) carries on business (but only if such taxes are imposed as a result of the carrying on of such business in that jurisdiction) or, (C) in the case of each Bank, by the jurisdiction or any political subdivision thereof where such Bank's Applicable Lending Office is located or carries on business, and (ii) taxes to which a Bank becomes subject after the Applicable Date as a result of a change in the residence, place of incorporation, or principal place of business of such Bank, a change in the Applicable Lending Office of such Bank or other similar circumstances, or as a result of the recognition by such Bank of gain on the sale, assignment or participation by such Bank of the participating interests in its creditor positions hereunder, (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or the Senior Administrative Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) such Bank or the Senior Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Senior Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. 103 (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, or charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, any Senior Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Bank and the Senior Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Senior Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 15 days from the date such Bank or the Senior Administrative Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank (the "Applicable Date"), and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service Form 1001 or W-8BEN, 4224 or W-8ECI, as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that (i) each of such Bank and such Bank's Applicable Lending Office is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest, (ii) the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States or (iii) Loans, or distributions of interest in respect thereof, pursuant to this agreement are otherwise exempt from United States withholding taxes. If the form provided by a Bank at the time such Bank first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "Taxes" as defined in Section 8.04(a). (e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which a form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04(c) with respect to Taxes imposed by the United States; provided, however, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. 104 (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank. SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans. If (a) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (b) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Senior Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, all Loans which would otherwise be made by such Bank as (or continued as or converted into) Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks). If such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks. ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party at its address or telex number set forth in Annex 2, in an Administrative Questionnaire pursuant to Section 9.06(c), or at such other address or telex number as such party may specify from time to time for the purpose by notice to the Senior Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (a) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (b) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (c) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Senior Administrative Agent under Article 2 or Article 8 shall not be effective until received. 105 SECTION 9.02. No Waivers. No failure or delay by the Senior Administrative Agent or any Bank in exercising any right, power or privilege under any Senior Loan Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in the Senior Loan Documents shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Senior Administrative Agent, including fees and disbursements of special counsel for the Senior Administrative Agent, in connection with the preparation and administration of the Senior Loan Documents, any waiver or consent thereunder or any amendment thereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Senior Administrative Agent and each Bank, including fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify the Senior Administrative Agent and each Bank, their respective affiliates and the respective directors, officers, agents, employees, investment advisors of any fund and trustees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement, the other Loan Documents or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction. SECTION 9.04. Setoff; Sharing of Setoffs. (a) If an Event of Default shall have occurred and be continuing, each Bank 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 Bank to or for the credit or the account of any Subsidiary Guarantor against any or all the obligations of such Subsidiary Guarantor now or hereafter existing under this Agreement and the other Senior Loan Documents held by such Bank, irrespective of whether or not such Bank shall have made any demand under this Agreement or any other Senior Loan Document and although such obligations may be unmatured and regardless of the adequacy of any collateral. The rights 106 of each Bank under this Section are in addition to other rights and remedies (including other rights of setoff) which such Bank may have. (b) Each Bank agrees that if it shall, by exercising any right of setoff or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Loan held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Loan held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Loan held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Loans held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of setoff or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Loans. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Loan acquired pursuant to the foregoing arrangements may exercise rights of setoff or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.05. Amendments and Waivers; Release of Senior Collateral and Subsidiary Guarantors. (a) Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower, by the Majority Banks (or if such provision by its terms requires the consent of the Supermajority Banks or all of the Banks, by the Supermajority Banks or all of the Banks, as the case may be, and if the rights or duties of the Senior Administrative Agent are affected thereby, by the Senior Administrative Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for termination of any Commitment, including the postponement of any scheduled date of payment of the principal amount of any Term Loan under Section 2.11, (iv) waive any condition for the initial Credit Event, (v) amend or waive any provision of Section 2.13 or Section 2.19, the definitions of "Term Exposure" and "Borrowing Base Amount", including indirectly through the amendment of any defined term used therein, or Section 4.03 of the Collateral Trust and Intercreditor Agreement (other than the last sentence of Section 4.03(a) thereof), (vi) amend Section 2.15 in a manner that would alter the pro rata sharing of payments required thereby, or (vii) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans, or the 107 number of Banks, the definitions of "Majority Banks", "Majority Revolving Credit Banks" or "Supermajority Banks", which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. (b) Any provision of any Senior Collateral Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Senior Administrative Agent with the consent of the Majority Banks; provided that no such amendment or waiver shall, unless signed by all the Banks, (i) alter the priorities set forth in Section 4.01 of the Collateral Trust and Intercreditor Agreement or (ii) effect or permit a release of all or substantially all of the Senior Collateral. Notwithstanding the foregoing, (i) Senior Collateral shall be released from the Lien of the Senior Collateral Documents from time to time as necessary to effect any sale of Senior Collateral permitted by the Senior Loan Documents, and the Senior Administrative Agent shall execute and deliver all release documents reasonably requested to evidence such release; provided that arrangements satisfactory to the Senior Administrative Agent shall have been made for application of the cash proceeds thereof in accordance with Section 2.13 and for the pledge of any non-cash proceeds thereof pursuant to the Senior Collateral Documents, and (ii) if a Subsidiary Guarantor ceases to be a Subsidiary of the Borrower in accordance with this Agreement, or ceases to own any property that constitutes Senior Collateral, at the request of and at the expense of the Borrower, such Subsidiary Guarantor shall be released from the Senior Subsidiary Guarantee Agreement, the Senior Subsidiary Security Agreement and each other Senior Loan Document to which it is a party. SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks, funds regularly investing in loans of the type made hereunder or other institutions (each a "Participant") participating interests in its Commitments or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Senior Administrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Senior Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided 108 that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05(a) without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article 8 with respect to its participating interest. An assignment or other transfer which is not permitted by clause (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this clause (b). (c) Any Bank may at any time assign to one or more banks, funds regularly in the business of lending money or, solely in the case of an assignment of Term Loans, funds regularly investing in term loans of the type made hereunder, or other institutions (each an "Assignee") all, or a part, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Acceptance Agreement hereto executed by such Assignee and such transferor Bank, with (and subject to) notice to, and the subscribed consent of, the Borrower, so long as no Default shall have occurred and be continuing, and the Senior Administrative Agent (such consent of the Borrower and the Senior Administrative Agent not to be unreasonably withheld or delayed); provided that (i) if an Assignee is an affiliate of a Bank, a Related Fund or is a Bank prior to giving effect to such assignment, such notice shall be given but no such consent shall be required, and (ii) in the case of an assignment of less than all of the rights and obligations of a Bank hereunder, such assignment shall be in a minimum amount of, in the case of a Revolving Credit Commitment and/or Revolving Loans, $5,000,000 and, in the case of a Term Loan Commitment and/or Term Loans, $1,000,000, and multiples of $1,000,000. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with Loans, participations and Commitments as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this clause (c), the transferor Bank, the Senior Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Senior Administrative Agent an administrative fee for processing such assignment in the amount of $1,000 (with only one such fee payable in connection with simultaneous assignments to Related Funds), and the transferee Bank shall deliver a completed Administrative Questionnaire to the Senior Administrative Agent. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to the Borrower and the Senior Administrative Agent 109 certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. (d) Any Bank may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement and its Note to secure obligations of such Bank, including without limitation (i) any pledge or assignment to secure obligations to a Federal Reserve Bank and (ii) in the case of any Bank that is a fund, any pledge or assignment of all or any portion of such Bank's rights under this Agreement and such Bank's Note to any holders of obligations owed, or securities issued, by such Bank as security for such obligations or securities, or to any trustee for, or any other representative of, such holders, and this Section 9.06 shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release the transferor Bank from its obligations hereunder or substitute any such pledgee or assignee for such Bank as a party hereto and in no event shall the applicable pledgee or assignee be considered to be a "Bank" or be entitled to require the transferor Bank to take or omit to take any action hereunder, and any transfer of the rights and obligations of a "Bank" hereunder to any Person upon the foreclosure of any pledge or security interest referred to in clause (ii) may only be made pursuant to the provisions of Sections 9.06(c) governing assignments of interests in the Loans. (e) Notwithstanding anything to the contrary contained herein, any Bank ("Granting Bank") may grant to a special purpose funding vehicle (an "SPC"), identified as such in writing from time to time by the Granting Bank to the Senior Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Bank would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise or otherwise fails to provide all or any part of such Loan, the Granting Bank shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Bank to the same extent, and as if, such Loan were made by such Granting Bank. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Bank). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 9.06, any SPC may (i) with notice to, but without the prior written consent of, the Borrower and the Senior Administrative 110 Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Bank or to any financial institutions (consented to by the Borrower and the Senior Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. This Section 9.06(e) may not be amended with the written consent of the SPC. (f) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 9.07. Governing Law; Submission to Jurisdiction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 9.08. Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 9.09. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.10. Collateral Trust and Intercreditor Agreement. Each Bank, Issuing Bank and Agent hereby authorizes the Senior Administrative Agent to enter into the Collateral 111 Trust Agreement and each other Senior Collateral Document on its behalf, and agrees that the Senior Administrative Agent and the Senior Collateral Agent may enforce the rights and remedies of the Senior Bank Parties under each Senior Loan Document to the extent provided in the Senior Collateral Documents and the Collateral Trust and Intercreditor Agreement. SECTION 9.11. Cash Sweep. (a) On any day which: (i) an Event of Default exists, or (ii) the lesser of (x) the average Revolving Credit Commitments (after deducting the average Aggregate Revolving Credit Exposure) over any 30-day period and (y) the average Borrowing Base Amount (after deducting the average Aggregate Revolving Credit Exposure and the average aggregate Term Exposures of the Banks) over any 30- day period, in each case, together with all amounts then on deposit in the Cash Sweep Cash Collateral Account, is less than $50,000,000, the Senior Collateral Agent, upon its determination or upon request by the Majority Banks, shall be immediately be entitled to deliver Cash Sweep Notices. (b) During a Cash Sweep Period, if: (i) there is no Event of Default, and (ii) the lesser of (x) the average Revolving Credit Commitments (after deducting the average Aggregate Revolving Credit Exposure) over any 30-day period and (y) the average Borrowing Base Amount (after deducting the average Aggregate Revolving Credit Exposure and the average aggregate Term Exposures of the Banks) over any 30- day period, in each case, together with all amounts then on deposit in the Cash Sweep Cash Collateral Account, is greater than $75,000,000, the Senior Collateral Agent shall automatically rescind any Cash Sweep Notice. (c) The Senior Collateral Agent reserves the right to send a Cash Sweep Notice on each occasion of the occurrence of the events set forth in Section 9.11(a). 112 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. RITE AID CORPORATION By: --------------------------------------------- Name: Title: 113 CITICORP USA, INC., as Senior Administrative Agent, Senior Collateral Agent, Issuing Bank and Swingline Bank By: --------------------------------------------- Name: Title: 114 THE CHASE MANHATTAN BANK, as Syndication Agent and Issuing Bank By: --------------------------------------------- Name: Title: 115 CREDIT SUISSE FIRST BOSTON, as Syndication Agent By: --------------------------------------------- Name: Title: 116 FLEET RETAIL FINANCE INC., as Syndication Agent and Swingline Bank By: --------------------------------------------- Name: Title: FLEET NATIONAL BANK, as Issuing Bank, By: --------------------------------------------- Name: Title: 117 MELLON BANK, N.A., as Issuing Bank solely with respect to the Mellon Standby Letters of Credit By: ------------------------------------------------ Name: Title: 118 Annex 1 Initial Revolving Credit Commitments and Term Loan Commitments
Term Loan Commitment Funded in full on the Delayed Draw Initial Term Loan Total Term Loan Revolving Credit Total Bank Borrowing Date Commitment Commitment Commitment Commitment Citicorp USA, Inc. The Chase Manhattan Bank Credit Suisse First Boston Fleet Retail Finance Inc. TOTAL COMMITMENTS $1,400,000,000.00 $500,000,000 $00 1,900,000,000.00
Annex 2 Administrative Information
- ------------------------------------------------------------------------------------------------------------------ Name and Address Telephone Telecopy Attention - ------------------------------------------------------------------------------------------------------------------ Rite Aid Corporation (717) 975-5750 (717) 975-3764 Chief Financial 30 Hunter Lane Officer Camp Hill, PA 17011 www.riteaid.com - ------------------------------------------------------------------------------------------------------------------ Citicorp USA, Inc., as Senior Administrative Agent 399 Park Avenue New York, NY 10022 - ------------------------------------------------------------------------------------------------------------------ Citicorp USA, Inc., as Senior Collateral Agent 399 Park Avenue New York, NY 10022 - ------------------------------------------------------------------------------------------------------------------ The Chase Manhattan Bank, as Syndication Agent Loan and Agency Services One Chase Manhattan Plaza New York, New York 10081 - ------------------------------------------------------------------------------------------------------------------ Credit Suisse First Boston, as Syndication Agent - ------------------------------------------------------------------------------------------------------------------ Fleet Retail Finance Inc., as 617-434-4130 617-434-4310 Lisa Landry Syndication Agent 617-434-4386 617-434-4339 Timothy Tobin 40 Broad Street, 10th Floor Boston, MA 02109 - ------------------------------------------------------------------------------------------------------------------ Citicorp USA, Inc., as Swingline Bank 399 Park Avenue New York, NY 10022 - ------------------------------------------------------------------------------------------------------------------ Fleet Retail Finance Inc., as Swingline Bank [Address] - ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------ Name and Address Telephone Telecopy Attention - ------------------------------------------------------------------------------------------------------------------ Citicorp USA, Inc., as Issuing Bank 399 Park Avenue New York, NY 10022 - ------------------------------------------------------------------------------------------------------------------ The Chase Manhattan Bank, as Issuing Bank - ------------------------------------------------------------------------------------------------------------------ Fleet National Bank, as Issuing Bank [Address] - ------------------------------------------------------------------------------------------------------------------ Mellon Bank, N.A., as Issuing Bank [Address] - ------------------------------------------------------------------------------------------------------------------ [Name of Bank] Notices: Domestic Lending Office: Euro-Dollar Lending Office: - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------
2
- ------------------------------------------------------------------------------------------------------------------ Name and Address Telephone Telecopy Attention - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------
3 Annex 3 Description of the Transactions All capitalized terms used herein but not defined herein shall have the meanings provided in the Senior Credit Facility to which this Annex 3 is attached and the Definitions Annex referred to therein. The following transactions are referred to herein as the "Transactions". 1. Rite Aid will obtain a new senior secured credit facility pursuant to the Senior Credit Facility in an aggregate principal amount of $1,900,000,000. The Revolving Credit Commitments under the Senior Credit Facility will incorporate the Citicorp Standby Letters of Credit, the Fleet Standby Letters of Credit and the Mellon Standby Letters of Credit as Letters of Credit under the Senior Credit Facility. 2. The Senior Bank Obligations will be unconditionally guaranteed by the Subsidiary Guarantors pursuant to the Senior Subsidiary Guarantee Agreement and the Senior Bank Obligations and 10.5% Note Obligations will be secured by a first priority security interest in the Senior Collateral pursuant to the Senior Subsidiary Security Agreement and the Senior Mortgages. 3. Rite Aid will consummate a tender offer for the 10.5% Notes on an any and all basis, on terms reasonably satisfactory to the Agents. 4. An amount equal to $152,000,000 aggregate principal amount of 10.5% Notes will be exchanged for an equivalent principal amount of Exchange Notes plus 3,000,000 warrants with an exercise price of $6.00 per share; 5. The terms of the Exchange Notes will include (i) a Second Priority Lien on the Senior Collateral that will be shared with the Additional Second Priority Debt, if any, on a pari passu basis, and will be junior in right of payments in respect of the Collateral to the Synthetic Lease Obligations and the Additional Senior Second Priority Debt Obligations, if any, pursuant to the Second Priority Subsidiary Security Agreement, (ii) an unconditional subordinated guarantee by all of the Subsidiary Guarantors pursuant to the Second Priority Subsidiary Guarantee Agreement and (iii) a maturity date of September 15, 2006. 6. Rite Aid will issue $150,000,000 aggregate principal amount of 11.25% Senior Notes due 2008; 7. Rite Aid will establish the Synthetic Lease Facility with an aggregate discounted present value of approximately $107,000,000 and use the proceeds thereof, together with a portion of the proceeds from the remaining Transactions, to refinance and terminate the existing Synthetic Leases. 8. Rite Aid will have consummated $170,981,000 in previously negotiated debt for equity exchanges. Rite Aid will consummate the exchange of $132,658,503 of debt for shares of Convertible Preferred Stock of Rite Aid. 9. Rite Aid will consummate the sale of $150,000,000 shares of its common stock. $125,000,000 of the shares are priced at $5.50 per share (22,727,273 shares) and $25,000,000 are priced at $6.50 (3,846,154). Rite Aid will consummate the sale of approximately $402.4 million shares of its common stock at a purchase price of $7.50 per share. 10. Using the proceeds of the Transactions, Rite Aid will prepay in full and terminate the Existing Facilities (as defined in the Existing Credit Agreement) and the Existing Credit Agreement and all Liens securing obligations thereunder shall be released. 11. Costs and expenses (including, without limitation, all fees and amounts payable under the Senior Fee Letters) incurred in connection with the foregoing transactions will be paid in an amount up to approximately $94,000,000 (the "Transaction Costs"). 13. All Transactions which are contemplated by the Senior Loan Documents or the Second Priority Debt Documents to have been consummated on the Closing Date or substantially concurrently with the Closing Date shall have been consummated. 14. The application of funds on the Closing Date will be as set forth in a funds flow memo dated the Closing Date which is satisfactory to the Senior Administrative Agent. 2 EX-10 11 exh10-31.txt EXHIBIT 10.31 EXECUTION COPY SENIOR SUBSIDIARY GUARANTEE AGREEMENT dated as of June 27, 2001, among each of the subsidiaries listed on Schedule I hereto (each such subsidiary individually, a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors") of RITE AID CORPORATION, a Delaware corporation (the "Borrower"), and CITICORP USA, INC., a Delaware corporation, as senior collateral agent (the "Senior Collateral Agent") for the Senior Secured Parties. Reference is made to the Senior Credit Agreement dated as of June 27, 2001 (as amended, supplemented or otherwise modified from time to time, the "Senior Credit Facility"), among Rite Aid, as Borrower, the Senior Banks parties thereto, the Swingline Banks, the Issuing Banks, the Administrative Agent, the Senior Collateral Agent and the Syndication Agents. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Definitions Annex attached as Annex 2 hereto, and if not defined therein, as defined in or by reference to the Senior Credit Facility. The Senior Banks have agreed to make Loans to the Borrower, and the Issuing Banks have agreed to issue Letters of Credit for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Senior Credit Facility. Each of the Subsidiary Guarantors is a wholly owned Subsidiary of the Borrower and acknowledges that it will derive substantial benefit from the making of the Loans by the Senior Banks and the issuance of the Letters of Credit. The obligations of the Senior Banks to make Loans and of the Issuing Banks to issue Letters of Credit are conditioned on, among other things, the execution and delivery by the Subsidiary Guarantors of a Senior Subsidiary Guarantee Agreement in the form hereof. As consideration therefor and in order to induce the Senior Banks to make Loans and the Issuing Banks to issue Letters of Credit, the Subsidiary Guarantors are willing to execute this Agreement. Accordingly, the parties hereto agree as follows: SECTION 1. Guarantee. Each Subsidiary Guarantor unconditionally guarantees, jointly with the other Subsidiary Guarantors and severally, as a primary obligor and not merely as a surety, the due and punctual payment of, and the due and punctual performance of, the Senior Bank Obligations and the 10.50% Note Obligations (together, the "Senior Obligations") and all obligations of the Borrower under any Senior Interest Rate Agreement. Each Subsidiary Guarantor agrees that the Senior 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 Senior Obligation. Anything contained in this Agreement to the contrary notwithstanding, the obligations of each Subsidiary Guarantor hereunder shall be limited to a maximum aggregate amount equal to the greater of: (a) the direct or indirect benefit to any Subsidiary Guarantor from the Loans and other extensions of credit under the Senior Debt Documents, and (b) the greatest amount that would not render such Subsidiary Guarantor's obligations hereunder subject to avoidance under Section 548 of Title 11 of the United States Code or any comparable provisions of any applicable state law, after giving effect to all other liabilities of such Subsidiary Guarantor, contingent or otherwise, that are relevant under such laws (specifically excluding, however, any liabilities of such Subsidiary Guarantor (x) in respect of intercompany indebtedness to the Borrower or Affiliates of the Borrower to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Subsidiary Guarantor hereunder, and (y) under any Guarantee of the Second Priority Debt Obligations) and after giving effect as assets to the value of any rights to subrogation, contribution, reimbursement, indemnity or similar rights of such Subsidiary Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an equitable allocation among such Subsidiary Guarantor and other Affiliates of the Borrower of obligations arising under Guarantees by such parties (including the Senior Indemnity, Subrogation and Contribution Agreement). SECTION 2. Obligations Not Waived. To the fullest extent permitted by applicable law, each Subsidiary Guarantor waives presentment to, demand of payment from and protest to the Borrower of any of the Senior 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 Subsidiary Guarantor hereunder shall not be affected by (a) the failure of the Senior Collateral Agent or any other Senior Secured Party to assert any claim or demand or to enforce or exercise any right or remedy against the Borrower or any other Subsidiary Guarantor under the provisions of the Senior Credit Facility, any other Senior Debt 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 Senior Debt Document, any Guarantee or any other agreement, including with respect to any other Subsidiary Guarantor under this Agreement or (c) the failure to perfect any security interest in, or the release of, any of the security held by or on behalf of the Senior Collateral Agent or any other Senior Secured Party. SECTION 3. Security. Each of the Subsidiary Guarantors authorizes the Senior Collateral Agent and each of the other Senior Secured Parties, to (a) take and hold security for the payment of this Guarantee and the Senior 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 Subsidiary Guarantors or other Obligors. SECTION 4. Guarantee of Payment. Each Subsidiary Guarantor 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 Senior Collateral Agent or any other Senior Secured Party to any of the security held for payment of the Senior Obligations or to any balance of any deposit account or credit on the books of the Senior Collateral Agent or any other Senior Secured Party in favor of the Borrower, any other Obligor or any other Person. SECTION 5. No Discharge or Diminishment of Guarantee. The obligations of each Subsidiary 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 Senior Obligations), including any claim of waiver, release, surrender, alteration or compromise of any of the Senior 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 Senior Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of the Senior Collateral Agent or any other Senior Secured Party to assert any claim or demand or to enforce any remedy under the Senior Credit Facility, any other Senior Debt Document or any other agreement, by any waiver or modification of any provision of any thereof, by any default, failure or delay, wilful or otherwise, in the performance of the Senior Obligations, or by any other act or omission that may or might in any manner or to 2 any extent vary the risk of any Subsidiary Guarantor or that would otherwise operate as a discharge of each Subsidiary Guarantor as a matter of law or equity (other than the indefeasible payment in full in cash of all the Senior Obligations). SECTION 6. Defenses of Borrower Waived. To the fullest extent permitted by applicable law, each of the Subsidiary Guarantors waives any defense based on or arising out of any defense of the Borrower or the unenforceability of the Senior Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower, other than the final and indefeasible payment in full in cash of the Senior Obligations. The Senior Collateral Agent and the other Senior Secured Parties may, at their election, foreclose on any security held by one or more of them by one or more judicial or nonjudicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Senior Obligations, make any other accommodation with the Borrower or any other guarantor or exercise any other right or remedy available to them against the Borrower or any other guarantor, without affecting or impairing in any way the liability of any Subsidiary Guarantor hereunder except to the extent the Senior Obligations have been fully, finally and indefeasibly paid in cash. Pursuant to applicable law, each of the Subsidiary Guarantors waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Subsidiary Guarantor against the Borrower or any other Subsidiary Guarantor or guarantor, as the case may be, or any security. SECTION 7. Agreement to Pay; Subordination. In furtherance of the foregoing and not in limitation of any other right that the Senior Collateral Agent or any other Senior Secured Party has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the failure of the Borrower or any other Obligor to pay any Senior Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Subsidiary Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the Senior Collateral Agent or such other Senior Secured Party as designated thereby in cash the amount of such unpaid Senior Obligations. Upon payment by any Subsidiary Guarantor of any sums to the Senior Collateral Agent or any Senior Secured Party as provided above, all rights of such Subsidiary Guarantor against the Borrower arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise, including pursuant to the Senior Indemnity, Subrogation and Contribution Agreement, shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full in cash of all the Senior Obligations. In addition, any indebtedness of the Borrower now or hereafter held by any Subsidiary Guarantor is hereby subordinated in right of payment to the prior payment in full of the Senior Obligations. If any amount shall erroneously be paid to any Subsidiary Guarantor on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such indebtedness of the Borrower, such amount shall be held in trust for the benefit of the Senior Secured Parties and shall forthwith be paid to the Senior Collateral Agent to be credited against the payment of the Senior Obligations, whether matured or unmatured, in accordance with the terms of the Senior Debt Documents. SECTION 8. Cash Collateralization of Letter of Credit Obligations. If any Event of Default shall occur and be continuing, each Subsidiary Guarantor agrees, jointly and severally, and in addition to its obligations under Section 1, on the Business Day on which the Borrower receives notice from the Administrative Agent or the Majority Revolving Credit Banks (or, if the maturity of the Loans has been accelerated, Revolving Credit Banks holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit) thereof and of the amount to be deposited, deposit in the L/C Cash Collateral Account, for the benefit of the Revolving Credit Banks, an amount in cash equal to the L/C Exposure as of such date. Such deposits shall be held by the Senior Collateral Agent 3 as collateral for the payment and performance of the Senior Obligations. The Senior Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Such deposits shall be invested in Temporary Cash Investments, to be selected by the Senior Collateral Agent in its sole discretion, and interest earned on such deposits shall be deposited in such account as additional collateral for the payment and performance of the Senior Obligations. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall (i) automatically be applied by the Administrative Agent to reimburse the applicable Issuing Bank for L/C Disbursements for which it has not been reimbursed, (ii) be held for the satisfaction of the reimbursement obligations of the Borrower for the L/C Exposure at such time and (iii) if the maturity of the Loans has been accelerated be applied to satisfy other Senior Obligations. If a Subsidiary Guarantor is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to such Subsidiary Guarantor within three Business Days after all Events of Default have been cured or waived (or during a Cash Sweep Period, paid into the Citibank Concentration Account). SECTION 9. Information. Each of the Subsidiary 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 Senior Obligations and the nature, scope and extent of the risks that such Subsidiary Guarantor assumes and incurs hereunder, and agrees that none of the Senior Collateral Agent or the other Senior Secured Parties will have any duty to advise any of the Subsidiary Guarantors of information known to it or any of them regarding such circumstances or risks. SECTION 10. Representations and Warranties. Each of the Subsidiary Guarantors represents and warrants as to itself that all representations and warranties relating to it contained in the Senior Credit Facility are true and correct. SECTION 11. Termination. The Guarantees made hereunder (a) shall terminate on the Senior Obligation Payment Date and (b) shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Senior Obligations is rescinded or must otherwise be restored by any Senior Secured Party or any Subsidiary Guarantor upon the bankruptcy or reorganization of the Borrower, any Subsidiary Guarantor or otherwise. SECTION 12. Binding Effect; Several 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 Subsidiary 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 Subsidiary Guarantor when a counterpart hereof executed on behalf of such Subsidiary Guarantor shall have been delivered to the Senior Collateral Agent, and a counterpart hereof shall have been executed on behalf of the Senior Collateral Agent, and thereafter shall be binding upon such Subsidiary Guarantor and the Senior Collateral Agent and their respective successors and assigns, and shall inure to the benefit of such Subsidiary Guarantor, the Senior Collateral Agent and the other Senior Secured Parties, and their respective successors and assigns, except that no Subsidiary Guarantor shall have the right to assign its rights or obligations hereunder or any interest herein (and any such attempted assignment shall be void). If all of the capital stock of a Subsidiary Guarantor is sold, transferred or otherwise disposed of pursuant to a transaction permitted by Section 5.23 of the Senior Credit Facility, such Subsidiary Guarantor shall be released from its obligations under this Agreement without further action. This Agreement shall be construed as a separate agreement with respect to each Subsidiary Guarantor and may be amended, modified, supplemented, waived or released with 4 respect to any Subsidiary Guarantor without the approval of any other Subsidiary Guarantor and without affecting the obligations of any other Subsidiary Guarantor hereunder. SECTION 13. Waivers; Amendment. (a) No failure or delay of the Senior 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 Senior Collateral Agent hereunder and of the other Senior Secured Parties under the other Senior Debt Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Subsidiary Guarantor therefrom shall in any event be effective unless the same shall be permitted by clause (b), 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 Subsidiary Guarantor in any case shall entitle such Subsidiary 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 Subsidiary Guarantors with respect to which such waiver, amendment or modification relates and the Senior Collateral Agent, with the prior written consent of the Majority Senior Parties, except as otherwise provided in the Senior Credit Facility. SECTION 14. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 15. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 9.01 of the Senior Credit Facility and the relevant provision of the 10.50% Note Indenture. All communications and notices hereunder to each Subsidiary Guarantor shall be given to it in care of the Borrower, at the address of the Borrower specified in Annex 2 to the Senior Credit Facility. SECTION 16. Survival of Agreement; Severability. (a) All covenants, agreements, representations and warranties made by the Subsidiary Guarantors herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Senior Debt Document shall be considered to have been relied upon by the Senior Collateral Agent and the other Senior Secured Parties and shall survive the making by the Senior Banks of the Loans and the issuance of the Letters of Credit by the Issuing Banks regardless of any investigation made by the Senior 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 any other fee or amount payable under this Agreement or any other Senior Debt Document is outstanding and unpaid or the L/C Exposure does not equal zero and as long as the Commitments and the L/C Commitment have not been terminated. (b) In the event any one or more of the provisions contained in this Agreement or in any other Senior Debt 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. 5 SECTION 17. Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 12. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Agreement. SECTION 18. Rules of Interpretation. The rules of interpretation specified in Section 1.05 of the Senior Credit Facility shall be applicable to this Agreement. SECTION 19. Jurisdiction; Consent to Service of Process. (a) Each Subsidiary 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 Senior Debt 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 Senior Collateral Agent or any other Senior Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Senior Debt Documents against any Subsidiary Guarantor or its properties in the courts of any jurisdiction. (b) Each Subsidiary 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 Senior Debt 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 20. 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 OR THE OTHER SENIOR DEBT DOCUMENTS. 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 AND THE OTHER SENIOR DEBT DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 20. SECTION 21. Additional Subsidiary Guarantors. Pursuant to Section 5.08 of the Senior Credit Facility, certain Domestic Subsidiaries of the Borrower that were not in existence on the date of the execution of Senior Credit Facility are required to enter into this Agreement as a Subsidiary Guarantor upon becoming a Subsidiary. Upon execution and delivery after the date 6 hereof by the Senior Collateral Agent and such a Subsidiary of an instrument in the form of Annex 1, such Subsidiary shall become a Subsidiary Guarantor hereunder with the same force and effect as if originally named as a Subsidiary Guarantor herein. The execution and delivery of any instrument adding an additional Subsidiary Guarantor as a party to this Agreement shall not require the consent of any other Subsidiary Guarantor hereunder. The rights and obligations of each Subsidiary Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Guarantor as a party to this Agreement. SECTION 22. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Senior Secured Party 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 Debt at any time owing by such Senior Secured Party to or for the credit or the account of any Subsidiary Guarantor against any or all the obligations of such Subsidiary Guarantor now or hereafter existing under this Agreement and the other Senior Debt Documents held by such Senior Secured Party, irrespective of whether or not such Senior Secured Party shall have made any demand under this Agreement or any other Senior Debt Document and although such obligations may be unmatured and regardless of the adequacy of any Collateral. The rights of each Senior Secured Party under this Section 22 are in addition to other rights and remedies (including other rights of setoff) which such Senior Secured Party may have. SECTION 23. Collateral Trust and Intercreditor Agreement. Each of the parties to this Agreement acknowledges and agrees, for the benefit of each other party to the Collateral Trust and Intercreditor Agreement, that notwithstanding anything herein to the contrary, the terms of this Agreement, and the rights and remedies of the parties hereto, are subject to the Collateral Trust and Intercreditor Agreement. 7 IN WITNESS WHEREOF, the parties hereto have duly executed this Senior Subsidiary Guarantee Agreement as of the day and year first above written. CITICORP USA, INC., as Senior Collateral Agent, By________________________________ Name: Title: EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE I HERETO, as Grantors, By________________________________ Name: Title: THRIFTY PAYLESS, INC., as Grantor, By________________________________ Name: Title: 8 Schedule I to the Senior Subsidiary Guarantee Agreement Subsidiary Guarantors 112 Burleigh Avenue Norfolk, LLC 1515 West State Street Boise, Idaho, LLC 1525 Cortyou Road - Brooklyn Inc. 1740 Associates, LLC 3581 Carter Hill Road - Montgomery Corp. 4042 Warrensville Center Road - Warrensville Ohio, Inc. 5277 Associates, Inc. 537 Elm Street Corporation 5600 Superior Properties, Inc. 657-659 Broadway St. Corp. 764 South Broadway- Geneva, Ohio, LLC Ann & Government Streets- Mobile, Alabama, LLC Apex Drug Stores, Inc. Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC Broadview and Wallings -Broadview Heights Ohio, Inc. Central Avenue and Main Street- Petal, MS, LLC Dominion Action Four Corporation Dominion Action One Corporation Dominion Action Three Corporation Dominion Action Two Corporation Dominion Drug Stores Corporation Drug Fair of PA, Inc. Drug Fair, Inc. Eagle Managed Care Corp. Eighth and Water Streets- Ulrichsville, Ohio, LLC England Street-Asheland Corporation GDF, Inc. Gettysburg and Hoover-Dayton, Ohio, LLC Gratiot & Center- Saginaw Township, Michigan, LLC Harco, Inc. Jaime Nathan Travis Corporation K&B Alabama Corporation K&B Florida Corporation K&B Louisiana Corporation K&B Mississippi Corporation K&B Services, Inc. K&B Tennessee Corporation K&B Texas Corporation K&B Trainees, Inc. K&B, Incorporated Katz & Besthoff, Inc. Keystone Centers, Inc. Lakehurst and Broadway Corporation Mayfield & Chillicothe Roads- Chesterland, LLC Munson & Andrews LLC Name Rite, LLC Northline & Dix- Toledo- Southgate, LLC Ocean Acquisition Corporation P.L.D. Enterprises, Inc. Patton Drive and Navy Boulevard Property Corporation Paw Paw Lake Road & Paw Paw Avenue- Coloma, Michigan, LLC PDS-1 Michigan, Inc. Perry Distributors, Inc. Perry Drug Stores, Inc. PL Xpress, Inc. Portfolio Medical Services, Inc. Rack Rite Distributors, Inc. Ram-Utica, Inc. RDS Detroit, Inc. Reads, Inc. Rite Aid Drug Palace, Inc. Rite Aid Hdqtrs. Corp. Rite Aid of Alabama, Inc. Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Florida, Inc. Rite Aid of Georgia, Inc. Rite Aid of Illinois, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Massachusetts, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of North Carolina, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. Rite Aid of South Carolina, Inc. Rite Aid of Tennessee, Inc. Rite Aid of Vermont, Inc. Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Rite Aid Realty Corp. Rite Aid Rome Distribution Center, Inc. Rite Aid Transport, Inc. Rite Aid Venturer #1, Inc. Rite Fund, Inc. Rite Investments Corporation RX Choice, Inc. Script South Seven Mile and Evergreen- Detroit, LLC Silver Springs Road- Baltimore, Maryland/One, LLC Silver Springs Road- Baltimore, Maryland/Two, LLC Sophie One Corp. State & Fortification Streets- Jackson, Mississippi, LLC State Street and Hill Road- Gerard, Ohio, LLC 2 Super Distributors, Inc. Super Ice Cream Suppliers, Inc. Super Laboratories, Inc. Super Pharmacy Network, Inc. Super Tobacco Distributors, Inc The Lane Drug Company The Muir Company Thrifty Corporation Thrifty Payless, Inc Thrifty Wilshire, Inc. Tyler and Sanders Roads, Birmingham- Alabama, LLC Virginia Corporation W.R.A.C., Inc. Fairground, LLC Laverdiere's Enterprises, Inc. Leader Drugs, Inc. 3 Annex 1 to the Senior Subsidiary Guarantee Agreement SUPPLEMENT NO. dated as of , to the Senior Subsidiary Guarantee Agreement dated as of June 27, 2001 (as the same may be amended, supplemented or otherwise modified from time to time, the "Senior Subsidiary Guarantee Agreement"), among each of the subsidiaries listed on Schedule I thereto (each such subsidiary individually, a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors") of RITE AID CORPORATION, a Delaware corporation (the "Borrower"), and CITICORP USA, INC., a Delaware corporation, as senior collateral agent (the "Senior Collateral Agent") for the Senior Secured Parties. A. Reference is made to the Senior Credit Agreement dated as of June 27, 2001 (as amended, supplemented or otherwise modified from time to time, the "Senior Credit Facility"), among Rite Aid, as Borrower, the Senior Banks parties thereto, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Senior Subsidiary Guarantee Agreement, including the Definitions Annex and the Senior Credit Facility referred to therein. C. The Subsidiary Guarantors have entered into the Senior Subsidiary Guarantee Agreement in order to induce the Senior Banks to make Loans and the Issuing Banks to issue Letters of Credit. Pursuant to Section 5.08 of the Senior Credit Facility, certain Domestic Subsidiaries of the Borrower that were not in existence or not a Domestic Subsidiary on the date of the Senior Credit Facility are required to enter into the Senior Subsidiary Guarantee Agreement as a Subsidiary Guarantor upon becoming a Domestic Subsidiary. Section 21 of the Senior Subsidiary Guarantee Agreement provides that additional Subsidiaries of the Borrower may become Subsidiary Guarantors under the Senior Subsidiary Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary of the Borrower (the "New Subsidiary Guarantor") is executing this Supplement in accordance with the requirements of the Senior Credit Facility to become a Subsidiary Guarantor under the Senior Subsidiary Guarantee Agreement in order to induce the Senior Banks to make additional Loans and the Issuing Banks to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued. Accordingly, the Senior Collateral Agent and the New Subsidiary Guarantor agree as follows: SECTION 1. In accordance with Section 21 of the Senior Subsidiary Guarantee Agreement, the New Subsidiary Guarantor by its signature below becomes a Subsidiary Guarantor under the Senior Subsidiary Guarantee Agreement with the same force and effect as if originally named therein as a Subsidiary Guarantor and the New Subsidiary Guarantor hereby (a) agrees to all the terms and provisions of the Senior Subsidiary Guarantee Agreement applicable to it as a Subsidiary Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Subsidiary Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a "Subsidiary Guarantor" in the Senior Subsidiary Guarantee Agreement shall be deemed to include the New Subsidiary Guarantor. The Senior Subsidiary Guarantee Agreement is hereby incorporated herein by reference. SECTION 2. The New Subsidiary Guarantor represents and warrants to the Senior Collateral Agent and the other Senior 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. SECTION 3. This Supplement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Senior Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Subsidiary Guarantor and the Senior Collateral Agent. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Supplement. SECTION 4. Except as expressly supplemented hereby, the Senior Subsidiary 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, the validity, legality and enforceability of the remaining provisions contained herein and in the Senior Subsidiary Guarantee Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision hereof in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). 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 Senior Subsidiary Guarantee Agreement. All communications and notices hereunder to the New Subsidiary Guarantor shall be given to it at the address set forth under its signature below, with a copy to the Borrower. SECTION 8. The New Subsidiary Guarantor agrees to reimburse the Senior Collateral Agent for its out-of-pocket expenses in connection with this Supplement, including the fees, disbursements and other charges of counsel for the Senior Collateral Agent. IN WITNESS WHEREOF, the New Subsidiary Guarantor and the Senior Collateral Agent have duly executed this Supplement to the Senior Subsidiary Guarantee Agreement as of the day and year first above written. [NAME OF NEW SUBSIDIARY GUARANTOR], By________________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent, By________________________________ Name: Title: 2 Annex 2 to the Senior Subsidiary Guarantee Agreement DEFINITIONS ANNEX EX-10 12 exh10-32.txt EXHIBIT 10.32 EXECUTION COPY SENIOR SUBSIDIARY SECURITY AGREEMENT SENIOR SUBSIDIARY SECURITY AGREEMENT, dated as of June 27, 2001, made by the SUBSIDIARY GUARANTORS identified on the signature pages hereto and any other person that becomes a Subsidiary Guarantor pursuant to the Senior Credit Facility (as such term is defined below) (the "Grantors"), in favor of CITICORP USA, INC., a New York banking corporation, as senior collateral agent (in such capacity, the "Senior Collateral Agent") for the Senior Secured Parties. Reference is made to the Senior Credit Agreement, dated as of June 27, 2001 (as the same may be amended, supplemented or otherwise modified from time to time, the "Senior Credit Facility"), among Rite Aid, as Borrower, the Senior Banks parties thereto, the Swingline Banks, the Issuing Banks, the Administrative Agent, Senior Collateral Agent and the Syndication Agents. The Senior Banks have agreed to make Loans to the Borrower, and the Issuing Banks have agreed to issue Letters of Credit for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Senior Credit Facility. Each of the Subsidiary Guarantors has agreed to guarantee, among other things, all the obligations of the Borrower under the Senior Credit Facility. In order to induce the Senior Banks to make the Senior Loans and the Issuing Banks to issue Letters of Credit, the Grantors have agreed to guarantee the due and punctual payment of the Senior Bank Obligations and the 10.50% Note Obligations (together, the "Senior Obligations") pursuant to the terms of the senior subsidiary guarantee agreement dated as of June 27, 2001 (the "Senior Subsidiary Guarantee Agreement") among the Borrower, the Subsidiary Guarantors and the Senior Collateral Agent for the benefit of the Senior Bank Parties and the 10.5% Note Parties (together, the "Senior Secured Parties"). Accordingly, the Grantors and the Senior Collateral Agent, on behalf of itself and each Senior Secured Party (and each of their respective successors or assigns), hereby agree as follows: SECTION 1. Defined Terms. SECTION 1.01. Definitions. (a) Unless otherwise defined herein, terms used herein shall have the meanings given in the Definitions Annex attached as Annex 2 hereto, or if not defined therein, as defined in or by reference to the Senior Credit Facility. All terms defined in the New York UCC (as defined herein) and not defined in this Agreement have the meanings specified therein. (b) The following terms shall have the following meanings: "Account Debtor" includes "Account Debtor" as defined in the Senior Credit Facility and with respect to each Grantor means any person who is or may become obligated to any Grantor with respect to or on account of an Account. "Accounts" includes the right to payment of a monetary obligation, whether or not earned by performance, (i) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (ii) for services rendered or to be rendered, (iii) for a policy of insurance issued or to be issued, (iv) for a secondary obligation incurred or to be incurred, (v) for energy provided or to be provided, (vi) for the use or hire of a vessel under a charter or other contract, (vii) arising out of the use of a credit or charge card or information contained on or for use with the card, or (viii) as winnings in a lottery or other game of chance operated or sponsored by a State, governmental unit of a State, or person licensed or authorized to operate the game by a State or governmental unit of a State. The term includes health-care-insurance receivables. The term does not include (i) rights to payment evidenced by chattel paper or an instrument, (ii) commercial tort claims, (iii) deposit accounts, (iv) investment property, (v) letter-of-credit rights or letters of credit, or (vi) rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card. "Accounts Receivable" means with respect to each Grantor, all right, title and interest of such Grantor to Accounts and all of its right, title and interest in any returned goods, together with all rights, titles, securities and guaranties 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 due or become due, whether now or hereafter arising in the future. "Agreement" means this Senior Subsidiary Security Agreement, as the same may be amended, modified or otherwise supplemented from time to time. "Blocked Account" means each of the accounts established by the applicable Grantors listed in Section 4 of Schedule 5 to this Agreement and maintained with a Blocked Account Bank pursuant to a Blocked Account Agreement. "Blocked Account Agreement" means any Blocked Account Agreement between the Senior Collateral Agent and a Blocked Account Bank substantially in the form of Schedule 6 to this Agreement. "Blocked Account Bank" means any bank or financial institution that is satisfactory to the Senior Collateral Agent that executes and delivers to the Senior Collateral Agent a Blocked Account Agreement. "Blocked Account Cash Sweep Notice" means a notice in the form attached as Exhibit A to the Blocked Account Agreement. 2 "Cash Management Accounts" mean, collectively, (a) the Blocked Accounts, (b) the Deposit Accounts, (c) the Concentration Account and (d) the Citibank Concentration Accounts. "Cash Management System" means the system of cash management described in Schedule 5 to this Agreement. "Cash Sweep Cash Collateral Account" means the collateral account established as part of the Cash Management System at Citibank and under the sole dominion and control of the Senior Collateral Agent, Account No. [30429836]. "Cash Sweep Notice" means (a) any Blocked Account Cash Sweep Notice and (b) the Concentration Account Cash Sweep Notice. "Cash Sweep Period" means any period in which funds are transferred from (a) any Blocked Account to the Concentration Account or any Citibank Concentration Account, as applicable, pursuant to a Blocked Account Cash Sweep Notice or (b) the Concentration Account to any Citibank Concentration Account pursuant to a Concentration Account Cash Sweep Notice. "Citibank Concentration Account" means the account established at Citibank and under sole dominion and control of the Senior Collateral Agent, Account No. [30429828], together with any similar account established at Citibank for the purpose of collecting funds during a Cash Sweep Period. "Concentration Account" means the cash collateral account established at The Chase Manhattan Bank and maintained with the Concentration Account Bank pursuant to a Concentration Account Agreement, Account No. [9102750222]. "Concentration Account Agreement" means a Concentration Account Agreement between any Subsidiary Guarantor, the Senior Collateral Agent and a bank or financial institution satisfactory to the Senior Collateral Agent substantially in the form of Schedule 9 to this Agreement. "Concentration Account Bank" means the bank or financial institution that is satisfactory to the Senior Collateral Agent that executes and delivers to the Senior Collateral Agent a Concentration Account Agreement. "Concentration Account Cash Sweep Notice" means a notice in the form attached as Exhibit A to the Concentration Account Agreement. "Contracts" means with respect to each Grantor, all rights of such Grantor under all contracts and agreements to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same may from time to time be amended, supplemented or otherwise modified, including, without limitation, (a) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of such Grantor to damages arising out of, or 3 for, breach or default in respect thereof and (c) all rights of such Grantor to exercise all remedies thereunder. "Copyright License" means any written agreement, now or hereafter in effect, granting any right to any third party under any copyright now or hereafter owned by any Grantor or that such Grantor otherwise has the right to license, or granting any right to any Grantor under any copyright now or hereafter owned by any third party, and all rights of such Grantor under any such agreement. "Copyrights" means all of the following now owned or hereafter acquired by any Grantor: (a) all copyright rights in any work subject to the copyright laws of the United States or any other country, whether as author, assignee, transferee or otherwise, and (b) all registrations and applications for registration of any such copyright in the United States or any other country, including registrations, recordings, supplemental registrations and pending applications for registration in the United States Copyright Office, including those listed on Schedule IV. "Deposit Account" means, collectively, (a) the Lockbox Account and (b) the Government Lockbox Account, as well as any demand, time, savings, passbook, or similar account maintained with a bank. The term does not include investment property or accounts evidenced by an instrument. "Documents" means with respect to each Grantor, all Instruments, files, records, ledger sheets, and documents covering or relating to any of the Accounts, General Intangibles, Inventory or Proceeds. "Equity Interests" means shares of capital stock, partnership, joint venture, member or limited liability or unlimited liability company interests, beneficial interests in a trust or other equity ownership interests in a Person of whatever nature and rights, warranties or options to acquire any of the foregoing. "Event of Default" means an "Event of Default" as defined in any Senior Loan Document. "General Intangibles" means all choses in action and causes of action and all general intangibles of any Grantor of every kind and nature (other than Accounts) now owned or hereafter acquired by any Grantor, including corporate or other business records, indemnification claims, contract rights (including rights under leases, whether entered into as lessor or lessee, Hedging 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 of any of the Accounts. "Government Lockbox Account" means the deposit account and corresponding lockbox established at Mellon Bank and maintained with a Government Lockbox Account Bank, Account No.[1037294]. 4 "Government Lockbox Account Agreement" means any Government Lockbox Account Agreement between the Senior Collateral Agent and a Government Lockbox Account Bank substantially in the form of Schedule 8 to this Agreement. "Government Lockbox Account Bank" means any bank or financial institution that is satisfactory to the Senior Collateral Agent that executes and delivers to the Senior Collateral Agent a Government Lockbox Account Agreement. "Indemnitee" means the Senior Secured Parties and their respective officers, directors, trustees, affiliates and controlling persons. "Instrument" means an Instrument as defined in the Uniform Commercial Code, insofar as such Instruments evidence Intercompany Advances, Accounts Receivable or proceeds of Inventory. "Intellectual Property" means all inventions, designs, Patents, Copyrights, Licenses, Trademarks, 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. "Intercompany Advances" means any advances or open accounts owing by the Borrower or any Subsidiary of the Borrower to any Grantor. "Inventory" means with respect to each Grantor, all right, title and interest of such Grantor in and to goods intended for sale or lease by such Grantor, or consumed in such Grantor's business (including, without limitation, all operating parts and supplies), together with all raw materials and finished goods, whether now owned or hereafter acquired or arising. "License" means any Patent License, Trademark License, Copyright License or other license or sublicense to which any Grantor is a party, including those listed on Schedule 4. "Lockbox Account" means the deposit account and corresponding lockbox established at Mellon Bank and maintained with the Lockbox Account Bank pursuant to a Lockbox Account Agreement, Account No. [0693636]. "Lockbox Account Agreement" means any Lockbox Account Agreement between the Senior Collateral Agent and a Lockbox Account Bank substantially in the form of Schedule 7 to this Agreement. "Lockbox Account Bank" means any bank or financial institution that is satisfactory to the Senior Collateral Agent that executes and delivers to the Senior Collateral Agent a Lockbox Account Agreement. 5 "New York UCC" means the Uniform Commercial Code as from time to time in effect in the State of New York. "Patent License" means any written agreement, now or hereafter in effect, granting to any third party any right to make, use or sell any invention on which a patent, now or hereafter owned by any Grantor or that any Grantor otherwise has the right to license, is in existence, or granting to any Grantor any right to make, use or sell any invention on which a patent, now or hereafter owned by any third party, is in existence, and all rights of any Grantor under any such agreement. "Patents" means all of the following now owned or hereafter acquired by any Grantor: (a) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and pending applications in the United States Patent and Trademark Office or any similar offices in any other country, including those listed on Schedule IV, and (b) all reissues, continuations, divisions, continuations-in-part, renewals or extensions thereof, and the inventions disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein. "Prescription Files" means, as to any Grantor, all right, title and interest of such Grantor in and to all prescription files maintained by it or on its behalf, including without limitation all patient profiles, customer lists, customer information and other records of prescriptions filled by it, in whatever form and wherever maintained by it or on its behalf, and all goodwill and other intangible assets arising from the maintenance of such records and the possession of information contained therein. "Proceeds" has the meaning specified in Section 9-102 of the New York UCC. "Senior Collateral" is defined in Section 2 of this Agreement. "Senior Collateral Account" means any collateral account established by the Senior Collateral Agent as provided in Section 5.03 or Section 8.02. "Trademark License" means any written agreement, now or hereafter in effect, granting to any third party any right to use any trademark now or hereafter owned by any Grantor or that any Grantor otherwise has the right to license, or granting to any Grantor any right to use any trademark now or hereafter owned by any third party, and all rights of any Grantor under any such agreement. "Trademarks" means all of the following now owned or hereafter acquired by any Grantor: (a) all trademarks, service marks, trade names, corporate names, company names, business names, fictitious business names, trade styles, trade dress, 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 registration and recording applications filed in connection therewith, including registrations and registration applications in the United States Patent and Trademark Office or any similar offices in any State of the United 6 States or any other country or any political subdivision thereof, and all extensions or renewals thereof, including those listed on Schedule I, (b) all goodwill associated therewith or symbolized thereby and (c) all other assets, rights and interests that uniquely reflect or embody such goodwill. SECTION 1.2. Other Definitional Provisions. (a) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. Grant of Security Interest. As security for the payment or performance, as the case may be, in full of the obligations under the Senior Subsidiary Guarantee Agreement, each Grantor hereby assigns and pledges to the Senior Collateral Agent, its successors and assigns, for the ratable benefit of the Senior Secured Parties, and hereby grants to the Senior Collateral Agent, its successors and assigns, for the ratable benefit of the Senior Secured Parties, a security interest, in all right, title or interest now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the "Senior Collateral"): (a) all Accounts Receivable and Chattel Paper; (b) all Deposit Accounts (c) the Cash Management Accounts and the cash on deposit therein; (d) all Contracts; (e) all Documents; (f) all General Intangibles; (g) all Instruments; (h) all Intellectual Property; (i) all Inventory; (j) all Prescription Files; (k) all books and records pertaining to any and all of the foregoing; and 7 (l) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. Nothing contained in this Section 2 is intended to limit any Grantor's rights to create Permitted Liens (as defined below). Senior Collateral shall not include any property specified in Section 2(g) above if the granting of a security interest therein would jeopardize the Grantor's rights in any pending intent-to-use applications for Federal Trademark registration. Each Grantor hereby irrevocably authorizes the Senior Collateral Agent at any time and from time to time to file in any Uniform Commercial Code jurisdiction any initial financing statements (including fixture filings) and amendments thereto that contain the information required by Article 9 of the Uniform Commercial Code of each applicable jurisdiction for the filing of any financing statement or amendment, including (a) whether the Grantor is an organization, the type of organization and any organizational identification number issued to the Grantor and (b) in the case of a financing statement filed as a fixture filing or covering Collateral constituting minerals or the like to be extracted or timber to be cut, a sufficient description of the real property to which such Collateral relates. The Grantor agrees to provide such information to the Senior Collateral Agent promptly upon request. In addition, each Grantor hereby authorizes and agrees that such financing statements may describe the Senior Collateral in the same manner as described herein or may contain an indication or description of collateral that describes such property in any other manner as the Senior Collateral Agent may determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of the security interest in the Collateral granted to the Senior Collateral Agent herein, including, without limitation, describing such property as "all assets" or "all personal property." Each Grantor also ratifies its authorization for the Senior Collateral Agent to file in any Uniform Commercial Code jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof. The Senior Collateral Agent is further authorized to file filings with the United States Patent and Trademark Office or United States Copyright Office (or any successor office or any similar office in any other country) 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, and naming any Grantor or the Grantors as debtors and the Senior Collateral Agent as secured party. Such security interests are granted as security only and shall not subject the Senior Collateral Agent nor any Senior Secured Party to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of the Senior Collateral. SECTION 3. Representations and Warranties. Each Grantor hereby represents and warrants, as to itself and the Senior Collateral in which the security interest is created hereunder, that: 8 SECTION 3.01. Title; No Other Liens. Except for the security interest granted to the Senior Collateral Agent for the ratable benefit of the Senior Secured Parties pursuant to this Agreement and the other Liens permitted to exist pursuant to the Senior Credit Facility (the "Permitted Liens"), each Grantor owns each item of the Senior Collateral free and clear of any and all Liens or claims of others (or arrangements reasonably satisfactory to the Senior Collateral Agent have been made for the timely release or discharge of such Liens). No security agreement, financing statement or other public notice with respect to all or any part of such Senior Collateral is on file or of record in any public office, except such as have been filed or will be filed, pursuant to this Agreement, in favor of the Senior Collateral Agent, for the ratable benefit of the Senior Secured Parties, or in respect of Permitted Liens (or arrangements reasonably satisfactory to the Senior Collateral Agent have been made for the timely termination of such agreement or financing statement). Further, no Grantor has intentionally entered into any contract, lease or license in anticipation of this Agreement, which by its terms, validly prohibits the granting of a security interest herein. SECTION 3.02. Enforceable Obligation; Perfected, First Priority Security Interests. This Agreement constitutes a legal, valid and binding obligation of each Grantor, enforceable against such Grantor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), and the security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified in Schedule 1 hereto (or in the case of Instruments, delivery to the Senior Collateral Agent or its designee) shall constitute fully perfected security interests in the Senior Collateral in favor of the Senior Collateral Agent for the ratable benefit of the Senior Secured Parties, and (b) are prior and superior in right to all other Liens (other than Permitted Liens, to the extent that such Permitted Liens are expressly permitted by the Senior Loan Documents to have priority) on the Senior Collateral in existence on the date hereof. SECTION 3.03. Inventory. The Inventory owned by such Grantor are kept at the locations listed in Schedule 2 hereto, which shall be updated from time to time in accordance with Section 4.05 of this Agreement, or at such other locations as shall be permitted by Section 4.04. SECTION 3.04. Chief Executive Office; Jurisdiction of Incorporation. As of the Closing Date, each Grantor's chief executive office, principal place of business and jurisdiction of incorporation is located at the locations listed in Schedule 10 hereto. SECTION 3.05. Farm Products. None of the Senior Collateral constitutes, or is the Proceeds of, Farm Products (as such term is defined in the Uniform Commercial Code). SECTION 3.06. Intellectual Property. (a) Schedule 4 lists all Intellectual Property owned (and registered with the U.S. Copyright Office or the U.S. Patent and Trademark Office) or licensed by such Grantor in its own name on the date hereof. 9 (b) On the date hereof, based on information known, or reasonably available to such Grantor, all Intellectual Property material to the conduct of such Grantor's business is valid, subsisting, unexpired and enforceable, has not been abandoned and does not infringe the intellectual property rights of any other person. (c) Except as set forth in Schedule 4, on the date hereof, none of the Intellectual Property is the subject of any licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor. (d) On the date hereof, based on information known, or reasonably available to such Grantor, no holding decision or judgment has been rendered by any Governmental Authority which would materially limit, cancel or question the validity of, or such Grantor's rights in, any Intellectual Property in any respect that could reasonably be expected to have a Material Adverse Effect. (e) Except as set forth on Schedule 4, on the date hereof, no action or proceeding is pending, or, to the knowledge of such Grantor, threatened, on the date hereof (i) seeking to materially limit, cancel or question the validity of any Intellectual Property material to the conduct of such Grantor's business or such Grantor's ownership interest therein, or (ii) which, if adversely determined, would have a material adverse effect on the value of any Intellectual Property. SECTION 4. Covenants. Each Grantor covenants and agrees with the Senior Secured Parties that, from and after the date of this Agreement until this Agreement is terminated and the security interests created hereby are released: SECTION 4.01. Delivery of Instruments. If an Intercompany Advance owned by such Grantor shall be or become evidenced by any promissory note, or other Instrument, upon the request of the Senior Collateral Agent, such promissory note, or other Instrument shall be immediately delivered to the Senior Collateral Agent, duly indorsed in a manner reasonably satisfactory to the Senior Collateral Agent, to be held as Senior Collateral pursuant to this Agreement. SECTION 4.02. Maintenance of Insurance. Each Grantor shall maintain insurance policies in accordance with the requirements of Section 5.03 of the Senior Credit Facility. SECTION 4.03. Maintenance of Perfected Security Interest; Further Documentation. (a) Each Grantor shall cause all filings and other actions listed in Schedule 1 to be taken. Each Grantor shall maintain the security interests created by this Agreement as first priority perfected security interests subject only to Permitted Liens, to the extent such Permitted Liens are expressly permitted by the Senior Loan Documents to have priority, and shall defend such security interests against all claims and demands of all persons whomsoever (other than those pursuant to Permitted Liens). 10 (b) At any time and from time to time, upon the written request of the Senior Collateral Agent, and at the sole expense of a Grantor, such Grantor shall promptly and duly execute and deliver such further instruments and documents and take such further action as the Senior Collateral Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the security interests created hereby. (c) No Grantor shall intentionally enter into any contract, lease or license in contemplation of this Agreement, which by its terms would validly prohibit the grant of a security interest herein. SECTION 4.04. Changes in Locations, Name, etc. Each Grantor agrees promptly to notify the Senior Collateral Agent in writing of any change (i) in its corporate name, (ii) in the location of its chief executive office or its principal place of business, (iii) in its identity or type of organization, (iv) in its Federal Taxpayer Identification Number or organizational identification number or (v) in its jurisdiction of organization. Each Grantor agrees to promptly provide the Senior Collateral Agent with certified organizational documents reflecting any of the changes described in the preceding sentence. 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 Senior Collateral Agent to continue at all times following such change to have a valid, legal and perfected first priority security interest in all the Collateral. SECTION 4.05. Further Identification of Senior Collateral. Each Grantor shall furnish to the Senior Collateral Agent from time to time statements and schedules further identifying and describing the Senior Collateral and such other reports in connection with such Senior Collateral as the Senior Collateral Agent may reasonably request, all in reasonable detail. SECTION 4.06. Notices. A Grantor shall advise the Senior Collateral Agent promptly, in reasonable detail, in accordance with Section 13 hereto, of: (a) any Lien (other than security interests created hereby or Permitted Liens) on any material portion of the Senior Collateral; and (b) the occurrence of any other event which could reasonably be expected to have a material adverse effect on the security interests created hereby or on the aggregate value of the Senior Collateral. SECTION 4.07. Senior Collateral Agent's Liabilities and Expenses; Indemnification. (a) Notwithstanding anything to the contrary provided herein, neither the Senior Collateral Agent nor any other Senior Secured Party assumes any liabilities with respect to any claims regarding each Grantor's ownership (or purported ownership) of, or rights or obligations (or purported rights or obligations) arising from, the Senior Collateral or any use (or actual or alleged misuse) whether arising out of any past, current or future event, circumstance, act or omission or 11 otherwise, or any claim, suit, loss, damage, expense or liability of any kind or nature arising out of or in connection with the Senior Collateral or the production, marketing, delivery, sale or provision of goods or services under or in connection with any of the Senior Collateral. All of such liabilities shall, as between the Senior Collateral Agent, the Senior Secured Parties and the Grantors, be borne exclusively by the Grantors unless such liability arises from the gross negligence or willful misconduct of the Senior Collateral Agent or any Senior Secured Party. (b) Each Grantor hereby agrees to pay all reasonable expenses of the Senior Collateral Agent and the other Senior Secured Parties and to indemnify the Senior Collateral Agent and the other Senior Secured Parties with respect to any and all losses, claims, damages, liabilities and related expenses in respect of this Agreement or the Senior Collateral in each case to the extent and under the circumstances the Borrower is required to do so pursuant to Section 9.03 of the Senior Credit Facility. (c) Any amounts payable as provided hereunder shall be additional Senior Obligations secured hereby and by the other Senior Collateral Documents. Without prejudice to the survival of any other agreements contained herein, all indemnification and reimbursement obligations contained herein shall survive the Senior Obligation Payment Date and the termination of this Agreement. SECTION 4.08. Intellectual Property. (a) Each relevant Grantor (either itself or through licensees) will (i) continue to use each Trademark material to the conduct of such Grantor's business, to the extent that such Grantor's business operations continue as to the said goods and/or services (subject to such Grantor's reasonable business judgment), sufficient to avoid unintentional abandonment of any rights in such Trademarks, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable law, (iv) not knowingly adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Senior Collateral Agent, for the ratable benefit of the Senior Secured Parties, shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not knowingly (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark material to the conduct of Grantor's business may become invalidated or impaired in any way. (b) Such Grantor (either itself or through licensees) will not do any act, or omit to do any act, whereby any Patent material to the conduct of Grantor's business may become forfeited, abandoned or dedicated to the public. (c) Such Grantor (either itself or through licensees) will not knowingly (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any portion of the Copyrights material to the conduct of Grantor's business may become invalidated or otherwise impaired or fall into the public domain. 12 (d) Such Grantor (either itself or through licensees) will not do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other person. (e) In a status report provided to the Senior Collateral Agent on a quarterly basis ("Quarterly Status Report"), such Grantor will indicate whether any application or registration relating to any material Intellectual Property has been forfeited, abandoned or dedicated to the public, or of any such determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor's ownership of, or the validity of, any material Intellectual Property or such Grantor's right to register the same or to own and maintain the same. (f) In the Quarterly Status Report provided to the Senior Collateral Agent pursuant to Section 4.08(e), such Grantor will report whenever such Grantor, either by itself or through any agent, employee, licensee or designee, has filed an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof. Upon request of the Senior Collateral Agent, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Senior Collateral Agent may request to evidence the Senior Collateral Agent's and Senior Secured Parties' security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. (g) Such Grantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the Intellectual Property material to the conduct of Grantor's business, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability. (h) In the event that any Intellectual Property material to the conduct of Grantor's business is infringed, misappropriated or diluted by a third party, such Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Senior Collateral Agent after it learns thereof and take all reasonable steps to protect its interests, which may include bringing suit for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution. SECTION 4.09. Cash Management System. (a) The Grantors shall at all times maintain, and each Subsidiary Guarantor shall comply with its obligations under, the Cash Management System. 13 (b) Each Grantor shall use its commercially reasonable efforts to cause any applicable third party to effectuate the Cash Management System. SECTION 5. Provisions Relating to Accounts. SECTION 5.01. Grantors Remain Liable under Accounts. Anything herein to the contrary notwithstanding, a Grantor shall remain liable under each of the Accounts to observe and perform all the material conditions and material obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account. No Senior Secured Party shall have any obligation or liability under any Account (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Senior Collateral Agent or any Senior Secured Party of any payment relating to such Account pursuant hereto, nor shall any Senior Secured Party be obligated in any manner to perform any of the obligations of a Grantor under or pursuant to any Account (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. SECTION 5.02. Analysis of Accounts. In addition to its rights under the Senior Credit Facility, the Senior Collateral Agent shall have the right upon the occurrence and during the continuance of an Event of Default to make test verifications of the Accounts in any manner and through any medium that it considers reasonably advisable, and each Grantor shall furnish all such assistance and information as the Senior Collateral Agent may reasonably require in connection with such test verifications. At any time and from time to time upon the occurrence and during the continuance of an Event of Default, upon the Senior Collateral Agent's reasonable request and at the expense of each Grantor, each Grantor shall immediately request and use commercially reasonable efforts to cause independent public accountants or others reasonably satisfactory to the Senior Collateral Agent to furnish to the Senior Collateral Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts. Upon the occurrence and during the continuance of an Event of Default, the Senior Collateral Agent in its own name or in the name of others may communicate with Account Debtors on the Accounts to verify with them to the Senior Collateral Agent's reasonable satisfaction the existence, amount and terms of any Accounts and to direct all payments to the Senior Collateral Agent. To the extent reasonably practicable the Senior Collateral Agent will seek to take such actions through third parties. SECTION 5.03. Collections on Accounts. (a) The Senior Collateral Agent hereby authorizes each Grantor to collect the Accounts, and the Senior Collateral Agent may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default. If required by the Senior Collateral Agent at any time after the occurrence and during the continuance of an Event of Default, any payments of Accounts, when collected by a Grantor during the continuance of such an Event of Default, (i) shall be forthwith (and, in any event, within two Business Days) deposited by such Grantor in the exact form received, duly indorsed 14 by such Grantor to the Senior Collateral Agent if required, in a Senior Collateral Account maintained under the sole dominion and control of and on terms and conditions reasonably satisfactory to the Senior Collateral Agent, subject to withdrawal by the Senior Collateral Agent as provided in Section 8.03, and (ii) until so turned over, shall be held by such Grantor in trust for the Senior Secured Parties, segregated from other funds of such Grantor. (b) At the Senior Collateral Agent's request after the occurrence and during the continuance of an Event of Default, each Grantor shall deliver to the Senior Collateral Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Accounts, including, without limitation, all original orders, invoices and shipping receipts. SECTION 5.04. Representations and Warranties. As of the Closing Date, the place where each Grantor keeps its records concerning the Accounts is at the location listed in Schedule 3 hereto. SECTION 5.05. Covenants. (a) The amount represented by each Grantor to the Senior Secured Parties from time to time as owing by each account debtor or by all Account Debtors in respect of the Accounts shall at such time be in all material respects the correct amount actually owing by such Account Debtor or debtors thereunder. (b) Upon the occurrence and during the continuance of an Event of Default, a Grantor shall not 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. (c) Unless a Grantor shall deliver prior written notice, identifying the change of location for its books and records, such Grantor shall not remove its books and records from the location specified in Schedule 3. SECTION 5.06. Deposit Accounts. For each deposit account that any Grantor at any time opens or maintains, such Grantor shall, at the Senior Collateral Agent's request and option, pursuant to an agreement in form and substance satisfactory to the Senior Collateral Agent, either (a) cause the depositary bank to agree to comply at any time with instructions from the Senior Collateral Agent to such depositary bank directing the disposition of funds from time to time credited to such deposit account, without further consent of such Grantor, or (b) arrange for the Senior Collateral Agent to become the customer of the depositary bank with respect to the deposit account, with the Grantor being permitted, only with the consent of the Senior Collateral Agent, to exercise rights to withdraw funds from such deposit account. The provisions of this paragraph shall not apply to (i) any deposit account for which any Grantor, the depositary bank and the Senior Collateral Agent have entered into a cash collateral agreement specially negotiated among such Grantor, the depositary bank and the Senior Collateral Agent for the specific purpose set forth therein and (ii) deposit accounts for which the Senior Collateral Agent is the depositary. 15 SECTION 6. [Intentionally Reserved] SECTION 7. Provisions Relating to Contracts. SECTION 7.01. Grantors Remain Liable under Contracts. Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each Contract to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with and pursuant to the terms and provisions of such Contract. No Senior Secured Party shall have any obligation or liability under any Contract by reason of or arising out of this Agreement or the receipt by any such Senior Secured Party of any payment relating to such Contract pursuant hereto, nor shall any Senior Secured Party be obligated in any manner to perform any of the obligations of a Grantor under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. SECTION 7.02. Communication With Contracting Parties. Upon the occurrence and during the continuance of an Event of Default, the Senior Collateral Agent in its own name or in the name of its nominee may communicate with parties to the Contracts to verify with them to the Senior Collateral Agent's reasonable satisfaction the existence, amount and terms of any Contracts. To the extent reasonably practicable the Senior Collateral Agent will seek to take such actions through third parties. SECTION 8. Remedies. SECTION 8.01. Notice to Account Debtors and Contract Parties. Upon the request of the Senior Collateral Agent at any time after the occurrence and during the continuance of an Event of Default, a Grantor shall notify Account Debtors on the Accounts and parties to the Contracts that the Accounts and the Contracts have been assigned to the Senior Collateral Agent for the ratable benefit of the Senior Secured Parties and that payments in respect thereof during the continuance of such an Event of Default shall be made directly to the Senior Collateral Agent. SECTION 8.02. Proceeds to be Turned Over To Senior Collateral Agent. In addition to the rights of the Senior Collateral Agent and the Senior Secured Parties specified in Section 5.03 with respect to payments of Accounts, if an Event of Default shall occur and be continuing all Proceeds received by a Grantor consisting of cash, checks and other near-cash items shall upon the Senior Collateral Agent's request be held by such Grantor in trust for the Senior Secured Parties, segregated from other funds of such Grantor, and shall, upon the Senior Collateral Agent's request (it being understood that the exercise of remedies by the Senior Secured Parties in connection with an Event of Default under Section 6.01(g) and Section 6.01(h) of the Senior Credit Facility shall be deemed to constitute a request by the Senior Collateral Agent for the purposes of this sentence) forthwith upon receipt by such Grantor, be turned over to the Senior Collateral Agent in the exact form received by such Grantor (duly indorsed by such Grantor to 16 the Senior Collateral Agent, if required) and held by the Senior Collateral Agent in a Senior Collateral Account maintained under the sole dominion and control of the Senior Collateral Agent and on terms and conditions reasonably satisfactory to the Senior Collateral Agent. All Proceeds while held by the Senior Collateral Agent in a Senior Collateral Account (or by such Grantor in trust for the Senior Collateral Agent and the Senior Secured Parties) shall subject to Section 8.03 continue to be held as collateral security for all the Senior Obligations and shall not constitute payment thereof until applied as provided in Section 8.03. SECTION 8.03. Application of Proceeds. (a) So long as the Collateral Trust and Intercreditor Agreement is in effect, following a Triggering Event (as defined therein), the proceeds of any sale or other realization upon any Collateral will be applied as set forth in the Collateral Trust and Intercreditor Agreement. (b) At all times when the Collateral Trust and Intercreditor Agreement is not in effect, the proceeds of any sale or other realization upon any Collateral following an Event of Default will be applied as soon as practicable after receipt as follows: FIRST: to the Senior Collateral Agent in an amount equal to the fees and expenses of the Senior Collateral Agent pursuant to this Agreement and the Senior Credit Facility that are unpaid as of the applicable date of receipt of such proceeds, and to any Senior Secured Party which has theretofore advanced or paid any such fees and expenses of the Senior Collateral Agent in an amount equal to the amount thereof so advanced or paid by such Senior Secured Party pro rata based on the amount of such fees and expenses (or such advances or payment); SECOND: to the Senior Collateral Agent to reimburse any amounts owing to the Senior Collateral Agent pursuant to Section 9.03; THIRD: to the Senior Collateral Agent, for distribution to the Senior Secured Parties to be applied to the payment of the Senior Obligations then due and owing, pro rata based on the amount of Senior Obligations then due and owing (after giving effect to any payments previously made under this Section), until all of the Senior Obligations then due and owing have been paid in full; and FOURTH: after payment in full of all Senior Obligations, to Rite Aid and the Grantors or their successors or assigns, as their interests may appear, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. SECTION 8.04. Uniform Commercial Code Remedies. If an Event of Default shall have occurred and be continuing, the Senior Collateral Agent, on behalf of the Senior Secured Parties may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Senior Obligations, all rights and remedies of a senior secured party under the Uniform Commercial Code. Without limiting the generality of the foregoing, the Senior Collateral Agent, without demand of 17 performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon a Grantor or any other person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Senior Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Senior Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of any Senior Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Any Senior Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Senior Collateral so sold, free of (to the extent permitted by law) any right or equity of redemption in a Grantor, which right or equity is hereby, to the extent permitted by law, waived or released. Each Grantor further agrees, at the Senior Collateral Agent's request, to assemble the Senior Collateral and make it available to the Senior Collateral Agent at places which the Senior Collateral Agent shall reasonably select, whether at such Grantor's premises or elsewhere. The Senior Collateral Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses incurred therein or incidental to the care or safekeeping of any of such Senior Collateral or reasonably relating to such Senior Collateral or the rights of the Senior Collateral Agent and the Senior Secured Parties hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Senior Obligations, in accordance with Section 8.03, and only after such application and after the payment by the Senior Collateral Agent of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the Uniform Commercial Code, need the Senior Collateral Agent account for the surplus, if any, to such Grantor. If any notice of a proposed sale or other disposition of such Senior Collateral shall be required by law, such notice shall be in writing and deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Senior 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 Senior Collateral by the Senior Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Senior Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Senior 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 Senior Collateral Agent or such officer or be answerable in any way for the misapplication thereof. SECTION 8.05. Grant of License to Use Intellectual Property. For the purpose of enabling the Senior Collateral Agent to exercise rights and remedies under this Article at such time as the Senior Collateral Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Senior Collateral Agent an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Grantors) to use, license or sub-license any of the Senior Collateral consisting of Intellectual Property now 18 owned or hereafter acquired by such Grantor, 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 Senior Collateral Agent shall be exercised, at the option of the Senior Collateral Agent, solely 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 Senior Collateral Agent in accordance herewith shall be binding upon the Grantors notwithstanding any subsequent cure of an Event of Default. SECTION 8.06. Waiver; Deficiency. Each Grantor waives and agrees not to assert any rights or privileges it may acquire under Section 9-112 of the Uniform Commercial Code. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Senior Collateral are insufficient to pay the Senior Obligations and the reasonable fees and disbursements of any attorneys employed by any Senior Secured Party to collect such deficiency. SECTION 8.07. Cash Sweep Remedies. The Senior Collateral Agent, on behalf of the Senior Secured Parties is entitled to exercise all rights and remedies granted to them in respect of the Cash Management Accounts in accordance with Schedule 5 of this Agreement. SECTION 9. Senior Collateral Agent's Appointment as Attorney-in-Fact; Senior Collateral Agent's Performance of Grantors' Obligations. SECTION 9.01. Powers. Each Grantor hereby irrevocably constitutes and appoints the Senior Collateral Agent and any officer or agent thereof, with full power of substitution, during the continuance of an Event of Default, as its true and lawful attorney-in-fact, with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name from time to time in the Senior Collateral Agent's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, such Grantor hereby gives the Senior Collateral Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do the following upon the occurrence and during the continuance of an Event of Default: (a) in the name of such Grantor or its own name, or otherwise, to take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account, Instrument, General Intangible or Contract or with respect to any other Senior Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Senior Collateral Agent for the purpose of collecting any and all such moneys due under any Account, Instrument, General Intangible or Contract or with respect to any other Senior Collateral whenever payable; (b) in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Senior 19 Collateral Agent may request to evidence the Senior Collateral Agent's and the Senior Secured Parties' security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby; (c) to pay or discharge taxes and Liens levied or placed on or threatened against the Senior Collateral (other than Permitted Liens), to effect any repairs or any insurance called for by the terms of this Agreement and to pay all or any part of the premiums therefor and the costs thereof; (d) to execute, in connection with any sale provided for in Section 8.04 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Senior Collateral; (e)(i) to direct any party liable for any payment under any of the Senior Collateral to make payment of any and all moneys due or to become due thereunder directly to the Senior Collateral Agent or as the Senior Collateral Agent shall direct; (ii) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Senior Collateral; (iii) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Senior Collateral; (iv) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Senior Collateral or any thereof and to enforce any other right in respect of any Senior Collateral; (v) to defend any suit, action or proceeding brought against any Grantor with respect to any Senior Collateral; (vi) to settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, to give such discharges or releases as the Senior Collateral Agent may deem appropriate; (vii) to the extent permitted by applicable law, assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains); and (viii) generally, to use, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Senior Collateral as fully and completely as though the Senior Collateral Agent were the absolute owner thereof for all purposes, and to do, at the Senior Collateral Agent's option and at the expense of such Grantor, at any time, or from time to time, all acts and things which the Senior Collateral Agent reasonably deems necessary to protect, preserve or realize upon such Senior Collateral and the Senior Collateral Agent's and the Senior Secured Parties' security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do; and (f) to file any Uniform Commercial Code financing statement, or to take such other steps, required to perfect or confirm the perfection of any security interest described herein. SECTION 9.02. Performance by Senior Collateral Agent of Grantor's Obligations. If any Grantor fails to perform or comply with any of its agreements contained herein, the Senior 20 Collateral Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. SECTION 9.03. Grantor's Reimbursement Obligation. The expenses of the Senior Collateral Agent and any other Senior Secured Party, as applicable, reasonably incurred in connection with actions undertaken as provided in this Section 9, together with interest thereon at a rate per annum equal to the default rate of interest set forth in Section 2.07 of the Senior Credit Facility, from the date payment is demanded by the Senior Collateral Agent to the date reimbursed by such Grantor, shall be payable by the Borrower to the Senior Collateral Agent on demand. SECTION 9.04. Ratification; Power Coupled With An Interest. Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. SECTION 10. Duty of Senior Collateral Agent. The Senior Collateral Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Senior Collateral in its possession, under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to deal with it in the same manner as the Senior Collateral Agent deals with similar property for its own account. No Senior Secured Party nor any of its respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Senior Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Senior Collateral upon the request of a Grantor or any other person or to take any other action whatsoever with regard to the Senior Collateral or any part thereof. The powers conferred on the Senior Secured Parties hereunder are solely to protect the Senior Secured Parties' interests in the Senior Collateral and shall not impose any duty upon any Senior Secured Party to exercise any such powers. The Senior Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of 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 wilful misconduct. SECTION 11. Execution of Financing Statements. Each Grantor authorizes the Senior Collateral Agent to file financing statements with respect to the Collateral without the signature of such Grantor in such form and in such filing offices as the Senior Collateral Agent reasonably determines appropriate to perfect the security interests of the Senior Collateral Agent under this Agreement. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. SECTION 12. Authority of Senior Collateral Agent. Each Grantor acknowledges that the rights and responsibilities of the Senior Collateral Agent under this Agreement with respect to any action taken by the Senior Collateral Agent or the exercise or non-exercise by the Senior Collateral Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Senior Collateral 21 Agent and the other Senior Secured Parties, be governed by the Senior Credit Facility and by such other agreements with respect thereto as may exist from time to time among them but, as between the Senior Collateral Agent and the Grantors, the Senior Collateral Agent shall be conclusively presumed to be acting as agent for the other Senior Secured Parties with full and valid authority so to act or refrain from acting. SECTION 13. Notices. All notices, requests and demands to or upon the Senior Secured Parties or the Grantors under this Agreement shall be given or made in accordance with Section 9.01 of the Senior Credit Facility and the relevant section of the 10.50% Note Indenture and addressed as follows: (a) if to the Senior Collateral Agent, in accordance with Section 9.01 of the Senior Credit Facility; (b) if to any Grantor, c/o the Borrower at the address of the Borrower specified in Annex 2 Senior Credit Facility. SECTION 14. Security Interest Absolute. All rights of the Senior Collateral Agent hereunder, the security interest and all obligations of the Grantors hereunder shall be absolute and unconditional. SECTION 15. Survival of Agreement. All covenants, agreements, representations and warranties made by any Grantor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Senior Loan Document shall be considered to have been relied upon by the Senior Secured Parties and shall survive the making by the Senior Banks of the Loans, the execution and delivery to the Senior Banks of the Senior Loan Documents and the issuance of any Letters of Credit, regardless of any investigation made by the Senior 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 L/C Disbursement, or any other Senior Obligation is outstanding and unpaid and so long as any Letter of Credit is outstanding and so long as the Commitments have not been terminated. SECTION 16. 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 OR ANY OF THE OTHER SENIOR LOAN DOCUMENTS. 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 AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 16. 22 SECTION 17. 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 Senior 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 any Obligor or any Senior Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Senior Loan Documents against any Grantor or any Senior Secured Party or its properties in the courts of any jurisdiction. (b) Each Grantor and each Senior Secured Party 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 Senior 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 13. 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 18. Release. (a) This Agreement and the security interest created hereunder shall terminate when all Senior Obligations have been fully and indefeasibly paid and when the Senior Secured Parties have no further Commitments under the Senior Credit Facility and no Letters of Credit are outstanding, at which time the Senior Collateral Agent shall execute and deliver to each Grantor, or to such person or persons as such Grantor shall reasonably designate, all Uniform Commercial Code termination statements and similar documents prepared by such Grantor at its expense which such Grantor shall reasonably request to evidence such termination. Any execution and delivery of termination statements or documents pursuant to this Section 18(a) shall be without recourse to or warranty by the Senior Collateral Agent. (b) All Senior Collateral used, sold, transferred or otherwise disposed of in accordance with the terms of the Senior Credit Facility and the Collateral Trust and Intercreditor Agreement (including pursuant to a waiver or amendment of the terms thereof) shall be used, sold, transferred or otherwise disposed of free and clear of the Lien and the security interest created hereunder. In connection with the foregoing, (i) the Senior Collateral Agent shall execute and deliver to each Grantor, or to such person or persons as such Grantor shall reasonably designate, all Uniform Commercial Code termination statements and similar documents prepared by such Grantor at its expense which such Grantor shall reasonably request to evidence the release of the 23 Lien and security interest created hereunder with respect to such Senior Collateral and (ii) any representation, warranty or covenant contained herein relating to such Senior Collateral shall no longer be deemed to be made with respect to such used, sold, transferred or otherwise disposed Senior Collateral. SECTION 19. Severability. Any provision of this Agreement 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. The parties hereunder 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 20. Amendments in Writing; No Waiver. (a) None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Grantors and the Senior Collateral Agent, provided that any provision of this Agreement may be waived by the Majority Senior Parties pursuant to a letter or agreement executed by the Senior Collateral Agent or by telecopy transmission from the Senior Collateral Agent. (b) No Senior Secured Party shall by any act (except by a written instrument pursuant to Section 20 hereof) or delay be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of any Senior Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by any Senior Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such Senior Secured Party would otherwise have on any future occasion. SECTION 21. Remedies Cumulative. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. SECTION 22. Section Headings. The section and Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. SECTION 23. Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of each Grantor and the Senior Secured Parties and their successors and assigns, provided that this Agreement may not be assigned by any Grantor without the prior written consent of the Senior Collateral Agent. 24 SECTION 24. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. SECTION 25. 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 contract. SECTION 26. Additional Grantors. Pursuant to Section 5.08 of the Senior Credit Facility, certain Domestic Subsidiaries that were not in existence or not a Domestic Subsidiary on the date thereof are required to enter into this Agreement as a Grantor upon becoming a Domestic Subsidiary. Upon execution and delivery, after the date hereof, by the Senior Collateral Agent and such a Domestic Subsidiary of an instrument in the form of Annex 1, such Domestic Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor hereunder. 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. SECTION 27. Patient Confidentiality. The Senior Collateral Agent hereby agrees on behalf of itself and each Senior Secured Party and any of their designees and assigns to, and shall take all reasonable steps to, comply with all applicable state or federal laws or administrative regulations regarding the confidentiality of patient records and patient medical information it receives in connection with the transactions described in this Agreement. SECTION 28. Collateral Trust and Intercreditor Agreement. Notwithstanding anything herein to the contrary, the terms of this Agreement, and the rights of the Senior Collateral Agent and the Senior Secured Parties hereunder, are subject to the Collateral Trust and Intercreditor Agreement. 25 IN WITNESS WHEREOF, the undersigned has caused this Senior Subsidiary Security Agreement to be duly executed and delivered as of the date first above written. CITICORP USA, INC., as Senior Collateral Agent, By________________________________ Name: Title: EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE A HERETO, as Grantors, By________________________________ Name: Title: THRIFTY PAYLESS, INC., as Grantor, By________________________________ Name: Title: 26 Schedules: - --------- Annex 1 Supplement Annex 2 Definitions Annex Schedule A Subsidiary Guarantors Schedule 1 Filings and Other Actions Required to Perfect Security Interests Schedule 2 Inventory Schedule 3 Records of Accounts Schedule 4 Copyrights and Copyright Licenses; Patents and Patent Licenses; and Trademarks and Trademark Licenses Schedule 5 Cash Management System Schedule 6 Form of Blocked Account Agreement Schedule 7 Form of Lockbox Account Agreement Schedule 8 Form of Government Lockbox Account Agreement Schedule 9 Form of Concentration Agreement Schedule 10 Perfection Certificate Annex 1 to the Senior Subsidiary Security Agreement SUPPLEMENT NO. dated as of [ ] (this "Supplement") to the Senior Subsidiary Security Agreement dated as of June 27, 2001 (the "Senior Subsidiary Security Agreement"), between the SUBSIDIARIES GUARANTORS identified on the signature pages thereto and any other person that becomes a Subsidiary Guarantor (the "Grantors"), in favor of CITICORP USA, INC., a New York banking corporation, as Senior Collateral Agent (the "Senior Collateral Agent") for the Senior Secured Parties. A. Reference is made to the (a) Senior Credit Agreement dated as of June 27, 2001 (as amended or modified from time to time, the "Senior Credit Agreement"), among Rite Aid, as Borrower, the Senior Banks parties thereto, the Swingline Banks, the Issuing Banks, the Administrative Agent, the Senior Collateral Agent and the Syndication Agents and (b) the Senior Subsidiary Security Agreement dated as of June 27, 2001, among the Subsidiary Guarantors and the Senior Collateral Agent. B. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Senior Subsidiary Security Agreement, including the Definitions Annex and the Senior Credit Facility referred to therein. C. The Grantors have entered into the Senior Subsidiary Security Agreement in order to induce the Senior Banks to make Loans and induce the Issuing Banks to issue Letters of Credit pursuant to, and upon the terms and subject to the conditions specified in, the Senior Credit Facility. Pursuant to Section 5.08 of the Senior Credit Facility, certain Domestic Subsidiaries that were not in existence or not a Domestic Subsidiary on the date thereof are required to enter into the Senior Subsidiary Security Agreement as a Grantor upon becoming a Domestic Subsidiary. Section 26 of the Senior Subsidiary Security Agreement provides that additional Domestic Subsidiaries may become Grantors under the Senior Subsidiary Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "New Grantor") is a Domestic Subsidiary and is executing this Supplement in accordance with the requirements of the Senior Credit Facility to become a Grantor under the Senior Subsidiary Security Agreement in order to induce the Senior Banks to make additional Loans and the Issuing Banks to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued. Accordingly, the Senior Collateral Agent and the New Grantor agree as follows: SECTION 1. In accordance with Section 26 of the Senior Subsidiary Security Agreement, the New Grantor by its signature below becomes a Grantor under the Senior Subsidiary Security Agreement with the same force and effect as if originally named therein as a Grantor and the New Grantor hereby agrees to all the terms and provisions of the Senior Subsidiary Security Agreement applicable to it as a Grantor thereunder. Each reference to a "Grantor" in the Senior Subsidiary Security Agreement shall be deemed to include the New Grantor. The Senior Subsidiary Security Agreement is hereby incorporated herein by reference. SECTION 2. The New Grantor represents and warrants to the Senior 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, subject to the effects of applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and equitable principles of general applicability. 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 Senior Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Grantor and the Senior Collateral Agent. SECTION 4. Except as expressly supplemented hereby, the Senior Subsidiary Security 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 Senior Subsidiary 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 7. All communications and notices hereunder shall be in writing and given as provided in the Senior Credit Facility. All communications and notices hereunder to the New Grantor shall be given to it c/o the Borrower as set forth in Section 9.01 of the Senior Credit Facility. 2 IN WITNESS WHEREOF, the New Grantor and the Senior Collateral Agent have duly executed this Supplement to the Senior Subsidiary Security Agreement as of the day and year first above written. [NAME OF NEW GRANTOR], by ___________________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent, by ___________________________________ Name: Title: 3 Annex 2 to the Senior Subsidiary Security Agreement DEFINITIONS ANNEX Schedule A to the Senior Subsidiary Security Agreement SUBSIDIARY GUARANTORS Subsidiary Guarantors --------------------- 112 Burleigh Avenue Norfolk, LLC 1515 West State Street Boise, Idaho, LLC 1525 Cortyou Road-Brooklyn Inc. 1740 Associates, LLC 3581 Carter Hill Road-Montgomery Corp. 4042 Warrensville Center Road-Warrensville Ohio, Inc. 5277 Associates, Inc. 537 Elm Street Corporation 5600 Superior Properties, Inc. 657-659 Broadway St. Corp. 764 South Broadway-Geneva, Ohio, LLC Ann & Government Streets-Mobile, Alabama, LLC Apex Drug Stores, Inc. Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC Broadview and Wallings-Broadview Heights Ohio, Inc. Central Avenue and Main Street-Petal, MS, LLC Dominion Action Four Corporation Dominion Action One Corporation Dominion Action Three Corporation Dominion Action Two Corporation Dominion Drug Stores Corporation Drug Fair of PA, Inc. Drug Fair, Inc. Eagle Managed Care Corp. Eighth and Water Streets-Ulrichsville, Ohio, LLC England Street-Asheland Corporation GDF, Inc. Gettysburg and Hoover-Dayton, Ohio, LLC Gratiot & Center-Saginaw Township, Michigan, LLC Harco, Inc. Jaime Nathan Travis Corporation K&B Alabama Corporation K&B Florida Corporation K&B Louisiana Corporation K&B Mississippi Corporation K&B Services, Inc. K&B Tennessee Corporation K&B Texas Corporation K&B Trainees, Inc. K&B, Incorporated Katz & Besthoff, Inc. Keystone Centers, Inc. Lakehurst and Broadway Corporation Mayfield & Chillicothe Roads-Chesterland, LLC Munson & Andrews LLC Name Rite, LLC Northline & Dix-Toledo-Southgate, LLC Ocean Acquisition Corporation P.L.D. Enterprises, Inc. Patton Drive and Navy Boulevard Property Corporation Paw Paw Lake Road & Paw Paw Avenue-Coloma, Michigan, LLC PDS-1 Michigan, Inc. Perry Distributors, Inc. Perry Drug Stores, Inc. PL Xpress, Inc. Portfolio Medical Services, Inc. Rack Rite Distributors, Inc. Ram-Utica, Inc. RDS Detroit, Inc. Reads, Inc. Rite Aid Drug Palace, Inc. Rite Aid Hdqtrs. Corp. Rite Aid of Alabama, Inc. Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Florida, Inc. Rite Aid of Georgia, Inc. Rite Aid of Illinois, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Massachusetts, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of North Carolina, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. Rite Aid of South Carolina, Inc. Rite Aid of Tennessee, Inc. 2 Rite Aid of Vermont, Inc. Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Rite Aid Realty Corp. Rite Aid Rome Distribution Center, Inc. Rite Aid Transport, Inc. Rite Aid Venturer #1, Inc. Rite Fund, Inc. Rite Investments Corporation RX Choice, Inc. Script South Seven Mile and Evergreen-Detroit, LLC Silver Springs Road-Baltimore, Maryland/One, LLC Silver Springs Road-Baltimore, Maryland/Two, LLC Sophie One Corp. State & Fortification Streets-Jackson, Mississippi, LLC State Street and Hill Road-Gerard, Ohio, LLC Super Distributors, Inc. Super Ice Cream Suppliers, Inc. Super Laboratories, Inc. Super Pharmacy Network, Inc. Super Tobacco Distributors, Inc The Lane Drug Company The Muir Company Thrifty Corporation Thrifty Payless, Inc Thrifty Wilshire, Inc. Tyler and Sanders Roads, Birmingham-Alabama, LLC Virginia Corporation W.R.A.C., Inc. Fairground, LLC Laverdiere's Enterprises, Inc. Leader Drugs, Inc. 3 Schedule 1 to the Senior Subsidiary Security Agreement FILINGS AND OTHER ACTIONS REQUIRED TO PERFECT SECURITY INTERESTS [Uniform Commercial Code Filings] [Patent and Trademark Filings] [Copyright Filings] Schedule 2 to the Senior Subsidiary Security Agreement INVENTORY LOCATIONS Schedule 3 to the Senior Subsidiary Security Agreement RECORDS OF ACCOUNTS Description Schedule 4 to the Senior Subsidiary Security Agreement COPYRIGHTS REGISTRATIONS AND COPYRIGHT LICENSES PATENTS AND PATENT LICENSES TRADEMARK REGISTRATIONS AND TRADEMARK LICENSES PENDING ACTIONS Schedule 5 to the Senior Subsidiary Security Agreement CASH MANAGEMENT SYSTEM SECTION 1. Accounts. (a) Each Grantor shall cause: (i) each Blocked Account Bank to execute and deliver a Blocked Account Agreement in respect of each Blocked Account by the Closing Date; (ii) each Lockbox Account Bank to execute and deliver a Lockbox Account Agreement in respect of each Lockbox Account by the Closing Date; (iii) each Government Lockbox Account Bank to execute and deliver an Government Lockbox Account Agreement in respect of each Government Lockbox Account by the Closing Date; and (iv) each Concentration Account Bank to execute and deliver a Concentration Account Agreement in respect of the Concentration Account by the Closing Date. (b) On each Business Day, each Grantor will transfer, directly or indirectly substantially all of the funds credited to each of its depositary accounts in same day funds, to a Blocked Account (including during a Cash Sweep Period) in accordance with its customary business practice. (c) Each Grantor shall cause all payments in the Government Lockbox Account to be deposited into the Lockbox Account as promptly as possible and in any event no later than the Business Day on which such payments become available in the Government Lockbox Account (including during a Cash Sweep Period). (d) Each Cash Management Account is, and shall remain, under the sole dominion and control of the Senior Collateral Agent. Each Grantor acknowledges and agrees that: (i) during a Cash Sweep Period such Grantor has no right of withdrawal from any Cash Management Account except that: (A) the relevant Grantors shall be permitted to instruct any Blocked Account Bank to transfer all amounts deposited in or credited to any Blocked Account to the Concentration Account in accordance with the applicable Blocked Account Agreement, and (B) the relevant Grantor shall be permitted to instruct the Concentration Account Bank to transfer all amounts deposited in or credited to the Concentration Account in accordance with the Concentration Account Agreement; (ii) the funds on deposit in the Cash Management Accounts shall continue to be collateral security for all of the Senior Obligations. (e) Prior to the delivery of a Cash Sweep Notice, the Grantor is free to withdraw funds on deposit in or credited to the Blocked Accounts and the Concentration Account in such amounts and with such frequency as the Grantor may from time to time determine, without notice to or consent from the Senior Collateral Agent. SECTION 2. Cash Sweep. (a) The Senior Collateral Agent shall immediately be entitled to deliver Cash Sweep Notices upon the conditions specified in Section 9.11(a) in the Senior Credit Facility. (b) Upon delivery of: (i) a Blocked Account Cash Sweep Notice from the Senior Collateral Agent, the balance of each Blocked Account shall be forwarded to the Concentration Account, each Business Day or the next Business Day (as permitted by the applicable Blocked Account Agreement), in same day funds, for so long as such Blocked Account Cash Sweep Notice shall be in effect; and (ii) a Concentration Account Cash Sweep Notice from the Senior Collateral Agent, the balance of the Concentration Account shall be forwarded to a Citibank Concentration Account, each Business Day (or the next Business Day (as permitted by the Concentration Account Agreement)), in same day funds, for so long as such Concentration Account Cash Sweep Notice shall be in effect. (c) On each Business Day during a Cash Sweep Period, the Senior Collateral Agent shall use funds on deposit in any Citibank Concentration Account as follows: (i) after the occurrence of a Triggering Event, in accordance with the provisions of Section 4.01(b) or (c) of the Collateral Trust and Intercreditor Agreement, as applicable; and (ii) at any other time, first, to repay the Revolving Credit Borrowings (without any reduction of the Commitments) and second, to be deposited into the Cash Sweep Cash Collateral Account for the benefit of the Senior Secured Parties, as collateral for the payment and performance of the Senior Obligations. The Senior Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over the Cash Sweep Cash Collateral Account. Deposits in the Cash Sweep Cash Collateral Account shall be invested in 2 Temporary Cash Investments, to be selected by the Senior Collateral Agent in its sole discretion, and interest earned on such deposits shall be deposited in such account as additional collateral for the payment and performance of the Senior Obligations. Interest or profits, if any, on such investments shall accumulate in such account. Upon termination of any Cash Sweep Period, funds in the Cash Sweep Cash Collateral Account shall be released to the Concentration Account within three Business Days after the end of such Cash Sweep Period. (d) The Senior Collateral Agent shall be required to automatically rescind any Cash Sweep Notice upon the conditions specified in Section 9.11(b) of the Senior Credit Facility. (e) The Senior Collateral Agent reserves the right to send as many Cash Sweep Notices to the extent that it is entitled to do so under paragraph (a) of this Section 2. SECTION 3. Collections. (a) Each Grantor agrees to notify and direct promptly (i) subject to paragraph (ii) below, each Account Debtor and every other Person obligated to make payments to any Blocked Account or Deposit Account, as applicable, to make all such payments to such Blocked Account or Deposit Account, as applicable. Each Grantor shall use all commercially reasonable efforts to cause each Account Debtor and every other person identified in the preceding sentence to make all payments owing to any Grantor to a Blocked Account or Deposit Account, as applicable; and (ii) each Account Debtor which is a Governmental Entity (and only such Account Debtors) to make all payments owing to any Grantor to the Government Lockbox Account. (b) In the event that any Grantor directly receives any remittances or payments on Accounts Receivable or any other obligation, notwithstanding the arrangements for payment directly into the Blocked Accounts or the Deposit Accounts, such remittances and payments shall be held in trust for the benefit of the Senior Collateral Agent and the other Senior Secured Parties and shall be segregated from other funds of such Grantor, subject to the Lien granted by the Senior Subsidiary Security Agreement, and such Grantor shall cause such remittances and payments to be deposited into the applicable Blocked Account or Deposit Account as soon as practicable after such Grantor's receipt thereof. SECTION 4. Accounts. (a) The following are the Blocked Accounts: - -------------------------------------------------------------------------------- Blocked Account Bank Account Numbers - -------------------------------------------------------------------------------- Bank of America [1233625317] - -------------------------------------------------------------------------------- PNC Bank [8612489237] - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- Blocked Account Bank Account Numbers - -------------------------------------------------------------------------------- PNC Bank [8550419961] - -------------------------------------------------------------------------------- US Bank [153607068225] - -------------------------------------------------------------------------------- Fleet Bank [9415842956] - -------------------------------------------------------------------------------- Union Bank of CA [1870024297] - -------------------------------------------------------------------------------- (b) The following are the Deposit Accounts: - -------------------------------------------------------------------------------- Account Holder Account Details - -------------------------------------------------------------------------------- Mellon Bank [0693636] - -------------------------------------------------------------------------------- Mellon Bank [1037294] - -------------------------------------------------------------------------------- (c) The following is the Concentration Account: - -------------------------------------------------------------------------------- Account Holder Account Details - -------------------------------------------------------------------------------- The Chase Manhattan Bank [9102750222] - -------------------------------------------------------------------------------- Schedule 6 to the Senior Subsidiary Security Agreement [FORM OF] BLOCKED ACCOUNT AGREEMENT [Date] [Blocked Account Bank] [address] Ladies and Gentlemen: Reference is made to (a) account no. [ ] maintained with you (the "Blocked Account Bank") by [ ] (the "Grantor") into which funds are deposited from time to time (the "Blocked Account") and (b) the Senior Subsidiary Security Agreement dated as of June 27, 2001 (as amended, supplemented or otherwise modified from time to time, the Senior Subsidiary Security Agreement"), among the Subsidiary Guarantors (such term and each other capitalized term used but not defined herein having the meaning assigned to such term in the Senior Subsidiary Security Agreement, including the Definitions Annex and Senior Credit Facility referred to therein) and the Senior Collateral Agent. Pursuant to the Senior Subsidiary Security Agreement, the Grantor has granted to the Senior Collateral Agent, for the benefit of the Senior Secured Parties, a perfected security interest in certain property of the Grantor, including, the Blocked Account. The Grantor hereby transfers to the Senior Collateral Agent exclusive ownership and control of, and all of its right, title and interest in and to, the Blocked Account and all funds and other property on deposit therein. By executing this Blocked Account Agreement, the Blocked Account Bank acknowledges that the Senior Collateral Agent now has exclusive ownership and control of the Blocked Account, that all funds in the Blocked Account shall be transferred to the Senior Collateral Agent as provided herein, that the Blocked Account is being maintained by the Blocked Account Bank for the benefit of the Senior Collateral Agent and that all amounts and other property therein are held by the Blocked Account Bank as custodian for the Senior Collateral Agent. Except as provided in paragraphs (e), (f) and (l) below, the Blocked Account shall not be subject to deduction, setoff, banker's lien, counterclaim, defense, recoupment or any other right in favor of any person or entity other than the Senior Collateral Agent. By executing this Blocked Account Agreement the Blocked Account Bank also acknowledges that, as of the date hereof, the Blocked Account Bank has received no notice of any other pledge or assignment of the Blocked Account and the Blocked Account Bank agrees with the Senior Collateral Agent as follows: (a) Notwithstanding anything to the contrary or any other agreement relating to the Blocked Account, the Blocked Account is and will be maintained for the benefit of the Senior Collateral Agent, will be entitled "Citicorp USA, Inc. as Senior Collateral Agent under the Senior Subsidiary Security Agreement dated as of June 27, 2001 Account" and will be subject to written instructions only from an authorized officer of the Senior Collateral Agent (except as expressly provided otherwise herein). (b) The Blocked Account Bank agrees to give the Senior Collateral Agent prompt notice if the Blocked Account shall become subject to any writ, judgment, warrant of attachment, execution or similar process. (c) [A post office box (the "Lockbox") has been rented in the name of the Grantor at the [ post office and the address to be used for such Lockbox is: [Insert address] The Blocked Account Bank's authorized representatives will have access to the Lockbox under the authority given by the Grantor to the post office and will make regular pick-ups from the Lockbox timed to gain maximum benefit of early presentation and availability of funds. The Blocked Account Bank will endorse and process all checks received in the Lockbox and deposit such checks (to the extent eligible) in the Blocked Account in accordance with the procedures set forth below .] (d) The Blocked Account Bank will follow its operating procedures for the handling of any [checks received from the Lockbox] or other remittance received in the Blocked Account that contains restrictive endorsements, irregularities (such as a variance between the written and numerical amounts), undated or postdated items, missing signatures, incorrect payees and the like. (e) The Blocked Account Bank will endorse and process all eligible checks and other remittance items not covered by paragraph (d) and deposit such checks and remittance items in the Blocked Account. 2 (f) The Blocked Account Bank will mail all checks returned unpaid because of uncollected or insufficient funds under appropriate advice to the Grantor (with a copy of the notification of return to the Senior Collateral Agent). The Blocked Account Bank may charge the Blocked Account for the amounts of any returned check that has been previously credited to the Blocked Account. To the extent insufficient funds remain in the Blocked Account to cover any such returned check, the Grantor shall indemnify the Blocked Account Bank for the uncollected amount of such returned check upon your demand. (g) The Blocked Account Bank will maintain a record of all checks and other remittance items received in the Blocked Account on a daily basis and, in addition to providing the Grantor with photostatic copies thereof, vouchers, enclosures and the like of such checks and remittance items, furnish to the Senior Collateral Agent a monthly statement setting forth the amounts deposited in and withdrawn from the Blocked Account and shall furnish such other information relating to the Blocked Account at such times as shall be reasonably requested by the Senior Collateral Agent to: Citicorp USA, Inc., as Senior Collateral Agent, [ ], Attention: [ ], with a copy to the Grantor. (h) Prior to the delivery of a written notice from the Senior Collateral Agent in the form of Exhibit A hereto (the "Blocked Account Cash Sweep Notice"), the Grantor is free to withdraw funds from the Blocked Account in such amounts and with such frequency as the Grantor may from time to time determine, without notice to or consent from the Senior Collateral Agent. (i) From and after delivery to the Blocked Account Bank of a Blocked Account Cash Sweep Notice and until the Blocked Account Bank is notified in writing by the Senior Collateral Agent that the Blocked Account Cash Sweep Notice is no longer in effect (a "Blocked Account Cash Sweep Period"), the Grantor will have no control over the use of, or any right to withdraw any amount from, to draw upon, or to otherwise exercise any power with respect to the Blocked Account, except that the Grantor shall be permitted to instruct the Blocked Account Bank only with respect to the transfer of funds from the Blocked Account to the Concentration Account (as defined below) in accordance with paragraph (k) below. (j) During a Blocked Account Cash Sweep Period, the Blocked Account Bank shall transfer, in same day funds, on each Business Day, all funds, if any on deposit in, or otherwise to the credit of, the Blocked Account to the account listed below (the "Concentration Account") in accordance with paragraph (k) below, provided that funds on deposit that are subject to collection may be transmitted promptly upon collection: ABA Number: [name and address of Grantor's bank] 3 Account Name: Concentration Account Account Number: Reference: Attn: or to such other account as the Senior Collateral Agent may from time to time, or at any time, designate in writing. (k) During a Blocked Account Cash Sweep Period, (i) the Grantor shall provide written instructions to the Blocked Account Bank on each Business Day to transfer all funds on deposit in, or otherwise credited to, the Blocked Account to the Concentration Account; (ii) to the extent there are any available balances in the Blocked Account at the end of any Business Day which have not been transferred pursuant to clause (i) of this paragraph, the Grantor shall provide, on the next Business Day, written instructions for the transfer of such available balances from the Blocked Account to the Concentration Account; and (iii) if the Grantor does not provide the written instructions pursuant to clause (ii) of this paragraph, the Blocked Account Bank shall automatically initiate such transfer described in clause (ii) of this paragraph and all other transfers from the Blocked Account to the Concentration Bank without further direction from the Grantor until otherwise notified by the Senior Collateral Agent. (l) All customary service charges and fees with respect to the Blocked Account shall be debited to the Blocked Account. In the event insufficient funds remain in the Blocked Account to cover such customary service charges and fees, the Grantor shall pay and indemnify the Blocked Account Bank for the amounts of such customary service charges and fees. Neither the Senior Collateral Agent nor the Senior Secured Parties shall have any liability for the payment of any such fees in respect of the Blocked Account. This letter agreement shall be binding upon and shall inure to the benefit of the Blocked Account Bank, the Grantor, the Senior Collateral Agent, the Senior Secured Parties referred to in the Senior Subsidiary Security Agreement and their respective successors, transferees and assigns of any of the foregoing. This letter agreement may not be modified or terminated except upon the mutual consent of the Senior Collateral Agent, the Grantor and the Blocked Account Bank. The Blocked Account Bank may terminate the letter agreement only upon 45 days' prior written notice to the Grantor and the Senior Collateral Agent. The Senior Collateral Agent may terminate this letter agreement at any time. So long as any Senior Obligations remain outstanding and the Commitments are still outstanding, upon such termination the Blocked Account Bank shall close the Blocked Account and transfer all funds in the Blocked Account to the Senior Collateral Agent at the Concentration Account or as otherwise directed by the Senior Collateral Agent. After any such termination, the Blocked Account Bank shall nonetheless remain 4 obligated promptly to transfer to the Concentration Account or as the Senior Collateral Agent may otherwise direct all funds and other property received in respect of the Blocked Account. This letter agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this letter agreement by telecopier shall be effective as delivery of a manually executed counterpart of this letter agreement. This letter agreement supersedes all prior agreements, oral or written, with respect to the subject matter hereof and may not be amended, modified or supplemented except by a writing signed by the Senior Collateral Agent, the Grantor and the Blocked Account Bank. This letter agreement shall be governed by, and construed in accordance with, the law of the State of New York. Upon acceptance of this letter agreement it will be the valid and binding obligation of the Grantor, the Senior Collateral Agent, and the Blocked Account Bank, in accordance with its terms. Very truly yours, [ ]. By: Name: Title: 5 CITICORP USA, INC, as Senior Collateral Agent By: Name: Title: Acknowledged and agreed to as of the date first above written: [ ] By: Name: Title: 6 Exhibit A to the Blocked Account Agreement BLOCKED ACCOUNT CASH SWEEP NOTICE [Blocked Account Bank] [Address] Re: Account No. [ ] (the "Blocked Account") Ladies and Gentlemen: Reference is made to the Blocked Account and that certain Blocked Account Agreement dated June 27, 2001 (as amended, supplemented or otherwise modified from time to time, the "Blocked Account Agreement") among the Blocked Account Bank, the Grantor and the Senior Collateral Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Blocked Account Agreement. The Senior Collateral Agent hereby notifies you that, in accordance with certain provisions of the Senior Subsidiary Security Agreement, from and after the date of this notice, you are hereby directed to transfer (by wire transfer or other method of transfer mutually acceptable to you and the Senior Collateral Agent) to the Senior Collateral Agent, in same day funds, on each Business Day, the entire balance in the Blocked Account to the Concentration Account specified in paragraph (j) of the Blocked Account Agreement (or to such other account as the Senior Collateral Agent may from time to time, or at any time, designate in writing) until you are notified in writing by the Senior Collateral Agent that this Blocked Account Cash Sweep Notice is no longer effective. Very truly yours, CITICORP USA, INC, as Senior Collateral Agent By: Name: Title: Schedule 7 to the Senior Subsidiary Security Agreement [FORM OF] LOCKBOX ACCOUNT AGREEMENT [Date] [Mellon Bank, N.A. Document Control Manager Three Mellon Bank Center Room 3119 Pittsburgh, PA 15259] Ladies and Gentlemen: Reference is made to (a) account number [ ] and corresponding lockbox and data automation system maintained with you (the "Lockbox Account Bank") by [ ] (the "Grantor") into which funds are deposited from time to time (the "Lockbox Account") and (b) the Senior Subsidiary Security Agreement dated as of June 27, 2001 (as further amended, supplemented or otherwise modified from time to time, the "Senior Subsidiary Security Agreement") among the Subsidiary Guarantors (such term and each other capitalized term used but not defined herein having the meaning assigned to such term in the Senior Subsidiary Security Agreement, including the Definitions Annex and Senior Credit Facility referred to therein) and the Senior Collateral Agent. The Grantor hereby confirms its irrevocable and unconditional instruction to you that, until receipt of a written notice from the Senior Collateral Agent to the contrary, you shall follow exclusively the instructions of the Senior Collateral Agent with respect to the Lockbox Account and that the Lockbox Account shall be under the sole dominion and control of the Senior Collateral Agent. Notwithstanding anything to the contrary or any other agreement relating to the Lockbox Account, the Lockbox Account is and will be maintained for the benefit of the Senior Collateral Agent, will be entitled "Citicorp USA, Inc. as Senior Collateral Agent under the Senior Subsidiary Agreement dated as of June 27, 2001 Account" and will be subject to written instructions only from an authorized officer of the Senior Collateral Agent. The Grantor also hereby notifies you that the Senior Collateral Agent shall be irrevocably entitled to exercise any and all rights in respect of, or in connection with, the Lockbox Account, including, without limitation, the right to specify when payments are to be made out of, or in connection with, the Lockbox Account. The Senior Collateral Agent hereby instructs you, until you receive notice from the Senior Collateral Agent changing this instruction, to transfer, in same day funds, on each Business Day, all funds, if any on deposit in, or otherwise to the credit of, the Lockbox Account to the Account listed below, provided that funds on deposit that are subject to collection may be transmitted properly upon collection. ABA Number: ________________________________ [name and address of Grantor's bank] Account Name: _______________________________ Concentration Account Account Number: _____________________________ Reference: __________________________________ Attn:________________________________________ [or to such other account as the Senior Collateral Agent and the Grantor may designate in writing.] All expenses for the maintenance and provision of services in conjunction with the Lockbox Account held in the name of the Grantor are the responsibility of the Grantor. In the event that the Grantor does not pay all service fees due to the Lockbox Account Bank within thirty (30) days after the due date, the Lockbox Account Bank is authorized to charge the Lockbox Account for such fees. In the event the Lockbox Account Bank is unable to obtain sufficient funds from such charges to cover such fees the Grantor shall indemnify the Lockbox Account Bank for all then-due fees on the Lockbox Account that have not been paid. The Grantor and the Senior Collateral Agent agree that the Lockbox Account Bank may debit the Lockbox Account for any items (including, but not limited to, checks, drafts, Automatic Clearinghouse (ACH) credits or wire transfers or other electronic transfers or credits) deposited or credited to the Lockbox Account which may be returned or otherwise not collected and, subject to the preceding paragraph, for all charges, fees, commissions and expenses incurred by the Lockbox Account Bank in providing services or otherwise in connection herewith. The Lockbox Account Bank may charge the Lockbox Account as permitted herein at such times as are in accordance with the Lockbox Account Bank's customary practice for the chargeback of returned items and expenses. In the event the Lockbox Account Bank is unable to obtain sufficient funds for such charges to cover returned items, or reversed or returned credits, or any other items not collected and any other charges, expenses, or commissions incurred by the Lockbox Account Bank in providing the services (referred to as a "cost" or "costs"), the Grantor shall indemnify the Lockbox Account Bank for all amounts related to the above described costs incurred by the Lockbox Account Bank. The Senior Collateral Agent agrees that if the Grantor has not reimbursed the Lockbox Account 2 Bank for the amounts described in this paragraph and the Lockbox Account Bank has transferred funds to the Senior Collateral Agent, then the Senior Collateral Agent agrees to reimburse the Lockbox Account Bank (for any returned items described in this paragraph but not for charges, fees or commissions incurred therewith) within ten business days after demand by the Lockbox Account Bank. Notwithstanding any other provision of this Agreement, unless the Lockbox Account Bank is grossly negligent or engages in wilful misconduct in performance or non-performance in connection with this Agreement and the Lockbox Account, the Grantor agrees to indemnify and hold the Lockbox Account Bank harmless from any claims, damages, losses or expenses incurred by any party in connection herewith; in the event the Lockbox Account Bank breaches the standard of care set forth herein, the Grantor and the Senior Collateral Agent each expressly agrees that the Lockbox Account Bank's liability shall be limited to damages directly caused by such breach and in no event shall the Lockbox Account Bank be liable for any incidental, indirect, punitive or consequential damages or attorney's fees whatsoever. Notwithstanding any other provision of this Agreement, the Lockbox Account Bank shall not be liable for any failure, inability to perform, or delay in performance hereunder, if such failure, inability, or delay is due to an act of God, war, civil commotion, governmental action, fire, explosion, strikes, other industrial disturbance, equipment malfunction, action, non-action or delayed action on the part of the Grantor or the Senior Collateral Agent or of any other entity or any other causes that are beyond the Lockbox Account Bank's reasonable control. This Agreement may not be modified or terminated by the Grantor unless, in the case of a modification, the prior written consent of the Senior Collateral Agent and the Lockbox Account Bank is obtained and, in the case of termination, the prior written consent of the Senior Collateral Agent is obtained. The Lockbox Account Bank may terminate this Agreement upon forty-five (45) days' prior written notice to the Grantor and the Senior Collateral Agent. The Senior Collateral Agent may terminate this Agreement at any time. The Grantor's obligations under this Agreement to indemnify, hold harmless and pay amounts owed (and the Grantor's obligation to reimburse the Lockbox Account Bank for any returned items) shall survive the termination of this Agreement. [This Agreement shall be governed by the laws of the State of New York.] The terms and conditions of the services, attached as Exhibit A, is made part of this Agreement with respect to matters not explicitly covered in this Agreement. To the extent there is a conflict between this Agreement and the terms and conditions of services, this agreement shall take precedence. This Agreement shall become effective immediately upon its execution by all parties hereto. Any notice permitted or required hereunder shall be in writing and shall be 3 deemed to have been duly given if sent by personal delivery, express or first class mail, or facsimile addressed, in the case of notice to the Lockbox Account Bank, to: [Mellon Bank, N.A. Document Control Manager Three Mellon Bank Center Room 3119 Pittsburgh, PA 15259] Phone: (412) 234-4172 Fax: (412) 236-7419 and, in the case of notice to the Grantor, to: [30 Hunter Lane Camp Hill, PA 17011 Phone: (717) 975-5760 Fax: (717) 731-3878 Attn: Rite Aid Funding LLC/ Rite Aid Treasury] and, in the case of notice to the Senior Collateral Agent to: [ ] Fax: [ ] Attn: [ ] or to such other address or addresses as the party to receive notice may provide in writing to the other party in accordance with this paragraph. The Lockbox Account Bank shall have no duty or obligation to inquire into the authenticity or effectiveness of any such notice received pursuant to this Agreement. Please agree to the terms of, and acknowledge receipt of, this notice by signing in the space provided below. Very truly yours, [NAME OF SUBSIDIARY GUARANTOR] By:____________________ Name: Title: 4 [RITE AID CORPORATION RITE AID OF TENNESSEE, INC. RITE AID OF ALABAMA, INC. RITE AID OF VERMONT, INC. RITE AID OF CONNECTICUT, INC. RITE AID OF VIRGINIA, INC. RITE AID OF DELAWARE, INC. RITE AID OF WEST VIRGINIA, INC. RITE AID OF WASHINGTON, DC., KEYSTONE CENTERS, INC. INC RITE AID DRUG PALACE, INC. RITE AID OF FLORIDA, INC. LANE DRUG COMPANY RITE AID OF GEORGIA, INC. APEX DRUG STORES, INC. RITE AID OF INDIANA, INC. PERRY DRUG STORES, INC. RITE AID OF KENTUCKY, INC. RDS DETROIT, INC. RITE AID OF MAINE, INC. PDS-1 MICHIGAN, INC. RITE AID OF MARYLAND, INC. THRIFTY PAYLESS, INC. RITE AID OF MASSACHUSETTS, HARCO, INC. INC. K&B ALABAMA CORPORATION RITE AID OF MICHIGAN, INC. K&B FLORIDA CORPORATION RITE AID OF NEW HAMPSHIRE, K&B LOUISIANA CORPORATION K&B INC. MISSISSIPPI CORPORATION RITE AID OF NEW JERSEY, INC. K&B TEXAS CORPORATION RITE AID OF NEW YORK, INC. K&B TENNESSEE CORPORATION SUPER RITE AID OF NORTH CAROLINA, PHARMACY NETWORK, INC. INC. RITE AID OF OHIO, INC. RITE AID OF PENNSYLVANIA, INC. RITE AID OF SOUTH CAROLINA, By:____________________, on behalf INC. of each of the above listed companies Name: By:____________________, on behalf of each of the above listed companies Name: Agreed and acknowledged: [MELLON BANK, N.A.] By:__________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent By:__________________________ Name: Title: Schedule 8 to the Senior Subsidiary Security Agreement GOVERNMENT LOCKBOX ACCOUNT AGREEMENT [Date] [Mellon Bank, N.A. Document Control Manager Three Mellon Bank Center Room 3119 Pittsburgh, PA 15259] Ladies and Gentlemen: Reference is made to (a) account no. [ ] and corresponding lockbox and data automation system maintained with you (the "Government Lockbox Account Bank") by [ ] (the "Grantor") into which funds are deposited from time to time (the "Government Lockbox") and (b) the Senior Subsidiary Security Agreement dated as of June 27, 2001 (as amended, supplemented or otherwise modified from time to time, the "Senior Subsidiary Security Agreement"), among the Subsidiary Guarantors (such term and each other capitalized term used and not otherwise defined herein having the meaning assigned to such term in the Senior Subsidiary Security Agreement including the Definitions Annex and Senior Credit Facility referred to therein) and the Senior Collateral Agent. The Grantor hereby provides the following revocable instruction with respect to the Government Lockbox Account (the "Standing Revocable Instruction"): the Government Lockbox Account Bank shall transfer from the Government Lockbox Account daily, via a zero balance service as described in the terms and conditions of the services, attached as Exhibit A, all available funds held in the Government Lockbox Account to account no. [ ] at Mellon Bank, N.A. in the name of the Grantor for Citicorp USA, Inc., as Senior Collateral Agent (which account is under the sole dominion and control of the Senior Collateral Agent). This Standing Revocable Instruction is revocable by the Grantor at any time and for any reason by providing written instructions to the Government Lockbox Account Bank, signed by the undersigned (which writing may be by facsimile and upon which you may conclusively rely), whereupon the Government Lockbox Account Bank shall follow, without further inquiry, such contrary written instruction and not the Standing Revocable Instruction. The Grantor also hereby notifies the Government Lockbox Account Bank that, as collateral security for the Senior Obligations, the undersigned Subsidiary Guarantors granted to the Grantor and the Grantor hereby assigns to the Senior Collateral Agent a continuing security interest in (i) the Government Lockbox Account, (ii) all contract rights and privileges in respect to the Government Lockbox Account, (iii) all cash, checks, money orders and other items of value on deposit in the Government Lockbox Account and (iv) all proceeds of the foregoing. All expenses for the maintenance and provision of services in conjunction with the Government Lockbox Account held in the name of the Grantor are the responsibility of the Grantor. In the event that the Grantor does not pay all service fees due to the Government Lockbox Account Bank within thirty (30) days after the due date, the Government Lockbox Account Bank is authorized to charge the Government Lockbox Account for such fees. In the event the Government Lockbox Account Bank is unable to obtain sufficient funds from such charges to cover such fees the Grantor shall indemnify the Government Lockbox Account Bank for all then-due fees on the Government Lockbox Account that have not been paid. The Grantor and the Senior Collateral Agent agree that the Government Lockbox Account Bank may debit the Government Lockbox Account for any items (including, but not limited to, checks, drafts, Automatic Clearinghouse (ACH) credits or wire transfers or other electronic transfers or credits) deposited or credited to the Government Lockbox Account which may be returned or otherwise not collected and, subject to the preceding paragraph, for all charges, fees, commissions and expenses incurred by the Government Lockbox Account Bank in providing services or otherwise in connection herewith. The Government Lockbox Account Bank may charge the Government Lockbox Account as permitted herein at such times as are in accordance with the Government Lockbox Account Bank's customary practice for the chargeback of returned items and expenses. In the event the Government Lockbox Account Bank is unable to obtain sufficient funds for such charges to cover returned items, or reversed or returned credits, or any other items not collected and any other charges, expenses, or commissions incurred by the Government Lockbox Account Bank in providing the services (referred to as a "cost" or "costs") the Grantor shall indemnify the Government Lockbox Account Bank for all amounts related to the above described costs incurred by the Government Lockbox Account Bank. The Senior Collateral Agent agrees that if the Grantor has not reimbursed the Government Lockbox Account Bank for the amounts described in this paragraph and the Government Lockbox Account Bank has transferred funds to the Senior Collateral Agent, then the Senior Collateral Agent agrees to reimburse the Government Lockbox Account Bank (for any returned items described in this paragraph but not for charges, fees or commissions incurred therewith) within ten business days after demand by the Government Lockbox Account Bank. Notwithstanding any other provision of this Government Lockbox Account Agreement, unless the Government Lockbox Account Bank is grossly negligent or engages in wilful misconduct in performance or non-performance in connection with this 2 Agreement and the Government Lockbox Account, the Grantor agrees to indemnify and hold the Government Lockbox Account Bank harmless from any claims, damages, losses or expenses incurred by any party in connection herewith; in the event the Government Lockbox Account Bank breaches the standard of care set forth herein, the Grantor and the Senior Collateral Agent each expressly agrees that the Government Lockbox Account Bank's liability shall be limited to damages directly caused by such breach and in no event shall the Government Lockbox Account Bank be liable for any incidental, indirect, punitive or consequential damages or attorney's fees whatsoever. Notwithstanding any other provision of this Government Lockbox Account Agreement, the Government Lockbox Account Bank shall not be liable for any failure, inability to perform, or delay in performance hereunder, if such failure, inability, or delay is due to an act of God, war, civil commotion, governmental action, fire, explosion, strikes, other industrial disturbance, equipment malfunction, action, non-action or delayed action on the part of the Grantor or the Senior Collateral Agent or of any other entity or any other causes that are beyond the Government Lockbox Account Bank's reasonable control. This Government Lockbox Account Agreement may not be modified or terminated by the Grantor unless, in the case of a modification, the prior written consent of the Senior Collateral Agent and the Government Lockbox Account Bank is obtained and, in the case of termination, the prior written consent of the Senior Collateral Agent is obtained. The Government Lockbox Account Bank may terminate this Agreement upon forty-five (45) days' prior written notice to the Grantor and the Senior Collateral Agent. The Senior Collateral Agent may terminate this Agreement at any time. The Grantor's obligations under this Agreement to indemnify, hold harmless and pay amounts owed (and the Senior Collateral Agent's obligation to reimburse the Government Lockbox Account Bank for any returned items) shall survive the termination of this Agreement. This Agreement shall be governed by the laws of the State of New York. The terms and conditions of the services, attached as Exhibit A, is made part of this Agreement with respect to matters not explicitly covered in this Agreement. To the extent there is a conflict between this Agreement and the terms and conditions of services, this agreement shall take precedence. This Agreement shall become effective immediately upon its execution by all parties hereto. Any notice permitted or required hereunder shall be in writing and shall be deemed to have been duly given if sent by personal delivery, express or first class mail, 3 or facsimile addressed, in the case of notice to the Government Lockbox Account Bank, to: [Mellon Bank, N.A. Document Control Manager Three Mellon Bank Center Room 3119 Pittsburgh, PA 15259 Phone: (412) 234-4172 Fax: (412) 236-7419] and, in the case of notice to the Grantor, to: [30 Hunter Lane Camp Hill, PA 17011 Phone: (717) 975-5760 Fax: (717) 731-3878 Attn: Rite Aid Funding LLC/ Rite Aid Treasury] and, in the case of notice to the Senior Collateral Agent, to: [ ] Fax: [ ] Attn: [ ] or to such other address or addresses as the party to receive notice may provide in writing to the other party in accordance with this paragraph. The Government Lockbox Account Bank shall have no duty or obligation to inquire into the authenticity or effectiveness of any such notice received pursuant to this Agreement. 4 Please agree to the terms of, and acknowledge receipt of, this notice (including, without limitation, the notice of, and consent to, the security interest referred to in the foregoing paragraph) by signing in the space provided below. Very truly yours, [NAME OF SUBSIDIARY GUARANTOR] By:____________________ Name: Title: [RITE AID CORPORATION RITE AID OF ALABAMA, INC. RITE AID OF CONNECTICUT, INC. RITE AID OF DELAWARE, INC. RITE AID OF WASHINGTON, DC., INC RITE AID OF FLORIDA, INC. RITE AID OF GEORGIA, INC. RITE AID OF INDIANA, INC. RITE AID OF KENTUCKY, INC. RITE AID OF MAINE, INC. RITE AID OF MARYLAND, INC. RITE AID OF MASSACHUSETTS, INC. RITE AID OF MICHIGAN, INC. RITE AID OF NEW HAMPSHIRE, INC. RITE AID OF NEW JERSEY, INC. RITE AID OF NEW YORK, INC. RITE AID OF NORTH CAROLINA, INC. RITE AID OF OHIO, INC. RITE AID OF PENNSYLVANIA, INC. RITE AID OF SOUTH CAROLINA, INC. By:___________________, on behalf of each of the above listed companies Name: 5 RITE AID OF TENNESSEE, INC. RITE AID OF VERMONT, INC. RITE AID OF VIRGINIA, INC. RITE AID OF WEST VIRGINIA, INC. KEYSTONE CENTERS, INC. RITE AID DRUG PALACE, INC. LANE DRUG COMPANY APPEX DRUG STORES, INC. PERRY DRUG STORES, INC. RDS DETROIT, INC. PDS-1 MICHIGAN, INC. THRIFTY PAYLESS, INC. HARCO, INC. K&B ALABAMA CORPORATION K&B FLORIDA CORPORATION K&B LOUISIANA CORPORATION K&B MISSISSIPPI CORPORATION K&B TEXAS CORPORATION K&B TENNESSEE CORPORATION SUPER PHARMACY NETWORK, INC.] By:____________________, on behalf of each of the above listed companies Name: Agreed and acknowledged: [MELLON BANK, N.A.] By:__________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent By:__________________________ Name: Title: 6 Schedule 9 to the Senior Subsidiary Security Agreement [FORM OF] CONCENTRATION ACCOUNT AGREEMENT [Date] [Concentration Account Bank] [address] Ladies and Gentlemen: Reference is made to (a) account no. [ ] maintained with you (the "Concentration Account Bank") by [ ] (the "Grantor") into which funds are deposited from time to time (the "Concentration Account") and (b) the Senior Subsidiary Security Agreement dated as of June 27, 2001 (as amended, supplemented or otherwise modified from time to time, the Senior Subsidiary Security Agreement"), among the Subsidiary Guarantors (such term and each other capitalized term used but not defined herein having the meaning assigned to such term in the Senior Subsidiary Security Agreement, including the Definitions Annex and Senior Credit Facility referred to therein) and the Senior Collateral Agent. Pursuant to the Senior Subsidiary Security Agreement, the Grantor has granted to the Senior Collateral Agent, for the benefit of the Senior Secured Parties, a perfected security interest in certain property of the Grantor, including the Concentration Account. The Grantor hereby transfers to the Senior Collateral Agent exclusive ownership and control of, and all of its right, title and interest in and to, the Concentration Account and all funds and other property on deposit therein. By executing this Concentration Account Agreement, the Concentration Account Bank acknowledges that the Senior Collateral Agent now has exclusive ownership and control of the Concentration Account, that all funds in the Concentration Account shall be transferred to the Senior Collateral Agent as provided herein, that the Concentration Account is being maintained by the Concentration Account Bank for the benefit of the Senior Collateral Agent and that all amounts and other property therein are held by the Concentration Account Bank as custodian for the Senior Collateral Agent. Except as provided in paragraphs (e), (f) and (j) below, the Concentration Account shall not be subject to deduction, setoff, banker's lien, counterclaim, defense, recoupment or any other right in favor of any person or entity other than the Senior Collateral Agent. By executing this Concentration Account Agreement, the Concentration Account Bank also acknowledges that, as of the date hereof, the Concentration Account Bank has received no notice of any other pledge or assignment of the Concentration Account and the Concentration Account Bank agrees with the Senior Collateral Agent as follows: (a) Notwithstanding anything to the contrary or any other agreement relating to the Concentration Account, the Concentration Account is and will be maintained for the benefit of the Senior Collateral Agent, will be entitled "Citicorp USA, Inc. as Senior Collateral Agent under the Senior Subsidiary Security Agreement dated as of June 27, 2001 Account" and will be subject to written instructions only from an authorized officer of the Senior Collateral Agent (except as expressly provided otherwise herein). (b) The Concentration Account Bank agrees to give the Senior Collateral Agent prompt notice if the Concentration Account shall become subject to any writ, judgment, warrant of attachment, execution or similar process. (c) [A post office box (the "Lockbox") has been rented in the name of the Grantor at the [ post office and the address to be used for such Lockbox is: [Insert address] The Concentration Account Bank's authorized representatives will have access to the Lockbox under the authority given by the Grantor to the post office and will make regular pick-ups from the Lockbox timed to gain maximum benefit of early presentation and availability of funds. The Concentration Account Bank will endorse process all checks received in the Lockbox and deposit such checks (to the extent eligible) in the Concentration Account in accordance with the procedures set forth below .] (d) The Concentration Account Bank will follow its usual operating procedures for the handling of any [checks received from the Lockbox] or other remittance received in the Concentration Account that contains restrictive endorsements, irregularities (such as a variance between the written and numerical amounts), undated or postdated items, missing signatures, incorrect payees and the like. (e) The Concentration Account Bank will endorse and process all eligible checks and other remittance items not covered by paragraph (d) and deposit such checks and remittance items in the Concentration Account. 2 (f) The Concentration Account Bank will mail all checks returned unpaid because of uncollected or insufficient funds under appropriate advice to the Grantor (with a copy of the notification of return to the Senior Collateral Agent). The Concentration Account Bank may charge the Concentration Account for the amounts of any returned check that has been previously credited to the Concentration Account. To the extent insufficient funds remain in the Concentration Account to cover any such returned check, the Grantor shall indemnify the Concentration Account Bank for the uncollected amount of such returned check upon your demand. (g) The Concentration Account Bank will maintain a record of all checks and other remittance items received in the Concentration Account on a daily basis and, in addition to providing the Grantor with photostatic copies thereof, vouchers, enclosures and the like of such checks and remittance items, furnish to the Senior Collateral Agent a monthly statement setting forth the amounts deposited in and withdrawn from the Concentration Account and shall furnish such other information relating to the Concentration Account at such times as shall be reasonably requested by the Senior Collateral Agent to: Citicorp USA, Inc., as Senior Collateral Agent, 399 Park Avenue, New York, New York 10043, Attention: [ ], with a copy to the Grantor. (h) Prior to the delivery of a written notice from the Senior Collateral Agent in the form of Exhibit A hereto (the "Concentration Account Cash Sweep Notice"), the Grantor is free to withdraw funds from the Concentration Account in such amounts and with such frequency as the Grantor may from time to time determine, without notice to or consent from the Senior Collateral Agent. (i) From and after delivery to the Concentration Account Bank of a Concentration Account Cash Sweep Notice and until the Concentration Account Bank is notified in writing by the Senior Collateral Agent that the Concentration Account Cash Sweep Notice is no longer in effect (a "Concentration Account Cash Sweep Period"), the Grantor will have no control over the use of, or any right to withdraw any amount from, to draw upon, or to otherwise exercise any power with respect to the Concentration Account. (j) During a Concentration Account Cash Sweep Period, the Concentration Account Bank shall transfer, in same day funds, on each Business Day, all funds, if any on deposit in, or otherwise to the credit of, the Concentration Account to the account listed below (the "Citibank Concentration Account") or to such other account as the Senior Collateral Agent may from time to time designate in writing, provided that funds on deposit that are subject to collection may be transmitted promptly upon collection to: ABA Number:____________________________ [Citicorp USA, Inc. 399 Park Avenue 3 New York, NY 10043] Account Name: Citibank Concentration Account Account Number: _________________________ Reference: ______________________________ Attn: ___________________________________ (k) All customary service charges and fees with respect to the Concentration Account shall be debited to the Concentration Account. In the event insufficient funds remain in the Concentration Account to cover such customary service charges and fees, the Grantor shall pay and indemnify the Concentration Account Bank for the amounts of such customary service charges and fees. Neither the Senior Collateral Agent nor the Senior Secured Parties shall have any liability for the payment of any fees or charges in respect of the Concentration Account. This letter agreement shall be binding upon and shall inure to the benefit of the Concentration Account Bank, the Grantor, the Senior Collateral Agent, the Senior Secured Parties referred to in the Senior Subsidiary Security Agreement and their respective successors, transferees and assigns of any of the foregoing. This letter agreement may not be modified or terminated except upon the mutual consent of the Senior Collateral Agent, the Grantor and the Concentration Account Bank. The Concentration Account Bank may terminate the letter agreement only upon 45 days' prior written notice to the Grantor and the Senior Collateral Agent. The Senior Collateral Agent may terminate this letter agreement at any time. So long as any Senior Obligations remain outstanding and the Commitments are still outstanding, upon such termination the Concentration Account Bank shall close the Concentration Account and transfer all funds in the Concentration Account to the Senior Collateral Agent at the Citibank Concentration Account or as otherwise directed by the Senior Collateral Agent. After any such termination, the Concentration Account Bank shall nonetheless remain obligated promptly to transfer to the Concentration Account, or as the Senior Collateral Agent may otherwise direct, all funds and other property received in respect of the Concentration Account. This letter agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this letter agreement by telecopier shall be effective as delivery of a manually executed counterpart of this letter agreement. This letter agreement supersedes all prior agreements, oral or written, with respect to the subject matter hereof and may not be amended, modified or supplemented except by a writing signed by the Senior Collateral Agent, the Grantor and the Concentration Account Bank. 4 This letter agreement shall be governed by, and construed in accordance with, the law of the State of New York. 5 Upon acceptance of this letter agreement, it will be the valid and binding obligation of the Grantor, the Senior Collateral Agent, and the Concentration Account Bank, in accordance with its terms. Very truly yours, [ ]. By: ______________________________ Name: Title: CITICORP USA, INC, as Senior Collateral Agent By: _______________________________ Name: Title: Acknowledged and agreed to as of the date first above written: [ ] By: ________________________ Name: Title: 6 Exhibit A to the Concentration Account Agreement CONCENTRATION ACCOUNT CASH SWEEP NOTICE [Concentration Account Bank] [Address] Re: Account No. [ ] (the "Concentration Account") Ladies and Gentlemen: Reference is made to the Concentration Account and that certain Concentration Account Agreement dated June 27, 2001 (as amended, supplemented or otherwise modified from time to time, the "Concentration Account Agreement") among the Concentration Account Bank, the Grantor and the Senior Collateral Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Concentration Account Agreement. The Senior Collateral Agent hereby notifies you that, in accordance with certain provisions of the Senior Subsidiary Security Agreement, from and after the date of this notice, you are hereby directed to transfer (by wire transfer or other method of transfer mutually acceptable to you and the Senior Collateral Agent) to the Senior Collateral Agent, in same day funds, on each Business Day, the entire balance in the Concentration Account to the Citibank Concentration Account specified in paragraph (j) of the Concentration Account Agreement (or to such other account as the Senior Collateral Agent may from time to time, or at any time, designate in writing) until you are notified in writing by the Senior Collateral Agent that this Concentration Account Cash Sweep Notice is no longer effective. Very truly yours, CITICORP USA, INC, as Senior Collateral Agent By: _______________________________ Name: Title: Schedule 10 to the Senior Subsidiary Security Agreement PERFECTION CERTIFICATE EX-10 13 exh10-33.txt EXHIBIT 10.33 EXECUTION COPY COLLATERAL TRUST AND INTERCREDITOR AGREEMENT COLLATERAL TRUST AND INTERCREDITOR AGREEMENT (as amended and modified from time to time, this "Agreement") dated as of June 27, 2001, among RITE AID CORPORATION, a Delaware corporation ("Rite Aid"), each Subsidiary of Rite Aid listed on the signature pages hereto or which becomes a party hereto pursuant to Section 9.11 hereof (each such Subsidiary, individually, a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors"), WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral trustee (in such capacity, the "Second Priority Collateral Trustee") for the holders from time to time of the Second Priority Debt Obligations, CITICORP USA, INC., a Delaware corporation ("Citicorp USA"), as collateral agent (in such capacity, the "Senior Collateral Agent") for the Senior Secured Parties under the Senior Loan Documents, STATE STREET BANK AND TRUST COMPANY, as trustee under the 10.50% Note Indenture for the holders of the 10.50% Notes and as trustee under the Exchange Note Indenture for the holders of the Exchange Notes, CITICORP USA, INC., a Delaware corporation, as agent for the Synthetic Lease Parties under the Synthetic Lease Documents, and each other Second Priority Representative which becomes a party hereto pursuant to Section 10.12 hereof. Reference is made to the Senior Debt Documents. The Subsidiary Guarantors have entered into the Senior Subsidiary Guarantee Agreement, pursuant to which they have, jointly and severally, guaranteed the Senior Obligations for the benefit of each Senior Secured Party. Each of the Subsidiary Guarantors has also entered into the Senior Subsidiary Security Agreement, each Senior Mortgage and each other Senior Collateral Document to which it is a party to secure, among other things, the Senior Obligations, including its obligations under the Senior Subsidiary Guarantee Agreement, and the Subsidiary Guarantors have pledged collateral to the Senior Collateral Agent under such agreements. Reference is made to the Second Priority Debt Documents. The Subsidiary Guarantors have entered into the Second Priority Subsidiary Guarantee Agreement, pursuant to which they have, jointly and severally, guaranteed the Second Priority Debt Obligations for the benefit of each Second Priority Debt Party. Each of the Subsidiary Guarantors has also entered into the Second Priority Subsidiary Security Agreement, each Second Priority Mortgage and each other Second Priority Collateral Document to which it is a party to secure, among other things, the Second Priority Debt Obligations, including its obligations under the Second Priority Subsidiary Guarantee Agreement, and the Subsidiary Guarantors have pledged collateral to the Second Priority Collateral Trustee under such agreements. Rite Aid, the Subsidiary Guarantors, and the Second Priority Representatives on behalf of the Second Priority Debt Parties, have requested the Second Priority Collateral Trustee to act as collateral trustee for the Second Priority Debt Parties hereunder and under the Second Priority Collateral Documents. The Second Priority Collateral Trustee is willing to act as collateral trustee for the Second Priority Debt Parties hereunder and under the Second Priority Collateral Documents on the terms and subject to the conditions set forth in this Agreement. Accordingly, the parties hereto hereby agree as follows: ARTICLE I Definitions SECTION 1.01 Incorporation by Reference. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Definitions Annex annexed hereto, which is hereby incorporated by reference herein with the same effect as set forth in its entirety herein. SECTION 1.02. Certain Definitions. (a) As used in this Agreement, the capitalized terms defined in the recitals hereto shall have the meanings specified therein, and the following terms have the meanings specified below: "Class Debt" is defined in Section 10.12. "Class Debt Parties" is defined in Section 10.12. "Class Debt Representative" is defined in Section 10.12. "Collateral Account" is defined in Section 3.01. "Definitions Annex" means the Definitions Annex annexed hereto. "Distribution Date" means the date on which any funds are distributed by the Senior Collateral Agent or the Second Priority Collateral Trustee in accordance with the provisions of Section 4.01. 2 "Event of Default" means any "Event of Default" under any Senior Debt Document or any "Event of Default" under any Second Priority Debt Document. "Fees" means, with respect to the Second Priority Collateral Trustee, the Senior Collateral Agent, the trustee under the 10.50% Note Indenture or any Second Priority Representative, any fees, expenses, reimbursements or indemnifications payable by Rite Aid or any Subsidiary Guarantor to such Person in such capacity. "Secured Documents" means (a) each Senior Debt Document and (b) each Second Priority Debt Document. "Secured Obligations" means, without duplication, (a) the Senior Obligations and (b) the Second Priority Debt Obligations. "Secured Parties" means (a) the Senior Secured Parties and (b) the Second Priority Debt Parties. "Triggering Event" means (x) the occurrence of any Event of Default and, as a result thereof, (A) the acceleration (including any automatic acceleration in connection with any Bankruptcy Proceeding) of the principal amount of any Senior Obligations or Second Priority Debt Obligations under the terms of any Senior Debt Document or any Second Priority Debt Document or (B) the commencement of the exercise of remedies in respect of Collateral (it being understood that the exercise by the Senior Collateral Agent of its cash sweep rights pursuant to Section 9.11 of the Senior Credit Facility shall not be deemed an exercise of remedies in respect of Collateral) and (y) in either case, (i) receipt by the Second Priority Collateral Trustee of written notice thereof from the Senior Collateral Agent or the trustee under the 10.50% Note Indenture, as the case may be (in the case of any such Event of Default arising under the Senior Debt Documents), which notice from the Senior Collateral Agent will be copied to the trustee under the 10.50% Note Indenture, so long as any 10.50% Note Obligations are outstanding, or (ii) receipt by the Senior Collateral Agent, the Second Priority Collateral Trustee and (so long as any 10.50% Note Obligations are outstanding) the trustee under the 10.50% Note Indenture of written notice thereof from any Second Priority Representative (in the case of any such Event of Default arising under any Second Priority Debt Document). "Trust Estate" means the right, title and interest of the Second Priority Debt Parties under the Second Priority Collateral Documents. (b) The words "hereof", "herein" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof. All references herein to Articles or Sections shall, unless otherwise specified, be deemed to refer to 3 Articles and Sections of this Agreement. As used in this Agreement, the singular shall include the plural as the context requires and the following words and phrases shall have the following meanings: (a) "including" means "including but not limited to"; (b) "provisions" means "provisions, terms, covenants and/or conditions"; (c) "lien" means "lien, charge, encumbrance, security interest, mortgage, deed of trust or deed to secure debt"; (d) "obligation" means "obligation, duty, covenant and/or condition"; and (e) "any of the Mortgaged Property" means "the Mortgaged Property or any part thereof or interest therein". ARTICLE II Declaration and Acceptance of Trust; Remedies SECTION 2.01. Declaration and Acceptance of Trust. The Second Priority Collateral Trustee hereby declares, and each of Rite Aid, the Subsidiary Guarantors and the Second Priority Debt Parties agrees, that the Second Priority Collateral Trustee holds the Trust Estate as trustee in trust under this Agreement for the benefit of the Second Priority Debt Parties as provided herein. By acceptance of the benefits of this Agreement, each Second Priority Debt Party (whether or not a signatory hereto) (i) consents to the appointment of the Second Priority Collateral Trustee as trustee hereunder, (ii) confirms that the Second Priority Collateral Trustee shall have the authority to act as the exclusive agent of such Second Priority Debt Party for enforcement of any remedies under or with respect to any Second Priority Collateral Document and the giving or withholding of any consent or approval relating to any Collateral or any Subsidiary Guarantor's obligations with respect thereto and (iii) agrees that, except as provided in this Agreement, it shall not take any action to enforce any of such remedies or give any such consents or approvals. SECTION 2.02. Determinations Relating to Collateral. If (i) the Second Priority Collateral Trustee shall receive any written request from Rite Aid or any Subsidiary Guarantor under any Second Priority Collateral Document for consent or approval with respect to any matter or thing relating to any Collateral or any Subsidiary Guarantor's obligations with respect thereto or (ii) there shall be due to or from the Second Priority Collateral Trustee under the provisions of any Second Priority Collateral Document any material performance or the delivery of any material instrument or (iii) the Second Priority Collateral Trustee shall become aware of any nonperformance by any Subsidiary Guarantor of any covenant or any breach of any representation or warranty set forth in any Second Priority Collateral Document, then, in each such event, the Second Priority Collateral Trustee shall advise the Representatives of the matter or thing as to which consent has been requested or the performance or instrument required to be delivered or the nonperformance or breach of which the Second Priority Collateral Trustee has become aware. Until the occurrence of the Senior Obligation Payment Date, the Senior Collateral Agent and the Majority Senior Parties shall have the exclusive authority to direct the 4 Second Priority Collateral Trustee's response to any of the events or circumstances contemplated in clauses (i), (ii) and (iii) above. SECTION 2.03. Remedies. (a) Within five Business Days after the occurrence of a Triggering Event, the Second Priority Collateral Trustee shall notify each of the Representatives and Rite Aid in writing that a Triggering Event exists, specifying the nature of such Triggering Event. (b) Until the Senior Obligation Payment Date, the Senior Collateral Agent and the Majority Senior Parties shall have the exclusive right to exercise any right or remedy with respect to the Collateral and shall have the exclusive right to determine and direct the time, method and place for exercising such right or remedy or conducting any proceeding with respect thereto. Following the Senior Obligation Payment Date, the Second Priority Collateral Trustee and the Second Priority Instructing Group shall have the exclusive right to exercise any right or remedy with respect to the Collateral, and the Second Priority Instructing Group shall have the exclusive right to direct the time, method and place of exercising or conducting any proceeding for the exercise of any right or remedy available to the Second Priority Collateral Trustee with respect to the Collateral, or of exercising any trust or power conferred on the Second Priority Collateral Trustee, or for the taking of any other action authorized by the Second Priority Collateral Documents; provided, however, that nothing in this Section shall impair the right of the Second Priority Collateral Trustee in its discretion to take any action deemed proper by the Second Priority Collateral Trustee and which is not inconsistent with the terms hereof or any such direction by the Second Priority Instructing Group. (c) In the event the Second Priority Collateral Trustee receives written notice from the Second Priority Instructing Group of any direction given pursuant to paragraph (b) of this Section, the Second Priority Collateral Trustee will give prompt written notice thereof to each Second Priority Representative. The Senior Collateral Agent will give the Second Priority Collateral Trustee and each Second Priority Representative prompt written notice of the occurrence of the Senior Obligation Payment Date. SECTION 2.04. Right to Make Advances. If an advance of funds shall at any time be required for the preservation or maintenance of any Collateral, the Senior Collateral Agent, the Second Priority Collateral Trustee or any Secured Party shall be entitled to make such advance after notice to Rite Aid and the Representatives of its intention to do so but without notice to any other Secured Party. Each such advance shall be reimbursed, with interest accrued from the date such advance was made at the Default Rate, by Rite Aid upon demand by the Senior Collateral Agent, the Second Priority Collateral Trustee or such Secured Party, and if Rite Aid fails to comply with any such demand, out of the proceeds of any Collateral in accordance with the provisions of Section 4.01 (b) or (c). If any Secured Party shall receive any funds which, under 5 this Section 2.04, belong to the Senior Collateral Agent, the Second Priority Collateral Trustee or any other Secured Party, such Secured Party shall remit such funds promptly to the Senior Collateral Agent or the Second Priority Collateral Trustee for distribution to itself or such other Secured Party, as the case may be, and before such remittance shall hold such funds in trust for the Senior Collateral Agent, the Second Priority Collateral Trustee or such other Secured Party, as the case may be. SECTION 2.05. Nature of Secured Parties' Rights. All of the Secured Parties shall be bound by any instruction or direction given by the Instructing Group pursuant to this Agreement. ARTICLE III Collateral Accounts SECTION 3.01. Collateral Accounts. The Second Priority Collateral Trustee shall establish and, at all times thereafter until all Second Priority Debt Obligations have been paid in full, there shall be maintained with the Second Priority Collateral Trustee a separate collateral trust account (each, a "Collateral Account" and collectively, the "Collateral Accounts") in the name of each of the Second Priority Representatives for the benefit of the Second Priority Debt Parties for which such Second Priority Representative is acting. The Second Priority Collateral Trustee shall deposit in such Collateral Accounts only such funds as are distributable to the relevant Second Priority Representative (or Second Priority Debt Parties for which such Representative acts) in accordance with the provisions of this Agreement. All such funds on deposit in the Collateral Accounts shall be held, applied and disbursed by the Second Priority Collateral Trustee as part of the Trust Estate in accordance with the terms of this Agreement. SECTION 3.02. Investment of Funds. The Second Priority Collateral Trustee shall invest and reinvest funds on deposit in the Collateral Accounts at any time in Temporary Cash Investments as directed in writing by Rite Aid, and the investment earnings thereon shall, so long as no Event of Default shall have occurred and be continuing, be paid to Rite Aid monthly; provided, however, that if any party other than a holder of Second Priority Debt Obligations claims entitlement to any such investment earnings, the same shall not be released to Rite Aid but shall continue to be held and reinvested by the Second Priority Collateral Trustee pending receipt by the Second Priority Collateral Trustee of joint instructions signed by Rite Aid and such party or a nonappealable court judgment determining the disposition of such earnings. Rite Aid shall bear the risk of loss on any investment made hereunder (except for such losses that result from the gross negligence or wilful misconduct of the Second Priority Collateral Trustee in failing to follow proper investment instructions given by Rite Aid pursuant to this Section) and shall, upon demand of the Second Priority Collateral Trustee to Rite Aid, deliver immediately 6 available funds to the Second Priority Collateral Trustee in an amount equal to such loss or losses. ARTICLE IV Application of Certain Amounts Mandatory Prepayments SECTION 4.01. Application of Proceeds of Collateral After Triggering Event. (a) If, following a Triggering Event, any Collateral is sold or otherwise realized upon (whether pursuant to the exercise of any remedy set forth in any Collateral Document, in a Bankruptcy Proceeding or otherwise), the proceeds in respect of such Collateral shall be applied as soon as practicable after receipt as follows: FIRST: to the Second Priority Collateral Trustee and the Senior Collateral Agent in an amount equal to the Fees thereof which are unpaid as of the applicable Distribution Date and to any Senior Secured Party which has theretofore advanced or paid any such Fees in an amount equal to the amount thereof so advanced or paid by such Senior Secured Party, pro rata based on the amounts of such Fees (or such advance or payment); SECOND: to the Second Priority Collateral Trustee, the Senior Collateral Agent and any Senior Secured Party to reimburse to the Second Priority Collateral Trustee, the Senior Collateral Agent and such Senior Secured Party for the amount of any advance made pursuant to Section 2.04 hereof (with interest thereon at the Default Rate), pro rata based on the amounts so advanced; THIRD: to the Senior Collateral Agent, for distribution to the Senior Secured Parties to be applied to the payment of the Senior Obligations, pro rata based on the amount of Senior Obligations then due and owing, until the Senior Obligation Payment Date; FOURTH: to the agent under the Synthetic Lease Facility and the trustee, administrative agent, security agent or similar agent under each Additional Senior Second Priority Debt Facility, if any, and under each Replacement Senior Second Priority Debt Facility, if any, in an amount equal to the Fees thereof which are unpaid as of the applicable Distribution Date and to any Synthetic Lease Party, any Additional Senior Second Priority Debt Party and any Replacement Senior Second Priority Debt Party which has theretofore advanced or paid any such Fees in an amount equal to the amount thereof so advanced or paid by such Synthetic Lease Party, Additional Senior Second 7 Priority Debt Party or Replacement Senior Second Priority Debt Party, as the case may be, pro rata based on the amounts of such Fees (or such advance or payment); FIFTH: to the agent under the Synthetic Lease Facility and the trustee, administrative agent, security agent or similar agent under each Additional Senior Second Priority Debt Facility, if any, and under each Replacement Senior Second Priority Debt Facility, if any, and any Synthetic Lease Party, any Additional Senior Second Priority Debt Party and any Replacement Senior Second Priority Debt Party to reimburse such Second Priority Representative or such Second Priority Debt Party for the amount of any advance made pursuant to Section 2.04 hereof (with interest thereon at the Default Rate), pro rata based on the amounts so advanced; SIXTH: to the agent under the Synthetic Lease Facility and the trustee, administrative agent, security agent or similar agent under each Additional Senior Second Priority Debt Facility, if any, and each Replacement Senior Second Priority Debt Facility, if any, for distribution to the Synthetic Lease Parties, the Additional Senior Second Priority Debt Parties, if any, and the Replacement Senior Second Priority Debt Parties, if any, to be applied to the payment of the Synthetic Lease Obligations, the Additional Senior Second Priority Debt Obligations, if any, and the Replacement Senior Second Priority Debt Obligations, if any, pro rata based on the amount of Synthetic Lease Obligations, Additional Senior Second Priority Debt Obligations and Replacement Senior Second Priority Debt Obligations then due and owing, until all the Synthetic Lease Obligations, Additional Senior Second Priority Debt Obligations and Replacement Senior Second Priority Debt Obligations have been paid in full; SEVENTH: to the trustee under the Exchange Note Indenture and the trustee, administrative agent, security agent or similar agent under each Additional Second Priority Debt Facility, if any, and each Replacement Second Priority Debt Facility, if any, in an amount equal to the Fees thereof which are unpaid as of the applicable Distribution Date and to any Exchange Note Party, any Additional Second Priority Debt Party and any Replacement Second Priority Debt Party which has theretofore advanced or paid any such Fees in an amount equal to the amount thereof so advanced or paid by such Exchange Note Party or Additional Second Priority Debt Party or Replacement Second Priority Debt Party, as the case may be, pro rata based on the amounts of such Fees (or such advance or payment); EIGHTH: to the trustee under the Exchange Note Indenture and the trustee, administrative agent, security agent or similar agent under each Additional Second Priority Debt Facility, if any, and each Replacement Second Priority Debt Facility, if any, and any Exchange Note Party, any Additional Second Priority Debt Party and any 8 Replacement Second Priority Debt Party to reimburse such Second Priority Representative or such Second Priority Debt Party for the amount of any advance made pursuant to Section 2.04 hereof (with interest thereon at the Default Rate), pro rata based on the amounts so advanced; NINTH: to the trustee under the Exchange Note Indenture and the trustee, administrative agent, security agent or similar agent under each Additional Second Priority Debt Facility, if any, and each Replacement Second Priority Debt Facility, if any, for distribution to the Exchange Note Parties, the Additional Second Priority Debt Parties, if any, and the Replacement Second Priority Debt Parties, if any, to be applied to the payment of the Exchange Note Obligations, the Additional Second Priority Debt Obligations, if any, and the Replacement Second Priority Debt Obligations, if any, pro rata based on the amount of Exchange Note Obligations, Additional Second Priority Debt Obligations and Replacement Second Priority Debt Obligations then due and owing, until all the Exchange Note Obligations, Additional Second Priority Debt Obligations and Replacement Second Priority Debt Obligations have been paid in full; and TENTH: after payment in full of all Secured Obligations, to Rite Aid and the Subsidiary Guarantors or their successors or assigns, as their interests may appear, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. (b) Whenever pursuant to the foregoing provisions of this Section any proceeds are required to be distributed to any Second Priority Representative, then the Second Priority Collateral Trustee or the Senior Collateral Agent, as the case may be, shall effect such distribution only upon receiving written notification from the Second Priority Instructing Group as to the identities of the Second Priority Representatives entitled to receive such distribution and the amounts or percentages of such distribution to which each such Second Priority Representative is entitled and, if requested by the Second Priority Collateral Trustee or the Senior Collateral Agent, the amount of outstanding Second Priority Debt Obligations then due and owing to Second Priority Debt Parties for which each such Representative is acting on the basis of which such amounts to be distributed are to be determined. Whenever pursuant to the foregoing provisions of this Section any proceeds are required to be distributed to the Representative for the 10.50% Note Parties, the Senior Collateral Agent shall effect such distribution only upon receiving written notification from such Representative, if requested by the Senior Collateral Agent, as to the amount of 10.50% Note Obligations then due and owing to the 10.50% Note Parties on the basis of which such amounts to be distributed are to be determined. Each of the Second Priority Collateral Trustee and the Senior Collateral Agent shall be fully protected in, and shall not incur or have any liability as a result of, relying on such written notification received by it. 9 (c) Whenever any proceeds are required by the terms hereof to be distributed to the trustee under the 10.50% Note Indenture for application to the 10.50% Note Obligations or to the trustee under any indenture governing any class or series of notes constituting Second Priority Debt Obligations, such proceeds may be applied to, or held as security for, the payment of such 10.50% Note Obligations or Second Priority Debt Obligations, as the case may be, or used to make one or more offers to repurchase 10.50% Notes or notes of such class or series, as the case may be, in each case as permitted by the 10.50% Note Indenture or the indenture relating to such class or series of notes, as the case may be. SECTION 4.02. Payment Provisions. For the purposes of applying the provisions of Section 4.01, all interest, fees and other amounts to be paid on any of the Secured Obligations pursuant to the terms of any Secured Document shall, as among the Secured Parties and regardless of whether any such interest, fees or other amounts are or would be recognized or allowed as a claim in any bankruptcy or similar proceeding, be treated as due and owing on the Secured Obligations. SECTION 4.03. Certain Mandatory Prepayments of Senior Credit Facility. (a) In the event that the Borrower or any of its Subsidiaries shall at any time, or from time to time (but in the case of any sale or disposition of Collateral, only prior to the occurrence of a Triggering Event) receive any Net Cash Proceeds of any Reduction Event, the Borrower shall, in accordance with and to the extent required by the provisions of the Senior Credit Facility, apply an amount equal to such Net Proceeds to Reductions of the Senior Credit Facility. So long as no Triggering Event has occurred and is continuing, Net Cash Proceeds of a Reduction Event in excess of those applied in accordance with the foregoing provision of this paragraph shall be applied in accordance with any applicable provisions of the Senior Debt Documents and Second Priority Debt Documents. (b) In the event the Borrower or any of its Subsidiaries shall, at any time after the occurrence of a Triggering Event, receive any Net Cash Proceeds of any Reduction Event which are attributable to Collateral, such Net Cash Proceeds shall be subject to and applied in accordance with the provisions of Section 4.01(a). (c) Notwithstanding the foregoing, any payment made or to be made by any Subsidiary Guarantor in respect of Second Priority Debt Obligations subsequent to the occurrence of a Triggering Event other than from the proceeds of Collateral shall be subject to, and only made in accordance with, the subordination provisions of the Second Priority Subsidiary Guarantee Agreement, provided that this paragraph (c) shall not apply to payments made by Rite Aid Realty Corp. to the Synthetic Lease Parties from proceeds of the "Properties" or the "Equipment Collateral" (each as defined on the date hereof in the Synthetic Lease Documents). 10 (d) For the avoidance of doubt, Section 4.03(a) does not itself create any Lien nor does it alter the priorities of Liens which are created by the other Senior Debt Documents and Second Priority Debt Documents. SECTION 4.04. Cash Sweep; Certain Enforcement Proceeds. (a) Notwithstanding the foregoing provisions of this Article IV, at all times during a Cash Sweep Period prior to the occurrence of a Triggering Event, the funds on deposit in the Citibank Concentration Account (as such terms are defined in the Senior Subsidiary Security Agreement as in effect on the Closing Date) may be applied in accordance with the provisions of the Senior Credit Facility, as in effect on the Closing Date. After the occurrence of a Triggering Event, funds on deposit in the Citibank Concentration Account consisting of proceeds of Collateral shall be applied in accordance with the provisions of Section 4.01(a). The Borrower and the Subsidiary Guarantors will not deposit funds representing Net Cash Proceeds from Reduction Events in the Citibank Concentration Account or into accounts that are swept into the Citibank Concentration Account pursuant to the Senior Loan Documents. (b) Notwithstanding the foregoing, for purposes of this Article IV, any proceeds of enforcement of the Second Priority Subsidiary Guarantee Agreement against any Subsidiary Guarantor shall be deemed proceeds of Senior Collateral. ARTICLE V Subordination SECTION 5.01. Perfection and Priority of Security Interests. (a) Any and all security interests, assignments, pledges, mortgages, deeds of trust, deeds to secure debt and other liens, charges or encumbrances now existing or hereafter created or arising in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties with respect to the Collateral and securing the Second Priority Debt Obligations are expressly junior in priority, operation and effect to any and all security interests, assignments, pledges and other liens, charges or encumbrances now existing or hereafter created or arising in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties with respect to the Collateral and securing the Senior Obligations, notwithstanding anything to the contrary contained in any agreement or filing to which the Second Priority Collateral Trustee or any Second Priority Debt Party may now or hereafter be a party, and regardless of the time, order or method of attachment, recording or perfection of any financing statements or other security interests, assignments, pledges, mortgages and other liens, charges or encumbrances or any defect or deficiency or alleged defect or deficiency in any of the foregoing. 11 (b) The Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, acknowledge that a portion of the Senior Bank Obligations represent debt that is revolving in nature and that the amount thereof that may be outstanding at any time or from time to time may be increased or reduced and subsequently reborrowed, and that the terms of the Senior Bank Obligations may be modified, extended or amended from time to time, and the aggregate amount of the Senior Bank Obligations may be increased, replaced or refinanced, subject to the limitations of Section 7.02 hereof but otherwise without notice to or consent by the Second Priority Debt Parties and without affecting the provisions hereof. The lien priorities provided in this Section 5.01 shall not be altered or otherwise affected by any such amendment, modification, supplement, extension, repayment, reborrowing, increase, replacement, renewal, restatement or refinancing of the Senior Bank Obligations, the other Senior Obligations or the Second Priority Debt Obligations, or any portion thereof, nor by any action that the Senior Secured Parties or the Second Priority Debt Parties may take or fail to take in respect of the Collateral in accordance with this Agreement. (c) For purposes of perfecting the Second Priority Lien in the Collateral and the proceeds thereof, the Subsidiary Guarantors and the Senior Collateral Agent hereby acknowledge that UCC-1 financing statements, patent/trademark/copyright filings and mortgages or other filings or recordings covering the Collateral, naming one or more Subsidiary Guarantors as debtor, and the Second Priority Collateral Trustee, on behalf of the Second Priority Debt Parties, as secured party, may be filed in appropriate public offices from time to time. (i) Each of the Second Priority Representatives and each Second Priority Debt Party agrees that all UCC-1 financing statements, patent/trademark/copyright filings (except as provided in clause (ii) below) or other filings or recordings filed or recorded by or on behalf of the Second Priority Debt Parties shall be in form satisfactory to the Senior Collateral Agent and shall contain the following notation: "The interest of the Secured Party in the collateral described herein is junior and subordinate to the interests of Citicorp USA, Inc., and its successors and assigns, as collateral agent for certain secured parties, including the lenders from time to time party to that certain Senior Credit Agreement dated as of June 27, 2001, as amended, refinanced or replaced from time to time, with Rite Aid Corporation in accordance with the provisions of that certain Collateral Trust and Intercreditor Agreement dated as of June 27, 2001, among Rite Aid Corporation, certain subsidiaries of Rite Aid Corporation, Wilmington Trust Company, as Second Priority Collateral Trustee, Citicorp USA, Inc., as Senior Collateral Agent, and certain other parties, as Second Priority Representatives, as amended from time to time." (ii) In addition, each of the Second Priority Representatives and each Second Priority Debt Party agrees that all mortgages, deeds of trust, deeds to secure debt and similar instruments (collectively, "mortgages") now or hereafter filed against real and/or 12 personal property pursuant to any Secured Document in favor of or for the benefit of the Second Priority Collateral Trustee and/or the Second Priority Debt Parties shall be in form satisfactory to the Senior Collateral Agent and shall contain the following provision: "The lien of this [Mortgage] is junior and subordinate to the lien of any mortgage now or hereafter granted to Citicorp USA, Inc. and its successors and assigns, as collateral agent for certain secured parties, including the lenders from time to time party to that certain Senior Credit Agreement dated as of June 27, 2001, as amended, replaced or refinanced from time to time, with Rite Aid Corporation and its successors and assigns, in accordance with the provisions of that certain Collateral Trust and Intercreditor Agreement dated as of June 27, 2001, among Rite Aid Corporation, certain subsidiaries of Rite Aid Corporation, Wilmington Trust Company, as Second Priority Collateral Trustee, Citicorp USA, Inc., as Senior Collateral Agent, and certain other parties, as Second Priority Representatives, as amended from time to time." (d) The Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, hereby agree: (i) to subordinate the Second Priority Collateral Documents to any lease of any of the Mortgaged Properties to the same extent that the Senior Collateral Documents are or have been subordinated to such lease, but without affecting the relative priority of the Senior Collateral Documents and the Second Priority Collateral Documents, (ii) to grant nondisturbance rights with respect to any lease of any of the Mortgaged Properties with respect to which the Senior Collateral Agent has granted nondisturbance on substantially the same terms as granted by the Senior Collateral Agent, (iii) that if all or any portion of a Mortgaged Property is a leasehold interest, (A) upon termination of any lease creating such leasehold interest (the "Original Lease"), any right of the Second Priority Collateral Trustee to request a "new lease" pursuant to the terms of the Original Lease shall be junior and subordinate to the right of the Senior Collateral Agent to request such a new lease and the Second Priority Collateral Trustee shall not exercise any such right without the prior written consent of the Senior Collateral Agent, (B) the Second Priority Collateral Trustee shall waive, surrender and give up any right either the Second Priority Collateral Trustee or the Second Priority Debt Parties may have to redeem the premises demised by the Original Lease or to continue the Original Lease for its original term after the lessee thereunder has been dispossessed or ejected therefrom by process of law or otherwise and (C) the Senior Lien and the Second Priority Lien shall remain in force or be reinstated with the same relative priority that existed with respect to the Original Lease, and 13 (iv) that if the holder or grantor of a Second Priority Collateral Document pays or discharges any liens prior in right to the lien created by the Senior Collateral Documents with funds provided by the Second Priority Collateral Trustee or any Second Priority Debt Party, neither the Second Priority Collateral Trustee nor any Second Priority Debt Party shall acquire, by subrogation or otherwise, any claim superior or equivalent to the lien of the Senior Collateral Documents so long as any indebtedness secured by the Senior Collateral Documents remains outstanding. Notwithstanding anything to the contrary in the Senior Mortgages, the Senior Collateral Agent and the Senior Secured Parties hereby consent to the assignment of leases and rents to the Second Priority Collateral Trustee for the Second Priority Secured Parties contained in the Second Priority Mortgages for the purpose of securing and discharging the performance by the respective Subsidiary Guarantors party thereto, provided however, that such assignment is subject to the terms of this Agreement. The Senior Collateral Agent and the Senior Secured Parties agree that the terms of each Senior Mortgage and the rights and remedies of the parties thereto are subject to this Agreement. The Second Priority Collateral Trustee and the Second Priority Debt Parties agree that the terms of each Second Priority Mortgage and the rights and remedies of the parties thereto are subject to this Agreement and subordinated as provided herein. (e) The Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, acknowledge and agree with the Senior Collateral Agent and the Senior Secured Parties that the arrangements described in clauses (a), (b), (c) and (d) above are solely for the purpose of providing the Second Priority Debt Parties with a perfected second priority Lien in the Collateral under the Second Priority Collateral Documents and shall in no way be construed as imposing any duties or other obligations on the Senior Collateral Agent. In furtherance of the foregoing, the Second Priority Representatives and the Second Priority Debt Parties acknowledge and agree with the Senior Secured Parties that, at all times following a Triggering Event until the Senior Obligation Payment Date, the Senior Collateral Agent shall have the right to sell, transfer or otherwise dispose of or deal with, or cause the Subsidiary Guarantors to sell, transfer or otherwise dispose of or deal with, the Collateral as provided in the Senior Collateral Documents without regard to the security interest of the Second Priority Debt Parties therein, or any rights to which the Second Priority Debt Parties would otherwise be entitled as a result of such security interest, the only obligation of the Senior Collateral Agent to the Second Priority Debt Parties in respect thereof being to deliver to the Second Priority Collateral Trustee or the Second Priority Representatives (unless otherwise directed in writing by the Second Priority Collateral Trustee or by a court of competent jurisdiction) any proceeds remaining from such sale, transfer or other disposition of such Collateral after the Senior Obligation Payment Date or, if the Senior Collateral Agent shall still be in possession of all or any part of such Collateral after such payment and satisfaction in full, such Collateral or such 14 part thereof remaining, without representation or warranty on the part of the Senior Collateral Agent or the Senior Secured Parties, provided that nothing contained in this sentence shall be construed to give rise to, nor shall the Second Priority Collateral Trustee or the Second Priority Debt Parties have, any claims whatsoever against the Senior Collateral Agent or any Senior Secured Party on account of any act or omission to act in connection with the exercise of any right or remedy of the Senior Collateral Agent with respect to the Collateral that is permitted by the Collateral Documents (other than with respect to any claims that may arise as a result of the failure of the Senior Collateral Agent, after the Senior Obligation Payment Date, to deliver any such remaining Collateral or proceeds to the Second Priority Collateral Trustee or the Second Priority Representatives). The Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, agree that they shall not, and shall not attempt to, exercise any rights with respect to (A) the Senior Lien in the Collateral or (B) the Second Priority Lien in the Collateral, whether pursuant to the Second Priority Collateral Documents or otherwise, until the Senior Obligation Payment Date; provided that nothing in this sentence (or elsewhere in the Agreement) shall preclude (x) exercise of the rights expressly reserved to the Second Priority Collateral Trustee, the Second Priority Representatives and the Second Priority Debt Parties in accordance with the terms of this Agreement or (y) the enforcement of this Agreement. (f) In any Bankruptcy Proceeding, until the Senior Obligation Payment Date, the Second Priority Collateral Trustee and the Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, agree not to take any action whatsoever (including, without limitation, voting any claim) in respect of or relating to the Second Priority Debt Obligations, insofar as any such action arises from or relates to the Second Priority Collateral Documents, the Second Priority Lien or relates to the Collateral, in any manner that is inconsistent with or adverse to the rights and priorities of the Senior Secured Parties as set forth herein. (g) In the event that in any Bankruptcy Proceeding, the Second Priority Debt Parties shall not have filed a proof of claim in respect of any Second Priority Debt Obligation by the date ten days prior to the latest date on which such proof of claim may be filed, the Senior Collateral Agent is hereby authorized but not obligated, on behalf of any applicable Second Priority Debt Party, to file such proof of claim; provided that any Second Priority Debt Parties shall be entitled to amend, vote or otherwise exercise rights in respect of any such proof of claim so filed by the Senior Collateral Agent to the same extent as they would be permitted under this Agreement to do so had such proof of claim been filed by them. SECTION 5.02. No Interference; No Right to Instruct Senior Collateral Agent; Payment Over; Reinstatement; Permitted Actions. (a) The Second Priority Collateral Trustee and the Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, agree that: 15 (i) they will not take or cause to be taken any action, the purpose or effect of which is to make any Second Priority Lien pari passu with, or to give any Second Priority Debt Party or any Second Priority Representative any preference or priority relative to, the Senior Lien or the Senior Secured Parties with respect to the Collateral or any part thereof, (ii) they will not interfere, hinder or delay, in any manner, whether by judicial proceedings or otherwise, any sale, transfer or other disposition of the Collateral by the Senior Collateral Agent or any other Senior Secured Party or any other action taken by or on behalf of the Senior Collateral Agent or any Senior Secured Party permitted to be taken by it pursuant to the Senior Collateral Documents, (iii) they have no right to (A) direct the Senior Collateral Agent or any other Senior Secured Party to exercise any right, remedy or power with respect to the Collateral or pursuant to the Senior Collateral Documents or (B) consent to the exercise by the Senior Collateral Agent or any other Senior Secured Party of any right, remedy or power with respect to the Collateral or pursuant to the Senior Collateral Documents, (iv) they will not institute any suit or assert in any suit, Bankruptcy Proceeding or other proceeding any claim against the Senior Collateral Agent or any other Senior Secured Party seeking damages from or other relief by way of specific performance, instructions or otherwise, with respect to, and none of the Senior Collateral Agent nor any other Senior Secured Party shall be liable for, any action taken or omitted to be taken by the Senior Collateral Agent or the Senior Secured Parties with respect to the Collateral or pursuant to the Senior Collateral Documents, (v) until the Senior Obligation Payment Date, they will not make any judicial or nonjudicial claim or demand or commence any judicial or non-judicial proceedings against any Subsidiary Guarantor under or with respect to any Collateral Document seeking payment or damages from or other relief by way of specific performance, instructions or otherwise under or with respect to any Collateral Document (other than filing a proof of claim) or exercise any right, remedy or power under or with respect to, or otherwise take any action to enforce, other than filing a proof of claim, any Collateral Document; provided, however, that (A) if there is a Bankruptcy Proceeding with respect to Rite Aid, the Second Priority Collateral Trustee or any Second Priority Debt Party may make claims under and seek to enforce the Second Priority Subsidiary Guarantee Agreement, subject to the subordination provisions thereof and to the other provisions of this Agreement, and (B) none of the Second Priority Collateral Trustee, the Second Priority Representatives or any other Second Priority Debt Party may exercise any right, 16 remedy or power under or with respect to any other Second Priority Debt Document, or otherwise take any action to enforce rights or remedies with respect to any Collateral, (vi) until the Senior Obligation Payment Date, they will not commence judicial or nonjudicial foreclosure proceedings with respect to, seek to have a trustee, receiver, liquidator or similar official appointed for or over, attempt any action to take possession of any Collateral, exercise any right, remedy or power with respect to, or otherwise take any action to enforce its interest in or realize upon, the Collateral or pursuant to the Second Priority Collateral Documents; provided that nothing in this paragraph (or elsewhere in this Agreement) shall restrict the right of the Second Priority Collateral Trustee, any Second Priority Representative or any other Second Priority Debt Party to request "adequate protection" (within the meaning of Section 361 of the U.S. Bankruptcy Code) for the interests of the Second Priority Debt Parties in the Second Priority Collateral in the event of any Bankruptcy Proceeding on a basis that is not inconsistent with the rights and priorities of the Senior Secured Parties as set forth herein, in the Senior Loan Documents and in the Second Priority Debt Documents, (vii) they will not seek, and hereby waive any right, to have the Collateral or any part thereof marshaled upon any foreclosure or other disposition of the Collateral, and (viii) they will not attempt, directly or indirectly, whether by judicial proceedings or otherwise, to challenge the enforceability of any provision of this Agreement or any Senior Debt Document or the validity, perfection, priority or enforceability of the Senior Lien. (b) The Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, hereby agree that, in the event of a sale, transfer or other disposition of Collateral following a Triggering Event, any security interest or lien of the Second Priority Debt Parties in such Collateral (but not the proceeds thereof to the extent that such proceeds are to be applied to Second Priority Debt Obligations pursuant to Section 4.01) shall terminate and be released automatically and without further action if the Senior Lien in such Collateral is released. The Second Priority Collateral Trustee will execute and deliver to the Senior Collateral Agent promptly upon request therefor all necessary instruments and documents to evidence such termination and release. (c) Except with respect to proceeds of any sale or other realization on Collateral received by the Second Priority Representatives pursuant to distributions made by the Senior Collateral Agent after the occurrence of a Triggering Event under Section 4.01(a), the Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, hereby agree that if any of them shall obtain possession of any of the Collateral, or shall realize any payment 17 of insurance or condemnation proceeds, proceeds of any sale or other disposition, rents, profits or other income, reserve or compensation of any kind in respect of the Collateral, in any case before the Senior Obligation Payment Date, then it shall hold such Collateral or payment in trust for the Senior Secured Parties and transfer such Collateral or payment, as the case may be, to the Senior Collateral Agent for application in accordance with the provisions of Section 4.01. If, at any time, all or part of any payment with respect to the Senior Obligations previously made is rescinded for any reason whatsoever, (i) the Second Priority Collateral Trustee, the Second Priority Representatives and the Second Priority Debt Parties shall promptly pay over to the Senior Collateral Agent any payment received by any of them after the occurrence of a Triggering Event in respect of the Collateral or proceeds thereof, and shall promptly turn any Collateral then held by any of them over to the Senior Collateral Agent, in each case to the extent that the Second Priority Debt Parties would not have been entitled to receive or hold such payment or Collateral pursuant to the terms of this Agreement had the rescinded payment in respect of the Senior Obligations never been made in the first instance, and (ii) the provisions set forth in this Agreement shall be reinstated as if such rescinded payment had not been made, until the Senior Obligation Payment Date; provided, however, that the foregoing shall not require the Second Priority Debt Parties to pay over to the Senior Collateral Agent any payment received by them or Collateral delivered to them if such payment or delivery is itself rescinded for any reason (and any such payment or Collateral theretofore paid over to the Senior Secured Parties pursuant to the foregoing provisions shall be released and delivered to the appropriate Person to the extent necessary to effect such rescission.) (d) With respect to proceeds of any sale or other realization on Collateral to the extent payable to the Second Priority Representatives for the benefit of the Second Priority Debt Parties pursuant to Section 4.01(a), the Senior Collateral Agent, on behalf of itself and the other Senior Secured Parties, hereby agrees that if any of them shall obtain possession of any of such proceeds before the time when the Second Priority Debt Obligations have been paid in full, then it shall hold such proceeds in trust for the holders of the Second Priority Debt Obligations and transfer such proceeds to the Second Priority Collateral Trustee. ARTICLE VI Certain Agreements of 10.50% Note Parties SECTION 6.01. No Interference; No Right to Instruct Senior Collateral Agent. (a) The Representative for the holders of the 10.50% Notes, on behalf of itself and the other 10.50% Note Parties, acknowledges that a portion of the Senior Bank Obligations represent debt that is revolving in nature and that the amount thereof that may be outstanding at any time or from time 18 to time may be increased or reduced and subsequently reborrowed, and that the terms of the Senior Bank Obligations may be modified, extended or amended from time to time, and the aggregate amount of the Senior Bank Obligations may be increased, replaced or refinanced, subject to the limitations of Section 7.02 hereof but otherwise without notice to or consent by the 10.50% Note Parties and without affecting the provisions hereof. (b) The Representative for the holders of the 10.50% Notes on behalf of itself and the other 10.50% Note Parties, acknowledges and agrees with the Senior Collateral Agent and the Senior Bank Parties that the provisions of the Senior Collateral Documents with respect to the Senior Lien securing the 10.50% Note Obligations are solely for the purpose of providing the 10.50% Note Parties with a perfected pari passu Senior Lien in the Collateral under the Senior Collateral Documents and shall in no way be construed as imposing any duties or other obligations on the Senior Collateral Agent other than with respect to the application of proceeds from dispositions of Senior Collateral after a Triggering Event, as set forth in Section 6.01. In furtherance of the foregoing, the Representative for the holders of the 10.50% Notes, on behalf of itself and the other 10.50% Note Parties, acknowledges and agrees with the Senior Bank Parties that, at all times following a Triggering Event until the Senior Bank Obligation Payment Date, the Senior Collateral Agent shall have the right to sell, transfer or otherwise dispose of or deal with, or cause the Subsidiary Guarantors to sell, transfer or otherwise dispose of or deal with, the Collateral as provided in the Senior Collateral Documents in such manner as the Senior Collateral Agent and the Majority Senior Parties may determine, the only obligation of the Senior Collateral Agent to the 10.50% Note Parties in respect thereof being to apply proceeds of disposition of Senior Collateral as set forth in Section 4.01 and neither the Representative for the holders of the 10.50% Notes nor the 10.50% Note Parties shall have any claims whatsoever against the Senior Collateral Agent or any Senior Bank Party on account of any act or omission to act in connection with the exercise of any right or remedy of the Senior Collateral Agent with respect to the Senior Collateral that is permitted by the Senior Collateral Documents (other than with respect to any claims that may arise as a result of the failure of the Senior Collateral Agent to apply proceeds in the manner required by Section 4.01). The Representative for the holders of the 10.50% Notes, on behalf of itself and the other 10.50% Note Parties, agrees that they shall not, and shall not attempt to, exercise any rights with respect to the Senior Lien in the Collateral, whether pursuant to the Senior Collateral Documents or otherwise, until the Senior Obligation Payment Date; provided that nothing in this sentence (or elsewhere in the Agreement) shall preclude the enforcement of this Agreement. (c) In any Bankruptcy Proceeding, until the Senior Obligation Payment Date, the Representative for the holders of the 10.50% Notes, on behalf of itself and the other 10.50% Note Parties, agrees not to take any action whatsoever (including, without limitation, voting any claim) in respect of or relating to the 10.50% Note Obligations, insofar as any such action arises 19 from or relates to the Senior Collateral Documents, the Senior Lien or relates to the Collateral, in any manner that is inconsistent with or adverse to the rights and priorities of the Senior Bank Parties as set forth herein and in the Senior Collateral Documents. (d) The Representative for the holders of the 10.50% Notes, on behalf of itself and the other 10.50% Note Parties, agrees that: (i) they will not take or cause to be taken any action, the purpose or effect of which is to give any 10.50% Note Party or any Representative thereof any preference or priority relative to the Senior Lien securing the Senior Bank Obligations or the Senior Bank Parties with respect to the Collateral or any part thereof, (ii) they will not interfere, hinder or delay, in any manner, whether by judicial proceedings or otherwise, any sale, transfer or other disposition of the Collateral by the Senior Collateral Agent or any other Senior Bank Party or any other action taken by or on behalf of the Senior Collateral Agent or any Senior Bank Party permitted to be taken by it pursuant to the Senior Collateral Documents, (iii) they have no right to (A) direct the Senior Collateral Agent or any other Senior Bank Party to exercise any right, remedy or power with respect to the Collateral or pursuant to the Senior Collateral Documents or (B) consent to the exercise by the Senior Collateral Agent or any other Senior Bank Party of any right, remedy or power with respect to the Collateral or pursuant to the Senior Collateral Documents, (iv) they will not institute any suit or assert in any suit, Bankruptcy Proceeding or other proceeding any claim against the Senior Collateral Agent or any other Senior Bank Party seeking damages from or other relief by way of specific performance, instructions or otherwise, with respect to, and none of the Senior Collateral Agent nor any other Senior Bank Party shall be liable for, any action taken or omitted to be taken by the Senior Collateral Agent or the Senior Bank Parties with respect to the Collateral or pursuant to the Senior Collateral Documents, (v) until the Senior Bank Obligation Payment Date, they will not make any judicial or nonjudicial claim or demand or commence any judicial or non-judicial proceedings against any Subsidiary Guarantor under or with respect to any Collateral Document seeking payment or damages from or other relief by way of specific performance, instructions or otherwise under or with respect to any Collateral Document (other than filing a proof of claim) or exercise any right, remedy or power under or with respect to, or otherwise take any action to enforce, other than filing a proof of claim, any Collateral Document; 20 (vi) until the Senior Bank Obligation Payment Date, they will not commence judicial or nonjudicial foreclosure proceedings with respect to, seek to have a trustee, receiver, liquidator or similar official appointed for or over, attempt any action to take possession of any Collateral, exercise any right, remedy or power with respect to, or otherwise take any action to enforce its interest in or realize upon, the Collateral or pursuant to the Senior Collateral Documents; provided that nothing in this paragraph (or elsewhere in this Agreement) shall restrict the right of the Representative for the holders of the 10.50% Notes or any other 10.50% Note Party to request "adequate protection" (within the meaning of Section 361 of the U.S. Bankruptcy Code) for the interests of the 10.50% Note Parties in the Senior Collateral in the event of any Bankruptcy Proceeding on a basis that is not inconsistent with the rights and priorities of the Senior Bank Parties as set forth herein, in the Senior Loan Documents and in the Second Priority Debt Documents, (vii) they will not seek, and hereby waive any right, to have the Collateral or any part thereof marshaled upon any foreclosure or other disposition of the Collateral, and (viii) they will not attempt, directly or indirectly, whether by judicial proceedings or otherwise, to challenge the enforceability of any provision of this Agreement or any Senior Debt Document or the validity, perfection, priority or enforceability of the Senior Lien securing the Senior Bank Obligations. ARTICLE VII Amendments of Documents Limitations on Facility Amounts SECTION 7.01. Amendments and Modifications of Senior Loan Documents and Second Priority Debt Documents. (a) Except as otherwise provided in Section 10.12, unless the Majority Senior Parties have consented thereto in writing, none of the Borrower, the Subsidiary Guarantors or the Second Priority Debt Parties will amend, modify or otherwise change, or consent or agree to any amendment, modification, or other change to, any Second Priority Debt Document to which it is party if the effect thereof is to (A) increase the principal amount of, or lending commitments with respect to, indebtedness under such Second Priority Debt Documents (except as expressly permitted under the Senior Debt Documents), increase the interest rate or fees payable with respect to any Second Priority Debt Obligations or change (to earlier dates) any dates upon which payments of principal or interest are due thereon, (C) change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), (D) change the redemption, 21 prepayment or defeasance provisions thereof (or of any guaranty thereof) in any manner which might be adverse to the interests of any Senior Secured Party, (E) change any collateral therefor (other than to release such collateral), (F) increase materially the obligations of the obligor thereunder, (G) add any covenant or modify any covenant to render it more restrictive (other than covenants under the Synthetic Lease Documents relating solely to the "Properties" or the "Equipment Collateral" (each as defined on the date hereof in the Synthetic Lease Facility) and not constituting financial covenants, or (H) confer any additional rights on any Second Priority Debt Parties, which could reasonably be expected to be adverse in any significant respect to any of the Senior Secured Parties. (b) Unless the Majority Senior Parties have consented thereto in writing, none of the Subsidiary Guarantors, the Second Priority Debt Parties or their Representatives or the Second Priority Collateral Trustee will amend or modify or consent to any amendment or modification of the Second Priority Subsidiary Guarantee Agreement. SECTION 7.02. Limitation on Facility Amounts. None of the Borrower, the Subsidiary Guarantors and the Senior Bank Parties will amend or modify, or consent to any amendment or modification of, any Debt Facility to which it is party if the effect thereof would be to increase the aggregate amount of indebtedness outstanding (or commitments to lend) thereunder above an amount equal to (x) the aggregate amount of such indebtedness and lending commitments outstanding on the Closing Date minus (y) any permanent repayments of such indebtedness or reductions in such commitments made after the Closing Date; provided, however, that the foregoing shall not prohibit increases after the Closing Date in lending commitments and/or loans under the Senior Credit Facility in an aggregate amount not in excess of $600,000,000. ARTICLE VIII Second Priority Collateral Trustee SECTION 8.01. Delivery of Secured Documents. On the date hereof, Rite Aid shall deliver to the Second Priority Collateral Trustee a true and complete copy of each of the Secured Documents as in effect on the date hereof. Promptly upon the execution thereof, Rite Aid shall deliver to the Second Priority Collateral Trustee a true and complete copy of any and all amendments, modifications or supplements to any Secured Document and of any Secured Documents entered into after the date of this Agreement. SECTION 8.02. Information as to Holders. Rite Aid shall deliver to the Second Priority Collateral Trustee at the Closing Date and from time to time upon request of the Second Priority Collateral Trustee a list setting forth, by each Secured Document, (i) the aggregate 22 principal amount outstanding thereunder, (ii) the interest rate or rates then in effect thereunder, and (iii) the names of the holders thereof and the unpaid principal amount thereof owing to each such holder. Rite Aid shall furnish or cause to be furnished to the Second Priority Collateral Trustee within 30 days of a request therefor a list setting forth the name and address of each party to whom notices must be sent under the Secured Documents, and Rite Aid agrees to furnish promptly to the Second Priority Collateral Trustee any changes or additions to such list. SECTION 8.03. Compensation and Expenses. Rite Aid and each Subsidiary Guarantor, jointly and severally, agrees to pay to the Second Priority Collateral Trustee, from time to time upon demand, (i) compensation (which shall not be limited by any provision of law in regard to compensation of a trustee of an express trust) for its services hereunder and for administering the Trust Estate, as heretofore agreed between the Second Priority Collateral Trustee and Rite Aid, and (ii) all of the reasonable fees, costs and expenses of the Second Priority Collateral Trustee (including, without limitation, the reasonable fees and disbursements of its counsel and such special counsel and other professionals and consultants as the Second Priority Collateral Trustee elects to retain) (a) arising in connection with the preparation, execution, delivery, modification and termination of this Agreement, or the enforcement of any provisions hereof, or (b) incurred or required to be advanced in connection with the administration of the Trust Estate or the preservation, protection or defense of the Second Priority Collateral Trustee's rights under this Agreement and in and to the Collateral and the Trust Estate. The obligations of Rite Aid under this Section 8.03 shall survive the termination of this Agreement. SECTION 8.04. Stamp and Other Similar Taxes. Rite Aid agrees to indemnify and hold harmless the Second Priority Collateral Trustee and each Secured Party from any present or future claim or liability for any mortgage, stamp or other similar tax and any penalties or interest with respect thereto, which may be assessed, levied or collected by any jurisdiction in connection with this Agreement and the Collateral Documents. The obligations of Rite Aid under this Section 8.04 shall survive the termination of this Agreement. SECTION 8.05. Filing Fees, Excise Taxes, etc. Rite Aid agrees to pay or to reimburse the Second Priority Collateral Trustee for any and all amounts in respect of all search, filing, recording and registration fees, taxes, excise taxes and other similar imposts which may be payable or determined to be payable in respect of the execution, delivery, performance and enforcement of this Agreement to the extent the same may be paid or reimbursed by Rite Aid without subjecting the Second Priority Collateral Trustee, the Collateral Agents or any Secured Party to any civil or criminal liability. The obligations of Rite Aid under this Section 8.05 shall survive the termination of this Agreement. SECTION 8.06. Indemnification. (a) Rite Aid and each of the Subsidiary Guarantors, jointly and severally, agrees to pay, indemnify, and hold the Second Priority Collateral Trustee 23 harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and the Collateral Documents; provided, however, that the Second Priority Collateral Trustee shall not be indemnified under this clause to the extent such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements are determined by a court of competent jurisdiction to have resulted from the gross negligence or wilful misconduct of the Second Priority Collateral Trustee. (b) In any suit, proceeding or action brought by the Second Priority Collateral Trustee with respect to the Collateral or for any sum owing in respect of Secured Obligations, or to enforce the provisions of any Collateral Document, each of the Subsidiary Guarantors, jointly and severally, shall save, indemnify and keep the Second Priority Collateral Trustee and each of the Secured Parties harmless from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction of liability whatsoever incurred or suffered by the Second Priority Collateral Trustee or such Secured Party, as the case may be, arising out of a breach by any Subsidiary Guarantor of any obligation set forth in this Agreement, or any other Collateral Document and all such obligations of each Subsidiary Guarantor shall be and remain enforceable against and only against such Subsidiary Guarantor and shall not be enforceable against the Second Priority Collateral Trustee or any Secured Party. The provisions of this Section 8.06. shall survive the termination of this Agreement. SECTION 8.07. Further Assurances. At any time and from time to time, upon the written request of the Second Priority Collateral Trustee, and at the joint and several expense of Rite Aid and the Subsidiary Guarantors, Rite Aid and each Subsidiary Guarantor shall promptly execute and deliver any and all such further instruments and documents and take such further action as Second Priority Collateral Trustee reasonably deems necessary or desirable in obtaining the full benefits of this Agreement. Without limitation of the foregoing or of any requirement of any Second Priority Collateral Document, each Subsidiary Guarantor agrees, from time to time, at its own expense to execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further mortgages, financing statements and continuations thereof, notices of assignment, transfers, certificates, assurances and other instruments as may be necessary or desirable, or as the Second Priority Collateral Trustee, and any Second Priority Representative, or any Second Priority Debt Party through its administrative agent, may reasonably request from time to time in order (i) to carry out more effectively the purposes of this Agreement, (ii) to subject to the liens and security interests created by any of the Second Priority Collateral Documents in any of the properties, (iii) to perfect and maintain the validity, effectiveness and priority of any of the Second Priority Collateral Documents and the liens and security interests intended to be created thereby, (iv) to better assure, convey, grant, assign, transfer, preserve, protect and confirm unto the Second Priority Collateral Trustee the rights 24 granted or now or hereafter intended to be granted to the Second Priority Collateral Trustee under any Second Priority Collateral Document or under any other instrument executed in connection with any Second Priority Collateral Document to which it is or may become a party, and (v) to enable the Second Priority Collateral Trustee to exercise and enforce its rights and remedies hereunder and under each Second Priority Collateral Document with respect to any Second Priority Collateral. SECTION 8.08. Certain Duties. The Second Priority Collateral Trustee's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC or otherwise, shall be to deal with such Collateral in the same manner as it customarily deals with similar collateral of other parties held by it. The Second Priority Collateral Trustee shall promptly deliver to each of the Second Priority Representatives a copy of each notice, request, report or other document delivered to it pursuant to the Second Priority Collateral Documents (unless the Second Priority Collateral Trustee can reasonably determine that such Second Priority Representative has already received the same). SECTION 8.09. Exculpatory Provisions. (a) The Second Priority Collateral Trustee shall not be responsible in any manner whatsoever for the correctness of any recitals, statements, representations or warranties herein contained, all of which are made solely by the Subsidiary Guarantors. The Second Priority Collateral Trustee makes no representations as to the value or condition of the Trust Estate or any part thereof, or as to the title of the Subsidiary Guarantors thereto or as to the security afforded by the Collateral Documents or this Agreement or as to the validity, execution (except its own execution thereof), enforceability, legality or sufficiency of the Collateral Documents or this Agreement or of the Secured Obligations, and the Second Priority Collateral Trustee shall incur no liability or responsibility with respect to any such matters. The Second Priority Collateral Trustee shall not be responsible for insuring the Trust Estate or for the payment of taxes, charges, assessments or Liens upon the Trust Estate or otherwise as to the maintenance of the Trust Estate. (b) The Second Priority Collateral Trustee shall not be required to ascertain or inquire as to the performance by Rite Aid or any other person of any of the covenants or agreements contained herein, in any Collateral Document or in any Secured Document. Whenever it is necessary, or in the opinion of the Second Priority Collateral Trustee advisable, for the Second Priority Collateral Trustee to ascertain the amount of Secured Obligations then held by a Secured Party, the Second Priority Collateral Trustee may rely on a certificate of such Secured Party as to such amount, and if any Secured Party shall not provide such information to the Second Priority Collateral Trustee, such Secured Party shall not be entitled to receive payments hereunder (in which case the amounts otherwise payable to such Secured Party shall be held in trust for such Secured Party in the applicable Collateral Account) until such Secured Party has provided such information to the Second Priority Collateral Trustee. 25 (c) The Second Priority Collateral Trustee shall not be personally liable for any action taken or omitted to be taken by it in accordance with this Agreement or any Collateral Document or any Secured Document, except for such actions or omissions that constitute gross negligence or wilful misconduct by the Second Priority Collateral Trustee. The Second Priority Collateral Trustee and its affiliates may make credit extensions to, accept deposits from and generally engage in any kind of business with Rite Aid and its Subsidiaries as though the Second Priority Collateral Trustee were not the collateral trustee hereunder. With respect to any Secured Obligations owing to it, the Second Priority Collateral Trustee shall have the same rights and powers under this Agreement as any Senior Secured Party or any Second Priority Debt Party, as the case may be, and may exercise the same as though it were not the collateral trustee hereunder. The Second Priority Collateral Trustee, in its individual capacity, may be either a Senior Secured Party or a Second Priority Debt Party. SECTION 8.10. Delegation of Duties. The Second Priority Collateral Trustee may execute any of the trusts or powers hereof and perform any duty hereunder either directly or by or through agents or attorneys-in-fact which it shall select with due care. The Second Priority Collateral Trustee shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it. SECTION 8.11. Reliance by Second Priority Collateral Trustee. (a) Whenever in the administration of the trusts of this Agreement the Second Priority Collateral Trustee shall deem it necessary or advisable that a matter be proved or established in connection with the taking of any action hereunder by the Second Priority Collateral Trustee, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively provided or established by a certificate of an officer of Rite Aid delivered to the Second Priority Collateral Trustee, and such officers' certificate shall be full warranty to Second Priority Collateral Trustee for any action taken, suffered or omitted in reliance thereon. (b) The Second Priority Collateral Trustee may consult with counsel, and any opinion of such counsel (which may be in-house counsel for the Second Priority Collateral Trustee) shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in accordance therewith. The Second Priority Collateral Trustee shall have the right at any time to seek instructions concerning the administration of the Trust Estate from any court of competent jurisdiction. (c) The Second Priority Collateral Trustee may rely, and shall be fully protected in acting, upon any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order, bond or other paper or document which it has no reason to believe to be other than genuine and to have been signed or presented by the proper party or parties or, in the case of telecopies and telexes, to have been sent by the proper party or parties. The Second Priority 26 Collateral Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Second Priority Collateral Trustee and conforming to the requirements of this Agreement or any Collateral Document. (d) The Second Priority Collateral Trustee shall not be under any obligation to exercise any of the rights or powers vested in the Second Priority Collateral Trustee by this Agreement unless the Second Priority Collateral Trustee shall have been provided adequate security and indemnity against the costs, expenses and liabilities which may be incurred by it in compliance with such request or direction, including, without limitation, such reasonable advances as may be requested by the Second Priority Collateral Trustee. SECTION 8.12. Limitations on Duties of Second Priority Collateral Trustee. The Second Priority Collateral Trustee shall not be liable with respect to any action taken or omitted to be taken by it in accordance with the direction of the Second Priority Instructing Group. Except as herein otherwise expressly provided, the Second Priority Collateral Trustee shall not be under any obligation to take any action which is discretionary with the Second Priority Collateral Trustee under the provisions hereof except upon the written request of the Second Priority Instructing Group. The Second Priority Collateral Trustee shall make available for inspection and copying by any Secured Party each certificate or other paper furnished to the Second Priority Collateral Trustee by Rite Aid or any Subsidiary Guarantor under or in respect of this Agreement, any Collateral Document or any portion of the Trust Estate. SECTION 8.13. Funds to be Held in Trust. All funds received by the Second Priority Collateral Trustee under or pursuant to any provision of this Agreement shall be held in trust for the purposes for which they were paid or are held in accordance with the provisions hereof. SECTION 8.14. Resignation of the Second Priority Collateral Trustee. (a) The Second Priority Collateral Trustee may at any time, by giving 30 days' prior written notice to Rite Aid and the Secured Parties, resign and be discharged of the responsibilities hereby created, such resignation to become effective upon the earlier of (i) 60 days from the date of such notice and (ii) the appointment of a successor collateral trustee or collateral trustees by the Second Priority Instructing Group (subject, if no Triggering Event has occurred, to the approval of the Borrower, which approval shall not to be unreasonably delayed or withheld). If no successor collateral trustee or collateral trustees shall be appointed and approved within 60 days from the date of the giving of the aforesaid notice of resignation, the Second Priority Collateral Trustee (notwithstanding the termination of all of its other duties and obligations hereunder by reason of such resignation) shall, or any Senior Secured Party, Second Priority Debt Party or Rite Aid may, apply to any court of competent jurisdiction to appoint a successor collateral trustee or collateral trustees (which may be an individual or individuals) to act until such time, if any, as a successor 27 collateral trustee or collateral trustees shall have been appointed as above provided. Any successor collateral trustee or collateral trustees so appointed by such court shall immediately and without further act be superseded by any successor collateral trustee or collateral trustees approved by the Second Priority Instructing Group as above provided. (b) If at any time the Second Priority Collateral Trustee shall resign or otherwise become incapable of acting, or if at any time a vacancy shall occur in the office of Second Priority Collateral Trustee for any other cause, a successor collateral trustee or collateral trustees may be appointed by the Second Priority Instructing Group (subject, if no Triggering Event has occurred, to the approval of the Borrower, which approval shall not to be unreasonably delayed or withheld), and the powers, duties, authority and title of the predecessor collateral trustee or collateral trustees terminated and canceled without procuring the resignation of such predecessor collateral trustee or collateral trustees, and without any other formality (except as may be required by applicable law) other than appointment and designation of a successor collateral trustee or collateral trustees in writing, duly acknowledged, delivered to the predecessor collateral trustee or collateral trustees, and filed for record in each public office, if any, in which this Agreement is required to be filed. (c) The appointment and designation referred to in Section 8.14(b) shall, after any required filing, be full evidence of the right and authority to make the same and of all the facts therein recited, and this Agreement shall vest in such successor collateral trustee or collateral trustees, without any further act, deed or conveyance, all of the estate and title of its predecessor or their predecessors, and upon such filing for record the successor collateral trustee or collateral trustees shall become fully vested with all the estates, properties, rights, powers, trusts, duties, authority and title of its predecessor or their predecessors. Such predecessor or predecessors shall, nevertheless, on the written request of the Second Priority Instructing Group or its or their successor collateral trustee or collateral trustees, execute and deliver an instrument transferring to such successor or successors all the estates, properties, rights, powers, trusts, duties, authority and title of such predecessor or predecessors hereunder and shall deliver all securities and funds held by it or them to such successor collateral trustee or collateral trustees. (d) Any required filing for record of the instrument appointing a successor collateral trustees as herein above provided shall be at the expense of Rite Aid. SECTION 8.15. Status of Successors to Second Priority Collateral Trustee. Except as permitted by Section 8.14, every successor to the Second Priority Collateral Trustee appointed pursuant to Section 8.14 shall be a bank or trust company in good standing and having power so to act, incorporated under the laws of the United States or any State thereof or the District of Columbia, and having its principal corporate trust office within the forty-eight contiguous States, and shall also have capital, surplus and undivided profits of not less than $250,000,000. 28 SECTION 8.16. Merger of Second Priority Collateral Trustee. Any corporate Person into which Second Priority Collateral Trustee may be merged, or with which it may be consolidated, or any company resulting from any merger or consolidation to which Second Priority Collateral Trustee shall be a party, shall be Second Priority Collateral Trustee under this Agreement without the execution or filing of any paper or any further act on the part of the parties hereto. SECTION 8.17. Appointment of Additional and Separate Second Priority Collateral Trustee. Whenever (i) the Second Priority Collateral Trustee shall deem it necessary or prudent in order to conform to any law of any jurisdiction in which all or any part of the Collateral shall be situated or to make any claim or bring any suit with respect to or in connection with the Collateral, or (ii) the Second Priority Collateral Trustee shall be advised by counsel satisfactory to it that it is so necessary or prudent in the interest of the Second Priority Debt Parties, then in any such case, the Second Priority Collateral Trustee shall execute and deliver from time to time all instruments and agreements necessary or proper to constitute another bank or trust company or one or more persons approved by the Second Priority Collateral Trustee either to act as additional trustee or trustees of all or any part of the Trust Estate, jointly with the Second Priority Collateral Trustee, or to act as separate trustee or trustees of all or any part of the Trust Estate, in any such case with such powers and on substantially the same terms and conditions as set forth in this Agreement, and to vest in such bank, trust company or person as such additional trustee or separate trustee, as the case may be, any property, title, right or power of the Second Priority Collateral Trustee deemed necessary or advisable by the Second Priority Collateral Trustee. Each of the Subsidiary Guarantors hereby consents to all actions taken by the Second Priority Collateral Trustee under the foregoing provisions of this Section 8.17. SECTION 8.18. Removal of Second Priority Collateral Trustee. The Second Priority Collateral Trustee may be removed and discharged from the responsibilities hereby created at any time by the Second Priority Instructing Group. The Second Priority Instructing Group may appoint a successor trustee with the consent of Rite Aid (such consent not to be unreasonably withheld). The removal and discharge of the Second Priority Collateral Trustee shall be effective upon appointment of such successor trustee and such successor trustee's acceptance of its appointment. 29 ARTICLE IX Release of Collateral; Expiration of Certain Rights SECTION 9.01. Releases of Collateral. At any time during which no Triggering Event has occurred and is continuing: (a) If any Collateral is to be disposed of in a disposition that is permitted by the Senior Debt Documents and the Second Priority Debt Documents, then the Liens in favor of the Secured Parties under the Collateral Documents with respect to such Collateral (but not the proceeds thereof) will be released automatically upon consummation of such disposition, without the need for any consent or approval by any Secured Party, and the Second Priority Collateral Trustee, Senior Collateral Agent, the Representative for the holders of the 10.50% Notes and the Second Priority Representatives, at the expense of Rite Aid, shall execute such documents as are reasonably necessary to effectuate such release. (b) The Lien of any Collateral Document may, at any time, be released in whole or in part by the Senior Collateral Agent (in the case of the Senior Lien) or the Second Priority Collateral Trustee (in the case of the Second Priority Lien) pursuant to written directions signed by the Majority Senior Parties (or the Senior Collateral Agent on behalf of the Majority Senior Parties) or the Second Priority Instructing Group, respectively; provided that the release of all or substantially all of the Senior Collateral shall require the written consent of all Senior Secured Parties and the release of all or substantially all of the Second Priority Collateral shall require the written consent of all Second Priority Secured Parties; provided, further, however, that to the extent the Senior Bank Obligations, the 10.5% Note Obligations, the Synthetic Lease Obligations, the Additional Senior Second Priority Debt Obligations, if any, the Exchange Note Obligations, the Additional Second Priority Debt Obligations, if any, the Replacement Senior Second Priority Debt Obligations, if any, or the Replacement Second Priority Debt Obligations, if any, are paid in full (and any commitments related thereto are terminated), the consent of the related Secured Parties shall not be required for any release, including a release of all or substantially all, of the Collateral securing such obligations. ARTICLE X Miscellaneous SECTION 10.01. Amendments, Supplements and Waivers. Except as otherwise provided in Section 10.12, the Majority Senior Parties and the Second Priority Instructing Group (and with respect to any such amendment, supplement or waiver (i) which by the terms of this Agreement requires Rite Aid's consent or which increases the obligations or reduces the rights of Rite Aid or any Subsidiary Guarantor, with the consent of Rite Aid, (ii) which by the terms of 30 this Agreement requires the Second Priority Collateral Trustee's consent or which increases the obligations or reduces the rights of the Second Priority Collateral Trustee, with the consent of the Second Priority Collateral Trustee and (iii) which by the terms of this Agreement requires the consent of a particular Second Priority Representative, or which by its terms adversely affects the rights of the Senior Secured Parties or the Second Priority Debt Parties under a particular Senior Facility or Second Priority Facility, as the case may be, in a manner materially different from its effect on the other Senior Facility or Second Priority Facilities, as the case may be, with the consent of the Representative for such Senior Facility or Second Priority Facility) may from time to time amend, supplement or waive any provision hereof. Any such amendment, supplement or waiver shall be in writing and shall be binding upon the Secured Parties and their respective successors and assigns. SECTION 10.02. Notices. All notices, requests, demands and other communications provided for or permitted hereunder shall be in writing (including telecopy communications) and shall be sent by mail, telecopier or hand delivery: (i) If to Rite Aid or any Subsidiary Guarantor, to Rite Aid, at its address at: 30 Hunter Lane, Camp Hill, PA 17011, Attention of Chief Financial Officer, telecopy 717- 975-5961, or at such other address as shall be designated by it in a written notice to the other parties to this Agreement. (ii) If to the Second Priority Collateral Trustee, to: Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001, Attention of Corporate Trust Administration, telecopy 302-651-8882, or at such other address as shall be designated by it in a written notice to the other parties to this Agreement. (iii) If to the Senior Collateral Agent, to it at its address at: 399 Park Avenue, 6-4, New York, NY 10022, Attention of Jeffrey Nitz, Vice President, telecopy 212-793-1290, or at such other address as shall be designated by it in a written notice to the other parties to this Agreement. (iv) If to the agent for the Synthetic Lease Parties, to Citicorp USA, Inc. at its address at: Two Penns Way, Suite 200, New Castle, DE 19720, Attention of Mae Wong, telecopy (302) 894-6120, or at such other address as shall be designated by it in a written notice to the other parties to this Agreement. (v) If to the trustee for the 10.5% Notes, to State Street Bank and Trust Company at its address at: Goodwin Square, 225 Asylum Street, 23rd Floor, Hartford, CT 06103, Attention of Corporate Trust Administration, telecopy (860) 244-1897, or at such other 31 address as shall be designated by it in a written notice to the other parties to this Agreement. (vi) If to the trustee for the Exchange Notes, to State Street Bank and Trust Company at its address at: Goodwin Square, 225 Asylum Street, 23rd Floor, Hartford, CT 06103, Attention of Corporate Trust Administration, telecopy (860) 244-1897, or at such other address as shall be designated by it in a written notice to the other parties to this Agreement. All such notices, requests, demands and communications shall be deemed to have been duly given or made, when delivered by hand or when telecopied. SECTION 10.03. Headings. Headings used in this Agreement are for convenience only and shall not affect the construction of this Agreement. SECTION 10.04. Severability. If any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein 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 10.05. Dealings with the Subsidiary Guarantors. Upon any application or demand by Rite Aid or any Subsidiary Guarantor to the Second Priority Collateral Trustee or the Senior Collateral Agent to take or permit any action under any of the provisions of this Agreement or under any Collateral Document, Rite Aid or such Subsidiary Guarantor, as appropriate, shall furnish to the Second Priority Collateral Trustee or the Senior Collateral Agent a certificate of an appropriate officer stating that all conditions precedent, if any, provided for in this Agreement or such Collateral Document, as the case may be, relating to the proposed action have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Agreement or any Collateral Document relating to such particular application or demand, no additional certificate or opinion need be furnished. SECTION 10.06. Binding Effect. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and each of the Secured Parties and their respective successors and assigns, and nothing herein or in any Collateral Document is intended or shall be construed to give any other person any right, remedy or claim under, to or in respect of this 32 Agreement, the Collateral or the Trust Estate. Each of the Representatives in respect of each Debt Facility represents that it has the authority to enter into this Agreement on behalf of the Secured Parties that are party to the Senior Debt Documents or Second Priority Debt Documents relating to such Facility and that this Agreement will be binding on such Secured Parties, assuming their due authorization, execution and delivery of such Senior Debt Documents or Second Priority Debt Documents. SECTION 10.07. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW. SECTION 10.08. Counterparts. This Agreement may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. SECTION 10.09. Consent to Jurisdiction and Service of Process. Rite Aid and each Subsidiary 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 any Collateral Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that, to the extent permitted by applicable law, 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 Senior Collateral Agent, Second Priority Collateral Trustee or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Secured Documents against Rite Aid or any Subsidiary Guarantor or its properties in the courts of any jurisdiction. (b) Rite Aid and each Subsidiary 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 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. 33 (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.02. 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 10.10. 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 10.11. Additional Subsidiary Guarantors. Pursuant to Section 5.08 of the Senior Credit Facility, certain Domestic Subsidiaries of Rite Aid which are acquired or organized after the date of this Agreement are required to enter into this Agreement as provided therein. Upon execution and delivery by a Subsidiary of Rite Aid of an instrument in the form of Annex 2, such Subsidiary shall become a Subsidiary Guarantor hereunder with the same force and effect as if originally named as a Subsidiary Guarantor herein. The execution and delivery of such instrument shall not require the consent of any other party hereunder, and will be acknowledged by the Second Priority Collateral Trustee and the Senior Collateral Agent. The rights and obligations of each Subsidiary Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Guarantor as a party to this Agreement. SECTION 10.12 Additional Senior Second Priority Debt; Additional Second Priority Debt; Replacement Second Priority Debt and Replacement Senior Second Priority Debt. To the extent, but only to the extent, permitted by the provisions of the Senior Debt Documents and the Second Priority Debt Documents, Rite Aid may issue and sell one or more series or classes of (i) Additional Senior Second Priority Debt in an aggregate principal amount at any time outstanding not in excess of $93,000,000, (ii) Additional Second Priority Debt in an aggregate principal amount at any time outstanding not in excess of $300,000,000, (iii) Replacement Senior Second Priority Debt and (iv) Replacement Second Priority Debt. Any such class or series of Additional Senior Second Priority Debt, Additional Second Priority Debt, Replacement Second Priority Debt or Replacement Senior Second Priority Debt ("Class Debt") may be secured by the Second Priority Lien and may be Guaranteed by the Subsidiary Guarantors on a subordinated basis, in each case under and pursuant to the Second Priority Collateral Documents, if and subject to the condition that the Representative of any such Class Debt (the "Class 34 Representative"), acting on behalf of the holders of such Class Debt (such Representative and holders in respect of any Class Debt being referred to as the "Class Debt Parties"), becomes a party to this Agreement by satisfying the following conditions: (i) such Class Representative shall have executed and delivered an instrument in the form of Annex 3 pursuant to which it becomes a Representative hereunder, and such Additional Senior Second Priority Debt, Additional Second Priority Debt, Replacement Second Priority Debt or Replacement Senior Second Priority Debt, as the case may be, and the related Class Debt Parties become subject hereto and bound hereby; (ii) Rite Aid shall have delivered to the Senior Collateral Agent and the Second Priority Collateral Trustee true and complete copies of each of the Additional Senior Second Priority Debt Documents, Additional Second Priority Debt Documents, Replacement Second Priority Debt Documents or Replacement Senior Second Priority Debt Documents, as the case may be, with respect to such Class Debt, certified as being true and correct by a Financial Officer of Rite Aid; (iii) all filings, recordations and/or amendments or supplements to the Second Priority Collateral Documents necessary or desirable in the opinion of the Second Priority Collateral Trustee to confirm and perfect the Second Priority Lien's securing the relevant Additional Senior Second Priority Debt Obligations, Additional Second Priority Debt Obligations, Replacement Second Priority Debt Obligations or Replacement Senior Second Priority Debt Obligations, as the case may be, shall have been made, executed and/or delivered, and all fees and taxes in connection therewith shall have been paid; and (iv) the Senior Collateral Agent and the Second Priority Collateral Trustee shall have received such opinions of outside counsel to Rite Aid and such Class Representative satisfactory to them and such other documents relating to the matters referred to in clauses (i), (ii) and (iii) as either of them may reasonably request, and such opinions shall be satisfactory in form and substance to the Senior Collateral Agent and the Second Priority Collateral Trustee. Notwithstanding anything to the contrary contained herein (including Section 10.01 hereof) or in any Second Priority Collateral Document, any filings, recordations or amendments or supplements contemplated by clause (iii) above (x) shall be subject to the prior approval of the Senior Collateral Agent, Second Priority Collateral Trustee and Rite Aid and (y) in the case of any such amendment or supplement to a Second Priority Collateral Document, shall be entered into by Rite Aid, the Subsidiary Guarantors, the Second Priority Collateral Trustee and consented to by the Senior Collateral Agent and the relevant Class Representative, but shall not require the 35 consent or approval of any other Senior Secured Party or Second Priority Secured Party, and shall become effective upon satisfaction of each of the conditions set forth above. SECTION 10.13. Bailee for Perfection. The Senior Collateral Agent hereby acknowledges that, to the extent that it holds, or a third party holds on its behalf, possession of Collateral pursuant to the Senior Collateral Documents which is also Collateral under the Second Priority Collateral Documents, such possession is also for the benefit of the Second Priority Collateral Trustee and the Second Priority Secured Parties to the extent required to perfect their security interest in such Collateral. Nothing in the preceding sentence shall be construed to impose any additional duty on the Senior Collateral Agent with respect to such Collateral or provide the Second Priority Collateral Trustee or any Second Priority Secured Party with any rights with respect to such Collateral beyond those specified in this Agreement. SECTION 10.14. Termination of Existing Agreements. Reference is made to the Collateral Trust and Intercreditor Agreement dated as of June 12, 2000 (the "Existing Intercreditor Agreement"), among Rite Aid, the subsidiary guarantors party thereto, Wilmington Trust Company, Citicorp USA, Inc., Morgan Guaranty Trust Company of New York, The Prudential Insurance Company of America, State Street Bank and Trust Company and The Sumitomo Bank, Limited, New York Branch. Rite Aid, the subsidiary guarantors, Citicorp USA, Inc. and State Street Bank and Trust Company, as the sole remaining parties thereto, hereby agree to amend and restate the Existing Intercreditor Agreement in its entirety with this Agreement. 36 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. RITE AID CORPORATION, By________________________________ Name: Title: THRIFTY PAYLESS, INC., as a Subsidiary Guarantor, By________________________________ Name: Title: THE SUBSIDIARY GUARANTORS LISTED ON ANNEX 1 HERETO, By________________________________ Name: Title: Authorized Signatory WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee, By________________________________ Name: Title: 37 CITICORP USA, INC., as Senior Collateral Agent, By________________________________ Name: Title: 38 STATE STREET BANK AND TRUST COMPANY, as trustee under the 10.50% Note Indenture, By_______________________________ Name: Title: STATE STREET BANK AND TRUST COMPANY, as trustee under the Exchange Note Indenture, By_______________________________ Name: Title: 39 CITICORP USA, INC., as agent for the Synthetic Lease Parties under the Synthetic Lease Documents, By_______________________________ Name: Title: 40 Annex 1 to the Collateral Trust and Intercreditor Agreement Subsidiary Guarantors 112 Burleigh Avenue Norfolk, LLC 1515 West State Street Boise, Idaho, LLC 1525 Cortyou Road - Brooklyn Inc. 1740 Associates, LLC 3581 Carter Hill Road - Montgomery Corp. 4042 Warrensville Center Road - Warrensville Ohio, Inc. 5277 Associates, Inc. 537 Elm Street Corporation 5600 Superior Properties, Inc. 657-659 Broadway St. Corp. 764 South Broadway- Geneva, Ohio, LLC Ann & Government Streets- Mobile, Alabama, LLC Apex Drug Stores, Inc. Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC Broadview and Wallings -Broadview Heights Ohio, Inc. Central Avenue and Main Street- Petal, MS, LLC Dominion Action Four Corporation Dominion Action One Corporation Dominion Action Three Corporation Dominion Action Two Corporation Dominion Drug Stores Corporation Drug Fair of PA, Inc. Drug Fair, Inc. Eagle Managed Care Corp. Eighth and Water Streets- Ulrichsville, Ohio, LLC England Street-Asheland Corporation GDF, Inc. Gettysburg and Hoover-Dayton, Ohio, LLC Gratiot & Center- Saginaw Township, Michigan, LLC Harco, Inc. Jaime Nathan Travis Corporation K&B Alabama Corporation K&B Florida Corporation K&B Louisiana Corporation K&B Mississippi Corporation K&B Services, Inc. K&B Tennessee Corporation K&B Texas Corporation K&B Trainees, Inc. K&B, Incorporated Katz & Besthoff, Inc. Keystone Centers, Inc. Lakehurst and Broadway Corporation Mayfield & Chillicothe Roads- Chesterland, LLC Munson & Andrews LLC Name Rite, LLC Northline & Dix- Toledo- Southgate, LLC Ocean Acquisition Corporation P.L.D. Enterprises, Inc. Patton Drive and Navy Boulevard Property Corporation Paw Paw Lake Road & Paw Paw Avenue-Coloma, Michigan, LLC PDS-1 Michigan, Inc. Perry Distributors, Inc. Perry Drug Stores, Inc. PL Xpress, Inc. Portfolio Medical Services, Inc. Rack Rite Distributors, Inc. Ram-Utica, Inc. RDS Detroit, Inc. Reads, Inc. Rite Aid Drug Palace, Inc. Rite Aid Hdqtrs. Corp. Rite Aid of Alabama, Inc. Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Florida, Inc. Rite Aid of Georgia, Inc. Rite Aid of Illinois, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Massachusetts, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of North Carolina, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. Rite Aid of South Carolina, Inc. Rite Aid of Tennessee, Inc. Rite Aid of Vermont, Inc. Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Rite Aid Realty Corp. Rite Aid Rome Distribution Center, Inc. Rite Aid Transport, Inc. Rite Aid Venturer #1, Inc. Rite Fund, Inc. Rite Investments Corporation RX Choice, Inc. Script South Seven Mile and Evergreen- Detroit, LLC Silver Springs Road- Baltimore, Maryland/One, LLC Silver Springs Road- Baltimore, Maryland/Two, LLC Sophie One Corp. State & Fortification Streets-Jackson, Mississippi, LLC State Street and Hill Road- Gerard, Ohio, LLC Super Distributors, Inc. Super Ice Cream Suppliers, Inc. Super Laboratories, Inc. Super Pharmacy Network, Inc. Super Tobacco Distributors, Inc The Lane Drug Company The Muir Company Thrifty Corporation Thrifty Payless, Inc Thrifty Wilshire, Inc. Tyler and Sanders Roads, Birmingham-Alabama, LLC Virginia Corporation W.R.A.C., Inc. Fairground, LLC Laverdiere's Enterprises, Inc. Leader Drugs, Inc. 2 Annex 2 to the Collateral Trust and Intercreditor Agreement SUPPLEMENT NO. dated as of , to the COLLATERAL TRUST AND INTERCREDITOR AGREEMENT dated as of June 27, 2001 (the "Collateral Trust and Intercreditor Agreement"), among Rite Aid Corporation ("Rite Aid"), certain subsidiaries of Rite Aid (each a "Subsidiary Guarantor"), Wilmington Trust Company, a Delaware banking corporation, as Second Priority Collateral Trustee for the holders from time to time of the Second Priority Debt Obligations, Citicorp USA, Inc., a Delaware corporation, as Senior Collateral Agent for the Senior Secured Parties under the Senior Loan Documents, State Street Bank and Trust Company, as trustee under the 10.5% Note Indenture for the holders of the 10.5% Notes and as trustee under the Exchange Note Indenture for the holders of the Exchange Notes, Citicorp USA, Inc., a Delaware corporation, as agent for the Synthetic Lease Parties under the Synthetic Lease Documents, and each other Second Priority Representative which becomes a party thereto pursuant to Section 10.12 thereof. A. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Collateral Trust and Intercreditor Agreement, including the Definitions Annex referred to therein. B. The Subsidiary Guarantors have entered into the Collateral Trust and Intercreditor Agreement. Pursuant to Section 5.08 of the Senior Credit Facility, certain subsequently acquired or organized Domestic Subsidiaries of Rite Aid are required to enter into the Collateral Trust and Intercreditor Agreement. Section 10.11 of the Collateral Trust and Intercreditor Agreement provides that such Subsidiaries may become party to the Collateral Trust and Intercreditor Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary (the "New Subsidiary Guarantor") is executing this Supplement in accordance with the requirements of the Senior Credit Facility in order to induce the Senior Banks to make additional extensions of credit thereunder and as consideration for extensions of credit previously made, and in accordance with any applicable requirements of the Second Priority Debt Documents. Accordingly, the Second Priority Collateral Trustee, the Senior Collateral Agent and the New Subsidiary Guarantor agree as follows: SECTION 1. In accordance with Section 10.11 of the Collateral Trust and Intercreditor Agreement, the New Subsidiary Guarantor by its signature below becomes a Subsidiary Guarantor under the Collateral Trust and Intercreditor Agreement with the same force and effect as if originally named therein as a Subsidiary Guarantor, and the New Subsidiary Guarantor hereby agrees to all the terms and provisions of the Collateral Trust and Intercreditor Agreement applicable to it as a Subsidiary Guarantor thereunder. Each reference to a "Subsidiary Guarantor" in the Collateral Trust and Intercreditor Agreement shall be deemed to include the New Subsidiary Guarantor. The Collateral Trust and Intercreditor Agreement is hereby incorporated herein by reference. SECTION 2. The New Subsidiary Guarantor represents and warrants to the Second Priority Collateral Trustee, the Senior 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. SECTION 3. This Supplement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when each of the Second Priority Collateral Trustee and the Collateral Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary Guarantor. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement. SECTION 4. Except as expressly supplemented hereby, the Collateral Trust and Intercreditor 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 Collateral Trust and Intercreditor 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 10.02 of the Collateral Trust and Intercreditor Agreement. All communications and notices hereunder to the New Subsidiary Guarantor shall be given to it in care of Rite Aid as specified in the Collateral Trust and Intercreditor Agreement. SECTION 8. The New Subsidiary Guarantor agrees to reimburse each of the Second Priority Collateral Trustee and the Senior Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements 2 of counsel for the Second Priority Collateral Trustee and the Senior Collateral Agent. IN WITNESS WHEREOF, the New Subsidiary Guarantor, the Second Priority Collateral Trustee and the Senior Collateral Agent have duly executed this Supplement to the Collateral Trust and Intercreditor Agreement as of the day and year first above written. [NAME OF NEW SUBSIDIARY GUARANTOR], By________________________________ Name: Title: Authorized Signatory Acknowledged by: WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee, By________________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent, By________________________________ Name: Title: 3 Annex 3 to the Collateral Trust and Intercreditor Agreement REPRESENTATIVE SUPPLEMENT NO. dated as of , to the COLLATERAL TRUST AND INTERCREDITOR AGREEMENT dated as of June 27, 2001 (the "Collateral Trust and Intercreditor Agreement"), among Rite Aid Corporation ("Rite Aid"), certain subsidiaries of Rite Aid (each a "Subsidiary Guarantor"), Wilmington Trust Company, a Delaware banking corporation, as Second Priority Collateral Trustee for the holders from time to time of the Second Priority Debt Obligations, Citicorp USA, Inc., a Delaware corporation, as Senior Collateral Agent for the Senior Secured Parties under the Senior Loan Documents, State Street Bank and Trust Company, as trustee under the 10.5% Note Indenture for the holders of the 10.5% Notes and as trustee under the Exchange Note Indenture for the holders of the Exchange Notes, Citicorp USA, Inc., a Delaware corporation, as agent for the Synthetic Lease Parties under the Synthetic Lease Documents, and each other Second Priority Representative which becomes a party thereto pursuant to Section 10.12 thereof. A. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Collateral Trust and Intercreditor Agreement, including the Definitions Annex referred to therein. B. As a condition to the ability of Rite Aid to issue Additional Senior Second Priority Debt, Additional Second Priority Debt, Replacement Senior Second Priority Debt or Replacement Second Priority Debt and to secure such Class Debt with the Second Priority Lien and to have such Class Debt guaranteed by the Subsidiary Guarantors on a subordinated basis, in each case under and pursuant to the Second Priority Collateral Documents, the Class Representative in respect of such Class Debt is required to become a Representative under, and such Class Debt and the Class Debt Parties in respect thereof are required to become subject to and bound by, the Collateral Trust and Intercreditor Agreement. Section 10.12 of the Collateral Trust and Intercreditor Agreement provides that such Class Representative may become a Representive under, and such Class Debt and such Class Debt Parties may become subject to and bound by, the Collateral Trust and Intercreditor Agreement, pursuant to the execution and delivery by the Class Representative of an instrument in the form of this Representative Supplement and the satisfaction of the other conditions set forth in Section 10.12. The undersigned Class Representative (the "New Representative") is executing this Representive Supplement in accordance with the requirements of the Senior Credit Facility and the Second Priority Debt Documents. Accordingly, the Second Priority Collateral Trustee, the Senior Collateral Agent and the New Representative agree as follows: SECTION 1. In accordance with Section 10.12 of the Collateral Trust and Intercreditor Agreement, the New Representative by its signature below becomes a Representative under, and the related Class Debt and Class Debt Parties become subject to and bound by, the Collateral Trust and Intercreditor Agreement with the same force and effect as if the New Representative had originally been named therein as a Representative, and the New Representative, on behalf of itself and such Class Debt Parties, hereby agrees to all the terms and provisions of the Collateral Trust and Intercreditor Agreement applicable to it as a Representative and to the Class Debt Parties that it represents. Each reference to a "Representative" or "Second Priority Representative" in the Collateral Trust and Intercreditor Agreement shall be deemed to include the New Representative. The Collateral Trust and Intercreditor Agreement is hereby incorporated herein by reference. SECTION 2. The New Representative represents and warrants to the Second Priority Collateral Trustee, the Senior Collateral Agent and the other Secured Parties that (i) it has full power and authority to enter into this Representative Supplement on behalf of itself and the Class Debt Parties that it purports to represent and (ii) this Representive Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it and the Class Debt Parties that it represents in accordance with its terms. SECTION 3. This Representive Supplement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Representive Supplement shall become effective when each of the Second Priority Collateral Trustee and the Collateral Agent shall have received a counterpart of this Representive Supplement that bears the signature of the New Representative. Delivery of an executed signature page to this Representive Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Representive Supplement. SECTION 4. Except as expressly supplemented hereby, the Collateral Trust and Intercreditor Agreement shall remain in full force and effect. SECTION 5. THIS REPRESENTATIVE 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 Representive 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 Collateral Trust and Intercreditor 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. 2 SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 10.02 of the Collateral Trust and Intercreditor Agreement. All communications and notices hereunder to the New Representative shall be given to it at the address set forth below its signature hereto. SECTION 8. Rite Aid agrees to reimburse each of the Second Priority Collateral Trustee and the Senior Collateral Agent for its reasonable out-of-pocket expenses in connection with this Representive Supplement, including the reasonable fees, other charges and disbursements of counsel for the Second Priority Collateral Trustee and the Senior Collateral Agent. 3 IN WITNESS WHEREOF, the New Representative, the Second Priority Collateral Trustee and the Senior Collateral Agent have duly executed this Representive Supplement to the Collateral Trust and Intercreditor Agreement as of the day and year first above written. [NAME OF NEW REPRESENTATIVE], as [ ] for the holders of [ ], By________________________________ Name: Title: Authorized Signatory Address for notices: ______________________________ ______________________________ attention of: ________________ Telecopy: ____________________ Acknowledged by: WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee, By________________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent, By________________________________ Name: Title: 4 EX-10 14 exh10-34.txt EXHIBIT 10.34 EXECUTION COPY SECOND PRIORITY SUBSIDIARY GUARANTEE dated as of June 27, 2001, among each of the subsidiaries listed on Schedule I hereto (each such subsidiary individually, a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors") of RITE AID CORPORATION, a Delaware corporation (the "Borrower"), and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral agent (the "Second Priority Collateral Trustee") for the Second Priority Debt Parties. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Definitions Annex annexed hereto and by this reference incorporated herein. Each of the Subsidiary Guarantors is a wholly owned Subsidiary of the Borrower and acknowledges that it will derive substantial benefit from the credit to be extended under the Second Priority Debt Documents. It is a condition precedent, among other conditions, to the effectiveness of the Second Priority Debt Documents that the Subsidiary Guarantors execute and deliver a Second Priority Subsidiary Guarantee Agreement in the form hereof. As consideration therefor and in order to induce the Second Priority Debt Parties to enter into the Second Priority Debt Documents, the Subsidiary Guarantors are willing to execute this Agreement. Accordingly, the parties hereto agree as follows: SECTION 1. Guarantee. Each Subsidiary Guarantor unconditionally guarantees, jointly with the other Subsidiary Guarantors and severally, as a primary obligor and not merely as a surety, the due and punctual payment of, and the due and punctual performance of, the Second Priority Debt Obligations, which shall include any Additional Senior Second Priority Debt Obligation, Additional Second Priority Debt Obligation, Replacement Senior Second Priority Debt Obligation or Replacement Second Priority Debt Obligation to the extent that such debt becomes Additional Senior Second Priority Debt, Additional Second Priority Debt, Replacement Senior Second Priority Debt or Replacement Second Priority Debt, respectively, pursuant to Section 10.12 of the Collateral Trust and Intercreditor Agreement. Each Subsidiary Guarantor agrees that the Second Priority Debt 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 Second Priority Debt Obligation. The parties acknowledge that Rite Aid Realty Corp. is a direct obligor of the Second Priority Debt Obligations represented by the Synthetic Lease Facility. Anything contained in this Agreement to the contrary notwithstanding, the obligations of each Subsidiary Guarantor hereunder shall be limited to a maximum aggregate amount equal to the greatest amount that would not render such Subsidiary Guarantor's obligations hereunder subject to avoidance under Section 548 of Title 11 of the United States Code or any comparable provisions of any applicable state law, after giving effect to all other liabilities of such Subsidiary Guarantor, contingent or otherwise, that are relevant under such laws (specifically excluding, however, any liabilities of such Subsidiary Guarantor (a) in respect of intercompany indebtedness to the Borrower or Affiliates of the Borrower to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Subsidiary Guarantor hereunder, and (b) under any Guarantee of the Second Priority Debt Obligations) and after giving effect as assets to the value of any rights to subrogation, contribution, reimbursement, indemnity or similar rights of such Subsidiary Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an equitable allocation among such Subsidiary Guarantor and other Affiliates of the Borrower of obligations arising under Guarantees by such parties (including the Second Priority Indemnity, Subrogation and Contribution Agreement). To the extent the provisions of this paragraph are applicable, any such reduction shall be applied to the obligations of such Subsidiary Guarantor hereunder before any reduction in the obligation of such Subsidiary Guarantor under the Senior Subsidiary Guarantee Agreement. SECTION 2. Obligations Not Waived. To the fullest extent permitted by applicable law, each Subsidiary Guarantor waives presentment to, demand of payment from and protest to the Borrower of any of the Second Priority Debt 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 Subsidiary Guarantor hereunder shall not be affected by (a) the failure of the Second Priority Collateral Trustee or any other Second Priority Debt Party to assert any claim or demand or to enforce or exercise any right or remedy against the Borrower or any other Subsidiary Guarantor under the provisions of the Second Priority Debt Documents 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 Second Priority Debt Document, any Guarantee or any other agreement, including with respect to any other Subsidiary Guarantor under this Agreement or (c) the failure to perfect any security interest in, or the release of, any of the security held by or on behalf of the Second Priority Collateral Trustee or any other Second Priority Debt Party. SECTION 3. Security. Each of the Subsidiary Guarantors authorizes the Second Priority Collateral Trustee and each of the other Second Priority Debt Parties, to (a) take and hold security for the payment of this Guarantee and the Second Priority Debt 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 Subsidiary Guarantors or other Obligors. SECTION 4. Guarantee of Payment. Each Subsidiary Guarantor 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 Second Priority Collateral Trustee or any other Second Priority Debt Party to any of the security held for payment of the Second Priority Debt Obligations or to any balance of any deposit account or credit on the books of the Second Priority Collateral Trustee or any other Second Priority Debt Party in favor of the Borrower, any other Obligor or any other Person. 2 SECTION 5. No Discharge or Diminishment of Guarantee. The obligations of each Subsidiary 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 Second Priority Debt Obligations), including any claim of waiver, release, surrender, alteration or compromise of any of the Senior 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 Second Priority Debt Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of the Second Priority Collateral Trustee or any other Second Priority Debt Party to assert any claim or demand or to enforce any remedy under the Second Priority Debt Documents, any other Second Priority Debt Document or any other agreement, by any waiver or modification of any provision of any thereof, by any default, failure or delay, wilful or otherwise, in the performance of the Second Priority Debt Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of any Subsidiary Guarantor or that would otherwise operate as a discharge of each Subsidiary Guarantor as a matter of law or equity (other than the indefeasible payment in full in cash of all the Second Priority Debt Obligations). SECTION 6. Defenses of Borrower Waived. To the fullest extent permitted by applicable law, each of the Subsidiary Guarantors waives any defense based on or arising out of any defense of the Borrower or the unenforceability of the Second Priority Debt Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower, other than the final and indefeasible payment in full in cash of the Second Priority Debt Obligations. The Second Priority Collateral Trustee and the other Second Priority Debt Parties may, at their election, foreclose on any security held by one or more of them by one or more judicial or nonjudicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Second Priority Debt Obligations, make any other accommodation with the Borrower or any other guarantor or exercise any other right or remedy available to them against the Borrower or any other guarantor, without affecting or impairing in any way the liability of any Subsidiary Guarantor hereunder except to the extent the Second Priority Debt have been fully, finally and indefeasibly paid in cash. Pursuant to applicable law, each of the Subsidiary Guarantors waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Subsidiary Guarantor against the Borrower or any other Subsidiary Guarantor or guarantor, as the case may be, or any security. SECTION 7. Agreement to Pay; Subordination. In furtherance of the foregoing and not in limitation of any other right that the Second Priority Collateral Trustee or any other Second Priority Debt Party has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the failure of the Borrower or any other Obligor to pay any Senior Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Subsidiary Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the Second Priority Collateral Trustee or such other Second Priority Debt Party as designated thereby in cash the amount of such unpaid Second Priority Debt Obligations. Upon payment by any Subsidiary Guarantor of any sums to the Second Priority Collateral Trustee or 3 any Second Priority Debt Party as provided above, all rights of such Subsidiary Guarantor against the Borrower arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise, including pursuant to the Second Priority Indemnity, Subrogation and Contribution Agreement, shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full in cash of all the Second Priority Debt Obligations. In addition, any indebtedness of the Borrower now or hereafter held by any Subsidiary Guarantor is hereby subordinated in right of payment to the prior payment in full of the Second Priority Debt Obligations. If any amount shall erroneously be paid to any Subsidiary Guarantor on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such indebtedness of the Borrower, such amount shall be held in trust for the benefit of the Second Priority Debt Parties and shall forthwith be paid to the Second Priority Collateral Trustee to be credited against the payment of the Second Priority Debt Obligations, whether matured or unmatured, in accordance with the terms of the Second Priority Debt Documents and the Collateral Trust and Intercreditor Agreement. SECTION 8. Subordination. (a) Second Priority Guarantee Obligations Subordinated to Senior Guarantee Obligations. The obligations of each Subsidiary Guarantor under this Agreement (the "Second Priority Guarantee Obligations" of such Subsidiary Guarantor) shall be subordinated, to the extent and in the manner provided in this Section 8, to the prior payment by such Subsidiary Guarantor of its obligations under the Senior Subsidiary Guarantee Agreement (the "Senior Guarantee Obligations" of such Subsidiary Guarantor); provided, however, that the obligations of Rite Aid Realty Corp. under the Synthetic Lease Facility shall not be subordinated to the Senior Guarantee Obligations. This Section 8 will constitute a continuing offer to all persons who, in reliance upon its provisions, become holders of, or continue to hold, Senior Secured Obligations, and such holders made obligees under this Section and they and/or each of them may enforce it provisions. (b) No Payment of Second Priority Guarantee Obligations in Certain Circumstances. (i) No payment will be made on account of the Second Priority Guarantee Obligations of any Subsidiary Guarantor (other than payment obligations of Rite Aid Realty Corp. under the Synthetic Lease Facility) until the Senior Obligation Payment Date. (ii) If any payment or distribution of assets, of any Subsidiary Guarantor is received by any Second Priority Debt Party in respect of the Second Priority Guarantee Obligations of such Subsidiary Guarantor at a time when that payment of distribution should not have been made as a result of clause (i) above, such payment or distribution will be received and held in trust for and will be paid over to the Senior Debt Parties in respect of Senior Guarantee Obligations of such Subsidiary Guarantor which are due and payable and remain unpaid or unprovided for in cash or cash equivalents until all such Senior Guarantee Obligations have been paid in full or provided for in cash or cash equivalents (as allocated by the Senior Collateral Agent), after giving effect to any concurrent payment or distribution or provision therefor to the Senior Secured Parties. 4 (c) Second Priority Guarantee Obligations Subordinated to Prior Payment of all Senior Guarantee Obligations on Dissolution, Liquidation or Reorganization. Upon any distribution of assets of any Subsidiary Guarantor upon dissolution, winding up, liquidation or reorganization of such Subsidiary Guarantor (whether in bankruptcy, insolvency, receivership of similar proceeding related to such Subsidiary Guarantor or its property or upon an assignment for the benefit of creditors or otherwise); (i) the Senior Secured Parties shall be entitled to receive payment in full in cash or cash equivalents of all amounts then due in respect of the Senior Guarantee Obligations of such Subsidiary Guarantor (including all such obligations in respect of interest accruing subsequent to the commencement of a bankruptcy proceeding in respect of either the Borrower or such Subsidiary Guarantor, whether or not allowed or allowable as a claim in such bankruptcy proceeding) before the Second Priority Debt Parties are entitled to receive any direct or indirect payment or distribution on account of the Second Priority Guarantee Obligations of such Subsidiary Guarantor; (ii) any payment or distribution of cash, properties or securities of any kind or character to which the Second Priority Debt Parties would be entitled in respect of the Second Priority Guarantee Obligations of such Subsidiary Guarantor except for the provisions of this Section 8 will be paid by the liquidating trustee or agent or other person making such a payment or distribution directly to the Senior Secured Parties or their representatives to the extent necessary to make payment in full in or provision for payment in full in cash or cash equivalents of all Senior Guarantee Obligations of such Subsidiary Guarantor remaining unpaid, after giving effect to any concurrent payment or distribution to the Senior Secured Parties; and (iii) if, notwithstanding the foregoing, any payment or distribution of any kind or character, whether in cash, property or securities is received by the Second Priority Debt Parties on account of the Second Priority Guarantee Obligations of any Subsidiary Guarantor before all Senior Guarantee Obligations of such Subsidiary Guarantor are paid in full in cash or cash equivalents, such payment or distribution will be received in trust and held for and will be paid over to the Senior Secured Parties or their representatives for application to the payment of such Senior Guarantee Obligations of such Subsidiary Guarantor until all such Senior Guarantee Obligations of such Subsidiary Guarantor have been paid in full or provided for in cash or cash equivalents after giving effect to any concurrent payment or distribution to the Senior Secured Parties. (d) For purposes of this Section 8, the words "cash, property or securities" shall (so long as the effect of this paragraph (d) is not to cause the Second Priority Guarantee Obligations of any Subsidiary Guarantor to be treated in any bankruptcy proceedings as part of the same class of claims as the Senior Guarantee Obligations of such Subsidiary Guarantor or any class of claims on a parity with or senior to the Senior Guarantee Obligations of any Subsidiary Guarantor for any payment or distribution) not be deemed to include any payment or distribution of securities (subordinated at least to the same extent as the Second Priority Guarantee Obligations of such Subsidiary Guarantor to the payment of all Senior Guarantee Obligations of such Subsidiary Guarantor then outstanding) of such Subsidiary Guarantor or any other corporation authorized by 5 an order or decree giving effect, and stating in such order or decree that effect has been given, to subordination provided for in this Section 8 and made by a court of competent jurisdiction in a bankruptcy proceeding; provided that (i) the Senior Guarantee Obligations of such Subsidiary Guarantor are assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the Senior Secured Parties are not, without their consent, altered by such bankruptcy proceeding. (e) Second Priority Debt Parties to be Subrogated to Rights of Senior Secured Parties. Following the payment in full in cash or cash equivalents or provision for payment in full in cash or cash equivalents of all Senior Guarantee Obligations of any Subsidiary Guarantor, the Second Priority Debt Parties will be subrogated to the rights of the Senior Secured Parties to receive payments or distributions of assets in respect of the Senior Subsidiary Guarantee Obligations of such Subsidiary Guarantor until all amounts owing in respect of the Second Priority Guarantee Obligations of such Subsidiary Guarantor have been pay in full, and for the purpose of such subrogation no such payments or distributions to the Senior Secured Parties by or on behalf of such Subsidiary Guarantor or by or on behalf of the Second Priority Debt Parties by virtue of this Section which otherwise would have been made to the Second Priority Debt Parties will, as between such Subsidiary Guarantor and the Second Priority Debt Parties, be deemed to be payment by such Subsidiary Guarantor to or on account of its Senior Guarantee Obligations, it being understood that the provisions of this Section are and are intended solely for the purpose of defining the relative rights of the Second Priority Debt Parties, on the one hand, and the Senior Secured Parties, on the other hand. (f) Obligations of the Subsidiary Guarantors Unconditional. Nothing contained in this Section 8 or elsewhere in this Agreement is intended to or will impair, as between the Subsidiary Guarantors and the Second Priority Debt Parties, the obligations of the Subsidiary Guarantors, which are absolute and unconditional, to pay to the Second Priority Debt Parties the Second Priority Guarantee Obligations as when they become due and payable in accordance with their terms, or is intended to or will affect the relative rights of the Second Priority Debt Parties and creditors of the Subsidiary Guarantors other than the Senior Secured Parties, nor will anything herein or therein prevent any Second Priority Debt Party from exercising all remedies otherwise permitted by applicable law upon default under the Second Priority Debt Documents, subject to the rights of the Senior Secured Parties, if any, under this Section, and under the Collateral Trust and Intercreditor Agreement. (g) Subordination Rights not Impaired by Acts or Omissions of the Subsidiary Guarantors or Senior Secured Parties. No right of any present or future Senior Secured Parties to enforce subordination as provided herein will at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Subsidiary Guarantor or by any act or failure to act by any such Senior Secured Parties, or by any noncompliance by any Subsidiary Guarantor with the terms of this Agreement, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. SECTION 9. Information. Each of the Subsidiary Guarantors assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all 6 other circumstances bearing upon the risk of nonpayment of the Senior Obligations and the nature, scope and extent of the risks that such Subsidiary Guarantor assumes and incurs hereunder, and agrees that none of the Second Priority Collateral Trustee or the other Second Priority Debt Parties will have any duty to advise any of the Subsidiary Guarantors of information known to it or any of them regarding such circumstances or risks. SECTION 10. Representations and Warranties. Each of the Subsidiary Guarantors represents and warrants as to itself that all representations and warranties relating to it contained in the Second Priority Debt Documents are true and correct. SECTION 11. Termination. The Guarantees made hereunder (a) shall terminate when all the Second Priority Debt Obligations have been indefeasibly paid in full and (b) shall continue to be effective or be reinstated, as the case may be, if at any time payment; or any part thereof, of any Second Priority Debt Obligations is rescinded or must otherwise be restored by any Second Priority Debt Party or any Subsidiary Guarantor upon the bankruptcy or reorganization of the Borrower, any Subsidiary Guarantor or otherwise. SECTION 12. Binding Effect; Several 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 Subsidiary 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 Subsidiary Guarantor when a counterpart hereof executed on behalf of such Subsidiary Guarantor shall have been delivered to the Second Priority Collateral Trustee, and a counterpart hereof shall have been executed on behalf of the Second Priority Collateral Trustee, and thereafter shall be binding upon such Subsidiary Guarantor and the Second Priority Collateral Trustee and their respective successors and assigns, and shall inure to the benefit of such Subsidiary Guarantor, the Second Priority Collateral Trustee and the other Second Priority Debt Parties, and their respective successors and assigns, except that no Subsidiary Guarantor shall have the right to assign its rights or obligations hereunder or any interest herein (and any such attempted assignment shall be void). If all of the capital stock of a Subsidiary Guarantor is sold, transferred or otherwise disposed of pursuant to a transaction permitted by the Second Priority Debt Documents, such Subsidiary Guarantor shall be released from its obligations under this Agreement without further action. This Agreement shall be construed as a separate agreement with respect to each Subsidiary Guarantor and may be amended, modified, supplemented, waived or released with respect to any Subsidiary Guarantor without the approval of any other Subsidiary Guarantor and without affecting the obligations of any other Subsidiary Guarantor hereunder. SECTION 13. Waivers; Amendment. (a) No failure or delay of the Second Priority Collateral Trustee 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 Second Priority Collateral Trustee hereunder and of the other Second Priority Debt Parties under the 7 other Second Priority Debt Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Subsidiary Guarantor therefrom shall in any event be effective unless the same shall be permitted by clause (b), 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 Subsidiary Guarantor in any case shall entitle such Subsidiary Guarantor to any other or further notice or demand in similar or other circumstances. (b) None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by each Subsidiary Guarantor affected thereby and by the Second Priority Collateral Trustee with the written consent of the Second Priority Instructing Group, provided that (i) any provision of this Agreement may be waived by the Second Priority Instructing Group pursuant to a letter or agreement executed by the Second Priority Collateral Trustee or by telecopy transmission from the Second Priority Collateral Trustee, in either case with the prior written consent of the Second Priority Instructing Group and (ii) any amendment, waiver, supplement or other modification which by its terms adversely affects the rights of the Second Priority Debt Parties under a particular Second Priority Facility in a manner materially different from its effect on the other Second Priority Facilities shall only be effective with the consent of the Second Priority Representative for each Second Priority Facility so adversely affected. SECTION 14. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 15. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Second Priority Collateral Trustee, at its address or facsimile number set forth on the signature pages hereof, (y) in the case of each Subsidiary Guarantor, in care of the Borrower, at the address of the Borrower or facsimile number set forth on the signature pages of the Collateral Trust and Intercreditor Agreement or (z) in the case of any party, such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Second Priority Collateral Trustee and the Borrower. Each such notice, request or other communication shall be effective if given by facsimile, when such communication is transmitted to the facsimile number specified in this Section and confirmation of receipt is received, if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or if given by any other means, when delivered at the address specified in this Section. SECTION 16. Survival of Agreement; Severability. (a) All covenants, agreements, representations and warranties made by the Subsidiary Guarantors herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Second Priority Debt Document shall be considered to have been relied upon by the Second Priority Collateral Trustee and the other Second Priority Debt Parties and shall survive the effectiveness of the Second Priority Debt Documents regardless of any investigation made by 8 the Second Priority Debt 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 under any Second Priority Debt Documents or any other fee or amount payable under this Agreement or any other Second Priority Debt Document is outstanding and unpaid. (b) In the event any one or more of the provisions contained in this Agreement or in any other Second Priority Debt 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 17. Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 12. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Agreement. SECTION 18. Rules of Interpretation. References in this Agreement to "Articles", "Sections", "Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to this Agreement unless otherwise specifically provided. Any defined terms may, unless the context otherwise requires, be used in the singular or plural depending on the reference. "Include" or "includes" shall be deemed to be followed by "without limitation" whether or not they are in fact followed by such words or words of like import. "Writing", "written" and comparable terms refer to printing, typing and other means of reproducing words in a visible form. References to any agreement or contract are to such agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. References to any Person include the successors and assigns of such Person. References "from" or "through" any date mean, unless otherwise specified, "from and including" or "through and including", respectively. SECTION 19. Jurisdiction; Consent to Service of Process. (a) Each Subsidiary 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 Second Priority Debt 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 9 right that the Second Priority Collateral Trustee or any other Second Priority Debt Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Second Priority Debt Documents against any Subsidiary Guarantor or its properties in the courts of any jurisdiction. (b) Each Subsidiary 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 Second Priority Debt 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 20. 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 OR THE OTHER SENIOR LOAN DOCUMENTS. 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 AND THE OTHER SENIOR LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 20. SECTION 21. Additional Subsidiary Guarantors. Pursuant to the Second Priority Debt Documents, certain Domestic Subsidiaries of the Borrower that were not in existence on the date of the Second Priority Debt Documents are required to enter into this Agreement as a Subsidiary Guarantor upon becoming a Subsidiary. Upon execution and delivery after the date hereof by the Second Priority Collateral Trustee and such a Subsidiary of an instrument in the form of Annex 1, such Subsidiary shall become a Subsidiary Guarantor hereunder with the same force and effect as if originally named as a Subsidiary Guarantor herein. The execution and delivery of any instrument adding an additional Subsidiary Guarantor as a party to this Agreement shall not require the consent of any other Subsidiary Guarantor hereunder. The rights and obligations of each Subsidiary Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Guarantor as a party to this Agreement. SECTION 22. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Second Priority Debt Party is hereby authorized at any time and from time to 10 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 Debt at any time owing by such Second Priority Debt Party to or for the credit or the account of any Subsidiary Guarantor against any or all the obligations of such Subsidiary Guarantor now or hereafter existing under this Agreement and the other Second Priority Debt Documents held by such Second Priority Debt Party, irrespective of whether or not such Second Priority Debt Party shall have made any demand under this Agreement or any other Second Priority Debt Document and although such obligations may be unmatured and regardless of the adequacy of any Collateral. The rights of each Second Priority Debt Party under this Section 22 are in addition to other rights and remedies (including other rights of setoff) which such Second Priority Debt Party may have. SECTION 23. Collateral Trust and Intercreditor Agreement. Each of the parties to this Agreement acknowledges and agrees, for the benefit of each other party to the Collateral Trust and Intercreditor Agreement, that notwithstanding anything herein to the contrary, the terms of this Agreement, and the rights and remedies of the parties hereto (except as otherwise provided with regards to the Synthetic Lease Obligations as referenced in Section 8), are subordinate to the interests of the Senior Secured Parties and subject to the Collateral Trust and Intercreditor Agreement. 11 IN WITNESS WHEREOF, the parties hereto have duly executed this Second Priority Subsidiary Guarantee Agreement as of the day and year first above written. WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee, By________________________________ Name: Title: EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE I HERETO, as Grantors, By________________________________ Name: Title: THRIFTY PAYLESS, INC., as Grantor, By________________________________ Name: Title: 12 Schedule I to the Second Priority Guarantee Agreement Subsidiary Guarantors 112 Burleigh Avenue Norfolk, LLC 1515 West State Street Boise, Idaho, LLC 1525 Cortyou Road - Brooklyn Inc. 1740 Associates, LLC 3581 Carter Hill Road - Montgomery Corp. 4042 Warrensville Center Road - Warrensville Ohio, Inc. 5277 Associates, Inc. 537 Elm Street Corporation 5600 Superior Properties, Inc. 657-659 Broadway St. Corp. 764 South Broadway- Geneva, Ohio, LLC Ann & Government Streets- Mobile, Alabama, LLC Apex Drug Stores, Inc. Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC Broadview and Wallings -Broadview Heights Ohio, Inc. Central Avenue and Main Street- Petal, MS, LLC Dominion Action Four Corporation Dominion Action One Corporation Dominion Action Three Corporation Dominion Action Two Corporation Dominion Drug Stores Corporation Drug Fair of PA, Inc. Drug Fair, Inc. Eagle Managed Care Corp. Eighth and Water Streets- Ulrichsville, Ohio, LLC England Street-Asheland Corporation GDF, Inc. Gettysburg and Hoover-Dayton, Ohio, LLC Gratiot & Center-Saginaw Township, Michigan, LLC Harco, Inc. Jaime Nathan Travis Corporation K&B Alabama Corporation K&B Florida Corporation K&B Louisiana Corporation K&B Mississippi Corporation K&B Services, Inc. K&B Tennessee Corporation K&B Texas Corporation K&B Trainees, Inc. K&B, Incorporated Katz & Besthoff, Inc. Keystone Centers, Inc. Lakehurst and Broadway Corporation Mayfield & Chillicothe Roads- Chesterland, LLC Munson & Andrews LLC Name Rite, LLC Northline & Dix- Toledo- Southgate, LLC Ocean Acquisition Corporation P.L.D. Enterprises, Inc. Patton Drive and Navy Boulevard Property Corporation Paw Paw Lake Road & Paw Paw Avenue-Coloma, Michigan, LLC PDS-1 Michigan, Inc. Perry Distributors, Inc. Perry Drug Stores, Inc. PL Xpress, Inc. Portfolio Medical Services, Inc. Rack Rite Distributors, Inc. Ram-Utica, Inc. RDS Detroit, Inc. Reads, Inc. Rite Aid Drug Palace, Inc. Rite Aid Hdqtrs. Corp. Rite Aid of Alabama, Inc. Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Florida, Inc. Rite Aid of Georgia, Inc. Rite Aid of Illinois, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Massachusetts, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of North Carolina, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. Rite Aid of South Carolina, Inc. Rite Aid of Tennessee, Inc. Rite Aid of Vermont, Inc. 2 Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Rite Aid Realty Corp. Rite Aid Rome Distribution Center, Inc. Rite Aid Transport, Inc. Rite Aid Venturer #1, Inc. Rite Fund, Inc. Rite Investments Corporation RX Choice, Inc. Script South Seven Mile and Evergreen- Detroit, LLC Silver Springs Road-Baltimore, Maryland/One, LLC Silver Springs Road-Baltimore, Maryland/Two, LLC Sophie One Corp. State & Fortification Streets-Jackson, Mississippi, LLC State Street and Hill Road-Gerard, Ohio, LLC Super Distributors, Inc. Super Ice Cream Suppliers, Inc. Super Laboratories, Inc. Super Pharmacy Network, Inc. Super Tobacco Distributors, Inc The Lane Drug Company The Muir Company Thrifty Corporation Thrifty Payless, Inc Thrifty Wilshire, Inc. Tyler and Sanders Roads, Birmingham-Alabama, LLC Virginia Corporation W.R.A.C., Inc. Fairground, LLC Laverdiere's Enterprises, Inc. Leader Drugs, Inc. 3 Annex 1 to the Second Priority Guarantee Agreement SUPPLEMENT NO. dated as of , to the Second Priority Guarantee Agreement dated as of June 27, 2001 (as the same may be amended, supplemented or otherwise modified from time to time, the "Second Priority Guarantee Agreement"), among each of the subsidiaries listed on Schedule I thereto (each such subsidiary individually, a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors") of RITE AID CORPORATION, a Delaware corporation (the "Borrower"), and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral agent (the "Second Priority Collateral Trustee") for the Second Priority Debt Parties. A. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Second Priority Guarantee Agreement. B. In accordance with Section 21 of the Second Priority Subsidiary Guarantee Agreement, the Domestic Subsidiary by its signature below becomes a Subsidiary Guarantor (the "New Subsidiary Guarantor") under the Second Priority Subsidiary Guarantee Agreement with the same force and effect as if originally named therein as a Subsidiary Guarantor and the New Subsidiary Guarantor hereby (a) agrees to all the terms and provisions of the Second Priority Subsidiary Guarantee Agreement applicable to it as a Subsidiary Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Subsidiary Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a "Subsidiary Guarantor" in the Second Priority Subsidiary Guarantee Agreement shall be deemed to include the New Subsidiary Guarantor. The Second Priority Subsidiary Guarantee Agreement is hereby incorporated herein by reference. Accordingly, the Second Priority Collateral Trustee and the New Subsidiary Guarantor agree as follows: SECTION 1. In accordance with Section 21 of the Second Priority Guarantee Agreement, the New Subsidiary Guarantor by its signature below becomes a Subsidiary Guarantor under the Second Priority Guarantee Agreement with the same force and effect as if originally named therein as a Subsidiary Guarantor and the New Subsidiary Guarantor hereby (a) agrees to all the terms and provisions of the Second Priority Guarantee Agreement applicable to it as a Subsidiary Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Subsidiary Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a "Subsidiary Guarantor" in the Second Priority Guarantee Agreement shall be deemed to include the New Subsidiary Guarantor. The Second Priority Guarantee Agreement is hereby incorporated herein by reference. SECTION 2. The New Subsidiary Guarantor represents and warrants to the Second Priority Collateral Trustee and the other Second Priority Debt 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. SECTION 3. This Supplement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Second Priority Collateral Trustee shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Subsidiary Guarantor and the Second Priority Collateral Trustee. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Supplement. SECTION 4. Except as expressly supplemented hereby, the Second Priority 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, the validity, legality and enforceability of the remaining provisions contained herein and in the Second Priority Guarantee Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision hereof in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). 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 Second Priority Guarantee Agreement. All communications and notices hereunder to the New Subsidiary Guarantor shall be given to it at the address set forth under its signature below, with a copy to the Borrower. SECTION 8. The New Subsidiary Guarantor agrees to reimburse the Second Priority Collateral Trustee for its out-of-pocket expenses in connection with this Supplement, including the fees, disbursements and other charges of counsel for the Second Priority Collateral Trustee. IN WITNESS WHEREOF, the New Subsidiary Guarantor and the Second Priority Collateral Trustee have duly executed this Supplement to the Second Priority Guarantee Agreement as of the day and year first above written. 2 [NAME OF NEW SUBSIDIARY GUARANTOR], By________________________________ Name: Title: WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee, By________________________________ Name: Title: 3 Annex 2 to the Senior Subsidiary Guarantee Agreement DEFINITIONS ANNEX EX-10 15 exh10-35.txt EXHIBIT 10.35 EXECUTION COPY SECOND PRIORITY SUBSIDIARY SECURITY AGREEMENT SECOND PRIORITY SUBSIDIARY SECURITY AGREEMENT, dated as of June 27, 2001, made by the SUBSIDIARY GUARANTORS identified on the signature pages hereto and any other person that becomes a Subsidiary Guarantor pursuant to the Senior Credit Facility (as such term is defined below) (the "Grantors"), in favor of WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral trustee (in such capacity, the "Second Priority Collateral Trustee") for the Second Priority Debt Parties. Each of the Subsidiary Guarantors has agreed to guarantee, among other things, all the obligations of the Borrower under the Second Priority Debt Documents. It is a condition precedent, among other conditions, to the effectiveness of the Second Priority Debt Documents that the Grantors execute and deliver an agreement in the form hereof to secure the Second Priority Debt Obligations, which shall include any Additional Senior Second Priority Debt Obligation, Additional Second Priority Debt Obligation, Replacement Senior Second Priority Debt Obligation or Replacement Second Priority Debt Obligation to the extent that such debt is Additional Senior Second Priority Debt, Additional Second Priority Debt, Replacement Senior Second Priority Debt or Replacement Second Priority Debt, respectively, pursuant to Section 10.12 of the Collateral Trust and Intercreditor Agreement. Accordingly, the Grantors and the Second Priority Collateral Trustee, on behalf of itself and each Second Priority Debt Party (and each of their respective successors or assigns), hereby agree as follows: SECTION 1. Defined Terms. SECTION 1.01. Definitions. (a) Unless otherwise defined herein, terms used herein shall have the meanings given in the Definitions Annex annexed hereto, or if not defined therein as defined in or by reference to the Second Priority Debt Documents. All terms defined in the New York UCC (as defined herein) and not defined in this Agreement have the meanings specified therein. (b) The following terms shall have the following meanings: "Account Debtor" means any person who is or may become obligated to any Grantor with respect to or on account of an Account. "Accounts" includes the right to payment of a monetary obligation, whether or not earned by performance, (i) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (ii) for services rendered or to be rendered, (iii) for a policy of insurance issued or to be issued, (iv) for a secondary obligation incurred or to be incurred, (v) for energy provided or to be provided, (vi) for the use or hire of a vessel under a charter or other contract, (vii) arising out of the use of a credit or charge card or information contained on or for use with the card, or (viii) as winnings in a lottery or other game of chance operated or sponsored by a State, governmental unit of a State, or person licensed or authorized to operate the game by a State or governmental unit of a State. The term includes health-care-insurance receivables. The term does not include (i) rights to payment evidenced by chattel paper or an instrument, (ii) commercial tort claims, (iii) deposit accounts, (iv) investment property, (v) letter-of-credit rights or letters of credit, or (vi) rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card. "Accounts Receivable" means with respect to each Grantor, all right, title and interest of such Grantor to Accounts and all of its right, title and interest in any returned goods, together with all rights, titles, securities and guaranties 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 due or become due, whether now or hereafter arising in the future. "Agreement" means this Second Priority Subsidiary Security Agreement, as the same may be amended, modified or otherwise supplemented from time to time. "Contracts" means with respect to each Grantor, all rights of such Grantor under all contracts and agreements to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same may from time to time be amended, supplemented or otherwise modified, including, without limitation, (a) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of such Grantor to damages arising out of, or for, breach or default in respect thereof and (c) all rights of such Grantor to exercise all remedies thereunder. "Copyright License" means any written agreement, now or hereafter in effect, granting any right to any third party under any copyright now or hereafter owned by any Grantor or that such Grantor otherwise has the right to license, or granting any right to any Grantor under any copyright now or hereafter owned by any third party, and all rights of such Grantor under any such agreement. 2 "Copyrights" means all of the following now owned or hereafter acquired by any Grantor: (a) all copyright rights in any work subject to the copyright laws of the United States or any other country, whether as author, assignee, transferee or otherwise, and (b) all registrations and applications for registration of any such copyright in the United States or any other country, including registrations, recordings, supplemental registrations and pending applications for registration in the United States Copyright Office, including those listed on Schedule 4. "Deposit Account" means, collectively, (a) the Lockbox Account and (b) the Government Lockbox Account, as well as any demand, time, savings, passbook, or similar account maintained with a bank. The term does not include investment property or accounts evidenced by an instrument. "Documents" means with respect to each Grantor, all Instruments, files, records, ledger sheets, and documents covering or relating to any of the Accounts, General Intangibles, Inventory or Proceeds. "Equity Interests" means shares of capital stock, partnership, joint venture, member or limited liability or unlimited liability company interests, beneficial interests in a trust or other equity ownership interests in a Person of whatever nature and rights, warranties or options to acquire the foregoing. "Event of Default" means an "Event of Default" as defined in any Second Priority Debt Document. "General Intangibles" means all choses in action and causes of action and all general intangibles of any Grantor of every kind and nature (other than Accounts) now owned or hereafter acquired by any Grantor, including corporate or other business records, indemnification claims, contract rights (including rights under leases, whether entered into as lessor or lessee, Hedging 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 of any of the Accounts. "Government Lockbox Account" means the deposit account and corresponding lockbox established at Mellon Bank and maintained with a Government Lockbox Account Bank, Account No.[1037294]. "Indemnitee" means the Second Priority Debt Parties and their respective officers, directors, trustees, affiliates and controlling persons. "Instrument" means an Instrument as defined in the Uniform Commercial Code, insofar as such Instruments evidence Intercompany Advances, Accounts Receivable or proceeds of Inventory. "Intellectual Property" means all inventions, designs, Patents, Copyrights, Licenses, Trademarks, trade secrets, confidential or proprietary technical and business information, 3 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. "Intercompany Advances" means any advances or open accounts owing by the Borrower or any Subsidiary of the Borrower to any Grantor. "Inventory" means with respect to each Grantor, all right, title and interest of such Grantor in and to goods intended for sale or lease by such Grantor, or consumed in such Grantor's business (including, without limitation, all operating parts and supplies), together with all raw materials and finished goods, whether now owned or hereafter acquired or arising. "License" means any Patent License, Trademark License, Copyright License or other license or sublicense to which any Grantor is a party, including those listed on Schedule 4 (other than those license agreements in existence on the date hereof and listed on Schedule 4 and those license agreements entered into after the date hereof, which by their terms prohibit assignment or a grant of a security interest by such Grantor as licensee thereunder). "New York UCC" means the Uniform Commercial Code as from time to time in effect in the State of New York. "Patent License" means any written agreement, now or hereafter in effect, granting to any third party any right to make, use or sell any invention on which a patent, now or hereafter owned by any Grantor or that any Grantor otherwise has the right to license, is in existence, or granting to any Grantor any right to make, use or sell any invention on which a patent, now or hereafter owned by any third party, is in existence, and all rights of any Grantor under any such agreement. "Patents" means all of the following now owned or hereafter acquired by any Grantor: (a) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and pending applications in the United States Patent and Trademark Office or any similar offices in any other country, including those listed on Schedule I, and (b) all reissues, continuations, divisions, continuations-in-part, renewals or extensions thereof, and the inventions disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein. "Prescription Files" means, as to any Grantor, all right, title and interest of such Grantor in and to all prescription files maintained by it or on its behalf, including without limitation all patient profiles, customer lists, customer information and other records of prescriptions filled by it, in whatever form and wherever maintained by it or on its behalf, and all goodwill and other intangible assets arising from the maintenance of such records and the possession of information contained therein. 4 "Proceeds" means all "proceeds" as such term is defined in Section 9-102 of the New York UCC. "Second Priority Collateral" is defined in Section 2 of this Agreement. "Second Priority Collateral Account" means any collateral account established by the Second Priority Collateral Trustee as provided in Section 5.03 or Section 8.02. "Trademark License" means any written agreement, now or hereafter in effect, granting to any third party any right to use any trademark now or hereafter owned by any Grantor or that any Grantor otherwise has the right to license, or granting to any Grantor any right to use any trademark now or hereafter owned by any third party, and all rights of any Grantor under any such agreement. "Trademarks" means all of the following now owned or hereafter acquired by any Grantor: (a) all trademarks, service marks, trade names, corporate names, company names, business names, fictitious business names, trade styles, trade dress, 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 registration and recording applications filed in connection therewith, including registrations and registration applications in the United States Patent and Trademark Office or any similar offices in any State of the United States or any other country or any political subdivision thereof, and all extensions or renewals thereof, including those listed on Schedule I, (b) all goodwill associated therewith or symbolized thereby and (c) all other assets, rights and interests that uniquely reflect or embody such goodwill. SECTION 1.2. Other Definitional Provisions. (a) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. Grant of Security Interest. As security for the payment or performance, as the case may be, in full of the obligations under the Second Priority Debt Documents, each Grantor hereby assigns and pledges to the Second Priority Collateral Trustee, its successors and assigns, for the ratable benefit of the Second Priority Debt Parties, and hereby grants to the Second Priority Collateral Trustee, its successors and assigns, for the ratable benefit of the Second Priority Debt Parties, a security interest, in all right, title or interest now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the "Second Priority Collateral"): (a) all Accounts Receivable and Chattel Paper; 5 (b) the Cash Management Accounts, the Deposit Accounts and the cash on deposit therein; (c) all Contracts; (d) all Documents; (e) all General Intangibles; (f) all Instruments; (g) all Intellectual Property; (h) all Inventory; (i) all Prescription Files; (j) all books and records pertaining to any and all of the foregoing and item (k) herein; and (k) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. Nothing contained in this Section 2 is intended to limit any Grantor's rights to create Permitted Liens (as defined below). Second Priority Collateral shall not include any property specified in Section 2(g) above if the granting of a security interest therein would jeopardize the Grantor's rights in any pending intent-to-use applications for Federal Trademark registration. Each Grantor hereby irrevocably authorizes the Second Priority Collateral Trustee at any time and from time to time to file in any Uniform Commercial Code jurisdiction any initial financing statements (including fixture filings) and amendments thereto that contain the information required by Article 9 of the Uniform Commercial Code of each applicable jurisdiction for the filing of any financing statement or amendment, including (a) whether the Grantor is an organization, the type of organization and any organizational identification number issued to the Grantor and (b) in the case of a financing statement filed as a fixture filing or covering Second Priority Collateral constituting minerals or the like to be extracted or timber to be cut, a sufficient description of the real property to which such Second Priority Collateral relates. The Grantor agrees to provide such information to the Second Priority Collateral Trustee promptly upon request. In addition, each Grantor hereby authorizes and agrees that such financing statements may describe the Second Priority Collateral Trustee in the same manner as described herein or may contain an indication or description of collateral that describes such property in any other manner as the Second Priority Collateral Trustee may determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of the security interest in the Second Priority Collateral granted to the Second Priority Collateral Trustee herein, including, without limitation, describing such property as "all assets" or "all personal property." 6 Each Grantor also ratifies its authorization for the Second Priority Collateral Trustee to file in any Uniform Commercial Code jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof. The Second Priority Collateral Trustee is further authorized to file filings with the United States Patent and Trademark Office or United States Copyright Office (or any successor office or any similar office in any other country) or other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the second priority security interest granted by each Grantor, without the signature of any Grantor, and naming any Grantor or the Grantors as debtors and the Second Priority Collateral Trustee as secured party. Such security interests are granted as security only and shall not subject the Second Priority Collateral Trustee nor any Second Priority Debt Party to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of the Second Priority Collateral. SECTION 3. Representations and Warranties. Each Grantor hereby represents and warrants, as to itself and the Second Priority Collateral in which the security interest is created hereunder, that: SECTION 3.01. Title; No Other Liens. Except for the security interest granted to the Second Priority Collateral Trustee for the ratable benefit of the Second Priority Debt Parties pursuant to this Agreement and the other Liens permitted to exist pursuant to the Second Priority Debt Documents (the "Permitted Liens"), each Grantor owns each item of the Second Priority Collateral free and clear of any and all Liens or claims of others (or arrangements reasonably satisfactory to the Second Priority Collateral Trustee have been made for the timely release or discharge of such Liens). No security agreement, financing statement or other public notice with respect to all or any part of such Second Priority Collateral is on file or of record in any public office, except such as have been filed or will be filed, pursuant to this Agreement, in favor of the Second Priority Collateral Trustee, for the ratable benefit of the Second Priority Debt Parties, or in respect of Permitted Liens (or arrangements reasonably satisfactory to the Second Priority Collateral Trustee have been made for the timely termination of such agreement or financing statement). Further, no Grantor has intentionally entered into any contract, lease or license in anticipation of this Agreement, which by its terms, validly prohibits the granting of a security interest herein. SECTION 3.02. Enforceable Obligation; Perfected, First Priority Security Interests. This Agreement constitutes a legal, valid and binding obligation of each Grantor, enforceable against such Grantor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), and the security interests granted pursuant to this Agreement (a) upon completion of the filings and 7 other actions specified in Schedule 1 hereto (or in the case of Instruments, delivery to the Second Priority Collateral Trustee or its designee) shall constitute fully perfected security interests in the Second Priority Collateral in favor of the Second Priority Collateral Trustee for the ratable benefit of the Second Priority Debt Parties, and (b) are prior and superior in right to all other Liens (other than Permitted Liens, to the extent that such Permitted Liens are expressly permitted by the Second Priority Debt Documents to have priority) on the Second Priority Collateral in existence on the date hereof. SECTION 3.03. Inventory. The Inventory owned by such Grantor are kept at the locations listed in Schedule 2 hereto, which shall be updated from time to time in accordance with Section 4.05 of this Agreement, or at such other locations as shall be permitted by Section 4.04. SECTION 3.04. Chief Executive Office; Jurisdiction of Incorporation. As of the Closing Date, each Grantor's chief executive office, principal place of business and jurisdiction of incorporation is located at the locations listed in Schedule 10 hereto. SECTION 3.05. Farm Products. None of the Second Priority Collateral constitutes, or is the Proceeds of, Farm Products (as such term is defined in the Uniform Commercial Code). SECTION 3.06. Intellectual Property. (a) Schedule 4 lists all Intellectual Property owned (and registered with the U.S. Copyright Office or the U.S. Patent and Trademark Office) or licensed by such Grantor in its own name on the date hereof. (b) On the date hereof, based on information known, or reasonably available to such Grantor, all Intellectual Property material to the conduct of such Grantor's business is valid, subsisting, unexpired and enforceable, has not been abandoned and does not infringe the intellectual property rights of any other person. (c) Except as set forth in Schedule 4, on the date hereof, none of the Intellectual Property is the subject of any licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor. (d) On the date hereof, based on information known, or reasonably available to such Grantor, no holding decision or judgment has been rendered by any Governmental Authority which would materially limit, cancel or question the validity of, or such Grantor's rights in, any Intellectual Property in any respect that could reasonably be expected to have a Material Adverse Effect. (e) Except as set forth on Schedule 4, on the date hereof, no action or proceeding is pending, or, to the knowledge of such Grantor, threatened, on the date hereof (i) seeking to materially limit, cancel or question the validity of any Intellectual Property material to the conduct of such Grantor's business or such Grantor's ownership interest therein, or (ii) which, if adversely determined, would have a material adverse effect on the value of any Intellectual Property. 8 SECTION 4. Covenants. Each Grantor covenants and agrees with the Second Priority Debt Parties that, from and after the date of this Agreement until this Agreement is terminated and the security interests created hereby are released: SECTION 4.01. [Intentionally reserved.] SECTION 4.02. Maintenance of Insurance. Each Grantor shall maintain insurance policies in accordance with the requirements of the Second Priority Debt Documents. SECTION 4.03. Maintenance of Perfected Security Interest; Further Documentation. (a) Each Grantor shall cause all filings and other actions listed in Schedule 1 to be taken. Each Grantor shall maintain the security interests created by this Agreement as first priority perfected security interests subject only to Permitted Liens, to the extent such Permitted Liens are expressly permitted by the Second Priority Debt Documents to have priority, and shall defend such security interests against all claims and demands of all persons whomsoever (other than those pursuant to Permitted Liens). (b) At any time and from time to time, upon the written request of the Second Priority Collateral Trustee, and at the sole expense of a Grantor, such Grantor shall promptly and duly execute and deliver such further instruments and documents and take such further action as the Second Priority Collateral Trustee may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the security interests created hereby. (c) No Grantor shall intentionally enter into any contract, lease or license in contemplation of this Agreement, which by its terms would validly prohibit the grant of a security interest herein. SECTION 4.04. Changes in Locations, Name, etc. Each Grantor agrees promptly to notify the Second Priority Collateral Trustee in writing of any change (i) in its corporate name, (ii) in the location of its chief executive office or its principal place of business, (iii) in its identity or type of organization, (iv) in its Federal Taxpayer Identification Number or organizational identification number or (v) in its jurisdiction of organization. Each Grantor agrees to promptly provide the Second Priority Collateral Trustee with certified organizational documents reflecting any of the changes described in the preceding sentence. 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 Second Priority Collateral Trustee to continue at all times following such change to have a valid, legal and perfected first priority security interest in all the Second Priority Collateral. SECTION 4.05. Further Identification of Second Priority Collateral. Each Grantor shall furnish to the Second Priority Collateral Trustee from time to time statements and schedules further identifying and describing the Second Priority Collateral and such other reports in 9 connection with such Second Priority Collateral as the Second Priority Collateral Trustee may reasonably request, all in reasonable detail. SECTION 4.06. Notices. A Grantor shall advise the Second Priority Collateral Trustee promptly, in reasonable detail, in accordance with Section 13 hereto, of: (a) any Lien (other than security interests created hereby or Permitted Liens) on any material portion of the Second Priority Collateral; and (b) the occurrence of any other event which could reasonably be expected to have a material adverse effect on the security interests created hereby or on the aggregate value of the Second Priority Collateral. SECTION 4.07. Second Priority Collateral Trustee's Liabilities and Expenses; Indemnification. (a) Notwithstanding anything to the contrary provided herein, neither the Second Priority Collateral Trustee nor any other Second Priority Debt Party assumes any liabilities with respect to any claims regarding each Grantor's ownership (or purported ownership) of, or rights or obligations (or purported rights or obligations) arising from, the Second Priority Collateral or any use (or actual or alleged misuse) whether arising out of any past, current or future event, circumstance, act or omission or otherwise, or any claim, suit, loss, damage, expense or liability of any kind or nature arising out of or in connection with the Second Priority Collateral or the production, marketing, delivery, sale or provision of goods or services under or in connection with any of the Second Priority Collateral. All of such liabilities shall, as between the Second Priority Collateral Trustee, the Second Priority Debt Parties and the Grantors, be borne exclusively by the Grantors unless such liability arises from the gross negligence or willful misconduct of the Second Priority Collateral Trustee or any Second Priority Debt Party . (b) Each Grantor hereby agrees to pay all reasonable expenses of the Second Priority Collateral Trustee and the other Second Priority Debt Parties and to indemnify the Second Priority Collateral Trustee and the other Second Priority Debt Parties with respect to any and all losses, claims, damages, liabilities and related expenses in respect of this Agreement or the Second Priority Collateral in each case to the extent and under the circumstances the Borrower is required to do so pursuant to the Second Priority Debt Documents. (c) Any amounts payable as provided hereunder shall be additional Second Priority Debt Obligations secured hereby and by the other Second Priority Debt Documents. Without prejudice to the survival of any other agreements contained herein, all indemnification and reimbursement obligations contained herein shall survive the payment in full of the principal and interest and other amounts due under the Second Priority Debt Documents and the termination of this Agreement. SECTION 4.08. Intellectual Property. (a) Each relevant Grantor (either itself or through licensees) will (i) continue to use each Trademark material to the conduct of such Grantor's business, to the extent that such Grantor's business operations continue as to the said 10 goods and/or services (subject to such Grantor's reasonable business judgment), sufficient to avoid unintentional abandonment of any rights in such Trademarks, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable law, (iv) not knowingly adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Second Priority Collateral Trustee, for the ratable benefit of the Second Priority Debt Parties, shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not knowingly (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark material to the conduct of Grantor's business may become invalidated or impaired in any way. (b) Such Grantor (either itself or through licensees) will not do any act, or omit to do any act, whereby any Patent material to the conduct of Grantor's business may become forfeited, abandoned or dedicated to the public. (c) Such Grantor (either itself or through licensees) will not knowingly (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any portion of the Copyrights material to the conduct of Grantor's business may become invalidated or otherwise impaired or fall into the public domain. (d) Such Grantor (either itself or through licensees) will not do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other person. (e) In a status report provided to the Second Priority Collateral Trustee on a quarterly basis ("Quarterly Status Report"), such Grantor will indicate whether any application or registration relating to any material Intellectual Property has been forfeited, abandoned or dedicated to the public, or of any such determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor's ownership of, or the validity of, any material Intellectual Property or such Grantor's right to register the same or to own and maintain the same. (f) In the Quarterly Status Report provided to the Second Priority Collateral Trustee pursuant to Section 4.08(e), such Grantor will report whenever such Grantor, either by itself or through any agent, employee, licensee or designee, has filed an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof. Upon request of the Second Priority Collateral Trustee, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Second Priority Collateral Trustee may request to evidence the Second Priority Collateral Trustee's and Second Priority Debt Parties' security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. 11 (g) Such Grantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the Intellectual Property material to the conduct of Grantor's business, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability. (h) In the event that any Intellectual Property material to the conduct of Grantor's business is infringed, misappropriated or diluted by a third party, such Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Second Priority Collateral Trustee after it learns thereof and take all reasonable steps to protect its interests, which may include bringing suit for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution. SECTION 5. Provisions Relating to Accounts. SECTION 5.01. Grantors Remain Liable under Accounts. Anything herein to the contrary notwithstanding, a Grantor shall remain liable under each of the Accounts to observe and perform all the material conditions and material obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account. No Second Priority Debt Party shall have any obligation or liability under any Account (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Second Priority Collateral Trustee or any Second Priority Debt Party of any payment relating to such Account pursuant hereto, nor shall any Second Priority Debt Party be obligated in any manner to perform any of the obligations of a Grantor under or pursuant to any Account (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. SECTION 5.02. Analysis of Accounts. In addition to its rights under the Second Priority Debt Documents, the Second Priority Collateral Trustee shall have the right upon the occurrence and during the continuance of an Event of Default to make test verifications of the Accounts in any manner and through any medium that it considers reasonably advisable, and each Grantor shall furnish all such assistance and information as the Second Priority Collateral Trustee may reasonably require in connection with such test verifications. At any time and from time to time upon the occurrence and during the continuance of an Event of Default, upon the Second Priority Collateral Trustee's reasonable request and at the expense of each Grantor, each Grantor shall immediately request and use commercially reasonable efforts to cause independent public accountants or others reasonably satisfactory to the Second Priority Collateral Trustee to furnish to the Second Priority Collateral Trustee reports showing reconciliations, aging and test 12 verifications of, and trial balances for, the Accounts. Upon the occurrence and during the continuance of an Event of Default, the Second Priority Collateral Trustee in its own name or in the name of others may communicate with Account Debtors on the Accounts to verify with them to the Second Priority Collateral Trustee's reasonable satisfaction the existence, amount and terms of any Accounts and to direct all payments to the Second Priority Collateral Trustee. To the extent reasonably practicable the Second Priority Collateral Trustee will seek to take such actions through third parties. SECTION 5.03. Collections on Accounts. (a) The Second Priority Collateral Trustee hereby authorizes each Grantor to collect the Accounts, and the Second Priority Collateral Trustee may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default. If required by the Second Priority Collateral Trustee at any time after the occurrence and during the continuance of an Event of Default, any payments of Accounts, when collected by a Grantor during the continuance of such an Event of Default, (i) shall be forthwith (and, in any event, within two Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Second Priority Collateral Trustee if required, in a Second Priority Collateral Account maintained under the sole dominion and control of and on terms and conditions reasonably satisfactory to the Second Priority Collateral Trustee, subject to withdrawal by the Second Priority Collateral Trustee as provided in Section 7.03, and (ii) until so turned over, shall be held by such Grantor in trust for the Second Priority Debt Parties, segregated from other funds of such Grantor. (b) At the Second Priority Collateral Trustee's request after the occurrence and during the continuance of an Event of Default, each Grantor shall deliver to the Second Priority Collateral Trustee all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Accounts, including, without limitation, all original orders, invoices and shipping receipts. SECTION 5.04. Representations and Warranties. As of the Closing Date, the place where each Grantor keeps its records concerning the Accounts is at the location listed in Schedule 3 hereto. SECTION 5.05. Covenants. (a) The amount represented by each Grantor to the Second Priority Debt Parties from time to time as owing by each account debtor or by all Account Debtors in respect of the Accounts shall at such time be in all material respects the correct amount actually owing by such Account Debtor or debtors thereunder. (b) Upon the occurrence and during the continuance of an Event of Default, a Grantor shall not 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. 13 (c) Unless a Grantor shall deliver prior written notice, identifying the change of location for its books and records, such Grantor shall not remove its books and records from the location specified in Schedule 3. SECTION 5.06. [Intentionally reserved.] SECTION 6. Provisions Relating to Contracts. SECTION 6.01. Grantors Remain Liable under Contracts. Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each Contract to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with and pursuant to the terms and provisions of such Contract. No Second Priority Debt Party shall have any obligation or liability under any Contract by reason of or arising out of this Agreement or the receipt by any such Second Priority Debt Party of any payment relating to such Contract pursuant hereto, nor shall any Second Priority Debt Party be obligated in any manner to perform any of the obligations of a Grantor under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. SECTION 6.02. Communication With Contracting Parties. Upon the occurrence and during the continuance of an Event of Default, the Second Priority Collateral Trustee in its own name or in the name of its nominee may communicate with parties to the Contracts to verify with them to the Second Priority Collateral Trustee's reasonable satisfaction the existence, amount and terms of any Contracts. To the extent reasonably practicable the Second Priority Collateral Trustee will seek to take such actions through third parties. SECTION 7. Remedies. SECTION 7.01. Notice to Account Debtors and Contract Parties. Upon the request of the Second Priority Collateral Trustee at any time after the occurrence and during the continuance of an Event of Default, a Grantor shall notify Account Debtors on the Accounts and parties to the Contracts that the Accounts and the Contracts have been assigned to the Second Priority Collateral Trustee for the ratable benefit of the Second Priority Debt Parties and that payments in respect thereof during the continuance of such an Event of Default shall be made directly to the Second Priority Collateral Trustee. SECTION 7.02. Proceeds to be Turned Over To Second Priority Collateral Trustee. In addition to the rights of the Second Priority Collateral Trustee and the Second Priority Debt Parties specified in Section 5.03 with respect to payments of Accounts, if an Event of Default shall occur and be continuing all Proceeds received by a Grantor consisting of cash, checks and other near-cash items shall upon the Second Priority Collateral Trustee's request be held by such Grantor in trust for the Second Priority Debt Parties, segregated from other funds of such Grantor, and shall, upon the Second Priority Collateral Trustee's request (it being understood that 14 the exercise of remedies by the Second Priority Debt Parties in connection with an Event of Default under the Second Priority Debt Documents shall be deemed to constitute a request by the Second Priority Collateral Trustee for the purposes of this sentence) forthwith upon receipt by such Grantor, be turned over to the Second Priority Collateral Trustee in the exact form received by such Grantor (duly indorsed by such Grantor to the Second Priority Collateral Trustee, if required) and held by the Second Priority Collateral Trustee in a Second Priority Collateral Account maintained under the sole dominion and control of the Second Priority Collateral Trustee and on terms and conditions reasonably satisfactory to the Second Priority Collateral Trustee. All Proceeds while held by the Second Priority Collateral Trustee in a Second Priority Collateral Account (or by such Grantor in trust for the Second Priority Collateral Trustee and the Second Priority Debt Parties) shall subject to Section 7.03 continue to be held as collateral security for all the Second Priority Debt Obligations, and shall not constitute payment thereof until applied as provided in Section 7.03. SECTION 8.03. Application of Proceeds. (a) So long as the Collateral Trust and Intercreditor Agreement is in effect, following a Triggering Event (as defined therein), the proceeds of any sale or other realization upon any Collateral will be applied as set forth in the Collateral Trust and Intercreditor Agreement. (b) At all times when the Collateral Trust and Intercreditor Agreement is not in effect, the proceeds of any sale or other realization upon any Collateral following an Event of Default will be applied as soon as practicable after receipt as follows: FIRST: to the collateral agent under the Synthetic Lease Facility and the trustee, administrative agent, security agent or similar agent under each Additional Senior Second Priority Debt Facility, if any, and under each Replacement Senior Second Priority Debt Facility, if any, in an amount equal to the fees thereof which are unpaid as of the applicable Distribution Date and to any Synthetic Lease Party, any Additional Senior Second Priority Debt Party and any Replacement Senior Second Priority Debt Party which has theretofore advanced or paid any such fees in an amount equal to the amount thereof so advanced or paid by such Synthetic Lease Party, Additional Senior Second Priority Debt Party or Replacement Senior Second Priority Debt Party, as the case may be, pro rata based on the amounts of such fees (or such advance or payment); SECOND: to the collateral agent under the Synthetic Lease Facility and the trustee, administrative agent, security agent or similar agent under each Additional Senior Second Priority Debt Facility, if any, and under each Replacement Senior Second Priority Debt Facility, if any, and any Synthetic Lease Party, any Additional Senior Second Priority Debt Party and any Replacement Senior Second Priority Debt Party to reimburse such Second Priority Representative or such Second Priority Debt Party for the amount of any advance made pursuant to Section 2.04 of the Collateral Trust and Intercreditor Agreement (with interest thereon at the Default Rate), pro rata based on the amounts so advanced; 15 THIRD: to the collateral agent under the Synthetic Lease Facility and the trustee, administrative agent, security agent or similar agent under each Additional Senior Second Priority Debt Facility, if any, and each Replacement Senior Second Priority Debt Facility, if any, for distribution to the Synthetic Lease Parties, the Additional Senior Second Priority Debt Parties, if any, and the Replacement Senior Second Priority Debt Parties, if any, to be applied to the payment of the Synthetic Lease Obligations, the Additional Senior Second Priority Debt Obligations, if any, and the Replacement Senior Second Priority Debt Obligations, if any, pro rata based on the amount of Synthetic Lease Obligations, Additional Senior Second Priority Debt Obligations and Replacement Senior Second Priority Debt Obligations then due and owing, until all the Synthetic Lease Obligations, Additional Senior Second Priority Debt Obligations and Replacement Senior Second Priority Debt Obligations have been paid in full; FOURTH: to the trustee under the Exchange Note Indenture and the trustee, administrative agent, security agent or similar agent under each Additional Second Priority Debt Facility, if any, and each Replacement Second Priority Debt Facility, if any, in an amount equal to the fees thereof which are unpaid as of the applicable Distribution Date and to any Exchange Note Party, any Additional Second Priority Debt Party and any Replacement Second Priority Debt Party which has theretofore advanced or paid any such fees in an amount equal to the amount thereof so advanced or paid by such Exchange Note Party or Additional Second Priority Debt Party or Replacement Second Priority Debt Party, as the case may be, pro rata based on the amounts of such fees (or such advance or payment); FIFTH: to the trustee under the Exchange Note Indenture and the trustee, administrative agent, security agent or similar agent under each Additional Second Priority Debt Facility, if any, and each Replacement Second Priority Debt Facility, if any, and any Exchange Note Party, any Additional Second Priority Debt Party and any Replacement Second Priority Debt Party to reimburse such Second Priority Representative or such Second Priority Debt Party for the amount of any advance made pursuant to Section 2.04 hereof (with interest thereon at the Default Rate), pro rata based on the amounts so advanced; SIXTH: to the trustee under the Exchange Note Indenture and the trustee, administrative agent, security agent or similar agent under each Additional Second Priority Debt Facility, if any, and each Replacement Second Priority Debt Facility, if any, for distribution to the Exchange Note Parties, the Additional Second Priority Debt Parties, if any, and the Replacement Second Priority Debt Parties, if any, to be applied to the payment of the Exchange Note Obligations, the Additional Second Priority Debt Obligations, if any, and the Replacement Second Priority Debt Obligations, if any, pro rata based on the amount of Exchange Note Obligations, Additional Second Priority Debt Obligations and Replacement Second Priority Debt Obligations then due and owing, until all the Exchange Note Obligations, Additional Second Priority Debt Obligations and Replacement Second Priority Debt Obligations have been paid in full; and 16 SEVENTH: after payment in full of all Secured Obligations, to Rite Aid and the Subsidiary Guarantors or their successors or assigns, as their interests may appear, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. SECTION 8.04. Uniform Commercial Code Remedies. If an Event of Default shall have occurred and be continuing, the Second Priority Collateral Trustee, on behalf of the Second Priority Debt Parties may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Second Priority Debt Obligations, all rights and remedies of a senior secured party under the Uniform Commercial Code. Without limiting the generality of the foregoing, the Second Priority Collateral Trustee, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon a Grantor or any other person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Second Priority Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Second Priority Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of any Second Priority Debt Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Any Second Priority Debt Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Second Priority Collateral so sold, free of (to the extent permitted by law) any right or equity of redemption in a Grantor, which right or equity is hereby, to the extent permitted by law, waived or released. Each Grantor further agrees, at the Second Priority Collateral Trustee's request, to assemble the Second Priority Collateral and make it available to the Second Priority Collateral Trustee at places which the Second Priority Collateral Trustee shall reasonably select, whether at such Grantor's premises or elsewhere. The Second Priority Collateral Trustee shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses incurred therein or incidental to the care or safekeeping of any of such Second Priority Collateral or reasonably relating to such Second Priority Collateral or the rights of the Second Priority Collateral Trustee and the Second Priority Debt Parties hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Second Priority Debt Obligations, in accordance with Section 7.03, and only after such application and after the payment by the Second Priority Collateral Trustee of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the Uniform Commercial Code, need the Second Priority Collateral Trustee account for the surplus, if any, to such Grantor. If any notice of a proposed sale or other disposition of such Second Priority Collateral shall be required by law, such notice shall be in writing and deemed reasonable and proper if given at least 10 days before such sale or other disposition. 17 The Second Priority Collateral Trustee 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 Second Priority Collateral by the Second Priority Collateral Trustee (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Second Priority Collateral Trustee or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Second Priority 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 Second Priority Collateral Trustee or such officer or be answerable in any way for the misapplication thereof. SECTION 8.05. Grant of License to Use Intellectual Property. For the purpose of enabling the Second Priority Collateral Trustee to exercise rights and remedies under this Article at such time as the Second Priority Collateral Trustee shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Second Priority Collateral Trustee an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Grantors) to use, license or sub-license any of the Second Priority Collateral consisting of Intellectual Property now owned or hereafter acquired by such Grantor, 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 Second Priority Collateral Trustee shall be exercised, at the option of the Second Priority Collateral Trustee, solely 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 Second Priority Collateral Trustee in accordance herewith shall be binding upon the Grantors notwithstanding any subsequent cure of an Event of Default. SECTION 8.06. Waiver; Deficiency. Each Grantor waives and agrees not to assert any rights or privileges it may acquire under Section 9-112 of the Uniform Commercial Code. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Second Priority Collateral are insufficient to pay the Second Priority Debt Obligations and the reasonable fees and disbursements of any attorneys employed by any Second Priority Debt Party to collect such deficiency. SECTION 8. Second Priority Collateral Trustee's Appointment as Attorney-in-Fact; Second Priority Collateral Trustee's Performance of Grantors' Obligations. SECTION 8.01. Powers. Each Grantor hereby irrevocably constitutes and appoints the Second Priority Collateral Trustee and any officer or agent thereof, with full power of substitution, during the continuance of an Event of Default, as its true and lawful attorney-in-fact, with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name from time to time in the Second Priority Collateral Trustee's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, such Grantor hereby gives the Second Priority Collateral Trustee the power and 18 right, on behalf of such Grantor, without notice to or assent by such Grantor, to do the following upon the occurrence and during the continuance of an Event of Default: (a) in the name of such Grantor or its own name, or otherwise, to take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account, Instrument, General Intangible or Contract or with respect to any other Second Priority Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Second Priority Collateral Trustee for the purpose of collecting any and all such moneys due under any Account, Instrument, General Intangible or Contract or with respect to any other Second Priority Collateral whenever payable; (b) in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Second Priority Collateral Trustee may request to evidence the Second Priority Collateral Trustee's and the Second Priority Debt Parties' security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby; (c) to pay or discharge taxes and Liens levied or placed on or threatened against the Second Priority Collateral (other than Permitted Liens), to effect any repairs or any insurance called for by the terms of this Agreement and to pay all or any part of the premiums therefor and the costs thereof; (d) to execute, in connection with any sale provided for in Section 7.04 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Second Priority Collateral; (e)(i) to direct any party liable for any payment under any of the Second Priority Collateral to make payment of any and all moneys due or to become due thereunder directly to the Second Priority Collateral Trustee or as the Second Priority Collateral Trustee shall direct; (ii) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Second Priority Collateral; (iii) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Second Priority Collateral; (iv) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Second Priority Collateral or any thereof and to enforce any other right in respect of any Second Priority Collateral; (v) to defend any suit, action or proceeding brought against any Grantor with respect to any Second Priority Collateral Trustee; (vi) to settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, to give such discharges or releases as the Second Priority Collateral Trustee may deem appropriate; (vii) to the extent permitted by applicable law, assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, 19 Patent or Trademark pertains); and (viii) generally, to use, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Second Priority Collateral Trustee as fully and completely as though the Second Priority Collateral Trustee were the absolute owner thereof for all purposes, and to do, at the Second Priority Collateral Trustee's option and at the expense of such Grantor, at any time, or from time to time, all acts and things which the Second Priority Collateral Trustee reasonably deems necessary to protect, preserve or realize upon such Second Priority Collateral and the Second Priority Collateral Trustee's and the Second Priority Debt Parties' security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do; and (f) to file any Uniform Commercial Code financing statement, or to take such other steps, required to perfect or confirm the perfection of any security interest described herein. SECTION 8.02. Performance by Second Priority Collateral Trustee of Grantor's Obligations. If any Grantor fails to perform or comply with any of its agreements contained herein, the Second Priority Collateral Trustee, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. SECTION 8.03. Grantor's Reimbursement Obligation. The expenses of the Second Priority Collateral Trustee and any other Second Priority Debt Party, as applicable, reasonably incurred in connection with actions undertaken as provided in this Section 8, together with interest thereon at a rate per annum equal to the default rate of interest set forth in the Second Priority Debt Documents, from the date payment is demanded by the Second Priority Collateral Trustee to the date reimbursed by such Grantor, shall be payable by the Borrower to the Second Priority Collateral Trustee on demand. SECTION 8.04. Ratification; Power Coupled With An Interest. Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. SECTION 9. Duty of Second Priority Collateral Trustee. The Second Priority Collateral Trustee's sole duty with respect to the custody, safekeeping and physical preservation of the Second Priority Collateral in its possession, under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to deal with it in the same manner as the Second Priority Collateral Trustee deals with similar property for its own account. No Second Priority Debt Party nor any of its respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Second Priority Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Second Priority Collateral upon the request of a Grantor or any other person or to take any other action whatsoever with regard to the Second Priority Collateral or any part thereof. The powers conferred on the Second Priority Debt Parties hereunder are solely to protect the Second Priority Debt Parties' interests in 20 the Second Priority Collateral and shall not impose any duty upon any Second Priority Debt Party to exercise any such powers. The Second Priority Debt Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of 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 wilful misconduct. SECTION 10. Execution of Financing Statements. Each Grantor authorizes the Second Priority Collateral Trustee to file financing statements with respect to the Second Priority Collateral without the signature of such Grantor in such form and in such filing offices as the Second Priority Collateral Trustee reasonably determines appropriate to perfect the security interests of the Second Priority Collateral Trustee under this Agreement. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. SECTION 11. Authority of Second Priority Collateral Trustee. Each Grantor acknowledges that the rights and responsibilities of the Second Priority Collateral Trustee under this Agreement with respect to any action taken by the Second Priority Collateral Trustee or the exercise or non-exercise by the Second Priority Collateral Trustee of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Second Priority Collateral Trustee and the other Second Priority Debt Parties, be governed by the Second Priority Debt Documents and by such other agreements with respect thereto as may exist from time to time among them but, as between the Second Priority Collateral Trustee and the Grantors, the Second Priority Collateral Trustee shall be conclusively presumed to be acting as agent for the other Second Priority Debt Parties with full and valid authority so to act or refrain from acting. SECTION 12. Notices. All notices, requests and demands to or upon the Second Priority Debt Parties or the Grantors under this Agreement shall be given or made in accordance with Section 15 of the Second Priority Subsidiary Guarantee Agreement and addressed as follows: (a) if to the Second Priority Collateral Trustee, in accordance with Section 8.02 of the Collateral Trust and Intercreditor Agreement; (b) if to any Grantor, c/o the Borrower at the address of the Borrower specified in Section 8.02 of the Collateral Trust and Intercreditor Agreement; SECTION 13. Security Interest Absolute. Subject to Section 19 hereof, all rights of the Second Priority Collateral Trustee hereunder, the security interest and all obligations of the Grantors hereunder shall be absolute and unconditional. SECTION 14. Survival of Agreement. All covenants, agreements, representations and warranties made by any Grantor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Second Priority Debt Document shall be considered to have been relied upon by the Second Priority Debt Parties and 21 shall survive the execution and delivery to the Second Priority Debt Parties of the Second Priority Debt Documents, regardless of any investigation made by the Second Priority Debt 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 Second Priority Obligation, or any fee or any other amount payable under or in respect of this Agreement or any other Second Priority Debt Document is outstanding and unpaid. SECTION 15. 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 OR ANY OF THE LOAN DOCUMENTS. 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 AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 15. SECTION 16. 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 Second Priority Debt 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 any Obligor or any Second Priority Debt Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Second Priority Debt Documents against any Grantor or any Second Priority Debt Party or its properties in the courts of any jurisdiction. (b) Each Grantor and each Second Priority Debt Party 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 Second Priority Debt 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. 22 (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 12. 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 17. Release. (a) This Agreement and the security interest created hereunder shall terminate when all Second Priority Debt Obligations have been fully and indefeasibly paid, at which time the Second Priority Collateral Trustee shall execute and deliver to each Grantor, or to such person or persons as such Grantor shall reasonably designate, all Uniform Commercial Code termination statements and similar documents prepared by such Grantor at its expense which such Grantor shall reasonably request to evidence such termination. Moreover, the security interest hereunder shall terminate with respect to an individual Second Priority Debt Obligation when that individual Second Priority Debt Obligation has been fully and indefeasibly paid. Any execution and delivery of termination statements or documents pursuant to this Section 17(a) shall be without recourse to or warranty by the Second Priority Collateral Trustee. (b) All Second Priority Collateral used, sold, transferred or otherwise disposed of in accordance with the terms of the Second Priority Debt Documents (including pursuant to a waiver or amendment of the terms thereof) shall be used, sold, transferred or otherwise disposed of free and clear of the Lien and the security interest created hereunder. In connection with the foregoing, (i) the Second Priority Collateral Trustee shall execute and deliver to each Grantor, or to such person or persons as such Grantor shall reasonably designate, all Uniform Commercial Code termination statements and similar documents prepared by such Grantor at its expense which such Grantor shall reasonably request to evidence the release of the Lien and security interest created hereunder with respect to such Second Priority Collateral and (ii) any representation, warranty or covenant contained herein relating to such Second Priority Collateral shall no longer be deemed to be made with respect to such used, sold, transferred or otherwise disposed Second Priority Collateral. SECTION 18. Severability. Any provision of this Agreement 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. The parties hereunder 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. Collateral Trust and Intercreditor Agreement. Notwithstanding any provision to the contrary contained herein, the terms of this Agreement, the Liens created hereby, and the rights and remedies of the Second Priority Collateral Trustee and the Second Priority Debt Parties hereunder, are subject to the Collateral Trust and Intercreditor Agreement and subordinated as provided therein. SECTION 20. Amendments in Writing; No Waiver. (a) None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a 23 written instrument executed by the Grantors and the Second Priority Collateral Trustee, provided that (i) any provision of this Agreement may be waived by the Second Priority Instructing Group pursuant to a letter or agreement executed by the Second Priority Collateral Trustee or by telecopy transmission from the Second Priority Collateral Trustee, in either case with the prior written consent of the Second Priority Instructing Group and (ii) any amendment or waiver or other modification which by its terms materially adversely affects the rights of the Second Priority Debt Parties under a particular Second Priority Facility in a manner materially different from its effect on the other Second Priority Facilities shall only be effective with the consent of the Second Priority Representative for each Second Priority Facility so adversely affected. (b) No Second Priority Debt Party shall by any act (except by a written instrument pursuant to Section 20 hereof) or delay be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of any Second Priority Debt Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by any Second Priority Debt Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such Second Priority Debt Party would otherwise have on any future occasion. SECTION 21. Remedies Cumulative. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. SECTION 22. Section Headings. The section and Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. SECTION 23. Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of each Grantor and the Second Priority Debt Parties and their successors and assigns, provided that this Agreement may not be assigned by any Grantor without the prior written consent of the Second Priority Collateral Trustee. SECTION 24. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. SECTION 25. 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 contract. SECTION 26. Additional Grantors. Pursuant to the Second Priority Debt Documents, certain Domestic Subsidiaries that were not in existence or not a Second Priority Collateral 24 Trustee on the date thereof are required to enter into this Agreement as a Grantor upon becoming a Domestic Subsidiary. Upon execution and delivery, after the date hereof, by the Second Priority Collateral Trustee and such Domestic Subsidiary of an instrument in the form of Annex 1, such Domestic Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor hereunder. 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. SECTION 27. Patient Confidentiality. The Second Priority Collateral Trustee hereby agrees on behalf of itself and each Second Priority Debt Party and any of their designees and assigns to, and shall take all reasonable steps to, comply with all applicable state or federal laws or administrative regulations regarding the confidentiality of patient records and patient medical information it receives in connection with the transactions described in this Agreement. 25 IN WITNESS WHEREOF, the undersigned has caused this Second Priority Subsidiary Security Agreement to be duly executed and delivered as of the date first above written. WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee, By________________________________ Name: Title: EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE A HERETO, as Grantors, By________________________________ Name: Title: THRIFTY PAYLESS, INC., as Grantor, By________________________________ Name: Title: 26 Schedules: - --------- Annex 1 Supplement Schedule A Subsidiary Guarantors Schedule 1 Filings and Other Actions Required to Perfect Security Interests Schedule 2 Inventory Schedule 3 Records of Accounts Schedule 4 Copyrights and Copyright Licenses; Patents and Patent Licenses; and Trademarks and Trademark Licenses Schedule 5 Perfection Certificate Schedule 6 Chief Executive Offices, Principal Places of Business and Jurisdictions of Incorporation or Organization Annex 1 to the Second Priority Subsidiary Security Agreement SUPPLEMENT NO. dated as of [______________________ ] (this "Supplement") to the Second Priority Subsidiary Security Agreement dated as of June 27, 2001 (the "Second Priority Subsidiary Security Agreement"), between the SUBSIDIARIES GUARANTORS identified on the signature pages thereto and any other person that becomes a Subsidiary Guarantor (the "Grantors") and WILMINGTON TRUST COMPANY (the "Second Priority Collateral Trustee") for the Second Priority Debt Parties. A. Reference is made to the (a) the Second Priority Debt Documents and (b) the Second Priority Subsidiary Security Agreement dated as of June 27, 2001, among the Subsidiary Guarantors and the Second Priority Collateral Trustee. B. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Second Priority Subsidiary Security Agreement. C. The Grantors have entered into the Second Priority Subsidiary Security Agreement in order to induce the Second Priority Debt Parties to enter into the Second Priority Debt Documents. Pursuant to the Second Priority Debt Documents, certain Domestic Subsidiaries that were not in existence or not a Domestic Subsidiary on the date thereof are required to enter into the Second Priority Subsidiary Security Agreement as a Grantor upon becoming a Domestic Subsidiary. Section 26 of the Second Priority Subsidiary Security Agreement provides that additional Domestic Subsidiaries may become Grantors under the Second Priority Subsidiary Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "New Grantor") is a Domestic Subsidiary and is executing this Supplement in accordance with the requirements of the Second Priority Debt Documents to become a Grantor under the Second Priority Subsidiary Security Agreement as consideration for credit previously extended to the Borrower. Accordingly, the Second Priority Collateral Trustee and the New Grantor agree as follows: SECTION 1. In accordance with Section 26 of the Second Priority Subsidiary Security Agreement, the New Grantor by its signature below becomes a Grantor under the Second Priority Subsidiary Security Agreement with the same force and effect as if originally named therein as a Grantor and the New Grantor hereby agrees to all the terms and provisions of the Second Priority Subsidiary Security Agreement applicable to it as a Grantor thereunder. Each reference to a "Grantor" in the Second Priority Subsidiary Security Agreement shall be deemed to include the New Grantor. The Second Priority Subsidiary Security Agreement is hereby incorporated herein by reference. SECTION 2. The New Grantor represents and warrants to the Second Priority Debt 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, subject to the effects of applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and equitable principles of general applicability. 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 Second Priority Collateral Trustee shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Grantor and the Second Priority Collateral Trustee. SECTION 4. Except as expressly supplemented hereby, the Second Priority Subsidiary Security 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 Second Priority Subsidiary 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 7. All communications and notices hereunder shall be in writing and given as provided in the Collateral Trust and Intercreditor Agreement. All communications and notices hereunder to the New Grantor shall be given to it c/o the Borrower as set forth in Section 8.02 of the Collateral Trust and Intercreditor Agreement. IN WITNESS WHEREOF, the New Grantor and the Second Priority Collateral Trustee have duly executed this Supplement to the Second Priority Subsidiary Security Agreement as of the day and year first above written. 2 [NAME OF NEW GRANTOR], By ----------------------------------- Name: Title: WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee, By ----------------------------------- Name: Title: 3 Schedule A to the Second Priority Subsidiary Security Agreement SUBSIDIARY GUARANTORS Subsidiary Guarantors 112 Burleigh Avenue Norfolk, LLC 1515 West State Street Boise, Idaho, LLC 1525 Cortyou Road - Brooklyn Inc. 1740 Associates, LLC 3581 Carter Hill Road - Montgomery Corp. 4042 Warrensville Center Road - Warrensville Ohio, Inc. 5277 Associates, Inc. 537 Elm Street Corporation 5600 Superior Properties, Inc. 657-659 Broadway St. Corp. 764 South Broadway- Geneva, Ohio, LLC Ann & Government Streets- Mobile, Alabama, LLC Apex Drug Stores, Inc. Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC Broadview and Wallings -Broadview Heights Ohio, Inc. Central Avenue and Main Street- Petal, MS, LLC Dominion Action Four Corporation Dominion Action One Corporation Dominion Action Three Corporation Dominion Action Two Corporation Dominion Drug Stores Corporation Drug Fair of PA, Inc. Drug Fair, Inc. Eagle Managed Care Corp. Eighth and Water Streets- Ulrichsville, Ohio, LLC England Street-Asheland Corporation GDF, Inc. Gettysburg and Hoover-Dayton, Ohio, LLC Gratiot & Center-Saginaw Township, Michigan, LLC Harco, Inc. Jaime Nathan Travis Corporation K&B Alabama Corporation K&B Florida Corporation K&B Louisiana Corporation K&B Mississippi Corporation K&B Services, Inc. K&B Tennessee Corporation K&B Texas Corporation K&B Trainees, Inc. K&B, Incorporated Katz & Besthoff, Inc. Keystone Centers, Inc. Lakehurst and Broadway Corporation Mayfield & Chillicothe Roads- Chesterland, LLC Munson & Andrews LLC Name Rite, LLC Northline & Dix- Toledo- Southgate, LLC Ocean Acquisition Corporation P.L.D. Enterprises, Inc. Patton Drive and Navy Boulevard Property Corporation Paw Paw Lake Road & Paw Paw Avenue-Coloma, Michigan, LLC PDS-1 Michigan, Inc. Perry Distributors, Inc. Perry Drug Stores, Inc. PL Xpress, Inc. Portfolio Medical Services, Inc. Rack Rite Distributors, Inc. Ram-Utica, Inc. RDS Detroit, Inc. Reads, Inc. Rite Aid Drug Palace, Inc. Rite Aid Hdqtrs. Corp. Rite Aid of Alabama, Inc. Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Florida, Inc. Rite Aid of Georgia, Inc. Rite Aid of Illinois, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Massachusetts, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of North Carolina, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. Rite Aid of South Carolina, Inc. Rite Aid of Tennessee, Inc. 2 Rite Aid of Vermont, Inc. Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Rite Aid Realty Corp. Rite Aid Rome Distribution Center, Inc. Rite Aid Transport, Inc. Rite Aid Venturer #1, Inc. Rite Fund, Inc. Rite Investments Corporation RX Choice, Inc. Script South Seven Mile and Evergreen-Detroit, LLC Silver Springs Road-Baltimore, Maryland/One, LLC Silver Springs Road-Baltimore, Maryland/Two, LLC Sophie One Corp. State & Fortification Streets-Jackson, Mississippi, LLC State Street and Hill Road-Gerard, Ohio, LLC Super Distributors, Inc. Super Ice Cream Suppliers, Inc. Super Laboratories, Inc. Super Pharmacy Network, Inc. Super Tobacco Distributors, Inc The Lane Drug Company The Muir Company Thrifty Corporation Thrifty Payless, Inc Thrifty Wilshire, Inc. Tyler and Sanders Roads, Birmingham-Alabama, LLC Virginia Corporation W.R.A.C., Inc. Fairground, LLC Laverdiere's Enterprises, Inc. Leader Drugs, Inc. 3 Schedule 1 to the Second Priority Subsidiary Security Agreement FILINGS AND OTHER ACTIONS REQUIRED TO PERFECT SECURITY INTERESTS [Uniform Commercial Code Filings] [Patent and Trademark Filings] [Copyright Filings] Schedule 2 to the Second Priority Subsidiary Security Agreement INVENTORY LOCATIONS See attached Inventory Perfection Chart Schedule 3 to the Second Priority Subsidiary Security Agreement RECORDS OF ACCOUNTS A. Each of the Grantors listed below keeps its records concerning the Accounts at the following locations: Rite Aid Corporation 200 Newberry Commons Etters, PA 17319-9363 Rite Aid Corporation 433 Railroad Avenue Shiremanstown, PA 17011 Grantors: - -------- Rite Aid Hdqtrs. Corp. Rite Aid of Alabama, Inc. Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Florida, Inc. Rite Aid of Georgia, Inc. Rite Aid of Illinois, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Massachusetts, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of North Carolina, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. Rite Aid of South Carolina, Inc. Rite Aid of Tennessee, Inc. Rite Aid of Vermont, Inc. Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Drug Fair of PA, Inc. Drug Fair, Inc. Eagle Managed Care Corp. GDF, Inc. Harco, Inc. The Lane Drug Company Keystone Centers, Inc. Ocean Acquisition Corporation Perry Drug Stores, Inc. Reads, Inc. Rite Aid Funding LLC Rite Investments Corp. Rite Aid Drug Palace, Inc. Rite Aid Rome Distribution Center, Inc. Rite Aid Transport, Inc. RX Choice, Inc. Script South Thrifty Payless, Inc. W.R.A.C., Inc. 3518 Carter Hill Road - Montgomery Corp. 4042 Warrensville Center Road - Warrensville Ohio, Inc. 5277 Associates, Inc. 537 Elm Street Corporation 5600 Superior Properties, Inc. 657-659 Broad St. Corp. Broadview and Wallings - Broadview Heights Ohio, Inc. Dominion Action One Corporation Dominion Action Two Corporation Dominion Action Three Corporation Dominion Action Four Corporation Dominion Drug Stores Corp. England Street-Asheland Corporation Jaime Nathan Travis Corporation Lakehurst and Broadway Corporation Patton Drive and Navy Boulevard Property Corporation Portfolio Medical Services, Inc. Rack Rite Distributors, Inc. Ram-Utica, Inc. Rite Aid Venturer #1, Inc. Rite Fund, Inc. The Muir Company Virginia Corporation K&B, Incorporated 2 K&B Alabama Corporation K&B Florida Corporation K&B Louisiana Corporation K&B Mississippi Corporation K&B Services, Incorporated K&B Tennessee Corporation K&B Texas Corporation K&B Trainees, Inc. Katz & Besthoff, Inc. Super Distributors, Inc. Super Ice Cream Suppliers, Inc. Super Laboratories, Inc. Super Pharmacy Network, Inc. Super Tobacco Distributors, Inc. Apex Drug Stores, Inc. PDS-1 Michigan, Inc. RDS Detroit, Inc. Perry Distributors, Inc. PL Xpress, Inc. Thrifty Corporation P.L.D. Enterprises, Inc. Rite Aid Realty Corp. Thrifty Wilshire, Inc. Sophie One Corp. Name Rite LLC 112 Burliegh Avenue Norfolk, LLC 1515 West State Street Boise, Idaho, LLC 1525 Cortyou Road - Brooklyn Inc. 1740 Associates, LLC 764 South Broadway - Geneva, Ohio, LLC 912 Elmwood Avenue - Buffalo, LLC Ann & Government Streets - Mobile, Alabama, LLC Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC Central Avenue and Main Street - Petal, MS, LLC Eighth and Water Streets - Ulrichsville, Ohio, LLC Euclid and Wilders Roads- Bay City, LLC Gettysburg and Hoover-Dayton, Ohio, LLC Gratiot & Center - Saginaw Township, Michigan, LLC Louisville Avenue & North 18th Street- Monroe, Louisiana, LLC Main & McPherson - Clyde, LLC Mayfield & Chillicothe Roads - Chesterland, LLC Munson & Andrews LLC Northline & Dix- Toledo - Southgate, LLC Paw Paw Lake Road & Paw Paw Avenue - Coloma, Michigan, LLC Richmond Road & Monticello Boulevard - Richmond Heights, Ohio, LLC 3 Route 1 and Hood Road - Fredricksburg, LLC Route 202 at Route 124 Jaffrey - New Hampshire, LLC Seven Mile and Evergreen - Detroit, LLC Silver Springs Road - Baltimore, Maryland/ One, LLC Silver Springs Road - Baltimore, Maryland/ Two, LLC State Street and Hill Road- Gerard, Ohio, LLC State & Fortification Streets - Jackson, Mississippi, LLC Tyler and Sanders Roads, Birmingham - Alabama, LLC Fiona One Corp. Fairground, LLC Laverdiere's Enterprises, Inc. Leader Drugs, Inc. 4 Schedule 4 to the Second Priority Subsidiary Security Agreement RITE AID CORPORATION DOMAIN NAME REGISTRATIONS
- ----------------------------------------------------------------------------------------------------------------------------------- Domain Name Date of Registration Owner Status - ----------------------------------------------------------------------------------------------------------------------------------- ATRITEAID.COM March 12, 2001 Rite Aid Corporation Record expires 3/12/02. - ----------------------------------------------------------------------------------------------------------------------------------- RITEAIDDRUGSTORE.COM October 14, 1998 Rite Aid Corporation Record expired 10/14/00. - ----------------------------------------------------------------------------------------------------------------------------------- RITEAID.NET January 6, 1998 Rite Aid Corporation Record expires 1/7/03. - ----------------------------------------------------------------------------------------------------------------------------------- PILL-WAREHOUSE.NET April 28, 1999 Rite Aid Corporation Record expired 4/28/01. - ----------------------------------------------------------------------------------------------------------------------------------- PILLS-WAREHOUSE.ORG May 12, 1999 Rite Aid Corporation Record expired 5/12/01. - ----------------------------------------------------------------------------------------------------------------------------------- PILLSWAREHOUSE.COM May 12, 1999 Rite Aid Corporation Record expired 5/12/01. - ----------------------------------------------------------------------------------------------------------------------------------- RITEHEALTH.COM October 14, 1998 Rite Aid Corporation Record expired 10/14/00. - ----------------------------------------------------------------------------------------------------------------------------------- RITEAID.COM March 28, 1996 Rite Aid Corporation Record expires 3/29/03. - ----------------------------------------------------------------------------------------------------------------------------------- RITEEXPRESS.COM October 7, 1998 Rite Aid Corporation Record expired 10/7/00. - ----------------------------------------------------------------------------------------------------------------------------------- PILLSWAREHOUSE.NET May 13, 1999 Rite Aid Corporation Record expired 5/13/01. - ----------------------------------------------------------------------------------------------------------------------------------- MILLENNIUM-RX.NET May 13, 1999 Rite Aid Corporation Record expired 5/13/01. - ----------------------------------------------------------------------------------------------------------------------------------- PILL-WAREHOUSE.ORG April 28, 1999 Rite Aid Corporation Record expired 4/28/01. - ----------------------------------------------------------------------------------------------------------------------------------- PILL-WAREHOUSE.COM June 5, 1999 Rite Aid Corporation Record expired 6/5/01. - ----------------------------------------------------------------------------------------------------------------------------------- RITEAIDPHARMACY.COM October 7, 1998 Rite Aid Corporation Record expired 10/7/00. - ----------------------------------------------------------------------------------------------------------------------------------- PILLWAREHOUSE.COM April 23, 1999 Rite Aid Corporation Record expired 4/23/01. - -----------------------------------------------------------------------------------------------------------------------------------
Last Revised: June 18, 2001
- ----------------------------------------------------------------------------------------------------------------------------------- Domain Name Date of Registration Owner Status - ----------------------------------------------------------------------------------------------------------------------------------- PILLWAREHOUSE.NET April 23, 1999 Rite Aid Corporation Record expired 4/23/01. - ----------------------------------------------------------------------------------------------------------------------------------- RAPIDSCRIPT.COM October 7, 1998 Rite Aid Corporation Record expired 10/7/00. - ----------------------------------------------------------------------------------------------------------------------------------- RITEAID.ORG January 6, 1998 Rite Aid Corporation Record expires 1/7/03. - ----------------------------------------------------------------------------------------------------------------------------------- PILLSWAREHOUSE.ORG May 13, 1999 Rite Aid Corporation Record expired 5/13/01. - ----------------------------------------------------------------------------------------------------------------------------------- PILLS-WAREHOUSE.NET May 12, 1999 Rite Aid Corporation Record expired 5/12/01. - ----------------------------------------------------------------------------------------------------------------------------------- MILLENNIUM-RX.ORG May 12, 1999 Rite Aid Corporation Record expired 5/12/01. - ----------------------------------------------------------------------------------------------------------------------------------- HEALTHPLACE.COM October 7, 1998 Rite Aid Corporation Record expired 10/7/00. - ----------------------------------------------------------------------------------------------------------------------------------- PILLWAREHOUSE.ORG April 23, 1999 Rite Aid Corporation Record expired 4/23/01. - ----------------------------------------------------------------------------------------------------------------------------------- PILLS-WAREHOUSE.COM April 28, 1999 Rite Aid Corporation Record expired 4/28/01. - -----------------------------------------------------------------------------------------------------------------------------------
Last Revised: June 18, 2001 2 RITE AID CORPORATION PENDING FEDERAL APPLICATIONS
=================================================================================================================================== Serial No./ Next Action/ Mark Filing Date/ Description of Goods/Services Current Record Owner Deadline Basis =================================================================================================================================== 1-888-RITE AID Ser. No. 75/089,677 Retail drug store services, in Class 42. Rite Aid Corporation Application allowed April 17, 1996 to abandon per Intent-to-Use client's instructions. - ----------------------------------------------------------------------------------------------------------------------------------- FLEXACIN Ser. No. 76/004,058 Nutritional supplements for promoting Name Rite, L.L.C. Notice of March 17, 2000 bone and joint health, in Class 5. Allowance issued Intent-to-Use 5/1/01; Statement of Use or First Request for Extension of Time due 11/1/01. - ----------------------------------------------------------------------------------------------------------------------------------- GOOD HEALTH Ser. No. 75/900,874 Providing health information services in Name Rite, L.L.C. Office Action SOLUTIONS Plus January 20, 2000 the fields of self-care, nutrition, wellness issued 8/7/00, Design Intent-to-Use and disease prevention; and providing response filed health care services, namely health and 2/6/01; Per PTO nutritional diagnostic tests, in Class 42. TRAM, approved for publication as of 3/5/01--awaiting publication notice. - ----------------------------------------------------------------------------------------------------------------------------------- LIFE CHECK Ser. No. 75/306,055 Pharmacy services, namely, monitoring Rite Aid Corporation Notice of June 10, 1997 drug interaction, in Class 42. Allowance issued Intent-to-Use 10/31/00; Statement of Use and Protective Extension Request filed 4/30/01; Per PTO TARR, application accepted for registration on 5/31/01. - ----------------------------------------------------------------------------------------------------------------------------------- POCKET MINT Ser. No. 76/219,246 Mints, in Class 30. Name Rite, L.L.C. Examiner's March 2, 2001 Amendment issued Intent-to-Use on 6/4/01, entering disclaimer of "MINT" in application. - ----------------------------------------------------------------------------------------------------------------------------------- PROMPTSCRIPT Ser. No. 75/547,199 Pharmacy services, in Class 42. Name Rite, L.L.C. Abandoned per September 3, 1998 Settlement Intent-to-Use Agreement with AutoMed Technologies, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- PURE SPRING Ser. No. 76/153,195 Bubble bath, bath gel, bath oil, bath Name Rite, L.L.C. Office Action October 24, 2000 powder, non-medicated bath salts, body issued 3/30/01; Intent-to-Use cream, body oil, body powder, deodorant Response due soap, skin moisturizer, shaving balm, 9/30/01. after-shave lotions, hand, facial and body lotion, shower gels, body shampoos, and facial conditioner gels, excluding sanitizing hand wash and instant hand sanitizer with antibacterial properties, in Class 3. - -----------------------------------------------------------------------------------------------------------------------------------
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=================================================================================================================================== Serial No./ Next Action/ Mark Filing Date/ Description of Goods/Services Current Record Owner Deadline Basis =================================================================================================================================== QUICKFILL Ser. No. 75/547,599 Pharmacy services, in Class 42. Name Rite, L.L.C. Abandoned per September 3, 1998 Settlement Agreement Intent-to-Use with AutoMed Technologies, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- RAPIDSCRIPT Ser. No. 75/541,962 Pharmacy services, in Class 42. Name Rite, L.L.C. Notice of August 24, 1998 Allowance issued Intent-to-Use 12/12/00; Statement of Use and Protective Extension Request filed 5/1/01; Per PTO TARR, processing of SOU completed as of 5/8/01. - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID GARDEN Ser. No. 75/373,987 Lawn and garden chemicals, namely, Rite Aid Corporation Allow to abandon RITE October 6, 1997 pesticides and herbicides for domestic use, per client's in Class 05. instructions. - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID Ser. No. 75/633,736 Retail pharmacy services, namely, Name Rite, L.L.C. Notice of PHARMACY February 4, 1999 enabling customers to fill or refill Allowance issued CONNECTION Plus Intent-to-Use prescription orders electronically via a 8/22/00; Statement Design remote kiosk, in Class 42. of Use and Protective Extension Request filed 2/20/01; Per PTO TRAM, processing of SOU completed as of 3/24/01. - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID Ser. No. 75/633,735 Retail pharmacy services, namely, Name Rite, L.L.C. Notice of PRESCRIPTION February 4, 1999 enabling physicians to remotely transmit Allowance issued CONNECTION Plus Intent-to-Use prescription orders via a global computer 8/22/00; Statement Design network, in Class 42. of Use and Protective Extension Request filed 2/20/01; Per PTO TRAM, SOU forwarded to an Examiner 4/12/01; Office Action issued on 5/10/01; Response due 11/10/01. - ----------------------------------------------------------------------------------------------------------------------------------- RITE NOW RX Ser. No. 75/547,598 Pharmacy services, in Class 42. Name Rite, L.L.C. Allowed to abandon September 3, 1998 per client's Intent-to-Use instructions. - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID SILVER Ser. No. 76/056,739 Promoting the sales of pharmaceutical Name Rite, L.L.C. Office Action SAVERS DISCOUNT May 25, 2000 prescription products of others through a issued 11/22/00; PROGRAM Intent-to-Use discount program, in Class 35. Response filed 5/21/01; awaiting further examination. - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID WITH Ser. No. 76/205,946 Retail pharmacy services, in Class 35. Name Rite, L.L.C. Awaiting PTO US IT'S February 7, 2001 examination. PERSONAL Intent-to-Use - ----------------------------------------------------------------------------------------------------------------------------------- SCRIPT-10 Ser. No. 75/547,198 Pharmacy services, in Class 42. Name Rite, L.L.C. Allowed to abandon September 3, 1998 per client's Intent-to-Use instructions. - ----------------------------------------------------------------------------------------------------------------------------------- SCRIPTFAST Ser. No. 75/547,197 Pharmacy services, in Class 42. Name Rite, L.L.C. Abandoned per September 3, 1998 Settlement Intent-to-Use Agreement with AutoMed Technologies, Inc. - -----------------------------------------------------------------------------------------------------------------------------------
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=================================================================================================================================== Serial No./ Next Action/ Mark Filing Date/ Description of Goods/Services Current Record Owner Deadline Basis =================================================================================================================================== SOAKED Ser. No. 76/116,046 Bath products, namely bubble bath, bath Name Rite, L.L.C. Office Action August 24, 2000 salts and body wash; skin care issued 2/12/01; Intent-to-Use preparations, namely skin lotion, in Class Response due 3. 8/12/01. - ----------------------------------------------------------------------------------------------------------------------------------- SWIFTSCRIPT Ser. No. 75/547,802 Pharmacy services, in Class 42. Name Rite, L.L.C. Abandoned per September 3, 1998 Settlement Intent-to-Use Agreement with AutoMed Technologies, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- THE BIG FIZZ Ser. No. 75/808,596 Fruit flavored soft drinks, in Class 32. Name Rite, L.L.C. Notice of September 23, 1999 Allowance issued Intent-to-Use 6/20/00, though a copy was not received and is currently unavailable. Statement of Use and Protective Extension Request filed 12/20/00; Per PTO TRAM as of 2/22/01, SOU accepted and application will register in due course. - ----------------------------------------------------------------------------------------------------------------------------------- WITH US IT'S Ser. No. 76/205,947 Retail pharmacy services, in Class 35. Name Rite, L.L.C. Awaiting PTO PERSONAL February 7, 2001 examination. Intent-to-Use - ----------------------------------------------------------------------------------------------------------------------------------- COMPLI-LINE Reg. No. 1,987,679 Telephone advising and consulting service Name Rite, L.L.C. Sections 8 & 15 July 16, 1996 provided to pharmacy customers to assist declarations due them in complying with prescribed medical between7/16/01 and treatment, in Class 42. 7/16/02. - ----------------------------------------------------------------------------------------------------------------------------------- CRYSTAL LAKE Reg. No. 2,362,972 Bottled water, in Class 32. Name Rite, L.L.C. Sections 8 & 15 June 27, 2000 declarations due between 6/27/05 and 6/27/06. - ----------------------------------------------------------------------------------------------------------------------------------- EAGLE MANAGED Reg. No. 2,302,313 Claims processing and insurance claims Name Rite, L.L.C. Sections 8 & 15 CARE December 21, 1999 administration of drug programs for third declarations due party payors, in Class 36; Distributorship between 12/21/04 and services for third party payors of computer 12/21/05. software for management of prescription drug programs, in Class 42. - ----------------------------------------------------------------------------------------------------------------------------------- HARCO TOTAL Reg. No. 1,227,039 Distributorship services and rental of sick Harco Drug Inc. Renewal due 2/8/03. CARE SICK ROOM February 8, 1981 room supplies and equipment, in Class 42. SUPPLY SERVICE Plus Design - ----------------------------------------------------------------------------------------------------------------------------------- 1-800-RITE AID Reg. No. 2,134,953 Retail drug store services, in Class 42. Name Rite, L.L.C. Sections 8 & 15 February 3, 1998 declarations due between 2/3/03 and 2/3/04. - -----------------------------------------------------------------------------------------------------------------------------------
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=================================================================================================================================== Serial No./ Next Action/ Mark Filing Date/ Description of Goods/Services Current Record Owner Deadline Basis =================================================================================================================================== BEAUTY THE RITE Reg. No. 2,243,537 Newsletters featuring information and tips Name Rite, L.L.C. Sections 8 & 15 WAY May 4, 1999 on the subjects of beauty, cosmetics, skin declarations due care and health care, in Class 16; Providing between 5/4/04 and advice related to cosmetics and beauty, in 5/4/05. Class 41. - ----------------------------------------------------------------------------------------------------------------------------------- CANADA'S Reg. No. 749,893 Canadian whisky, in Class 33. Name Rite, L.L.C. Renewal due 5/21/03. DOMINION RARE May 21, 1963 - ----------------------------------------------------------------------------------------------------------------------------------- DUNCAN SINCLAIR Reg. No. 787,900 Scotch whisky, in Class 33. Name Rite, L.L.C. Renewal due 4/6/05. April 6, 1965 - ----------------------------------------------------------------------------------------------------------------------------------- FIRST CLASS Reg. No. 1,837,183 Mail order services featuring Name Rite, L.L.C. Allow to lapse per PHARMACY Plus May 17, 1994 pharmaceuticals and other pharmacy client's instructions. Design merchandise, in Class 42. - ----------------------------------------------------------------------------------------------------------------------------------- FOR YOUR LIFE Reg. No. 2,115,340 Retail drug store services, in Class 42. Name Rite, L.L.C. Sections 8 & 15 RITE AID'S GOT November 25, 1997 declarations due IT between 11/25/02 and 11/25/03. - ----------------------------------------------------------------------------------------------------------------------------------- GRAY DRUG Reg. No. 1,180,634 Retail drugstore services, in Class 42. Name Rite, L.L.C. Allow to lapse per December 1, 1981 client's request. - ----------------------------------------------------------------------------------------------------------------------------------- INTELL-RX Reg. No. 1,782,893 Providing management services; namely, Name Rite, L.L.C. Renewal due 7/20/03. July 20, 1993 prescription drug utilization review, in Class 35. - ----------------------------------------------------------------------------------------------------------------------------------- JALTA Reg. No. 694,657 Vodka, in Class 33. Name Rite, L.L.C. Allow to lapse per (Stylized) March 15, 1960 client's instructions. - ----------------------------------------------------------------------------------------------------------------------------------- K & B Plus Reg. No. 954,207 Retail drug store services, in Class 42. Name Rite, L.L.C. Renewal due 2/27/03. Design February 27, 1973 - ----------------------------------------------------------------------------------------------------------------------------------- K & B Plus Reg. No. 1,165,074 Retail drug store services, in Class 42. Name Rite, L.L.C. Renewal due 8/11/01. Design August 11, 1981 - ----------------------------------------------------------------------------------------------------------------------------------- MAC ALPINE Reg. No. 695,802 Scotch whisky, in Class 33. Name Rite, L.L.C. Allow to lapse per (Stylized) April 5, 1960 client's instructions. - ----------------------------------------------------------------------------------------------------------------------------------- NITE AID Reg. No. 2,225,533 Retail pharmacy and drug store services, in Name Rite, L.L.C. Sections 8 & 15 February 23, 1999 Class 35. declarations due between 2/23/04 and 2/23/05. - ----------------------------------------------------------------------------------------------------------------------------------- OUTDOOR CHEF Reg. No. 2,379,844 Barbecue grills and hibachis, in Class 11; Rite Aid Sections 8 & 15 August 22, 2000 Barbecue utensils, grill covers and grill Corporation declarations due Intent-to-Use cleaning brushes, in Class 21; Matches, in between 8/22/05 and Class 34. 8/22/06. - ----------------------------------------------------------------------------------------------------------------------------------- OUTDOOR Reg. No. 2,358,179 Carry-all bags, lunch totes, beach Rite Aid Sections 8 & 15 COMFORT May 23, 2000 umbrellas, hip packs, and water bottle Corporation declarations due holders; in Class 18; Deck and patio between 5/23/05 and furniture, in Class 20. 5/23/06. - -----------------------------------------------------------------------------------------------------------------------------------
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=================================================================================================================================== Serial No./ Next Action/ Mark Filing Date/ Description of Goods/Services Current Record Owner Deadline Basis =================================================================================================================================== OWNER'S CHOICE Reg. No. 2,358,179 Pet foods, biscuits, treat and litter, in Rite Aid Sections 8 & 15 June 13, 2000 Class 31. Corporation declarations due between 6/13/05 and 6/13/06. - ----------------------------------------------------------------------------------------------------------------------------------- PERFECT PAIRS Reg. No. 2,427,245 Coupons for retail cosmetics and beauty Rite Aid Sections 8 & 15 February 6, 2001 products, in Class 16; Promoting the sale of Corporation declarations due cosmetics and beauty products of others between 2/6/06 and through the use of a coupon, discounts, 2/6/07. and/or rebate program, in Class 35; Providing discounts and/or rebates on the purchase of cosmetics and beauty products of others through the use of a promotional program featuring combinations of specifically identified complementary products, in Class 36. - ----------------------------------------------------------------------------------------------------------------------------------- PHOTO RITE Reg. No. 2,352,455 Retail drug store services, namely a section Rite Aid Sections 8 & 15 May 23, 2000 in a retail drug store featuring photographic Corporation declarations due supplies and accessories, in Class 35; between 5/23/05 and Photographic processing services, namely 5/23/06. photo finishing, photographic printing and photographic enlarging services, in Class 40. - ----------------------------------------------------------------------------------------------------------------------------------- READY RX Reg. No. 2,161,704 Automated telephone prescription refill Name Rite, L.L.C. Sections 8 & 15 June 2, 1998 services, in Class 42. declarations due between 6/2/03 and 6/2/04. - ----------------------------------------------------------------------------------------------------------------------------------- REVELATIONS Reg. No. 1,809,431 Ice cream, in Class 30. Name Rite, L.L.C. Renewal due 12/7/03. December 7, 1993 - ----------------------------------------------------------------------------------------------------------------------------------- RITE ADVICE Reg. No. 2,161,703 Providing personalized information to Name Rite, L.L.C. Sections 8 & 15 June 2, 1998 customers regarding prescription drugs they declarations due have purchased, in Class 42. between 6/2/03 and 6/2/04. - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID Reg. No. 1,280,221 Retail drug store services, in Class 42. Name Rite, L.L.C. Renewal due 5/29/04. May 29, 1984 - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID Plus Reg. No. 875,773 Mouthwash, toothpaste, denture cleanser, Name Rite, L.L.C. Renewal due 8/26/09. Design August 26, 1969 baby oil, personal deodorant, cream hair rinse, glycerin and rose water, bath oil, hair tonic, pre-electric shave lotion, after-shave lotion, in Class 3; Witch hazel, in Class 5. - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID Plus Reg. No. 877,669 Iodine; peroxide; alcohol; salt tablets; Name Rite, L.L.C. Renewal due 9/30/09. Design September 30, 1969 aspirins; cough syrup, cold tablets and capsules; medicated rubbing compound; soda mint and antacid tablets; mineral oils; rectal suppositories; milk of magnesia; boric acid; powdered alum; camphorated oil; spirits of camphor; spirits of ammonia; peppermint, nitre and turpentine; castor oil; glycerin; medicated cream; and epsom salts, in Class 5 - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID Reg. No. 2,247,560 Retail store services in the field of Name Rite, L.L.C. Sections 8 & 15 COSMETICS May 25, 1999 cosmetics, in Class 35. declarations due MONEY BACK between 5/25/04 and GUARANTEE IT'S 5/25/05. RISK FREE Plus Design - -----------------------------------------------------------------------------------------------------------------------------------
7
=================================================================================================================================== Serial No./ Next Action/ Mark Filing Date/ Description of Goods/Services Current Record Owner Deadline Basis =================================================================================================================================== RITE AID Reg. No. 2,387,615 Retail store services in the field of Name Rite, L.L.C. Sections 8 & 15 COSMETICOS September 19, 2000 cosmetics, in Class 35. declarations due GARANTIA DE between 9/19/05 and DEVOLUCION DE 9/19/06. TU DINERO EN !SIN RIESGO! Plus Design - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID GARDEN Reg. No. 2,373,996 Fertilizer for domestic use; potting soil, Rite Aid Sections 8 & 15 RITE August 1, 2000 in Class 1; Live flowers; live trees, live Corporation declarations due shrubs; living vegetable plants; flower between 8/01/05 and bulbs; top soil; mulch and seeds for plants 8/01/06 and flowers, in Class 31. - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID Reg. No. 2,281,756 Retail pharmacy services rendered by Name Rite, L.L.C. Sections 8 & 15 INTERNET September 28, 1999 means of a global computer network, in declarations due REFILLS Class 42. between 9/28/04 and WWW.RITEAID.CO 9/28/05. M Plus Design - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID IT'S Reg. No. 2,275,996 Retail drugstore and pharmacy services, in Name Rite, L.L.C. Sections 8 & 15 NOT JUST A September 7, 1999 Class 35. declarations due STORE. IT'S A between 9/7/04 and SOLUTION. 9/7/05. - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID 10 Reg. No. 2,421,850 Pharmacy services, in Class 42. Rite Aid Sections 8 & 15 MINUTE January 16, 2001 Corporation declarations due PRESCRIPTIONS between 1/16/06 and Plus Design 1/16/07. - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID Reg. No. 2,307,413 Providing retail pharmacy services through Name Rite, L.L.C. Sections 8 & 15 REFILLS BY January 11, 2000 an interactive tone and/or voice response declarations due PHONE Plus telephone system, in Class 42. between 1/11/05 and Design 1/11/06. - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID SINGLE Reg. No. 2,216,866 Promoting the sales of products of others Name Rite, L.L.C. Sections 8 & 15 CHECK REBATES January 12, 1999 through an in-house product rebate declarations due Plus Design program for a drug store, in Class 35. between 1/12/04 and 1/12/05. - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID Reg. No. 2,318,513 Magazines in the field of health, vitamins Name Rite, L.L.C. Sections 8 & 15 VITAMIN February 15, 2000 and nutrition, in Class 16. declarations due INSTITUTE between 2/15/05 and MAGAZINE 2/15/06. - ----------------------------------------------------------------------------------------------------------------------------------- RITE AID Reg. No. 2,304,222 Vitamins and herbal supplements, in Class Name Rite, L.L.C. Sections 8 & 15 VITAMIN December 28, 1999 5; retail drug store services and promoting declarations due INSTITUTE Plus the sales of vitamins and herbal between 12/28/04 and Design supplements through a product discount 12/28/05. program, in Class 35; educational services, namely, conducting classes and seminars in the vitamin and herbal supplement field, in Class 41. - ----------------------------------------------------------------------------------------------------------------------------------- RITE EXPRESS Reg. No. 1,866,572 Packaging articles for transportation, in Name Rite, L.L.C. Renewal due 12/06/04. December 6, 1994 Class 39. - -----------------------------------------------------------------------------------------------------------------------------------
8
=================================================================================================================================== Serial No./ Next Action/ Mark Filing Date/ Description of Goods/Services Current Record Owner Deadline Basis =================================================================================================================================== RITE EXPRESS Reg. No. 1,924,009 Document photocopy and utility bill Name Rite, L.L.C. Sections 8 & 15 October 3, 1995 payment services, in Class 35; Providing declarations due money orders; prepaid debit telephone 10/3/01. calling card services, in Class 36; Key duplicating services, in Class 37; Facsimile transmission services, in Class 38; Mailbox rental services, in Class 39; Laminating and photographs, cards, and the like, photo film development and photo printing services, in Class 40; Passport portrait photography, in Class 42. - ----------------------------------------------------------------------------------------------------------------------------------- RITE REWARDS Reg. No. 2,157,337 Promoting the sale of the goods of others Name Rite, L.L.C. Sections 8 & 15 May 12, 1998 through the administration of incentive declarations due awards programs, in Class 35. between 5/12/03 and 5/12/04. - ----------------------------------------------------------------------------------------------------------------------------------- RITE TASTE Reg. No. 2,062,350 Pretzels, thin pretzels, stick pretzels, Name Rite, L.L.C. Sections 8 & 15 May 13, 1997 corn and flour based chips, candy, cookies, declarations due cakes and pies, popped popcorn, candy- between 5/13/02 and coated popped popcorn, candied nuts, 5/13/03. granola-based snack bars and mixes, tortilla chips, and iced tea, in Class 30; Carbonated soft drinks, bottled water, and fruit juices and drinks, in Class 32. - ----------------------------------------------------------------------------------------------------------------------------------- SCOTTS GLEN Reg. No. 720,102 Whisky, in Class 33. Name Rite, L.L.C. Allow to lapse per August 15, 1961 client's instructions. - ----------------------------------------------------------------------------------------------------------------------------------- SENTINEL Reg. No. 1,932,339 Smoker's articles, namely smoking tobacco Name Rite, L.L.C. Allow to lapse per October 31, 1995 and snuff, in Class 34. client's instructions. - ----------------------------------------------------------------------------------------------------------------------------------- SPECIAL Reg. No. 2,223,490 Ice cream, sherbet and frozen yogurt, in Name Rite, L.L.C. Sections 8 & 15 OCCASION February 16, 1999 Class 30. declarations due between 2/16/04 and 2/16/05. - ----------------------------------------------------------------------------------------------------------------------------------- SPORTSMAN Reg. No. 637,987 Fishing tackle and equipment, namely, Name Rite, L.L.C. Renewal due 12/4/06. (Stylized) December 4, 1956 rods, line, lures, leaders, leader material and hooks, both loose and snelled, in Class 28. - ----------------------------------------------------------------------------------------------------------------------------------- THE DIABETES Reg. No. 2,193,860 Consumer health information services in Name Rite, L.L.C. Sections 8 & 15 CONNECTION October 6, 1998 the field of diabetes and providing diabetes declarations due screening tests, in Class 42. between 10/6/03 and 10/6/04. - ----------------------------------------------------------------------------------------------------------------------------------- THRIFTY Reg. No. 1,813,929 Badminton rackets, air mattresses, table Name Rite, L.L.C. Renewal due 12/28/03. December 28, 1993 tennis sets, table tennis balls, baseball gloves, fishing reels, fish hooks, fish line, snap swivels, fish rods, dry flies, lures, and golf balls, in Class 28. - ----------------------------------------------------------------------------------------------------------------------------------- TRYLON Reg. No. 697,070 Electrified Christmas tree light bulbs and Name Rite, L.L.C. Allow to lapse per (Stylized) May 3, 1960 ornaments, in Class 11; Christmas tree client's instructions. decorations; Christmas tree ornaments and artificial Christmas wreaths, in Class 28. - ----------------------------------------------------------------------------------------------------------------------------------- YULE RITE Reg. No. 1,860,176 Name Rite, L.L.C. Renewal due 10/25/04. October 25, 1994 - -----------------------------------------------------------------------------------------------------------------------------------
9 RITE AID CORPORATION TRADEMARK LICENSES Trademark License Agreement (Wholesale Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid Rome Distribution Center, Inc. Trademark License Agreement (Wholesale Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid Distributors, Inc. Trademark License Agreement (Wholesale Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of West Virginia, Inc. Trademark License Agreement (Wholesale Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of South Carolina, Inc. Trademark License Agreement (Wholesale Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Florida, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Alabama, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Connecticut, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Delaware, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Florida, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Georgia, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Indiana, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Kentucky, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Keystone Centers, Inc. 10 Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Maryland, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Massachusetts, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Michigan, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of New Hampshire, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of New Jersey, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of New York, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of North Carolina, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Ohio, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Pennsylvania, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Rhode Island, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of South Carolina, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Tennessee, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Vermont, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Virginia, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of Washington, D.C., Inc. 11 Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid of West Virginia, Inc. Trademark License Agreement (Stores and Retail Goods), dated as of May 31, 1988, between Name Rite, Inc. and Rite Aid Drug Palace, Inc. Trademark License Agreement (Regarding K&B mark), dated as of March 5, 1999, between KBS Enterprises Inc. and Rite Aid Corporation. 12 RITE AID CORPORATION FOREIGN APPLICATIONS AND REGISTRATIONS
============================================================================================================================== Mark Country Reg. No./Ser. No. Description of Current Record Next Action/ Reg./Filing Date Goods/Services Owner Deadline ============================================================================================================================== REVELATIONS Mexico 447,099 Ice cream, in Class 30. Name Rite, L.L.C. Renewal due 2/12/03. November 24, 1993 - ------------------------------------------------------------------------------------------------------------------------------ SPECIAL Mexico 466,334 Frozen yogurt, in Class Name Rite, L.L.C. Renewal due 2/12/03. OCCASION July 13, 1994 29. - ------------------------------------------------------------------------------------------------------------------------------ SPECIAL Mexico 466,333 Ice cream and sherbet, Name Rite, L.L.C. Renewal due 2/12/03. OCCASION July 13, 1994 in Class 30. - ------------------------------------------------------------------------------------------------------------------------------ THRIFTY Mexico 602,624 Ice cream, sherbet and Name Rite, L.L.C. Certificate of March 4, 1999 frozen confectionery, in Registration received Class 30. 5/24/01. - ------------------------------------------------------------------------------------------------------------------------------ THRIFTY Mexico 518,855 Frozen dairy desserts, Name Rite, L.L.C. Renewal due 2/25/03. March 18, 1996 including frozen yogurt desserts, in Class 30. - ------------------------------------------------------------------------------------------------------------------------------ THRIFTY Plus Mexico 426,602 Ice creams, in Class 30. Name Rite, L.L.C. Renewal due 6/3/02. Design November 17, 1992 - ------------------------------------------------------------------------------------------------------------------------------ THRIFTY Plus Mexico 462,012 Commercialization of Name Rite, L.L.C. Renewal due 6/3/02. Design May 16, 1994 ice creams, pastries and confectionery, in Class 42. ==============================================================================================================================
Last Revised: June 18, 2001 13 RITE AID CORPORATION STATE REGISTRATIONS
==================================================================================================================================== Mark State Registration Description of Current Record Status/Next Action No./Date Goods/Services Owner Required ==================================================================================================================================== MONOGRAM 6 California 46,606 Whiskey, in Class 33. Name Rite, L.L.C. Renewed; next renewal August 9, 1968 due 8/9/08. - ------------------------------------------------------------------------------------------------------------------------------------ K-B Louisiana 361,588 Retail merchandise, in Name Rite, L.L.C. Renewed; next renewal December 15, 1978 Class 42. due 12/15/08. - ------------------------------------------------------------------------------------------------------------------------------------ K-B Louisiana 501,995 Retail drugstore and/or Name Rite, L.L.C. Registered; renewal due October 13, 1992 photo shop, in Classes 5 10/13/02. and 42. - ------------------------------------------------------------------------------------------------------------------------------------ K-B Louisiana 501,996 Retail drugstore and/or Name Rite, L.L.C. Registered; renewal due October 13, 1992 retail photo shop of the 10/13/02. superstore classification including and applying classes of merchandise in Classes 5 and 42. - ------------------------------------------------------------------------------------------------------------------------------------ KB Louisiana 361,548 Retail merchandise, in Name Rite, L.L.C. Renewed; next renewal December 15, 1978 Class 42. due 12/15/08. - ------------------------------------------------------------------------------------------------------------------------------------ KB Louisiana 501,997 Retail drugstore and/or Name Rite, L.L.C. Registered; renewal due October 13, 1992 retail photo shop of the 10/13/02. superstore classification including and applying classes of merchandise in Classes 5 and 42. - ------------------------------------------------------------------------------------------------------------------------------------
Last Revised: June 18, 2001 14
==================================================================================================================================== Mark State Registration Description of Current Record Status/Next Action No./Date Goods/Services Owner Required ==================================================================================================================================== KB Louisiana 501,998 Retail drugstore and/or Name Rite, L.L.C. Registered; renewal due October 13, 1992 photo shop of the 10/13/02. superstore classification including and applying various classes of merchandise, in Class 42. - ------------------------------------------------------------------------------------------------------------------------------------ KB Plus Louisiana 501,991 Retail drug store and/or Name Rite, L.L.C. Registered; renewal due Design October 13, 1992 photo shop of the superstore 10/13/02. classification including and applying to various merchandise, in Classes 5, 16 and 42. - ------------------------------------------------------------------------------------------------------------------------------------
Last Revised: June 18, 2001 15 RITE AID CORPORATION COPYRIGHT REGISTRATIONS
- ----------------------------------------------------------------------------------------------------------------------------- Title of Work Reg. No./Reg. Date Owner Status/Comments - ----------------------------------------------------------------------------------------------------------------------------- Rite Aid Corporation Index TX4771731 Name Rite, L.L.C. Registered; Chain of title is (Internet Web Site) May 8, 1998 clear. - -----------------------------------------------------------------------------------------------------------------------------
Last Revised: June18, 2001 16 Schedule 5 to the Second Priority Subsidiary Security Agreement PERFECTION CERTIFICATE Last Revised: June18, 2001 EX-10 16 exh10-36.txt EXHIBIT 10.36 Poca, WV Putnam County ================================================================================ A CREDIT LINE DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS From RITE AID OF WEST VIRGINIA, INC. TO CARL D. ANDREWS 600 Quarrier Street Charleston (Kanahwha County) West Virginia an individual as Trustee for the benefit of CITICORP USA, INC., as SENIOR COLLATERAL AGENT FOR THE BENEFIT OF THE SENIOR SECURED PARTIES as BENEFICIARY Dated: June 27, 2001 Premises: West Virginia Distribution Center Rock Branch Industrial Park Poca, WV 25159. ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I Representations, Warranties and Covenants of Grantor SECTION 1.01. Title ................................................... 9 SECTION 1.02. Senior Credit Agreement; Senior Subsidiary Guarantee Agreement; Certain Amounts....................................... 10 SECTION 1.03. Payment of Taxes, Liens and Charges .............................................. 11 SECTION 1.04. Payment of Closing Costs ................................ 12 SECTION 1.05. Plans; Alterations and Waste; Repairs .............................................. 13 SECTION 1.06. Insurance ............................................... 13 SECTION 1.07. Casualty; Condemnation/Eminent Domain ............................................... 13 SECTION 1.08. Assignment of Leases and Rents .......................... 14 SECTION 1.09. Restrictions on Transfers and Encumbrances ......................................... 15 SECTION 1.10. Security Agreement ...................................... 15 SECTION 1.11. Filing and Recording .................................... 16 SECTION 1.12. Further Assurances ...................................... 16 SECTION 1.13. Additions to Trust Property ............................. 17 SECTION 1.14. No Claims Against Trustee or Beneficiary .......................................... 17 SECTION 1.15. Fixture Filing .......................................... 18 SECTION 1.16. Notice Regarding Special Flood Hazards .............................................. 18 ARTICLE II Defaults and Remedies SECTION 2.01. Events of Default ....................................... 18 SECTION 2.02. Demand for Payment ...................................... 18 SECTION 2.03. Rights To Take Possession, Operate and Apply Revenues ....................................... 19 SECTION 2.04. Right To Cure Grantor's Failure to Perform .............................................. 20 SECTION 2.05. Right to a Receiver ..................................... 20 SECTION 2.06. Foreclosure and Sale .................................... 21 SECTION 2.07. Other Remedies .......................................... 22 SECTION 2.08. Application of Sale Proceeds and Rents ................................................ 22 SECTION 2.09. Grantor as Tenant Holding Over .......................... 23 SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws ........................ 23 SECTION 2.11. Discontinuance of Proceedings ........................... 24 SECTION 2.12. Suits To Protect the Trust Property ............................................. 24 SECTION 2.13. Filing Proofs of Claim .................................. 24 SECTION 2.14. Possession by Trustee or Beneficiary .................... 25 SECTION 2.15. Waiver .................................................. 25 SECTION 2.16. Remedies Cumulative ..................................... 26 ARTICLE III Miscellaneous SECTION 3.01. Partial Invalidity ...................................... 26 SECTION 3.02. Notices ................................................. 26 SECTION 3.03. Successors and Assigns .................................. 26 SECTION 3.04. Satisfaction and Cancelation. ........................... 26 SECTION 3.05. Definitions ............................................. 27 SECTION 3.06. Multisite Real Estate Transaction ....................... 28 ARTICLE IV Particular Provisions SECTION 4.01. Applicable Law; Certain Particular Provisions ........................................... 29 SECTION 4.02. Trustee's Powers and Liabilities ........................ 29 Exhibit A Description of Land Exhibit B Premises Located in a Special Flood Hazard Area Appendix A Local Law Provisions Appendix B Definitions Annex THIS CREDIT LINE DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS dated as of June 27, 2001 (this "Deed of Trust"), by RITE AID OF WEST VIRGINIA, INC., a West Virginia corporation, having an office at 30 Hunter Lane, Camp Hill, Pennsylvania 17011 (the "Grantor"), to CARL D. ANDREWS, having an office at 600 Quarrier Street, Charleston, Kanawha County, West Virginia, as trustee ("Trustee") for the benefit of CITICORP USA, INC., a Delaware corporation, having an office at 399 Park Avenue, New York, NY 10043 (the "Beneficiary") as Senior Collateral Agent for the benefit of the Senior Secured Parties; W I T N E S S E T H T H A T: Capitalized terms used but not defined in this Deed of Trust have the meanings given to them in the Definitions Annex annexed hereto as Appendix B. Reference is made to the Senior Credit Agreement dated as of even date herewith (as amended, replaced or refinanced from time to time, the "Senior Credit Agreement"), among Rite Aid Corporation, a Delaware corporation (the "Borrower"), the banks from time to time party thereto, Citicorp USA, Inc., as Senior Administrative Agent and Senior Collateral Agent and The Chase Manhattan Bank, Credit Suisse First Boston and Fleet Retail Finance, Inc. as Syndication Agents. Pursuant to the terms of, and subject to the conditions specified in, the Senior Credit Agreement, (i) the Senior Banks have agreed to make certain term and revolving loans to the Borrower, (ii) one or more Senior Banks (the "Swingline Banks") have agreed to make swingline loans to the Borrower on an uncommitted basis (the "Swingline Loans" - together with the loans referenced in clause (i), above, the "Senior Loans") and (iii) one or more Senior Banks (the "Issuing Banks") have agreed to issue letters of credit (the "Letters of Credit") for the account of the Borrower. Grantor is a wholly owned subsidiary of the Borrower and will derive substantial benefit from the making of the Senior Loans by the Senior Banks and the issuance of the Letters of Credit by the Issuing Banks. In order to induce the Senior Banks to make the Senior Loans and the Issuing Banks to issue Letters of Credit, the Grantor has agreed to guarantee, the due and punctual payment of the Senior Bank Obligations and the 10.5% Note Obligations (together, the "Senior 5 Obligations") pursuant to the terms of the senior subsidiary guarantee agreement dated as of even date herewith (the "Senior Subsidiary Guarantee Agreement") made by Grantor and certain other Subsidiaries of Borrower (each, a "Subsidiary Guarantor") in favor of Beneficiary in its capacity as Senior Collateral Agent for the benefit of the Senior Bank Parties and the 10.5% Note Parties (together, the "Senior Secured Parties"). The sum of the principal amount of the Senior Loans and the Letters of Credit from time to time outstanding and secured hereby shall not exceed $1,900,000,000. The obligations of the Senior Banks to make Senior Loans and of the Issuing Banks to issue Letters of Credit are conditioned upon, among other things, the execution and delivery by the Grantor of this Deed of Trust in the form hereof to secure the guarantee of the Senior Obligations contained in the Senior Subsidiary Guarantee Agreement. Pursuant to the requirements of the Senior Credit Agreement and the Senior Subsidiary Guarantee Agreement, the Grantor therefore grants this Deed of Trust to create a lien on and a security interest in the Trust Property (as defined herein) to secure the payment and performance of the Senior Obligations. The Senior Credit Agreement also requires the granting by other Subsidiary Guarantors of mortgages, deeds of trust and deeds to secure debt (the "Other Mortgages") that create liens on and security interests in certain parcels of real property and related fixtures (each, a "Trust Property") other than the Trust Property to secure the payment and performance of the Senior Obligations. Granting Clauses NOW, THEREFORE, IN CONSIDERATION OF the foregoing and in order to secure the due and punctual payment and performance of the Senior Obligations for the benefit of the Senior Secured Parties, Grantor hereby grants, conveys, mortgages, assigns and pledges to the TRUSTEE, IN TRUST FOREVER, with power of sale, for the benefit of the Beneficiary and its successors, a security interest in, all the following described property (the "Trust Property") whether now owned or held or hereafter acquired: (1) the land more particularly described on Exhibit A hereto (the "Land"), together with all rights appurtenant thereto which may, by their terms or as a matter of law, be conveyed or assigned along with the 6 Land, 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, hereditaments and appurtenances thereunto belonging or in any way 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 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 apparatus, appliances, building materials, equipment, fittings, machinery and other articles of tangible personal property of every kind and nature, and replacements thereof, owned by Grantor and now or at any time hereafter affixed to the Improvements or the Premises, including all pumps, tanks, machinery, apparatus 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, communications, partitions, lighting fixtures, freezers, refrigerators, walk-in coolers, signs (indoor and outdoor), and all other items of tangible personal property of any kind affixed to 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 subparagraph (3), the "Fixtures"); (4) all general intangibles owned by 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 7 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) all now or hereafter existing 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 real estate tax refunds and all proceeds of the conversion, voluntary or involuntary, of any of the Trust Property into cash or liquidated claims ("Proceeds"), including Proceeds of insurance maintained by the Grantor and condemnation awards, any awards that 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, together with any and all moneys now or hereafter on deposit for the payment of real estate taxes, assessments or common area charges 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 Senior Credit Agreement; and (7) all extensions, improvements, betterments, renewals, substitutes and replacements of and all 8 additions and appurtenances to, the Land, the Premises, the Improvements, the Fixtures, 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 unto the Trustee, its successors and assigns, for the ratable benefit of the Senior Secured Parties, forever, subject only to the Permitted Encumbrances (as hereinafter defined) and to satisfaction and cancelation as provided in Section 3.04, 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: (i) an indefeasible fee estate in the Land and Improvements; and (ii) all of the Fixtures; subject only to (A) liens, pledges, charges and other encumbrances which are identified in Section 4.15(a) of the Senior Credit Agreement and (B) minor defects in title that do not interfere with the ability of Grantor or any other subsidiary of the Borrower to conduct its business as presently conducted or to utilize the Trust Property for its intended purpose (collectively, the "Permitted Encumbrances") 9 (b) There are no Leases affecting the Land or the Improvements except as disclosed in the Senior Credit Agreement. (c) Grantor is not obligated under, and the Trust Property is not bound by or subject to, any right, of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Trust Property or any interest therein. (d) The granting of this Deed of Trust is within Grantor's corporate powers and has been duly authorized by all necessary corporate, and, if required, stockholder action. This Deed of Trust has been duly executed and delivered by Grantor and constitutes a legal, valid and binding obligation of Grantor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (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 first-priority lien upon and security interest in all the Trust Property subject only to Permitted Encumbrances. As of the date hereof, there are no defenses or offsets to this Deed of Trust that will be asserted by Grantor or its affiliates (or any third party defense or offset now known to Grantor or its affiliates) or to any of the Senior Obligations secured hereby for so long as any portion of the Senior Obligations remains outstanding. Grantor will forever warrant and defend its title to the Trust Property, the rights of Trustee and/or Beneficiary therein under this Deed of Trust and the validity and priority of the lien of this Deed of Trust against the claims of all persons and parties except those having rights under Permitted Encumbrances, to the extent of those rights. SECTION 1.02. Senior Credit Agreement; Senior Subsidiary Guarantee Agreement; Certain Amounts. (a) This Deed of Trust is given pursuant to the Senior Credit Agreement and the Senior Subsidiary Guarantee Agreement. Each and every term and provision of the Senior Credit Agreement and the Senior Subsidiary Guarantee Agreement (excluding the governing law provisions thereof), 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 10 (b) If Trustee or Beneficiary exercises any of their rights or remedies under this Deed of Trust, 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 reasonable 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 and the reasonable expenses 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 lesser of (i) the rate specified in Section 2.07(b) of the Senior Credit Agreement and (ii) the rate which, together with all fees, charges and other amounts which are treated as interest on such amounts under applicable law, constitutes the maximum lawful rate which may be contracted for, charged, taken, received or reserved by Beneficiary in accordance with applicable law (the "Default Interest 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. 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 Interest Rate, and such interest at the Default Interest Rate shall be paid by Grantor to Beneficiary within 10 days after Grantor's receipt of notice from the Beneficiary that it is due. SECTION 1.03. Payment of Taxes, Liens and Charges. (a) Except to the extent they are being contested in the manner permitted by the Senior Credit Agreement, Grantor will pay and discharge from time to time prior to the time when the same shall become delinquent, and before any interest or penalty accrues thereon or attaches thereto, (i) all taxes and assessments (general and special), water and sewer rents and/or charges, public or private impositions, levies, dues, permit, inspection and license fees, vault charges, service charges, public or private common area charges or maintenance charges, utility charges of every kind and nature which may become liens on the Trust Property with priority over the lien of this Deed of Trust and (ii) all other material public or private charges, whether created or evidenced by recorded or 11 unrecorded documents or 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, operation or possession thereof. (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 or deeds of trust (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 or any of the Senior Loan Documents, or requiring an amount of taxes to be withheld or deducted therefrom, Grantor will promptly notify Beneficiary of such event. In such event (A) Grantor shall at the request of Beneficiary, execute an instrument or agreement which obligates Grantor to make such additional payments as may be necessary to place Grantor and the Senior Secured Parties in the same economic position they would have been in with respect to the Senior Loans and other Senior Obligations if such law, order, rule or regulation had not been passed and (B) Grantor shall make such additional payments. (c) At any time that an Event of Default (as hereinafter defined) shall occur and be continuing, 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 on a quarterly basis, each such deposit to be equal to one-quarter of any such annual charges estimated in a reasonable manner by Beneficiary in order to accumulate with Beneficiary sufficient funds to pay such taxes, assessments, insurance premiums and charges. Any such deposits held by Beneficiary shall be returned to Grantor within 30 days after this Deed of Trust is released or satisfied as provided in Section 3.04. SECTION 1.04. Payment of Closing Costs. Grantor shall pay all reasonable costs incurred by or on behalf of the Beneficiary in connection with, relating to or arising out of the preparation, execution and recording of this Deed of Trust, including title company charges, inspection costs, recording fees and taxes, attorneys', engineers' and 12 consultants' fees and disbursements and all other, similar expenses of every kind. SECTION 1.05. Plans; Alterations and Waste; Repairs. (a) To the extent the same exist on the date hereof or are obtained in connection with future permitted alterations, Grantor shall maintain a complete set of final plans, specifications, blueprints and drawings for the Trust Property 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 and at reasonable times. (b) Grantor shall not: (i) demolish or remove all or any material portion of the Improvements; (ii) commit any waste on the Trust Property or make any alterations to the Trust Property which would materially diminish the utility of Trust Property in the conduct of the business of the Grantor or its affiliates as conducted thereon on the date hereof; (iii) change the use of the Trust Property or take any other action with respect to the Trust Property if it would materially increase the risk of fire or any other hazard or violate the terms of any insurance policy required by Section 1.06 hereof; without the consent of the Beneficiary in each instance, such consent not to be unreasonably withheld or delayed. (c) Grantor will keep and maintain the Improvements and the Fixtures in good repair, working order and condition, reasonable wear and tear excepted. SECTION 1.06. Insurance. Grantor will purchase and maintain liability insurance, insurance on the Improvements and Fixtures and other insurance in accordance with the terms of the Senior Credit Agreement. SECTION 1.07. Casualty; Condemnation/Eminent Domain. Grantor shall give Beneficiary prompt written notice of any casualty or other damage to the Trust Property or any proceeding for the taking of the Trust Property or any portion thereof or interest therein under power of eminent domain or by condemnation or any similar proceeding. The proceeds received by or on behalf of the Grantor in respect of any such casualty, damage or taking shall 13 constitute trust funds held by the Grantor for the benefit of the Senior Secured Parties to be applied to in accordance with the terms of the Senior Credit Agreement. SECTION 1.08. 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 Senior 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) Without Beneficiary's prior written consent, which shall not be unreasonably withheld or delayed, Grantor will not enter into, modify, amend, terminate or consent to the cancelation or surrender of any Lease. (c) Subject to Section 1.08(d), 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 each Lease heretofore or hereafter made or agreed to by Grantor, it being intended that this assignment establish, subject to Section 1.08(d), an absolute transfer and assignment of all Rents and all Leases to Trustee for the benefit of the Beneficiary and not merely to grant a security interest therein. Subject to Section 1.08(d), 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) So long as an Event of Default shall not have occurred and be continuing, Beneficiary will not exercise any of its rights under Section 1.08(c), and Grantor shall receive and collect the Rents accruing under any Lease; but after the happening and during the continuance of any Event of Default, 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. 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 14 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 their successors in interest shall have received written notice from Beneficiary that the 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 its 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 tenant, 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 45 days after a request by Beneficiary to do so (but no more frequently than twice annually), 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 1.09. Restrictions on Transfers and Encumbrances. Except as expressly permitted by the Senior Credit Agreement or this Deed of Trust, 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 condemnation), or engage in any common, cooperative, joint, time-sharing or other congregate ownership of all or part thereof. SECTION 1.10. Security Agreement. This Deed of Trust is both a mortgage of real property and a 15 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 ("UCC"). 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 reasonably 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 UCC in addition to, but not in limitation of, the other rights afforded Beneficiary hereunder and under the Security Agreement. SECTION 1.11. 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 Beneficiary in, the Trust Property. Grantor will pay all filing, registration and recording fees, all Federal, state, county and municipal recording, documentary or intangible taxes and other taxes, duties, imposts, assessments and charges, and all reasonable expenses incidental to or 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 Fixtures or any instrument of further assurance. SECTION 1.12. 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 16 Beneficiary shall from time to time reasonably require for the better 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 Fixtures and to perform each and every act and thing requisite and necessary to be done to accomplish the same. SECTION 1.13. 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 1.14. No Claims Against Trustee or Beneficiary. Nothing contained in this Deed of Trust shall constitute any consent or request by Beneficiary (or Trustee), 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 Beneficiary (or Trustee) in respect thereof. 17 SECTION 1.15. Fixture Filing. Certain portions of the Trust Property are or will become "fixtures" (as that term is defined in the UCC) on the Land, and this Deed of Trust, upon being filed for record in the real estate records of the county wherein such fixtures are situated, shall operate also as a financing statement filed as a fixture filing in accordance with the applicable provisions of said UCC upon such portions of the Trust Property that are or become fixtures. The addresses of the Grantor, as debtor, and Beneficiary , as secured party, are set forth in the first page of this Deed of Trust. SECTION 1.16. Notice Regarding Special Flood Hazard s. Beneficiary has informed Grantor, and Grantor hereby acknowledges that it realizes, that the Premises listed on Exhibit B is in an area identified by the Director of the Federal Emergency Management Agency as a "special flood hazard area" described in 12 C.F.R. ss.22.2, and Grantor hereby acknowledges that it has received, prior to the making of the Senior Loans and the incurrence of indebtedness constituting part of the Senior Obligations, the notice regarding Federal disaster relief assistance referred to in the Appendix to 12 C.F.R. Part 22. ARTICLE II Defaults and Remedies SECTION 2.01. Events of Default. Any event of default under the Senior Credit Agreement (as such term is defined therein, an "Event of Default") shall constitute an Event of Default under this Deed of Trust. SECTION 2.02. Demand for Payment. If an Event of Default shall occur and be continuing, then, without protest, demand or notice of Beneficiary, Grantor will pay to Beneficiary all amounts due hereunder and under the Senior Credit Agreement and such further amount as shall be sufficient to cover the costs and expenses of collection, including attorneys' fees, disbursements and expenses incurred by Beneficiary, and Beneficiary shall be entitled and empowered to institute an action or proceedings at law or in equity 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. 18 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 not prohibited by applicable 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, and exclude Grantor and its agents and employees wholly therefrom. (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 to the extent not prohibited by applicable law, 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 reasonable expenses of obtaining such judgment or decree, including reasonable compensation to Beneficiary's attorneys and agents with interest thereon at the Default Interest 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, to the extent not prohibited by applicable law, hold, store, use, operate, manage and control the Trust Property, conduct the business thereof and, from time to time, (i) make all necessary and proper 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 19 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 compensation, expenses and disbursements of the attorneys and agents of Beneficiary, Beneficiary shall apply the remainder of the moneys and proceeds so received as provided in Section 2.08. (d) Whenever, before any sale of the Trust Property under Section 2.06, all Senior Obligations that 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. Should Grantor fail in the payment, performance or observance of any term, covenant or condition set forth in this Deed of Trust or the Senior Credit Agreement (with respect to the Trust Property) for 10 days after notice of such failure from Beneficiary (in the case of a monetary default) or 20 days after notice of such failure from Beneficiary (in the case of a non-monetary default), 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 repaid by Grantor to Beneficiary with interest thereon at the Default Interest Rate from the date incurred within 10 days after demand made by Beneficiary. Beneficiary shall be the judge using reasonable discretion of the necessity for any such actions and of the amounts to be paid. 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 (which may be Beneficiary or an employee of Beneficiary or Trustee) to take possession of and to operate the Trust Property and to collect and apply the Rents. The receiver 20 shall have all of the rights and powers permitted under the laws of the state wherein the Trust Property is located. Grantor shall pay to Beneficiary upon demand all reasonable expenses, including receiver's fees, reasonable 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 Interest 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 and/or Trustee by applicable law or this Deed of Trust. In such case, Beneficiary or Trustee may commence a civil action to foreclose this Deed of Trust, or it may proceed and sell the Trust Property to satisfy any Senior 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 Trustee or 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 Trustee or 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 Trustee 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 Trustee or 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. (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 or of 21 sale provided for herein; and subsequent sales may be made hereunder until the Senior Obligations have been satisfied, or the entirety of the Trust Property has been sold. (d) If an Event of Default shall occur and be continuing, Beneficiary 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 Senior Obligations, or the performance of any term, covenant, condition or agreement of this Deed of Trust or any other Senior Loan Document or any other right, or (ii) to pursue any other remedy available to Beneficiary, 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 UCC. (b) In connection with a sale of the Trust Property or any Fixtures and the application of the proceeds of sale as provided in Section 2.08, Beneficiary shall be entitled to enforce payment of and to receive up to the principal amount of the Senior 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 Senior Obligations remaining unpaid, with interest. SECTION 2.08. Application of Sale Proceeds and Rents. After any foreclosure sale of all or any portion of the Trust Property, Beneficiary shall receive and apply the proceeds of the sale together with any Rents that may have been collected and any other sums that may then be held by Trustee or Beneficiary under this Deed of Trust as follows: FIRST, to the payment of the costs and expenses of such sale, including compensation to Trustee's and 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 Trustee and Beneficiary under this Deed of Trust, together with interest at the Default Interest Rate on all advances made by Trustee and Beneficiary, including all taxes, assessments (or other charges) (except any taxes, assessments or other charges subject to which the Trust Property shall have been sold) and the cost of 22 removing any liens or encumbrances (except any liens or encumbrances subject to which the Trust Property was sold); SECOND, to the Beneficiary for the distribution to the Senior Secured Parties for the satisfaction of the Senior Obligations owed to the Senior Secured Parties; and THIRD, to the holder of any subordinate mortgage, deed of trust or deed to secure debt encumbering the Trust Property entitled to receive such proceeds; and FOURTH, to the Grantor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Beneficiary shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Deed of Trust. In the event of any inconsistency between this Section 2.08 and the Collateral Trust and Intercreditor Agreement, the Collateral Trust and Intercreditor Agreement shall control. Nothing in this Deed of Trust shall be interpreted to make the Trustee or Beneficiary an agent of the Second Priority Debt Parties. Upon any sale of the Trust Property by the Trustee or Beneficiary (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the 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 the 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 Trustee or 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. Grantor waives, to the extent not prohibited by law, (i) the benefit of all laws now existing or that hereafter may be enacted (x) providing for any appraisement or valuation of any portion of the Trust 23 Property and/or (y) in any way extending the time for the enforcement or the collection of amounts due under any of the Senior Obligations or creating or extending a period of redemption from any sale made in collecting said debt or any other amounts due Beneficiary, (ii) 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 homestead exemption, stay, statute of limitations, 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 or notice of deficiency, and (iii) all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of or each of the Senior Obligations and marshaling in the event of 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 and 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. Beneficiary shall have power (a) to institute and maintain suits and proceedings to prevent any impairment of the Trust Property by any acts that 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) 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 Beneficiary hereunder. 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 Senior 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 24 due or that 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 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 Beneficiary may be exercised from time to time and as often as may be deemed expedient by Beneficiary. No consent or waiver by Beneficiary to or of any breach or Event of Default by Grantor in the performance of the Senior 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 of any other Senior 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 Senior 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 Senior 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 expressly provided in an instrument executed by Beneficiary, 25 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, requests, demands and other communications hereunder shall be in writing and given to Grantor in accordance with the terms of the Senior Credit Agreement at the address set forth on the first page of this Deed of Trust and to the Beneficiary as provided in the Senior Credit Agreement. 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. Satisfaction and Cancelation. (a) The conveyance to Trustee or Beneficiary of the Trust Property as 26 security created and consummated by this Deed of Trust shall be null and void when all the Senior Obligations have been indefeasibly paid in full in accordance with the terms of the Senior Loan Documents and the Banks have no further commitment to make Senior Loans under the Senior Credit Agreement, no Letters of Credit are outstanding and the Issuing Bank has no further obligation to issue Letters of Credit under the Senior Credit Agreement. (b) Upon a sale or financing by Grantor of all or any portion of the Trust Property that is permitted by the Senior Credit Agreement and the application of the Net Proceeds of such sale or financing in accordance with the Senior Credit Agreement, the lien of this Deed of Trust shall be released from the applicable portion of the Trust Property. Grantor shall give the Beneficiary reasonable written notice of any sale or financing of the Trust Property prior to the closing of such sale or financing. (c) In connection with any termination or release pursuant to paragraph (a), the Deed of Trust shall be marked "satisfied" by the Beneficiary, and this Deed of Trust shall be canceled of record at the request and at the expense of the Grantor. Beneficiary shall execute any documents reasonably requested by Grantor to accomplish the foregoing or to accomplish any release contemplated by this Section 3.04 and Grantor will pay all costs and expenses, including reasonable attorneys' fees, disbursements and other charges, incurred by Beneficiary in connection with the preparation and execution of such documents. SECTION 3.05. 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"; (e) "Trustee" shall mean "Trustee, for the benefit of the Beneficiary and in accordance with the Credit Agreement,"; and (f) "any of the Trust Property" shall mean "the Trust Property or any part thereof or interest therein". Any act that 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 Beneficiary. Any act that is prohibited to Grantor hereunder is also prohibited to all lessees of any of the Trust Property, except to the extent that a Lease executed prior to the date hereof expressly permits such act without 27 the consent of the Grantor or the holder of any mortgage. Each appointment of Beneficiary as attorney-in-fact for Grantor under this Deed of Trust is irrevocable, with power of substitution and coupled with an interest. Subject to the express provisions to the contrary contained in this Deed of Trust, 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. To the extent that this Deed of Trust provides that any particular consent, approval, acceptance or satisfaction is subject to the terms of the Senior Credit Agreement, it shall be granted or withheld as provided in the Senior Credit Agreement. SECTION 3.06. Multisite Real Estate Transaction. Grantor acknowledges that this Deed of Trust is one of a number of Other Mortgages that secure the Senior 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 Beneficiary, and without limiting the generality of the foregoing, the lien hereof shall not be impaired by any acceptance by the Beneficiary of any security for or guarantees of any of the Senior Obligations hereby secured, or by any failure, neglect or omission on the part of Beneficiary to realize upon or protect any Senior Obligation or indebtedness hereby secured or any collateral security therefor including the Other Mortgages and other Senior Loan 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 Senior Obligations secured or of any of the collateral security therefor, including the Other Mortgages and other Senior Loan Documents or of any guarantee thereof, and 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 Senior Loan Documents without first exercising or enforcing any of its rights and remedies hereunder. Such exercise of Beneficiary's rights and remedies under any or all of the Other Mortgages and other Senior Loan 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 Beneficiary hereunder shall not impair the lien of any of the Other Mortgages and other Senior Loan Documents or any of Beneficiary's rights and remedies thereunder. Grantor specifically consents and agrees that Beneficiary may exercise its rights and remedies hereunder and under the Other 28 Mortgages and other Senior Loan Documents separately or concurrently and in any order that it may deem appropriate and 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 in which the Trust Property is located without regard to principles of conflicts of laws and Grantor and Beneficiary agree to submit to jurisdiction and the laying of venue for any suit on this Deed of Trust in such state, except that the internal laws of the State of New York (without regard to principles of conflicts of laws) shall govern (i) those terms and conditions contained in the Senior Credit Agreement and/or the Senior Subsidiary Guarantee Agreement which are incorporated by reference herein and (ii) the resolution of issues arising under the Senior Credit Agreement and/or the Senior Subsidiary Guarantee Agreement to the extent that such resolution is necessary to the interpretation of this Deed of Trust. 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, bad faith 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. 29 (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 that 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 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 30 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. [The balance of this page intentionally left blank.] 31 IN WITNESS WHEREOF, this Deed of Trust has been duly authorized and has been executed and delivered by Grantor on the date first written above. RITE AID OF WEST VIRGINIA, INC., a West Virginia corporation, by: _________________________ Name: Title: Attest: by: ____________________________ Name: Title: 32 [NEED LOCAL FORM OF ACKNOWLEDGMENT] Exhibit A to Deed of Trust Description of Land All that certain tract or parcel of land, together with the appurtenances thereunto belonging or appertaining, situate near Rock Branch (Creek) in Pocatalico District, Putnam County, West Virginia, being all of Parcels 4, 5 and 6 of the "Rock Branch Regional Industrial Park" and being 23.4949 acres, more or less, shown on a map prepared by Howard, Needles, Tammen & Bergendoff (HNTB), signed by H. T. White, Professional Engineer, dated October 7, 1977, and revised November 10, 1977, and entitled "Map Showing a Parcel of Land Owned by Putnam County Development Authority to be Conveyed to Rite Aid of West Virginia, Inc. Situate Pocatalico District Putnam County West Virginia" Scale 1" = 100', which map is attached hereto and made a part hereof, said parcel being more particularly bounded and described as follows: BEGINNING at a concrete monument in the South right-of-way line of State Route 35/15 (Wright Road) point being 25 feet left of centerline station 18 + 19.43 of West Virginia Department of Highways Project APL 9376 (001) point also being in the East right-of-way of a railroad spur; thence leaving said railroad and with the South line of Route 35/15, S. 77(degrees) 19' 19" E. for 119.43 feet to a concrete right-of-way marker, point being 25 feet left of centerline station 17 + 00; thence continuing with said right-of-way, N. 12(degrees) 40' 41" E. for 5.00 feet to a concrete right-of-way marker, point being 20 feet left of centerline station 17 + 00; thence continuing with the South right-of-way line of Route 35/15, S. 77(degrees) 19' 19" E. for 550.00 feet to a concrete monument 20 feet left of centerline station 11 + 50; thence continuing with said right-of-way line, S. 67(degrees) 23' 45" E. for 203.04 feet to a point 55 feet left of centerline station 9 + 00; thence continuing with said right-of-way, S. 68(degrees) 13' 54" E. for 50.64 feet to a point 63 feet left of centerline station 9 + 00; thence again with said south right-of-way line, S. 77(degrees) 19' 19" E. for 33.01 feet to a point in the line of G. H. Saunders, point being 63 feet left of centerline station 8 + 66.99, point also being S. 14(degrees) 37' 26" W. 41.88 feet from a copperweld pin in the bank of Route 35/15; thence leaving the right-of-way line of Route 35/15 and with G. H. Saunders line, S. 14(degrees) 37' 26" W. for 141.56 feet to a 1-1/2 inch steel pin on the East bank of Rock Branch Creek (formerly Lemberger Creek), point being the common corner of G. H. Saunders and H. L. Stephens; thence leave Saunders and with Stephens line, S. 13(degrees) 54' 14" W. for 75.87 feet to a point on the bank of said creek, point being the common corner to H. L. Stephens and Guy and Ruth Hyre; thence leave Stephens and with the Hyre line, S. 13(degrees) 34' 00" W. for 74.13 feet to a point on Rock Branch Creek; thence continuing with the Hyre line, S. 30(degrees) 11' 00" W. for 80.97 feet to a point on said creek, common corner to Hyre and Audis and Olive Bishop; thence leaving Hyre and with the Bishop line, S. 28(degrees) 08' 26" W. for 200.00 feet to a 1/2 inch iron pin on the West bank of Rock Branch Creek, point being the common corner to Bishop and John and Loretta Westfall; thence leave Bishop and with Westfall's line, S. 28(degrees) 08' 26" W. for 75.18 feet to a concrete monument, common corner to Westfall and Parcel 3 of Rock Branch Industrial Park; thence leaving Westfall and with the dividing line of Parcels 3 and 6 of said Park, S. 35(degrees) 55' 21" W. for 602.16 feet to a set 1/2 inch reinforcing rod in the North line of Jacobson Drive, point being 37.5 feet from centerline; thence leave Parcel 3 and with the north line of said Drive, and with a curve having a radius of 801.44 feet, chord of said curve being N. 69(degrees) 27' 14" W. for 113.44 feet to a copperweld pin 37.5 feet left of P. C. Station 20 + 82.24 of Jacobson Drive; thence continuing with a line 37.5 feet north of and parallel with said centerline, N. 73(degrees) 30' 44" W. for 534.13 feet to a set 1/2 inch reinforcing rod 37.5 feet North of centerline of Jacobson Drive and also being in the East line of a railroad right-of-way, being 12.5 feet from the centerline of said railroad; thence leaving Jacobson Drive and with the East line of said railroad, N. 14(degrees) 25' 32" E. for 1174.70 feet to the place of beginning. Street Address: Rock Branch Industrial Park Poca, WV 25159. Exhibit B to Deed of Trust Premises Located in a Special Flood Hazard Area None. Appendix A to Deed of Trust Local Law Provisions Appendix B to Deed of Trust Definitions Annex ================================================================================ SPACE ABOVE THIS LINE RESERVED FOR RECORDER'S USE A CREDIT LINE DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS From THRIFTY PAYLESS, INC. TO FIRST AMERICAN TITLE COMPANY LOS ANGELES for the benefit of CITICORP USA, INC., as SENIOR COLLATERAL AGENT FOR THE BENEFIT OF THE SENIOR SECURED PARTIES as BENEFICIARY Dated: as of June 27, 2001 Premises: Woodland Distribution Center 1755 East Beamer Street Woodland, CA 95776 Yolo County ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I Representations, Warranties and Covenants of Grantor SECTION 1.01. Title ..................................................... 9 SECTION 1.02. Senior Credit Agreement; Senior Subsidiary Guarantee Agreement; Certain Amounts......................................... 10 SECTION 1.03. Payment of Taxes, Liens and Charges ................................................ 11 SECTION 1.04. Payment of Closing Costs .................................. 12 SECTION 1.05. Plans; Alterations and Waste; Repairs ................................................ 13 SECTION 1.06. Insurance ................................................. 13 SECTION 1.07. Casualty; Condemnation/Eminent Domain ................................................. 13 SECTION 1.08. Assignment of Leases and Rents ............................ 14 SECTION 1.09. Restrictions on Transfers and Encumbrances ........................................... 15 SECTION 1.10. Security Agreement ........................................ 15 SECTION 1.11. Filing and Recording ...................................... 16 SECTION 1.12. Further Assurances ........................................ 16 SECTION 1.13. Additions to Trust Property ............................... 17 SECTION 1.14. No Claims Against Trustee or Beneficiary ............................................ 17 SECTION 1.15. Fixture Filing ............................................ 18 SECTION 1.16. Notice Regarding Special Flood Hazards ................................................ 18 ARTICLE II Defaults and Remedies SECTION 2.01. Events of Default ......................................... 18 SECTION 2.02. Demand for Payment ........................................ 18 SECTION 2.03. Rights To Take Possession, Operate and Apply Revenues ......................................... 19 SECTION 2.04. Right To Cure Grantor's Failure to Perform ................................................ 20 SECTION 2.05. Right to a Receiver ....................................... 20 SECTION 2.06. Foreclosure and Sale ...................................... 21 SECTION 2.07. Other Remedies ............................................ 22 SECTION 2.08. Application of Sale Proceeds and Rents .................................................. 22 SECTION 2.09. Grantor as Tenant Holding Over ............................ 23 SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws .......................... 23 SECTION 2.11. Discontinuance of Proceedings ............................. 24 SECTION 2.12. Suits To Protect the Trust Property ............................................... 24 SECTION 2.13. Filing Proofs of Claim .................................... 24 SECTION 2.14. Possession by Trustee or Beneficiary ...................... 25 SECTION 2.15. Waiver .................................................... 25 SECTION 2.16. Remedies Cumulative ....................................... 26 ARTICLE III Miscellaneous SECTION 3.01. Partial Invalidity ........................................ 26 SECTION 3.02. Notices ................................................... 26 SECTION 3.03. Successors and Assigns .................................... 26 SECTION 3.04. Satisfaction and Cancelation. ............................. 26 SECTION 3.05. Definitions ............................................... 27 SECTION 3.06. Multisite Real Estate Transaction ......................... 28 ARTICLE IV Particular Provisions SECTION 4.01. Applicable Law; Certain Particular Provisions ............................................. 29 SECTION 4.02. Trustee's Powers and Liabilities .......................... 29 Exhibit A Description of Land Exhibit B Premises Located in a Special Flood Hazard Area Appendix A Local Law Provisions Appendix B Definitions Annex THIS CREDIT LINE DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS dated as of June 27, 2001 (this "Deed of Trust"), by THRIFTY PAYLESS, INC., a California corporation, having an office at 30 Hunter Lane, Camp Hill, Pennsylvania 17011 (the "Grantor"), to FIRST AMERICAN TITLE COMPANY LOS ANGELES, having an office at 520 North Central Avenue, Glendale, CA 91203, as trustee ("Trustee") for the benefit of CITICORP USA, INC., a Delaware corporation, having an office at 399 Park Avenue, New York, NY 10043 (the "Beneficiary") as Senior Collateral Agent for the benefit of the Senior Secured Parties; W I T N E S S E T H T H A T: Capitalized terms used but not defined in this Deed of Trust have the meanings given to them in the Definitions Annex annexed hereto as Appendix B. Reference is made to the Senior Credit Agreement dated as of even date herewith (as amended, replaced or refinanced from time to time, the "Senior Credit Agreement"), among Rite Aid Corporation, a Delaware corporation (the "Borrower"), the banks from time to time party thereto, Citicorp USA, Inc., as Senior Administrative Agent and Senior Collateral Agent and The Chase Manhattan Bank, Credit Suisse First Boston and Fleet Retail Finance, Inc. as Syndication Agents. Pursuant to the terms of, and subject to the conditions specified in, the Senior Credit Agreement, (i) the Senior Banks have agreed to make certain term and revolving loans to the Borrower, (ii) one or more Senior Banks (the "Swingline Banks") have agreed to make swingline loans to the Borrower on an uncommitted basis (the "Swingline Loans" - together with the loans referenced in clause (i), above, the "Senior Loans") and (iii) one or more Senior Banks (the "Issuing Banks") have agreed to issue letters of credit (the "Letters of Credit") for the account of the Borrower. Grantor is a wholly owned subsidiary of the Borrower and will derive substantial benefit from the making of the Senior Loans by the Senior Banks and the issuance of the Letters of Credit by the Issuing Banks. In order to induce the Senior Banks to make the Senior Loans and the Issuing Banks to issue Letters of Credit, the Grantor has agreed to guarantee, the due and punctual payment of the Senior Bank Obligations and the 10.5% Note Obligations (together, the "Senior 5 Obligations") pursuant to the terms of the senior subsidiary guarantee agreement dated as of even date herewith (the "Senior Subsidiary Guarantee Agreement") made by Grantor and certain other Subsidiaries of Borrower (each, a "Subsidiary Guarantor") in favor of Beneficiary in its capacity as Senior Collateral Agent for the benefit of the Senior Bank Parties and the 10.5% Note Parties (together, the "Senior Secured Parties"). The sum of the principal amount of the Senior Loans and the Letters of Credit from time to time outstanding and secured hereby shall not exceed $1,900,000,000. The obligations of the Senior Banks to make Senior Loans and of the Issuing Banks to issue Letters of Credit are conditioned upon, among other things, the execution and delivery by the Grantor of this Deed of Trust in the form hereof to secure the guarantee of the Senior Obligations contained in the Senior Subsidiary Guarantee Agreement. Pursuant to the requirements of the Senior Credit Agreement and the Senior Subsidiary Guarantee Agreement, the Grantor therefore grants this Deed of Trust to create a lien on and a security interest in the Trust Property (as defined herein) to secure the payment and performance of the Senior Obligations. The Senior Credit Agreement also requires the granting by other Subsidiary Guarantors of mortgages, deeds of trust and deeds to secure debt (the "Other Mortgages") that create liens on and security interests in certain parcels of real property and related fixtures (each, a "Trust Property") other than the Trust Property to secure the payment and performance of the Senior Obligations. Granting Clauses NOW, THEREFORE, IN CONSIDERATION OF the foregoing and in order to secure the due and punctual payment and performance of the Senior Obligations for the benefit of the Senior Secured Parties, Grantor hereby grants, conveys, mortgages, assigns and pledges to the TRUSTEE, IN TRUST FOREVER, with power of sale, for the benefit of the Beneficiary and its successors, a security interest in, all the following described property (the "Trust Property") whether now owned or held or hereafter acquired: (1) the land more particularly described on Exhibit A hereto (the "Land"), together with all rights appurtenant thereto which may, by their terms or as a matter of law, be conveyed or assigned along with the 6 Land, 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, hereditaments and appurtenances thereunto belonging or in any way 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 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 apparatus, appliances, building materials, equipment, fittings, machinery and other articles of tangible personal property of every kind and nature, and replacements thereof, owned by Grantor and now or at any time hereafter affixed to the Improvements or the Premises, including all pumps, tanks, machinery, apparatus 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, communications, partitions, lighting fixtures, freezers, refrigerators, walk-in coolers, signs (indoor and outdoor), and all other items of tangible personal property of any kind affixed to 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 subparagraph (3), the "Fixtures"); (4) all general intangibles owned by 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 7 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) all now or hereafter existing 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 real estate tax refunds and all proceeds of the conversion, voluntary or involuntary, of any of the Trust Property into cash or liquidated claims ("Proceeds"), including Proceeds of insurance maintained by the Grantor and condemnation awards, any awards that 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, together with any and all moneys now or hereafter on deposit for the payment of real estate taxes, assessments or common area charges 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 Senior Credit Agreement; and (7) all extensions, improvements, betterments, renewals, substitutes and replacements of and all 8 additions and appurtenances to, the Land, the Premises, the Improvements, the Fixtures, 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 unto the Trustee, its successors and assigns, for the ratable benefit of the Senior Secured Parties, forever, subject only to the Permitted Encumbrances (as hereinafter defined) and to satisfaction and cancelation as provided in Section 3.04, 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: (i) an indefeasible fee estate in the Land and Improvements; and (ii) all of the Fixtures; subject only to (A) liens, pledges, charges and other encumbrances which are identified in Section 4.15(a) of the Senior Credit Agreement and (B) minor defects in title that do not interfere with the ability of Grantor or any other subsidiary of the Borrower to conduct its business as presently conducted or to utilize the Trust Property for its intended purpose (collectively, the "Permitted Encumbrances"). 9 (b) There are no Leases affecting the Land or the Improvements except as disclosed in the Senior Credit Agreement. (c) Grantor is not obligated under, and the Trust Property is not bound by or subject to, any right, of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Trust Property or any interest therein. (d) The granting of this Deed of Trust is within Grantor's corporate powers and has been duly authorized by all necessary corporate, and, if required, stockholder action. This Deed of Trust has been duly executed and delivered by Grantor and constitutes a legal, valid and binding obligation of Grantor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (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 first-priority lien upon and security interest in all the Trust Property subject only to Permitted Encumbrances. As of the date hereof, there are no defenses or offsets to this Deed of Trust that will be asserted by Grantor or its affiliates (or any third party defense or offset now known to Grantor or its affiliates) or to any of the Senior Obligations secured hereby for so long as any portion of the Senior Obligations remains outstanding. Grantor will forever warrant and defend its title to the Trust Property, the rights of Trustee and/or Beneficiary therein under this Deed of Trust and the validity and priority of the lien of this Deed of Trust against the claims of all persons and parties except those having rights under Permitted Encumbrances, to the extent of those rights. SECTION 1.02. Senior Credit Agreement; Senior Subsidiary Guarantee Agreement; Certain Amounts. (a) This Deed of Trust is given pursuant to the Senior Credit Agreement and the Senior Subsidiary Guarantee Agreement. Each and every term and provision of the Senior Credit Agreement and the Senior Subsidiary Guarantee Agreement (excluding the governing law provisions thereof), 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. 10 (b) If Trustee or Beneficiary exercises any of its rights or remedies under this Deed of Trust, 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 reasonable 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 and the reasonable expenses 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 lesser of (i) the rate specified in Section 2.07(b) of the Senior Credit Agreement and (ii) the rate which, together with all fees, charges and other amounts which are treated as interest on such amounts under applicable law, constitutes the maximum lawful rate which may be contracted for, charged, taken, received or reserved by Beneficiary in accordance with applicable law (the "Default Interest 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. 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 Interest Rate, and such interest at the Default Interest Rate shall be paid by Grantor to Beneficiary within 10 days after Grantor's receipt of notice from the Beneficiary that it is due. SECTION 1.03. Payment of Taxes, Liens and Charges. (a) Except to the extent they are being contested in the manner permitted by the Senior Credit Agreement, Grantor will pay and discharge from time to time prior to the time when the same shall become delinquent, and before any interest or penalty accrues thereon or attaches thereto, (i) all taxes and assessments (general and special), water and sewer rents and/or charges, public or private impositions, levies, dues, permit, inspection and license fees, vault charges, service charges, public or private common area charges or maintenance charges, utility charges of every kind and nature which may become liens on the Trust Property with priority over the lien of this Deed of Trust and (ii) all other material public or private charges, whether created or evidenced by recorded or 11 unrecorded documents or 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, operation or possession thereof. (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 or deeds of trust (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 or any of the Senior Loan Documents, or requiring an amount of taxes to be withheld or deducted therefrom, Grantor will promptly notify Beneficiary of such event. In such event (A) Grantor shall at the request of Beneficiary, execute an instrument or agreement which obligates Grantor to make such additional payments as may be necessary to place Grantor and the Senior Secured Parties in the same economic position they would have been in with respect to the Senior Loans and other Senior Obligations if such law, order, rule or regulation had not been passed and (B) Grantor shall make such additional payments. (c) At any time that an Event of Default (as hereinafter defined) shall occur and be continuing, 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 on a quarterly basis, each such deposit to be equal to one-quarter of any such annual charges estimated in a reasonable manner by Beneficiary in order to accumulate with Beneficiary sufficient funds to pay such taxes, assessments, insurance premiums and charges. Any such deposits held by Beneficiary shall be returned to Grantor within 30 days after this Deed of Trust is released or satisfied as provided in Section 3.04. SECTION 1.04. Payment of Closing Costs. Grantor shall pay all reasonable costs incurred by or on behalf of the Beneficiary in connection with, relating to or arising out of the preparation, execution and recording of this Deed of Trust, including title company charges, inspection costs, recording fees and taxes, attorneys', engineers' and 12 consultants' fees and disbursements and all other, similar expenses of every kind. SECTION 1.05. Plans; Alterations and Waste; Repairs. (a) To the extent the same exist on the date hereof or are obtained in connection with future permitted alterations, Grantor shall maintain a complete set of final plans, specifications, blueprints and drawings for the Trust Property 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 and at reasonable times. (b) Grantor shall not: (i) demolish or remove all or any material portion of the Improvements; (ii) commit any waste on the Trust Property or make any alterations to the Trust Property which would materially diminish the utility of Trust Property in the conduct of the business of the Grantor or its affiliates as conducted thereon on the date hereof; (iii) change the use of the Trust Property or take any other action with respect to the Trust Property if it would materially increase the risk of fire or any other hazard or violate the terms of any insurance policy required by Section 1.06 hereof; without the consent of the Beneficiary in each instance, such consent not to be unreasonably withheld or delayed. (c) Grantor will keep and maintain the Improvements and the Fixtures in good repair, working order and condition, reasonable wear and tear excepted. SECTION 1.06. Insurance. Grantor will purchase and maintain liability insurance, insurance on the Improvements and Fixtures and other insurance in accordance with the terms of the Senior Credit Agreement. SECTION 1.07. Casualty; Condemnation/Eminent Domain. Grantor shall give Beneficiary prompt written notice of any casualty or other damage to the Trust Property or any proceeding for the taking of the Trust Property or any portion thereof or interest therein under power of eminent domain or by condemnation or any similar proceeding. The proceeds received by or on behalf of the Grantor in respect of any such casualty, damage or taking shall constitute trust funds held by the Grantor for the benefit of the Senior Secured Parties 13 to be applied to in accordance with the terms of the Senior Credit Agreement. SECTION 1.08. 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 Senior 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) Without Beneficiary's prior written consent, which shall not be unreasonably withheld or delayed, Grantor will not enter into, modify, amend, terminate or consent to the cancelation or surrender of any Lease. (c) Subject to Section 1.08(d), 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 each Lease heretofore or hereafter made or agreed to by Grantor, it being intended that this assignment establish, subject to Section 1.08(d), an absolute transfer and assignment of all Rents and all Leases to Trustee for the benefit of the Beneficiary and not merely to grant a security interest therein. Subject to Section 1.08(d), 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) So long as an Event of Default shall not have occurred and be continuing, Beneficiary will not exercise any of its rights under Section 1.08(c), and Grantor shall receive and collect the Rents accruing under any Lease; but after the happening and during the continuance of any Event of Default, 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. 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 14 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 their successors in interest shall have received written notice from Beneficiary that the 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 its 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 tenant, 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 45 days after a request by Beneficiary to do so (but no more frequently than twice annually), 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 1.09. Restrictions on Transfers and Encumbrances. Except as expressly permitted by the Senior Credit Agreement or this Deed of Trust, 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 condemnation), or engage in any common, cooperative, joint, time-sharing or other congregate ownership of all or part thereof. SECTION 1.10. Security Agreement. This Deed of Trust is both a mortgage of real property and a grant of a security 15 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 ("UCC"). 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 reasonably 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 UCC in addition to, but not in limitation of, the other rights afforded Beneficiary hereunder and under the Security Agreement. SECTION 1.11. 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 Beneficiary in, the Trust Property. Grantor will pay all filing, registration and recording fees, all Federal, state, county and municipal recording, documentary or intangible taxes and other taxes, duties, imposts, assessments and charges, and all reasonable expenses incidental to or 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 Fixtures or any instrument of further assurance. SECTION 1.12. 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 16 the better 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 Fixtures and to perform each and every act and thing requisite and necessary to be done to accomplish the same. SECTION 1.13. 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 1.14. No Claims Against Trustee or Beneficiary. Nothing contained in this Deed of Trust shall constitute any consent or request by Beneficiary (or Trustee), 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 Beneficiary (or Trustee) in respect thereof. 17 SECTION 1.15. Fixture Filing. Certain portions of the Trust Property are or will become "fixtures" (as that term is defined in the UCC) on the Land, and this Deed of Trust, upon being filed for record in the real estate records of the county wherein such fixtures are situated, shall operate also as a financing statement filed as a fixture filing in accordance with the applicable provisions of said UCC upon such portions of the Trust Property that are or become fixtures. The addresses of the Grantor, as debtor, and Beneficiary, as secured party, are set forth in the first page of this Deed of Trust. SECTION 1.16. Notice Regarding Special Flood Hazard s. Beneficiary has informed Grantor, and Grantor hereby acknowledges that it realizes, that the Premises listed on Exhibit B is in an area identified by the Director of the Federal Emergency Management Agency as a "special flood hazard area" described in 12 C.F.R. ss.22.2, and Grantor hereby acknowledges that it has received, prior to the making of the Senior Loans and the incurrence of indebtedness constituting part of the Senior Obligations, the notice regarding Federal disaster relief assistance referred to in the Appendix to 12 C.F.R. Part 22. ARTICLE II Defaults and Remedies SECTION 2.01. Events of Default. Any event of default under the Senior Credit Agreement (as such term is defined therein, an "Event of Default") shall constitute an Event of Default under this Deed of Trust. SECTION 2.02. Demand for Payment. If an Event of Default shall occur and be continuing, then, without protest, demand or notice of Beneficiary, Grantor will pay to Beneficiary all amounts due hereunder and under the Senior Credit Agreement and such further amount as shall be sufficient to cover the costs and expenses of collection, including attorneys' fees, disbursements and expenses incurred by Beneficiary, and Beneficiary shall be entitled and empowered to institute an action or proceedings at law or in equity 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. 18 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 not prohibited by applicable 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, and exclude Grantor and its agents and employees wholly therefrom. (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 to the extent not prohibited by applicable law, 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 reasonable expenses of obtaining such judgment or decree, including reasonable compensation to Beneficiary's attorneys and agents with interest thereon at the Default Interest 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, to the extent not prohibited by applicable law, hold, store, use, operate, manage and control the Trust Property, conduct the business thereof and, from time to time, (i) make all necessary and proper 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 19 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 compensation, expenses and disbursements of the attorneys and agents of Beneficiary, Beneficiary shall apply the remainder of the moneys and proceeds so received as provided in Section 2.08. (d) Whenever, before any sale of the Trust Property under Section 2.06, all Senior Obligations that 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. Should Grantor fail in the payment, performance or observance of any term, covenant or condition set forth in this Deed of Trust or the Senior Credit Agreement (with respect to the Trust Property) for 10 days after notice of such failure from Beneficiary (in the case of a monetary default) or 20 days after notice of such failure from Beneficiary (in the case of a non-monetary default), 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 repaid by Grantor to Beneficiary with interest thereon at the Default Interest Rate from the date incurred within 10 days after demand made by Beneficiary. Beneficiary shall be the judge using reasonable discretion of the necessity for any such actions and of the amounts to be paid. 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 (which may be Beneficiary or an employee of Beneficiary or Trustee) to take possession of and to operate the Trust Property and to collect and apply the Rents. The receiver 20 shall have all of the rights and powers permitted under the laws of the state wherein the Trust Property is located. Grantor shall pay to Beneficiary upon demand all reasonable expenses, including receiver's fees, reasonable 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 Interest 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 and/or Trustee by applicable law or this Deed of Trust. In such case, Beneficiary or Trustee may commence a civil action to foreclose this Deed of Trust, or it may proceed and sell the Trust Property to satisfy any Senior 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 Trustee or 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 Trustee or 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 Trustee 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 Trustee or 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. (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 or of 21 sale provided for herein; and subsequent sales may be made hereunder until the Senior Obligations have been satisfied, or the entirety of the Trust Property has been sold. (d) If an Event of Default shall occur and be continuing, Beneficiary 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 Senior Obligations, or the performance of any term, covenant, condition or agreement of this Deed of Trust or any other Senior Loan Document or any other right, or (ii) to pursue any other remedy available to Beneficiary, 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 UCC. (b) In connection with a sale of the Trust Property or any Fixtures and the application of the proceeds of sale as provided in Section 2.08, Beneficiary shall be entitled to enforce payment of and to receive up to the principal amount of the Senior 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 Senior Obligations remaining unpaid, with interest. SECTION 2.08. Application of Sale Proceeds and Rents. After any foreclosure sale of all or any portion of the Trust Property, Beneficiary shall receive and apply the proceeds of the sale together with any Rents that may have been collected and any other sums that may then be held by Trustee or Beneficiary under this Deed of Trust as follows: FIRST, to the payment of the costs and expenses of such sale, including compensation to Trustee's and 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 Trustee and Beneficiary under this Deed of Trust, together with interest at the Default Interest Rate on all advances made by Trustee and Beneficiary, including all taxes, assessments (or other charges) (except any taxes, assessments or other charges subject to which the Trust Property shall have been sold) and the cost of 22 removing any liens or encumbrances (except any liens or encumbrances subject to which the Trust Property was sold); SECOND, to the Beneficiary for the distribution to the Senior Secured Parties for the satisfaction of the Senior Obligations owed to the Senior Secured Parties; and THIRD, to the holder of any subordinate mortgage, deed of trust or deed to secure debt encumbering the Trust Property entitled to receive such proceeds; and FOURTH, to the Grantor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Beneficiary shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Deed of Trust. In the event of any inconsistency between this Section 2.08 and the Collateral Trust and Intercreditor Agreement, the Collateral Trust and Intercreditor Agreement shall control. Nothing in this Deed of Trust shall be interpreted to make the Trustee or Beneficiary an agent of the Second Priority Debt Parties. Upon any sale of the Trust Property by the Trustee or Beneficiary (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the 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 the 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 Trustee or 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. Grantor waives, to the extent not prohibited by law, (i) the benefit of all laws now existing or that hereafter may be enacted (x) providing for any appraisement or valuation of any portion of the Trust 23 Property and/or (y) in any way extending the time for the enforcement or the collection of amounts due under any of the Senior Obligations or creating or extending a period of redemption from any sale made in collecting said debt or any other amounts due Beneficiary, (ii) 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 homestead exemption, stay, statute of limitations, 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 or notice of deficiency, and (iii) all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of or each of the Senior Obligations and marshaling in the event of 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 and 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. Beneficiary shall have power (a) to institute and maintain suits and proceedings to prevent any impairment of the Trust Property by any acts that 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) 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 Beneficiary hereunder. 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 Senior 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 24 due or that 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 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 Beneficiary may be exercised from time to time and as often as may be deemed expedient by Beneficiary. No consent or waiver by Beneficiary to or of any breach or Event of Default by Grantor in the performance of the Senior 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 of any other Senior 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 Senior 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 Senior 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 expressly provided in an instrument executed by Beneficiary, 25 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, requests, demands and other communications hereunder shall be in writing and given to Grantor in accordance with the terms of the Senior Credit Agreement at the address set forth on the first page of this Deed of Trust and to the Beneficiary as provided in the Senior Credit Agreement. 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. Satisfaction and Cancelation. (a) The conveyance to Trustee or Beneficiary of the Trust Property as 26 security created and consummated by this Deed of Trust shall be null and void when all the Senior Obligations have been indefeasibly paid in full in accordance with the terms of the Senior Loan Documents and the Banks have no further commitment to make Senior Loans under the Senior Credit Agreement, no Letters of Credit are outstanding and the Issuing Bank has no further obligation to issue Letters of Credit under the Senior Credit Agreement. (b) Upon a sale or financing by Grantor of all or any portion of the Trust Property that is permitted by the Senior Credit Agreement and the application of the Net Proceeds of such sale or financing in accordance with the Senior Credit Agreement, the lien of this Deed of Trust shall be released from the applicable portion of the Trust Property. Grantor shall give the Beneficiary reasonable written notice of any sale or financing of the Trust Property prior to the closing of such sale or financing. (c) In connection with any termination or release pursuant to paragraph (a), the Deed of Trust shall be marked "satisfied" by the Beneficiary, and this Deed of Trust shall be canceled of record at the request and at the expense of the Grantor. Beneficiary shall execute any documents reasonably requested by Grantor to accomplish the foregoing or to accomplish any release contemplated by this Section 3.04 and Grantor will pay all costs and expenses, including reasonable attorneys' fees, disbursements and other charges, incurred by Beneficiary in connection with the preparation and execution of such documents. SECTION 3.05. 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"; (e) "Trustee" shall mean "Trustee, for the benefit of the Beneficiary and in accordance with the Credit Agreement,"; and (f) "any of the Trust Property" shall mean "the Trust Property or any part thereof or interest therein". Any act that 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 Beneficiary. Any act that is prohibited to Grantor hereunder is also prohibited to all lessees of any of the Trust Property, except to the extent that a Lease executed prior to the date hereof expressly permits such act without 27 the consent of the Grantor or the holder of any mortgage. Each appointment of Beneficiary as attorney-in-fact for Grantor under this Deed of Trust is irrevocable, with power of substitution and coupled with an interest. Subject to the express provisions to the contrary contained in this Deed of Trust, 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. To the extent that this Deed of Trust provides that any particular consent, approval, acceptance or satisfaction is subject to the terms of the Senior Credit Agreement, it shall be granted or withheld as provided in the Senior Credit Agreement. SECTION 3.06. Multisite Real Estate Transaction. Grantor acknowledges that this Deed of Trust is one of a number of Other Mortgages that secure the Senior 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 Beneficiary, and without limiting the generality of the foregoing, the lien hereof shall not be impaired by any acceptance by the Beneficiary of any security for or guarantees of any of the Senior Obligations hereby secured, or by any failure, neglect or omission on the part of Beneficiary to realize upon or protect any Senior Obligation or indebtedness hereby secured or any collateral security therefor including the Other Mortgages and other Senior Loan 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 Senior Obligations secured or of any of the collateral security therefor, including the Other Mortgages and other Senior Loan Documents or of any guarantee thereof, and 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 Senior Loan Documents without first exercising or enforcing any of its rights and remedies hereunder. Such exercise of Beneficiary's rights and remedies under any or all of the Other Mortgages and other Senior Loan 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 Beneficiary hereunder shall not impair the lien of any of the Other Mortgages and other Senior Loan Documents or any of Beneficiary's rights and remedies thereunder. Grantor specifically consents and agrees that Beneficiary may exercise its rights and remedies hereunder and under the Other 28 Mortgages and other Senior Loan Documents separately or concurrently and in any order that it may deem appropriate and 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 in which the Trust Property is located without regard to principles of conflicts of laws and Grantor and Beneficiary agree to submit to jurisdiction and the laying of venue for any suit on this Deed of Trust in such state, except that the internal laws of the State of New York (without regard to principles of conflicts of laws) shall govern (i) those terms and conditions contained in the Senior Credit Agreement and/or the Senior Subsidiary Guarantee Agreement which are incorporated by reference herein and (ii) the resolution of issues arising under the Senior Credit Agreement and/or the Senior Subsidiary Guarantee Agreement to the extent that such resolution is necessary to the interpretation of this Deed of Trust. 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, bad faith 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. 29 (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 that 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 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 30 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. [The balance of this page intentionally left blank.] 31 IN WITNESS WHEREOF, this Deed of Trust has been duly authorized and has been executed and delivered by Grantor on the date first written above. THRIFTY PAYLESS, INC., a California corporation by: _________________________ Name: Title: Attest: by: ____________________________ Name: Title: 32 [NEED LOCAL FORM OF ACKNOWLEDGMENT] Exhibit A to Deed of Trust Description of Land All that real property situated in the County of Yolo, State of California, described as follows: PARCEL ONE: That portion of the Northwest 1/4 of Section 27, Township 10 North, Range 2 East, M.D.B. & M., according to the official plat thereof, lying Easterly of the following described line: Beginning at a point on the North line of said Northwest 1/4, distant thereon South 89(degrees) 53' 36" East 990.00 feet from the Northwest corner of said Northwest 1/4; running thence South 0(degrees) 23' 45" West, parallel with the West line of said Section 27, 2640 feet, more or less, to the South line of said Northwest 1/4 of Section 27. Excepting therefrom, that portion thereof lying Easterly of the following described line: Beginning at a point on the North line of said Northwest 1/4, distant thereon North 89(degrees) 53' 36" West 476.80 feet from the Northeast corner of said Northwest 1/4; running thence South 0(degrees) 25' 11" West 2642.78 feet to the South line of said Northwest 1/4 of Section 27. PARCEL TWO: A right of way for road purposes, described as follows: Beginning at a point on the North line of Section 27, Township 10 North, Range 2 East, M.D.B. & M., according to the official plat thereof, distant South 89(degrees) 53' 36" East 990 feet from the Northwest corner of said Section 27; running thence South 0(degrees) 23' 45" West, parallel with the West line of said Section 27, 1300 feet; thence North 89(degrees) 53' 36" West 30 feet; thence North 0(degrees) 23' 45" East 1300 feet to a point on the North line of said Section 27; thence South 89(degrees) 53' 36" East 30 feet to the point of beginning. Street Address: 1755 East Beamer Street Woodland, CA 95776 Exhibit B to Deed of Trust Premises Located in a Special Flood Hazard Area None. Appendix A to Deed of Trust Local Law Provisions Appendix B to Deed of Trust Definitions Annex EX-10 17 exh10-37.txt EXHIBIT 10.37 Poca, WV Putnam County ================================================================================ A SECOND PRIORITY CREDIT LINE DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS From RITE AID OF WEST VIRGINIA, INC. TO CARL D. ANDREWS 600 Quarrier Street Charleston (Kanahwha County) West Virginia an individual as Trustee for the benefit of WILMINGTON TRUST COMPANY, as SECOND PRIORITY COLLATERAL TRUSTEE FOR THE BENEFIT OF THE SECOND PRIORITY DEBT PARTIES as BENEFICIARY Dated: June 27, 2001 Premises: West Virginia Distribution Center Rock Branch Industrial Park Poca, WV ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I Representations, Warranties and Covenants of Grantor SECTION 1.01. Title ......................................................... 9 SECTION 1.02. Senior Loan Documents ......................................... 10 SECTION 1.03. Second Priority Debt Documents; Second Priority Subsidiary Guarantee Agreement.......................................... 12 SECTION 1.04. Payment of Taxes, Liens and Charges ........................... 12 SECTION 1.05. Payment of Closing Costs ...................................... 13 SECTION 1.06. Plans; Alterations and Waste; Repairs ......................... 13 SECTION 1.07. Insurance ..................................................... 14 SECTION 1.08. Casualty; Condemnation/Eminent Domain ......................... 14 SECTION 1.09. Assignment of Leases and Rents ................................ 14 SECTION 1.10. Restrictions on Transfers and Encumbrances .................... 16 SECTION 1.11. Security Agreement ............................................ 16 SECTION 1.12. Filing and Recording .......................................... 17 SECTION 1.13. Further Assurances ............................................ 17 SECTION 1.14. Additions to Trust Property ................................... 18 SECTION 1.15. No Claims Against Trustee or Beneficiary ...................... 18 SECTION 1.16. Fixture Filing ................................................ 18 SECTION 1.17. Notice Regarding Special Flood Hazards ........................ 18 ARTICLE II Default and Remedies SECTION 2.01. Events of Default ............................................. 19 SECTION 2.02. Demand for Payment ............................................ 19 SECTION 2.03. Rights To Take Possession, Operate and Apply Revenues ......... 19 SECTION 2.04. Right To Cure Grantor's Failure to Perform .................... 21 SECTION 2.05. Right to a Receiver ........................................... 21 SECTION 2.06. Foreclosure and Sale .......................................... 21 SECTION 2.07. Other Remedies ................................................ 23 SECTION 2.08. Application of Sale Proceeds and Rents ........................ 23 SECTION 2.09. Grantor as Tenant Holding Over ................................ 24 SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws ......................................... 24 SECTION 2.11. Discontinuance of Proceedings ................................. 25 SECTION 2.12. Suits To Protect the Trust Property ........................... 25 SECTION 2.13. Filing Proofs of Claim ........................................ 25 SECTION 2.14. Possession by Beneficiary ..................................... 25 SECTION 2.15. Waiver ........................................................ 26 SECTION 2.16. Remedies Cumulative ........................................... 27 ARTICLE III Miscellaneous SECTION 3.01. Partial Invalidity ............................................ 27 SECTION 3.02. Notices ....................................................... 27 SECTION 3.03. Successors and Assigns ........................................ 27 SECTION 3.04. Satisfaction and Cancelation. ................................. 28 SECTION 3.05. Definitions ................................................... 28 SECTION 3.06. Rules of Interpretation ....................................... 29 SECTION 3.07. Multisite Real Estate Transaction ............................. 29 SECTION 3.08. Subordination; Intercreditor Agreement ........................ 30 SECTION 3.09. Collateral Trust and Intercreditor Agreement .................. 30 SECTION 3.10. Amendments in Writing ......................................... 30 ARTICLE IV Particular Provisions SECTION 4.01. Applicable Law; Certain Particular Provisions ................. 31 SECTION 4.02. Trustee's Powers and Liabilities .............................. 31 Exhibit A Description of Land Exhibit B Premises Located in a Special Flood Hazard Area Appendix A Local Law Provisions Appendix B Definitions Annex THIS SECOND PRIORITY CREDIT LINE DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS dated as of June 27, 2001 (this "Second Priority Deed of Trust"), by RITE AID OF WEST VIRGINIA, INC., a West Virginia corporation, having an office at 30 Hunter Lane, Camp Hill, Pennsylvania 17011 (the "Grantor"), to CARL D. ANDREWS, having an office at 600 Quarrier Street, Charleston, Kanawha County, West Virginia, as trustee ("Trustee") for the benefit of WILMINGTON TRUST COMPANY, a Delaware banking corporation, having an office at Rodney Square North, 1100 North Market St., Wilmington, DE 19890-0001 (the "Beneficiary") as Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. W I T N E S S E T H T H A T: Capitalized terms used but not defined in this Second Priority Deed of Trust have the meanings given to them in the Definitions Annex annexed hereto as Appendix B. Reference is made to (i) the Senior Credit Agreement dated as of June __, 2001 (the "Senior Credit Agreement"), among Rite Aid Corporation, a Delaware corporation (the "Borrower"), the banks from time to time party thereto and Citicorp USA, Inc., as Senior Administrative Agent and Senior Collateral Agent for the banks and (ii) the Collateral Trust and Intercreditor Agreement dated as of the date hereof (the "Collateral Trust and Intercreditor Agreement"), among Rite Aid Corporation, certain subsidiaries of Rite Aid Corporation, Wilmington Trust Company as Second Priority Collateral Trustee, Citicorp USA, Inc., as Senior Collateral Agent, and each Second Priority Representative, as amended from time to time. Reference is made to the Senior Deed of Trust dated as of June __, 2001 (the "Senior Deed of Trust"), with Citicorp USA, Inc., as Senior Collateral Agent pursuant to which the Grantor has granted to the Senior Collateral Agent a first mortgage lien on the property described herein. The lien of this Second Priority Deed of Trust is intended by the Grantor and the Trustee or Beneficiary to be junior and subordinate to the Lien of the Senior Deed of Trust. Grantor is a wholly owned subsidiary of the Borrower and will derive substantial benefit from the making of the Second Priority Debt Documents. In order to induce the Second Priority Debt Parties, among other things, amend and 5 extend the Second Priority Debt Documents, the Grantor has agreed to (i) guarantee the due and punctual payment of the Second Priority Debt Obligations of the Borrower under the Second Priority Debt Documents pursuant to the second priority subsidiary guarantee agreement dated as of even date herewith (the "Second Priority Subsidiary Guarantee Agreement") made by Grantor and certain other Subsidiaries of Borrower (each, a "Subsidiary Guarantor") in favor of Trustee in its capacity as Second Priority Collateral Trustee, and (ii) execute and deliver this Second Priority Deed of Trust in the form hereof to secure all of the Second Priority Debt Obligations guaranteed by Grantor pursuant to the Second Priority Subsidiary Guarantee Agreement. Pursuant to the requirements of the Second Priority Debt Documents and the Second Priority Guarantee Agreement, the Grantor therefore grants this Deed of Trust to create a lien on and a security interest in the Trust Property (as defined herein) to secure the payment and performance of the Second Priority Debt Obligations. The Second Priority Debt Documents also require the granting by other Subsidiary Guarantors of mortgages, deeds of trust and deeds to secure debt (the "Other Deeds of Trust") that create liens on and security interests in certain parcels of real property (each, a "Trust Property") other than the Trust Property to secure the payment and performance of the Second Priority Debt Obligations. Granting Clauses NOW, THEREFORE, IN CONSIDERATION OF the foregoing and in order to secure the due and punctual payment and performance of the Second Priority Debt Obligations for the benefit of the Second Priority Debt Parties, Grantor hereby grants, conveys, mortgages, assigns and pledges to the Trustee and/or Beneficiary and its successors and assigns forever, a security interest in, all the following described property (the "Trust Property") whether now owned or held or hereafter acquired: (1) the land more particularly described on Exhibit A hereto (the "Land"), together with all rights appurtenant thereto which may, by their terms or as a matter of law, be conveyed or assigned along with the Land, 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 6 with all of the other easements, rights, privileges, interests, hereditaments and appurtenances thereunto belonging or in any way 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 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 apparatus, appliances, building materials, equipment, fittings, machinery and other articles of tangible personal property of every kind and nature, and replacements thereof, owned by Grantor and now or at any time hereafter affixed to the Improvements or the Premises, including all pumps, tanks, machinery, apparatus 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, communications, partitions, lighting fixtures, freezers, refrigerators, walk-in coolers, signs (indoor and outdoor), and all other items of tangible personal property of any kind affixed to 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 subparagraph (3), (the "Fixtures"); (4) all general intangibles owned by 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, 7 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) all now or hereafter existing 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 real estate tax refunds and all proceeds of the conversion, voluntary or involuntary, of any of the Trust Property into cash or liquidated claims ("Proceeds"), including Proceeds of insurance maintained by the Grantor and condemnation awards, any awards that 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, together with any and all moneys now or hereafter on deposit for the payment of real estate taxes, assessments or common area charges 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 Senior 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 Fixtures, 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 8 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 Second Priority 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 unto the Trustee, its successors and assigns, for the ratable benefit of the Second Priority Debt Parties, forever, subject only to the Permitted Encumbrances (as hereinafter defined) and to satisfaction and cancelation as provided in Section 3.04, 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: (i) an indefeasible fee estate in the Land and Improvements; and (ii) all of the Fixtures; subject only to (A) the Senior Deed of Trust, (B) liens, pledges, charges and other encumbrances which are identified in Section 4.15(a) of the Senior Credit Agreement and (C) minor defects in title that do not interfere with the ability of Grantor or any other subsidiary of the Borrower to conduct its business as presently conducted or to utilize the Trust Property for its intended purpose (collectively, the "Permitted Encumbrances"). (b) There are no Leases affecting the Land or the Improvements except as disclosed in the Second Priority Debt Documents. (c) Grantor is not obligated under, and the Trust Property is not bound by or subject to, any right, of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Trust Property or any interest therein. 9 (d) The granting of this Second Priority Deed of Trust is within Grantor's corporate powers and has been duly authorized by all necessary corporate, and, if required, stockholder action. This Second Priority Deed of Trust has been duly executed and delivered by Grantor and constitutes a legal, valid and binding obligation of Grantor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (e) This Second Priority 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 first-priority lien upon and security interest in all the Trust Property subject only to Permitted Encumbrances. As of the date hereof, there are no defenses or offsets to this Second Priority Deed of Trust that will be asserted by Grantor or its affiliates (or any third party defense or offset now known to Grantor or its affiliates) or to any of the Second Priority Debt Obligations secured hereby for so long as any portion of the Second Priority Debt Obligations remains outstanding. Grantor will forever warrant and defend its title to the Trust Property, the rights of Trustee and/or Beneficiary therein under this Second Priority Deed of Trust and the validity and priority of the lien of this Second Priority Deed of Trust against the claims of all persons and parties except those having rights under Permitted Encumbrances, to the extent of those rights. SECTION 1.02. Senior Loan Documents. The Grantor hereby covenants that (i) the Grantor shall promptly pay when due and payable the principal, interest and other charges mentioned in and made payable by the Senior Loan Documents; (ii) the Grantor shall promptly perform and observe all of the terms, covenants and conditions required to be performed and observed by the Grantor under the Senior Loan Documents within the grace and cure periods provided in the Senior Loan Documents; (iii) the Grantor shall notify the Trustee or Beneficiary (A) promptly prior to the expiration of any applicable grace and cure period for which provision is made in the Senior Loan Documents of any monetary default, and (B) promptly after the expiration of any applicable grace and cure period for which provision is made in the Senior Loan Documents of any non-monetary default by the Grantor in the performance or observance of any of the terms, 10 covenants or conditions on the part of the Grantor to be performed or observed under the Senior Loan Documents; and (iv) the Grantor shall (A) promptly notify the Trustee or Beneficiary of the receipt by the Grantor of any notice from the holders of the Senior Obligations asserting or claiming a default by the Grantor in the performance or observance of any of the terms, covenants or conditions on the part of the Grantor to be performed or observed under the Senior Loan Documents, and (B) promptly cause a copy of each such notice to be delivered to the Trustee or Beneficiary. SECTION 1.03. Second Priority Debt Documents; Second Priority Subsidiary Guarantee Agreement. (a) This Second Priority Deed of Trust is given pursuant to the Second Priority Debt Documents and the Second Priority Subsidiary Guarantee Agreement. Each and every term and provision of the Second Priority Debt Documents and the Second Priority Subsidiary Guarantee Agreement (excluding the governing law provisions thereof), 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 Second Priority Deed of Trust. (b) If Trustee or Beneficiary exercises any of its rights or remedies under this Second Priority Deed of Trust, 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 Second Priority 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 reasonable 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 and the reasonable expenses 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 lesser of (i) the rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) equal to the sum of (A) the rate of interest publically announced by Citibank in New York, New York, from time to time as its "base rate", plus (B) 2.00% and (ii) the rate which, together with all fees, charges and other amounts which are treated as interest on such amounts under applicable law, constitutes the maximum lawful rate which may be contracted for, charged, taken, received or reserved by Trustee or Beneficiary in accordance with applicable law (the "Default Interest Rate"), and such sums and the interest thereon shall, to the 11 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 attached or accruing subsequent to the recording of this Second Priority Deed of Trust and shall be secured by this Second Priority Deed of Trust to the extent permitted by law. Any payment of amounts due under this Second Priority 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 Interest Rate, and such interest at the Default Interest Rate shall be paid by Grantor to Trustee or Beneficiary within 10 days after Mortgagor's receipt of notice from the Trustee or Beneficiary that is due. SECTION 1.04. Payment of Taxes, Liens and Charges. (a) Except to the extent they are being contested in the manner permitted by the Second Priority Debt Documents, Grantor will pay and discharge from time to time prior to the time when the same shall become delinquent, and before any interest or penalty accrues thereon or attaches thereto, (i) all taxes and assessments (general and special), water and sewer rents and/or charges, public or private impositions, levies, dues, permit, inspection and license fees, vault charges, service charges, public or private common area charges or maintenance charges, utility charges of every kind and nature which may become liens on the Trust Property with priority over the lien of this Second Priority Deed of Trust and (ii) all other material public or private charges, whether created or evidenced by recorded or unrecorded documents or 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, operation or possession thereof. (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 Second Priority Deed of Trust or debts secured by mortgages or deeds of trust (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 Second Priority Deed of Trust or any of the Senior Loan Documents, or requiring an amount of taxes to be withheld or deducted therefrom, Grantor will promptly notify Beneficiary of such event. In such event (A) Grantor shall at the request of Beneficiary, execute an instrument or agreement which obligates Grantor to make such additional payments as may be necessary to 12 place Grantor and the Second Priority Debt Parties in the same economic position they would have been in with respect to the Senior Loans and other Second Priority Debt Obligations if such law, order, rule or regulation had not been passed and (B) Grantor shall make such additional payments. (c) At any time that an Event of Default (as hereinafter defined) shall occur and be continuing, 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 on a quarterly basis, each such deposit to be equal to one-quarter of any such annual charges estimated in a reasonable manner by Beneficiary in order to accumulate with Beneficiary sufficient funds to pay such taxes, assessments, insurance premiums and charges. Any such deposits held by Beneficiary shall be returned to Grantor within 30 days after this Second Priority Deed of Trust is released or satisfied as provided in Section 3.04. SECTION 1.05. Payment of Closing Costs. Grantor shall pay all reasonable costs incurred by or on behalf of the Beneficiary in connection with, relating to or arising out of the preparation, execution and recording of this Second Priority Deed of Trust, including title company charges, inspection costs, recording fees and taxes, attorneys', engineers' and consultants' fees and disbursements and all other, similar expenses of every kind. SECTION 1.06. Plans; Alterations and Waste; Repairs. (a) To the extent the same exist on the date hereof or are obtained in connection with future permitted alterations, Grantor shall maintain a complete set of final plans, specifications, blueprints and drawings for the Trust Property 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 and at reasonable times. (b) Grantor shall not: (i) demolish or remove all or any material portion of the Improvements; (ii) commit any waste on the Trust Property or make any alterations to the Trust Property which would materially diminish the utility of Trust Property in the conduct of the business of the Grantor or its affiliates as conducted thereon on the date hereof; 13 (iii) change the use of the Trust Property or take any other action with respect to the Trust Property if it would materially increase the risk of fire or any other hazard or violate the terms of any insurance policy required by Section 1.06 hereof; without the consent of the Beneficiary in each instance, such consent not to be unreasonably withheld or delayed. (c) Grantor will keep and maintain the Improvements and the Fixtures in good repair, working order and condition, reasonable wear and tear excepted. SECTION 1.07. Insurance. Grantor will purchase and maintain liability insurance, insurance on the Improvements and Fixtures and other insurance in accordance with the terms of the Second Priority Debt Documents. SECTION 1.08. Casualty; Condemnation/Eminent Domain. Grantor shall give Beneficiary prompt written notice of any casualty or other damage to the Trust Property or any proceeding for the taking of the Trust Property or any portion thereof or interest therein under power of eminent domain or by condemnation or any similar proceeding. The proceeds received by or on behalf of the Grantor in respect of any such casualty, damage or taking shall constitute trust funds held by the Grantor for the benefit of the Second Priority Debt Parties to be applied to in accordance with the terms of the Second Priority Debt Documents. 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 Second Priority Debt 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) Without Beneficiary's prior written consent, which shall not be unreasonably withheld or delayed, Grantor will not enter into, modify, amend, terminate or consent to the cancelation or surrender of any Lease. 14 (c) Subject to Section 1.09(d), 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 each Lease heretofore or hereafter made or agreed to by Grantor, it being intended that this assignment establish, subject to Section 1.09(d), an absolute transfer and assignment of all Rents and all Leases to Trustee for the benefit of the Beneficiary and not merely to grant a security interest therein. Subject to Section 1.09(d), 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) So long as an Event of Default shall not have occurred and be continuing, Beneficiary will not exercise any of its rights under Section 1.09(c), and Grantor shall receive and collect the Rents accruing under any Lease; but after the happening and during the continuance of any Event of Default, 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. 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 their successors in interest shall have received written notice from Beneficiary that the 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 its 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, 15 Beneficiary shall not be responsible or liable for performing any of the obligations of the landlord under any Lease, for any waste by any tenant, 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 45 days after a request by Beneficiary to do so (but no more frequently than twice annually), 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 expressly permitted by the Second Priority Debt Documents or this Second Priority Deed of Trust, 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 condemnation), or engage in any common, cooperative, joint, time-sharing or other congregate ownership of all or part thereof. SECTION 1.11. Security Agreement. This Second Priority 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 ("UCC"). Grantor has hereby granted unto Beneficiary a security interest in and to all the Trust Property described in this Second Priority Deed of Trust that is not real property, and simultaneously with the recording of this Second Priority 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 Second Priority 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 reasonably 16 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 UCC in addition to, but not in limitation of, the other rights afforded Beneficiary hereunder and under the Security Agreement. SECTION 1.12. Filing and Recording. Grantor will cause this Second Priority 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 Beneficiary in, the Trust Property. Grantor will pay all filing, registration and recording fees, all Federal, state, county and municipal recording, documentary or intangible taxes and other taxes, duties, imposts, assessments and charges, and all reasonable expenses incidental to or arising out of or in connection with the execution, delivery and recording of this Second Priority Deed of Trust, any mortgage supplemental hereto, any security instrument with respect to the Fixtures 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 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 Second Priority Deed of Trust, or for filing, registering or recording this Second Priority 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 Fixtures and to perform each and every act and thing requisite and necessary to be done to accomplish the same. 17 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 Second Priority 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 Second Priority Deed of Trust. SECTION 1.15. No Claims Against Trustee or Beneficiary. Nothing contained in this Second Priority Deed of Trust shall constitute any consent or request by Beneficiary (or Trustee), 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 Beneficiary (or Trustee) in respect thereof. SECTION 1.16. Fixture Filing. Certain portions of the Trust Property are or will become "fixtures" (as that term is defined in the UCC) on the Land, and this Second Priority Deed of Trust, upon being filed for record in the real estate records of the county wherein such fixtures are situated, shall operate also as a financing statement filed as a fixture filing in accordance with the applicable provisions of said UCC upon such portions of the Trust Property that are or become fixtures. The addresses of the Grantor, as debtor, and Beneficiary, as secured party, are set forth in the first page of this Second Priority Deed of Trust. SECTION 1.17. Notice Regarding Special Flood Hazard s. Beneficiary has informed Grantor, and Grantor hereby acknowledges that it realizes, that the Premises listed on Exhibit B is in an area identified by the Director of the 18 Federal Emergency Management Agency as a "special flood hazard area" described in 12 C.F.R. ss.22.2, and Grantor hereby acknowledges that it has received, prior to the making of the Senior Loans and the incurrence of indebtedness constituting part of the Senior Obligations, the notice regarding Federal disaster relief assistance referred to in the Appendix to 12 C.F.R. Part 22. ARTICLE II Defaults and Remedies SECTION 2.01. Events of Default. Any event of default under the Second Priority Debt Documents (as such term is defined therein, an "Event of Default") shall constitute an Event of Default under this Second Priority Deed of Trust. SECTION 2.02. Demand for Payment. If an Event of Default shall occur and be continuing, then, without requirement of protest, demand or notice of Beneficiary, Grantor will pay to Beneficiary all amounts due hereunder and under the Second Priority Debt Documents and such further amount as shall be sufficient to cover the costs and expenses of collection, including attorneys' fees, disbursements and expenses incurred by Beneficiary, and Beneficiary shall be entitled and empowered to institute an action or proceedings at law or in equity 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 written demand of Beneficiary, forthwith surrender to Beneficiary actual possession of the Trust Property and, if and to the extent not prohibited by applicable 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, and exclude Grantor and its agents and employees wholly therefrom. (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 to the extent not prohibited by applicable law, obtain a judgment or decree conferring upon Beneficiary the right to immediate possession or requiring 19 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 reasonable expenses of obtaining such judgment or decree, including reasonable compensation to Beneficiary's attorneys and agents with interest thereon at the Default Interest Rate; and all such expenses and compensation shall, until paid, be secured by this Second Priority Deed of Trust. (c) Upon every such entry or taking of possession, Beneficiary may, to the extent not prohibited by applicable law, hold, store, use, operate, manage and control the Trust Property, conduct the business thereof and, from time to time, (i) make all necessary and proper 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 compensation, expenses and disbursements of the attorneys and agents of Beneficiary, Beneficiary shall apply the remainder of the moneys and proceeds so received as provided in Section 2.08. (d) Whenever, before any sale of the Trust Property under Section 2.06, all Second Priority Debt Obligations that 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. 20 SECTION 2.04. Right To Cure Grantor's Failure to Perform. Should Grantor fail in the payment, performance or observance of any term, covenant or condition set forth in this Second Priority Deed of Trust or the Second Priority Debt Documents (with respect to the Trust Property) for 10 days after notice of such failure from Beneficiary (in the case of a monetary default) or 20 days after notice of such failure from Beneficiary (in the case of a non-monetary default), 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 repaid by Grantor to Beneficiary with interest thereon at the Default Interest Rate from the date incurred within 10 days after demand made by Beneficiary. Beneficiary shall be the judge using reasonable discretion of the necessity for any such actions and of the amounts to be paid. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, 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. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, of 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 (which may be Beneficiary or an employee of Beneficiary or Trustee) 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 shall pay to Beneficiary upon demand all reasonable expenses, including receiver's fees, reasonable 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 Second Priority Deed of Trust and shall be, without demand, immediately repaid by Grantor to Beneficiary with interest thereon at the Default Interest Rate. SECTION 2.06. Foreclosure and Sale. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, (a) if an Event of Default shall occur and be continuing, Beneficiary may elect to sell the Trust Property or any 21 part of the Trust Property by exercise of the power of foreclosure or of sale granted to Beneficiary and/or Trustee by applicable law or this Second Priority Deed of Trust. In such case, Beneficiary or Trustee may commence a civil action to foreclose this Second Priority Deed of Trust, or it may proceed and sell the Trust Property to satisfy any Second Priority Debt 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 Trustee or 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 Trustee or 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 Trustee 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 Trustee or 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. (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 or of sale provided for herein; and subsequent sales may be made hereunder until the Second Priority Debt Obligations have been satisfied, or the entirety of the Trust Property has been sold. (d) If an Event of Default shall occur and be continuing, Beneficiary 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 22 all of the Second Priority Debt Obligations, or the performance of any term, covenant, condition or agreement of this Second Priority Deed of Trust or any other Senior Loan Document or any other right, or (ii) to pursue any other remedy available to Beneficiary, all as Beneficiary shall determine most effectual for such purposes. SECTION 2.07. Other Remedies. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, (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 UCC. (b) In connection with a sale of the Trust Property or any Fixtures and the application of the proceeds of sale as provided in Section 2.08, Beneficiary shall be entitled to enforce payment of and to receive up to the principal amount of the Second Priority Debt Obligations, plus all other charges, payments and costs due under this Second Priority Deed of Trust, and to recover a deficiency judgment for any portion of the aggregate principal amount of the Second Priority Debt Obligations remaining unpaid, with interest. SECTION 2.08. Application of Sale Proceeds and Rents. After any foreclosure sale of all or any portion of the Trust Property, Beneficiary shall receive and apply the proceeds of the sale together with any Rents that may have been collected and any other sums that may then be held by Trustee or Beneficiary under this Second Priority Deed of Trust as follows: FIRST, to the payment of the costs and expenses of such sale, including compensation to Trustee's and 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 Trustee and Beneficiary under this Second Priority Deed of Trust, together with interest at the Default Interest Rate on all advances made by Trustee and Beneficiary, including all taxes, assessments (or other charges) (except any taxes, assessments or other charges subject to which the Trust Property shall have been sold) and the cost of removing any liens or encumbrances (except any liens or encumbrances subject to which the Trust Property was sold); SECOND, to the Beneficiary for the distribution to the Second Priority Debt Parties for the satisfaction of the Second Priority Debt Obligations owed to the Second Priority Debt Parties; and 23 THIRD, to the Grantor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Beneficiary shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Second Priority Deed of Trust. In the event of any inconsistency between this Section 2.08 and the Collateral Trust and Intercreditor Agreement, the Collateral Trust and Intercreditor Agreement shall control. Upon any sale of the Trust Property by the Trustee or Beneficiary (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the 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 the 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 Trustee or 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. Grantor waives, to the extent not prohibited by law, (i) the benefit of all laws now existing or that hereafter may be enacted (x) providing for any appraisement or valuation of any portion of the Trust Property and/or (y) in any way extending the time for the enforcement or the collection of amounts due under any of the Second Priority Debt Obligations or creating or extending a period of redemption from any sale made in collecting said debt or any other amounts due Beneficiary, (ii) 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 homestead exemption, stay, statute of limitations, 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 or notice of deficiency, and (iii) all rights of redemption, valuation, appraisement, stay of 24 execution, notice of election to mature or declare due the whole of or each of the Second Priority Debt Obligations and marshaling in the event of foreclosure of this Second Priority 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 Second Priority 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 and 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. Beneficiary shall have power (a) to institute and maintain suits and proceedings to prevent any impairment of the Trust Property by any acts that may be unlawful or in violation of this Second Priority Deed of Trust, (b) to preserve or protect its interest in the Trust Property and in the Rents arising therefrom and (c) 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 Beneficiary hereunder. 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 Second Priority Debt Obligations secured by this Second Priority 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 that 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 Second Priority Deed of Trust to Beneficiary in accordance with the terms hereof and applicable law. 25 SECTION 2.15. Waiver. (a) No delay or failure by 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 Second Priority Deed of Trust to Beneficiary may be exercised from time to time and as often as may be deemed expedient by Beneficiary. No consent or waiver by Beneficiary to or of any breach or Event of Default by Grantor in the performance of the Second Priority Debt 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 of any other Second Priority Debt 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 Second Priority Debt Documents, (iv) releases a part of the Trust Property from this Second Priority Deed of Trust, (v) agrees to change some of the terms, covenants, conditions or agreements of any of the Second Priority Debt 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 expressly provided in an instrument executed by Beneficiary, shall this Second Priority 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. 26 SECTION 2.16. Remedies Cumulative. No right, power or remedy conferred upon or reserved to Trustee or Beneficiary by this Second Priority 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 Second Priority 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 Second Priority Deed of Trust, and this Second Priority 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, requests, demands and other communications to any party hereunder shall be in writing (including bank wire, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Trustee or Beneficiary, at its address at Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001 or facsimile number (302) 651-8882 and (y) in the case of the Grantor, at the addresses, in care of Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011 or facsimile number (717) 975-3764. Each such notice, request or other communication shall be effective if given by facsimile, which such communication is transmitted to the facsimile number specified in this Section and confirmation of receipt is received, if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or if given by any other means, when delivered at the addressed specified in this Section. 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. 27 SECTION 3.04. Satisfaction and Cancelation. (a) The conveyance to Trustee or Beneficiary of the Trust Property as security created and consummated by this Second Priority Deed of Trust shall be null and void when all the Second Priority Debt Obligations have been indefeasibly paid in full in accordance with the terms of the Second Priority Debt Documents and no further Second Priority Debt Obligations are outstanding. (b) Upon a sale or financing by Grantor of all or any portion of the Trust Property that is permitted by the Senior Loan Documents and the Second Priority Debt Documents and the application of the Net Proceeds of such sale or financing in accordance with the Collateral Trust and Intercreditor Agreement or Second Priority Debt Documents, as applicable, the lien of this Second Priority Deed of Trust shall be released from the applicable portion of the Trust Property. Grantor shall give the Beneficiary reasonable written notice of any sale or financing of the Trust Property prior to the closing of such sale or financing. (c) In connection with any termination or release pursuant to paragraph (a), the Second Priority Deed of Trust shall be marked "satisfied" by the Beneficiary, and this Second Priority Deed of Trust shall be canceled of record at the request and at the expense of the Grantor. Beneficiary shall execute any documents reasonably requested by Grantor to accomplish the foregoing or to accomplish any release contemplated by this Section 3.04 and Grantor will pay all costs and expenses, including reasonable attorneys' fees, disbursements and other charges, incurred by Beneficiary in connection with the preparation and execution of such documents. SECTION 3.05. Definitions. As used in this Second Priority 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"; (e) "Trustee" shall mean "Trustee, for the benefit of the Beneficiary and in accordance with the Second Priority Debt Documents,"; and (f) "any of the Trust Property" shall mean "the Trust Property or any part thereof or interest therein". Any act that 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 Beneficiary. 28 Any act that is prohibited to Grantor hereunder is also prohibited to all lessees of any of the Trust Property, except to the extent that a Lease executed prior to the date hereof expressly permits such act without the consent of the Grantor or the holder of any mortgage or deed of trust. Each appointment of Beneficiary as attorney-in-fact for Grantor under this Second Priority Deed of Trust is irrevocable, with power of substitution and coupled with an interest. Subject to the express provisions to the contrary contained in this Second Priority Deed of Trust, 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. To the extent that this Second Priority Deed of Trust provides that any particular consent, approval, acceptance or satisfaction is subject to the terms of the Second Priority Debt Documents, it shall be granted or withheld as provided in the Second Priority Debt Documents. SECTION 3.06. Rules of Interpretation. References in this Second Priority Deed of Trust to "Articles", "Sections", "Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to this Second Priority Deed of Trust unless otherwise specifically provided. Any defined terms may, unless the context otherwise requires, be used in the singular or plural depending on the reference. "Writing", "written" and comparable terms refer to printing, typing and other means of reproducing words in a visible form. References to any agreement or contract are to such agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. References to any Person include the successors and assigns of such Person. References "from" or "through" any date mean, unless otherwise specified, "from and including" or "through and including" respectively. SECTION 3.07. Multisite Real Estate Transaction. Grantor acknowledges that this Second Priority Deed of Trust is one of a number of Other Deeds of Trust that secure the Second Priority Debt Obligations. Grantor agrees that the lien of this Second Priority 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 Beneficiary, and without limiting the generality of the foregoing, the lien hereof shall not be impaired by any acceptance by the Beneficiary of any security for or guarantees of any of the Second Priority Debt Obligations hereby secured, or by any failure, neglect or omission on the part of Beneficiary to realize upon or protect any Second Priority Debt Obligation or indebtedness hereby secured or any collateral security therefor including the 29 Other Deeds of Trust and other Second Priority Debt 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 Second Priority Debt Obligations secured or of any of the collateral security therefor, including the Other Deeds of Trust and other Second Priority Debt Documents or of any guarantee thereof, and 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 Deeds of Trust and other Second Priority Debt Documents without first exercising or enforcing any of its rights and remedies hereunder. Such exercise of Beneficiary's rights and remedies under any or all of the Other Deeds of Trust and other Second Priority Debt Documents shall not in any manner impair the indebtedness hereby secured or the lien of this Second Priority Deed of Trust and any exercise of the rights or remedies of Beneficiary hereunder shall not impair the lien of any of the Other Deeds of Trust and other Second Priority Debt Documents or any of Beneficiary's rights and remedies thereunder. Grantor specifically consents and agrees that Beneficiary may exercise its rights and remedies hereunder and under the Other Deeds of Trust and other Second Priority Debt Documents separately or concurrently and in any order that it may deem appropriate and waives any rights of subrogation. SECTION 3.08. Subordination; Intercreditor Agreement. The lien of this Second Priority Deed of Trust is junior and subordinate to the lien of any Deed of Trust now or hereafter granted to Citicorp USA, Inc. and its successors and assigns as collateral agent for certain secured parties, including the lenders from time to time part to that certain Senior Credit Agreement dated as of the date hereof, as amended, replaced or refinanced from time to time, with Rite Aid Corporation and its successors and assigns in accordance with the provisions of the Collateral Trust and Intercreditor Agreement. SECTION 3.09. Collateral Trust and Intercreditor Agreement. Notwithstanding any provision to the contrary contained herein, the terms of this Second Priority Deed of Trust, the Liens created hereby, and the rights and remedies of the Second Priority Collateral Trustee and the Second Priority Debt Parties hereunder, are subject to the Collateral Trust and Intercreditor Agreement. SECTION 3.10. Amendments in Writing. None of the terms or provisions of this Second Priority Deed of Trust may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Grantor and 30 the Second Priority Collateral Trustee with the written consent of the Second Priority Instructing Group, provided that (i) any provision of this Second Priority Deed of Trust may be waived by the Second Priority Instructing Group and (ii) any amendment, waiver, supplement or other modification which by its terms adversely affects the rights of the Second Priority Debt Parties under a particular Second Priority Facility in a manner different from its effect on the other Second Priority Facilities shall only be effective with the consent of the Second Priority Representative for each Second Priority Facility so adversely affected. ARTICLE IV Particular Provisions This Second Priority 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 Second Priority Deed of Trust shall be governed by and construed in accordance with the internal law of the State in which the Trust Property is located without regard to principles of conflicts of laws and Grantor and Beneficiary agree to submit to jurisdiction and the laying of venue for any suit on this Second Priority Deed of Trust in such state, except that the internal laws of the State of New York (without regard to principles of conflicts of laws) shall govern (i) those terms and conditions contained in the Second Priority Debt Documents and/or the Second Priority Subsidiary Guarantee Agreement which are incorporated by reference herein and (ii) the resolution of issues arising under the Second Priority Debt Documents and/or the Second Priority Subsidiary Guarantee Agreement to the extent that such resolution is necessary to the interpretation of this Second Priority Deed of Trust. 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 Second Priority 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, bad faith or wilful 31 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 Second Priority 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 that 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 Second Priority Deed of Trust is recorded, nor 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 Second Priority 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 32 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 Second Priority 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. [The balance of this page intentionally left blank.] 33 IN WITNESS WHEREOF, this Second Priority Deed of Trust has been duly executed and delivered to Trustee and Beneficiary by Grantor on the date of the acknowledgment attached hereto. RITE AID OF WEST VIRGINIA, INC., a West Virginia corporation, by:_____________________________ Name: Title: Attest: by:_____________________________ Name: Title: 34 [NEED LOCAL FORM OF ACKNOWLEDGMENT] Exhibit A to Second Priority Deed of Trust Description of Land All that certain tract or parcel of land, together with the appurtenances thereunto belonging or appertaining, situate near Rock Branch (Creek) in Pocatalico District, Putnam County, West Virginia, being all of Parcels 4, 5 and 6 of the "Rock Branch Regional Industrial Park" and being 23.4949 acres, more or less, shown on a map prepared by Howard, Needles, Tammen & Bergendoff (HNTB), signed by H. T. White, Professional Engineer, dated October 7, 1977, and revised November 10, 1977, and entitled "Map Showing a Parcel of Land Owned by Putnam County Development Authority to be Conveyed to Rite Aid of West Virginia, Inc. Situate Pocatalico District Putnam County West Virginia" Scale 1" = 100', which map is attached hereto and made a part hereof, said parcel being more particularly bounded and described as follows: BEGINNING at a concrete monument in the South right-of-way line of State Route 35/15 (Wright Road) point being 25 feet left of centerline station 18 + 19.43 of West Virginia Department of Highways Project APL 9376 (001) point also being in the East right-of-way of a railroad spur; thence leaving said railroad and with the South line of Route 35/15, S. 77(degrees) 19' 19" E. for 119.43 feet to a concrete right-of-way marker, point being 25 feet left of centerline station 17 + 00; thence continuing with said right-of-way, N. 12(degrees) 40' 41" E. for 5.00 feet to a concrete right-of-way marker, point being 20 feet left of centerline station 17 + 00; thence continuing with the South right-of-way line of Route 35/15, S. 77(degrees) 19' 19" E. for 550.00 feet to a concrete monument 20 feet left of centerline station 11 + 50; thence continuing with said right-of-way line, S. 67(degrees) 23' 45" E. for 203.04 feet to a point 55 feet left of centerline station 9 + 00; thence continuing with said right-of-way, S. 68(degrees) 13' 54" E. for 50.64 feet to a point 63 feet left of centerline station 9 + 00; thence again with said south right-of-way line, S. 77(degrees) 19' 19" E. for 33.01 feet to a point in the line of G. H. Saunders, point being 63 feet left of centerline station 8 + 66.99, point also being S. 14(degrees) 37' 26" W. 41.88 feet from a copperweld pin in the bank of Route 35/15; thence leaving the right-of-way line of Route 35/15 and with G. H. Saunders line, S. 14 (degrees) 37' 26" W. for 141.56 feet to a 1-1/2 inch steel pin on the East bank of Rock Branch Creek (formerly Lemberger Creek), point being the common corner of G. H. Saunders and H. L. Stephens; thence leave Saunders and with Stephens line, S. 13(degrees) 54' 14" W. for 75.87 feet to a point on the bank of said creek, point being the common corner to H. L. Stephens and Guy and Ruth Hyre; thence leave Stephens and with the Hyre line, S. 13(degrees) 34' 00" W. for 74.13 feet to a point on Rock Branch Creek; thence continuing with the Hyre line, S. 30(degrees) 11' 00" W. for 80.97 feet to a point on said creek, common corner to Hyre and Audis and Olive Bishop; thence leaving Hyre and with the Bishop line, S. 28(degrees) 08' 26" W. for 200.00 feet to a 1/2 inch iron pin on the West bank of Rock Branch Creek, point being the common corner to Bishop and John and Loretta Westfall; thence leave Bishop and with Westfall's line, S. 28(degrees) 08' 26" W. for 75.18 feet to a concrete monument, common corner to Westfall and Parcel 3 of Rock Branch Industrial Park; thence leaving Westfall and with the dividing line of Parcels 3 and 6 of said Park, S. 35(degrees) 55' 21" W. for 602.16 feet to a set 1/2 inch reinforcing rod in the North line of Jacobson Drive, point being 37.5 feet from centerline; thence leave Parcel 3 and with the north line of said Drive, and with a curve having a radius of 801.44 feet, chord of said curve being N. 69(degrees) 27' 14" W. for 113.44 feet to a copperweld pin 37.5 feet left of P. C. Station 20 + 82.24 of Jacobson Drive; thence continuing with a line 37.5 feet north of and parallel with said centerline, N. 73(degrees) 30' 44" W. for 534.13 feet to a set 1/2 inch reinforcing rod 37.5 feet North of centerline of Jacobson Drive and also being in the East line of a railroad right-of-way, being 12.5 feet from the centerline of said railroad; thence leaving Jacobson Drive and with the East line of said railroad, N. 14(degrees) 25' 32" E. for 1174.70 feet to the place of beginning. Street Address: Rock Branch Industrial Park Poca, WV 25159 Exhibit B to Second Priority Deed of Trust Premises Located in a Special Flood Hazard Area None. Appendix A to Second Priority Deed of Trust Local Law Provisions Appendix B to Second Priority Deed of Trust Definitions Annex ================================================================================ SPACE ABOVE THIS LINE RESERVED FOR RECORDER'S USE A SECOND PRIORITY CREDIT LINE DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS From THRIFTY PAYLESS, INC. TO FIRST AMERICAN TITLE COMPANY LOS ANGELES for the benefit of WILMINGTON TRUST COMPANY, as SECOND PRIORITY COLLATERAL TRUSTEE FOR THE BENEFIT OF THE SECOND PRIORITY DEBT PARTIES as BENEFICIARY Dated: as of June 27, 2001 Premises: Woodland Distribution Center 1755 East Beamer Street Woodland, CA 95776 Yolo County. ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I Representations, Warranties and Covenants of Grantor SECTION 1.01. Title ......................................................... 9 SECTION 1.02. Senior Loan Documents ......................................... 10 SECTION 1.03. Second Priority Debt Documents; Second Priority Subsidiary Guarantee Agreement .............. 11 SECTION 1.04. Payment of Taxes, Liens and Charges ........................... 12 SECTION 1.05. Payment of Closing Costs ...................................... 13 SECTION 1.06. Plans; Alterations and Waste; Repairs ......................... 13 SECTION 1.07. Insurance ..................................................... 14 SECTION 1.08. Casualty; Condemnation/Eminent Domain ......................... 14 SECTION 1.09. Assignment of Leases and Rents ................................ 14 SECTION 1.10. Restrictions on Transfers and Encumbrances .................... 16 SECTION 1.11. Security Agreement ............................................ 16 SECTION 1.12. Filing and Recording .......................................... 16 SECTION 1.13. Further Assurances ............................................ 17 SECTION 1.14. Additions to Trust Property ................................... 17 SECTION 1.15. No Claims Against Trustee or Beneficiary ...................... 18 SECTION 1.16. Fixture Filing ................................................ 18 SECTION 1.17. Notice Regarding Special Flood Hazards ........................ 18 ARTICLE II Default and Remedies SECTION 2.01. Events of Default ............................................. 19 SECTION 2.02. Demand for Payment ............................................ 19 SECTION 2.03. Rights To Take Possession, Operate and Apply Revenues ......... 19 SECTION 2.04. Right To Cure Grantor's Failure to Perform .................... 20 SECTION 2.05. Right to a Receiver ........................................... 21 SECTION 2.06. Foreclosure and Sale .......................................... 21 SECTION 2.07. Other Remedies ................................................ 22 SECTION 2.08. Application of Sale Proceeds and Rents ........................ 23 SECTION 2.09. Grantor as Tenant Holding Over ................................ 24 SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws ......................................... 24 SECTION 2.11. Discontinuance of Proceedings ................................. 24 SECTION 2.12. Suits To Protect the Trust Property ........................... 25 SECTION 2.13. Filing Proofs of Claim ........................................ 25 SECTION 2.14. Possession by Beneficiary ..................................... 25 SECTION 2.15. Waiver ........................................................ 25 SECTION 2.16. Remedies Cumulative ........................................... 26 ARTICLE III Miscellaneous SECTION 3.01. Partial Invalidity ............................................ 27 SECTION 3.02. Notices ....................................................... 27 SECTION 3.03. Successors and Assigns ........................................ 27 SECTION 3.04. Satisfaction and Cancelation. ................................. 27 SECTION 3.05. Definitions ................................................... 28 SECTION 3.06. Rules of Interpretation ....................................... 29 SECTION 3.07. Multisite Real Estate Transaction ............................. 29 SECTION 3.08. Subordination; Intercreditor Agreement ........................ 30 SECTION 3.09 Collateral Trust and Intercreditor Agreement ................... 30 SECTION 3.10. Amendments in Writing ......................................... 30 ARTICLE IV Particular Provisions SECTION 4.01. Applicable Law; Certain Particular Provisions ................. 31 SECTION 4.02. Trustee's Powers and Liabilities .............................. 31 Exhibit A Description of Land Exhibit B Premises Located in a Special Flood Hazard Area Appendix A Local Law Provisions Appendix B Definitions Annex THIS SECOND PRIORITY CREDIT LINE DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS dated as of June 27, 2001 (this "Second Priority Deed of Trust"), by THRIFTY PAYLESS, INC., a California corporation, having an office at 30 Hunter Lane, Camp Hill, Pennsylvania 17011 (the "Grantor"), to FIRST AMERICAN TITLE COMPANY LOS ANGELES, having an office at 520 North Central Avenue, Glendale, CA 91203, as trustee ("Trustee") for the benefit of WILMINGTON TRUST COMPANY, a Delaware banking corporation, having an office at Rodney Square North, 1100 North Market St., Wilmington, DE 19890-0001 (the "Beneficiary") as Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. W I T N E S S E T H T H A T Capitalized terms used but not defined in this Second Priority Deed of Trust have the meanings given to them in the Definitions Annex annexed hereto as Appendix B. Reference is made to (i) the Senior Credit Agreement dated as of June __, 2001 (the "Senior Credit Agreement"), among Rite Aid Corporation, a Delaware corporation (the "Borrower"), the banks from time to time party thereto and Citicorp USA, Inc., as Senior Administrative Agent and Senior Collateral Agent for the banks and (ii) the Collateral Trust and Intercreditor Agreement dated as of the date hereof (the "Collateral Trust and Intercreditor Agreement"), among Rite Aid Corporation, certain subsidiaries of Rite Aid Corporation, Wilmington Trust Company as Second Priority Collateral Trustee, Citicorp USA, Inc., as Senior Collateral Agent, and each Second Priority Representative, as amended from time to time. Reference is made to the Senior Deed of Trust dated as of June __, 2001 (the "Senior Deed of Trust"), with Citicorp USA, Inc., as Senior Collateral Agent pursuant to which the Grantor has granted to the Senior Collateral Agent a first mortgage lien on the property described herein. The lien of this Second Priority Deed of Trust is intended by the Grantor and the Trustee or Beneficiary to be junior and subordinate to the Lien of the Senior Deed of Trust. Grantor is a wholly owned subsidiary of the Borrower and will derive substantial benefit from the making of the Second Priority Debt Documents. In order to induce the Second Priority Debt Parties, among other things, amend and extend the Second Priority Debt Documents, the Grantor has agreed to (i) 5 guarantee the due and punctual payment of the Second Priority Debt Obligations of the Borrower under the Second Priority Debt Documents pursuant to the second priority subsidiary guarantee agreement dated as of even date herewith (the "Second Priority Subsidiary Guarantee Agreement") made by Grantor and certain other Subsidiaries of Borrower (each, a "Subsidiary Guarantor") in favor of Trustee in its capacity as Second Priority Collateral Trustee, and (ii) execute and deliver this Second Priority Deed of Trust in the form hereof to secure all of the Second Priority Debt Obligations guaranteed by Grantor pursuant to the Second Priority Subsidiary Guarantee Agreement. Pursuant to the requirements of the Second Priority Debt Documents and the Second Priority Guarantee Agreement, the Grantor therefore grants this Deed of Trust to create a lien on and a security interest in the Trust Property (as defined herein) to secure the payment and performance of the Second Priority Debt Obligations. The Second Priority Debt Documents also require the granting by other Subsidiary Guarantors of mortgages, deeds of trust and deeds to secure debt (the "Other Deeds of Trust") that create liens on and security interests in certain parcels of real property (each, a "Trust Property") other than the Trust Property to secure the payment and performance of the Second Priority Debt Obligations. Granting Clauses NOW, THEREFORE, IN CONSIDERATION OF the foregoing and in order to secure the due and punctual payment and performance of the Second Priority Debt Obligations for the benefit of the Second Priority Debt Parties, Grantor hereby grants, conveys, mortgages, assigns and pledges to the Trustee and/or Beneficiary and its successors and assigns forever, a security interest in, all the following described property (the "Trust Property") whether now owned or held or hereafter acquired: (1) the land more particularly described on Exhibit A hereto (the "Land"), together with all rights appurtenant thereto which may, by their terms or as a matter of law, be conveyed or assigned along with the Land, 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, hereditaments and appurtenances thereunto belonging or in any way appertaining and all of the estate, right, title, interest, claim or 6 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 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 apparatus, appliances, building materials, equipment, fittings, machinery and other articles of tangible personal property of every kind and nature, and replacements thereof, owned by Grantor and now or at any time hereafter affixed to the Improvements or the Premises, including all pumps, tanks, machinery, apparatus 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, communications, partitions, lighting fixtures, freezers, refrigerators, walk-in coolers, signs (indoor and outdoor), and all other items of tangible personal property of any kind affixed to 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 subparagraph (3), (the "Fixtures"); (4) all general intangibles owned by 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 7 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) all now or hereafter existing 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 real estate tax refunds and all proceeds of the conversion, voluntary or involuntary, of any of the Trust Property into cash or liquidated claims ("Proceeds"), including Proceeds of insurance maintained by the Grantor and condemnation awards, any awards that 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, together with any and all moneys now or hereafter on deposit for the payment of real estate taxes, assessments or common area charges 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 Senior 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 Fixtures, 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 8 the Grantor, all of which shall become subject to the lien of this Second Priority 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 unto the Trustee, its successors and assigns, for the ratable benefit of the Second Priority Debt Parties, forever, subject only to the Permitted Encumbrances (as hereinafter defined) and to satisfaction and cancelation as provided in Section 3.04 , 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: (i) an indefeasible fee estate in the Land and Improvements; and (ii) all of the Fixtures; subject only to (A) the Senior Deed of Trust, (B) liens, pledges, charges and other encumbrances which are identified in Section 4.15(a) of the Senior Credit Agreement and (C) minor defects in title that do not interfere with the ability of Grantor or any other subsidiary of the Borrower to conduct its business as presently conducted or to utilize the Trust Property for its intended purpose (collectively, the "Permitted Encumbrances"). (b) There are no Leases affecting the Land or the Improvements except as disclosed in the Second Priority Debt Documents. (c) Grantor is not obligated under, and the Trust Property is not bound by or subject to, any right, of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Trust Property or any interest therein. (d) The granting of this Second Priority Deed of Trust is within Grantor's corporate powers and has been duly authorized by all necessary 9 corporate, and, if required, stockholder action. This Second Priority Deed of Trust has been duly executed and delivered by Grantor and constitutes a legal, valid and binding obligation of Grantor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (e) This Second Priority 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 first-priority lien upon and security interest in all the Trust Property subject only to Permitted Encumbrances. As of the date hereof, there are no defenses or offsets to this Second Priority Deed of Trust that will be asserted by Grantor or its affiliates (or any third party defense or offset now known to Grantor or its affiliates) or to any of the Second Priority Debt Obligations secured hereby for so long as any portion of the Second Priority Debt Obligations remains outstanding. Grantor will forever warrant and defend its title to the Trust Property, the rights of Trustee and/or Beneficiary therein under this Second Priority Deed of Trust and the validity and priority of the lien of this Second Priority Deed of Trust against the claims of all persons and parties except those having rights under Permitted Encumbrances, to the extent of those rights. SECTION 1.02. Senior Loan Documents. The Grantor hereby covenants that (i) the Grantor shall promptly pay when due and payable the principal, interest and other charges mentioned in and made payable by the Senior Loan Documents; (ii) the Grantor shall promptly perform and observe all of the terms, covenants and conditions required to be performed and observed by the Grantor under the Senior Loan Documents within the grace and cure periods provided in the Senior Loan Documents; (iii) the Grantor shall notify the Trustee or Beneficiary (A) promptly prior to the expiration of any applicable grace and cure period for which provision is made in the Senior Loan Documents of any monetary default, and (B) promptly after the expiration of any applicable grace and cure period for which provision is made in the Senior Loan Documents of any non-monetary default by the Grantor in the performance or observance of any of the terms, covenants or conditions on the part of the Grantor to be performed or observed under the Senior Loan Documents; and (iv) the Grantor shall (A) promptly notify the Trustee or Beneficiary of the receipt by the Grantor of any notice from the holders of the Senior Obligations asserting or claiming a default by the Grantor 10 in the performance or observance of any of the terms, covenants or conditions on the part of the Grantor to be performed or observed under the Senior Loan Documents, and (B) promptly cause a copy of each such notice to be delivered to the Trustee or Beneficiary. SECTION 1.03. Second Priority Debt Documents; Second Priority Subsidiary Guarantee Agreement . (a) This Second Priority Deed of Trust is given pursuant to the Second Priority Debt Documents and the Second Priority Subsidiary Guarantee Agreement. Each and every term and provision of the Second Priority Debt Documents and the Second Priority Subsidiary Guarantee Agreement (excluding the governing law provisions thereof), 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 Second Priority Deed of Trust. (b) If Trustee or Beneficiary exercises any of its rights or remedies under this Second Priority Deed of Trust, 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 Second Priority 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 reasonable 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 and the reasonable expenses 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 lesser of (i) the rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) equal to the sum of (A) the rate of interest publically announced by Citibank in New York, New York, from time to time as its "base rate", plus (B) 2.00% and (ii) the rate which, together with all fees, charges and other amounts which are treated as interest on such amounts under applicable law, constitutes the maximum lawful rate which may be contracted for, charged, taken, received or reserved by Trustee or Beneficiary in accordance with applicable law (the "Default Interest 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 attached or accruing subsequent to the recording of this Second Priority Deed of Trust and shall be secured by this Second Priority Deed of Trust to the extent permitted by law. Any payment of amounts due under this Second Priority Deed of Trust not made on 11 or before the due date for such payments shall accrue interest daily without notice from the due date until paid at the Default Interest Rate, and such interest at the Default Interest Rate shall be paid by Grantor to Trustee or Beneficiary within 10 days after Mortgagor's receipt of notice from the Trustee or Beneficiary that is due. SECTION 1.04. Payment of Taxes, Liens and Charges. (a) Except to the extent they are being contested in the manner permitted by the Second Priority Debt Documents, Grantor will pay and discharge from time to time prior to the time when the same shall become delinquent, and before any interest or penalty accrues thereon or attaches thereto, (i) all taxes and assessments (general and special), water and sewer rents and/or charges, public or private impositions, levies, dues, permit, inspection and license fees, vault charges, service charges, public or private common area charges or maintenance charges, utility charges of every kind and nature which may become liens on the Trust Property with priority over the lien of this Second Priority Deed of Trust and (ii) all other material public or private charges, whether created or evidenced by recorded or unrecorded documents or 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, operation or possession thereof. (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 Second Priority Deed of Trust or debts secured by mortgages or deeds of trust (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 Second Priority Deed of Trust or any of the Senior Loan Documents, or requiring an amount of taxes to be withheld or deducted therefrom, Grantor will promptly notify Beneficiary of such event. In such event (A) Grantor shall at the request of Beneficiary, execute an instrument or agreement which obligates Grantor to make such additional payments as may be necessary to place Grantor and the Second Priority Debt Parties in the same economic position they would have been in with respect to the Senior Loans and other Second Priority Debt Obligations if such law, order, rule or regulation had not been passed and (B) Grantor shall make such additional payments. 12 (c) At any time that an Event of Default (as hereinafter defined) shall occur and be continuing, 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 on a quarterly basis, each such deposit to be equal to one-quarter of any such annual charges estimated in a reasonable manner by Beneficiary in order to accumulate with Beneficiary sufficient funds to pay such taxes, assessments, insurance premiums and charges. Any such deposits held by Beneficiary shall be returned to Grantor within 30 days after this Second Priority Deed of Trust is released or satisfied as provided in Section 3.04. SECTION 1.05. Payment of Closing Costs. Grantor shall pay all reasonable costs incurred by or on behalf of the Beneficiary in connection with, relating to or arising out of the preparation, execution and recording of this Second Priority Deed of Trust, including title company charges, inspection costs, recording fees and taxes, attorneys', engineers' and consultants' fees and disbursements and all other, similar expenses of every kind. SECTION 1.06. Plans; Alterations and Waste; Repairs. (a) To the extent the same exist on the date hereof or are obtained in connection with future permitted alterations, Grantor shall maintain a complete set of final plans, specifications, blueprints and drawings for the Trust Property 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 and at reasonable times. (b) Grantor shall not: (i) demolish or remove all or any material portion of the Improvements; (ii) commit any waste on the Trust Property or make any alterations to the Trust Property which would materially diminish the utility of Trust Property in the conduct of the business of the Grantor or its affiliates as conducted thereon on the date hereof; (iii) change the use of the Trust Property or take any other action with respect to the Trust Property if it would materially increase the risk of fire or any other hazard or violate the terms of any insurance policy required by Section 1.06 hereof; without the consent of the Beneficiary in each instance, such consent not to be unreasonably withheld or delayed. 13 (c) Grantor will keep and maintain the Improvements and the Fixtures in good repair, working order and condition, reasonable wear and tear excepted. SECTION 1.07. Insurance. Grantor will purchase and maintain liability insurance, insurance on the Improvements and Fixtures and other insurance in accordance with the terms of the Second Priority Debt Documents. SECTION 1.08. Casualty; Condemnation/Eminent Domain. Grantor shall give Beneficiary prompt written notice of any casualty or other damage to the Trust Property or any proceeding for the taking of the Trust Property or any portion thereof or interest therein under power of eminent domain or by condemnation or any similar proceeding. The proceeds received by or on behalf of the Grantor in respect of any such casualty, damage or taking shall constitute trust funds held by the Grantor for the benefit of the Second Priority Debt Parties to be applied to in accordance with the terms of the Second Priority Debt Documents. 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 Second Priority Debt 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) Without Beneficiary's prior written consent, which shall not be unreasonably withheld or delayed, Grantor will not enter into, modify, amend, terminate or consent to the cancelation or surrender of any Lease. (c) Subject to Section 1.09(d), 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 each Lease heretofore or hereafter made or agreed to by Grantor, it being intended that this assignment establish, subject to Section 1.09(d), an absolute transfer and assignment of all Rents and all Leases to Trustee for the benefit of the Beneficiary and not merely to grant a security interest therein. Subject to Section 1.09(d), 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 14 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) So long as an Event of Default shall not have occurred and be continuing, Beneficiary will not exercise any of its rights under Section 1.09(c), and Grantor shall receive and collect the Rents accruing under any Lease; but after the happening and during the continuance of any Event of Default, 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. 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 their successors in interest shall have received written notice from Beneficiary that the 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 its 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 tenant, 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 45 days after a request by Beneficiary to do so (but no more frequently than twice annually), a written statement containing the names of all tenants, subtenants and 15 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 expressly permitted by the Second Priority Debt Documents or this Second Priority Deed of Trust, 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 condemnation), or engage in any common, cooperative, joint, time-sharing or other congregate ownership of all or part thereof. SECTION 1.11. Security Agreement. This Second Priority 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 ("UCC"). Grantor has hereby granted unto Beneficiary a security interest in and to all the Trust Property described in this Second Priority Deed of Trust that is not real property, and simultaneously with the recording of this Second Priority 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 Second Priority 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 reasonably 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 UCC in addition to, but not in limitation of, the other rights afforded Beneficiary hereunder and under the Security Agreement. SECTION 1.12. Filing and Recording. Grantor will cause this Second Priority 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 16 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 Beneficiary in, the Trust Property. Grantor will pay all filing, registration and recording fees, all Federal, state, county and municipal recording, documentary or intangible taxes and other taxes, duties, imposts, assessments and charges, and all reasonable expenses incidental to or arising out of or in connection with the execution, delivery and recording of this Second Priority Deed of Trust, any mortgage supplemental hereto, any security instrument with respect to the Fixtures 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 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 Second Priority Deed of Trust, or for filing, registering or recording this Second Priority 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 Fixtures 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 Second Priority Deed of Trust as fully and completely and with the same effect as though now owned by Grantor and 17 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 Second Priority Deed of Trust. SECTION 1.15. No Claims Against Trustee or Beneficiary. Nothing contained in this Second Priority Deed of Trust shall constitute any consent or request by Beneficiary (or Trustee), 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 Beneficiary (or Trustee) in respect thereof. SECTION 1.16. Fixture Filing. Certain portions of the Trust Property are or will become "fixtures" (as that term is defined in the UCC) on the Land, and this Second Priority Deed of Trust, upon being filed for record in the real estate records of the county wherein such fixtures are situated, shall operate also as a financing statement filed as a fixture filing in accordance with the applicable provisions of said UCC upon such portions of the Trust Property that are or become fixtures. The addresses of the Grantor, as debtor, and Beneficiary, as secured party, are set forth in the first page of this Second Priority Deed of Trust. SECTION 1.17. Notice Regarding Special Flood Hazard s. Beneficiary has informed Grantor, and Grantor hereby acknowledges that it realizes, that the Premises listed on Exhibit B is in an area identified by the Director of the Federal Emergency Management Agency as a "special flood hazard area" described in 12 C.F.R. ss.22.2, and Grantor hereby acknowledges that it has received, prior to the making of the Senior Loans and the incurrence of indebtedness constituting part of the Senior Obligations, the notice regarding Federal disaster relief assistance referred to in the Appendix to 12 C.F.R. Part 22. 18 ARTICLE II Defaults and Remedies SECTION 2.01. Events of Default. Any event of default under the Second Priority Debt Documents (as such term is defined therein, an "Event of Default") shall constitute an Event of Default under this Second Priority Deed of Trust. SECTION 2.02. Demand for Payment. If an Event of Default shall occur and be continuing, then, without requirement of protest, demand or notice of Beneficiary, Grantor will pay to Beneficiary all amounts due hereunder and under the Second Priority Debt Documents and such further amount as shall be sufficient to cover the costs and expenses of collection, including attorneys' fees, disbursements and expenses incurred by Beneficiary, and Beneficiary shall be entitled and empowered to institute an action or proceedings at law or in equity 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 written demand of Beneficiary, forthwith surrender to Beneficiary actual possession of the Trust Property and, if and to the extent not prohibited by applicable 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, and exclude Grantor and its agents and employees wholly therefrom. (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 to the extent not prohibited by applicable law, 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 reasonable expenses of obtaining such judgment or decree, including reasonable compensation to Beneficiary's attorneys and agents with interest thereon at the Default Interest Rate; and all such expenses and compensation shall, until paid, be secured by this Second Priority Deed of Trust. 19 (c) Upon every such entry or taking of possession, Beneficiary may, to the extent not prohibited by applicable law, hold, store, use, operate, manage and control the Trust Property, conduct the business thereof and, from time to time, (i) make all necessary and proper 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 compensation, expenses and disbursements of the attorneys and agents of Beneficiary, Beneficiary shall apply the remainder of the moneys and proceeds so received as provided in Section 2.08. (d) Whenever, before any sale of the Trust Property under Section 2.06, all Second Priority Debt Obligations that 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. Should Grantor fail in the payment, performance or observance of any term, covenant or condition set forth in this Second Priority Deed of Trust or the Second Priority Debt Documents (with respect to the Trust Property) for 10 days after notice of such failure from Beneficiary (in the case of a monetary default) or 20 days 20 after notice of such failure from Beneficiary (in the case of a non-monetary default), 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 repaid by Grantor to Beneficiary with interest thereon at the Default Interest Rate from the date incurred within 10 days after demand made by Beneficiary. Beneficiary shall be the judge using reasonable discretion of the necessity for any such actions and of the amounts to be paid. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, 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. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, of 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 (which may be Beneficiary or an employee of Beneficiary or Trustee) 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 shall pay to Beneficiary upon demand all reasonable expenses, including receiver's fees, reasonable 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 Second Priority Deed of Trust and shall be, without demand, immediately repaid by Grantor to Beneficiary with interest thereon at the Default Interest Rate. SECTION 2.06. Foreclosure and Sale. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, (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 and/or Trustee by applicable law or this Second Priority Deed of Trust. In such case, Beneficiary or Trustee may commence a civil action to foreclose this Second Priority Deed of Trust, or it may proceed and sell the Trust Property to satisfy any Second Priority Debt 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 Trustee or Beneficiary at the time and place of sale fixed by it in a 21 notice of sale, either as a whole or in separate lots, parcels or items as Trustee or 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 fore- closure 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 Trustee 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 Trustee or 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. (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 or of sale provided for herein; and subsequent sales may be made hereunder until the Second Priority Debt Obligations have been satisfied, or the entirety of the Trust Property has been sold. (d) If an Event of Default shall occur and be continuing, Beneficiary 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 Second Priority Debt Obligations, or the performance of any term, covenant, condition or agreement of this Second Priority Deed of Trust or any other Senior Loan Document or any other right, or (ii) to pursue any other remedy available to Beneficiary, all as Beneficiary shall determine most effectual for such purposes. SECTION 2.07. Other Remedies. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, (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 UCC. 22 (b) In connection with a sale of the Trust Property or any Fixtures and the application of the proceeds of sale as provided in Section 2.08, Beneficiary shall be entitled to enforce payment of and to receive up to the principal amount of the Second Priority Debt Obligations, plus all other charges, payments and costs due under this Second Priority Deed of Trust, and to recover a deficiency judgment for any portion of the aggregate principal amount of the Second Priority Debt Obligations remaining unpaid, with interest. SECTION 2.08. Application of Sale Proceeds and Rents. After any foreclosure sale of all or any portion of the Trust Property, Beneficiary shall receive and apply the proceeds of the sale together with any Rents that may have been collected and any other sums that may then be held by Trustee or Beneficiary under this Second Priority Deed of Trust as follows: FIRST, to the payment of the costs and expenses of such sale, including compensation to Trustee's and 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 Trustee and Beneficiary under this Second Priority Deed of Trust, together with interest at the Default Interest Rate on all advances made by Trustee and Beneficiary, including all taxes, assessments (or other charges) (except any taxes, assessments or other charges subject to which the Trust Property shall have been sold) and the cost of removing any liens or encumbrances (except any liens or encumbrances subject to which the Trust Property was sold); SECOND, to the Beneficiary for the distribution to the Second Priority Debt Parties for the satisfaction of the Second Priority Debt Obligations owed to the Second Priority Debt Parties; and THIRD, to the Grantor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Beneficiary shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Second Priority Deed of Trust. In the event of any inconsistency between this Section 2.08 and the Collateral Trust and Intercreditor Agreement, the Collateral Trust and Intercreditor Agreement shall control. Upon any sale of the 23 Trust Property by the Trustee or Beneficiary (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the 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 the 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 Trustee or 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. Grantor waives, to the extent not prohibited by law, (i) the benefit of all laws now existing or that hereafter may be enacted (x) providing for any appraisement or valuation of any portion of the Trust Property and/or (y) in any way extending the time for the enforcement or the collection of amounts due under any of the Second Priority Debt Obligations or creating or extending a period of redemption from any sale made in collecting said debt or any other amounts due Beneficiary, (ii) 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 homestead exemption, stay, statute of limitations, 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 or notice of deficiency, and (iii) all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of or each of the Second Priority Debt Obligations and marshaling in the event of foreclosure of this Second Priority 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 Second Priority 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 and 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. 24 SECTION 2.12. Suits To Protect the Trust Property. Beneficiary shall have power (a) to institute and maintain suits and proceedings to prevent any impairment of the Trust Property by any acts that may be unlawful or in violation of this Second Priority Deed of Trust, (b) to preserve or protect its interest in the Trust Property and in the Rents arising therefrom and (c) 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 Beneficiary hereunder. 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 Second Priority Debt Obligations secured by this Second Priority 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 that 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 Second Priority Deed of Trust to Beneficiary in accordance with the terms hereof and applicable law. SECTION 2.15. Waiver. (a) No delay or failure by 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 Second Priority Deed of Trust to Beneficiary may be exercised from time to time and as often as may be deemed expedient by Beneficiary. No consent or waiver by Beneficiary to or of any breach or Event of Default by Grantor in the performance of the Second Priority Debt 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 of any 25 other Second Priority Debt 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 Second Priority Debt Documents, (iv) releases a part of the Trust Property from this Second Priority Deed of Trust, (v) agrees to change some of the terms, covenants, conditions or agree- ments of any of the Second Priority Debt 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 expressly provided in an instrument executed by Beneficiary, shall this Second Priority 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 Second Priority 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. 26 ARTICLE III Miscellaneous SECTION 3.01. Partial Invalidity. In the event any one or more of the provisions contained in this Second Priority 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 Second Priority Deed of Trust, and this Second Priority 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, requests, demands and other communications to any party hereunder shall be in writing (including bank wire, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Trustee or Beneficiary, at its address at Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001 or facsimile number (302) 651-8882 and (y) in the case of the Grantor, at the addresses, in care of Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011 or facsimile number (717) 975-3764. Each such notice, request or other communication shall be effective if given by facsimile, which such communication is transmitted to the facsimile number specified in this Section and confirmation of receipt is received, if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or if given by any other means, when delivered at the addressed specified in this Section. 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. Satisfaction and Cancelation. (a) The conveyance to Trustee or Beneficiary of the Trust Property as security created and consummated by this Second Priority Deed of Trust shall be null and void when all the Second Priority Debt Obligations have been indefeasibly paid in full in accordance with the terms of the Second Priority Debt Documents and no further Second Priority Debt Obligations are outstanding. 27 (b) Upon a sale or financing by Grantor of all or any portion of the Trust Property that is permitted by the Senior Loan Documents and the Second Priority Debt Documents and the application of the Net Proceeds of such sale or financing in accordance with the Collateral Trust and Intercreditor Agreement or Second Priority Debt Documents, as applicable, the lien of this Second Priority Deed of Trust shall be released from the applicable portion of the Trust Property. Grantor shall give the Beneficiary reasonable written notice of any sale or financing of the Trust Property prior to the closing of such sale or financing. (c) In connection with any termination or release pursuant to paragraph (a), the Second Priority Deed of Trust shall be marked "satisfied" by the Beneficiary, and this Second Priority Deed of Trust shall be canceled of record at the request and at the expense of the Grantor. Beneficiary shall execute any documents reasonably requested by Grantor to accomplish the foregoing or to accomplish any release contemplated by this Section 3.04 and Grantor will pay all costs and expenses, including reasonable attorneys' fees, disbursements and other charges, incurred by Beneficiary in connection with the preparation and execution of such documents. SECTION 3.05. Definitions. As used in this Second Priority 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"; (e) "Trustee" shall mean "Trustee, for the benefit of the Beneficiary and in accordance with the Second Priority Debt Documents,"; and (f) "any of the Trust Property" shall mean "the Trust Property or any part thereof or interest therein". Any act that 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 Beneficiary. Any act that is prohibited to Grantor hereunder is also prohibited to all lessees of any of the Trust Property, except to the extent that a Lease executed prior to the date hereof expressly permits such act without the consent of the Grantor or the holder of any mortgage or deed of trust. Each appointment of Beneficiary as attorney-in-fact for Grantor under this Second Priority Deed of Trust is irrevocable, with power of substitution and coupled with an interest. Subject to the express provisions to the contrary contained in this Second Priority Deed of Trust, Beneficiary has the right to refuse to grant its consent, approval or 28 acceptance or to indicate its satisfaction, in its sole discretion, whenever such consent, approval, acceptance or satisfaction is required hereunder. To the extent that this Second Priority Deed of Trust provides that any particular consent, approval, acceptance or satisfaction is subject to the terms of the Second Priority Debt Documents, it shall be granted or withheld as provided in the Second Priority Debt Documents. SECTION 3.06. Rules of Interpretation. References in this Second Priority Deed of Trust to "Articles", "Sections", "Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to this Second Priority Deed of Trust unless otherwise specifically provided. Any defined terms may, unless the context otherwise requires, be used in the singular or plural depending on the reference. "Writing", "written" and comparable terms refer to printing, typing and other means of reproducing words in a visible form. References to any agreement or contract are to such agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. References to any Person include the successors and assigns of such Person. References "from" or "through" any date mean, unless otherwise specified, "from and including" or "through and including" respectively. SECTION 3.07. Multisite Real Estate Transaction. Grantor acknowledges that this Second Priority Deed of Trust is one of a number of Other Deeds of Trust that secure the Second Priority Debt Obligations. Grantor agrees that the lien of this Second Priority 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 Beneficiary, and without limiting the generality of the foregoing, the lien hereof shall not be impaired by any acceptance by the Beneficiary of any security for or guarantees of any of the Second Priority Debt Obligations hereby secured, or by any failure, neglect or omission on the part of Beneficiary to realize upon or protect any Second Priority Debt Obligation or indebtedness hereby secured or any collateral security therefor including the Other Deeds of Trust and other Second Priority Debt 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 Second Priority Debt Obligations secured or of any of the collateral security therefor, including the Other Deeds of Trust and other Second Priority Debt Documents or of any guarantee thereof, and Beneficiary may at its discretion foreclose, exercise any power of sale, or exercise any other remedy 29 available to it under any or all of the Other Deeds of Trust and other Second Priority Debt Documents without first exercising or enforcing any of its rights and remedies hereunder. Such exercise of Beneficiary's rights and remedies under any or all of the Other Deeds of Trust and other Second Priority Debt Documents shall not in any manner impair the indebtedness hereby secured or the lien of this Second Priority Deed of Trust and any exercise of the rights or remedies of Beneficiary hereunder shall not impair the lien of any of the Other Deeds of Trust and other Second Priority Debt Documents or any of Beneficiary's rights and remedies thereunder. Grantor specifically consents and agrees that Beneficiary may exercise its rights and remedies hereunder and under the Other Deeds of Trust and other Second Priority Debt Documents separately or concurrently and in any order that it may deem appropriate and waives any rights of subrogation. SECTION 3.08. Subordination; Intercreditor Agreement. The lien of this Second Priority Deed of Trust is junior and subordinate to the lien of any Deed of Trust now or hereafter granted to Citicorp USA, Inc. and its successors and assigns as collateral agent for certain secured parties, including the lenders from time to time part to that certain Senior Credit Agreement dated as of the date hereof, as amended, replaced or refinanced from time to time, with Rite Aid Corporation and its successors and assigns in accordance with the provisions of the Collateral Trust and Intercreditor Agreement. SECTION 3.09. Collateral Trust and Intercreditor Agreement. Notwithstanding any provision to the contrary contained herein, the terms of this Second Priority Deed of Trust, the Liens created hereby, and the rights and remedies of the Second Priority Collateral Trustee and the Second Priority Debt Parties hereunder, are subject to the Collateral Trust and Intercreditor Agreement. SECTION 3.10. Amendments in Writing. None of the terms or provisions of this Second Priority Deed of Trust may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Grantor and the Second Priority Collateral Trustee with the written consent of the Second Priority Instructing Group, provided that (i) any provision of this Second Priority Deed of Trust may be waived by the Second Priority Instructing Group and (ii) any amendment, waiver, supplement or other modification which by its terms adversely affects the rights of the Second Priority Debt Parties under a particular Second Priority Facility in a manner different from its effect on the other Second Priority Facilities shall only be effective with the consent of the Second Priority Representative for each Second Priority Facility so adversely affected. 30 ARTICLE IV Particular Provisions This Second Priority 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 Second Priority Deed of Trust shall be governed by and construed in accordance with the internal law of the State in which the Trust Property is located without regard to principles of conflicts of laws and Grantor and Beneficiary agree to submit to jurisdiction and the laying of venue for any suit on this Second Priority Deed of Trust in such state, except that the internal laws of the State of New York (without regard to principles of conflicts of laws) shall govern (i) those terms and conditions contained in the Second Priority Debt Documents and/or the Second Priority Subsidiary Guarantee Agreement which are incorporated by reference herein and (ii) the resolution of issues arising under the Second Priority Debt Documents and/or the Second Priority Subsidiary Guarantee Agreement to the extent that such resolution is necessary to the interpretation of this Second Priority Deed of Trust. 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 Second Priority 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, bad faith 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 Second Priority 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, 31 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 that 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 Second Priority Deed of Trust is recorded, nor 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 Second Priority 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 Second Priority 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 32 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. [The balance of this page intentionally left blank.] 33 IN WITNESS WHEREOF, this Second Priority Deed of Trust has been duly executed and delivered to Trustee and Beneficiary by Grantor on the date of the acknowledgment attached hereto. THRIFTY PAYLESS, INC., a California corporation by:___________________________ Name: Title: Attest: by:____________________________ Name: Title: 34 [NEED LOCAL FORM OF ACKNOWLEDGMENT] Exhibit A to Second Priority Deed of Trust Description of Land All that real property situated in the County of Yolo, State of California, described as follows: PARCEL ONE: That portion of the Northwest 1/4 of Section 27, Township 10 North, Range 2 East, M.D.B. & M., according to the official plat thereof, lying Easterly of the following described line: Beginning at a point on the North line of said Northwest 1/4, distant thereon South 89(degrees) 53' 36" East 990.00 feet from the Northwest corner of said Northwest 1/4; running thence South 0(degrees) 23' 45" West, parallel with the West line of said Section 27, 2640 feet, more or less, to the South line of said Northwest 1/4 of Section 27. Excepting therefrom, that portion thereof lying Easterly of the following described line: Beginning at a point on the North line of said Northwest 1/4, distant thereon North 89(degrees) 53' 36" West 476.80 feet from the Northeast corner of said Northwest 1/4; running thence South 0(degrees) 25' 11" West 2642.78 feet to the South line of said Northwest 1/4 of Section 27. PARCEL TWO: A right of way for road purposes, described as follows: Beginning at a point on the North line of Section 27, Township 10 North, Range 2 East, M.D.B. & M., according to the official plat thereof, distant South 89 (degrees) 53' 36" East 990 feet from the Northwest corner of said Section 27; running thence South 0(degrees) 23' 45" West, parallel with the West line of said Section 27, 1300 feet; thence North 89(degrees) 53' 36" West 30 feet; thence North 0(degrees) 23' 45" East 1300 feet to a point on the North line of said Section 27; thence South 89(degrees) 53' 36" East 30 feet to the point of beginning. Street Address: 1755 East Beamer Street] Woodland, CA 95776. Exhibit B to Second Priority Deed of Trust Premises Located in a Special Flood Hazard Area None. Appendix A to Second Priority Deed of Trust Local Law Provisions. Appendix B to Second Priority Deed of Trust Definitions Annex EX-10 18 exh10-38.txt EXHIBIT 10.38 EXECUTION COPY Proprietary & Confidential ================================================================================ PARTICIPATION AGREEMENT dated as of June 27, 2001 among RITE AID REALTY CORP., as Company and Lessee, RITE AID CORPORATION, as Guarantor, WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION not in its individual capacity, except as expressly set forth herein, but solely as Trustee of RAC Distribution Statutory Trust, as Trustee and Lessor, THE PERSONS NAMED HEREIN, as Note Holders and Certificate Holders, and CITICORP USA, INC., as Agent, ================================================================================ SALOMON SMITH BARNEY INC., as Sole Arranger THE CHASE MANHATTAN BANK, CREDIT SUISSE FIRST BOSTON, FLEET RETAIL FINANCE INC., as Syndication Agents Participation Agreement Proprietary & Confidential TABLE OF CONTENTS ----------------- Page ---- ARTICLE I FINANCING.........................................................2 SECTION 1.01. Note Advance Commitments....................................2 SECTION 1.02. Certificate Equity Investment Commitments ..................2 SECTION 1.03. Procedures for Advances and Equity Investments..............2 SECTION 1.04. Use of Proceeds.............................................3 SECTION 1.05. Payments by Company.........................................3 SECTION 1.06. Purchase Rights.............................................4 SECTION 1.07. Note and Certificate Allocation.............................4 ARTICLE II CONDITIONS PRECEDENT..............................................4 SECTION 2.01. Conditions Precedent to the Funding.........................4 ARTICLE III REPRESENTATIONS AND WARRANTIES ...................................8 SECTION 3.01. Representations and Warranties of the Company...............8 SECTION 3.02. Representations and Warranties of the Guarantor ...........11 SECTION 3.03. WFBN Representations and Warranties .......................11 SECTION 3.04. Representations and Warranties of Trustee .................13 SECTION 3.05. Representations and Warranties of the Holders..............14 ARTICLE IV COVENANTS........................................................14 SECTION 4.01. Covenants of the Company...................................14 SECTION 4.02. Covenants of the Guarantor.................................15 SECTION 4.03. Covenants of WFBN, the Trustee and the Holders ............16 ARTICLE V THE NOTES AND THE EQUITY INVESTMENT..............................19 SECTION 5.01. Interest and Yield.........................................19 SECTION 5.02. Changes in Circumstances...................................20 SECTION 5.03. Assignments and Participations.............................22 SECTION 5.04. Taxes......................................................25 SECTION 5.05. Tax Treatment..............................................30 SECTION 5.06. Compensation...............................................31 SECTION 5.07. Change of Applicable Lending Office........................31 SECTION 5.08. Sharing of Payments, Etc...................................31 SECTION 5.09. Maturity Date Extension....................................32 ARTICLE VI EVENTS OF DEFAULT; REMEDIES; NON-PERFORMANCE EVENTS...........................................................33 SECTION 6.01. Events of Default..........................................33 SECTION 6.02. Remedies upon an Event of Default..........................36 SECTION 6.03. Non-Performance Events; Procedures.........................37 SECTION 6.04. Power of Sale..............................................38 i Participation Agreement Proprietary & Confidential SECTION 6.05. Procedure for Sale of Collateral...........................40 SECTION 6.06. Application of Proceeds....................................41 ARTICLE VII APPLICATION OF FUNDS PRIOR TO DEFAULT; PREPAYMENT OF INSTRUMENTS...................................................43 SECTION 7.01. Application of Funds Prior to Default......................43 SECTION 7.02. Awards, Compensation or Other Payments on Account of Casualty or Condemnation ..................................45 SECTION 7.03. Prepayment of Notes and Cancellation of Certificates.......45 ARTICLE VIII THE AGENT........................................................46 SECTION 8.01. Authorization and Action...................................46 SECTION 8.02. Agent's Reliance, Etc......................................47 SECTION 8.03. CUSA and Affiliates........................................48 SECTION 8.04. Note Holder and Certificate Holder Credit Decision ........48 SECTION 8.05. Indemnification............................................48 SECTION 8.06. Successor Agent............................................49 SECTION 8.07. Certain Duties and Obligations Regarding Collateral .......49 ARTICLE IX MISCELLANEOUS....................................................50 SECTION 9.01. Survival...................................................50 SECTION 9.02. Notices....................................................51 SECTION 9.03. Severability...............................................51 SECTION 9.04. Amendments, Etc............................................51 SECTION 9.05. Headings...................................................52 SECTION 9.06. Compliance Responsibility..................................52 SECTION 9.07. Definitions................................................52 SECTION 9.08. Benefit....................................................52 SECTION 9.09. Place of Payment...........................................52 SECTION 9.10. Counterparts; Effectiveness................................53 SECTION 9.11. Governing Law and Jurisdiction.............................53 SECTION 9.12. Time; Business Day.........................................53 SECTION 9.13. Transaction Costs; Fees....................................54 SECTION 9.14. Indemnification............................................55 SECTION 9.15. Operative Documents; Further Assurances ...................58 SECTION 9.16. Confidentiality............................................58 SECTION 9.17. Interest Laws..............................................58 SECTION 9.18. Financial Advisor..........................................59 SECTION 9.19. Securities Representation..................................59 SECTION 9.20. Agreements with Respect to the Properties; Collateral......59 SECTION 9.21. Waiver of Trial by Jury....................................60 SECTION 9.22. Other Matters..............................................60 SECTION 9.23. Protective Expenditures; Payment for Services..............60 SECTION 9.24. Exculpation of Trustee.....................................60 SECTION 9.25. Certificate Holder.........................................61 ii Participation Agreement Proprietary & Confidential SECTION 9.26. SPC Advances...............................................61 Schedule I - Manner of Payment and Communications to the Parties Schedule II - Fees Schedule III Note and Certificate Allocation Exhibit A - Form of Requisition Appendix A - Definitions. iii Participation Agreement Proprietary & Confidential PARTICIPATION AGREEMENT (this "Agreement") dated as of June 27, 2001 among Rite Aid Realty Corp., a Delaware corporation (the "Company"); Rite Aid Corporation, a Delaware corporation (the "Guarantor"); Wells Fargo Bank Northwest, National Association ("WFBN"), not in its individual capacity except as expressly set forth herein but solely as Trustee of the RAC Distribution Statutory Trust (the "Trustee" and in its capacity as lessor under the Lease, the "Lessor"); the Persons named from time to time on Schedule I hereto as note holders and their permitted successors and assigns (collectively, the "Note Holders"); the Persons named from time to time on Schedule I hereto as certificate holders and their permitted successors and assigns (collectively, the "Certificate Holders"); and Citicorp USA, Inc., in its capacity as administrative agent for the Note Holders and the Certificate Holders hereunder (the "Agent"). Capitalized terms used but not otherwise defined in this Agreement have the meanings set forth in Appendix A hereto. PRELIMINARY STATEMENT In accordance with the terms of the Operative Documents: A. The Trustee has agreed to acquire the Original Maryland Lessor's interest in the Maryland Property and the Original California Lessor's interest in the California Property, and thereupon lease to the Company the Properties pursuant to the terms of the Lease and the Lease Supplements. B. The Certificate Holders are willing to provide a portion of the funding of the Acquisition Costs of the Properties by making Equity Investments in the Trust. C. The Trustee wishes to obtain, and the Note Holders are willing to provide, limited recourse financing for the remaining portion of the Acquisition Costs of the Properties by making Advances to the Trustee. D. Concurrently with the execution and delivery of this Agreement, the Trustee is entering into the Loan Agreement, pursuant to which, among other things, provision is made for the issuance of Notes to the Note Holders as evidence of the participation of each Note Holder in the Advances. E. Concurrently with the execution and delivery of this Agreement, the Lessor is entering into (i) the Maryland Mortgage, pursuant to which the Lessor grants a mortgage on the Maryland Property, and (ii) the California Mortgage, pursuant to which the Lessor grants a leasehold mortgage on the California Land and a mortgage on the California Improvements, in each case for the benefit of the Note Holders and the Certificate Holders. F. Concurrently with the execution and delivery of this Agreement, the Company is entering into the Security Agreement pursuant to which the Company grants a security interest in the Equipment Collateral for the benefit of the Lessor. Participation Agreement Proprietary & Confidential In consideration of the agreements herein and in the other Operative Documents and in reliance upon the representations and warranties set forth herein and therein, the parties agree as follows: ARTICLE I FINANCING SECTION 1.01. Note Advance Commitments. Subject to the terms and conditions contained in this Agreement, each Note Holder hereby agrees, severally and not jointly and severally, to make an advance (each, an "Advance") to the Trustee pursuant to the Loan Agreement on the Funding Date in an amount equal to its Percentage of Acquisition Costs specified in the Requisition. No Note Holder shall have any obligation to make any Advance for any amount in excess of its aggregate Note Commitment. Advances under the A-Notes shall be limited to 80.0% of Acquisition Costs. Advances under the B-Notes shall be limited to 17.0% of Acquisition Costs. After making its Advance on the Funding Date, each Note Holder's Note Commitment shall automatically and permanently expire. SECTION 1.02. Certificate Equity Investment Commitments. Subject to the terms and conditions contained in this Agreement, each Certificate Holder hereby agrees, severally and not jointly and severally, to make an investment in the Trust (each, an "Equity Investment") on the Funding Date in an amount equal to its Percentage of Acquisition Costs specified in the Requisition. No Certificate Holder shall have any obligation to make any Equity Investment for any amount in excess of its aggregate Certificate Commitment. Equity Investments shall in all events be in amounts not less than 3% of Acquisition Costs. After making its Equity Investment on the Funding Date, each Certificate Holder's Certificate Commitment shall automatically and permanently expire. SECTION 1.03. Procedures for Advances and Equity Investments. (a) Requisitions. (i) On or prior to the Funding Date, the Company must submit to the Agent an irrevocable requisition for Acquisition Costs (the "Requisition") substantially in the form attached as Exhibit A hereto, and on such day the Agent will give notice of such Requisition to the Note Holders and the Certificate Holders. Such notice by the Agent shall specify the amount of the Advances to be made by each Note Holder and the amount of the Equity Investments to be made by each Certificate Holder. (ii) The Requisition (A) shall be irrevocable and executed by an authorized Officer of the Company, and (B) shall request that the Note Holders make Advances and that the Certificate Holders make Equity Investments for Acquisition Costs. (iii) No more than one (1) Requisition may be submitted. (b) Funding Advances and Equity Investments. On the Funding Date, each Note Holder and Certificate Holder, before 1:00 P.M. (New York City time) shall make available 2 Participation Agreement Proprietary & Confidential to the Agent, on behalf of the Trustee, an amount equal to the Advance or the Equity Investment, as the case may be, to be made by it, at the Agent's address referred to in Schedule I hereto, in immediately available funds. (c) Non-Funding Note Holder or Certificate Holder. Unless the Agent shall have received notice from a Note Holder or Certificate Holder prior to the Funding Date that such Note Holder or Certificate Holder will not make available to the Agent an Advance or Equity Investment, as applicable, the Agent may assume that such Note Holder or Certificate Holder has made its funds available to the Agent in accordance with Section 1.03(b) and the Agent may (but shall not be required to), in reliance upon such assumption, make available on the Funding Date a corresponding amount. If and to the extent that such Note Holder or Certificate Holder shall not have so made such Advance or Equity Investment available to the Agent on the Funding Date, such Note Holder or Certificate Holder agrees to repay the Agent on demand by the Agent such corresponding amount, together with interest thereon, for each day from the date such amount is made available by the Agent, until the date such amount is repaid to the Agent, at the Federal Funds Rate. If such Note Holder or Certificate Holder shall repay to the Agent such corresponding amount, such amount so repaid (excluding any amounts for interest paid to the Agent) shall constitute such Note Holder's funding of its Advance or such Certificate Holder's Equity Investment, as applicable, for purposes of this Agreement. The failure of any Note Holder or Certificate Holder to make an Advance or Equity Investment, as applicable, shall not relieve any other Note Holder or Certificate Holder of its obligations, if any, hereunder, but no Note Holder or Certificate Holder shall be responsible for the failure of any other Note Holder or Certificate Holder to make an Advance or Equity Investment. SECTION 1.04. Use of Proceeds. Upon the Agent's receipt of funds from the Note Holders and the Certificate Holders for the Funding and/or upon the Agent's making corresponding funds available pursuant to Section 1.03(c), and upon fulfillment of the applicable conditions set forth in Article II, the Agent will apply the funds to the payment in respect of the termination of the Original Leases in accordance with the Requisition. SECTION 1.05. Payments by Company. (a) The parties hereto agree that notwithstanding the terms of the Operative Documents, any payment required to be made pursuant to any Operative Document by the Company to the Lessor or any Note Holder or Certificate Holder, or by the Trustee to any Note Holder or Certificate Holder out of amounts paid by the Company, shall be made directly to the Agent, or at the direction of the Agent (which direction may change from time to time), for application in accordance with the terms of the Operative Documents on behalf of the applicable payee(s). (b) All payments made by the Company to the Agent in accordance with this Section 1.05 shall be deemed to have been applied by the Agent to the purposes for which such payments were made in accordance with the terms of the Operative Documents. Upon delivery of good funds to the Agent in any such case, the Company's payment obligations in the particular instance shall be deemed satisfied to the extent of the funds so furnished. All amounts payable to the Agent hereunder shall be paid in Dollars and in immediately available funds by 12:00 Noon (New York City time) on the applicable Payment Date or on the date when due, at the Agent's 3 Participation Agreement Proprietary & Confidential address as set forth in Schedule I hereto, or at such other address, to such other Person or in such other manner as the Agent, from time to time may designate to the Company by written instructions. SECTION 1.06. Purchase Rights. Notwithstanding anything to the contrary contained in the Operative Documents, in lieu of purchasing (or causing a designee to purchase) all of the Properties then subject to the Lease the Lessee may elect to purchase (or cause a designee to purchase) the beneficial interest in the Trust by paying the Termination Value of the Properties therefor, whereupon the Notes shall be paid in full and cancelled and the Certificates shall be purchased by and assigned to the Lessee (or its designee). SECTION 1.07. Note and Certificate Allocation. To the extent the Operative Documents set forth that the principal amount of the Notes and/or the Certificate Amount of the Certificates shall be allocable to any Property, such allocation shall be based upon the amounts set forth in Schedule III hereto. SECTION 1.08. Modifying Equipment Collateral. Modifying Equipment Collateral. The parties hereto acknowledge and agree that the Lessee may, at any time so long as no Default, Event of Default or Non-Performance Event has occurred and is continuing and so long as the Lessee has not proceeded under Section 3.03(a)(ii) of the Lease, give notice to the Lessor and the Agent requesting that the Lessor release its security interest under the Security Agreement in certain Equipment Collateral not required for the racking, storage, handling or moving of inventory (the "Release Collateral"). Such notice shall take the form of a schedule describing either the Release Collateral or the assets in which the Lessor is entitled to retain a security interest. If the nature and value of the assets comprising the Release Collateral are reasonably satisfactory to the Agent and the Lessor, the Lessor shall, at the request of the Lessee and notwithstanding the provisions of Section 9.04, (a) execute the necessary documentation to release its security interest in the Release Collateral and (b) file an amendment to the financing statement(s) filed against the Lessee to reflect the release of the Lessor's security interest in the Release Collateral. The costs and expenses in respect of the Lessor's actions under (a) and (b) above shall be for the account of the Lessee. ARTICLE II CONDITIONS PRECEDENT SECTION 2.01. Conditions Precedent to the Funding. The obligations of each of the Note Holders to make an Advance and each of the Certificate Holders to make an Equity Investment on the Funding Date shall be subject to the fulfillment, on or before the Funding Date, of the following conditions precedent: (a) Due Authorization, Execution and Delivery. The Operative Documents shall have been duly authorized, executed and delivered by all parties thereto, and shall be in full force and effect, and no condition or event shall exist or have occurred which would constitute a 4 Participation Agreement Proprietary & Confidential Default, an Event of Default or a Non-Performance Event under any of the Operative Documents. (b) Representations and Warranties. The representations and warranties of each of the Company, the Guarantor, WFBN and the Trustee, respectively, set forth in the Operative Documents shall be true and correct as if made on and as of the Funding Date or, as applicable, on and as of the date specified in such representation or warranty. (c) Company Documents; Certificates and Opinions. The Agent shall have received on or before the Funding Date the following, each dated as of the Funding Date (unless otherwise specified) and in form and substance satisfactory to the Agent: (i) Secretary's Certificates. (A) A certificate of the Secretary or an Assistant Secretary of the Company certifying as to (x) the articles of incorporation and bylaws of the Company, (y) the resolutions of the board of directors of the Company approving the execution, delivery and performance of each Operative Document to which the Company is a party and (z) the names and true signatures of the officers of the Company authorized to sign each Operative Document to which the Company is a party and the other documents or certificates to be delivered hereunder and thereunder; and (B) A certificate of the Secretary or an Assistant Secretary of the Guarantor certifying as to (x) the articles of incorporation and bylaws of the Guarantor, (y) the resolutions of the board of directors of the Guarantor approving the execution, delivery and performance of each Operative Document to which the Guarantor is a party and (z) the names and true signatures of the officers of the Guarantor authorized to sign each Operative Document to which the Guarantor is a party and the other documents or certificates to be delivered hereunder and thereunder; (ii) Officer's Certificates. A certificate signed by a Responsible Officer of the Guarantor certifying that the conditions precedent set forth in Section 2.01 have been met and complied with in all material respects on and as of the Funding Date; (iii) Good Standing Certificates. (A) With respect to the Company, a good standing certificate from the Secretary of State of the State of Delaware and a certificate of authority to transact business as a corporation in each of the States of Maryland and California, each dated a recent date prior to the Funding Date; and (B) With respect to the Guarantor, a good standing certificate from the Secretary of State of the State of Delaware dated a recent date prior to the Funding Date; and (iv) Legal Opinions. Favorable opinions of (A) Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the Company and the Guarantor, (B) Piper, Marbury, Rudnick & Wolfe LLP, special Maryland counsel to the Agent and the Holders, and (C) McDermott, Will & Emery, special California counsel to the Agent and the 5 Participation Agreement Proprietary & Confidential Holders, in each case addressed to the Agent, the Trustee, each Note Holder and each Certificate Holder. (d) Trustee Documents. The Agent shall have received on or before the Funding Date the following, each dated as of the Funding Date (unless otherwise specified) and in form and substance satisfactory to the Agent: (i) a certificate of the Secretary or an Assistant Secretary of WFBN certifying as to (A) the organizational documents of WFBN, (B) the appointment of WFBN as Trustee of the Trust, (C) the Certificate of Trust of the Trust, and (D) the names and true signatures of the officers of WFBN authorized to sign each Operative Document to which the Trust or the Trustee is a party and the other documents or certificates to be delivered hereunder and thereunder; (ii) an Officer's Certificate of WFBN certifying as to the truth and correctness of the representations and warranties made by each of WFBN and the Trustee in each Operative Document to which it is a party; (iii) a certificate of authority from the Comptroller of the Currency with respect to WFBN dated a recent date prior to the Funding Date; and (iv) favorable opinions of Day, Berry & Howard LLP and Ray, Quinney & Nebeker, special Connecticut and Utah counsel to the Trust, WFBN and the Trustee. (e) Certain Property Documents. The Agent shall have received and have recorded or filed or caused to be recorded or filed, as the case may be, on or before the Funding Date, or as otherwise specified herein, the following, in form and substance satisfactory to the Agent: (i) Insurance Certificates. Certificates of insurance or other satisfactory assurances evidencing compliance with the Insurance Requirements; (ii) Recording and Filing Documents. The appropriate Operative Documents (or memoranda thereof) and financing statements with respect to the Properties and Equipment Collateral in proper form to be duly recorded and filed, and all recording and filing fees and Taxes with respect to any recording or filing to be made pursuant to this Agreement shall have been paid in full or arrangements, satisfactory to the Agent, for such payment shall have been made; (iii) Requisition. A duly executed Requisition in accordance with Section 1.03(a); (iv) Environmental Audit. An existing Phase I environmental audit or assessment of each Property dated within the past five (5) years; 6 Participation Agreement Proprietary & Confidential (v) Title Commitment. A commitment for an ALTA form of extended coverage policy or policies of owner's and lender's title insurance, covering the Properties in such amounts and under such terms as are acceptable to the Agent (collectively, the "Title Policies") issued by a title insurance company acceptable to the Agent (the "Title Company"). The aforementioned title commitment shall be marked "premium paid", commit the Title Company to issue the Title Policies subject only to Permitted Encumbrances and contain such affirmative insurance and other endorsements, including a comprehensive endorsement covering restrictions, an endorsement providing mechanic's lien coverage, an endorsement confirming legal access to a public road, a contiguity endorsement and a zoning endorsement, as the Agent shall reasonably require; (vi) Financing Statements. The Company shall have delivered to the Trustee all UCC financing statements relating to the Properties and the Equipment Collateral as the Trustee or the Agent may reasonably request; (vii) Permits and Certain Property Matters. All Permits with respect to the Properties that are or will become Applicable Permits shall have been obtained, except Applicable Permits customarily obtained or which are permitted by Law to be obtained after the Funding Date (in which case the Company, having completed all appropriate diligence in connection therewith, shall have no reason to believe that such Permits will not be granted prior to the date that such Permits are required by Law). Each of such obtained Permits shall be in proper form, shall be in full force and effect and not subject to any appeal, consent or contest or to any condition that, if unsatisfied, is likely to result, in the Agent's reasonable judgment, in the forfeiture or revocation of such Permit; and (viii) Other Documents. Such other approvals, certificates or documents as the Agent may reasonably request to evidence satisfaction of the conditions set forth in this Section 2.01(e). (f) Proceedings Satisfactory and Other Evidence. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated by the Operative Documents and all documents, papers and authorizations relating thereto shall be satisfactory to the Agent, the Company, the Guarantor and their respective counsel. (g) Legality. The execution, delivery and issuance of the Notes and Certificates by the Trustee and the purchase of the Notes and the funding of Advances thereunder by the Note Holders and the purchase of the Certificates and the funding and maintenance of Equity Investments thereunder by the Certificate Holders shall not be subject to the registration requirements of the Act or any state securities or blue sky Law, and shall not be prohibited by any applicable Law (including Regulation T, Regulation U or Regulation X and any applicable usury Laws) and shall not subject the Trustee, any Note Holder or any Certificate Holder to any Tax (other than Excluded Charges), penalty, liability or other onerous condition under or pursuant to any applicable Law. 7 Participation Agreement Proprietary & Confidential (h) Transaction Costs. All Transaction Costs required to be paid on or before the Funding Date shall have been paid. (i) Taxes. All Taxes (other than Excluded Charges), fees and other charges which have become due and payable in connection with the execution, delivery, recording, publishing, registering and filing of the Operative Documents (or any memoranda thereof) and any financing statements shall have been paid or provision for the payment thereof shall have been made satisfactory to the Agent. (j) Compliance with Law. The Properties shall be in compliance in all material respects with all Laws, including all building, construction and zoning Laws and Environmental Laws applicable thereto. (k) Senior Credit Facility. The conditions set forth in Section 3.01 of the Senior Credit Facility shall have been satisfied or waived in accordance with the terms of the Senior Credit Facility. (l) Satisfaction with Contemplated Transactions. The Agent shall be satisfied, in its discretion, with its review of the Properties and all material matters in connection therewith, including the leasing thereof by the Lessor. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01. Representations and Warranties of the Company. The Company hereby represents and warrants to the Trustee, the Agent, the Note Holders and the Certificate Holders that the following shall be true and correct on and as of the Funding Date: (a) Existence. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Company of the Operative Documents to which the Company is a party are within the Company's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the articles of incorporation or bylaws of the Company or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or result in the creation or imposition of any Lien on any asset of the Company. (c) Binding Effect. The Operative Documents to which the Company is a party constitute valid and binding agreements of the Company, enforceable in accordance with their terms, except as may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 8 Participation Agreement Proprietary & Confidential (d) Compliance with Laws With Respect to the Properties. (i) The Company is not in violation of any Law with respect to any Property or with respect to the conduct of its business relating to any Property, (ii) the Company has not received any notice of, or citation for, any violation of any Law which has not been resolved, which notice or citation relates in any way to any Property, (iii) the acquisition, ownership, leasing, subleasing or operation of any Property or any part thereof by the Lessor, in accordance with the terms of the Operative Documents, will not violate any Law and (iv) each Property is in compliance with all applicable Laws, in each case, except where a violation or noncompliance would not have a Material Adverse Effect. (e) Rights to Properties, Etc. (i) The Lessor has good and marketable title to the Maryland Land and all of the Improvements and a valid leasehold interest in the California Land, in each case free and clear of all Liens, except for Permitted Encumbrances and Lessor Liens. (ii) None of the Permitted Encumbrances will materially interfere with the use or possession of any Property or any part thereof or any other asset used in connection therewith or the use of or the exercise by the Lessor or the Agent of their rights either under any Operative Document or to any Property or any part thereof. (iii) There are no material agreements, consents, instruments, easements, leases, rights-of-way, licenses or other rights necessary to acquire, own, lease, install, construct, operate or use any Property which the Company does not have. (iv) All water, sewer, electric, gas, telephone and drainage facilities and all other utilities, to the extent required to adequately service the applicable Improvements for each Property's Intended Use have been completed and are in operation. (f) Environmental Compliance. (i) Each Property complies in all material respects with all Environmental Laws; to the Company's knowledge no Environmental Action is pending against any Property or any part thereof; and to the Company's knowledge no circumstances exist that would be reasonably likely to (A) form the basis of an Environmental Action against any Property or any part thereof or (B) cause any Property or any part thereof to be subject to any material restrictions on ownership, occupancy, use or transferability under any Environmental Law. (ii) No portion of any Property is listed or, to the Company's knowledge, proposed for listing on the NPL or on CERCLIS or any analogous state list of sites requiring investigation or cleanup. (iii) To the Company's knowledge, prior to the Funding Date, all Hazardous Materials generated, used, treated, handled or stored at or transported to or from any Property have been disposed of in compliance in all material respects with all Environmental Laws and Environmental Permits. 9 Participation Agreement Proprietary & Confidential (g) No Condemnation, Casualty or Force Majeure. No portion of any Property has suffered a Condemnation nor has any Property or any portion thereof suffered a Casualty or any other damage or destruction which renders such Property unusable in whole or in material part, and, under applicable Law, each Property may be used for its Intended Use. The Company has not received any notice of a proposed Condemnation. No event of Force Majeure has occurred and is continuing which would adversely affect the operation of any Property. (h) Permits. All Permits (including Environmental Permits) that are or will become Applicable Permits have been obtained, except Applicable Permits customarily obtained or which are permitted by Law to be obtained after the Funding Date (in which case the Company having completed all appropriate diligence in connection therewith, has no reason to believe that such Permits will not be granted in the usual course of business prior to the date that such Permits are required by Law). All such obtained Permits are in proper form, in full force and effect and not subject to any further appeal or further contest or to any unsatisfied condition that may allow modification or revocation except such as are customary in the usual course of business. (i) Recording and Filing. The appropriate Operative Documents (or memoranda thereof) mortgages, deeds of trust and all financing statements under the UCC recorded or filed, or to be recorded or filed hereunder, when recorded or filed, create, perfect and publish notice of a valid and effective first priority security interest and Lien on each Property and the Equipment Collateral in favor of the Lessor and/or the Agent, subject to no other Liens except in each case for Permitted Encumbrances and Lessor Liens. (j) Intellectual Property. (i) The ownership and leasing of each Property by the Lessor and the leasing of each Property by the Company do not and will not conflict with, infringe on, or otherwise violate any copyright, trademark, trade name, trade secret or patent rights of any other Person. (ii) The Company has all rights to all patents, patent applications, trademarks (whether registered or not), trademark applications, trade names, proprietary computer software, "know-how", copyrights technology and processes used or to be used in the ordinary course of the operation of each Property for its Intended Use (the "Intellectual Property Rights") that are necessary for the operation thereof. There is no judicial proceeding pending or, to the knowledge of the Company, threatened, involving any claim of any infringement, misuse or misappropriation by the Company or any Affiliate thereof of any patent, trademark, trade name, copyright, license or similar intellectual property right owned by any third party related to the Intellectual Property Rights. (k) Insurance. The Company is in compliance in all material respects with all Insurance Requirements, and all insurance policies required by the Lease are in full force and effect. 10 Participation Agreement Proprietary & Confidential SECTION 3.02. Representations and Warranties of the Guarantor. The Guarantor represents and warrants to the Trustee, the Agent, the Note Holders and the Certificate Holders that the following shall be true and correct on and as of the Funding Date: (a) Corporate Existence and Power. The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. (b) Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Guarantor of each Operative Document to which it is a party are within the Guarantor's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or bylaws of the Guarantor or of any agreement or instrument evidencing or governing Debt of the Guarantor or any Subsidiary or any other material agreement, instrument, judgment, injunction, order or decree binding upon the Guarantor or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Guarantor or any Subsidiary pursuant to any such agreement, instrument, judgment, injunction, order or decree (other than the Liens created by the Operative Documents). (c) Binding Effect. Each Operative Document to which the Guarantor is a party constitutes a valid and binding agreement of the Guarantor enforceable in accordance with its terms. (d) Accuracy of Information. All information (other than financial projections) that has been or will hereafter be made available to the Agent or any Note Holder or Certificate Holder by or on behalf of the Guarantor or any of its representatives in connection with the transactions contemplated by the Operative Documents is and will be complete and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances under which such statements were or are made. (e) Senior Credit Facility Representations and Warranties. The representations and warranties of the Guarantor, as borrower under the Senior Credit Facility, contained in the Senior Credit Facility are true and correct. SECTION 3.03. WFBN Representations and Warranties. WFBN, in its individual capacity and not as Trustee (with the exception of the first sentence of Section 3.03(f), which representation and warranty is made by WFBN solely in its trustee capacity) represents and warrants to the Company, the Guarantor, the Note Holders, the Certificate Holders, and the Agent that the following statements are and shall be true and correct on and as of the Funding Date: 11 Participation Agreement Proprietary & Confidential (a) Organization and Authority. (i) WFBN is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America. (ii) WFBN has all requisite corporate power and authority to execute and deliver each Operative Document to which it is a party and to comply with the terms thereof and perform its obligations thereunder. (b) Pending Litigation. There is no pending or, to WFBN's knowledge, threatened, action, suit, investigation, litigation or proceeding, including, without limitation, any Environmental Action, affecting WFBN before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a material adverse effect on WFBN or (ii) purports to affect the legality, validity or enforceability of this Agreement or any of the other Operative Documents or the consummation of the transactions contemplated hereby or thereby. (c) Authorization; No Conflict. The execution and delivery by WFBN of, and compliance by WFBN with all of the provisions of, each Operative Document to which it is a party and any other agreement entered into by WFBN in connection with any transaction contemplated by the Operative Documents are within the powers of WFBN and are authorized by all proper and necessary corporate action and will not conflict with, result in any breach of any of the provisions of, or constitute a default under, any organization document of WFBN or any judgment, injunction, order or decree to which WFBN may be bound or which is applicable to any of WFBN's property or result in a violation of any applicable Connecticut, Utah or federal Law governing the banking or trust powers of WFBN or in the creation of any Lien on any asset of WFBN (except as contemplated by the Operative Documents). (d) Enforceability. Each Operative Document to which WFBN is a party and any other agreement entered into by WFBN in connection with any transaction contemplated by the Operative Documents is the legal, valid and binding obligation of WFBN enforceable against WFBN in accordance with its terms, except as enforceability thereof may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors' rights generally and by general principles of equity. (e) Consents. The nature of WFBN, its execution, delivery and performance of each Operative Document to which it is a party, its consummation of the transactions contemplated thereby, its compliance with the terms thereof or any circumstance in connection with the transactions contemplated thereby does not require the consent of any Person or the approval or authorization of, or filing, registration or qualification with, any Federal, Connecticut or Utah state governmental authority governing the banking or trust powers of WFBN (other than such as have been obtained) as a condition to such execution, delivery, performance and compliance. (f) No Default. No event has occurred and no condition exists which, upon consummation of the transactions contemplated by any Operative Document, would constitute a default by the Trustee. WFBN is not in violation in any respect of any agreement or any other 12 Participation Agreement Proprietary & Confidential instrument, nor is WFBN in violation of its articles of association or any other instrument to which it is a party or by which it or any of its property may be bound or affected which would have a material adverse effect on either the business, financial position or results of operations of WFBN or WFBN's ability to perform its obligations as Trustee under the Operative Documents. (g) Securities Representation. WFBN has not directly or indirectly offered any Instrument, any interest in any Property or under any Operative Document or in the Trust Estate or any similar security for sale to, or solicited any offer to acquire the same from, anyone. SECTION 3.04. Representations and Warranties of Trustee. The Trustee hereby represents and warrants to the Company, the Guarantor, the Note Holders, the Certificate Holder and the Agent that the following statements are and shall be true and correct on and as of the Funding Date: (a) Chief Executive Office. The Trustee's principal place of business and the place where the documents, accounts and records relating to the transactions contemplated hereby are kept is located at 213 Court Street, Suite 902, Middletown, Connecticut 06547, Attention: Corporate Trust Services. (b) Due Organization, Etc. The Trust is a statutory trust duly organized and validly existing in good standing under Connecticut law and the Trustee has full trust power and authority to execute, deliver and perform its obligations under each Operative Document to which it is or is to be a party and each other agreement, instrument and document to be executed and delivered by it in connection with or as contemplated by each such Operative Document to which it is or is to be a party. (c) Authorization; Enforceability, etc. Each Operative Document to which the Trustee is or is to be a party have been or will be, duly authorized, executed and delivered by or on behalf of the Trustee and are, or upon execution and delivery will be, legal, valid and binding obligations of the Trustee, enforceable against the Trustee in accordance with their respective terms, except as enforceability thereof may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting creditors' rights generally and by general principles of equity. (d) No Conflict. Neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by the Trustee with any of the terms and provisions thereof (i) requires any approval of its trustor or settler (other than as has been obtained) or approval or consent of any trustee or holders of any of its indebtedness or obligations, (ii) contravenes or will contravene any applicable Utah, Connecticut or federal banking Laws currently in effect applicable to or binding on it (except no representation or warranty is made as to any applicable Laws to which it or the Properties, directly or indirectly, may be subject because of the lines of business or other activities of the Company, the Guarantor or any of its Affiliates) or (iii) results in any breach of or constitutes any default under, any indenture, mortgage, chattel mortgage, deed of trust, lease, conditional sales contract, loan or credit arrangement, other material agreement or instrument, corporate charter, by-laws or other 13 Participation Agreement Proprietary & Confidential agreement or instrument to which it is a party or by which it or its properties may be bound or affected. (e) Lessor Liens. Each Property is free and clear of all Lessor Liens attributable to the Trustee. (f) Litigation. There is no action, proceeding or investigation pending or, to the Trustee's knowledge, threatened affecting WFBN or the Trustee which questions the validity of the Operative Documents to which the Trustee is or is to be a party or any action taken or to be taken pursuant to the Operative Documents to which the Trustee is or is to be a party, and there is no action, proceeding or investigation pending or, to the Trustee's knowledge, threatened which, if adversely determined, would have a material adverse effect on the Trustee or on the Trustee's ability to enforce its rights under any of the Operative Documents. (g) Consents, etc. No authorization, consent, approval, license or formal exemption from, nor any filing, declaration or registration with, any Governmental Authority, is or will be required in connection with the execution and delivery by the Trustee of the Operative Documents to which it is a party or the performance by the Trustee of its obligations under the Operative Documents. SECTION 3.05. Representations and Warranties of the Holders. Each Holder represents and warrants, severally and only as to itself, to the other Holders, the Trustee, the Agent, the Company and the Guarantor that the following shall be true and correct on and as of the Funding Date: (a) ERISA. Such Holder is not and will not be making its Advance or Equity Investment hereunder, and is not performing its obligations under the Operative Documents, with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or "plan" (as defined in Section 4975(e)(1) of the Code). (b) Investment. The Certificate or Note being acquired by such Holder is being acquired by such Holder for investment and not with a view to the resale or distribution of such interest or any part thereof, but without prejudice, however, to the right of such Holder at all times to sell or otherwise dispose of all or any part of such interest in accordance with Section 5.03, it being understood that the disposition by such Holder of the Certificate or Note to be purchased by such Holder shall, at all times, remain entirely within its control. ARTICLE IV COVENANTS SECTION 4.01. Covenants of the Company. The Company agrees that, so long as the principal of or interest on any Note or the Certificate Amount of or any Distributions on any Certificate remains unpaid: 14 Participation Agreement Proprietary & Confidential (a) Use of Proceeds. None of the proceeds from any Advances or Equity Investments will be used in violation of any applicable law or regulation, including Regulation T, Regulation U and Regulation X of the Board of Governors of the Federal Reserve System. (b) Appraisal. Within sixty (60) days following the Funding Date, the Company shall deliver or cause to be delivered an Appraisal of each Property and the Equipment Collateral demonstrating that (i) as of the Funding Date the fair market value of the Properties is at least equal to the Acquisition Costs of the Properties and (ii) as of the Base Term Expiration Date, the fair market value of the Properties shall be at least equal to the principal amount of the B-Notes plus the Certificate Amount of the Certificates multiplied by a factor of 2.5. (c) Environmental Audit. Within sixty (60) days following the Funding Date, the Company shall deliver or cause to be delivered a Phase I environmental audit of each Property (an "Environmental Audit") conducted by the Environmental Consultant, at the sole cost and expense of the Company, and based thereon the Agent shall be satisfied that (A) no significant environmental hazards or conditions exist on such Property or any portion thereof, (B) the Company is employing reasonable and prudent environmental practices relative to industry standards with respect to such Property and (C) based upon anticipated and permitted practices and procedures there is not likely to exist on or in respect of such Property any significant environmental hazards or conditions. (d) As-Built Surveys. Within sixty (60) days following the Funding Date, the Company shall deliver or cause to be delivered an ALTA/ASCM as-built survey (or other form of survey acceptable to the Agent) of each Property showing the location of all improvements (including the applicable Improvements), easements, encroachments and other matters, together with an ALTA/ASCM surveyor's certification in a form customarily provided. The survey shall contain a statement that such land is not in a flood hazard zone (or, to the extent any portion of such land may be in a flood zone, delineating the portions thereof in such flood zone) and shall be dated as of a date acceptable to the Title Company. (e) Title Policy Endorsement. Within sixty (60) days following the Funding Date, the Company shall cause the Title Company to deliver an endorsement to the Title Policy deleting any customary survey exceptions. (f) Delivery of Security Opinion. On or prior to July 2, 2001, the Company shall deliver the opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois), special counsel to the Company and the Guarantor, which opinion shall be dated July 2, 2001 and shall be substantially in the form of Exhibit Q to the Senior Credit Facility, except addressed to the Agent, the Holders and Trustee and except that such opinion shall relate to the Equipment Collateral and the Security Agreement. SECTION 4.02. Covenants of the Guarantor. The Guarantor agrees that, so long as the principal of or interest on any Note or the Certificate Amount of or any Distributions on any Certificate remains unpaid: 15 Participation Agreement Proprietary & Confidential (a) Information. The Guarantor will deliver to each of the Note Holders and Certificate Holders: (i) subject to Section 4.02(b), the same information (and at the same times) required to be delivered pursuant to Section 5.01(a), (b), (c), (d), (f), (h), (i) and (l) of the Senior Credit Facility; and (ii) within five (5) days after any Officer of the Guarantor obtains knowledge of any Default or Event of Default, if such Default or Event of Default is then continuing, a certificate of a Responsible Officer of the Guarantor setting forth information with respect thereto in reasonable detail and the action which the Guarantor is taking or proposes to take with respect thereto. Information delivered hereunder which is required to be delivered pursuant to Section 5.01(a), (b), (h) and (i) of the Senior Credit Facility shall be deemed to have been delivered on the date on which the Guarantor provides notice to the Holders that such information has been posted on the Guarantor's website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux/searches.htm or at another website identified in such notice and accessible by the Holders without charge; provided that (x) such notice may be included in a certificate delivered pursuant to clause (iii), and (y) the Guarantor shall deliver paper copies of the information referred to in Section 5.01(a), (b), (h) and (i) of the Senior Credit Facility to any Holder which requests such delivery. (b) Incorporation of Senior Credit Facility Covenants. Without duplication of the covenants set forth in this Section 4.02, the covenants of the Guarantor under Section 5 (but excluding Section 5.03(c), (d), (e), (f) and (g) and Sections 5.08, 5.09, 5.10, 5.12, 5.13 and 5.24) the Senior Credit Facility, as in effect on the date hereof, are hereby incorporated herein, mutatis mutandis, by reference and shall constitute covenants of the Guarantor hereunder. In the event any such covenant of the Guarantor set forth in the Senior Credit Facility is amended or modified in any manner, such amendment and/or modification shall not automatically cause this Section 4.02 to be similarly amended or modified, and such amendment and/or modification under the Senior Credit Facility shall only be effective as an amendment and/or modification hereunder upon the written consent of the Majority Holders. In the event the Senior Credit Facility is terminated prior to the Expiration Date, the covenants of the Guarantor set forth in the above listed Sections of the Senior Credit Facility as in effect on June 27, 2001 (together with amendments to such covenants that became effective hereunder in accordance with the previous sentence) shall constitute covenants of the Guarantor hereunder. SECTION 4.03. Covenants of WFBN, the Trustee and the Holders. Each of WFBN, the Trustee and the Holders, as applicable, hereby agrees with the other parties hereto that so long as this Agreement shall remain in effect: (a) Discharge of Liens. Each of WFBN, the Trustee and the Certificate Holders, each agreeing severally and as to itself only, will not create or permit to exist at any time, and will, at its own cost and expense, promptly take such action as may be necessary duly 16 Participation Agreement Proprietary & Confidential to discharge, or to cause to be discharged, all Lessor Liens on any Property attributable to it; provided, however, that WFBN, the Trustee and the Certificate Holders shall not be required to so discharge any such Lessor Lien while the same is being contested in good faith by appropriate proceedings diligently prosecuted so long as such proceedings shall not involve any material danger of impairment of the Liens of the Security Documents or of the sale, forfeiture or loss of, and shall not interfere with the use or disposition of, any Property or title thereto or any interest therein. (b) Trust Agreement. Without prejudice to any right under the Trust Agreement of the Trustee to resign, or the Certificate Holders' right under the Trust Agreement to remove the institution acting as Trustee, each of WFBN, the Trustee and the Certificate Holders hereby agrees with the Company, each Note Holder and the Agent (i) not to terminate or revoke the Trust created by the Trust Agreement except as permitted by the Trust Agreement, (ii) not to amend, supplement, terminate or revoke or otherwise modify any provision of the Trust Agreement in such a manner as to adversely affect the rights of any such party without the prior written consent of such party and (iii) to comply with all of the terms of the Trust Agreement, the nonperformance of which would adversely affect any such party or any Property or title thereto or any interest therein or the payment of Rent. (c) Indebtedness; Other Business. The Trustee, in its capacity as Trustee under the Trust Agreement, and not in its individual capacity, shall not contract for, create, incur or assume any indebtedness, or enter into any business or other activity, other than pursuant to or under the Operative Documents. (d) Change of Principal Place of Business. The Trustee shall give prompt notice to the Company, the Certificate Holders and the Agent, if the Trustee's principal place of business or chief executive office, or the office where the records concerning the accounts or contract rights relating to the Properties or the transactions contemplated by the Operative Documents are kept, shall cease to be located at the address set forth in Section 3.04(a), or if it shall change its name or identity. (e) Transfer by Trustee. The Trustee shall not transfer its interest in any Property or the Operative Documents (other than a transfer pursuant to the provisions of the Operative Documents) without the consent of the Agent and the Holders and, so long as no Event of Default shall have occurred and be continuing, the Company, each such consent not to be unreasonably withheld or delayed. The foregoing limitation shall not be applicable to the transfer of any beneficial interests in the Trust (which shall be governed exclusively by Section 5.03), nor of any assets of Trustee other than its rights in the Properties and the Operative Documents. (f) No Voluntary Bankruptcy. The Trustee shall not (i) commence any case or proceeding under any existing or future Law of any jurisdiction (domestic or foreign) relating to bankruptcy, insolvency, reorganization, arrangement, winding up, liquidation, dissolution, composition or other relief with respect to the Trust, Trustee or its debts, or (ii) seek appointment 17 Participation Agreement Proprietary & Confidential of a receiver, trustee, custodian or other similar official for the Trust or the Trustee or for all or any substantial benefit of its creditors. (g) Disposition of Assets. The Trustee shall not convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets, whether now owned or hereafter acquired, except to the extent expressly authorized by the Operative Documents. (h) Books and Records; Financial Statements; Bank Accounts. The Trustee and each Certificate Holder each covenants and agrees to maintain separate books and records. The Trustee and each Certificate Holder covenants to maintain its own bank account in its own name. To the extent that financial statements are prepared or issued by the Trustee and any Certificate Holder, each of the Trustee and each such Certificate Holder covenants and agrees to maintain separate financial statements from those financial statements which may be prepared or issued by any of them. (i) Separate Existence. Each Certificate Holder covenants and agrees to maintain the separate existence and identity of such Certificate Holder and the Trustee. The Trustee covenants and agrees not to merge or consolidate with, or transfer any of its assets or properties to any Person. The Trustee covenants and agrees not to commingle its assets and funds with those assets and funds of the Certificate Holders. The Lessor and each Certificate Holder each covenant and agree to correct any known misunderstanding regarding its separate identity. Each of the Certificate Holders covenant and agree to conduct its own business in such person's own name. Each of the Trustee and the Certificate Holders covenant and agree to hold itself out, at all times, to the public as a legal entity and distinct from each other. (j) Certificate Amount. The aggregate of all Certificate Amounts shall not at any time be less than 3% of Acquisition Costs. (k) Right of Setoff. Each of the Holders, WFBN and the Agent, in its individual capacity, covenants as to itself, and not jointly with any other Person, that it shall not exercise, or attempt to exercise, any right of setoff, banker's lien, or the like, against any deposit account or property of the Guarantor, the Company or any of their Affiliates held or maintained by such Person without the prior written consent of the Agent, which, in the case of the Holders, WFBN or the Agent acting on behalf of the Holders, the Agent shall base its decision to grant such consent solely upon a determination, upon the advise of its counsel, that such exercise shall not adversely affect the right of any Holder to resort to any other right or remedy as a result of the application of state law. (l) Insolvency Proceedings. Each of the Holders and the Agent, in its individual capacity, covenants as to itself, that it will not (i) commence any action, proceeding or other case with respect to the Trust under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, arrangement, winding up, liquidation, dissolution, composition or other relief with respect to indebtedness, (ii) seek appointment of a receiver, trustee, custodian or other similar official with respect to the Trust and for all or any substantial benefit of the creditors of the Trust or the Trustee, or (iii) take any 18 Participation Agreement Proprietary & Confidential action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in this Section 4.03(l), except in each case, as expressly permitted pursuant to the Operative Documents. ARTICLE V THE NOTES AND THE EQUITY INVESTMENT SECTION 5.01. Interest and Yield. (a) Applicable Rate. The outstanding principal amount of the Notes shall bear interest and the Certificate Amount of the Certificates shall earn current yield, in each case at a rate per annum equal to the Applicable Rate. (b) Default Rate. If all or a portion of the principal amount of the Notes, the Certificate Amount of the Certificates, any interest or Distributions payable thereon, or any other amount payable hereunder or under the other Operative Documents is not paid when due (whether at stated maturity, by acceleration or otherwise), such overdue amount shall bear interest, to the extent permitted by Law, at a rate per annum equal to the Default Rate. (c) Determination of Rates. The Guarantor shall select whether the Applicable Rate will be determined by reference to a LIBO Rate or the Base Rate by giving notice of that determination to the Agent not later than (i) in the case of the Base Rate, 10:30 a.m. (New York City time) on the first day of the applicable Base Rate Period, and (ii) in the case of the LIBO Rate on the third (3 rd ) LIBO Business Day before the first day of the applicable LIBO Rate Period. If the Guarantor fails to timely give notice of such selection, the Guarantor shall be deemed to have selected for the Applicable Rate to be determined by reference to the LIBO Rate for a three (3) month Interest Period. (d) Conversion of Applicable Rates. Subject to the notice requirement set forth in Section 5.01(c) and to the payment of all Break Costs required pursuant to Section 5.06, the Guarantor may elect to convert the reference for the Applicable Rate from the LIBO Rate to the Base Rate on two (2) Business Days prior notice to the Agent. Subject to the notice requirement set forth in Section 5.01(c), the Guarantor may elect to convert the reference for the Applicable Rate from the Base Rate to the LIBO Rate on any LIBO Business Day. (e) Number of Elections. All elections by the Guarantor hereunder shall be subject to the limitations set forth in the definitions of Interest Period, Interest Setting Date and Payment Date and the provisions of Section 5.02. Subject to the provisions of Section 5.02, any Applicable Rate and Interest Period selected by the Guarantor shall apply to all outstanding Notes and Certificates. (f) Computations. Interest and yield hereunder and under any other Operative Document based on clause (i) of the definition of the "Base Rate" shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and for the actual number of days elapsed 19 Participation Agreement Proprietary & Confidential (including the first day but excluding the last day). All other computations of interest, yield and of any fee payable hereunder and under any other Operative Document (other than computations made for purposes of determining the Maximum Rate) shall be computed on the basis of a year of 360 days for the actual number of days elapsed (including the first day but excluding the last day). (g) Rate Determination by Agent. The Agent shall determine each interest rate applicable hereunder and under any other Operative Document. The Agent shall give prompt notice to the Guarantor and the Holders of each rate of interest so determined, and such determination thereof shall be conclusive in the absence of manifest error. (h) Interest Payment. Interest and Distributions accrued and unpaid on the Notes and Certificates, respectively, shall be payable on each Payment Date. SECTION 5.02. Changes in Circumstances. (a) LIBO Rate Unavailable. If on or prior to any Interest Setting Date: (i) the Agent determines that adequate and reasonable means do not exist for ascertaining the LIBO Rate to be used in determining the Applicable Rate for such LIBO Rate Period; or (ii) the Agent is advised by the Majority Holders that the relevant LIBO Rate will not adequately and fairly reflect the cost to such Holders of making or maintaining their Advances or Equity Investments, as applicable; or (iii) any Holder shall notify the Agent that the introduction of or any change in or in the interpretation of any law or regulation made after the Funding Date makes it unlawful, or any central bank or other governmental authority having jurisdiction over any Holder asserts after the Funding Date that it is unlawful, for any Holder, or the office through which such Holder makes Fundings at the LIBO Rate, or compliance by any Holder (or its lending office) with any request or directive (whether or not having the force of law) of any Governmental Authority made after the Funding Date shall make it impossible, to perform its obligations hereunder with respect to Applicable Rates determined by reference to the LIBO Rate or to fund or maintain Advances or Equity Investments to which an Applicable Rate determined by reference to the LIBO Rate applies; or (iv) an Event of Default or Non-Performance Event shall have occurred and be continuing; then, and in any such event, the Agent shall give notice thereof (by telephone, promptly confirmed in writing) to the Company and the Trustee of such determination. Thereafter the Lessor and each affected Holder shall convert the Applicable Rate on the Notes and the Certificates to an Applicable Rate determined by reference to the Base Rate as of the first day of the next succeeding Interest Period or such earlier date as is required by Law and any request for 20 Participation Agreement Proprietary & Confidential a conversion from an Applicable Rate determined by reference to the Base Rate to an Applicable Rate determined by reference to the LIBO Rate pursuant to Section 5.01(d) shall in each case be ineffective; provided, however, if the circumstances giving rise to the notice given by the Agent do not affect all the Holders, then (i) the conversion to an Applicable Rate determined by reference to the Base Rate shall only apply to the affected Holders and (ii) requests for a conversion from an Applicable Rate determined by reference to the Base Rate to an Applicable Rate determined by reference to the LIBO Rate shall be effective for those Holders not affected by such notice. (b) Increased Costs. If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation, in each case, after the Funding Date or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority having jurisdiction over any Holder (whether or not having the force of Law) introduced or made after the Funding Date, there shall be any change by way of imposition or increase of any reserve requirement (including any such requirement imposed by the Federal Reserve Board, but excluding any such requirement included in Statutory Reserves) increase in the cost to any Holder of making or maintaining Advances or Equity Investments at an Applicable Rate determined by reference to the LIBO Rate or any reduction in the amount of any sum received or receivable by any Holder hereunder or under any other Operative Document (whether of principal, Certificate Amount, interest, Distributions or otherwise) (excluding for purposes of this Section 5.02(b) any such increased costs resulting from Taxes (as to which Section 5.04 shall govern)), then the Lessor shall pay to the Agent for the account of such Holder additional amounts sufficient to compensate such Holder for such increased cost or reduction suffered ("Increased Costs"). (c) Capital Adequacy. If any Holder shall determine that the adoption of any applicable Law regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof, in each case, after the Funding Date, by any Governmental Authority charged with the interpretation or administration thereof, or compliance by any Holder (or its lending office) with any request or directive made after the Funding Date regarding capital adequacy (whether or not having the force of Law) of any such Governmental Authority, has or would have the effect of reducing the rate of return on capital of such Holder (or any Person controlling such Holder) as a consequence of such Holder's obligations hereunder to a level below that which such Holder (or such Person controlling such Holder) could have achieved but for such adoption or change (taking into consideration such Holder's policies and the policies of such Person controlling such Holder with respect to capital adequacy), then from time to time the Lessor shall pay to the Agent for the account of such Holder such additional amount or amounts as will compensate such Holder (or such Person controlling such Holder) for such reduction suffered ("Capital Adequacy Costs"). (d) Base Rate Substituted for Affected LIBO Rate. If (x) the right of the Guarantor to designate that the Applicable Rate with respect to any Holder's Instruments be determined by reference to the LIBO Rate has been suspended pursuant to Section 5.02(a) or (y) any Holder has demanded compensation under Section 5.02(b) and the Guarantor shall, by at least five (5) LIBO Business Days' prior notice to such Holder through the Agent, have elected 21 Participation Agreement Proprietary & Confidential that the provisions of this Section 5.02(d) shall apply to such Holder, then, unless and until such Holder notifies the Company, the Guarantor and the Agent that the circumstances giving rise to such suspension or demand for compensation no longer apply: (i) the Applicable Rate with respect to such Holder's Instrument shall be determined by reference to the Base Rate in accordance with the provisions of Sections 5.02(a) and 5.02(b); (ii) interest and Distributions on such Holder's Instruments shall be payable on Payment Dates applicable to the other Holders' Instruments with respect to which the Applicable Rate is determined by reference to the LIBO Rate; and (iii) the Fixed Rent under the Lease shall be adjusted in a manner designated by the Agent to take into account the provisions of this Section 5.02(d). SECTION 5.03. Assignments and Participations. (a) No Assignment by Company or Guarantor. Neither the Company nor the Guarantor may assign its rights or delegate its obligations under the Operative Documents without the prior written consent of the Agent, the Trustee and all of the Note Holders and the Certificate Holders. Upon an assignment to and assumption by a Person of the rights and obligations of the Company or the Guarantor under and in compliance with this Agreement and the other Operative Documents, the representations, warranties and covenants of the Company or the Guarantor, as applicable, and the conditions applicable to the Company or the Guarantor, as applicable, hereunder and thereunder shall thereafter apply to such Person and not to the Company or the Guarantor, as applicable. (b) Assignment of Instruments. In addition to the assignments permitted under Section 5.03(h), each of the Note Holders and Certificate Holders may assign to one or more Eligible Assignees all or a portion of the Instruments then held by it and its rights and obligations thereunder and under this Agreement (including all or a portion of the Advances under its Notes and/or its Equity Investment under its Certificates) and the other Operative Documents; provided, however, that (i) each assignment of Certificates shall be of a constant, and not a varying, percentage of all such rights and obligations; (ii) the aggregate principal amount of the Instruments being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5 million (or $1 million, with respect to the Certificates) in original principal amount or Certificate Amount (as the case may be) and in integral multiples of $1 million in excess thereof; (iii) no such assignment shall be made if as a result thereof after giving effect to such assignment, any assigning Note Holder's aggregate principal amounts of its Outstanding Notes is less than $5 million or any assigning Certificate Holder's aggregate Certificate Amount of its Outstanding Certificates is less than $1 million (in each case determined as of the date of the Assignment and Acceptance with respect to such assignment); provided, however, that the required denominations for portions of the Instruments being assigned under this Section 5.03(b) shall not be construed to prevent an assignment of the entire principal amount of the Notes then 22 Participation Agreement Proprietary & Confidential held by a Note Holder or an assignment of the entire Certificate Amount of the Certificates then held by a Certificate Holder; and (iv) each assigning Note Holder or Certificate Holder and each Eligible Assignee shall execute and deliver to the Agent for its acceptance and recording in the Record a supplemental agreement in form and substance satisfactory to the Agent (the "Assignment and Acceptance"), with an administrative fee of $4,000 to be paid by the Assignor to the Agent. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder (the "Assignee") shall be a party hereto and to the other Operative Documents to which the Note Holders or the Certificate Holders (as the case may be) are parties and, to the extent that rights and obligations hereunder have been assigned to and assumed by it, have the rights and obligations of a Note Holder or a Certificate Holder (as the case may be) hereunder and under the Operative Documents and (y) the assignor thereunder (the "Assignor") shall, to the extent that rights and obligations hereunder have been assigned by it, relinquish its rights (other than any rights to indemnification it may have hereunder or under the other Operative Documents) and be released from its obligations under this Agreement (other than the confidentiality obligations set forth in Section 9.16) and the other Operative Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of Assignor's rights and obligations under the Agreement and the other Operative Documents, such Assignor shall, except as set forth above, cease to be a party hereto). (c) Assignment and Acceptance. By executing and delivering an Assignment and Acceptance, the Assignor thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement and the other Operative Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, the other Operative Documents or any other instrument or document furnished pursuant hereto or thereto; (ii) such Assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or the Guarantor or the performance or observance by the Company or the Guarantor of any of their respective obligations under this Agreement or any other Operative Document, or any other instrument or document furnished pursuant hereto; (iii) such Assignee confirms that it has received a copy of this Agreement, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision with respect to entering into such Assignment and Acceptance; (iv) such Assignee will make the representations set forth in Section 3.05 and will, independently and without reliance upon the Agent, the Trustee, such Assignor or any other Note Holder or Certificate Holder and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such Assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under and/or referenced in this Agreement and the other Operative Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vi) such Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Note Holder or Certificate Holder (as the case may be). 23 Participation Agreement Proprietary & Confidential (d) Record. The Agent shall maintain at its address listed on Schedule I hereto a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Note Holders and the Certificate Holders and principal amount of the Advances and Certificate Amount of the Equity Investment, as applicable, owing to, each Note Holder and Certificate Holder from time to time (the "Record"). The entries in the Record shall be conclusive and binding for all purposes, absent manifest error, and the Company, the Guarantor, the Agent, the Trustee, the Certificate Holders and the Note Holders may treat each Person whose name is recorded in the Record as a Note Holder or Certificate Holder (as the case may be) hereunder for all purposes of this Agreement. The Record shall be available for inspection by the Guarantor or any Note Holder or Certificate Holder at any reasonable time and from time to time upon reasonable prior notice. (e) Assignment Procedures. Upon its receipt of an Assignment and Acceptance executed by an Assignor and an Assignee, the Agent shall, if such Assignment and Acceptance has been completed, give prompt written notice to the Guarantor and (i) accept such Assignment and Acceptance, and (ii) record the information contained therein in the Record. The Agent shall provide the Guarantor with a current list of all Note Holders and Certificate Holders at the Guarantor's reasonable request but no more frequently than quarterly. (f) Participations. Each Note Holder and Certificate Holder may sell participations to one or more banks or other entities in or to all or a portion of the Instruments then held by it and its rights and obligations thereunder and under this Agreement and the other Operative Documents; provided, however, that (i) the obligations of such Note Holder or Certificate Holder (as the case may be) under this Agreement (including all or a portion of its Note Commitment or Certificate Commitment (as the case may be)) and the other Operative Documents shall remain unchanged and such Note Holder or Certificate Holder (as the case may be) shall remain solely responsible to the other parties hereto for the performance of such obligations; (ii) such Note Holder shall remain the Holder of such Note, and such Certificate Holder shall remain the Holder of such Certificate, for all purposes under this Agreement and the other Operative Documents and the Company, the Guarantor, the Agent, the Trustee and the other Note Holders and Certificate Holders shall continue to deal solely and directly with such Note Holder or Certificate Holder (as the case may be) in connection with the rights and obligations of such Note Holder or Certificate Holder (as the case may be) under this Agreement; (iii) no such participant shall be entitled to receive any greater payment than such Note Holder or Certificate Holder (as the case may be) would have been entitled to receive with respect to the rights participated (including payments for Taxes, Other Taxes or Increased Costs); and (iv) any agreement pursuant to which any Note Holder or any Certificate Holder (as the case may be) may grant a participation pursuant to this Section 5.03(f) shall provide that such Note Holder or Certificate Holder (as the case may be) shall retain the sole right and responsibility to enforce the obligations of the Company and the Guarantor under this Agreement and the other Operative Documents including, without limitation, the right to approve any amendment, modification or waiver of any provisions of this Agreement and the other Operative Documents. An assignment or other transfer which is not permitted by Section 5.03(b) shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this Section 5.03(f). 24 Participation Agreement Proprietary & Confidential (g) Permitted Disclosure; Confidentiality. Any Note Holder or Certificate Holder may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 5.03, disclose to the assignee or participant or proposed assignee or participant any information relating to the Company or the Guarantor furnished to such Note Holder or Certificate Holder (as the case may be) by or on behalf of the Company or the Guarantor; provided, that prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree in writing with the Guarantor and the Agent to preserve the confidentiality of any confidential information relating to the Company and the Guarantor or the transactions contemplated by the Operative Documents (including the general structure of this transaction) received by it from such Note Holder or Certificate Holder (as the case may be) in a manner consistent with that set forth in Section 9.16. (h) Other Permitted Assignments. Anything in this Section 5.03 to the contrary notwithstanding (except that at all times the requirements of Section 5.03(g) shall be satisfied), any Note Holder or Certificate Holder may assign and pledge, as collateral or otherwise, without notice to or consent of the Company or the Guarantor, all or any of the Instruments held by it and any of its rights (including rights to payment of the principal or Certificate Amount of and interest or yield on the Instruments) under this Agreement and the other Operative Documents to (i) any of its Affiliates and (ii) any Federal Reserve Bank, the United States Treasury or to any other financial institution as collateral security pursuant to Regulation A of the Federal Reserve Board and any operating circular issued by the Federal Reserve System and/or the Federal Reserve Bank or otherwise. No such assignment and/or pledge set forth in (ii) above shall release the assigning and/or pledging Note Holder or Certificate Holder from its obligations hereunder. SECTION 5.04. Taxes. (a) Payments Free and Clear. All payments to or for the benefit of the Trustee, the Lessor, WFBN, the Agent, or the Holders under the Operative Documents (including payments of Fixed Rent and Additional Rent under the Lease, payments of principal and interest under the Notes and payments of the Certificate Amount and Distributions under the Certificates) shall be made free and clear of and without deduction for any and all present or future Charges. If the Company, the Guarantor, the Trustee, the Agent, the Lessor or any other Person ("Applicable Payor") shall be required by Law to deduct any Charges from or in respect of any amounts payable under this Agreement or any other Operative Document to or for the benefit of a Holder, the Trustee, the Lessor, WFBN or the Agent ("Applicable Payee"), (i) the amounts payable by such Applicable Payor (as rent, interest or otherwise) shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 5.04), the Applicable Payee shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Applicable Payor shall make such deductions and (iii) the Applicable Payor shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with all applicable Laws. The Company will indemnify each Indemnified Party on an After Tax Basis on demand for the full amount of any sums paid by such Indemnified Party pursuant to the second sentence of this Section 5.04(a) and any liability such Indemnified Party 25 Participation Agreement Proprietary & Confidential may incur or be required to pay. Any payment pursuant to this indemnification shall be made within fifteen (15) days of demand by the Indemnified Party. (b) Other Taxes. In addition, the Company shall timely pay any present or future transfer, stamp, license, value added, goods and services, sales, use or documentary Taxes, excise Taxes or any other property, transfer, transfer gains or recording, publication or filing Taxes or any other Taxes in the nature of the foregoing imposed by any Governmental Authority, which arise directly or indirectly from (i) the acquisition, ownership, operation, occupancy, possession, use, non-use, mortgaging, financing, leasing, subleasing, or disposition or condition of any Property, or any other property or rights conveyed to the Lessor or the Trustee; (ii) any payment made under the Operative Documents; (iii) the execution, delivery or registration of, or otherwise with respect to the Operative Documents; (iv) the conveyance or transfer of any Property (or any portion thereof) in compliance with any requirement of the Operative Documents; (v) the recording of any mortgage, deed of trust, financing statement or other collateral security document in any jurisdiction; or (vi) the transactions contemplated by any of the Operative Documents (collectively, but, in each case other than Excluded Charges, the "Other Taxes"). (c) Indemnification. The Company shall pay and indemnify, defend and hold harmless each Indemnified Party on an After Tax Basis from and against the full amount of all Charges (including Other Taxes), required to be paid by such Indemnified Party on its behalf or on behalf of any other Person, and any liability (including penalties, interest and expenses, except those arising from the gross negligence or willful misconduct of such Indemnified Party), arising therefrom or with respect thereto (including from any obligation to file any Tax return, report or statement with respect to any such Charges), whether or not such Charges were correctly or legally asserted. Any payment pursuant to such indemnification shall be made upon demand by the Indemnified Party. (d) Contests. If any claim shall be made against any Indemnified Party or if any proceeding shall be commenced against any Indemnified Party (including a written notice of such proceeding) for any Tax as to which the Lessee may have an indemnity obligation pursuant to this Section 5.04, such Indemnified Party shall within thirty (30) days notify the Lessee in writing (provided that failure to so notify the Lessee within thirty (30) days shall not alter such Indemnified Party's rights under this Section 5.04 except to the extent such failure precludes or materially adversely affects the ability to conduct a contest of any indemnified Taxes) and shall not take any action with respect to such claim, proceeding or Tax without the written consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) for thirty (30) days after the receipt of such notice by the Lessee; provided, however, that in the case of any such claim or proceeding, if such Indemnified Party shall be required by law or regulation to take action prior to the end of such 30-day period, such Indemnified Party shall in such notice to the Lessee, so inform the Lessee, and such Indemnified Party shall not take any action with respect to such claim, proceeding or Tax without the consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) for ten (10) days after the receipt of such notice by the Lessee unless the Indemnified Party shall be required by law or regulation to take action prior to the end of such 10-day period. 26 Participation Agreement Proprietary & Confidential The Lessee shall be entitled for a period of thirty (30) days from receipt of such notice from the Indemnified Party (or such shorter period as the Indemnified Party has notified the Lessee is required by law or regulation for such Indemnified Party to commence such contest), to request in writing that such Indemnified Party contest the imposition of such Tax, at the Lessee's sole cost and expense. If (x) such contest can be pursued in the name of the Lessee and independently from any other proceeding involving a Tax liability of such Indemnified Party for which the Lessee has not agreed to indemnify such Indemnified Party, (y) such contest must be pursued in the name of the Indemnified Party, but can be pursued independently from any other proceeding involving a Tax liability of such Indemnified Party for which the Lessee has not agreed to indemnify such Indemnified Party or (z) the Indemnified Party so requests, then the Lessee shall be permitted to control the contest of such claim, provided that in the case of a contest described in clause (y), if the Indemnified Party reasonably determines that such contest by the Lessee could have an adverse impact on the business or operations of the Indemnified Party, such Indemnified Party may elect to control or reassert control of the contest, and provided, that by taking control of the contest, Lessee acknowledges that it is responsible for the Tax ultimately determined to be due by reason of such claim. In all other claims requested to be contested by the Lessee, such Indemnified Party shall control the contest of such claim. In no event shall the Lessee be permitted to contest (or the Indemnified Party be required to contest) any claim (A) if such Indemnified Party provides the Lessee with a legal opinion of counsel reasonably acceptable to the Lessee that such action, suit or proceeding involves a risk of imposition of criminal liability or could involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Encumbrance) on any Property or any part of any thereof unless the Lessee shall have posted and maintained a bond or other security satisfactory to the relevant Indemnified Party in respect to such risk, (B) if an Event of Default has occurred and is continuing under Section 6.01(a), (h) or (i) unless the Lessee shall have posted and maintained by a bond or other security satisfactory to the relevant Indemnified Party in respect of the Taxes subject to such claim and any and all expenses for which the Lessee is responsible hereunder reasonably foreseeable in connection with the contest of such claim, (C) unless the Lessee shall have agreed to pay and shall pay, to such Indemnified Party on demand all reasonable out-of-pocket costs, losses and expenses that such Indemnified Party may incur in connection with contesting such Tax including all reasonable legal, accounting and investigatory fees and disbursements, or (D) if such contest shall involve the payment of the Tax prior to the contest, unless the Lessee shall provide to the Indemnified Party an interest- free advance in an amount equal to the Tax that the Indemnified Party is required to pay (with no additional net after-tax costs to such Indemnified Party). In addition for Indemnified Party controlled contests and claims contested in the name of such Indemnified Party in a public forum, no contest shall be required (A) unless the amount of the potential indemnity (taking into account all similar or logically related claims that have been or could be raised in any audit involving such Indemnified Party with respect to any period for which the Lessee may be liable to pay an indemnity under this Section 5.04) exceeds $25,000 and (B) unless, if requested by such Indemnified Party, the Lessee shall have provided to such Indemnified Party an opinion of independent tax counsel selected by such Indemnified Party and reasonably acceptable to the Lessee that a reasonable basis exists to contest such claim. In no event shall an Indemnified Party be required to appeal an adverse judicial determination to the United States Supreme Court. 27 Participation Agreement Proprietary & Confidential The party conducting the contest shall consult in good faith with the other party and its counsel with respect to the contest of such claim for Taxes (or claim for refund) but the decisions regarding what actions are to be taken shall be made by the controlling party in its sole judgment, provided, however, that if the Indemnified Party is the controlling party and the Lessee recommends the acceptance of a settlement offer made by the relevant Governmental Authority and such Indemnified Party rejects such settlement offer, then the amount for which the Lessee will be required to indemnify such Indemnified Party with respect to the Taxes subject to such offer shall not exceed the amount which it would have owed if such settlement offer had been accepted. In addition, the controlling party shall keep the noncontrolling party reasonably informed as to the progress of the contest, and shall provide the noncontrolling party with a copy of (or appropriate excerpts from) any reports or claims issued by the relevant auditing agents or taxing authority to the controlling party thereof, in connection with such claim or the contest thereof. Each Indemnified Party shall, at the Lessee's sole cost and expense, supply the Lessee with such information and documents reasonably requested by the Lessee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by this Section 5.04(d); provided, however, that such Indemnified Party shall not be required to provide to the Lessee copies of its tax returns or any other information, documentation or materials that it deems to be confidential or proprietary. No Indemnified Party shall enter into any settlement or other compromise or fail to appeal an adverse ruling with respect to any claim which is entitled to be indemnified under this Section 5.04 (and with respect to which contest is required under this Section 5.04) without the prior written consent of the Lessee, unless such Indemnified Party waives its right to be indemnified under this Section 5.04 with respect to such claim. Notwithstanding anything contained herein to the contrary, an Indemnified Party will not be required to contest (and the Lessee shall not be permitted to contest) a claim with respect to the imposition of any Tax if such Indemnified Party shall waive its right to indemnification under this Section 5.04 with respect to such claim (and any claim with respect to such year or any other taxable year the contest of which is materially adversely affected as a result of such waiver.) (e) Payments. Any Tax indemnifiable under this Section 5.04 shall be paid directly when due to the applicable taxing authority if direct payment is practicable and permitted. If direct payment to the applicable taxing authority is not permitted or is otherwise not made, any amount payable to an Indemnified Party pursuant to Section 5.04 shall be paid within fifteen (15) days after receipt of a written demand therefor from such Indemnified Party accompanied by a written statement describing in reasonable detail the amount so payable, but not before two Business Days prior to the date that the relevant Taxes are due. Any payments made pursuant to this Section 5.04 shall be made directly to the Indemnified Party entitled thereto or the Lessee, as the case may be, in immediately available funds. Upon the request of any Indemnified Party with respect to a Tax that the Lessee is required to pay, the Lessee shall furnish to such Indemnified Party the original or a certified copy of a receipt for the Lessee's 28 Participation Agreement Proprietary & Confidential payment of such Tax or such other evidence of payment as is reasonably acceptable to such Indemnified Party. (f) Reports. In the case of any report, return or statement required to be filed with respect to any Taxes that are subject to indemnification under this Section 5.04 and of which the Lessee has knowledge, the Lessee shall promptly notify the Indemnified Party of such requirement and, at the Lessee's expense (i) if the Lessee is permitted (unless otherwise requested by the Indemnified Party) by Applicable Law, timely file such report, return or statement in its own name or (ii) if such report, return or statement is required to be in the name of or filed by such Indemnified Party or the Indemnified Party otherwise requests that such report, return or statement be filed by such Indemnified Party, timely prepare such report, return or statement in such manner as shall be satisfactory to such Indemnified Party and send the same to the Indemnified Party for filing no later than fifteen (15) days prior to the due date therefore. In any case in which the Indemnified Party will file any such report, return or statement, the Lessee shall, upon written request of such Indemnified Party, provide such Indemnified Party with such information as is reasonably necessary to allow the Indemnified Party to file such report, return or statement. (g) Receipt. Within fifteen (15) days after the date of any deduction of any Charges, the Applicable Payor shall furnish to the Applicable Payee, the Agent and the Trustee the original or a certified copy of a receipt or other documentation evidencing payment thereof as is reasonably acceptable to such Applicable Payee. (h) Withholdings Tax Exemption. Notwithstanding anything to the contrary in any of the Operative Documents, each Applicable Payor shall be entitled to the extent it is required to do so by Law, to deduct income or other similar Taxes imposed by the United States of America from amounts payable hereunder or under the other Operative Documents for the account of any Applicable Payee except to the extent, if applicable, said Applicable Payee has timely filed with the Agent or the appropriate party (who shall then promptly forward the same to the Company and the Trustee) Prescribed Forms, if any, for the applicable year indicating that deduction or withholding of such Taxes is not required or reduced as a result of the filing of such Prescribed Forms. If the Applicable Payor shall so deduct or withhold any such Taxes, it shall provide a statement to the Applicable Payee setting forth the amount of such Taxes as deducted or withheld, the applicable rate and any other information or documentation which such Person may reasonably request for enabling such Person to obtain any allowable credits or deductions for the Taxes so deducted or withheld in the jurisdiction or jurisdictions in which such Person is subject to Taxes. (i) Determinations. The determination of all Charges to be paid or indemnified against by the Company on an After Tax Basis under this Section 5.04 shall be made (in good faith) by the affected Applicable Payee. Such determination shall state with reasonable clarity and detail the basis for such determination and shall, absent manifest error, be final, conclusive and binding on the Company. In no event shall the Company, in connection with this Section 5.04 or for any other purpose whatsoever under any Operative Document, have any right to examine any Tax return or related books and records of any Applicable Payee. 29 Participation Agreement Proprietary & Confidential (j) Survival. Without prejudice to the survival of any other agreement of the Company hereunder, the agreements and obligations of the Company contained in this Section 5.04 and in Section 5.05 shall survive the payment in full of the principal, Certificate Amount, interest and Distributions on the Notes and Certificates. SECTION 5.05. Tax Treatment. (a) Financing. For purposes of federal, foreign, state and local income Taxes, the parties hereto intend that (i) the Lease and the other Operational Documents be treated as the repayment and security provisions of a loan to the Company, and (ii) all payments of Termination Value, Residual Value Amount, Fixed Rent, Additional Rent and payments under Section 5.02 of the Lease be treated as payments of principal, interest and other amounts owing with respect to such loan, respectively. (b) Tax Reporting by Company. The Company agrees that (i) unless compelled, in its reasonable opinion, by action of a Governmental Authority, neither it nor any Affiliate (whether or not consolidated or combined returns are filed with such Affiliate for federal, foreign, state or local income Tax purposes) will at any time take any action, directly or indirectly, or file any return or other document inconsistent with the intended Tax treatment described in Section 5.05(a), and (ii) it and its Affiliates will file such returns, maintain such records, take such actions and execute such documents (as reasonably requested by the Trustee, the Agent, the Lessor or the Holders from time to time) as may be appropriate to facilitate the realization of such intended Tax treatment. (c) Tax Reporting by Indemnified Parties. Each Indemnified Party agrees that (i) unless compelled, in its reasonable opinion, by action of a Governmental Authority, neither it nor any Affiliate (whether or not consolidated or combined returns are filed with such Affiliate for federal, foreign, state or local income Tax purposes) will at any time take any action, directly or indirectly, or file any return or other document claiming, or asserting that it is entitled to, the Tax benefits, deductions or credits which, pursuant to the intended income Tax treatment described in Section 5.05(a), would otherwise be claimed or claimable by the Company, and (ii) it and its Affiliates will file such returns, maintain such records, take such actions, and execute such documents (as reasonably requested by the Company from time to time) as may be appropriate (in the judgment of such Indemnified Party) to facilitate the realization of, and as shall be consistent with, such intended income Tax treatment; provided that no Indemnified Party shall be required to (A) take any action which it believes would be disadvantageous to it, (B) disclose any portion of any Tax return, or (C) engage or participate in any contest of such Tax treatment. If any such filing, maintenance, action or execution requested by the Company would result in any additional Tax liability payable by the Indemnified Party, or could reasonably be expected to result in liability payable by it, other than liability ordinarily related to the intended Tax treatment described in Section 5.05(a), then the Company will provide an indemnity against such unrelated Tax liability satisfactory to the Indemnified Party, in its sole opinion, exercised reasonably and in good faith. 30 Participation Agreement Proprietary & Confidential SECTION 5.06. Compensation. The Company shall compensate each Holder, in each case, upon its written request (which request shall also be sent to the Agent), for all reasonable losses and costs the Holder (or any existing or prospective participant of such Holder) may sustain: (a) if, for any reason (other than a default by such Holder or the Agent), the Funding or a selection affecting the Applicable Rate does not occur on the date specified therefor in the Requisition or in a notice delivered pursuant to Section 5.01(c) (as applicable, and whether or not withdrawn), (b) if any payment under the Operative Documents or change in the Applicable Rate with respect to such Holder's Instruments occurs on a date which is not the last day of an Interest Period, (c) if any payment of the Residual Value Amount, Termination Value or any payment under Section 5.02 of the Lease occurs on a date that is not the last day of an Interest Period or on a date different from the date required therefor under the Operative Documents or (d) as a consequence of (i) any payment on the Notes or the Certificates due to any other Default, Event of Default, Non-Performance Event, Casualty, Condemnation or Environmental Trigger or (ii) an election made by the Company pursuant to Section 5.02(d) (which losses and costs shall include, without limitation, any Loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any event described in clauses (a) through (d) above) ("Break Costs"). Any request by a Holder for payment of Break Costs under this Section 5.06 shall be accompanied by a certificate as to the amount of such Break Costs and describing in reasonable detail the calculation thereof, which certificate shall be conclusive in the absence of manifest error. SECTION 5.07. Change of Applicable Lending Office. Each Holder agrees that, upon the occurrence of any event of which it has knowledge giving rise to the operation of Section 5.02 or 5.04 with respect to such Holder, it will promptly notify the Company, the Guarantor and the Agent and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, any payment pursuant to Sections 5.02 and 5.04 and will not, in the judgment of such Holder, result in any economic or regulatory disadvantage to such Holder. A certificate of any Holder claiming any amount payable under Section 5.02 or 5.04 and setting forth such amount or amounts, accompanied by a computation in reasonable detail of such amount or amounts, shall be conclusive if prepared in good faith and on a reasonable basis. In determining any such amount, such Holder may use any reasonable averaging and attribution methods; provided that such methods shall not be inconsistent with the methods used by such Holder in calculating the reduction in return allocable to other similar transactions or commitments to other customers. Nothing in this Section 5.07 shall affect or postpone any of the obligations of the Company or the rights of any Holder provided in Section 5.02 or Section 5.04. SECTION 5.08. Sharing of Payments, Etc. If any Note Holder or Certificate Holder shall obtain any payment (whether voluntary or involuntary), on account of the Instruments held by it (other than on account of Additional Costs and other than pursuant to Section 5.05 or any indemnification provision of the Operative Documents) in excess of its ratable share of payments on account of the Instruments obtained by all the Note Holders and Certificate Holders, such Note Holder or Certificate Holder (as the case may be) shall forthwith purchase from the other Note Holders or Certificate Holders (as the case may be) such participations in the Instruments held by them as shall be necessary to cause such purchasing 31 Participation Agreement Proprietary & Confidential Note Holder or Certificate Holder (as the case may be) to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Note Holder or Certificate Holder (as the case may be), such purchase from each Note Holder or Certificate Holder (as the case may be) shall be rescinded and each Note Holder or Certificate Holder (as the case may be) shall repay to the purchasing Note Holder or Certificate Holder (as the case may be) the purchase price to the extent of such Note Holder's or Certificate Holder's (as the case may be) ratable share (according to the proportion of (i) the amount of the participation purchased from such Note Holder or Certificate Holder (as the case may be) as a result of such excess payment to (ii) the total amount of the participations purchased in respect of such excess payment) of such recovery together with an amount equal to such Note Holder's or Certificate Holder's (as the case may be) ratable share (according to the proportion of (i) the amount of such Note Holder's or Certificate Holder's (as the case may be) required repayment to (ii) the total amount so recovered from the purchasing Note Holder or Certificate Holder (as the case may be)) of any interest or other amounts paid or payable by the purchasing Note Holders or Certificate Holders (as the case may be) in respect of the total amount so recovered. Notwithstanding that such Note Holders or Certificate Holders (as the case may be) shall have purchased a participation in such Instruments, the purchasing Note Holder or Certificate Holder (as the case may be) shall be deemed to have acquired the voting rights under such Instruments to the extent of, and for the duration of, such participation, as if such Note Holder or Certificate Holder (as the case may be) shall have been an Assignee thereof. SECTION 5.09. Maturity Date Extension. (a) Procedures. (i) Pursuant to Section 3.02 of the Lease, so long as no Default, Event of Default, Non-Performance Event or Environmental Trigger shall have occurred and be continuing at the time the Lessee delivers the Extension Request and such request is timely made pursuant to Section 3.02 of the Lease, the Lessee may request that the Lessor, the Agent and the Holders extend the Lease and the related financing by the Holders for the Extension Term (such request by the Lessee is herein called the "Extension Request"). Each Holder shall have thirty (30) days from receipt of such request to inform the Agent whether such Holder, in its sole and absolute discretion, agrees to the Extension Request. Failure of any such Holder to indicate its acceptance or rejection by such time shall be deemed to constitute such Holder's rejection thereof. If any Holder (a "Non-Accepting Holder") rejects (or is deemed to have rejected) the Extension Term, the Agent, at the request of the Lessee, shall have the right to cause such Non-Accepting Holder to transfer its interests under the Operative Documents to any other Holder that has agreed to the Extension Term or to a replacement Holder which would be an Eligible Assignee hereunder. Existing Holders shall be offered the right, but shall not be required, to acquire a pro rata share of the Non-Accepting Holders' interests. Any such transfer shall be made pursuant to an Assignment and Assumption executed by the Non-Accepting Holder and the Assignee. The date of transfer shall be the then-existing Maturity Date. If any Holder rejects the Extension Request and the Agent has been unable to locate a transferee of such Holder's or Holders' interests under the Operative Documents at least one hundred twenty (120) days prior to the then-existing Maturity Date, the date of the Maturity Date shall not be 32 Participation Agreement Proprietary & Confidential extended or changed and the Lessee shall be deemed to have elected the option to purchase the Lessor's interest in the Properties under the Lease. (ii) If the Lessee shall have made the Extension Request and at any time during the sixty (60) day period ending on the commencement date of the Extension Term, an Event of Default shall have occurred, then the Lessee's rights under this Section shall automatically terminate and the Lessee shall not be entitled to the requested Extension Term. (b) General. The Company hereby agrees to pay all reasonable and properly documented costs and expenses (including reasonable legal fees and expenses) incurred by the Trustee, the Agent and the Holders in connection with the provisions of this Section 5.09, including the costs of documenting the extension and any necessary transfer of Instruments. ARTICLE VI EVENTS OF DEFAULT; REMEDIES; NON-PERFORMANCE EVENTS SECTION 6.01. Events of Default. If one or more of the following events shall have occurred and be continuing, it shall constitute an "Event of Default" hereunder: (a) the Company shall fail to pay the Termination Value, the Residual Value Amount, any Additional Rent or any amount due pursuant to Section 5.02 of the Lease on the date on which such payment is due, or shall fail to pay any Fixed Rent or fees payable hereunder within five (5) days of the date on which payment is due; (b) the Company shall fail to observe or perform any covenant contained in Section 4.01; (c) the Company shall fail to observe or perform any covenant or agreement contained in this Agreement or any other Operative Document to which the Company is a party (other than those covered by clause (a) or (b) above) for twenty (20) days after written notice thereof has been given to the Company by the Agent at the request of the Majority Holders acting through the Agent; (d) the Guarantor shall fail to observe or perform any covenant or agreement contained in this Agreement or any other Operative Document to which the Guarantor is a party, for twenty (20) days after written notice thereof has been given to the Guarantor by the Agent at the request of the Majority Holders acting through the Agent; (e) any representation or warranty, certification or statement made (or deemed made) by the Company or the Guarantor, in this Agreement or any other Operative Document or in any certificate, financial statement or other document delivered pursuant to this Agreement or any other Operative Document shall prove to have been incorrect in any material respect when made (or deemed made); 33 Participation Agreement Proprietary & Confidential (f) without duplication of the Events of Default set forth in this Section 6.01, all Events of Default (as such term is defined in the Senior Credit Facility) set forth in Section 6.01(i), (j) and (l) of the Senior Credit Facility are hereby incorporated herein, mutatis mutandis, by reference and shall constitute Events of Default hereunder. In the event any of the foregoing Events of Default (as such term is defined in the Senior Credit Facility) set forth in the Senior Credit Facility is amended or modified in any manner, such amendment and/or modification shall not automatically cause this Section 6.01 to be similarly amended or modified, and such amendment and/or modification under the Senior Credit Facility shall only be effective as an amendment and/or modification hereunder with the written consent of the Majority Holders. In the event the Senior Credit Facility is terminated prior to the Expiration Date, the above Events of Default (as such term is defined in the Senior Credit Facility) set forth in the Senior Credit Facility as in effect on June 27, 2001 (together with amendments to such Events of Default (as defined in the Senior Credit Facility) that became effective hereunder in accordance with the previous sentence) shall constitute Events of Default hereunder; (g) the Guarantor or any Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Guarantor or any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Guarantor or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (i) the Guarantor or any Subsidiary shall fail to make any payment in respect of any Material Financial Obligations (as such term is defined in the Senior Credit Facility) or in respect of the obligations under the Senior Credit Facility, including any obligation to reimburse letter of credit obligations or to post cash collateral with respect thereto, when due or within any applicable grace period; (j) any event or condition shall occur which (A) results in the acceleration of the maturity of any Material Financial Obligations (as such term is defined in the Senior Credit Facility) or the obligations under the Senior Credit Facility, (B) otherwise constitutes an Event of Default (as such term is defined in the Senior Credit Facility) 34 Participation Agreement Proprietary & Confidential under the Senior Credit Facility or (C) enables (or, if such event or condition does not otherwise give rise to a Default or Event of Default hereunder, which with the giving of notice or lapse of time or both would enable) the holder of any Material Financial Obligations (as such term is defined in the Senior Credit Facility) or any Person acting on such holder's behalf to accelerate the maturity thereof; (k) the Company shall fail to comply in any material respect with any Insurance Requirement; (l) the Company shall fail to comply with the Return Conditions as of the Expiration Date or, if applicable, as of such earlier date on which the Lease terminates in connection with a Non-Performance Event; (m) any Operative Document shall for any reason no longer be in full force and effect in accordance with its terms, by operation of Law or by any other means (except if, and to the extent, such is the result of a purchase of the Lessor's interest in the Properties or applicable Property in accordance with the Lease); (n) the Company shall have abandoned any Property or any part thereof for a period of more than thirty (30) consecutive days at any time prior to the Expiration Date other than as a result of a Casualty; (o) the Lessor or the Agent shall cease, for any reason (other than directly through their own actions or omissions), to have a perfected security interest in and Lien on the Properties and the Equipment Collateral, superior and prior to the rights of all third Persons and subject to no other Liens, except in each case for Permitted Encumbrances; (p) any Operative Document or any obligation of the Company or the Guarantor thereunder shall be revoked or repudiated or attempted to be revoked or repudiated by the Company or the Guarantor, the Lessor shall fail to have a valid leasehold interest in the California Land (or any part thereof), for any reason whatsoever, or the Lessor shall fail to have unencumbered title to the Maryland Land or the Improvements; (q) any Applicable Permits or right-of-way shall become null and void, shall be revoked or shall otherwise become unavailable or ineffective, as a result of which the Lessor shall be prevented from owning and/or leasing or subleasing or the Company shall be prevented from using any Property for its Intended Use; or (r) the Guarantor shall fail to own at least a majority of the Voting Stock of the Company. 35 Participation Agreement Proprietary & Confidential SECTION 6.02. Remedies upon an Event of Default. (a) Subject to Section 6.02(g) and Section 6.03, if an Event of Default has occurred and is continuing, each of the Trustee and the Agent may, and if directed in writing by the Majority Holders shall, exercise any of the rights or remedies granted to it under the Lease or any of the other Operative Documents, in addition to any rights or remedies of such parties set forth in this Agreement. (b) Upon the occurrence of an Event of Default, except as set forth in Section 6.02(g) and Section 6.03, upon five (5) Business Days' prior written notice to the Company, the Agent may, and upon the written request of the Majority Holders, the Agent shall, declare the entire accrued and unpaid amount of interest on and the principal amount of the Notes and the Certificate Amount of and unpaid yield on the Certificates (if not then due and payable) to be due and payable immediately, notwithstanding anything contained in the Instruments or in any other Operative Document to the contrary; provided, however, that if an Event of Default under Section 6.01(a) or (i) occurs, notice to the Company may be given as to the acceleration of amounts due under the Notes and Certificates upon such acceleration. (c) If, however, an Event of Default occurs under Section 6.01(g) or (h), then the entire accrued and unpaid amount of interest on and the principal amount of the Notes and the Certificate Amount of and unpaid yield on the Certificates shall automatically be and become due and payable immediately, without request, demand, presentment, protest or notice, notwithstanding anything contained in the Instruments or in any other Operative Document to the contrary. (d) Subject to Section 6.02(g) and Section 6.03, if an Event of Default has occurred and is continuing, then each of the Trustee, the Agent, the Note Holders and Certificate Holders may, and if directed in writing by the Majority Holders the Agent shall, take all steps necessary or advisable to protect and enforce its rights hereunder, whether by action, suit or proceeding at Law or in equity, for the specific performance of any covenant, condition or agreement contained herein, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable remedy or otherwise as such party shall deem necessary or advisable. (e) If the Company shall fail to make any payment or perform any act required to be made or performed under any Operative Document, the Agent, without waiving any default or releasing the Company from any obligation may (but shall be under no obligation to unless directed in writing by the Majority Holders) make such payment and perform such act for the account and at the expense of the Company, and may give notice and enter upon any Property or any portion thereof for such purpose and take all such action thereon as, at the Agent's sole discretion, may be necessary or appropriate therefor. All sums so paid by the Agent and all costs and expenses (including reasonable attorneys' fees and expenses so incurred, together with interest thereon to the extent permitted by Law) shall be paid by the Company to the Agent on demand. (f) No right or remedy hereunder or under any other Operative Document shall be exclusive of any other right, power or remedy, but shall be cumulative and in addition to 36 Participation Agreement Proprietary & Confidential any other right or remedy hereunder or now or hereafter existing by Law or in equity, and the exercise by a party hereto of any one or more of such rights, powers or remedies shall not preclude the simultaneous exercise of any or all of such other rights, powers or remedies. Any failure to insist upon the strict performance of any provision hereof or to exercise any option, right, power or remedy contained herein shall not constitute a waiver or relinquishment thereof for the future. The Trustee, the Note Holders, the Certificate Holders and the Agent shall be entitled to injunctive relief in case of the violation or attempted or threatened violation of any of the provisions hereof by any other party hereto, a decree compelling performance of any of the provisions hereof or any other remedy allowed by Law or in equity. (g) The Company may, by notice to the Agent, at any time prior to exercise of any remedies by the Trustee, the Agent and the Majority Holders, elect to cure any Default, Event of Default, Non-Performance Event, Casualty, Condemnation or Environmental Trigger by purchasing the Lessor's interest in the Properties for an amount equal to the Termination Value therefor. SECTION 6.03. Non-Performance Events; Procedures. (a) Non-Performance Events. Notwithstanding anything to the contrary contained herein, if at any time (i) an Event of Default described in Section 6.01(e) occurs, (ii) an Event of Default described in Section 6.01(f) occurs in connection with (A) the Guarantor's failure to comply with Section 5.05 of the Senior Credit Facility or (B) an Event of Default (as defined in the Senior Credit Facility) under Section 6.01(l) of the Senior Credit Facility and, in the case of (i) and (ii) such event is premised upon a Material Adverse Effect standard, or (iii) any other Event of Default in any Operative Document that is specifically premised upon a Material Adverse Effect or materiality standard occurs, then any occurrence with respect thereto shall not constitute a Default or an Event of Default but shall be deemed a "Non-Performance Event" and the provisions of Section 6.03(b) shall control; provided, however, if by applying a commercially reasonable standard, the Agent, the Trustee or any Holder determines that any Event of Default listed above in this Section 6.03(a) shall have occurred, then the occurrence thereof shall not constitute a Non-Performance Event but shall constitute an Event of Default with the provisions of Section 6.02 applying thereto. (b) Non-Performance Event Procedures. If a Non-Performance Event occurs, the Company shall either (i) (A) pay to the Agent within five (5) Business Days after the occurrence of such Non-Performance Event an amount equal to the Residual Value Amount for the Properties, (B) pay all Fixed Rent and Additional Rent due and payable as of such date and (C) arrange to sell the Properties on behalf of the Lessor to a third party in an arms length transaction, such sale to close on or before ninety (90) days after the occurrence of such Non-Performance Event; or (ii) within five (5) Business Days after the occurrence of the Non-Performance Event, deliver an irrevocable Offer to Purchase the Lessor's interest in the Properties pursuant to Section 5.01 or 5.03 of the Lease and purchase the Lessor's interest in the Properties upon payment of the Termination Value therefor, any such sale to be consummated in accordance with Article V of the Lease. If the Company pays the Residual Value Amount 37 Participation Agreement Proprietary & Confidential pursuant to clause (i) above, then it shall release its entire interest in the Properties, subject to the Company's rights under Sections 7.01(d) and (e). SECTION 6.04. Power of Sale. (a) Proceedings. If, upon (i) the occurrence of any Event of Default and the notice described in Section 6.02(g) has not been given to the Agent or (ii) the termination or expiration of the Lease, in each case, where the Company has not purchased the Lessor's interests in the Properties in compliance with the Operative Documents (each, a "Liquidation Event"), then the Agent, upon the written request of the Majority Holders and receipt by the Agent of such additional indemnification in form and substance reasonably satisfactory to the Agent as the Agent may promptly and reasonably request, shall with or without entry, personally or by its agents or attorneys, take all steps to protect and enforce any rights and remedies the Holders (or the Agent on their behalf) may have pursuant to the Operative Documents or any instrument included in the Collateral, by appropriate Proceedings. Subject to Sections 6.04(c) and (d), the Agent may conduct or cause the Company to conduct on the Agent's behalf any number of sales of (or other acts of realization on) portions of the Collateral pursuant to the applicable Operative Documents, from time to time to the extent permitted by Law. The exercise by the Agent of any right or remedy, including any power of sale, shall not be exhausted by any one or more such sales of (or other acts of realization on) any part of the Collateral remaining unsold, but shall continue unimpaired until all of the Collateral shall have been sold or the Instruments shall have been paid in full together with accrued interest and yield thereon. (b) Power of Sale. Upon the occurrence of a Liquidation Event, the Agent, pursuant to the power of sale conferred in any Operative Document, may sell or otherwise realize upon the Collateral to the extent permitted by Law and the Operative Documents after having given all notices, made all postings and done all other acts required by and in the manner prescribed by applicable Law with respect to the day, time, place, terms of the sale or realization and otherwise; provided that prior to the occurrence of a Liquidation Event, the Agent shall not have any authority or power whatsoever, and the Holders may not authorize the Agent, to sell the Lessor's interests in any Property or any portion thereof. (c) Rights of Note Holders. Notwithstanding anything to the contrary contained herein, upon the occurrence of a Liquidation Event, then: (i) Subject to Section 6.04(c)(ii), upon the written direction of the Majority Certificate Holders, the Agent, pursuant to its rights under the Operative Documents, shall sell or otherwise realize on the Collateral; provided that the proceeds from any such sale or realization will be sufficient to pay the accrued and unpaid interest on and the unpaid aggregate principal amount of the B-Notes. The Agent shall give at least five (5) Business Days' written notice of such proposed sale or realization to the B-Note Holders and the Certificate Holders. 38 Participation Agreement Proprietary & Confidential (ii) Prior to the closing of any sale of (or the occurrence of any other realization on) the Collateral pursuant to Section 6.04(c)(i), any and all of the B-Note Holders shall have the option (the "Senior Takeout Option") to purchase all but not less than all of the Certificates from the Certificate Holders. The Senior Takeout Option shall be exercisable by written notice (the "Senior Takeout Notice") to the Agent and the Certificate Holders at a price, payable by wire transfer of immediately available funds, equal to the Certificate Liquidation Amount plus any other sums then due and owing to the Certificate Holders under the Operative Documents and any Break Costs in connection with or as a result of such sale or realization by the Certificate Holders (the "Senior Takeout Price"). Upon exercising its Senior Takeout Option, such B-Note Holder shall have an irrevocable obligation to purchase all of the Outstanding Certificates or, if more than one B-Note Holder has exercised the Senior Takeout Option, a percentage of the Outstanding Certificates equal to (A) the unpaid principal amount of B-Notes held by such B-Note Holder over (B) the aggregate unpaid principal amount of B-Notes held by the B-Note Holders exercising the Senior Takeout Option. Upon receipt by the Agent of the Senior Takeout Notice, the Agent shall postpone any planned sale of or realization on the Collateral pending the purchase of the Certificates (the "Senior Takeout"). The Senior Takeout shall take place within five (5) Business Days (the "Senior Takeout Period") after the receipt by the Certificate Holders of the Senior Takeout Notice. If at the end of the Senior Takeout Period, the Certificate Holders have not received the full Senior Takeout Price, then the Majority Certificate Holders may direct the Agent to proceed with the sale of or realization on the Collateral and the B-Note Holders exercising the Senior Takeout Option, shall have no further right to stop the sale of the Collateral by the Agent. (d) Rights of Certificate Holders. Notwithstanding anything to the contrary contained he rein, upon the occurrence of a Liquidation Event, then (i) Subject to Section 6.04(d)(ii), upon the written direction of the Majority B-Note Holders, the Agent, pursuant to its rights under the Operative Documents, shall sell or otherwise realize on the Collateral. The Agent shall give at least five (5) Business Days' written notice of such proposed sale or realization to the Certificate Holders and the B-Note Holders. (ii) Prior to the closing of any sale of (or the occurrence of any other realization on) the Collateral pursuant to Section 6.04(d)(i), any and all of the Certificate Holders shall have the option (the "Junior Takeout Option") to purchase all but not less than all of the B-Notes from the B-Note Holders. The Junior Takeout Option shall be exercisable by written notice (the "Junior Takeout Notice") to the Agent and the B-Note Holders at a price, payable by wire transfer of immediately available funds, equal to the entire accrued and unpaid interest on and aggregate principal amount of the B-Notes, plus any other sums then due and owing to the B-Note Holders under the Operative Documents and any Break Costs in connection with or as a result of such sale or realization by the B-Note Holders (the "Junior Takeout Price"). Upon exercising its Junior Takeout Option, such Certificate Holder shall have an irrevocable obligation to 39 Participation Agreement Proprietary & Confidential purchase all of the B-Notes or, if more than one Certificate Holder has exercised the Junior Takeout Option, a percentage of such B-Notes equal to (x) the unpaid Certificate Amount of Certificates held by such Certificate Holder, over (y) the aggregate unpaid Certificate Amount of Certificates held by the Certificate Holders exercising the Junior Takeout Option. Upon receipt by the Agent of the Junior Takeout Notice, the Agent shall postpone any planned sale of or realization on the Collateral pending the purchase of the B-Notes (the "Junior Takeout"). The Junior Takeout shall take place within five (5) Business Days (the "Junior Takeout Period") after the receipt by the B-Note Holders of the Junior Takeout Notice. If at the end of the Junior Takeout Period, the B-Note Holders have not received the full Junior Takeout Price, then the Majority B-Note Holders may direct the Agent to proceed with the sale of or realization on the Collateral and the Certificate Holders shall have no further right to stop the sale of or realization on the Collateral by the Agent. SECTION 6.05. Procedure for Sale of Collateral. (a) Postponement of Sale or Realization. To the extent permitted by applicable Law, the Agent may postpone any sale of, or other realization on, all or any part of the Collateral under or by virtue of this Article VI by public announcement at the time and place of such sale or other realization or as may be required by Law. (b) Delivery by the Agent. Upon the completion of any sale, or other realization on the Collateral, made by the Agent under or by virtue of any Operative Document, the Agent shall execute and deliver to the purchaser good and sufficient assignments, bills of sale, deeds and other instruments conveying, assigning and transferring all its estate, right, title and interest in and to the Collateral and rights sold all without recourse to the Agent, in the manner and to the extent provided by applicable Law. (c) Payment of Instruments Upon Sale or Realization. In the event of any sale or other realization made under or by virtue of this Article VI (whether made under the power of sale granted in any Operative Document or under or by virtue of judicial proceedings or of a judgment or decree of sale), the payment of accrued interest on and the then outstanding principal of all of the Notes and the payment of the Certificate Liquidation Amount and all other amounts payable under the Operative Documents, if not previously due and owing, shall immediately become due and owing and payable in accordance with the terms of this Agreement and the other Operative Documents, anything in the Instruments to the contrary notwithstanding. (d) Suits by the Agent. All rights of action under any Operative Document or under any instrument included within the Collateral may be enforced by the Agent without the possession of any of the Instruments and without the production thereof at any trial or other proceeding relative thereto. A copy of any Instrument, if properly certified by the Agent to be true and correct, shall constitute conclusive evidence of all matters that could be proven by production of the original of that Instrument in any trial or proceeding relative thereto. Any such suit or proceeding instituted by the Agent shall be brought in its name as Agent (subject to the provisions of Article VIII), and, subject to the rights of the Agent, any recovery of judgment 40 Participation Agreement Proprietary & Confidential shall be for the ratable benefit of the registered Holders pro rata within each series of Instruments. SECTION 6.06. Application of Proceeds. (a) Proceeds from Sale of Property. Upon the occurrence of an Event of Default, after the payment of any Closing Costs and, after deducting all amounts owing to the Trustee and the Agent for compensation, reimbursement of expenses and indemnity, including their reasonable compensation and expenses for the services of all attorneys, servants and agents of the Trustee and the Agent properly engaged and employed (including compensation and expenses in connection with any appeal), the Agent shall apply the moneys arising from any Sales Proceeds (except proceeds from a sale of such Property to the Company, which shall be applied pursuant to Section 7.01(c)): (i) first, to the payment of amounts to reimburse the Trustee, the Agent or any Holder for Protective Expenditures made by such Person in accordance with Section 9.23; (ii) second, the excess, if any, to the payment of all accrued and unpaid interest on and principal of the A-Notes, ratably in respect of the claims of the A-Note Holders; (iii) third, the excess, if any, to the payment of all accrued and unpaid interest on and principal of the B-Notes, ratably in respect of the claims of the B-Note Holders; (iv) fourth, the excess, if any, to the payment of the accrued and unpaid Distributions on and Stated Amount of the Certificates, ratably in respect of the claims of the Certificate Holders; (v) fifth, the excess, if any, to the payment of any unpaid amounts in respect of any and all other amounts due and owing under the Operative Documents to or for the benefit of the Note Holders, ratably in respect of the claims of the Note Holders; (vi) sixth, the excess, if any, to the payment of any unpaid amounts in respect of any and all other amounts due and owing under the Operative Documents to or for the benefit of the Certificate Holders, ratably in respect of the claims of the Certificate Holders; and (vii) seventh, the excess, if any, to the Company. (b) Proceeds from Other Collateral. Upon the occurrence of an Event of Default, after deducting all amounts owing to the Trustee and the Agent for compensation, reimbursement of expenses and indemnity, including their reasonable compensation and expenses for the services of all attorneys, servants and agents of the Trustee and the Agent properly engaged and employed (including compensation and expenses in connection with any 41 Participation Agreement Proprietary & Confidential appeal), the Agent shall apply the moneys arising from any realization upon all or a portion of the Collateral (other than Sales Proceeds which shall be applied pursuant to Section 6.06(a)): (i) first, to the payment of all accrued and unpaid interest on and principal of the A-Notes, ratably in respect of the claims of the A-Note Holders; (ii) second, the excess, if any, to the payment of all accrued and unpaid interest on and principal of the B-Notes, ratably in respect of the claims of the B-Note Holders; (iii) third, the excess, if any, to the payment of the accrued and unpaid Distributions on and Stated Amount of the Certificates, ratably in respect of the claims of the Certificate Holders; (iv) fourth, the excess, if any, to the payment of any unpaid amounts in respect of any and all other amounts due and owing under the Operative Documents to or for the benefit of the Note Holders ratably in respect of the claims of the Note Holders; (v) fifth, the excess, if any, to the payment of any unpaid amounts in respect of any and all other amounts due and owing under the Operative Documents to or for the benefit of the Certificate Holders, ratably in respect of the claims of the Certificate Holders; and (vi) sixth, the excess, if any, to the Company. (c) Deemed Contribution by B-Note Holders. If (A) the moneys from any sale of or other realization on the Collateral made under or by virtue of any Operative Document, together with any other sums which then may be held by the Agent hereunder, are insufficient to retire in full 100% of the B-Notes and (B) all recourse to other parties to the Operative Documents for amounts due and owing thereunder has been exhausted, then the B-Note Holders shall have the obligation to contribute, pro rata, to the Agent the amount of any additional funds required to retire in full the B-Notes; provided that such obligation of each B-Note Holder shall be deemed to be satisfied by a deemed contribution by each such B-Note Holder of its pro rata share of unpaid principal amount of and interest on the B-Notes, which deemed contributions shall be offset, in their entirety, by the deemed distribution by the Agent of such contributions to retire in full the B-Notes; provided, further, that the Agent shall have no claim against any such B-Note Holder other than such deemed contribution and shall not demand, institute proceedings to collect, or otherwise proceed against any such B-Note Holder for, any monetary or other claim whatsoever under this Section 6.06(c), any such right being hereby released and waived by the Agent. 42 Participation Agreement Proprietary & Confidential ARTICLE VII APPLICATION OF FUNDS PRIOR TO DEFAULT; PREPAYMENT OF INSTRUMENTS SECTION 7.01. Application of Funds Prior to Default. Except as provided in Section 7.02 and except upon the occurrence of an Event of Default, moneys received by the Lessor (or the Agent on behalf of the Lessor) shall be applied as follows: (a) Fixed Rent. Moneys received representing Fixed Rent shall be applied: (i) first, to the payment of accrued and unpaid interest on the A-Notes, ratably in respect of the claims of the A-Note Holders; (ii) second, the excess, if any, to the payment of accrued and unpaid interest on the B-Notes, ratably in respect of the claims of the B-Note Holders; (iii) third, the excess, if any, to the payment of accrued and unpaid Distributions due and owing to the Certificate Holders, ratably in respect of the claims of the Certificate Holders; (iv) fourth, the excess, if any, to the Company. (b) Additional Rent. Moneys received representing Additional Rent shall be applied: (i) first, to the purposes for which such moneys were paid; and (ii) second, the excess, if any, to the Company. (c) Termination Value. Moneys received as payment by the Company of the Termination Value with respect to each Property shall be applied: (i) first, to the payment of all of the Outstanding A-Notes allocable to such Property, together with accrued and unpaid interest thereon to the date of payment; (ii) second, the excess, if any, to the payment of the Outstanding B-Notes allocable to such Property, together with accrued and unpaid interest thereon to the date of payment; (iii) third, the excess, if any, to the payment of all of the Outstanding Certificates allocable to such Property, together with accrued and unpaid yield thereon through the date of payment; (iv) fourth, the excess, if any, to the payment of any and all other amounts due and owing under the Operative Documents allocable to such Property to or for the benefit of, the Note Holders, ratably in respect of the claims of the Note Holders; 43 Participation Agreement Proprietary & Confidential (v) fifth, the excess, if any, to the payment of any unpaid amounts in respect of any and all other amounts due and owing under the Operative Documents allocable to such Property to or for the benefit of the Certificate Holders, ratably in respect of the claims of the Certificate Holders; and (vi) sixth, the excess, if any, to the payment of Closing Costs; and (vii) seventh, the excess, if any, to the Company (or its designee). (d) Sales Proceeds. If the Company has paid the Residual Value Amount for the Properties, then moneys received as payment of Sales Proceeds shall be applied, whether received upon or after the termination of the Lease: (i) first, to the payment of Closing Costs; (ii) second, the excess, if any, to the payment of all Outstanding B-Notes at 100% of their principal amount, together with accrued and unpaid interest thereon to the date of payment, ratably in respect of the claims of the B-Note Holders; (iii) third, the excess, if any, to the payment of all Outstanding Certificates at 100% of their unpaid Certificate Amount, together with yield due and owing thereon to the date of payment, ratably in respect of the claims of the Certificate Holders; (iv) fourth, the excess, if any, to the payment of any and all other amounts due and owing under the Operative Documents to or for the benefit of the B-Note Holders, ratably in respect of the claims of the B-Note Holders; (v) fifth, the excess, if any, to the payment of any unpaid amounts in respect of any and all other amounts due and owing under the Operative Documents to or for the benefit of the Certificate Holders, ratably in respect of the claims of the Certificate Holders; and (vi) sixth, the excess, if any, to the Company. (e) Residual Value Amount. Notwithstanding anything to the contrary herein, moneys received representing payment of the Residual Value Amount for the Properties shall be applied: (i) first, to the payment of all Outstanding A-Notes at 100% of their principal amount, together with accrued and unpaid interest thereon to the date of payment, ratably in respect of the claims of the A-Note Holders; and (ii) second, the excess, if any, to the Company. 44 Participation Agreement Proprietary & Confidential (f) Payments under the Instrument Guaranty. Notwithstanding anything to the contrary herein, moneys received representing payment under the Instrument Guaranty shall be applied: (i) if paid during the continuance of an Event of Default, in accordance with Section 6.06(b); or (ii) in the case of all other payments thereunder, in accordance with Section 7.01(e). (g) Proceeds from Maryland Land Purchase. Proceeds from any sale of a portion of the Maryland Land pursuant to Section 5.02 of the Lease shall be applied pro rata among all Instruments based on the amounts Outstanding thereunder (and to each Holder ratably in respect of its claim thereunder). (h) Other Payments. Any other sums received by the Lessor (or the Agent on behalf of the Lessor) under the Operative Documents shall be applied: (i) first, to the purposes for which such moneys were paid pursuant thereto; and (ii) second, the excess, if any, to the Company. SECTION 7.02. Awards, Compensation or Other Payments on Account of Casualty or Condemnation. Moneys received by the Lessee or the Lessor pursuant to the Lease as Net Proceeds representing payment of any award, compensation, insurance proceeds or other payment in respect of any Property or portion thereof paid or payable to or received or receivable by reason of a Casualty or Condemnation shall be applied as set forth in the Lease; provided that if the Company shall have given, or be deemed to have given, an Offer to Purchase pursuant to the Lease, or on the delivery by the Lessor of a Termination Notice under the Lease, such moneys shall be held and applied by the Agent on the Closing Date as provided in Section 7.01(c). SECTION 7.03. Prepayment of Notes and Cancellation of Certificates. (a) General. No prepayment of any Notes or cancellation of any Certificates may be made, except to the extent and in the manner expressly permitted or required by this Section 7.03. Any prepayment or cancellation of the Instruments required or permitted to be made by this Section 7.03 shall be made in accordance with the provisions of this Section 7.03 and except as set forth in Section 7.03(c), shall be (i) with respect to the Notes, at 100% of the then outstanding principal amount of the Notes so prepaid, together with accrued and unpaid interest thereon to the date of prepayment and, as applicable, any Additional Costs or other amounts owing under any of the Operative Documents or (ii) with respect to the Certificates, at a price equal to the Certificate Liquidation Amount owing as of the cancellation date, and as applicable, any Additional Costs or other amounts owing under any of the Operative Documents. Except as set forth in Section 7.03(c), unless the Notes are to be prepaid (together with all 45 Participation Agreement Proprietary & Confidential accrued and unpaid interest thereon to the date of prepayment) in full simultaneously therewith, cancellation of the Certificates will not be permitted. (b) Notice of Prepayment or Cancellation; Termination of Interest and Distributions on Prepayment Date. In case of any prepayment of any of the Notes or cancellation of any of the Certificates, notice thereof shall be given by the Trustee, if the Trustee has notice thereof, to the Holders of the applicable Instruments at least thirty (30) days (if practicable, and if not, as soon as it is practicable for the Trustee to give such notice) and not more than sixty (60) days prior to the date fixed for prepayment or cancellation. Upon the receipt (or deemed receipt) by the Lessor pursuant to Article V of the Lease of an Offer to Purchase or on the delivery by the Lessor of a Termination Notice under the Lease, the Lessor shall give notice of such prepayment. Each notice of prepayment shall specify the date fixed for prepayment or cancellation, the Instruments subject to prepayment or cancellation and shall be accompanied by all documents relating to such prepayment or cancellation. Interest or Distributions on the Instruments subject to prepayment or cancellation shall cease to accrue or become due upon the date fixed for prepayment or cancellation unless default shall be made in the payment of the price payable upon the prepayment or cancellation thereof. (c) Permitted Prepayments. (i) Prepayment of the Notes and the Certificates prior to the maturity of the Notes will be made upon the receipt by the Agent (for the account of the Lessor) of (A) the Residual Value Amount and the Sales Proceeds or (B) the Termination Value for the Properties, in each case in compliance with the Operative Documents. (ii) Prepayment of the Notes and the Certificates allocable to any Property prior to the maturity of the Notes will be made upon receipt by the Agent (for the account of the Lessor) of the Termination Value for such Property in compliance with the Operative Documents. (iii) Partial prepayment of the Notes and the Certificates will be made in connection with a purchase of a portion of the Maryland Land pursuant to Section 5.02 of the Lease. ARTICLE VIII THE AGENT SECTION 8.01. Authorization and Action. (a) Each Note Holder and Certificate Holder hereby appoints and authorizes the Agent to take such action as the Agent on such Note Holder's and Certificate Holder's behalf and to exercise such powers under this Agreement and the other Operative Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto (including any delegation by the Lessor of its collection and disbursement functions). The Trustee hereby appoints and authorizes the Agent to collect, disburse, invest and otherwise administer on the Trustee's behalf all funds paid or payable to the Agent and the Trustee (as Lessor or otherwise) hereunder or under any of the other Operative Documents, in each case in accordance with the terms thereof, and WFBN, 46 Participation Agreement Proprietary & Confidential in its individual capacity, and in its capacity as Trustee shall not be liable for the actions or inactions of the Agent in connection with the Agent's collection, disbursement, investment and administration of such funds and shall have no duty to supervise the actions of the Agent. As to any matters not expressly provided for by this Agreement or the other Operative Documents, the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Holders (except actions requiring the consent of all Note Holders and Certificate Holders, in which case the Agent shall act or refrain from acting upon instructions consented to by all Note Holders and Certificate Holders), and such instructions shall be binding upon all Note Holders and Certificate Holders; provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable Law. The Agent agrees to give to each Note Holder and Certificate Holder notice of each notice given to it by the Company, the Guarantor and the Trustee pursuant to the terms of the Operative Documents. (b) The Lessor and each Note Holder and Certificate Holder hereby appoint and authorize CUSA to take such action as CUSA on the Lessor's, such Note Holder's and Certificate Holder's behalf in connection with the Intercreditor Agreement and to exercise such powers under the Intercreditor Agreement as are delegated to CUSA thereunder, including the power to appoint Wilmington Trust Company as Second Priority Collateral Trustee thereunder. SECTION 8.02. Agent's Reliance, Etc. Neither the Agent nor any of its Affiliates or Subsidiaries, nor any of the directors, officers, agents or employees of any of them, shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the other Operative Documents, except for its or their own gross negligence or willful misconduct, it being the intent that such Persons shall not be liable for any such action or inaction that constitutes ordinary negligence. Without limiting the generality of the foregoing, the Agent: (i) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation to any Note Holder or Certificate Holder and shall not be responsible to any Note Holder or Certificate Holder for any statements, warranties or representations made in or in connection with this Agreement or the other Operative Documents; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Operative Documents on the part of the Company or the Guarantor or to inspect the property (including the books and records) of the Company or the Guarantor; (iv) shall not be responsible to any Note Holder or Certificate Holder for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Operative Documents or any other instrument or document furnished pursuant hereto or thereto; (v) shall have no duty to verify the Requisition or the authenticity of any signature appearing on the Requisition other than to compare such signature with incumbency certificates provided by the Company listing Officers of the Company authorized to execute the Requisition, and (vi) shall incur no liability under or in respect of this Agreement or the other Operative Documents by acting upon any notice, consent, certificate or other instrument or writing in accordance with the 47 Participation Agreement Proprietary & Confidential terms hereof or thereof believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.03. CUSA and Affiliates. CUSA and any of its Affiliates, if acting as Note Holder and/or Certificate Holder, shall have the same rights and powers under any Instrument, this Agreement and the other Operative Documents as any other Note Holder or Certificate Holder and may exercise the same as though CUSA or such Affiliate were not the Agent; and the terms "Note Holder" or "Note Holders" (and "Certificate Holder" or "Certificate Holders" if CUSA or any of its Affiliates is a Certificate Holder) shall, unless otherwise expressly indicated, include CUSA in its individual capacity or any such Affiliate, and CUSA and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Company, the Guarantor and any Subsidiary thereof and any Person who may do business with or own securities of the Company, the Guarantor or any Subsidiary thereof, all as if CUSA were not the Agent and without any duty to account therefor to the Note Holders and Certificate Holders. SECTION 8.04. Note Holder and Certificate Holder Credit Decision. Each Note Holder and Certificate Holder acknowledges that it has, independently and without reliance upon the Agent, the Trustee or any other Note Holder or Certificate Holder and based on the financial statements referred to in Section 3.02(d) and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Note Holder and Certificate Holder also acknowledges that it will, independently and without reliance upon the Agent, the Trustee or any other Note Holder or Certificate Holder and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions with respect to this Agreement or any of the other Operative Documents. SECTION 8.05. Indemnification. The Note Holders and the Certificate Holders agree to indemnify the Agent, ratably according to the respective aggregate principal and Certificate Amounts of the Instruments then held by each Note Holder or Certificate Holder, as the case may be (or if the Notes and the Certificates have been fully repaid and retired or if any Instruments are held by Persons which are not Note Holders or Certificate Holders, ratably according to either (i) the respective aggregate amounts of their Note Commitments or Certificate Commitments, or (ii) if all such Note Commitments and Certificate Commitments have terminated, the respective amounts of the Note Commitments and Certificate Commitments terminated), from and against any and all losses of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement, any other Operative Document or any action taken or omitted by the Agent under this Agreement or any other Operative Document; provided, that neither any Note Holder nor any Certificate Holder shall be liable to the Agent for any portion of such losses resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Note Holder and Certificate Holder agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or 48 Participation Agreement Proprietary & Confidential otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Operative Document to the extent that the Agent is not reimbursed for such expenses by the Company. SECTION 8.06. Successor Agent. The Agent may resign at any time as Agent under this Agreement by giving written notice thereof to the Note Holders, the Certificate Holders, the Trustee and the Company and may be removed at any time with or without cause by the Majority Holders. Upon any such resignation or removal, the Majority Holders, subject to the consent of the Company (which consent shall not be unreasonably withheld), shall have the right to appoint a successor Agent which shall be a commercial bank or trust company organized under the laws of the United States of America or any State thereof (or otherwise authorized by law to conduct a banking business in the United States of America or any State thereof) reasonably acceptable to the Company. If no successor Agent shall have been so appointed by the Majority Holders, and shall have accepted such appointment, or any successor Agent appointed shall not have accepted such appointment, in either case, within thirty (30) days after the retiring Agent's giving of notice of resignation or the Majority Holders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Note Holders and Certificate Holders, appoint a successor Agent, which shall be a Note Holder which is a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Agent under this Agreement by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and shall function as the Agent under this Agreement, and the retiring Agent shall be discharged from its duties and obligations as Agent (other than those which arise prior to such Agent's removal or resignation) under this Agreement. After any retiring Agent's resignation hereunder as Agent, the provisions of Sections 8.01 through 8.06 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. SECTION 8.07. Certain Duties and Obligations Regarding Collateral. (a) Notwithstanding anything to the contrary in this Agreement or in any other Operative Document, the Agent shall not exercise any rights or remedies under any of the Operative Documents or give any consent under any of the Operative Documents or enter into any agreement amending, modifying, supplementing or waiving any provision of any Operative Document unless it shall have been directed to do so in writing by the requisite percentage required under the Operative Documents or, in the absence of an express provision, by the Majority Holders. (b) The Agent may execute any of its duties under this Agreement or any Operative Document by or through agents or attorneys- in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. (c) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel, independent accountants and 49 Participation Agreement Proprietary & Confidential other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take action under any Operative Document or this Agreement (i) if such action would, in the reasonable opinion of the Agent, be contrary to Law or the terms of this Agreement or the other Operative Documents, (ii) if such action is not specifically provided for in such Operative Document or this Agreement, (iii) if it shall not have received any such advice or concurrence of the Majority Holders as it deems appropriate, or (iv) if, in connection with taking of any such action that would constitute an exercise of remedies under such Operative Document or this Agreement, it shall not first be indemnified to its satisfaction against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under any Operative Document or this Agreement in accordance with a request of the Majority Holders (to the extent that the Majority Holders are expressly authorized to direct the Agent to take or refrain from taking such action), and such request and any action taken or failure to act pursuant thereto shall be binding upon the Note Holders, the Certificate Holders and the Trustee. (d) The Agent shall not be deemed to have actual, constructive, direct or indirect knowledge or notice of the occurrence of any Event of Default unless and until the Agent has received a written notice or a certificate from the Company, the Guarantor, the Trustee or the Majority Holders stating that an Event of Default has occurred under the Operative Documents. The Agent shall have no obligation whatsoever either prior to or after receiving such notice or certificate to inquire whether an Event of Default has in fact occurred and shall be entitled to rely conclusively, and shall be fully protected in so relying, on any such notice or certificates furnished to it. No provision of this Agreement or any other Operative Document shall require the Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or under any Operative Document or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) The Agent shall be entitled to reimbursement for reasonable out-of-pocket expenses, including the reasonable fees and expenses of its counsel (and any local counsel) and of any experts and agents, which the Agent may reasonably incur in connection with (i) the administration of this Agreement and the other Operative Documents, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral or (iii) the exercise or enforcement (whether through negotiations, legal proceedings or otherwise) of any of the rights of the Agent, the Note Holders, the Certificate Holders or the Trustee hereunder or under the other Operative Documents. ARTICLE IX MISCELLANEOUS SECTION 9.01. Survival. Except as otherwise expressly provided, the parties' obligations under this Agreement and in any certificate or other instrument delivered by any 50 Participation Agreement Proprietary & Confidential party or on such party's behalf pursuant to this Agreement shall terminate upon the payment in full of all amounts then and thereafter due on the Notes and the Certificates and under any of the Operative Documents. The confidentiality and all indemnification provisions contained in this Agreement, including the provisions of Sections 5.04, 5.05, 9.06, 9.13, 9.14 (subject to the provisions of Section 9.14(b)) and 9.16, shall each survive the payment in full of all amounts then and thereafter due on the Notes and the Certificates and due under any of the Operative Documents. Such rights and obligations shall survive the execution and delivery of any Operative Document, any issuance or disposition of any of the Notes, the Certificates or distribution relating thereto, any disposition of any interest in any Property or any portion thereof or the termination of any Operative Document and shall continue in effect regardless of any investigation made by or on behalf of any party he reto and notwithstanding that any party may waive compliance with any other provision of any Operative Document. To the extent that any payments made under the Operative Documents are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any Bankruptcy Law, common law or equitable cause, then to such extent, the obligation so satisfied shall be revived and continue as if such payment had not been received and the rights, powers and remedies under this Agreement and each other Operative Document shall continue in full force and effect. In such event, the Operative Documents shall be automatically reinstated and the Company shall take such action as may be reasonably requested by the Agent and the Holders to effect such reinstatement. SECTION 9.02. Notices. Unless otherwise specifically provided in any Operative Document, all notices, consents, directions, approvals, instructions, requests and other communications given to any party hereto under any Operative Document shall be in writing to such party at the address set forth in Schedule I hereto or at such other address as such party shall designate by notice to each of the other parties hereto and may be personally delivered (including delivery by private or overnight courier services) or delivered by registered or certified mail or by telecopy (with a copy of such notice sent by private or overnight courier service for overnight delivery or by registered or certified mail), to the party entitled thereto, and shall be deemed to be duly given or made when delivered by hand unless such day is not a Business Day, in which case such delivery shall be deemed to be made as of the next succeeding Business Day or in the case of telecopy (with a copy of such notice sent by private courier service for overnight delivery or by registered or certified mail), when sent, so long as it was received during normal business hours of the receiving party on a Business Day and otherwise such delivery shall be deemed to be made as of the next succeeding Business Day. SECTION 9.03. Severability. If any provision hereof or the application thereof to any Person or circumstance shall be invalid, illegal or unenforceable, the remaining provisions or the application of such provision to Persons or circumstances other than those as to which it is invalid or enforceable, shall continue to be valid, legal and enforceable. SECTION 9.04. Amendments, Etc. No amendment or waiver of any provision of this Agreement or of any other Operative Document, nor consent to any departure by the Company or the Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Holders (unless the Agent is authorized hereunder or under 51 Participation Agreement Proprietary & Confidential any Operative Document to act without joinder of the Majority Holders, in which case the Agent may take such action), the Company, the Guarantor and the Trustee and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that, in addition to the requirements above, no amendment, waiver or consent shall, unless in writing and signed by all of the Note Holders and the Certificate Holders, do any of the following: (a) increase the Note Commitment of the Note Holders or the Certificate Commitment or subject the Note Holders or the Certificate Holders to any additional obligations, (b) reduce the Applicable Rate or any fees or other amounts payable hereunder or under any other Operative Document, (c) take action which requires the signing by all the Note Holders or the Certificate Holders pursuant to the terms of any Operative Document, (d) postpone any date fixed for any payment of principal or Certificate Amount of, or interest or Distributions on the Notes or the Certificates or any fees or other amounts payable under the Operative Documents, (e) release any of the Liens created pursuant to the Operative Documents, other than as a result of the purchase of the Properties in compliance with the Operative Documents, (f) amend this Section 9.04, (g) amend the definitions of Majority Holder, Majority Note Holders or Majority Certificate Holders, (h) amend the definition of Eligible Assignee or any of the provisions of Section 5.03, (i) deprive any of the Holders of their interests in the Collateral except as provided in the Operative Documents, (j) amend the Instrument Guaranty or release the Company from its obligations thereunder, or (k) amend the Parent Guaranty or release the Guarantor from its obligations thereunder; provided, further, that in addition to the requirements above, no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Company, the Guarantor, the Trustee, the Note Holders and the Certificate Holders required above to take such action, affect the rights or duties of the Agent under this Agreement or any of the Operative Documents. SECTION 9.05. Headings. The table of contents and headings of the Articles, Sections and subsections of this Agreement are for convenience only and shall not affect the meaning of this Agreement. SECTION 9.06. Compliance Responsibility. None of the Trustee (notwithstanding the representations and warranties of WFBN in Section 3.03), the Agent, or any Note Holder or any Certificate Holder shall have any responsibility for compliance by any Property or by the Company with any Law, engineering standards or practices or other matters. SECTION 9.07. Definitions. Except as otherwise expressly provided herein, capitalized terms used in this Agreement and all schedules and exhibits hereto shall have the respective meanings given in Appendix A hereto. SECTION 9.08. Benefit. The parties hereto and their permitted successors and assigns, but no others (except as expressly set forth in this Section 9.08), shall be bound hereby and entitled to the benefit hereof. SECTION 9.09. Place of Payment. So long as a Note Holder, Certificate Holder or an Affiliate of a Note Holder or Certificate Holder or a bank or institutional investor is the owner of any beneficial interest in the Instruments, the Agent will cause all amounts to be paid 52 Participation Agreement Proprietary & Confidential by the Trustee which become due and payable or owing on such beneficial interest in the Instruments to be paid by bank wire transfer of immediately available funds or, at the option of such Note Holder or Certificate Holder, such Affiliate, bank or institutional investor, by check of the Agent (for the account of the Trustee) duly mailed, delivered or made at the address or account referenced in Schedule I hereto or provided in writing by such Person to the Agent, in all cases without presentation of the underlying Instrument, provided, that upon receipt of payment in full the underlying Instruments shall be returned by the respective Holders thereof to the Trustee marked "canceled". SECTION 9.10. Counterparts; Effectiveness. The parties may sign this Agreement in any number of counterparts and on separate counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. Delivery of an executed counterpart signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart signature page to this Agreement. SECTION 9.11. Governing Law and Jurisdiction. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (b) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the non-exclusive 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 any other Operative Document, 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 any such New York State court 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 any party may otherwise have to bring any action or proceeding relating to this Agreement, the Notes or the Certificates in the courts of any jurisdiction. (c) Each of the parties hereto 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 any other Operative Document in any New York State or federal court located in New York City. 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. SECTION 9.12. Time; Business Day. (a) TIME IS OF THE ESSENCE IN THIS AGREEMENT, AND THE TERMS HEREOF SHALL BE SO CONSTRUED. 53 Participation Agreement Proprietary & Confidential (b) If the date scheduled for any payment or action under any Operative Document shall not be a Business Day, then (unless such Operative Document provides otherwise) such payment shall be made or such action shall be taken on the next succeeding Business Day. SECTION 9.13. Transaction Costs; Fees. Whether or not the transactions contemplated by this Agreement are consummated, the Company shall pay on demand all reasonable charges, fees, expenses, disbursements and out-of-pocket costs (collectively, "Transaction Costs") incurred before, on or after the Funding Date in connection with the preparation, execution, delivery, administration, performance and enforcement of any Operative Document, or any other agreement, arrangement, document or paper relating to the transactions contemplated hereby or thereby or any modification, amendment or supplement thereto or any waivers or enforcement thereof, including: (i) the reasonable fees, expenses and disbursements of each of the Agent, the Trustee, Special Counsel, Trustee's Counsel, the Appraiser, the Independent Engineer and the Environmental Consultant for services rendered to such parties in connection with such transactions; (ii) the reasonable expenses of the Trustee and the Agent incurred in connection with such transactions; (iii) the reasonable fees and expenses of Special Counsel (and any local counsel), and Trustee's Counsel with respect to advising the Agent, the Note Holders, Certificate Holders and the Trustee, respectively, as to their rights and responsibilities under the Operative Documents, and all costs and expenses, if any (including attorneys' fees and expenses), in connection with any amendments or waivers to or the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Operative Documents; (iv) all reasonable fees and expenses of the Agent in connection with any printing and other document reproduction and distribution expenses, stamp or other similar Taxes, fees or excises, including interest and penalties, and all filing fees, Taxes, and expenses in connection with (i) the recording or filing of instruments and financing statements in connection with the transactions described in this Agreement and (ii) the creation, perfection, and maintenance of the security interests created by the Operative Documents; (v) the fees and expenses as set forth in Schedule II hereto; and (vi) the reasonable fees, expenses and disbursements of local counsel of the Agent or Special Counsel, for services rendered during the term of the Operative Documents in connection with the filing, continuation or perfection of any mortgages, deeds of trust, and any UCC financing or continuation statements or any other document or instrument relating to the creation, perfection, preservation protection, validity, effectiveness or enforcement thereof. 54 Participation Agreement Proprietary & Confidential SECTION 9.14. Indemnification. (a) The Company agrees to indemnify the Trustee, the Agent, the Note Holders, the Certificate Holders, their Affiliates and any officer, director, employee, agent or controlling person of any of the above (each an "Indemnified Party") and hold each Indemnified Party harmless on an After Tax Basis, from and against any and all liabilities, losses, damages, costs and reasonable out-of-pocket expenses of any kind, including, the fees and disbursements of counsel which may be incurred by such Indemnified Party in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnified Party shall be designated a party thereto) with respect to the transactions contemplated by this Agreement and the other Operative Documents based upon, arising out of or otherwise relating to or in respect of the following: (i) any injury to, or death of, any natural person, or damage to or loss of property, or any matters occurring on or resulting from activities using, on or relating to any Property or any part thereof; (ii) the acquisition, ownership, leasing, ground leasing, subleasing, construction, operation, management, maintenance, occupancy, possession, use, non-use or condition of any Property or any part thereof; (iii) any violation by the Company of any of the terms or conditions of this Agreement, the Lease or any of the other Operative Documents; (iv) any Default, Event of Default, Non-Performance Event, Casualty, Condemnation or Environmental Trigger; (v) any act or omission of the Company, the Ground Lessor or any of their agents, contractors, licensees, sublessees, invitees, representatives or any person for whose conduct the Company or the Ground Lessor is legally responsible on or relating to or in connection with the acquisition, ownership, leasing, ground leasing, subleasing, construction, operation, management, maintenance, occupancy, possession, use, non-use or condition of any Property or any part thereof; (vi) the performance of any labor or services or furnishing of any materials or other property in respect of any Property or any part thereof; (vii) any Liens (including, without limitation, any Permitted Encumbrances) on or with respect of and to any Property or any part thereof; (viii) any permitted contest referred to in the Lease; (ix) any breach, violation or default by the Company of any contract or agreement directly or indirectly relating to any Property or any part thereof or the transactions to be consummated pursuant to the Operative Documents to which the Company is a party (or any transactions in which any proceeds of all or any part of the proceeds of the Instruments are applied) or of any Legal Requirement or Insurance Requirement; 55 Participation Agreement Proprietary & Confidential (x) any termination or invalidity of the Trustee's interest in any Property or any part thereof (other than as a result of the purchase of such Property in accordance with the Lease); (xi) the non-occurrence of the Funding and Break Costs associated therewith; (xii) any actual or proposed use by the Company or any other Person of the proceeds of any Advance or Equity Investment; (xiii) the execution, delivery, and performance of (or in any other way related to or arising out of) the Operative Documents or the transactions contemplated thereby, or any violation or breach by the Company of such documents and agreements; (xiv) the operation of the business of the Company and its Affiliates; (xv) the impairment of all access to and from any Property or any part thereof as required for the efficient and proper operation of such Property; (xvi) any defect or deficiency in or any lack of title to or right of occupancy, access, possession or use of any real property or other property which defect, deficiency or absence adversely affects (a) the value, marketability, condition, use, ownership, leasing, subleasing, ground leasing, construction, operation, management, maintenance, occupancy, possession, sale or disposition of any Property or any part thereof or (b) the proper and efficient operation of the Improvements (or any portion thereof); or (xvii) any environmental condition (including Pre-existing Environmental Conditions) in, on, beneath, from, or involving any Property or any portion thereof (including the presence, emission, or release of Hazardous Materials or the violation of any applicable Environmental Law). (b) Notwithstanding anything to the contrary contained in this Agreement or the other Operative Documents, the Company shall not indemnify or hold harmless any Indemnified Party against (i) any claims to the extent arising as a result of the fraud, gross negligence or willful misconduct of an Indemnified Party, (ii) any claims to the extent resulting from the breach of any representation, warranty or covenant of such Indemnified Party set forth in any Operative Document, (iii) any claims resulting from Lessor Liens which the Lessor is responsible for discharging under the Operative Documents and (iv) any claims arising from a breach or alleged breach by the Lessor of any agreement entered into in connection with the assignment or participation of Rent. Without limiting the express right of any Indemnified Party under this Section 9.14, this Section 9.14 shall be construed as an indemnity only and not a guaranty of residual value of any Property. In addition, nothing in Section 9.14(a) shall be deemed to limit the obligations of the Company under Section 5.04. (c) The obligations of the Company under this Section 9.14 shall survive the expiration or any termination of this Agreement or any other Operative Document (whether by operation of law or otherwise) for all matters described in this Section 9.14 which occur or arise 56 Participation Agreement Proprietary & Confidential prior to such expiration or termination or arise out of or result from facts, events, claims, liabilities, actions or conditions occurring, arising or existing on or before such expiration or termination. (d) Notwithstanding anything to the contrary contained in this Agreement or the other Operative Documents, neither the Company nor any Indemnified Party shall be liable for any settlement, compromise or consent to the entry of any order adjudicating or otherwise disposing of any loss, claim, damage or liability effected without the consent of the Company or such Indemnified Party, as the case may be, which consent shall not be unreasonably withheld. (e) Promptly after receipt by an Indemnified Party of written notice of any loss, claim, damage or liability in respect of which indemnity may be sought by it hereunder, such Indemnified Party will, if a claim for indemnity is to be made by it against the Company under Section 9.14(a), notify the Company thereof. Thereafter, such Indemnified Party and the Company shall consult, to the extent appropriate, with a view to minimizing the cost to the Company of its obligations hereunder. In case any such Indemnified Party receives written notice of any loss, claim, damage or liability in respect of which indemnity may be sought by it hereunder, the Company will be entitled to participate in the defense thereof, and to the extent that the Company may elect by notice delivered to such Indemnified Party promptly after receiving the aforesaid notice from such Indemnified Party, to assume the defense thereof, with counsel reasonably satisfactory at all times to such Indemnified Party; provided that (i) if the parties against whom any loss, claim, damage or liability arises include both such Indemnified Party and the Company and such Indemnified Party shall have reasonably concluded that there may be legal defenses available to it or other Indemnified Parties which are different from or additional to those available to the Company and may conflict therewith, such Indemnified Party or Indemnified Parties shall have the right to select separate counsel to assume such legal defense and otherwise to participate in the defense of such loss, claim, damage or liability on behalf of such Indemnified Party or Indemnified Parties and (ii) if any loss, claim, damage or liability arises out of actions brought by or for the benefit of the Company, such Indemnified Party or Indemnified Parties shall have the right to select their counsel and to assume and direct the defense thereof and the Company shall not be entitled to participate therein or assume the defense thereof. Upon receipt of notice from the Company to such Indemnified Party of its election to so assume the defense of such loss, claim, damage or liability and approval by such Indemnified Party of counsel, the Company shall not be liable to such Indemnified Party under Section 9.14(a) for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof unless (A) such Indemnified Party shall have employed counsel in connection with the assumption of legal defenses in accordance with the proviso to the next preceding sentence, (B) the Company shall not have employed and continued to employ counsel reasonably satisfactory to such Indemnified Party to represent such Indemnified Party or (C) the Company shall have approved the employment of counsel for such Indemnified Party at the expense of the Company. (f) Subject to Section 9.16, each Indemnified Party shall, at the expense of the Company, supply the Company with such information and documents reasonably requested by 57 Participation Agreement Proprietary & Confidential the Company and in the possession of such Indemnified Party as are necessary or advisable for the Company to participate in any action, suit or proceeding to the extent permitted hereunder. (g) Notwithstanding anything in this Section 9.14 to the contrary, Section 5.04 shall exclusively control with respect to Charges, Excluded Charges, Taxes and Other Taxes. SECTION 9.15. Operative Documents; Further Assurances. Each of the parties hereto does hereby covenant and agree to perform and be governed and restricted by the Operative Documents to which it is a party and, subject to the terms and conditions thereof, to take or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable in connection therewith. The Company, the Trustee, the Agent, the Note Holders and the Certificate Holders, at the expense of the Company, shall execute and deliver such further instruments and do such further acts as may be reasonably necessary to carry out more effectively the purposes of the Operative Documents and the transactions contemplated thereby. SECTION 9.16. Confidentiality. (a) Each of the parties hereto, other than the Agent and, as applicable, its Affiliates, agrees that, subject to Section 5.03, it will maintain the confidentiality of the documentation of this transaction, the structure of which was developed exclusively by Citibank. (b) Each of the parties hereto agrees that unless otherwise required by Law or by any Governmental Authority or consented to in writing by the Company, the Guarantor and the Agent, it will maintain the confidentiality of all non-public information (i) regarding the financial terms of this transaction or (ii) regarding the Company, the Guarantor or the Properties which shall be furnished to it by or on behalf of the Company or the Guarantor in connection with the transactions contemplated by the Operative Documents, in accordance with the procedures it generally applies to confidential material; provided, however, that if the Lease has been terminated and the Company has not purchased the Lessor's interest in the Properties, then the Note Holders, the Certificate Holders, the Agent and the Trustee shall not be bound by the confidentiality provisions of this Section 9.16(b). (c) Except as otherwise provided in Section 9.16(b) the parties hereto agree not to publish tombstones or other public announcements in connection with the transactions contemplated hereby without the consent of the Company, the Guarantor, the Agent and the Note Holders. SECTION 9.17. Interest Laws. Nothing contained in this Agreement or the other Operative Documents shall be deemed to require the payment of interest, yield or other charges by the Company or any other Person in excess of the amount which may be lawfully charged under any applicable usury laws (the "Maximum Rate"). In the event that the Company or any other Person shall collect moneys under this Agreement or any other Operative Document which are deemed to constitute interest (including Fixed Rent or Additional Rent) which would increase the effective interest or yield rate to a rate in excess of the Maximum Rate, all such sums deemed to constitute interest in excess of the Maximum Rate shall, upon such determination, at the option of the Person to whom such payment was made, be returned to the 58 Participation Agreement Proprietary & Confidential payor thereof or credited against other amounts owed by such payor hereunder or under the other Operative Documents. SECTION 9.18. Financial Advisor. The parties hereto (including the Trustee at the direction of the Note Holders and the Certificate Holders) acknowledge and agree that neither Citibank, the Company's exclusive financial advisor for the transactions contemplated by the Operative Documents, nor any of Citibank's Affiliates, is making any representation or warranty, or is required to make any disclosure, now or in the future, with respect to the parties' tax or accounting treatment of the transactions contemplated by the Operative Documents. Each of the parties hereto further acknowledges and agrees that neither Citibank nor any of its Affiliates is responsible, or will be responsible in the future, for tax and accounting advice with respect to the transactions contemplated by the Operative Documents, and that it (i) has, independently and without reliance on Citibank or its Affiliates, made its own analysis and decisions with respect to such matters and has had the benefit of the advice of its own independent tax and accounting advisers with respect to such matters to the extent it has deemed appropriate and (ii) will, independently and without reliance on Citibank or its Affiliates, continue to make its own analyses and decisions with respect to such matters based on such information and advice as it deems appropriate for such purposes. SECTION 9.19. Securities Representation. Each Note Holder and Certificate Holder hereby represents that it is acquiring its Instruments for investment for its own account, and not with a view to or for sale in connection with a distribution of any Note, except in compliance with all applicable securities laws; provided, however, that, subject to Section 5.03, the disposition of any Instrument held by that Note Holder or Certificate Holder shall at all times be within its exclusive control. SECTION 9.20. Agreements with Respect to the Properties; Collateral. (a) Upon payment by the Company of the Termination Value for any Property (or portion thereof pursuant to Section 5.02 of the Lease), and upon the request of the Company, the Lessor will convey its interest in such Property (or portion thereof pursuant to Section 5.02 of the Lease) to the Company (or its designee) pursuant to a special warranty deed (with respect to the Maryland Land (or portion thereof pursuant to Section 5.02 of the Lease)), an assignment of lease or lease termination (with respect to the California Land) and pursuant to a special warranty deed and/or bill of sale (with respect to the Improvements), which assignment, termination, special warranty deed and/or bill of sale shall be made without recourse, representation, or warranty of any kind, except that such Property (or portion thereof pursuant to Section 5.02 of the Lease) will be free and clear of any Lien (including Lessor Liens) or other adverse interest of any kind created by the Lessor (except for Permitted Encumbrances or as consented to or created by the Company and except as to any interest created by the Lessor upon the exercise of any right under the Operative Documents upon any Default, Event of Default, Non-Performance Event or Environmental Trigger). (b) Upon the consummation of the purchase of the Lessor's interest in any Property by the Company (or its designee) for the Termination Value or for a portion of such Property pursuant to Section 5.02 of the Lease for the amount set forth thereunder and otherwise 59 Participation Agreement Proprietary & Confidential in compliance with the Operative Documents, at the request of the Company or the Agent, as applicable, the Lessor and the Agent shall execute releases and termination statements (or partial releases and terminations, as applicable) required to release or terminate the Liens granted under the Operative Documents with respect to the Collateral (or relevant portion thereof relating to the applicable Property or portion thereof), which releases shall be made without recourse, representation or warranty of any kind. The Lessor shall execute the releases and termination statements to be executed by the Lessor under the direction of the Agent. The Company shall pay all out-of-pocket costs and Taxes arising from the preparation, execution, filing, and recording of such releases and termination statements. SECTION 9.21. Waiver of Trial by Jury. IN ANY ACTION OR PROCEEDING UNDER OR RELATED TO THIS AGREEMENT, THE OPERATIVE DOCUMENTS OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THE FOREGOING, THE COMPANY, THE GUARANTOR, THE AGENT, THE TRUSTEE AND EACH NOTE HOLDER AND CERTIFICATE HOLDER HEREBY AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY, IRRESPECTIVE OF WHICH PARTY COMMENCES SUCH ACTION OR PROCEEDING. SECTION 9.22. Other Matters. The Company acknowledges that neither any Note Holder, any Certificate Holder, the Trustee, the Agent, or any Affiliate of any thereof is making any representation, nor is it required to make any disclosure, now or in the future, with respect to the parties' tax or accounting treatment of the Properties or the financing thereof, nor is any Note Holder, any Certificate Holder, the Trustee, the Agent, or any Affiliate of any thereof responsible, nor will it be responsible in the future, for tax and accounting advice with respect to the Properties or the financing thereof, and the Company has had or will have the benefit of the advice of its own independent tax and accounting advisors with respect to such matters. SECTION 9.23. Protective Expenditures; Payment for Services. At any time after the expiration or other termination of the Lease, if the Lessee has not purchased the Lessor's interest in the Properties pursuant to the terms of the Lease, any Note Holder, Certificate Holder or the Trustee shall have the right, but not the obligation, to pay, or to fund the Agent's payment of, (i) real estate Taxes due and owing with respect to the Properties or (ii) insurance premiums required to maintain the coverage required during the term of the Lease (each a "Protective Expenditure"). Reimbursement of Protective Expenditures made by any Note Holder, any Certificate Holder or the Trustee in accordance with this Section 9.23 shall be made upon a sale of the Properties pursuant to the provisions set forth herein. SECTION 9.24. Exculpation of Trustee. Except for liability for its representations and warranties in Sections 3.03 and 3.04, and for its own gross negligence and willful misconduct and as otherwise expressly provided in the Operative Documents, it is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by WFBN, not in its individual capacity but solely as Trustee under the Trust Agreement, in the exercise of the powers and authority conferred and vested in it as the Trustee 60 Participation Agreement Proprietary & Confidential under the Trust Agreement, (b) each of the undertakings and agreements herein made on the part of the Trustee is made and intended not as a personal representation, undertaking and agreement by WFBN but is made and intended for the purpose for binding only the Trustee and the Trust Estate, (c) nothing herein contained shall be construed as creating any liability on WFBN, individually or personally, to perform any obligation of the Trustee either expressed or implied contained herein or in the Operative Documents, all such liability, if any, being expressly waived by the parties to this Agreement and by any Person lawfully claiming by, through or under the parties to this Agreement and (d) under no circumstances shall WFBN be personally liable for the payment of any indebtedness or expenses of the Trustee or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trustee under the Operative Documents. SECTION 9.25. Certificate Holder. At any time within five (5) years after the expiration or termination of the Lease and upon the discovery of an Environmental Event the events leading to which occurred prior to the expiration or termination of the Lease, any Note Holder or Certificate Holder shall have the right, upon five (5) Business Days written notice, to require the Company to purchase all of its right, title and interest in and to its Notes or Certificates, as the case may be, from such Note Holder or Certificate Holder (as the case may be) for a purchase price of $1, in which case such Note Holder or Certificate Holder (as the case may be) will convey its right, title and interest in and to such Notes or Certificates, as the case may be, to the Company free and clear of any Lien or other adverse interest of any kind created by such Note Holder or Certificate Holder (as the case may be) or any Person claiming by, through or under such Note Holder or Certificate Holder (as the case may be) (except for Permitted Encumbrances as consented to by the Company and except as to any interest created upon the exercise of any right under any Operative Document upon any Default, Event of Default, Non-Performance Event or Environmental Trigger). The Note Holders' or Certificate Holders' exercise of their respective rights under this Section 9.25 shall not limit the Note Holders' or Certificate Holders' rights and remedies under any Operative Document, including the Note Holders' and Certificate Holders' rights to indemnification hereunder. SECTION 9.26. SPC Advances. Notwithstanding anything to the contrary contained herein, any Note Holder (a "Granting Note Holder") may grant to one special purpose funding vehicle (an "SPC") sponsored by such Granting Note Holder, as identified as such in writing by such Granting Note Holder to the Agent and the Guarantor from time to time (including, without limitation, by the execution of this Agreement on the date hereof by a Granting Note Holder and its SPC identified as such on the signature pages hereof), the option to provide to the Trustee all or any part of any Advances that such Granting Note Holder would otherwise be obligated to make to the Trustee pursuant to the terms hereof; provided, that (i) nothing herein shall constitute a commitment to make any Advance by any SPC, and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Advance, the Granting Note Holder shall be obligated to make such Advance pursuant to the terms hereof. The making of an Advance by an SPC hereunder shall utilize the Commitment of such Granting Note Holder to the same extent, and as if such Advance were made by such Granting Note Holder. Any SPC that makes an Advance shall (i) have in regard to such Advance all of the rights (exercisable, however, only through its Granting Note Holder acting as 61 Participation Agreement Proprietary & Confidential its agent) that such Granting Note Holder would have had if it had made such Advance directly, and (ii) comply with this Agreement in regard to such Advance on the same terms as any other Note Holder party hereto; provided that (A) the Granting Note Holder's Commitment shall remain with such Granting Note Holder, and (B) all monetary obligations of an SPC hereunder in respect of any Advance it provides shall remain with its Granting Note Holder to the extent at any time that such SPC elects not to or otherwise fails to perform or pay any such obligation. Each party hereto hereby agrees that no SPC shall be liable for any payment under this Agreement for which a Note Holder would otherwise be liable for so long as, and to the extent, its sponsoring Granting Note Holder makes such payment. Notwithstanding any Advance that may be provided by an SPC hereunder, the Agent, the Company and the Guarantor shall be entitled to continue to communicate and deal solely and directly with the Granting Note Holder in connection with this Agreement in respect of such Advance. Each SPC that is a signatory hereto, and each SPC that subsequently is identified by its Granting Note Holder as having been granted such option, shall be deemed to have confirmed (and the Guarantor and the Agent may require a written acknowledgment of such confirmation signed by any SPC not a signatory hereto that is subsequently so identified by its Granting Note Holder) to the Company and the Agent that (a) it has received a copy of the Agreement and the other Operative Documents, together with copies of the financial statements heretofore provided to the Note Holders under the terms of this Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Agreement; (b) agrees that it will independently and without reliance upon the Agent, its Granting Note Holder or any other Note Holder, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Agreement and any other Operative Document; (c) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and any other Operative Document as are delegated to the Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto; (d) agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and any other Operative Document are required to be performed by it as a Note Holder, subject to the terms of this Section 9.26; and (e) appoints its Granting Note Holder, or a specified branch or affiliate thereof, as its agent and attorney in fact and grants to its Granting Note Holder an irrevocable power of attorney to receive payments made for the benefit such SPC under this Agreement, to deliver and receive all communications and notices under this Agreement and the other Operative Documents and to exercise on such SPC's behalf all rights to vote and to grant and make approvals, waivers, consents of amendments to or under this Agreement and other Operative Documents. Any document executed by such agent on such SPC's behalf in connection with this Agreement or the other Operative Documents shall be binding on such SPC. In furtherance of the foregoing, the Company, the Guarantor, all the Note Holders and the Agent each hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one (1) year and one (1) day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or similar proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in Section 5.03, any SPC may (i) with notice to, but without the prior written consent 62 Participation Agreement Proprietary & Confidential of, the Guarantor or the Agent, and without the payment of any processing fee therefor, assign all or a portion of its interests in any Advances to its Granting Note Holder or to any financial institutions consented to by the Company and the Agent (and such consents shall be deemed to have been granted with respect to any SPC signatory hereto on the date hereof) providing liquidity and/or credit facilities to or for the account of such SPC to support the funding or maintenance of Advances, and (ii) disclose on a confidential basis any non-public information relating to its Advances to any rating agency, commercial paper dealer or provider of liquidity and/or credit facilities to such SPC. Nothing in this Section 9.26 that would affect the rights or obligations of an SPC may be amended without the written consent of any SPC that has any Advance outstanding at the time of such amendment. 63 Participation Agreement Proprietary & Confidential IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their officers thereunto duly authorized as of the day and year first above written. RITE AID REALTY CORP. By: _____________________________________ Name: Title: RITE AID CORPORATION By: _____________________________________ Name: Title: 64 SIGNATURE PAGE FOR PARTICIPATION AGREEMENT WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity except as expressly set forth in the Participation Agreement but solely as Trustee of RAC Distribution Statutory Trust By: ____________________________________________ Name: Title: SIGNATURE PAGE FOR PARTICIPATION AGREEMENT CITICORP USA, INC., as Note Holder and as Certificate Holder By: _____________________________________ Name: Title: THE CHASE MANHATTAN BANK, as Note Holder and as Certificate Holder By: _____________________________________ Name: Title: CREDIT SUISSE FIRST BOSTON, as Note Holder and as Certificate Holder By: _____________________________________ Name: Title: By: _____________________________________ Name: Title: FLEET RETAIL FINANCE INC., as Note Holder and as Certificate Holder By: _____________________________________ Name: Title: SIGNATURE PAGE FOR PARTICIPATION AGREEMENT CITICORP USA, INC., as Agent By: _____________________________________ Name: Title: Schedule I to the Participation Agreement SCHEDULE I MANNER OF PAYMENT AND COMMUNICATIONS TO PARTIES This Schedule I shows the names and addresses of the parties to the foregoing Participation Agreement and the principal amounts of the Notes to be purchased by the Note Holders and the Certificate Amount of Certificates to be purchased by the Certificate Holders. Company: (1) Address for all notices: Rite Aid Realty Corp. c/o Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011-2404 Attention: Richard Varmecky Fax No.: (717) 731-3878 Tel No.: (717) 975-5760 (2) All payments to the Company with respect to the Operative Documents shall be made by wire transfer of immediately available funds to The Chase Manhattan Bank, New York, New York, ABA#021-000-021, Account No. 910-2-750222, and with sufficient information to identify the source and application of such funds. Guarantor: Address for all notices: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011-2404 Attention: Richard Varmecky Fax No.: (717) 731-3878 Tel No.: (717) 975-5760 Schedule I to the Participation Agreement Trustee/WFBN: (1) Address for all notices: Wells Fargo Bank Northwest, N.A. Corporate Trust Services MAC: U1254-031 79 South Main Street Salt Lake City, Utah 84111 Fax No.: (801) 246-5053 Tel. No.: (801) 246-5630 With a copy to: RAC Distribution Statutory Trust c/o Wells Fargo Bank Minnesota, N.A. 213 Court Street, Suite 902 Middletown, Connecticut 06547 Attention: Corporate Trust Services Fax No.: (860) 704-6219 Tel. No.: (860) 704-6216 (2) All payments to WFBN with respect to the Operative Documents shall be made by wire transfer of immediately available funds to Account No. 0001038377 at Wells Fargo Bank, Minneapolis, MN, ABA# 091000019, with a reference to Rite Aid Realty Corp. Trust No. 3755700 and with sufficient information to identify the source and application of such funds. Agent: (1) Address for all notices: Citicorp USA, Inc., as Agent Two Penns Way, Suite 200 New Castle, Delaware 19720 Attention: Mae Wong Fax No.: (302) 894-6120 Tel. No.: (302) 894-6015 (2) All payments and transfers of funds to the Agent with respect to the Operative Documents shall be made by wire transfer of immediately available funds to Account No. 36852248 at Citibank, N.A., New York, ABA# 021000089, Account Name: NAIB Agency Medium Term Finance with a reference to Rite Aid and with sufficient information to identify the source and application of such funds. Schedule I to the Participation Agreement Holder: CITICORP USA, INC. Amount ------ A-Note Commitment: $21,370,067.84 B-Note Commitment: $ 4,541,139.42 Certificate Commitment $ 801,377.56 Total: $26,712,584.82 (1) All payments with respect to the Operative Documents shall be made by wire transfer of immediately available funds to Account No. 36852248 at Citibank, N.A., New York, ABA# 021000089, Account Name: NAIB Agency Medium Term Finance, Reference: Rite Aid with sufficient information to identify the source and application of such funds. (2) Address for all notices: Citicorp USA, Inc. Two Penns Way, Suite 200 New Castle, Delaware 19720 Attention: Mae Wong Fax No.: (302) 894-6120 Tel. No.: (302) 894-6015 Schedule I to the Participation Agreement Holder: THE CHASE MANHATTAN BANK Amount ------ A-Note Commitment: $21,370,067.85 B-Note Commitment: $ 4,541,139.42 Certificate Commitment $ 801,377.54 Total: $26,712,584.81 (1) All payments with respect to the Operative Documents shall be made by wire transfer of immediately available funds to Account Name: Commercial Loan Service #7315 at The Chase Manhattan Bank, ABA# 021000021, with sufficient information to identify the source and application of such funds. (2) Address for all notices: The Chase Manhattan Bank 270 Park Avenue New York, New York 10081 Attention: Maggie Lane Fax No.: (212) 270-5646 Tel. No.: (212) 270-9803 Schedule I to the Participation Agreement Holder: CREDIT SUISSE FIRST BOSTON Amount ------ A-Note Commitment: $21,370,067.85 B-Note Commitment: $ 4,541,139.42 Certificate Commitment $ 801,377.54 Total: $26,712,584.81 (1) All payments with respect to the Operative Documents shall be made by wire transfer of immediately available funds to Account No. 890-0329-262 at The Bank of New York, ABA# 021 000 018, Reference: Rite Aid Corporation, with sufficient information to identify the source and application of such funds. (2) Address for all notices: Credit Suisse First Boston 11 Madison Avenue New York, NY 10010 Attention: Mark Verbitsky (212) 325-6197 (212) 325-8319 Schedule I to the Participation Agreement Holder: FLEET RETAIL FINANCE INC. Amount ------ A-Note Commitment: $21,370,067.85 B-Note Commitment: $ 4,541,139.42 Certificate Commitment $ 801,377.54 Total: $26,712,584.81 (1) All payments with respect to the Operative Documents shall be made by wire transfer of immediately available funds to Account No. 53039952 at Fleet Bank, N.A., ABA# 011000138, Reference: Rite Aid, Attention: Tiffany Ormon, with sufficient information to identify the source and application of such funds. (2) Address for all notices: Fleet Retail Finance 40 Broad Street, 10th Floor Boston, MA 02109 Attention: Timothy Tobin Fax No.: (617) 434-4339 Tel. No.: (617) 434-4386 Schedule II to the Participation Agreement FEES Certain Fees Payable by the Company (1) Upfront Fee The Company shall pay to the Agent on the Funding Date for the account of each Holder an upfront fee of 175 basis points (1.75%) on the amount of such Holder's Commitment. (2) Structuring Fee The Company shall pay on the Funding Date the structuring fee set forth in the Mandate Letter dated June 25, 2001 among Rite Aid Corporation and Citibank, N.A. (3) Trustee Fee The Company shall pay to the Trustee on the Funding Date and thereafter on the dates referenced in annual invoices delivered by WFBN the fees set forth in that certain fee letter dated June, 2001 from WFBN to Citibank, N.A. (4) Agency Fee The Company shall pay to the Agent on the Funding Date for the account of the Agent the administrative agency fee set forth in that certain fee letter dated June [ ], 2001 from [CUSA] to Rite Aid Corporation. Schedule III to the Participation Agreement NOTE AND CERTIFICATE ALLOCATION The principal amount of the Notes and the Certificate Amount of the Certificates are allocated to the Properties as follows: Maryland Property California Property ----------------- ------------------- A-Notes: $44,000,000.00 A-Notes: $41,480,271.40 B-Notes: $ 9,350,000.00 B-Notes: $ 8,814,557.67 Certificates: $ 1,650,000.00 Certificates: $ 1,555,510.18 Total: $55,000,000.00 Total: $51,850,339.25 Exhibit A to the Participation Agreement [FORM OF REQUISITION] TO: Citicorp USA, Inc., as Agent RITE AID REALTY CORP. CERTIFIED REQUISITION DATED: June __, 2001 I, _____________, _______________ of Rite Aid Realty Corp., a Delaware corporation (the "Company"), pursuant to the Participation Agreement dated as of June 27, 2001 among Rite Aid Corporation, the Company, Wells Fargo Bank Northwest, National Association, not in its individual capacity except as specifically set forth therein but solely as Trustee of RAC Distribution Statutory Trust, the Persons named therein as Note Holders and Certificate Holders, and Citicorp USA, Inc., as Agent (the "Participation Agreement"), submit this irrevocable Requisition pursuant to Section of the Participation Agreement and request the following: 1. The total amount of the Acquisition Costs for which this funding is hereby requested is _______________________ ($______________), and the Company hereby requests the Agent to request (a) each of the Note Holders to make an Advance in an aggregate amount equal to _______________________ ($______________), and (b) each of the Certificate Holders to make an Equity Investment in an aggregate amount equal to _______________________ ($______________), in each case on June 27, 2001, subject to the satisfaction or waiver of all conditions precedent thereto set forth in Section 2.01 of the Participation Agreement. 2. The proceeds of the funding requested hereby shall be used solely to pay Acquisition Costs and shall be applied by the Agent as follows: For purposes of the termination and pay-off of the Original Leases the Agent shall pay to [ ] ABA # [ ], Account number: [ ], Reference: [ ] the amount of $[ ]. Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to such terms in the Participation Agreement. Dated this ___ day of June, 2001. RITE AID REALTY CORP. By:_______________________________ Name: Title: Draft of 6/26/01 Appendix A Proprietary & Confidential APPENDIX A TO THE PARTICIPATION AGREEMENT PART I Rules of Construction The following rules of usage shall apply to the Participation Agreement and the other Operative Documents (and each appendix, schedule, exhibit and annex thereto) unless otherwise required by the context or unless otherwise specified therein: Appendix A Proprietary & Confidential Unless otherwise specified, definitions set forth herein or in any other Operative Document shall be equally applicable to the singular and plural forms of the terms defined. References to articles, sections, paragraphs, clauses, annexes, appendices, schedules or exhibits are references to articles, sections, paragraphs, clauses, annexes, appendices, schedules or exhibits in or to any Operative Document. The headings, subheadings and table of contents used in any Operative Document are solely for convenience of reference, shall not constitute a part of such Operative Document and shall not affect the meaning, construction or effect of any provision thereof. References to any Person in any Operative Document shall include such Person, its successors and permitted assigns and transferees. Reference to any agreement in any Operative Document means such agreement as amended, supplemented or otherwise modified from time to time in accordance with the applicable provisions thereof except as otherwise specifically set forth in such reference and except with respect to the Senior Credit Facility, which shall mean such agreement as in effect on June 27, 2001, as amended to the extent such amendment becomes effective under the Operative Documents pursuant to the terms of the Operative Documents. References to any law in any Operative Document includes any amendment or modification to such law and any rules or regulations issued thereunder or any law enacted in substitution or replacement thereof. Words such as "hereunder", "hereto", "hereof" and "herein" and other words of like import used in any Operative Document shall, unless the context clearly indicates to the contrary, refer to the whole of such Operative Document and not to any particular article, section, subsection, paragraph or clause thereof. References to "including" in any Operative Document means including without limiting the generality of any description preceding such term. All terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time. PART II 22 Appendix A Proprietary & Confidential This Appendix A to the Participation Agreement is a glossary of all or substantially all of the defined terms used in the Operative Documents. Not all of the terms defined in this Appendix A are used in the Participation Agreement. "A-Note Commitment" of any A-Note Holder means the commitment of such Person to make Advances under such Person's A-Note to fund Acquisition Costs, up to the aggregate principal amount set forth below the name of such Person on Schedule I to the Participation Agreement next to the heading "A-Note Commitment", which commitment shall expire on, and after giving effect to the transactions to occur on, the Funding Date. "A-Notes" has the meaning set forth in Section 2.02 of the Loan Agreement. "Acquisition Costs" means (i) all amounts paid or payable by the Trustee to purchase the Original Maryland Lessor's fee interest in the Maryland Land and Maryland Improvements; and (ii) all amounts paid or payable by the Trustee to purchase the Original California Lessor's leasehold interest in the California Land and fee interest in the California Improvements. "Act" means the Securities Act of 1933, as amended, and the Laws promulgated or issued from time to time thereunder. "Additional Costs" means all Break Costs, Increased Costs, Charges, Other Taxes, Illegality Costs and other amounts required to be paid (or indemnified against) by the Company pursuant to the Participation Agreement and the other Operative Documents. "Additional Rent " means all amounts, other than Fixed Rent, which the Lessee is required to pay to the Lessor pursuant to the Lease, including (i) unpaid Charges and all amounts set forth in Section 4.05 of the Lease, (ii) all sums, costs and expenses pursuant to Article X and Section 12.08 of the Lease, (iii) all taxes, costs and expenses relating to any Property or the Lessee's use or the Lessor's leasehold interest or ownership thereof, (iv) any and all amounts payable upon any sale, alteration or other transfer (or otherwise relating to) any Property, together with every fine, penalty, interest and cost that may be added for non-payment or late payment thereof, (v) all fees and expenses payable pursuant to Sections 5.04, 9.13 and 9.14 of the Participation Agreement, (vi) all Transaction Costs and (vii) all Additional Costs. "Advance" has the meaning set forth in Section 1.01 of the Participation Agreement. "Affected Property" has the meaning set forth in Section 7.01(a) of the Lease. 33 Appendix A Proprietary & Confidential "Affiliate" means, 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, provided that under no circumstances shall the Note Holders or the Certificate Holders be deemed to be Affiliates of the Trustee or vice versa. "After Tax Basis" means, with respect to any payment to be received, on a basis such that such payment received (actually or constructively) or accrued by any Person shall be supplemented by a further payment or payments to the recipient so that the sum of all such payments shall, after deduction for the net increase in all Taxes (taking into account any related credits or deductions claimed in the same or a prior period for which such Taxes are imposed as determined in good faith by such recipient) using such ordering and other principles as it shall reasonably determine (without regard to when such Taxes are deemed utilized under the applicable Tax laws) resulting from the receipt (actual or constructive) or accrual of such payments, be equal to the payment otherwise required to be made. "Agent" means CUSA, or any successor selected pursuant to the Participation Agreement, acting in its capacity as administrative agent for the Note Holders and the Certificate Holders. "Alterations" means any and all additions to or alterations of any Property or any portion thereof made by or for the Lessee, at the sole cost and expense of the Lessee (as distinct from such additions and construction as shall constitute Improvements), excluding any replacements installed as part of scheduled maintenance procedures. "ALTA" means American Land Title Association. "Applicable Lending Office" means, with respect to any Holder, its office, branch or affiliate located at its address, and designated as its lending office, set forth in its administrative questionnaire delivered to the Agent, or such other office, branch or affiliate as such Holder may designate as its lending office by notice to the Company and the Agent. "Applicable Margin" means: (i) with respect to the A-Notes (a) for any LIBO Rate Period, 450 basis points (4.50%) and (b) for any Base Rate Period, 350 basis points (3.50%); (ii) with respect to the B-Notes (a) for any LIBO Rate Period, 450 basis points (4.50%) and (b) for any Base Rate Period, 350 basis points (3.50%); and 44 Appendix A Proprietary & Confidential (iii) with respect to the Certificates (a) for any LIBO Rate Period, 600 basis points (6.00%) and (b) for any Base Rate Period, 500 basis points (5.00%). "Applicable Payee" has the meaning set forth in Section 5.04(a) of the Participation Agreement. "Applicable Payor" has the meaning set forth in Section 5.04(a) of the Participation Agreement. "Applicable Permit" means any Permit, including any Environmental Permit, that is necessary to own, construct, start up, test, maintain, operate, lease or use all or any portion of any Property or interest therein in accordance with any of the Operative Documents. "Applicable Rate" means: (i) for any LIBO Rate Period, the sum of (a) the LIBO Rate and (b) the Applicable Margin; and (ii) for any Base Rate Period, the sum of (a) the Base Rate and (b) the Applicable Margin, in each case subject to Section 5.01(b) of the Participation Agreement. "Appraisal" means a valuation and market study of each Property and the Equipment Collateral, which satisfies all bank regulatory requirements (including FIRREA) and is otherwise satisfactory in scope and content to the Agent. "Appraiser" means an independent MAI appraiser selected by the Agent. "Assignee" has the meaning set forth in Section 5.03(b) of the Participation Agreement. "Assignment and Acceptance" has the meaning set forth in Section 5.03(b) of the Participation Agreement. "Assignment and Security Agreement" means the Assignment and Security Agreement dated as of the Funding Date between the Trustee and the Agent. "Assignor" has the meaning set forth in Section 5.03(b) of the Participation Agreement. 55 Appendix A Proprietary & Confidential "B-Note Commitment" of any B-Note Holder means the commitment of such Person to make Advances under such Person's B-Note to fund Acquisition Costs, up to the aggregate principal amount set forth below the name of such Person on Schedule I to the Participation Agreement next to the heading "B-Note Commitment," which commitment shall expire on, and after giving effect to the transactions to occur on, the Funding Date. "B-Notes" has the meaning set forth in Section 2.02 of the Loan Agreement. "Bank" has the meaning set forth in the preamble of the Trust Agreement. "Bankruptcy Law" means Title 11 of the United States Code, and any applicable Federal, state or local insolvency, reorganization, moratorium, fraudulent conveyance or similar Law now or hereafter in effect for the relief of debtors. "Base Rate" means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the greater of: (i) the rate of interest announced publicly by Citibank in New York, New York, from time to time as Citibank's prime rate (or comparable rate, if Citibank does not so designate a prime rate); or (ii) 1/2 of 1% per annum above the Federal Funds Rate. Changes in the Base Rate shall become effective on the date such change is publicly announced by Citibank. "Base Rate Period" means any Interest Period during which the Applicable Rate is determined based upon the Base Rate pursuant to Article V of the Participation Agreement. "Base Term" has the meaning set forth in Section 3.01 of the Lease. "Base Term Expiration Date" means June 27, 2005. "Best's" means Best's Insurance Reports published by A.M. Best Company, Inc. or any successor thereto which is a nationally recognized statistical rating organization. 66 Appendix A Proprietary & Confidential "Break Costs" has the meaning set forth in Section 5.06 of the Participation Agreement. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are required or authorized by Law to close. "California Deed" means the Improvements Deed dated as of the Funding Date executed by the Original California Lessor and conveying the California Improvements to the Trustee. "California Improvements" means that certain approximately 930,000 square foot distribution center located on the California Land at 2801 West Avenue H, Lancaster, California and all integral equipment located and/or installed therein or thereon. "California Land " means those two certain parcels of land located in Lancaster, Los Angeles County, California, as more particularly described in Lease Supplement No. 2. "California Mortgage " means the Deed of Trust, Assignment of Leases, Security Agreement and Financing Statement dated as of the Funding Date from the Trustee to First American Title Insurance Company, as trustee, for the benefit of the Agent. "California Property" means, collectively, the California Land and the California Improvements. "Capital Adequacy Costs" has the meaning set forth in Section 5.02(c) of the Participation Agreement. "Casualty" has the meaning set forth in Section 7.01(a) of the Lease. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C. Section 9601 et seq. and as further amended from time to time. "CERCLIS" means the Comprehensive Environmental Response Compensation and Liability Information System, which is a list maintained by the United States Environmental Protection Agency of sites where there is a known or suspected release or potential release of hazardous substances which may require remediation. 77 Appendix A Proprietary & Confidential "Certificate" and "Certificates" have the meanings set forth in Section 2.1 of the Trust Agreement. "Certificate Amount" means with respect to each Certificate, the aggregate Equity Investments made by the applicable Certificate Holder thereunder, pursuant to Section 1.02 of the Participation Agreement, as consideration for the issuance of such Certificate. "Certificate Commitment" of any Certificate Holder means the commitment of such Person to make Equity Investments pursuant to Section 1.02 of the Participation Agreement up to the aggregate stated amount set forth below the name of such Person on Schedule I to the Participation Agreement next to the heading "Certificate Commitment", which commitment shall expire on, and after giving effect to the transactions to occur on, the Funding Date. "Certificate Holder" means the holder of any Certificates. "Certificate Liquidation Amount " means the unpaid Certificate Amounts of the Certificates, plus the Distributions accrued and unpaid thereon, plus all Closing Costs incurred in connection with the Certificates, plus all Break Costs incurred in connection with the Certificates, plus all other amounts owed by the Company under the Operative Documents in connection with the Certificates. "Charges" means all Taxes arising directly or indirectly out of the transactions contemplated by the Participation Agreement and the other Operative Documents, (a) including (i) those which, at any time prior to or during the Term, may accrue with respect to, be imposed or levied upon or assessed against or be a Lien upon (x) the Trust Estate, any Property or any part thereof, the Lessor or the Trust, or the Operative Documents, including the Notes and the Certificates, (y) the Trustee or the Trust in connection with the transactions contemplated by the Operative Documents or (z) the Lease, or the leasehold estates thereby created, or which arise in respect of the acquisition, ownership, renovation, construction, installation, substitution, maintenance, manufacture, operation, occupancy, possession, disposition, use, non-use, financing, leasing, sub-leasing or condition of the Trust Estate, any Property or any part thereof or of the execution, delivery, expiration or termination of the Lease, the Notes, the Certificates or any other Operative Document; (ii) those which may be imposed or levied upon, assessed against or measured by any Fixed Rent, Additional Rent or other sum payable under the Lease, the Notes, the Certificates, the Participation Agreement or any other Operative Document; (iii) all sales, value added, goods and services, use and similar Taxes at any time levied, assessed or payable on account of the ownership, operation, occupancy, use, leasing, or subleasing of the Trust Estate, any Property or any part thereof; (iv) all charges, levies, fees, rents or assessments for or in respect of utilities, 88 Appendix A Proprietary & Confidential communications and other services rendered or used on or about or in connection with any Property or any part thereof; and (v) payments in lieu of each of the foregoing and all liabilities with respect to the foregoing and (b) notwithstanding (a), excluding Excluded Charges. "Citibank " means Citibank, N.A. "Closing Costs" means all charges incident to any sale, lease, exchange, redeployment or other disposition of any Property or portion thereof, including reasonable attorneys' fees of Special Counsel and Trustee's Counsel and escrow fees, recording fees, broker's fees, any out-of-pocket fees, costs (including Break Costs) or expenses incurred by the Lessor in connection with the same and with the release of any Operative Document, and all applicable transfer taxes which may be imposed by reason of such sale and conveyance and the delivery of any and all instruments in connection therewith. "Closing Date" has the meaning set forth in Section 5.04(c) of the Lease. "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute or similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed to also refer to successor sections. "Collateral" means, collectively, the Instrument Guaranty, the Mortgaged Property (as defined in the Mortgages), the Equipment Collateral and the Collateral (as defined in the Senior Credit Facility). "Commission" means the Securities and Exchange Commission, or any regulatory body that succeeds to the functions thereof. "Commitments" means, collectively the Note Commitments and the Certificate Commitments. "Company" means Rite Aid Realty Corp., a Delaware corporation, and any permitted successor or assignee pursuant to the terms of the Participation Agreement. "Condemnation" has the meaning set forth in Section 7.01(a) of the Lease. "Consent " means any consent, approval, waiver, exemption, order, other action by, and any notice to or filing with, any Governmental Authority or other Person. "Consolidated Subsidiary" means, with respect to any Person, at any date any Subsidiary or other entity the accounts of which would be consolidated with those of such 99 Appendix A Proprietary & Confidential Person in its consolidated financial statements if such statements were prepared as of such date. "Control" means 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. "Conversion Date" means any date on which the basis for the determination of the Applicable Rate is converted pursuant to Article V of the Participation Agreement from the LIBO Rate to the Base Rate or vice versa. "CUSA" means Citicorp USA, Inc., a Delaware corporation. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non- contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Debt of others guaranteed by such Person. "Deeds" means collectively, the Maryland Deed and the California Deed. "Default" means an event which with the lapse of time, the giving of notice or both would become an Event of Default. "Default Rate" means the lesser of (i) the Maximum Rate and (ii) the Applicable Margin plus one percent (1%) in excess of the Base Rate in effect from time to time. "Distributions" means the distributions of current yield payable to the Certificate Holders on each Payment Date. "Dollars" or "$" means United States dollars. "Eligible Assignees" means any financial institution approved by the Agent and the Guarantor, such approval not to be unreasonably withheld or delayed, provided, 1010 Appendix A Proprietary & Confidential however, that no approval of the Guarantor shall be required during the continuation of a Default, Event of Default or Non-Performance Event. "Environmental Action" means any administrative, regulatory or judicial action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement arising under any Environmental Law or Environmental Permit relating to Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment in connection with or arising from exposure to or the actual or potential release of Hazardous Materials, including, without limitation, (i) by any Governmental Authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (ii) by any Governmental Authority or any third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Audit" has the meaning set forth in Section 4.01(c) of the Participation Agreement. "Environmental Consultant " means any environmental consulting firm reasonably satisfactory to the Agent. "Environmental Event " has the meaning set forth in Section 8.01 of the Lease. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the clean-up or other remediation thereof. "Environmental Permit" means any Permit, approval, identification number, license or other authorization required under any Environmental Law. "Environmental Trigger" has the meaning set forth in Section 8.02 of the Lease. "Environmentally Affected Property" has the meaning set forth in Section 8.01 of the Lease. 1111 Appendix A Proprietary & Confidential "Equipment Collateral" means the non-integral equipment owned by the Company and located and/or installed in or on the Improvements as more particularly described in the Security Agreement. "Equity Investment " has the meaning set forth in Section 1.02 of the Participation Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "Euro-Dollar Liabilities" has the meaning assigned to the term "Euro-Dollar liabilities" in Regulation D. "Event of Default" has the meaning set forth in Section 6.01 of the Participation Agreement. "Excess Funds" has the meaning set forth in Section 7.03 of the Lease. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Charges" means (i) Taxes imposed on the Agent's net income, and franchise Taxes imposed on such Person, to the extent such Tax is determined solely by reference to the fees received by the Agent under the Operative Documents; (ii) United States federal income Taxes (other than Taxes withheld at the source) imposed on a Note Holder or Certificate Holder to the extent that such Tax is not in excess of a Tax determined on the basis that such Note Holder or Certificate Holder is a creditor entitled to receive for such Tax purposes only payments of principal, interest, stated original issue discount, if any, and compensation of the type described under Section 5.06 of the Participation Agreement; (iii) Taxes imposed on a Note Holder's or Certificate Holder's net income and franchise Taxes imposed on a Note Holder or Certificate Holder by the jurisdiction under the Laws of which such Note Holder or Certificate Holder is organized or by any jurisdiction in which such Note Holder or Certificate Holder has its applicable lending office located or is doing business, or Taxes to which such Note Holder or Certificate Holder becomes subject as a result of a change in residence, place of incorporation or principal place of business, or by any political subdivision of the foregoing, to the extent that such Tax is not in excess of a Tax determined on the basis that such Note Holder or Certificate Holder is a creditor entitled to receive for such Tax purposes only payments of principal, interest, stated original issue discount, if any, and compensation of the type described under Section 5.06 of the Participation Agreement; (iv) any Taxes imposed by the United States of America by means of withholding at the source if and to the extent that (a) such Taxes are not attributable to a change in applicable Law after the Funding Date or the effective date of the Assignment and 1212 Appendix A Proprietary & Confidential Acceptance pursuant to which such Person became a Note Holder or Certificate Holder and (b) such Taxes are not in excess of a Tax determined on the basis that such Note Holder or Certificate Holder is a creditor entitled to receive for such Tax purposes only payments of principal, interest, stated original issue discount, if any, and compensation of the type described under Section 5.06 of the Participation Agreement; (v) any Tax to the extent, but only to such extent, it results from any act, event or omission that occurs, or relates to a period, after the termination of the Lease and the return of the Properties, so long as the Lessor is not exercising remedies against the Lessee in respect of the Operative Documents (but not any Tax that results from any act, event or omission that occurs or relates to any period prior to the termination of the Lease and the return of the Properties) to which such Tax relates; (vi) any Tax for so long as, but only for so long as, it is being contested in accordance with the provisions of Section 5.04 of the Participation Agreement, provided that the foregoing shall not limit the Lessee's obligation under Section 5.04 of the Participation Agreement to advance to such Indemnified Party amounts with respect to Taxes that are being contested in accordance with Section 5.04 of the Participation Agreement or any expenses incurred by such Indemnified Party in connection with such contest; (vii) any interest or penalties imposed on an Indemnified Party as a result of a breach by such Indemnified Party or any Affiliate thereof of its obligations under Section 5.04 of the Participation Agreement or otherwise as a result of an Indemnified Party's failure to file any return or other documents timely and as prescribed by applicable law; provided that this clause vii shall not apply if such failure is attributable to a failure by the Lessee to fulfill its obligations under the Operative Documents with respect to any such return; (viii) any Taxes or impositions imposed upon an Indemnified Party with respect to any voluntary transfer, sale or other voluntary disposition, or from any sale, assignment, transfer or other disposition of any interest in an Indemnified Party or any Affiliate thereof, or with respect to any involuntary transfer, sale or disposition in connection with the bankruptcy or insolvency of any Indemnified Party or any Affiliate thereof (other than any transfer in connection with (1) the exercise of the Lessee of its purchase option or any termination option or other purchase of any Property by the Lessee, (2) the occurrence of an Event of Default, (3) a Casualty or Condemnation affecting any Property or (4) any sublease, modification or addition to any Property by the Lessee); (ix) Taxes imposed on or payable by an Indemnified Party to the extent such Taxes would not have been imposed but for a breach by such Indemnified Party or any Affiliate thereof of any representations, warranties or covenants set forth in the Operative Documents (unless such breach is caused by the Lessee's breach of its representations, warranties or covenants set forth in the Operative Documents); (x) Taxes to the extent resulting from such Indemnified Party's failure to comply with the provisions of Section 5.04 of the Participation Agreement, which failure precludes or materially adversely affects the ability to conduct a contest pursuant to Section 5.04 of the Participation Agreement (unless such failure is caused by Lessee's breach of its obligations); (xi) Taxes that would have been imposed in the absence of the transactions 1313 Appendix A Proprietary & Confidential contemplated by the Operative Documents and Taxes imposed on or with respect to or payable as a result of activities of an Indemnified Party or Affiliate thereof unrelated to the transactions contemplated by the Operative Documents; (xii) Taxes imposed on or with respect to or payable by an Indemnified Party resulting from, or that would not have been imposed but for the existence of, any Lessor Lien created by or through such Indemnified Party or an Affiliate thereof and not caused by acts or omissions of the Lessee, unless required to be removed by the Lessee; (xiii) any Tax imposed against or payable by an Indemnified Party to the extent that the amount of such Tax exceeds the amount of such Tax that would have been imposed against or payable by such Indemnified Party if such Indemnified Party were not a direct or indirect successor, transferee or assignee of one of the original Indemnified Parties except to the extent attributable to a change in applicable Law after such succession, transfer or assignment, provided, however, that this exclusion (xiii) shall not apply if such direct or indirect successor, transferee or assignee acquired its interest as a result of a transfer while an Event of Default shall have occurred and is continuing and (xiv) any Taxes imposed against or payable by an Indemnified Party resulting from, or that would not have been imposed but for, the gross negligence or willful misconduct of such Indemnified Party or any Affiliate thereof; provided, however, that any such Taxes in clauses (i) through (xiv) are not incurred or increased directly or indirectly by actions of the Lessee on or after the Funding Date (other than actions specifically required of the Lessee under any of the Operative Documents). "Expiration Date" means (i) the Base Term Expiration Date, (ii) any Extension Term Expiration Date and (iii) any other date on which the Lease is terminated in accordance with its terms, individually and collectively. "Extension Request" has the meaning set forth in Section 5.09(a) of the Participation Agreement. "Extension Term" has the meaning set forth in Section 3.02 of the Lease. "Extension Term Expiration Date" means the date as of which the Extension Term, if any, expires. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to 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 for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. 1414 Appendix A Proprietary & Confidential "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "FIRREA" means the Financial Institutions Reform and Recovery Act of 1989, 12 U.S.C. Section 1821 et seq., as amended from time to time. "Fixed Rent " has the meaning set forth in Section 4.01 of the Lease. "Force Majeure" means strikes, acts of God, acts of any Governmental Authority, natural disaster, war, insurrection, riot, terrorist acts or civil disobedience. "Funding" means the single funding of Acquisition Costs specified in the Requisition, which will consist of Advances made by the Note Holders and Equity Investments made by the Certificate Holders pursuant to Section 1.03 of the Participation Agreement. "Funding Date" means June 27, 2001. "GAAP" means generally accepted accounting principles (including principles of consolidation), in effect from time to time in the United States, consistently applied. "Governmental Authority" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Granting Note Holder" has the meaning set forth in Section 9.26 of the Participation Agreement. "Ground Lease" means the Ground Lease Agreement dated as of the Funding Date between the Ground Lessor, as ground lessor, and the Trustee, as ground lessee covering the California Land. "Ground Lessor" means Thrifty Payless, Inc., a California corporation, and its successors and permitted assigns under the Ground Lease. "Guarantor" means Rite Aid Corporation, a Delaware corporation. "Hazardous Materials " means (i) hazardous materials, hazardous wastes, and hazardous substances as those or similar terms are defined under any Environmental Laws, including, but not limited to, the following: the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., as amended from time to time, the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., as amended from time to time, CERCLA, the Clean Water Act, 33 U.S.C. Section 1251 et seq., as amended from time to time, the Clean Air Act, 42 U.S.C. Section 7401 et seq., as 1515 Appendix A Proprietary & Confidential amended from time to time and/or the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., as amended from time to time; (ii) petroleum and petroleum products including crude oil and any fractions thereof; (iii) natural gas, synthetic gas, and any mixtures thereof; (iv) asbestos and/or any material which contains any hydrated mineral silicate, including, but not limited to, chrysolite, amosite, crocidolite, tremolite, anthophylite and/or actinolite, whether friable or non-friable; (v) polychlorinated biphenyls ("PCB's"), or PCB-containing materials, or fluids; (vi) radon; (vii) any other hazardous radioactive, toxic or noxious substance, material, pollutant, or solid, liquid or gaseous waste; and (viii) any hazardous substance that, whether by its nature or its use, is subject to regulation under any Environmental Law or with respect to which any Federal, state or local Environmental Law or governmental agency requires environmental investigation, monitoring or remediation. "Holder" means any Note Holder or Certificate Holder. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and all rules and regulations promulgated thereunder. "Illegality Costs" means any additional amounts as may be necessary to compensate any Note Holder or Certificate Holder for any losses, costs or expenses actually incurred by it in making any conversion of the Applicable Rate in accordance with Section 5.02(b) of the Participation Agreement. "Improvements" means, collectively, the Maryland Improvements and the California Improvements. "Increased Costs" has the meaning set forth in Section 5.02(b) of the Participation Agreement. "Indemnified Party" has the meaning set forth in Section 9.14(a) of the Participation Agreement. "Independent Engineer" means any construction engineering firm reasonably satisfactory to the Agent. "Instrument Guaranty" means the Instrument Guaranty dated as of the Funding Date by the Company in favor of the Agent on behalf of the Note Holders and Certificate Holders. "Instruments" means, collectively, the Notes and the Certificates. "Insurance Requirements" means the insurance requirements contained in Section 6.05 of the Lease. 1616 Appendix A Proprietary & Confidential "Intellectual Property Rights" has the meaning set forth in Section 3.01(j)(ii) of the Participation Agreement. "Intended Use" means, with respect to the Maryland Property for warehouse, distribution and administrative purposes, and with respect to the California Property for distribution and administrative purposes. "Intercreditor Agreement" means the Collateral Trust and Intercreditor Agreement, dated as of June 27, 2001, among the Guarantor, each Subsidiary of the Guarantor listed on the signature pages thereto or which becomes a party thereto pursuant to Section 9.11 thereof, Wilmington Trust Company, as Second Priority Collateral Trustee, CUSA, as Senior Collateral Agent, State Street Bank and Trust Company, as trustee for the holders of the 10.50% Notes, CUSA, as agent for the Synthetic Lease Parties, and the other Persons party thereto. "Interest Period" means, with respect to all Instruments, the period commencing on the Funding Date, Conversion Date or the last day of the immediately preceding Interest Period, as applicable, and (i) for each LIBO Rate Period, ending on the numerically corresponding day in the calendar month that is three (3) months thereafter, and (b) for any Base Rate Period, continuing indefinitely until such time as the Applicable Rate is determined by reference to the LIBO Rate pursuant to Article V of the Participation Agreement; provided, however, that: (i) any Interest Period which would otherwise end on a day which is not a Business Day (and, in the case of a LIBO Rate Period, a LIBO Business Day) shall be extended to the next succeeding Business Day (or, in the case of a LIBO Rate Period, LIBO Business Day unless such LIBO Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding LIBO Business Day); (ii) any LIBO Rate Period that begins on the last LIBO Business Day of a calendar month (or on a day for which there is no numerically corresponding day in 1717 Appendix A Proprietary & Confidential the calendar month at the end of such LIBO Rate Period) shall end on the last LIBO Business Day of the calendar month at the end of such LIBO Rate Period; (iii) any Interest Period which would otherwise end after the Base Term Expiration Date or any Extension Term Expiration Date shall end on the Base Term Expiration Date or such Extension Term Expiration Date, as applicable; (iv) for purposes of calculating interest for any Interest Period, such calculations shall include the first day but exclude the last day of any such Interest Period; and (v) there shall not be more than one (1) interest period in effect at any time. "Interest Setting Date" means, (i) with respect to any LIBO Rate Period, the date which is two (2) LIBO Business Days before the first day of such LIBO Rate Period or (ii) with respect to any Base Rate Period, the date specified by the Guarantor in the written notice delivered by the Guarantor pursuant to Section 5.01 of the Participation Agreement as the first day that the Base Rate is to apply. "Junior Takeout " has the meaning set forth in Section 6.04(d)(ii) of the Participation Agreement. "Junior Takeout Notice" has the meaning set forth in Section 6.04(d)(ii) of the Participation Agreement. "Junior Takeout Option" has the meaning set forth in Section 6.04(d)(ii) of the Participation Agreement. "Junior Takeout Period" has the meaning set forth in Section 6.04(d)(ii) of the Participation Agreement. "Junior Takeout Price" has the meaning set forth in Section 6.04(d)(ii) of the Participation Agreement. 1818 Appendix A Proprietary & Confidential "Land" means the Maryland Land, the California Land or both, as applicable. "Law" means any law (including, without limitation, any zoning law or ordinance, ERISA, any Environmental Law, or Legal Requirements), treaty, directive, statute, rule, regulation, ordinance, order, directive, code, interpretation, judgment, decree, injunction, writ, determination, award, Permit, license, authorization, direction, requirement or decision of or agreement with or by any government or governmental department, commission, board, court, authority, agency, official or officer having jurisdiction of the matter in question. "Lease" means the Lease dated as of the Funding Date between the Lessor and the Lessee. "Lease Supplement No. 1" means Lease Supplement No. 1 dated as of the Funding Date between the Lessor and the Lessee, covering the Maryland Property. "Lease Supplement No. 2" means Lease Supplement No. 2 dated as of the Funding Date between the Lessor and the Lessee, covering the California Property. "Lease Supplements" means, collectively, Lease Supplement No. 1 and Lease Supplement No. 2. "Legal Requirements" means (i) all Laws, ordinary or extraordinary, or arising from any restriction of record or otherwise, which now or at any time hereafter may be applicable to the (A) Lessor, solely as the result and directly related to being the holder of the leasehold and/or fee estate in, or title to, the Properties (as distinct from laws applicable to Lessor in its capacity as a trustee or otherwise); (B) Lessee, as lessee under the Lease; or (C) any Property or any part thereof, or any of the adjoining sidewalks, or the ownership, construction, installation, operation, mortgaging, occupancy, possession, use, non-use or condition of any Property or any part thereof hereafter enacted, made or issued, and applicable to the Lessor, as owner of (or holder of a leasehold estate in) such Property (as distinct from those applicable to Lessor solely in its capacity as a trustee or otherwise), the Lessee, as lessee under the Lease, or any Property or any part thereof or the ownership, construction, installation, rebuilding, operation, mortgaging, occupancy, possession, use, non-use or condition thereof whether or not presently contemplated; and (ii) all agreements, Permits, covenants, and restrictions applicable to the Land, the Improvements, or the balance of the Properties or any part thereof or the ownership, construction, installation, rebuilding, operation, mortgaging, occupancy, possession, use, non-use or condition thereof. "Lessee" means the Company, as lessee under the Lease. 1919 Appendix A Proprietary & Confidential "Lessee Mortgage " has the meaning set forth in Section 11.01 of the Lease. "Lessor" means the Trustee, as lessor under the Lease. "Lessor Group" has the meaning set forth in Section 6.07(a) of the Lease. "Lessor Lien" means any Lien, true lease or sublease or disposition of title with respect to the Property arising as a result of (i) any claim against the Lessor, the Trustee, the Agent or any Holder not resulting from or related to the transactions contemplated by the Operative Documents, (ii) any act or omission of the Lessor, the Trustee, the Agent or any Holder which is not required or permitted by the Operative Documents or is in violation of any of the terms of the Operative Documents, (iii) any claim against the Lessor, the Trustee, the Agent or any Holder with respect to Taxes or Transaction Costs against which the Lessee is not required to indemnify the Lessor, the Agent or any Holder, in its individual capacity, pursuant to Article IX of the Participation Agreement, (iv) any claim against the Lessor or the Agent arising out of any transfer by the Lessor of all or any portion of interest of the Lessor in the Property or the Operative Documents other than the transfer of title to or possession of the Property by the Lessor pursuant to and in accordance with the Lease, the Participation Agreement or the other Operative Documents, or (v) any claim against any Holder arising out of any transfer by such Holder of any Note or Certificate, or any interest therein other than in accordance with the provisions of the Participation Agreement. Lessor Liens will not include any Permitted Encumbrances or any interests created by the Lessor upon the exercise of any right under the Operative Documents upon any Default, Event of Default, Non-Performance Event or Environmental Trigger. "LIBO Business Day" means a Business Day on which commercial banks are open for international business (including dealings in Dollar deposits) in London. "LIBO Rate" means, with respect to any LIBO Rate Period, the rate appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Agent from time to time for purposes of providing quotations of interest rates applicable to deposits in Dollars in the London interbank market) at approximately 11:00 a.m. (London time), on the Interest Setting Date for such LIBO Period as the rate for deposits in Dollars in an amount substantially equal to the applicable Instruments (or portion thereof) to be outstanding during such LIBO Rate Period with a maturity comparable to such LIBO Rate Period. In the event that such rate is not available on the applicable Interest Setting Date for any reason, then the "LIBO Rate" with respect to such LIBO Rate Period shall be the rate at which deposits in Dollars in an amount substantially equal to the principal and stated amount of the Instruments (or portion 2020 Appendix A Proprietary & Confidential thereof) to be outstanding during such LIBO Rate Period and for a maturity comparable to such LIBO Rate Period are offered by the principal London office of the Agent in immediately available funds in the London interbank market at approximately 11:00 a.m. (London time) on the Interest Setting Date for such LIBO Rate Period. "LIBO Rate Period" means any Interest Period during which the Applicable Rate is determined based upon the LIBO Rate pursuant to Article V of the Participation Agreement. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. "Liquidation Event" has the meaning set forth in Section 6.04(a) of the Participation Agreement. "Loan Agreement" means the Loan Agreement dated as of the Funding Date among the Trustee, as borrower, the Note Holders, as lenders, and the Agent. "Majority B-Note Holders" means, on the Funding Date, the B-Note Holders holding at least 51% of the B-Note Commitment and at any time after the Funding Date, the B-Note Holders holding at least 51% of the aggregate unpaid principal amount of the B-Notes. "Majority Certificate Holders" means, on the Funding Date, the Certificate Holders holding at least 51% of the Certificate Commitment and at any time after the Funding Date, the Certificate Holders holding at least 51% of the aggregate unpaid Certificate Amount of the Certificates. "Majority Holders" means, on the Funding Date, the Note Holders and the Certificate Holders voting as one class and holding at least 51% of the aggregate Total Commitment, and at any time after the Funding Date, the Note Holders and Certificate Holders voting as one class and holding at least 51% of the aggregate unpaid principal amount of the Notes and the unpaid Certificate Amount of the Certificates. "Margin Stock" shall have the meaning provided in Regulations T, U and X. "Maryland Deed" means the Deed dated as of the Funding Date executed by the Original Maryland Lessor and covering the Maryland Property. "Maryland Improvements" means that certain approximately 882,000 square foot warehouse and distribution center located on the Maryland Land and at 601 Chelsea Road, Perryman, Maryland. 2121 Appendix A Proprietary & Confidential "Maryland Land" means that certain parcel of land located in Perryman, Harford County, Maryland, as more particularly described in Lease Supplement No. 1. "Maryland Mortgage " means the Deed of Trust, Assignment of Leases, Security Agreement and Financing Statement dated as of the Funding Date from the Trustee to First American Title Insurance Company, as trustee, for the benefit of the Agent. "Maryland Property" means, collectively, the Maryland Land and the Maryland Improvements. "Material Adverse Effect" means a material adverse effect on any of (i) the business, prospects, assets, operation or condition, financial or otherwise, of the Guarantor and its Consolidated Subsidiaries, taken as a whole, (ii) the ability of the Company or the Guarantor to perform any of its obligations under any Operative Document to which it is a party, (iii) the value, condition, marketability or operation of the Properties or the Lessor's ownership or lease thereof, considered as a whole, or (iv) the legality, validity or enforceability of any of the Operative Documents (including the validity, enforceability or priority of the security interests to be granted under any Security Document), or the rights and remedies of the Lessor, the Agent and the Holders thereunder. "Maturity Date" means June 27, 2005, subject to extension as provided in Section 5.09 of the Participation Agreement. "Maximum Rate" has the meaning set forth in Section 9.17 of the Participation Agreement. "Moody's" means Moody's Investors Service, Inc. and any successor thereto which is a nationally recognized statistical rating organization. "Mortgages" means, collectively, the Maryland Mortgage and the California Mortgage. "Net Proceeds" has the meaning set forth in Section 7.01(c) of the Lease. "New Note" has the meaning set forth in Section 2.11(b) of the Loan Agreement. "Non-Accepting Holder" has the meaning set forth in Section 5.09(a) of the Participation Agreement. 2222 Appendix A Proprietary & Confidential "Non-Performance Event" has the meaning set forth in Section 6.03(a) of the Participation Agreement. "Note" means any of, and "Notes" means all of, collectively, the A-Notes and the B-Notes, issued and, unless the context otherwise specifies or requires, Outstanding. "Note Commitment" of any Note Holder means the aggregate of the A-Note Commitment and B-Note Commitment of such Note Holder. "Note Holder" means the holder of any Note. "NPL" means the National Priorities List. "Offer to Purchase" means an irrevocable, written offer to purchase the Lessor's interest in a Property or the Properties, as applicable, pursuant to the Lease. "Officer" of any Person means the president, any vice president, manager, in the case of a limited liability company, or any other duly authorized and responsible officer of such Person. "Officer's Certificate" or "Officers' Certificate" of a Person means a certificate signed by an Officer or Officers of such Person. "Old Note" has the meaning set forth in Section 2.11(b) of the Loan Agreement. "Operative Documents" means the Participation Agreement, the Lease, the Lease Supplements, the Notes, the Certificates, the Loan Agreement, the Trust Agreement, the Instrument Guaranty, the Parent Guaranty, the Deeds, the Ground Lease, the Security Documents and the Intercreditor Agreement, in each case individually and collectively. "Original California Lessor" means RAC Leasing LLC, a Wyoming limited liability company. "Original Leases" means, collectively (i) the Master Lease and Security Agreement dated as of May 30, 1997 between the Company, as lessee, and the Original Maryland Lessor, as lessor, and (ii) the Master Lease and Security Agreement dated as of March 19, 1998 between the Company, as lessee, and the Original California Lessor, as lessor, as the same have been amended or otherwise modified through the Funding Date. "Original Maryland Lessor" means SMBC Leasing and Finance, Inc. (f/k/a Sumitomo Bank Leasing and Finance Inc.). 2323 Appendix A Proprietary & Confidential "Other Taxes" has the meaning set forth in Section 5.04(b) of the Participation Agreement. "Outstanding" means, with reference to Instruments, as of any particular time, all Instruments theretofore issued, except: (i) Instruments theretofore canceled and destroyed by the Trustee or surrendered to the Trustee for cancellation and destruction; (ii) Instruments theretofore paid in full or required to be prepaid or canceled in whole within thirty (30) days thereafter; provided that in the case of Instruments so to be prepaid or canceled, moneys sufficient for such prepayment or cancellation thereof shall theretofore have been deposited with, or shall then be held by, the Trustee in accordance with the provisions of the Participation Agreement and notice of such prepayment or cancellation shall have been given or provision therefor satisfactory to the Trustee shall have been made; and (iii) Instruments for which other Instruments shall theretofore have been issued pursuant to Section 2.8 of the Trust Agreement, with respect to Certificates, or Section 2.11 of the Loan Agreement, with respect to Notes; and except also that (for the purpose of determining whether the Holders of the requisite principal amount of Notes or requisite stated amount of Certificates have made or concurred in any notice, request, demand, direction, consent, approval, order, waiver, acceptance, appointment or other instrument or communication under or pursuant to any Operative Document), Instruments registered in the name of the Company or the Guarantor or a nominee or Affiliate of the Company or the Guarantor shall be disregarded and deemed not to be Outstanding. 2424 Appendix A Proprietary & Confidential "Parent Guaranty" means the Guaranty executed by the Guarantor in favor of the Agent, the Lessor, the Note Holders and the Certificate Holders. "Participation Agreement " means the Participation Agreement dated as of the Funding Date, by and among the Company, the Guarantor, the Trustee, the Note Holders, the Certificate Holders and the Agent. "Payment Date" means, with respect to the Notes, the Certificates and Fixed Rent, (i) for any LIBO Rate Period, each Conversion Date and the last day of each Interest Period, (ii) for any Base Rate Period, each Conversion Date and the last Business Day of each March, June, September and December and (iii) in any case, the Expiration Date or, if earlier, the termination of the Lease or the maturity of the Instruments. "Percentage " means, with respect to any Note Holder, the percentage equal to its Note Commitment divided by the aggregate Total Commitment, and with respect to any Certificate Holder, the percentage equal to its Certificate Commitment divided by the aggregate Total Commitment. "Permit" means any approval, certificate of occupancy, consent, waiver, exemption, variance, franchise, order, permit, authorization, right or license of or from any Governmental Authority. "Permitted Encumbrances" means, with respect to each Property, but only to the extent applicable from time to time thereto, any of the following: (i) rights reserved to or vested in any municipality or public authority, by the terms of any franchise, grant, license, Permit or provision of Law, to purchase, condemn, appropriate or recapture such Property; (ii) any liens thereon for Charges and any liens of mechanics, materialmen and laborers for work or services performed or materials furnished in connection with such Property, in each instance, which are not due and payable, or which are being contested in good faith by the Lessee pursuant to Section 6.01 of the Lease; (iii) rights reserved to or vested in any municipality or public authority to control or regulate the use of such Property or to use such Property in any manner; (iv) easements, rights-of-way, servitudes, restrictions and other minor defects, encumbrances and irregularities in title to such Property which could not, individually or in the aggregate, materially and adversely affect the value, condition, marketability or operation of such Property or the Lessor's ownership or lease thereof, and (v) the Operative Documents. "Permitted Investments" means Temporary Cash Investments. "Person" means any individual, corporation, limited liability partnership, limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government. 2525 Appendix A Proprietary & Confidential "Pre-existing Environmental Condition" means the presence or suspected presence of Hazardous Materials or any other condition that could give rise to an Environmental Event in, on or under any Property or any portion thereof, which was in existence prior to the Funding Date. "Prescribed Forms" means such duly executed form(s) or statement(s), and in such number of copies, which may, from time to time, be prescribed by Law and which, pursuant to applicable provisions of (i) an income tax treaty between the United States and the country of residence of the Note Holder or Certificate Holder (as the case may be) providing the form(s) or statement(s), (ii) the Code, or (iii) any applicable rule or regulation under the Code, permit the Lessee and/or the Lessor to make payments under the Operative Documents for the account of the Lessor and/or such Note Holder or Certificate Holder (as the case may be) free or at a reduced rate of deduction or withholding of income or similar Taxes. "Proceeding" means any action, suit or proceeding in equity or at law or otherwise. "Proceeds" has the meaning set forth in Section 7.01(c) of the Lease. "Proceeds Trustee" has the meaning set forth in Section 7.01(c) of the Lease. "Properties" means, collectively, the Maryland Property and the California Property. "Property" means, as applicable, the Maryland Property or the California Property. "Protective Expenditure" has the meaning set forth in Section 9.23 of the Participation Agreement. "Qualified Sale" has the meaning set forth in Section 3.03(b) of the Lease. "Record" has the meaning set forth in Section 5.03(d) of the Participation Agreement. "Regulation D, T, U, or X" means such Regulations of the Federal Reserve Board, as in effect from time to time. "Release Collateral" has the meaning set forth in Section 1.08 of the Participation Agreement. 2626 Appendix A Proprietary & Confidential "Remarketing Period" has the meaning set forth in Section 3.03(b) of the Lease. "Rent" means all Fixed Rent and Additional Rent payable pursuant to the Lease, individually and collectively. "Requisition" has the meaning set forth in Section 1.03(a) of the Participation Agreement. "Residual Value Amount " means, at any time, the then outstanding principal amount of the A-Notes. "Responsible Officer" means, with respect to the Company or the Guarantor, any of the chief executive officer, the chief operating officer, the chief financial officer, the principal accounting officer, the treasurer or a vice president of such Person. "Return Conditions" has the meaning set forth in Section 10.05 of the Lease. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto which is a nationally recognized statistical rating organization. "Sales Proceeds" means the proceeds of any sale of a Property, including a sale, or other realization of, such Property by the Agent after the occurrence of a Liquidation Event and if the Company has proceeded under Section 3.03(a)(ii) of the Lease and the Lessor has purchased the Equipment Collateral pursuant to Section 10.05(xii) of the Lease, then "Sales Proceeds" shall also include the proceeds of the sale of the Equipment Collateral less the cost of the Lessor to purchase such Equipment Collateral. "Secured Obligations " means: (i) payment of all Rent, with interest, if any, thereon, according to the terms of the Lease, and any and all extensions, amendments, modifications, substitutions or renewals thereof, pursuant to the Participation Agreement, which accrue to the benefit (directly or indirectly) of (a) the Note Holders, (b) the Certificate Holders, and (c) the Lessor, and the performance and discharge of each and every obligation of the Lessee set forth in the Lease which accrue to the benefit (directly or indirectly) of (a) the Note Holders, (b) the Certificate Holders and (c) the Lessor; (ii) payment of all other sums, with interest thereon, owing by the Company and becoming due or payable under the provisions of any of the 2727 Appendix A Proprietary & Confidential Operative Documents which accrue to the benefit (directly or indirectly) of (a) the Note Holders, (b) the Certificate Holders and (c) the Lessor; and (iii) due, prompt and complete observance and performance of each and every obligation, covenant and agreement of the Company contained in any of the Operative Documents which accrue to the benefit (directly or indirectly) of (a) the Note Holders, (b) the Certificate Holders and (c) the Lessor. "Security Agreement " means the Security Agreement dated as of the Funding Date between the Company, as debtor, and the Trustee, as secured party. "Security Documents" means, collectively, the Mortgages, the Lease Supplements, the Security Agreement and the Assignment and Security Agreement and all financing statements executed in connection therewith. "Senior Credit Facility" means the Senior Credit Agreement, dated as of June 27, 2001, among the Guarantor, as borrower, the banks party thereto and CUSA, as Senior Administrative Agent and as Senior Collateral Agent. "Senior Takeout" has the meaning set forth in Section 6.04(c) of the Participation Agreement. "Senior Takeout Notice" has the meaning set forth in Section 6.04(c)(ii) of the Participation Agreement. "Senior Takeout Option" has the meaning set forth in Section 6.04(c)(ii) of the Participation Agreement. "Senior Takeout Period" has the meaning set forth in Section 6.04(c)(ii) of the Participation Agreement. "Senior Takeout Price" has the meaning set forth in Section 6.04(c)(ii) of the Participation Agreement. "Severable Alteration" has the meaning set forth in Section 5.05(c) of the Lease. "Special Counsel" means Chadbourne & Parke LLP; Piper, Marbury, Rudnick and Wolfe; and McDermott, Will & Emery or such other counsel as is reasonably satisfactory to the Agent and the Note Holders and the Certificate Holders. "SPC" has the meaning set forth in Section 9.26 of the Participation Agreement. 2828 Appendix A Proprietary & Confidential "Statutory Reserves" means 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 reserve percentage (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Federal Reserve Board and any other banking authority, domestic or foreign, to which the Agent or any Holder (including any branch, Affiliate, or other fronting office making or holding an Advance or an Equity Investment) is subject, with respect to the LIBO Rate, for Euro-Dollar Liabilities. Such reserve percentages shall include those imposed pursuant to Regulation D. Advances and Equity Investments determined by reference to the LIBO Rate shall be deemed to constitute Euro-Dollar 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 Holder under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Guarantor. "Tax" or "Taxes" means, without limitation, any foreign, federal, state or local fee (including license, inspection, filing, recording, transfer and registration fees), tax (including any income, gross receipts, withholding, franchise, excise, sales, use, value added, goods and services, real, personal, tangible or intangible property tax or any tax similar to any of the foregoing taxes), interest equalization, recording, transfer or stamp tax, assessment (including any maintenance charge, owner association dues, charges or assessments), levy, impost, duty, charge or withholding of any kind or nature whatsoever, general and special, ordinary and extraordinary, foreseen and unforeseen, of every character imposed or assessed by any foreign, federal, state or local government or agency, or governmental authority, together with any addition to tax, penalty, fine or interest thereon. "Temporary Cash Investment" means any investment by any Person in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by S&P and P-1 by Moody's, (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized or licensed under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $500,000,000, (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, provided in each case that such investment matures within one year from the date of 2929 Appendix A Proprietary & Confidential acquisition thereof by such Person or (v) money market mutual funds at least 90% the assets of which are held in investments referred to in clauses (i) through (iv) above (except that the maturities of certain investments held by any such money market funds may exceed one year so long as the dollar-weighted average life of the investments of such money market mutual fund is less than one year). "Term" has the meaning set forth in Section 3.01 of the Lease. "Termination Notice" means any written notice of an intention to terminate the Lease with respect to a Property or the Properties, as applicable, that may be issued by the Lessee or the Lessor pursuant to Sections 7.02, 7.03, 8.02 or 9.02(a) of the Lease. "Termination Value" means, with respect any Property, as of any given time, the sum of: (i) the unpaid principal balance of the Notes and the unpaid Certificate Amounts of the Certificates allocable to such Property, plus (ii) the interest accrued and unpaid on the Notes allocable to such Property, plus (iii) the Distributions accrued and unpaid on the Certificates allocable to such Property, plus (iv) all Closing Costs with respect to such Property, plus (v) all Break Costs associated with the Notes and the Certificates allocable to such Property, plus (vi) all other amounts owed by the Company under the Operative Documents with respect to such Property. 3030 Appendix A Proprietary & Confidential "Title Company" has the meaning set forth in Section 2.01(e)(v) of the Participation Agreement. "Title Policies" has the meaning set forth in Section 2.01(e)(v) of the Participation Agreement. "Total Certificate Commitment " means the aggregate Certificate Commitment of each Certificate Holder up to the aggregate amount of $3,205,510.18. "Total Commitment" means the aggregate Note Commitment of each Note Holder and the aggregate Certificate Commitment of each Certificate Holder, not to exceed $106,850,339.25 in the aggregate. "Total Note Commitment" means the aggregate Note Commitment of each Note Holder, not to exceed $103,644,829.07. "Transaction Costs" has the meaning set forth in Section 9.13 of the Participation Agreement. "Trust" means RAC Distribution Statutory Trust, a Connecticut statutory trust formed under the Trust Agreement. "Trust Act" has the meaning set forth in the preliminary statement of the Trust Agreement. "Trust Agreement " means the Amended and Restated Declaration of Trust dated as of the Funding Date between WFBN and the Certificate Holders. "Trust Estate" means all property, rights, privileges and franchises of every kind and description, real, personal or mixed, whether previously granted, conveyed, assigned, pledged over and confirmed, or intended, agreed or covenanted so to be, to the Trustee or the Lessor, including all right, title and interest (whether direct, indirect, contingent or otherwise) of the Trustee or the Lessor in the following property: (i) the Properties, and any contracts, instruments or documents entered into in connection therewith or relating thereto (including the Security Agreement); (ii) the Lease, including all rights to receive the payments of Termination Value, Fixed Rent, Additional Rent, Residual Value Amount, amounts payable 3131 Appendix A Proprietary & Confidential pursuant to Section 5.02 of the Lease, any and all amounts payable or rights arising under or as a result of the Insurance Requirements relating thereto and other amounts payable or rights arising under the Lease, any and all amounts payable pursuant to any indemnities under the Operative Documents and the right to the Sales Proceeds, but excluding amounts paid or payable to WFBN in its individual capacity; (iii) the Participation Agreement, including all rights to receive payment of the Residual Value Amount, Termination Value and Sales Proceeds, but excluding amounts paid or payable to WFBN in its individual capacity; (iv) any cash, Condemnation or Casualty award or payment hereafter deposited or required to be deposited with the Proceeds Trustee, but excluding amounts paid or payable to WFBN in its individual capacity; and (v) all other Operative Documents to which the Trustee is party or to which it is the beneficiary and all other documents, moneys and other property which may from time to time pursuant to any Operative Document be delivered to or come into the possession of the Trust or the Trustee and be intended to be held for the benefit of the Holders from time to time of the Instruments or received in connection with the enforcement of any of the Operative Documents. "Trust Related Agreements" has the meaning set forth in preamble of the Trust Agreement. 3232 Appendix A Proprietary & Confidential "Trustee" means Wells Fargo Bank Northwest, National Association, not in its individual capacity, but solely as trustee of the Trust. "Trustee's Counsel" means Day, Berry & Howard, special Connecticut counsel, and Ray, Quinney & Nebecker, special Utah counsel. "UCC" means the Uniform Commercial Code as in effect from time to time in any jurisdiction whose Law governs the document in which such term is used and/or rights thereunder. "Voting Stock" means outstanding shares of stock having voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power because of default in dividends or some other default. "WFBN" means Well Fargo Bank Northwest, National Association, a national banking association. 3333 EX-10 19 exh10-39.txt EXHIBIT 10.39 EXECUTION COPY Proprietary & Confidential LEASE dated as of June 27, 2001 between WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC Distribution Statutory Trust as Lessor, and RITE AID REALTY CORP. as Lessee THIS LEASE HAS BEEN MANUALLY EXECUTED IN COUNTERPARTS NUMBERED CONSECUTIVELY FROM l TO__. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OF THIS LEASE OTHER THAN COUNTERPART NO. 1. This is Counterpart No. TABLE OF CONTENTS (Not a part of the Lease) Page ---- ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION ................................. 1 Section 1.01 Definitions; Rules of Construction........................ 1 ARTICLE II THE PROPERTIES..................................................... 2 Section 2.01 Lease of the Properties................................... 2 Section 2.02 Use of Properties......................................... 3 Section 2.03 Sublease.................................................. 3 Section 2.04 Quiet Enjoyment........................................... 3 Section 2.05 Hazardous Materials....................................... 4 ARTICLE III TERM.............................................................. 5 Section 3.01 Base Term................................................. 5 Section 3.02 Extended Term............................................. 5 Section 3.03 Lessee's Options Upon Expiration.......................... 5 Section 3.04 Property Sold............................................. 6 Section 3.05 Triple Net Lease; Non-Terminability ...................... 6 ARTICLE IV RENT............................................................... 7 Section 4.01 Fixed Rent................................................ 7 Section 4.02 Additional Rent........................................... 8 Section 4.03 Default Rate.............................................. 8 Section 4.04 Rent Payments............................................. 8 Section 4.05 Other Payments............................................ 8 ARTICLE V SALE OF PROPERTIES.................................................. 8 Section 5.01 Optional Purchase by Lessee of the Properties............. 8 Section 5.02 Optional Purchase of Unimproved Land ..................... 9 Section 5.03 Mandatory Purchase by the Lessee of the Properties ....... 9 Section 5.04 Purchase Procedures....................................... 9 Section 5.05 Alterations; Removal..................................... 11 i ARTICLE VI CERTAIN COVENANTS OF THE LESSEE................................... 13 Section 6.01 Taxes and Assessments.................................... 13 Section 6.02 Compliance with Laws .................................... 14 Section 6.03 Certain Agreements....................................... 14 Section 6.04 Liens.................................................... 15 Section 6.05 Insurance................................................ 16 Section 6.06 Maintenance and Repair .................................. 18 Section 6.07 Inspection Rights........................................ 20 Section 6.08 Assignments, Sublease, Etc .............................. 20 Section 6.09 Intellectual Property Rights; Applicable Permits ........ 20 ARTICLE VII CONDEMNATION AND CASUALTY........................................ 21 Section 7.01 Condemnation and Casualty................................ 21 Section 7.02 Condemnation or Casualty with Termination................ 22 Section 7.03 Condemnation or Casualty without Termination ............ 22 Section 7.04 Temporary Condemnation or Lease Termination.............. 24 ARTICLE VIII ENVIRONMENTAL MATTERS .......................................... 24 Section 8.01 Environmental Event...................................... 24 Section 8.02 Environmental Trigger Termination........................ 24 Section 8.03 Environmental Remediation................................ 25 Section 8.04 Environmental Compliance ................................ 25 ARTICLE IX REMEDIES.......................................................... 26 Section 9.01 General Remedies......................................... 26 Section 9.02 Default Remedies......................................... 26 Section 9.03 Lessee Default Repurchase Option......................... 29 Section 9.04 Payment on Default....................................... 29 Section 9.05 Additional Rights........................................ 29 ARTICLE X SURRENDER.......................................................... 30 Section 10.01 Return of Property...................................... 30 Section 10.02 Condition; No Liens..................................... 30 Section 10.03 Environmental Compliance ............................... 30 Section 10.04 Removal of Othe r Property.............................. 31 Section 10.05 Return Conditions....................................... 31 Section 10.06 Survival................................................ 34 ii ARTICLE XI SECURITY; LESSOR WAIVERS ......................................... 34 Section 11.01 Characterization........................................ 34 Section 11.02 Security Agreement...................................... 35 Section 11.03 Lessor Waivers.......................................... 35 ARTICLE XII MISCELLANEOUS.................................................... 35 Section 12.01 Notices, Demands and Other Instruments.................. 35 Section 12.02 No Default Certificate.................................. 36 Section 12.03 Severability............................................ 36 Section 12.04 Binding Effect; Amendments ............................. 36 Section 12.05 Governing Law........................................... 36 Section 12.06 Counterparts............................................ 37 Section 12.07 No Recourse............................................. 37 Section 12.08 Lessor's Right to Cure Lessee's Default ................ 37 Section 12.09 Lessee's Right to Contest Real Property Taxes .......... 38 Section 12.10 Limitations on Amounts Payable ......................... 38 Section 12.11 Payments to the Agent................................... 38 Section 12.12 Remaining Moneys........................................ 38 Section 12.13 Waiver of Trial by Jury................................. 38 Section 12.14 Exculpation of the Lessor............................... 39 Section 12.15 No Merger of Title...................................... 39 Section 12.16 Registered Instrument................................... 39 Exhibit A - Form of Lease Supplement iii LEASE Proprietary & Confidential LEASE dated as of June __, 20001 (this "Lease") between WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC Distribution Statutory Trust, a Connecticut statutory trust, having an address c/o Wells Fargo Bank Northwest, National Association, 213 Court Street, Suite 902, Middletown, Connecticut 06547, Attention: Corporate Trust Services (the "Lessor"), and RITE AID REALTY CORP., a Delaware corporation having an address at c/o Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011-2404 (the "Lessee"). The schedules and exhibits referred to in this Lease are hereby incorporated by reference herein. Preliminary Statement The Lessor has acquired interests (fee or leasehold, as applicable) in the Properties (including the Improvements) as more particularly described in the Lease Supplements. The Lessor wishes to lease or sublease, as the case may be, to the Lessee the Properties (including Improvements) it has acquired by fee or leasehold (for convenience of reference, such lease or sublease of the Properties being collectively referred to as the lease of the Properties) and the Lessee wishes to lease the same from the Lessor. NOW, THEREFORE, the parties do hereby agree as follows: ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION Section 1.01 Definitions; Rules of Construction. As used in this Lease, terms defined in the preceding paragraphs or in other sections of this Lease have the meanings specified therein, and capitalized terms used herein and in the schedules and Exhibits hereto and not otherwise defined herein or therein shall have the meanings set forth in Appendix A to the Participation Agreement dated as of the date hereof, by and among the Lessee, Rite Aid Corporation, the Lessor, the Trustee, the Persons named therein as Note Holders and Certificate Holders, and Citicorp USA, Inc., as Agent (as amended, supplemented or otherwise modified from time to time, the "Participation Agreement"). In addition, the rules of construction set forth in Part I of Appendix A to the Participation Agreement shall apply to this Lease. All references herein to "Property" or "Properties" means the Property or Properties then subject to the terms of this Lease. LEASE Proprietary & Confidential ARTICLE II THE PROPERTIES Section 2.01 Lease of the Properties. (a) Subject to the terms and conditions contained in this Lease, the Lessor hereby agrees to lease to the Lessee and the Lessee hereby agrees to lease from the Lessor each Property listed in each Lease Supplement, effective on and as of the date hereof. The execution of a Lease Supplement by the Lessor and the Lessee will evidence that the Lessee has unconditionally accepted the Property described therein to be included under this Lease upon and subject to the terms, conditions and provisions hereof and in the other Operative Document. (b) Each Property is leased to the Lessee subject to: (i) all applicable Legal Requirements; (ii) all applicable Insurance Requirements; (iii) with respect to the California Property, all terms, covenants and provisions in the Ground Lease; (iv) all Permitted Encumbrances; and (v) the terms, covenants and provisions of this Lease and the other Operative Documents. (c) The Lessee has examined each Property subject to this Lease and title thereto and has found the same satisfactory for all purposes of this Lease and accepts the same AS IS, WHERE IS, WITH ALL FAULTS. The Lessee hereby assumes for the Term of this Lease all of the obligations of the Lessor under the Ground Lease. (d) THE LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, OR THE LOCATION, USE, DESCRIPTION, DESIGN, MERCHANTABILITY, SUITABILITY, FITNESS FOR USE FOR ANY PARTICULAR PURPOSE, CONDITION OR DURABILITY THEREOF OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, OR AS TO THE COMPLIANCE THEREOF WITH APPLICABLE LEGAL REQUIREMENTS, OR AS TO THE LESSOR'S TITLE THERETO OR OWNERSHIP THEREOF OR OTHERWISE, IT BEING AGREED THAT, SUBJECT TO THE PROVISIONS OF SECTION 9.14(b) OF THE PARTICIPATION AGREEMENT, ALL RISKS INCIDENT 2 LEASE Proprietary & Confidential THERETO ARE TO BE BORNE BY THE LESSEE. IN THE EVENT OF ANY DEFECT OR DEFICIENCY OF ANY NATURE IN ANY PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER PATENT OR LATENT, OR THE LESSOR'S TITLE TO ANY OF THE SAME, THE LESSOR SHALL HAVE NO RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION 2.01(d) HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED, BY THE LESSOR WITH RESPECT TO EACH PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER ARISING PURSUANT TO THE UCC OR ANY OTHER LAW, NOW OR HEREAFTER IN EFFECT. Section 2.02 Use of Properties. The Lessee shall use each Property for its Intended Use and, with respect to the California Property, in compliance with the terms of the Ground Lease. The Lessee covena nts that, with respect to each Property, it will cause the related Improvements and any Alterations (as long as title to such Alterations belongs to the Lessor pursuant to the terms hereof) at all times to be located on the related Land. Section 2.03 Sublease. The Lessee may, without the consent of the Lessor, but with prior written notice to the Lessor, sublease any Property or any portion thereof to any Subsidiary of the Guarantor or to the Guarantor so long as no Event of Default or Non-Performance Event shall have occurred and be continuing. No sublease or other relinquishment of possession of such Property, or any portion thereof, shall in any way discharge or diminish any of the Lessee's obligations to the Lessor hereunder and the Lessee shall remain directly and primarily liable under this Lease as to such Property, or portion thereof, so sublet. Any sublease of any Property, or any portion thereof, shall expressly be made subject to and subordinated to this Lease and to the rights of the Lessor hereunder. No such sublease may provide for use of such Property by the sublessee in a manner different than that of the Lessee prior to the sublease. Section 2.04 Quiet Enjoyment. (a) During the Term, the Lessor covenants that, unless a Default, Event of Default, Environmental Trigger or Non-Performance Event has occurred and is continuing, it will not, and will not permit any Person (other than the Lessee) claiming by or under the Lessor (subject to the terms, covenants and provisions of the Ground Lease with respect to the California Property) to interfere with the peaceful and quiet possession and enjoyment of such Property by the Lessee, subject to Section 6.07 and, with respect to the California Property, the terms, covenants and provisions of the Ground Lease. 3 LEASE Proprietary & Confidential (b) The Lessor will not, and will not permit any party claiming by, through or under the Lessor (subject, with respect to the California Property, to the terms, covenants and provisions of the Ground Lease) to assign, transfer, lease or convey any Property or this Lease, or any part thereof or interest therein. The foregoing restriction will not apply to (i) removal of the Alterations by the Lessee to the extent permitted under this Lease, or (ii) any assignment, transfer or conveyance of any Property or this Lease permitted under the Operative Documents. In addition, the Lessor will not create or suffer to exist any Lessor Liens on or against any Property or any part thereof. (c) The Lessor, at the Lessee's sole cost and expense, shall cooperate or assist with Lessee's efforts to obtain all services, Permits and contracts necessary and useful for the acquisition, operation and maintenance of each Property for its Intended Use, and the Lessor shall execute such documents or papers as may be reasonably necessary for such purposes. The Lessee further covenants that it will at its own cost and expense on behalf of and in the name of the Lessor, apply for, obtain and maintain all Permits required in order to permit the lawful ownership of each Property by the Lessor during the Term. (d) Any failure by the Lessor or any other Person claiming by, through or under the Lessor, to comply with the foregoing provisions of this Section 2.04 or any other provisions of this Lease will not give the Lessee any right to cancel or terminate this Lease, or to abate, reduce or make deduction from or offset against any Fixed Rent, Additional Rent or other sum payable under this Lease, or to fail to perform or observe any other covenant, agreement or obligation hereunder. Section 2.05 Hazardous Materials. The Lessee shall, and it shall require and ensure that any and all sublessees, employees, contractors, subcontractors, agents, representatives, affiliates, consultants, occupants and any and all other Persons under the control of or representing Lessee, (i) comply in all material respects with all applicable Environmental Laws in connection with the occupancy, use and operation of the Properties, and (ii) use, employ, process, emit, generate, store, handle, transport, dispose of and/or arrange for the disposal of any and all Hazardous Materials in, on or, directly or indirectly, related to or in connection with the Properties or any part thereof in a manner consistent with prudent industry practice and in compliance with all applicable Environmental Laws. The Lessor and the Lessee hereby acknowledge and agree that Lessee's obligations hereunder with respect to Hazardous Materials and Environmental Laws are intended to bind the Lessee with respect to matters and conditions on, in, under, beneath, from, with respect to, affecting, related to, in connection with, or involving any Property or any part thereof. 4 LEASE Proprietary & Confidential ARTICLE III TERM Section 3.01 Base Term. Each Property is leased for a base term (the "Base Term") which will commence on the Funding Date and will terminate on the Base Term Expiration Date or such earlier date as this Lease shall be terminated pursuant to the provisions hereof, including by the sale of the Lessor's interest in the Properties in accordance with Section 5.04, provided that this Lease may be extended for an Extension Term pursuant to Section 3.02. The Base Term and the Extension Term, if any, are hereinafter referred to as the "Term". Section 3.02 Extended Term. So long as no Default, Event of Default, Non-Performance Event or Environmental Trigger exists, the Lessee may request, by written no tice given to the Agent at least twelve (12) months prior to the Base Term Expiration Date, an extension of this Lease with respect to all Properties for one additional period for a term to be agreed upon, but in any event not to exceed seven (7) years (the "Extension Term"). If the Holders agree to such Extension Term (in accordance with the procedures set forth in Section 5.09 of the Participation Agreement), the Lessor and the Lessee will determine the Applicable Rate for the Extension Term, consistent with the terms outlined below in this Section 3.02, and the appropriate parties will undertake to enter into amendments and supplements to the Operative Documents and such other agreements as the parties determine to be necessary and appropriate in connection therewith, including delivery to the Agent of an Appraisal of the Properties (satisfactory in form and substance to the Agent in its sole discretion). Fixed Rent during the Extension Term will be paid monthly in arrears, and include an annual amount (payable annually in arrears) to be applied in a manner acceptable to (i) each Note Holder, to the outstanding principal amount of the Notes, and (ii) each Certificate Holder, to the outstanding Certificate Amount of the Certificates, such annual amount to be based on an amortization schedule determined by reference to the Appraisal described above and acceptable to the Note Holders and the Certificate Holders in their sole discretion. If the Lessee or the Lessor does not accept the terms of any such Extens ion Term (including any proposed changes to the Operative Documents), the Lessee or the Lessor may reject the Extension Term and the Lessee shall then elect either option provided in Section 3.03. Section 3.03 Lessee's Options Upon Expiration. (a) If this Lease has not been extended as set forth in Section 3.02, at least twelve (12) months prior to the Expiration Date the Lessee shall elect by written notice given to the Lessor and the Agent to either: (i) deliver an Offer to Purchase the Properties and purchase the Properties on the Expiration Date upon payment of an amount equal to the 5 LEASE Proprietary & Confidential Termination Value for the Properties, in which case the provisions of Section 5.04 shall apply; or (ii) so long as no Default, Event of Default, Non-Performance Event or Environmental Trigger has occurred and is continuing, and subject to the satisfaction of the conditions set forth in Section 3.03(b) and Article X, terminate this Lease, abandon the Properties and release all of its interest in the Properties as of the Expiration Date and pay to the Agent, on behalf of the Lessor, on the Expiration Date, in addition to any Fixed Rent, Additional Rent and any other amounts then due and payable to the Lessor hereunder, an amount equal to the Residual Value Amount for the Properties. If the Lessee is unable to satisfy one or more of the conditions set forth above, or fails to timely make an election as provided above, the Lessee shall be deemed to have elected to proceed under Section 3.03(a)(i). (b) Upon the Lessee's election to terminate this Lease pursuant to and in compliance with Section 3.03(a)(ii), the Lessee shall use reasonable efforts during the twelve-month period prior to the Expiration Date ("Remarketing Period") to obtain bids from unrelated third parties for the Properties. All bids received by the Lessee will immediately be copied to the Lessor and the Agent in writing, setting forth the amount of such bid and the name and address of the Person submitting such bid. The Lessor, the Agent, the Certificate Holders and the B-Note Holders will have the right, but not the obligation, to seek bids for the Properties during the Remarketing Period or at any time thereafter. On the Expiration Date or at any time thereafter, the Properties will be sold pursuant to the provisions of the Participation Agreement (any such sale, a "Qualified Sale"). The Sales Proceeds from a Qualified Sale, if any, will be distributed in accordance with Article VII of the Participation Agreement. Section 3.04 Property Sold. The term of the Lease (and the Lessee's obligation to pay Rent) for the Properties will end on the date the Properties are sold or otherwise disposed of pursuant to Section 5.04 and the Termination Value shall have been paid with respect to the Properties in accordance with Sections 5.01 and 5.03, as applicable. Section 3.05 Triple Net Lease; Non-Terminability. (a) This Lease is a triple net lease and, except as otherwise expressly provided in this Lease, any present or future Law to the contrary notwithstanding, will not terminate, nor will the Lessee be entitled to any abatement, reduction, set-off, counterclaim, defense or deduction with respect to any Fixed Rent, Additional Rent or other sum payable hereunder. Except as otherwise expressly provided in this Lease, the obligations of the Lessee will not be affected by reason of: (i) any damage to or destruction of any Property or any part 6 LEASE Proprietary & Confidential thereof by any cause whatsoever (including by Casualty or any Force Majeure event); (ii) any Condemnation, including a temporary Condemnation of any Property or any part thereof; (iii) any prohibition, limitation, restriction or prevention of the Lessee's use, occupancy or enjoyment of any Property or any part thereof by any Person; (iv) any matter affecting title to any Property or any part thereof; (v) any eviction of the Lessee from, or loss of possession by the Lessee of, any Property or any part thereof, by reason of title paramount or otherwise; (vi) any default by the Lessor hereunder or under any other Operative Document; (vii) the invalidity or unenforceability of any provision hereof or under any other Operative Document or the impossibility or illegality of performance by the Lessor or the Lessee or both; (viii) any action of any Governmental Authority; or (ix) any other cause or occurrence whatsoever, whether similar or dissimilar to the foregoing. The parties intend that the obligations of the Lessee hereunder will continue unaffected unless such obligations will have been modified or terminated pursuant to an express provision of this Lease. (b) The Lessee will remain obligated under this Lease in accordance with its terms and will not take any action to terminate, rescind or avoid this Lease, notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting the Lessor or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator or by any court. Except as expressly permitted in this Lease, the Lessee waives all rights to terminate or surrender this Lease, or to any abatement or deferment of Fixed Rent, Additional Rent or other sums payable hereunder or under the other Operative Documents. The Lessee will remain obligated under this Lease in accordance with its terms, and the Lessee hereby waives any and all rights now or hereafter conferred by Law or otherwise to modify or to avoid strict compliance with its obligations under this Lease. All payments made to or for the benefit of the Lessor hereunder as required hereby will be final, and the Lessee will not seek to recover any such payme nt or any part thereof for any reason whatsoever, absent manifest error. ARTICLE IV RENT Section 4.01 Fixed Rent. The Lessee shall pay to the Agent (on behalf of the Lessor or its registered assigns), fixed rent ("Fixed Rent") for the Properties commencing on the Funding Date and on each Payment Date thereafter and ending on the last day of the Term in an amount equal to the sum of (i) the aggregate amount of interest payable on such Payment Date on the Notes, plus (ii) the aggregate amount of the Distributions payable on such Payment Date on the Certificates, plus (iii) during any Extension Term, any other amounts to be paid on any Payment Date in accordance with Section 3.02. 7 LEASE Proprietary & Confidential Section 4.02 Additional Rent. During the Term, the Lessee shall pay to the Agent (on behalf of the Lessor or its registered assigns) Additional Rent in the amounts determined in accordance with (and at the times required under) the Operative Documents. The Lessor shall give the Lessee notice of any Additional Rent due hereunder promptly after it has knowledge of such Additional Rent, and will use reasonable efforts to notify the Lessee in advance of the due date and amount of such Additional Rent; provided that failure to give such prompt notice will not relieve the Lessee of its obligation to pay such Additional Rent, subject to, as applicable, the Lessee's rights, if any, under Section 6.01. Additional Rent will be due and payable within ten (10) days after demand therefor (unless a shorter or longer period of time is required by the Participation Agreement or the other Operative Documents). Section 4.03 Default Rate. The Lessee shall pay to the Lessor, on demand, interest at the Default Rate on all amounts payable by it to the Lessor hereunder from the due date thereof until paid in full. Section 4.04 Rent Payments. All amounts payable by the Lessee hereunder will be paid in Dollars and in immediately available funds by 12:00 Noon (New York City time) on the applicable Payment Date or on the date when due, unless any such due date is not a Business Day, in which case payment will be due and payable on the next succeeding Business Day, at the Lessor's account as set forth in Schedule I to the Participation Agreement, or at such other account or to such other Person in the United States of America or in such other manner as the Lessor from time to time may designate to the Lessee by written instructions. Section 4.05 Other Payments. The Lessee shall perform all of its obligations under this Lease at its sole cost and expense and shall pay, or cause to be paid, when due and without notice or demand all amounts due hereunder or under the other Operative Documents (including Section 9.13 of the Participation Agreement) in respect of Additional Rent. ARTICLE V SALE OF PROPERTIES Section 5.01 Optional Purchase by Lessee of the Properties. (a) At any time during the Term, subject to paragraph (b) below, the Lessee may deliver to the Lessor and the Agent an Offer to Purchase the Lessor's interest in any Property for an amount equal to the Termination Value for such Property, upon and subject to the applicable terms of this Lease. The Termination Value received by the Agent (on behalf of the Lessor) in accordance with the provisions of this Section 5.01 and Section 5.04 will be applied in accordance with Article VII of the Participation Agreement. 8 LEASE Proprietary & Confidential (b) Notwithstanding the provisions contained in paragraph (a) above, any Offer to Purchase delivered pursuant to paragraph (a) above within twelve (12) months prior to the Expiration Date shall be an Offer to Purchase the Lessor's interest in all of the Properties for an amount equal to the Termination Value for all Properties. Section 5.02 Optional Purchase of Unimproved Land. At any time and from time to time during the Term, the Lessee shall have the option, upon thirty (30) days' prior notice to the Lessor, to purchase or otherwise acquire all of Lessor's right, title and interest in and to any unimproved portion of the Maryland Land (and any related easements for utilities and access to be specified at such time) not necessary for the operations and use of the Improvements constructed on the Maryland Land at a price equal to then fair market value, as determined by an Appraisal, of such unimproved portion and such easements. If Lessee exercises its option pursuant to this Section 5.02, upon receipt the purchase price therefor, the Lessor shall deliver to the Lessee a quitclaim deed with respect to such unimproved portion of the Maryland Land, which deed will state that such transfer is being made without representation or warranty (expressed or implied) of any kind except that such unimproved portion of the Maryland Land is free and clear of Liens created by the Operative Documents or otherwise created or caused by the Lessor (other than any Liens created by or through the Lessee). Section 5.03 Mandatory Purchase by the Lessee of the Properties. If any Termination Notice is issued pursuant to Section 7.02, 7.03, 8.02 or 9.02(a), the Lessee shall deliver (or will be deemed to have delivered) to the Lessor an Offer to Purchase the Lessor's interest in the applicable Property for an amount equal to the Termination Value for such Property, upon and subject to the applicable terms of this Lease. Section 5.04 Purchase Procedures. (a) The Lessee may assign to any Person the right to purchase the Lessor's interest in the applicable Property pursuant to Section 5.01. Notwithstanding any such assignment, the Lessee will remain liable to the Lessor for the prompt payment and performance, as and when due, of all amounts payable (including the Termination Value) and all obligations of the purchaser under this Lease and the other Operative Documents. No consent to any such assignment, acceptance of payment from or performance by any assignee or other action by or on behalf of the Lessor or the Agent will release the Lessee of any obligations under this Lease or the other Operative Documents, except upon full payment and performance as and when due. (b) The Lessor will be deemed to have accepted, on the date of receipt, any Offer to Purchase the Lessor's interest in the applicable Property (or deemed Offer to Purchase) which satisfies the conditions set forth in this Lease, including those set forth this Article V. 9 LEASE Proprietary & Confidential (c) The date of the closing of the Lessee's (or its designee's) purchase of the Lessor's interest in the applicable Property (the "Closing Date") will be (i) in the case of an Offer to Purchase made (or deemed made) pursuant to Section 3.03, the Expiration Date, or (ii) in the case of an Offer to Purchase made pursuant to Section 5.01, the next scheduled Payment Date at least thirty (30) days following the date of the Lessor's acceptance or deemed acceptance of such Offer to Purchase, or (iii) in the case of an Offer to Purchase made (or deemed made) pursuant to Section 5.03, the thirtieth (30 th ) day following the date of Lessor's acceptance or deemed acceptance of such Offer to Purchase (or if that day is not a Payment Date, the first scheduled Payment Date following such fifteenth (15th) day), or (iv) if the Lessee pays the Termination Value for the applicable Property pursuant to Section 9.03, then on the date of the Lessor's or the Agent's receipt of the Termination Value for the applicable Property. (d) On the Closing Date, the Lessee shall pay, or cause to be paid, to the Agent (on behalf of the Lessor) the Termination Value for the applicable Property and the Lessor shall simultaneously (i) deliver to the Lessee or its designee an assignment (or termination of) its leasehold interest in the Land with respect to the California Property, a quitclaim deed with respect to the Maryland Property and a bill of sale for all Improvements and Alterations, if any, which assignment, deed, termination and bill of sale will state that such transfers are being made without representation or warranty (expressed or implied) of any kind except that the Properties are free and clear of Liens created by the Operative Documents or otherwise created or caused by the Lessor (other than any Liens created by or through the Lessee), and (ii) convey, or cause to be conveyed, to the Lessee or its designee any Net Proceeds related to the applicable Property and/or the right to receive the same. Additionally, on the Closing Date, upon receipt of the Termination Value for the applicable Property, the Lessor shall execute the releases and take the other actions described in Section 9.20(b) of the Participation Agreement. (e) Upon the completion of any purchase of the Lessor's interest in the applicable Property pursuant to this Article V, but not prior thereto, this Lease shall terminate with respect to such Property, except with respect to obligations and liabilities of the Lessee, actual or contingent, which have arisen with respect to the applicable Property under the Operative Documents on or prior to such date of purchase, and except for indemnification and other obligations and liabilities which by the terms of this Lease or the other Operative Documents survive termination of this Lease with respect to such Property or the other Operative Documents. (f) Notwithstanding any provisions of this Lease or the Participation Agreement to the contrary, the Lessee will not be required to acquire title to any Property until such time that all necessary filings and notifications under the HSR Act or any similar Law shall have been made (including any filing or provision of required 10 LEASE Proprietary & Confidential additional information or documents) and the waiting period referred to in the HSR Act applicable to such purchase shall have expired or been terminated (without any objection or prohibition of such purchase). The Lessee hereby covenants to use its best efforts to secure the prompt termination of such waiting period without objection or prohibition. Notwithstanding the foregoing, if the Lessee is precluded from acquiring the Lessor's interest in any Property or any portion thereof pursuant to the HSR Act or any similar Law, the Lessee shall pay the Termination Value with respect to such Property within the time and in the manner described in this Article V as a consequence of the Lessee's exercise or deemed exercise of its purchase option hereunder. However, if the Lessee pays the Termination Value in compliance with the preceding sentence, then the Lessee will be entitled to continue to lease the applicable Property that the Lessee is precluded from acquiring for an additional rental payment of $1 per annum under the terms and provisions of this Lease for an extended term expiring on the earlier to occur of (i) one (1) year from the date the Lessee delivers (or is deemed to have delivered) the Offer to Purchase or (ii) the date that the Lessee is no longer precluded from purchasing the Lessor's interest in such Property pursuant to the HSR Act or any similar Law. If the Lessee (or its designee) does not purchase the Lessor's interest in the applicable Property prior to the expiration of such extended term, then the Lessor shall thereafter sell its interest in such Property and distribute the proceeds from such sale in accordance with the Operative Documents. If, prior to the voluntary exercise by the Lessee of the purchase options hereunder, the Lessee is unable to obtain a ruling or an unqualified legal opinion (in form and substance and from independent legal counsel, in each case, reasonably satisfactory to the Agent) that a filing under the HSR Act or any similar Law is not required in order to consummate such purchase, then the Lessor shall execute such conditional sales contracts and other documents necessary to permit the Lessee to complete such filing before irrevocably exercising its purchase option. As a condition to executing such conditional sales contracts and other documents, the Lessee will deliver to the Lessor an agreement obligating the Lessee to fully indemnify the Lessor from all liabilities, damages, costs and expenses arising from the execution of such documents and the completion of such filing. Section 5.05 Alterations; Removal. (a) At any time, so long as no Default, Event of Default, Environmental Trigger or Non-Performance Event has occurred and is continuing, the Lessee may, at its sole cost and expense, make Alterations to any Property or any portion thereof; provided, however, that (i) except for an Alteration required by Legal Requirements, Insurance Requirements or, with respect to the California Property, the Ground Lease, the fair market value of such Property or any portion thereof will not be lessened by such Alterations; (ii) except for an Alteration required by Legal Requirements, Insurance Requirements or, with respect to the California Property, the Ground Lease, such Alterations will not materially diminish the capacity, utility, efficiency, or remaining useful life of such Property or any portion 11 LEASE Proprietary & Confidential thereof; and (iii) such work will be completed in a good and workmanlike manner free and clear of any Liens for labor, services or materials (other than Permitted Encumbrances) and in compliance with all applicable Legal Requirements, Insurance Requirements and, with respect to the California Property, the Ground Lease. (b) Title to all Alterations will vest in the Lessor (free and clear of all Liens, except Permitted Encumbrances); provided, that title to Severable Alterations shall vest in the Lessee. (c) The Lessee will be permitted at any time during, or upon the expiration or termination of, the Term, and at its sole cost and expense, to remove or demolish any Severable Alterations to any Property in accordance with prudent industry practices. For purposes of this Lease, a "Severable Alteration" is any Alteration unless its removal will (i) materially impair the Intended Use or materially reduce the fair market value of the applicable Property or any portion thereof below their fair market value immediately prior to such Alteration (assuming such Property is in the condition required by this Lease); (ii) materially diminish the capacity, efficiency, utility or remaining useful life of such Property or any portion thereof below the capacity, efficiency, utility or remaining useful life immediately prior to such Alteration (assuming such Property is in the condition required by this Lease); or (iii) cause a violation of any Legal Requirement, Insurance Requirement or, with respect to the California Property, the Ground Lease, or increase any risk of liability under any Environmental Law or any risk to human health or the environment. Any damage to any Property or any portion thereof caused by the removal of any Alteration will promptly be repaired by the Lessee and the applicable Property (and each and every portion thereof) will be restored to the condition (or the reasonable equivalent thereof) as it existed immediately prior to the removal of such Alterations (without regard to such Alterations), at the Lessee's sole cost and expense. Upon any permitted removal or demolition of Alterations to which the Lessor has title, the Lessor (at the sole cost and expense of the Lessee) shall execute and deliver to the Lessee such instruments and releases as are reasonably required to transfer the Alterations to the Lessee free and clear of Liens created by the Operative Documents or otherwise created or caused by the Lessor (other than any Liens created by or through the Lessee), in each case, without representation or warranty (expressed or implied) of any kind except that such Alterations are free and clear of any Lien created by the Operative Documents or otherwise created or caused by the Lessor (other than any Liens created by or through the Lessee). 12 LEASE Proprietary & Confidential ARTICLE VI CERTAIN COVENANTS OF THE LESSEE Section 6.01 Taxes and Assessments. (a) The Lessee shall pay or cause to be paid, subject to Section 6.01(b) of this Lease, all real property Taxes attributable to any Property before the same become delinquent. If any of such real property Taxes may legally be paid in installments, such real property Taxes may be so paid in installments; provided that the Lessee pays all such installments on or before the Expiration Date or earlier termination of this Lease. (b) So long as (A) no Termination Notice has been delivered, (B) no Default, Event of Default, Environmental Trigger or Non-Performance Event has occurred and is continuing, (C) the Lessee shall not have notified the Lessor pursuant to Section 3.03(a)(ii) that it is terminating this Lease and releasing all of its interest in the Properties or (D) the Lessee shall not have otherwise surrendered or be required to surrender the Properties to the Lessor for any reason (including pursuant to Article X), the Lessee will not be required, nor will the Lessor have the right, to pay, discharge or remove any real property Taxes or to pay any materialman's, laborer's or undischarged or unremoved Lien, as long as the Lessee shall at its sole cost and expense contest, or cause to be contested, diligently and in good faith, the existence, amount or validity thereof by appropriate proceedings, which shall (i) in the case of any unpaid real property Taxes attributable to any Property or any portion thereof or undischarged or unremoved Lien, prevent the collection thereof from the Lessor or against any Property or any portion thereof, (ii) prevent the sale, forfeiture or loss of any Property or any portion thereof, and (iii) not subject the Lessor, the Agent, the Certificate Holders, or the Note Holders to the risk of any criminal liability or civil penalties or fines for failure to comply therewith. The Lessee shall give such assurances as may be reasonably demanded by the Lessor to insure ultimate payment of such real property Taxes or the discharge or removal of any such materialman's, laborer's or mechanic's Lien and to prevent any sale or forfeiture of any Property, or any portion thereof, or any interference with or deductions from any Fixed Rent, Additional Rent or any other sum required to be paid by the Lessee hereunder by reason of such non-payment, non-discharge, non-removal or non-compliance. (c) The Lessor shall cooperate with the Lessee in any contest and shall allow the Lessee to conduct such contest (in the name of the Lessor, if necessary) at the Lessee's sole cost and expense; provided that the Lessor will not be required to execute any documents which would materially adversely affect the fair market value, use or operation of any Property or any portion thereof or be reasonably likely to subject the Lessor, the Agent, any Certificate Holder or any Note Holder to any liability or result in the admission of liability, guilt or culpability on the part of such Persons. The Lessee 13 LEASE Proprietary & Confidential shall notify the Lessor of each such proceeding at least ten (10) days prior to the commencement thereof, which notice will describe such proceeding in reasonable detail. (d) The Lessee shall, promptly after the final determination (including appeals) of any contest brought by it pursuant to this Section 6.01, pay and discharge all amounts which are determined to be payable therein and will be entitled to receive and retain for its own account all amounts refunded and/or rebated as a result of any such contest, and if the Lessor receives any amount as a result of such contest to which it is not otherwise entitled pursuant to this Lease, then it shall promptly return such amount to the Lessee. Section 6.02 Compliance with Laws. (a) Subject to Section 6.01 and Section 6.02(b), the Lessee shall, at the Lessee's sole cost and expense, comply, and cause each Property to comply, in all material respects, with all Legal Requirements. (b) So long as (A) no Termination Notice has been delivered, (B) no Default, Event of Default, Environmental Trigger or Non-Performance Event has occurred and is continuing, (C) the Lessee shall not have notified the Lessor pursuant to Section 3.03(a)(ii) that it is terminating this Lease and releasing all of its interest in the Properties or (D) the Lessee shall not have otherwise surrendered or be required to surrender the Properties to the Lessor for any reason (including pursuant to Article X), the Lessee will not be required, nor will the Lessor have the right to comply or cause any Property or any portion thereof to comply with any applicable Legal Requirement, as long as the Lessee shall at its sole cost and expense contest, or cause to be contested, diligently and in good faith, compliance therewith, which shall (i) prevent the sale, forfeiture or loss of any Property or any portion thereof, and (ii) not subject the Lessor, the Agent, the Certificate Holders, or the Note Holders to the risk of any criminal liability or civil penalties or fines for failure to comply therewith. The Lessee shall give such assurances as may be reasonably demanded by the Lessor to insure compliance in all material respects with such Legal Requirement and to prevent any sale or forfeiture of any Property, or any portion thereof, or any interference with or deductions from any Fixed Rent, Additional Rent or any other sum required to be paid by the Lessee hereunder by reason of such non-compliance. Section 6.03 Certain Agreements. The Lessee shall, and (unless a Default, Event of Default, Environmental Trigger or Non-Performance Event has occurred and is continuing and the Lessor has revoked such authority) is hereby authorized by the Lessor to, fully and promptly keep, observe, perform and satisfy, on behalf of the Lessor, any and all obligations, conditions, covenants and restrictions of or on the Lessor under the Ground Lease and any and all material contracts involving any of the Properties or any portion thereof so that there will be no default thereunder and so that the other parties thereunder will be and remain at all times obliged to perform their 14 LEASE Proprietary & Confidential obligations thereunder, and the Lessee, to the extent within its control, will not permit to exist any condition, event or fact that could reasonably allow or serve as a basis or justification for any such Person to avoid such performance. Section 6.04 Liens. (a) Subject to Section 6.01, the Lessee will not create or permit to be created or exist, and shall promptly remove and discharge, any Lien upon this Lease, any Property or any other portion thereof or interest therein, or upon any Fixed Rent, Additional Rent or other sum paid hereunder, which Lien arises for any reason, including any and all Liens which arise out of the ownership, leasing, use, condition, occupancy, demolition, construction, installation, possession, repair or rebuilding of any Property or any portion thereof or by reason of the failure to pay dues, fees or assessments or by reason of labor or materials furnished or claimed to have been furnished to the Lessee or for any Property or any portion thereof, but excluding Liens created by the Operative Documents and any other Permitted Encumbrances. The Lessee's obligation to remove any of the above-described Liens arising prior to the termination of this Lease (or arising due to circumstances occurring prior to the termination of this Lease) will survive the termination of this Lease. Nothing contained in this Lease will be considered as constituting the consent or request of the Lessor, express or implied, to or for the performance by any contractor, laborer, materialman or vendor of any labor or services or for the furnishing of any materials for any construction, installation, alteration, addition, repair or demolition of or to the Property or any portion thereof. (b) NOTICE IS HEREBY GIVEN THAT THE LESSOR IS NOT AND SHALL NOT BE LIABLE TO ANY PARTY FURNISHING LABOR, SERVICES OR MATERIALS TO THE LESSEE, OR TO ANYONE HOLDING OR POSSESSING ANY PROPERTY OR ANY PORTION THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANIC'S OR OTHER SIMILAR STATUTORY LIENS FOR ANY LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE LESSOR'S INTEREST OR ESTATE IN ANY PROPERTY OR ANY PART THEREOF. (c) The Lessor agrees that the Lessee during the Term shall have the exclusive right (unless the Lessor has revoked such right with respect to the Property as result of the occurrence and continuance of a Default, Event of Default, Environmental Trigger or Non-Performance Event) to (i) secure subdivision approvals, site plan approvals, annexation or de-annexation approvals, zoning variances and Permits necessary or desirable for the development, use, operation, maintenance or condition of any Property, the Improvements or any portion thereof, (ii) to grant easements, licenses, rights-of-way and other rights and privileges in the nature of easements reasonably necessary or desirable for the use, operation, maintenance or condition of any Property or (iii) release existing easements or other rights and privileges in the nature of easements 15 LEASE Proprietary & Confidential necessary or desirable for the use, operation, maintenance condition of any Property, the Improvements or any portion thereof; provided that the fair market value, marketability or use of such Property or any portion thereof is not lessened by any such action. The Lessor agrees timely to execute such documents and take all other actions as are reasonably requested, and otherwise cooperate with the Lessee, in connection with the matters described above; provided, however, that all costs and expenses incurred by the Lessor in connection therewith shall be borne by the Lessee and that the Lessor shall not be required to execute any documents which would, in the reasonable opinion of the Agent, adversely affect the value, marketability or use of any Property or any portion thereof or otherwise adversely affect the transactions contemplated by the Operative Documents or the interests of the Lessor, the Agent, the Note Holders or the Certificate Holders. (d) The Lessee and the Lessor each hereby acknowledge that this Lease will at all times be subject and subordinate to the Mortgages. Section 6.05 Insurance. (a) During the Term, the Lessee will purchase and maintain, or cause to be purchased and maintained, insurance with respect to each of the Properties of the following types and in the following amounts, and in no event in amounts less than those maintained by the Lessee or its Affiliates for other similar facilities owned and/or operated by them: (i) Property Insurance: All risk property insurance against physical damage to each Property caused by perils now or hereafter embraced by or defined in a manuscript "all risks" policy, including at least such perils as customarily insured for similar properties in a minimum amount as required by Section 6.05(b); (ii) General Liability Insurance: Comprehensive general liability (including contractual and completed operations), insurance against claims for bodily injury (including death), personal injury and property damage occurring in respect of each Property or resulting from activities related to such Property, in the minimum combined single limit amount of $4,000,000 per occurrence and $10,000,000 annual aggregate for bodily injury (or death) and/or property damage; and (iii) Other Insurance: Such other insurance, including automobile liability, in such amounts and against such risks, as is either (x) customarily carried by companies owning, operating or leasing property or conducting businesses similar and/or similarly situated to the Properties and/or the Lessee or (y) reasonably requested from time to time by the Lessor. 16 LEASE Proprietary & Confidential All of the insurance referenced in (i) through (iii) above shall contain such limits consistent with insurance maintained by the Lessee with respect to similarly situated properties and in any event consistent with industry standards. Such insurance will be written by companies that are nationally recognized (including Lloyd's of London or other recognized international insurers with an ISI rating of not less than BBB) and all primary insurance shall be written by companies rated at least A-IX in the most recent edition of Best's Key Rating Guide, or an equivalent rating from a nationally recognized rating agency or as otherwise agreed to by the Agent, the Lessor and the Majority Holders, selected by the Lessee. The insurance specified in Section 6.05(a)(i) will name the Lessor, Wells Fargo Bank Northwest, National Association (in its individual capacity and as Trustee) and the Agent as additional insureds and loss payees, as their interests may appear, and the insurance specified in Section 6.05(a)(ii) will name the Lessor, Wells Fargo Bank Northwest, National Association (in its individual capacity and as Trustee) and the Agent, on its own behalf and on behalf of the Holders from time to time of the Instruments and their assignees, as additional insureds. (b) The insurance referred to in Section 6.05(a)(i) may be a blanket policy and will (i) at all times be in an amount at least equal to the greater of (x) one hundred percent (100%) of the full replacement cost value (without depreciation) of the Properties and (y) the Termination Value for all Properties; (ii) include a lenders' loss payable endorsement in favor of the Lessor and any loss or damage under such insurance policies will be payable to the Lessor to be held by the Lessor and applied pursuant to the terms of the Participation Agreement; (iii) provide that the interests of the Lessor, the Agent and the Holders from time to time of the Instruments will be insured regardless of any breach or violation by the Lessee of any warranties, declarations or conditions contained in such insurance; and (iv) provide that such insurance will not be invalidated by any negligent act of the Lessee, nor by any proceedings or notices thereof relating to any of the Properties or any portion thereof, nor by legal title to, or ownership of any Property or any portion thereof becoming vested in or by the Lessor or its agents, nor by use of any Property or any portion thereof for purposes more hazardous than permitted by such policy. All policies of insurance required to be maintained pursuant to Section 6.05(a)(ii) which cover liability for bodily injury or property damage will provide that all provisions of such insurance, except with respect to the limits of insurance and any rights or duties specifically assigned to the named insured will operate in the same manner as if there were a separate policy covering each such insured and/or additional insured, without right of contribution from any other insurance which may be carried by an insured and/or additional insured. The insurance will be primary for claims covered as described in Section 6.05(a)(ii). 17 LEASE Proprietary & Confidential Every policy required under Section 6.05(a) will (i) expressly provide that it will not be canceled or terminated except upon sixty (60) days' written notice to the Lessor and the Lessee, except in the case of cancellation or termination due to a lapse for non-payment, in which case only ten (10) days' written notice will be required; (ii) include a waiver of all rights of subrogation against the Lessor, the Agent and the Holders from time to time of the Instruments and a waiver of any recourse against the Lessor, the Agent or the Holders from time to time of the Instruments for payment of any premiums or assessments under any policy; and (iii) not contain a provision relieving the insurer thereunder of liability for any loss by reason of the existence of other policies of insurance covering any Property or any portion thereof against the peril involved, whether collectible or not, if such other policies do not name the Lessor, the Agent and the Holders from time to time of the Instruments as additional insureds with loss payable as provided in the Lease. The Lessee shall advise the Lessor promptly of any policy cancellation or any change adversely affecting the coverage provided thereby. (c) The Lessee shall deliver to the Lessor and the Agent the certificates of ins urance evidencing the existence of all insurance which is required to be maintained by the Lessee hereunder such delivery to be made (i) as provided in the Participation Agreement, (ii) at least twenty-one (21) days prior to the issuance of any additional policies or amendments or supplements to any of such insurance, and (iii) on or before the expiration date of any such insurance. The Lessee shall notify the Lessor and Agent of any nonrenewal of any policy required hereunder and shall cause each insurer under each policy required hereunder to give the Lessor notice of any lapse under any such policy. The Lessee will not obtain or carry separate insurance concurrent in form, or contributing in the event of loss, with that required by this Section 6.05 unless the Lessor, the Agent and the Holders from time to time of the Instruments are named as additional insureds therein, with loss payable as provided in this Lease. The Lessee shall immediately notify the Lessor, the Agent and the Holders from time to time of the Instruments whenever any such separate insurance is obtained and shall deliver to the Lessor the certificates of insurance and any other documentation (other than blanket policies) required by the Lessor evidencing the same as is required hereunder. (d) The insurance requirements of this Section 6.05 will not be construed to negate or modify the Lessee's obligations under Section 9.14 of the Participation Agreement. Section 6.06 Maintenance and Repair. (a) The Lessee, at its own cost and expense, will ma nage and maintain the Properties in good operating order, condition and repair (ordinary wear and tear excepted), in accordance with prudent industry practice and in a manner consistent with that of other similar properties owned or operated by the Lessee or its Affiliates similarly situated, and will take all action, and will make all changes and repairs, structural and nonstructural, foreseen and unforeseen, 18 LEASE Proprietary & Confidential ordinary and extraordinary, which may be required to maintain the Properties in good operating order, condition and repair (ordinary wear and tear excepted), in accordance with prudent industry practice, and in compliance (1) with all Legal Requirements (except to the extent failure to comply would not materially and adversely affect any Property), all Insurance Requirements and, with respect to the California Property, the Ground Lease, at any time in effect, and (2) with any required maintenance procedures of the manufacturers of any item constituting the Improvements, if applicable, relating to maintenance and operation (if and so long as there are any manufacturer's warranties applicable) necessary to preserve the manufacturer's warranties, if any, on such Improvements. The Lessee shall, in accordance with prudent industry practice, repair or replace each item constituting the Improvements that has become worn out, damaged, inoperative or obsolete in whole or in part; provided, however, that (i) to the extent consistent with the foregoing, the fair market value, marketability or use of any Property will not be materially lessened and (ii) such replacements will be of a type currently used in the industry for the same purpose and having a remaining useful life at least as long as that of the Improvements (or any part thereof), as the case may be, repaired or replaced (prior to obsolescence, loss or damage and the like). All repairs, replacements and rebuilding by the Lessee hereunder, to the extent permitted by Law, will immediately become and will remain part of the applicable Property, subject to this Lease. The Lessor will not be required to, and the Lessee hereby waives any right to require the Lessor to, manage, maintain, replace, repair or rebuild any Improvements or any part thereof and the Lessee waives any and all rights it may now or hereafter have to make any repairs at the cost and expense of the Lessor pursuant to any Legal Requirement, Insurance Requirement, the Ground Lease or otherwise, at any time in effect. (b) Except for Permitted Encumbrances, in the event that all or any part of any of the Improvements encroach upon any adjoining or adjacent property or right-of-way adjoining or adjacent to any Property or any portion thereof, or violate any rights-of-way, permits, licenses, agreements or conditions affecting any of the Properties or any portion thereof, or obstruct any easement or right-of-way to which such Property or any portion thereof may be subject, then the Lessee shall, at its sole cost and expense, either (i) contest such matter pursuant to 6.01(b), (ii) obtain valid and effective Permits for or Consents to such encroachments and/or violations (without any liability to the Lessor, the Agent, the Certificate Holders or the Note Holders for which such parties are not indemnified by the Lessee) or waivers or settlements of all claims, liabilities and damages resulting therefrom, or (iii) make such changes, including alteration or removal, to any Improvements (as the case may be) and take such other action as is reasonably necessary to rectify such encroachments, violations, hindrances, obstructions or impairments, subject to the Lessor's consent if and to the extent required by Section 6.01(b). 19 LEASE Proprietary & Confidential Section 6.07 Inspection Rights. (a) The Lessor, the Agent, the Environmental Consultant, the Independent Engineer, the Appraiser and their respective successors, assigns, representatives and agents (the "Lessor Group") may, upon at least two (2) Business Days' advance written notice to the Lessee (unless the Agent or the Lessor in its sole discretion has reason to believe that a Default, Event of Default, Environmental Trigger or Non-Performance Event has occurred, in which case no such notice shall be necessary), enter upon and examine any Property or any portion thereof (including all records directly related to such Property or any portion thereof) at reasonable times in compliance with and subject to the Lessee's standard confidentiality, safety and security procedures in effect from time to time; provided, further, that if a Default, Event of Default, Environmental Trigger or Non-Performance Event has occurred or if the Lessee has exercised its option to terminate this Lease pursuant to Section 3.03(a)(ii), then the Lessee shall give the Lessor Group such additional access to the Properties and to the Lessee's books and records relating to the management, operation, use, maintenance, renovation, construction or occupancy of the Properties as the Lessor Group may reasonably require for any purpose relating to this Lease or to any Property, including for marketing, selling, operating or otherwise disposing of such Property; and provided further, that all such inspections upon the occurrence and during the continuance of a Default, an Event of Default, Environmental Event or Non-Performance Event will be at the expense of the Lessee. (b) Subject to the provisions of Section 9.16 of the Participation Agreement, if a Default, Event of Default, Environmental Event or Non-Performance Event has occurred and is continuing or if the Lessee has exercised its option to terminate this Lease pursuant to Section 3.03(a)(ii), then the Lessee shall give or cause to be given to the Lessor Group such additional access to the Properties or any portion thereof and to the Lessee's books and records relating to the management, operation, use, maintenance, renovation, construction or occupancy of the Properties or any portion thereof as it may require for any purpose, including for marketing, selling, operating or otherwise disposing of the Properties or any portion thereof. Section 6.08 Assignments, Sublease, Etc. Except as expressly provided in Section 2.03 or 5.04(a), the Lessee will not mortgage, pledge, assign, sublease or otherwise encumber its interest in and to this Lease or the Properties without the prior written consent of the Lessor, and any mortgage, pledge, sublease or assignment of the Lessee's interest hereunder or in the Properties in violation of this Section 6.08 will be null and void and of no force or effect. Section 6.09 Intellectual Property Rights; Applicable Permits. The Lessee will do or cause to be done all things necessary to obtain, preserve, renew and keep in full force and effect the Intellectual Property Rights, Applicable Permits and other rights, licenses and rights-of-way required to lease, use or operate each Property. 20 LEASE Proprietary & Confidential ARTICLE VII CONDEMNATION AND CASUALTY Section 7.01 Condemnation and Casualty. (a) The Lessee hereby (subject to the provisions hereinafter set forth) irrevocably assigns to the Lessor any award or compensation or insurance payment or other proceeds to which the Lessee may become entitled by reason of its interest in any Property or any portion thereof if (i) such Property or any portion thereof, or any facility, edifice or structure which furnishes or supplies any service upon which the use or occupancy of such Property is dependent, in whole or in part, is damaged or destroyed by fire, earthquake, tornado, hurricane or other casualty (each, a "Casualty") or (ii) any Governmental Authority provides notice to the Lessor or the Lessee of its intention to condemn, confiscate, seize or condemn any Property or any portion thereof, or any facility, edifice or structure which furnishes or supplies any service upon which the use or occupancy of any Property is dependent, in whole or in part (each, a "Condemnation"). Any Property or portion thereof affected by a Casualty or a Condemnation is hereby referred to as the "Affected Property". (b) The Lessee shall immediately thereafter notify the Lessor in writing of any such Casualty or Condemnation. In addition, the Lessee shall appear in any proceeding or action to defend, negotiate, prosecute or adjust any claim for any award or compensation or insurance payment on account of any Casualty or any such Condemnation and may take all appropriate action in connection with any Casualty or any such Condemnation, including the employment of counsel reasonably satisfactory to the Lessor. No settlement of any such proceeding or action will be made by the Lessee or the Lessor without the prior written consent of the other party hereto, which consent will not be unreasonably withheld or delayed. (c) Any and all amounts representing proceeds paid in connection with any Condemnation or Casualty, as the case may be, to which the Affected Property, the Lessee or the Lessor may be entitled (collectively, the "Proceeds"), will, subject to Section 7.03(d), be paid over to the Proceeds Trustee to be held in trust by such Proceeds Trustee and distributed pursuant to this Section 7.01(c) and Sections 7.03 and 7.04 or pursuant to the Participation Agreement, as appropriate (all such Proceeds, less the costs and expenses incurred by the Lessor and the Lessee in collecting such amounts, but including any reimbursement by the Lessee for costs and expenses in connection therewith to which the Lessor, the Certificate Holders and the Note Holders are entitled pursuant to the Operative Documents, are the "Net Proceeds"). If the Lessee shall restore such Property, any Proceeds shall, subject to Section 7.03(d), be paid over to the Lessee and used in accordance with Section 7.03. Any and all reasonable charges, fees and expenses of the Proceeds Trustee will be paid from the Net Proceeds. "Proceeds Trustee" means the Lessor. 21 LEASE Proprietary & Confidential The Lessee agrees that this Lease controls the rights of the Lessor and the Lessee in any such Proceeds paid or payable in connection with or as a result of a Condemnation or Casualty and any rights of the Lessee (as same may relate to rights between the Lessee and the Lessor, as distinct from rights the Lessee may have against third parties other than the Lessor, the Agent, the Note Holders or Certificate Holders) under any present or future Law to the contrary are hereby waived. Section 7.02 Condemnation or Casualty with Termination. (a) If a Casualty or Condemnation occurs, then the Lessee shall promptly provide the Lessor with a written estimate of the cost of restoration or replacement of the Affected Property (which the Agent may have reviewed by an Independent Engineer at the Lessee's sole cost and expense). If the cost of restoration or replacement of the Affected Property in connection with a Casualty will exceed $40,000,000 or if the Affected Property suffering such Casualty could not be expected to be restored or replaced to an economic unit of substantially the same value, operating condition, capacity, efficiency and useful life as existed prior to such Casualty or such restoration or replacement could not be expected to be completed in full prior to the Expiration Date or Extension Term Expiration Date, as applicable, the Lessor or the Lessee will have the option, each in their sole discretion, to deliver a Termination Notice with respect to such Affected Property. If a Condemnation occurs with respect to any Property and as a result thereof the operating condition, capacity, efficiency, and useful life of such Property as existed prior to such Condemnation is materially adversely affected, the Lessor or the Lessee will have the option, each in their sole discretion, to deliver a Termination Notice with respect to such Property. (b) In the event a Termination Notice is delivered pursuant to Section 7.02(a), the provisions of Section 5.03 shall apply. Section 7.03 Condemnation or Casualty without Termination. (a) If a Casualty or Condemnation occurs and neither the Lessor nor the Lessee has given a Termination Notice in accordance with Section 7.02, then this Lease will continue in full force and effect, and the Lessee shall, at its sole cost and expense, promptly commence and diligently pursue to completion the rebuilding, replacement or repair of any damage to the Affected Property caused by such event in conformity with the requirements of Section 6.06, as applicable, in order to restore the Affected Property (in the case of a Condemnation, as nearly as practicable) to its previous value, operating condition, capacity, efficiency and useful life immediately prior to such Casualty or Condemnation. To the extent that such Affected Property will be restored by the Lessee, any Net Proceeds shall be paid over to the Lessee and the Lessee shall use such Net Proceeds to restore the Affected Property in accordance with the terms of this Lease. In connection with such restoration the Lessee shall, before beginning such restoration, submit a construction budget for such restoration for the Lessor's approval, which will not be 22 LEASE Proprietary & Confidential unreasonably withheld, conditioned or delayed; provided that (i) the Affected Property can be restored to an economic unit of substantially the same character and fair market value as existed immediately prior to such Casualty or Condemnation and (ii) if the estimated cost to complete such restoration exceeds the amount of Net Proceeds, the Lessor is, in its sole judgment, satisfied that the Lessee has sufficient funds (the "Excess Funds") available to pay such excess, which Excess Funds, subject to Section 7.03(d), will be deposited by the Lessee with the Proceeds Trustee and distributed to the Lessee as hereafter provided. If the conditions set forth in the foregoing proviso are not satisfied, the Lessor may deliver a Termination Notice with respect to the Affected Property in accordance with Section 7.02. The Lessee shall be entitled to Net Proceeds only if it has paid the full Termination Value for such Affected Property and the Termination Value shall be applied in accordance with Section 7.01(c) of the Participation Agreement. (b) Such restoration work will be completed in a good and workmanlike manner free and clear of all Liens for labor, services or materials (except Permitted Encumbrances) and in compliance with all applicable Legal Requirements and Insurance Requirements. Upon completion of such work, the Lessee shall cause the Independent Engineer to deliver a certificate to the effect that final completion of the work has occurred and the cost thereof does not exceed the amounts set forth in the construction budget and that the operating condition of the Affected Property, after taking into consideration the restoration, is at least equivalent to the operating condition that existed immediately prior to the Casualty or Condemnation assuming compliance with Section 6.06. All fees and expenses of the Independent Engineer in connection with such Casualty will be at the Lessee's sole cost and expense. Within forty-five (45) days of the delivery of said certificate the Lessee shall deliver to the Agent duly executed Lien waivers executed by each materialman or mechanic furnishing materials or labor for restoration of the applicable Property, subject to the Lessee's right to contest set forth in Section 6.01. (c) The Lessee will be entitled to receive payment from (or, in the case when held by the Lessee, apply) the Net Proceeds or the Excess Funds, as the case may be, from time to time as such work of rebuilding, replacement or repair progresses, but only after presentation of certificates of the Independent Engineer, delivered by the Lessee to the Proceeds Trustee (with a copy to the Lessor) from time to time as such work of rebuilding, replacement or repair progresses. Each such certificate of the Independent Engineer will describe the work for which the Lessee is requesting permission to pay or requesting payment and the cost incurred by the Lessee in connection therewith and will state that such work has been properly completed and that the Lessee has not theretofore received payment for such work, or previously applied Net Proceeds or Excess Funds to the payment of such work, and will be accompanied by an Officer's Certificate of the Lessee certifying that no Default, Event of Default or Non-Performance Event has occurred and is continuing and that the Net Proceeds and Excess 23 LEASE Proprietary & Confidential Funds held by the Proceeds Trustee or the Lessee, as applicable, are, to the best of its knowledge, adequate to complete such rebuilding, replacement or repair in accordance with this Section 7.03(c). Upon completion of and final payment for such work, the Lessee's Officer's Certificate will be accompanied by duly executed Lien waivers executed by each materialman or mechanic furnishing materials or labor for which the Lessee requested permission to pay or requested payment. (d) Notwithstanding anything to the contrary in this Section 7.03, if the Net Proceeds and Excess Funds which are or would be held by the Proceeds Trustee at any time are equal to or less than $10,000,000 in the aggregate, such amounts shall promptly be paid to (or retained by) the Lessee and applied by the Lessee in accordance with the terms hereof. Section 7.04 Temporary Condemnation or Lease Termination. Notwithstanding any provision to the contrary contained in this Article VII, in the event of any temporary Condemnation, this Lease will remain in full force and effect, and provided no Default, Event of Default, Environmental Trigger or Non-Performance Event has occurred and is continuing, the Lessee will be entitled to receive the Net Proceeds allocable to such temporary Condemnation, except that if this Lease expires or terminates during such temporary Condemnation, then the Lessee will be entitled to the Net Proceeds allocable to the period after the termination or expiration of this Lease only if it has paid the Termination Value for the Properties. ARTICLE VIII ENVIRONMENTAL MATTERS Section 8.01 Environmental Event. The Lessee shall promptly, but in any case within five (5) Business Days, notify the Lessor and the Agent if (i) any environmental event has occurred or any environmental condition is discovered in, on, beneath, from or involving any Property or any portion thereof (including the presence, emission or release of Hazardous Materials or the violation of any applicable Environmental Law) for which a remediation or reporting is required under applicable Environmental Law or (ii) the Lessee has received notification that it, the Lessor, any Property or any portion thereof is the subject of an Environmental Action that could reasonably be expected to result in any ordered remediation or corrective action or other liability under applicable Environmental Law (each of (i) and (ii) an "Environmental Event"; and the Property or portion thereof involved in such Environmental Event, an "Environmentally Affected Property"). Section 8.02 Environmental Trigger Termination. (a) Subject to the last sentence of this Section 8.02, following the receipt of a notice pursuant to Section 8.01, 24 LEASE Proprietary & Confidential the Lessor or the Agent, each in its sole discretion, may require the Lessee to cause the Environmental Consultant to conduct an environmental audit of such Environmentally Affected Property, having a scope designed to evaluate the existence and anticipated impact of the Environmental Event at issue, at the cost and expense of the Lessee, and to provide a copy of the Environmental Consultant's report on its audit to the Lessor, the Majority Holders and the Agent, subject to the provisions of Section 9.16 of the Participation Agreement. If it is the opinion of the Agent and the Environmental Consultant that an Environmental Event has occurred or exists and the cost of remediation is reasonably expected to exceed $15,000,000 or would result in a material adverse effect on the use, value or condition of the Environmentally Affected Property (an "Environmental Trigger"), then the Lessor or the Agent will have the option, each in its sole discretion, to deliver, within thirty (30) days after receipt of such report, a Termination Notice with respect to such Environmentally Affected Property. In such event, the Lessee will be deemed to have delivered to the Lessor, as of the date of such Termination Notice, an Offer to Purchase the Lessor's interest in such Environmentally Affected Property in accordance with Section 5.03. In such event, this Lease will terminate and the Lessee shall pay to the Lessor the Termination Value for such Environmentally Affected Property in accordance with Section 5.04. (b) Nothing in this Section 8.02 is intended to limit in any manner the indemnity of the Lessee set forth in Section 9.14 of the Participation Agreement. Section 8.03 Environmental Remediation. Upon the occurrence of an Environmental Event, the Lessee shall immediately commence, or cause to be commenced, at its sole cost and expense, such actions as may be necessary to comply in all material respects with all applicable Environmental Laws and to alleviate any significant risk to human health or the environment if the same arises from a condition on or in respect of any Property or any portion thereof, whether existing prior to, on or after the date of this Lease. Once the Lessee commences such actions, the Lessee shall thereafter diligently and expeditiously proceed to comply in a timely manner in all material respects with all Environmental Laws and to eliminate any significant risk to human health or the environment and shall, at the request of the Lessor or the Agent, give periodic progress reports on its compliance efforts and actions. The right of the Lessor and the Agent to receive such progress reports with respect to the relevant Environmental Event shall cease upon the Lessee's completion of remediation of such Environmental Event in accordance with the standards set forth in this Section 8.03. Section 8.04 Environmental Compliance. The Lessee shall, and it shall require and ensure that any and all sublessees, employees, contractors, subcontractors, agents, representatives, affiliates, consultants, occupants and any and all other Persons under the control of or representing the Lessee, (i) comply in all material respects with all applicable Environmental Laws in connection with the occupancy, use or operation of 25 LEASE Proprietary & Confidential each of the Properties, and (ii) use, employ, process, emit, generate, store, handle, transport, dispose of and/or arrange for the disposal of any and all Hazardous Materials in, on or, directly or indirectly, related to or in connection with each of the Properties or any portion thereof in a manner consistent with prudent industry practice and in compliance in all material respects with all applicable Environmental Laws. The Lessor and the Lessee hereby acknowledge and agree that the Lessee's obligations hereunder with respect to Hazardous Materials and Environmental Laws are intended to bind the Lessee with respect to matters and conditions on, in, under, beneath, from, with respect to, affecting, related to, in connection with, or involving each of the Properties or any portion thereof. ARTICLE IX REMEDIES Section 9.01 General Remedies. In accordance with the terms and conditions contained in this Lease, the Lessor may take all steps to protect and enforce the rights of the Lessor or obligations of the Lessee hereunder, whether by action, suit or proceeding at Law or in equity (for the specific performance of any covenant, condition or agreement contained in this Lease, or in aid of the execution of any power herein granted or for any foreclosure, or for the enforceme nt of any other appropriate legal or equitable remedy) or otherwise as the Lessor or the Agent deems necessary or advisable. Section 9.02 Default Remedies. An Event of Default as defined in the Participation Agreement constitutes an Event of Default under this Lease. (a) Subject to Section 9.02(i), if an Event of Default has occurred and is continuing, including an Event of Default involving the breach of a covenant, condition or other provision hereof, then upon five (5) Business Days' prior written notice by the Lessor to the Lessee, in addition to all other rights, remedies or recourses available, the Lessor may, and if directed in writing by the Majority Holders shall, either (i) terminate this Lease by issuing a Termination Notice or (ii) terminate the Lessee's right to possession of each of the Properties or any portion thereof. (b) If the Lessor should elect to terminate this Lease as provided in Section 9.02(a)(i), then this Lease and the estate hereby granted shall expire and terminate at midnight on the fifth (5) Business Day (or such later date as may be specified therein) after the date of such notice, as fully and completely and with the same effect as if such date was the date herein fixed for the expiration of the Term and all rights of the Lessee will terminate, but the Lessee will remain liable as hereinafter provided. 26 LEASE Proprietary & Confidential (c) Should the Lessor elect not to terminate this Lease, this Lease shall continue in effect and the Lessor may enforce all the Lessor's rights and remedies under this Lease including the right to recover the Fixed Rent and Additional Rent as each becomes due under this Lease. For the purposes hereof, the following do not constitute a termination of this Lease: (i) Acts of maintenance or preservation of any of the Properties or any portion thereof or efforts to relet any of the Properties or any portion thereof, including termination of any sublease of any Property to a third party and removal of such subtenant from any Property; (ii) The appointment of a receiver upon initiative of the Lessor to protect the Lessor's interest under this Lease; and/or (iii) The exercise of any rights under Section 11.01 or any rights contained in the applicable Lease Supplement. (d) If an Event of Default has occurred and is continuing, upon five (5) Business Days' notice, the Lessor will ha ve (i) the right, whether or not this Lease shall have been terminated pursuant to Section 9.02(a), to re-enter and repossess the Properties or any portion thereof, as the Lessor may elect, by summary proceedings, ejectment, any other legal action or in any other lawful manner the Lessor determines to be necessary or desirable and (ii) the right to remove all Persons and property therefrom. The Lessor will be under no liability by reason of any such re-entry, repossession or removal. No such re-entry or repossession of any Property or any portion thereof will be construed as an election by the Lessor to terminate this Lease unless a Termination Notice is given to the Lessee pursuant to Section 9.02(a)(i), or unless such termination is decreed by a court or other governmental tribunal of competent jurisdiction. Should the Lessor elect to re-enter any Property as herein provided or should the Lessor take possession pursuant to legal proceedings or pursuant to any notice provided for by Law or upon termination of this Lease of the Lessee's right to possession of such Property or any portion thereof pursuant to Section 9.02(a) or otherwise as permitted by Law, the Lessee shall peaceably quit and surrender such Property or any portion thereof to the Lessor. In any such event, neither the Lessee nor any Person claiming through or under the Lessee, by virtue of any Law, will be entitled to possession or to remain in possession of such Property or any such portion thereof, but shall forthwith quit and surrender suc h Property to the Lessor. (e) At any time or from time to time after the re-entry or repossession of any Property or any portion thereof pursuant to Section 9.02(d), whether or not this Lease has been terminated pursuant to Section 9.02(a), the Lessor may (but shall be under no obligation to) relet such Property or any portion thereof, for the account of the Lessee, without notice to the Lessee, for such term or terms and on such conditions and for such 27 LEASE Proprietary & Confidential uses as the Lessor, in its sole and absolute discretion, may determine. The Lessor may collect and receive any rents or other proceeds payable by reason of such reletting. The Lessor will not be liable for any failure to relet any Property or any portion thereof or for any failure to collect any rent due upon any such reletting. (f) No termination of this Lease or of the Lessee's right to possession of any Property or any portion thereof pursuant to Section 9.02(a), or by operation of Law, and no re-entry or repossession of such Property or any portion thereof pursuant to Section 9.02(d), and no reletting of such Property or any portion thereof pursuant to Section 9.02(e), will relieve the Lessee of its liabilities and obligations hereunder, all of which will survive such termination, re-entry, repossession or reletting. (g) In the event of any termination of this Lease or of the Lessee's right to possession of any Property or any portion thereof by reason of the occurrence of an Event of Default, the Lessee shall pay to the Lessor all Fixed Rent, Additional Rent and other sums required to be paid to and including the date of such termination of this Lease or of the Lessee's right to possession; and thereafter, until the end of the Term, whether or not such Property or any portion thereof have been relet, the Lessee to the extent permitted by applicable Law will be liable to the Lessor for, and shall pay to the Agent (on behalf of the Lessor), on the days on which such amounts would be payable under this Lease in the absence of such termination, re-entry or repossession, as agreed current damages and not as a penalty: all Fixed Rent, Additional Rent and other sums which would be payable under this Lease by the Lessee, in the absence of such termination, re-entry or repossession, and all costs (including attorneys' fees and expenses) incurred by the Lessor hereunder (payable on demand) and all costs of any environmental remediation pursuant to Section 8.03. (h) To the extent permitted by Law, at such time after the termination or expiration of this Lease if the Lessee has paid all amounts required to be paid by it under this Lease and the other Operative Documents and the Lessee has discharged any and all obligations to the Lessor, the Certificate Holders and the Note Holders, then the Lessor shall pay and assign to the Lessee, when received, the net proceeds, if any, of any reletting effected for the account of the Lessee pursuant to Section 9.02(e), and any residual interest in any Property after deducting from such proceeds all of the Lessor's expenses in connection with such reletting (including, but not limited to, all repossession costs, brokerage commissions, attorneys' fees and expenses, employees' expenses, alteration costs and expenses of preparation for such reletting and all costs of any environmental remediation pursuant to Section 8.03). (i) The Lessee may, at any time prior to exercise of any remedies by the Lessor hereunder, elect, by written notice to the Lessor and the Agent, to cure any Default, Event of Default or Non-Performance Event by purchasing the Lessor's interest 28 LEASE Proprietary & Confidential in the Properties to the extent that such purchase would cure (to the Agent's sole satisfaction) a Default, Event of Default or Non-Performance Event and for an amount equal to the Termination Value for the Properties. Section 9.03 Lessee Default Repurchase Option. Notwithstanding the foregoing, if an Event of Default has occurred, the Lessee may within five (5) Business Days after the earliest of the Lessor's or Agent's notice of such occurrence thereafter pay to the Agent, on behalf of the Lessor, an amount equal to the Termination Value for the Properties in which event the Lessor will be obligated to convey its interest in the Properties to the Lessee in compliance with Section 5.04. Section 9.04 Payment on Default. Subject to Section 9.02(i), if an Event of Default has occurred, the Lessor will be entitled to recover from the Lessee, and the Lessee will pay to the Agent (on behalf of the Lessor) on demand, in lieu of all liquidated damages in respect of Fixed Rent beyond the date of such demand (but in addition to any claim for current damages in respect of Fixed Rent or Additional Rent and any other amounts due and payable to the Lessor hereunder prior to the date of such demand), at any time after termination of the Term of this Lease or re-entry or repossession of the Properties, an amount equal to the Termination Value for the Properties, in which event the Lessor will be obligated to convey its interest in the Property to the Lessee in compliance with Section 5.04. Section 9.05 Additional Rights. (a) No right or remedy hereunder will be exclusive of any other right or remedy, but will be cumulative and in addition to any other right or remedy hereunder or under the other Operative Documents or now or hereafter existing at Law or in equity and the exercise by the Lessor or the Agent of any one or more of such rights, powers or remedies will not preclude the simultaneous exercise of any or all of such other rights, powers or remedies. Failure to insist upon the strict performance of any provision hereof or to exercise any option, right, power or remedy contained herein will not constitute a waiver or relinquishment thereof for the future. Receipt by the Lessor (or by the Agent on behalf of the Lessor) of any Fixed Rent, Additional Rent, Residual Value Amount, Termination Value or other sum payable hereunder or under any other Operative Document with knowledge of the breach by the Lessee of any provision hereof will not constitute a waiver of such breach, and no waiver by the Lessor of any provision hereof will be deemed to have been made unless made in writing. The Lessor will be entitled to injunctive relief in case of the violation or attempted or threatened violation of any of the provisions hereof, a decree compelling performance of any of the provisions hereof or any other remedy allowed to the Lessor at Law or in equity. (b) Except as otherwise provided in Section 9.03, the Lessee hereby waives and surrenders for itself and all those claiming under it, including creditors of all 29 LEASE Proprietary & Confidential kinds to the extent permitted by applicable Law, (i) any right and privilege which they may have under any applicable Law or otherwise to redeem any Property or any portion thereof or to have a continuance of this Lease after termination of the Lessee's right of occupancy by Law or by any legal process or writ, or under the terms of this Lease, or after the termination of the Term of this Lease as herein provided and (ii) the benefits of any Law which exempts property from liability for debt or for distress for rent. (c) Subject to Section 9.02(i), if an Eve nt of Default exists hereunder, the Lessee shall pay to the Agent (on behalf of the Lessor) on demand all fees and out-of-pocket expenses incurred by the Lessor in enforcing its rights under this Lease, including attorneys' fees and expenses. ARTICLE X SURRENDER Section 10.01 Return of Property. If upon the expiration or termination of the Term or the termination of the Lessee's possession of the Properties the Lessee or its designee has not purchased the Lessor's interest in the Properties as provided hereunder, the Lessee sha ll surrender the Properties including all Improvements and Alterations thereon in accordance with all of the provisions of this Article X. Section 10.02 Condition; No Liens. (a) The Lessee shall surrender (i) each of the Properties and the remaining Alterations in good operating condition and with the efficiency and utility such Property had upon the commencement of the Term and such Alterations had upon the addition thereof, except as repaired, rebuilt, renovated, altered, added to or built as permitted or required under this Lease and the other Operative Documents and except for ordinary wear and tear, and (ii) each of the Properties with the remaining useful life such Property had upon the commencement of the Term less the number of years in the Term then expired. To the extent that any Property is, or any portion thereof is, not in compliance with this Section 10.02(a) upon expiration or termination of the Lease (except as a consequence of a Casualty or Condemnation, as to which Article VII applies), the Lessee shall pay to the Agent (on behalf of the Lessor) such additional amounts as are required to place such Property in compliance therewith. (b) The Lessee shall surrender each of the Properties to the Lessor free and clear of all Liens, easements, consents and restrictive covenants and agreements affecting such Property other than Permitted Encumbrances. Section 10.03 Environmental Compliance. The Lessee shall surrender the Properties in a condition such that it is in compliance with all applicable 30 LEASE Proprietary & Confidential Environmental Laws then enacted and all regulations then proposed to the extent such regulations contain retroactive requirements (regardless or whether the deadline for such compliance would otherwise expire after the end of the Term). Nothing contained in this Article X will relieve or discharge or in any way affect the obligation of the Lessee to cure promptly pursuant to this Lease any violations of Legal Requirements referred to in this Lease, or to pay and discharge any Liens and Taxes against any Property, subject, however, to the right of the Lessee to contest the same pursuant to the provisions of Sections 6.01(b) and 12.09. The Lessee shall cooperate, to the fullest extent permitted by Law, with the Lessor, its subsequent lessees, operators or purchasers to effect the transfer of all of the Lessee's Consents and Permits for each Property to such Persons. Section 10.04 Removal of Other Property. The Lessee, at its sole cost and expense, shall remove from the Properties on or prior to expiration or termination of this Lease, all property situated thereon that is not owned by the Lessor or leased to the Lessor pursuant to the Ground Lease and shall repair any damage caused by such removal and shall restore each Property to the condition and working order (or reasonable equivalent thereof) in which it existed immediately prior to the installation or removal of such property, except for ordinary wear and tear. The Lessee shall indemnify and hold harmless the Lessor, its successors and assigns against any loss, liability, cost, expense, penalty or claim arising out of the Lessee's removal of such property from each Property including any environmental liability arising therefrom. Any such property of the Lessee not so removed will become the property of the Lessor, and the Lessor may cause such property to be removed and disposed of, and the cost of any such removal and disposition of the Lessee's property and of repairing any damage caused by such removal and of the restoration of any Property to the condition and working order (or reasonable equivalent thereof) in which it existed immediately prior to the installation or removal of such property, ordinary wear and tear excepted, will be borne by the Lessee. Section 10.05 Return Conditions. Upon the election of the Lessee to terminate this Lease pursuant to Section 3.03(a)(ii), or upon other termination of this Lease, provided that the Lessee or its designee does not purchase the Lessor's interest in the Properties, the Lessee shall provide, or cause to be provided or accomplished, at the sole cost and expense of the Lessee, to or for the benefit of the Lessor and the Holders of the Instruments, at least thirty (30) days but not more than sixty (60) days prior to the Expiration Date or date of such other termination of this Lease each of the following (collectively, the "Return Conditions"): (i) a copy of the Environmental Consultant's report, satisfactory in form and substance to the Agent, the Lessor, the Certificate Holders and the B-Note Holders, each in their reasonable discretion, to the effect tha t, among other things, (A) each Property is in compliance with all applicable Environmental Laws (irrespective of whether the deadline for such compliance would otherwise 31 LEASE Proprietary & Confidential expire after the Expiration Date) as determined by the Environmental Consultant and Special Counsel selected by the Agent; (B) each Property is free from all Hazardous Materials except those that are present in amounts or concentrations that could not reasonably be anticipated to give rise to a material liability for a removal or remediation and (C) there is no pending or overtly threatened litigation, investigation or other legal proceeding of any kind that could result in any liability under applicable Environmental Laws to any Note Holder, any Certificate Holder, the Agent or the Lessor or in the imposition of any Lien on any Property; (ii) a report of the Appraiser or Independent Engineer chosen by the Lessor, satisfactory in scope and content to the Lessor, the Agent, the B-Note Holders and the Certificate Holders, each in their reasonable discretion, to the effect that (A) each Property has been maintained in accordance with the terms and conditions of this Lease and the other Operative Documents and the requirements of all Legal Requirements, Applicable Permits and prudent industry standards; (B) each Property meets or exceeds the original design specifications and functionality requirements, ordinary wear and tear excepted; and (C) no Condemnation or Casualty has occurred which has not been remedied in accordance with the terms of this Lease and the Operative Documents; (iii) ALTA form of extended coverage owner's title insurance policy issued by the Title Company, marked "premium paid", in an aggregate amount equal to the lesser of (i) the maximum insurable amount or (ii) the aggregate principal amount of the B-Notes and Certificate Amount of the Certificates, subject only to Permitted Encumbrances and otherwise in form and substance satisfactory to the Certificate Holders, the B-Note Holders, the Agent, the Lessor and Special Counsel, to be delivered to the B-Note Holders, the Certificate Holders, the Lessor, the Agent and Special Counsel, together with copies of all documents relating to the Permitted Encumbrances referred to therein, showing record title of the Lessor in the leasehold estate of the Land, with respect to the California Property, a fee title of the Lessor in the Land, with respect to the Maryland Property, and a fee estate in the Improvements and also showing the Lessor as holder of any necessary easements or rights-of-way or similar property rights and containing such affirmative insurance and endorsements as the B-Note Holders, the Certificate Holders, the Lessor, the Agent and Special Counsel each requires; (iv) all Fixed Rent and Additional Rent will have been paid in full through such expiration or termination of the Term; 32 LEASE Proprietary & Confidential (v) at the Lessor's request, the Lessee shall remove, or cause the removal from each Property of, at the Lessee's sole expense, any inventory, fixtures, machinery, equipment or other property belonging to the Lessee or third parties in compliance with Section 10.04; (vi) an Officer's Certificate (in form and substance satisfactory to the Agent, the Lessor, the Certificate Holders and the B-Note Holders) dated such date of termination of this Lease to the effect that no Alterations to any Property have resulted in a material and adverse effect on such Property's economic useful life or fair market value; (vii) if directed to do so by the Lessor, the Lessee (at its expense) shall execute and deliver any and all further instruments, agreements and documents as may, in the reasonable opinion of the Lessor, be necessary to confirm the termination and expiration of this Lease and to acknowledge that the Lessee from the date of termination and expiration, ceases to have any interest in any Property under this Lease and to confirm the Lessor's ownership of the fee or leasehold interests or legal title (as appropriate) in or to the Properties; (viii) an estoppel certificate from the Ground Lessor under the Ground Lease with respect to the California Property, in form and substance satisfactory to the Agent, the Lessor, the Certificate Holders and the B-Note Holders, together with evidence satisfactory to the Agent, the Lessor, the Certificate Holders and the B-Note Holders, each in their reasonable discretion, that the Lessor otherwise has title to, or other rights in respect of, each Property and other assets or rights as may be necessary or appropriate either (1) to occupy each Property or (2) to sell, lease, exchange, assign, encumber or otherwise dispose of each Property, in each case in conformity with all Legal Requirements, applicable Insurance Requirements, and contractual commitments binding on such Property, including any licenses, easements and rights-of-way; (ix) a services agreement, in form and substance reasonably satisfactory to the Agent, the Lessor and the Lessee, pursuant to which the Lessee agrees to provide services, documents and other matters necessary or useful for the ownership and operation of the Properties for its Intended Use; (x) receipt by the Agent of an agreement (the "Return Indemnity Agreement") executed by the Lessee and satisfactory in form and substance to all parties to the Participation Agreement, pursuant to which the Lessee (i) represents, warrants and covenants that the Return Conditions have been satisfied and will remain satisfied through and immediately after the Expiration Date and (ii) agrees to indemnify and hold harmless the Lessor, the Agent and the 33 LEASE Proprietary & Confidential B-Note Holders and the Certificate Holders against any loss, cost, expense, (including fees and expenses of legal counsel, accountants and other professionals), tax, penalty or other liability of any kind incurred as a consequence of the falsity or breach of the representations, warranties and covenants of the Lessee described in clause (i) above, subject to the limitations set forth in Section 6.03 of the Participation Agreement. The rights of Lessor under the Return Indemnity Agreement will be assignable to any purchaser of all or any part of any Property (or any other successor or assignee of the Lessor); (xi) evidence reasonably satisfactory to the Agent, the Lessor, the Certificate Holders and the B-Note Holders that the Property constitutes a separate and independent lot for all zoning, subdivision and taxing purposes under applicable Law; and (xii) an unconditional offer from the Lessee to the Lessor to purchase from the Lessee the Equipment Collateral at a price equal to the boxed and crated value of the Equipment Collateral on the loading dock, net of de-installation and crating expense. Section 10.06 Survival. The obligations of the Lessee under this Article X will survive the expiration or any termination of the Term of this Lease (whether by operation of Law or otherwise) for all matters described in this Article X which occur or arise prior to such expiration or termination or arise out of or result from facts, events, claims, liabilities, actions or conditions occurring, arising or existing on or before such expiration or termination. ARTICLE XI SECURITY; LESSOR WAIVERS Section 11.01 Characterization. It is the intention of the parties that the Lessee shall treat this Lease, for accounting purposes, as an operating lease, and for all other purposes, including federal, state and local income Tax, and commercial law and bankruptcy purposes, it is the intention of the parties hereto that (i) this Lease and the corresponding Lease Supplement be treated as either a mortgage, assignment of rents and security agreement or a deed of trust, assignment of rents and security agreement and financing statement or similar instrument with a POWER OF SALE (the "Lessee Mortgage") from the Lessee, as mortgagor, to the Lessor, and that the Lessee, as grantor, hereby has mortgaged, given, granted, bargained, sold alienated, enfeoffed, conveyed, confirmed and assigned, WITH POWER OF SALE, and by these presents does mortgage, give, grant, bargain, sale, alienate, enfeoff, convey, confirm and assign WITH POWER OF SALE unto the Lessor, as mortgagee, a first and paramount Lien on the 34 LEASE Proprietary & Confidential Lessee's right, title and interest in the Mortgaged Property (as defined in the applicable Lease Supplement), (ii) the Lessee Mortgage will secure the payment and performance of the Secured Obligations, (iii) all payments of Fixed Rent and Additional Rent shall be treated as payment of interest on the Secured Obligations, and all payments of Termination Value and Residual Value Amount shall be treated as payment of principal of the Secured Obligations, (iv) the Lessor shall have all of the rights, powers and remedies of a mortgagee and/or secured party available under applicable Law to take possession of and sell (whether by judicial foreclosure, power of sale or otherwise) the Mortgaged Property, (v) the effective date of the Lessee Mortgage will be the date of the applicable Lease Supplement and (vi) the reference to Section 11.01 and the recording of the applicable Lease Supplement shall be deemed to be the recording of the Lessee Mortgage. Section 11.02 Security Agreement. This Lease shall also be a security agreement from the Lessee, as debtor, to the Lessor, as secured party, securing the Secured Obligations, encumbering all personal property comprising the Mortgaged Property, whether now owned or hereafter acquired and all proceeds therefrom, all as more particularly described in the Lease Supplement applicable to each Property. Section 11.03 Lessor Waivers. The Lessor acknowledges the right of the Lessee and any assignee or sublessee permitted pursuant to Section 5.01 or Section 5.04 to finance and to secure under the Uniform Commercial Code, inventory, furnishings, furniture, equipment, machinery, leasehold improvements (provided such improvements constitute Severable Alterations) and all other personal property located on, at, or under any Property, other than the Equipment Collateral and the Improvements, and the Lessor agrees, so long as no Event of Default, Non-Performance Event or Environmental Trigger has occurred and be continuing, to execute, at the expense of the Lessee, lessor waiver forms (including landlord waivers) in favor of any purchase money seller, lessor or lender which has financed or provided or may finance or provide in the future such items of personal property, such waivers shall bee in form and substance reasonably satisfactory to the Lessor. ARTICLE XII MISCELLANEOUS Section 12.01 Notices, Demands and Other Instruments. All notices, demands, offers, consents, approvals, instructions, requests and other communications given pursuant to this Lease will be sent to the parties hereto at the addresses set forth on Schedule I to the Participation Agreement and will be given in the manner and shall be effective at the times and under the terms set forth in Section 9.02 of the Participation 35 LEASE Proprietary & Confidential Agreement. The Lessee shall send to the Agent copies of all notices, demands, offers, consents, advices and other instruments hereunder sent to the Lessor. Section 12.02 No Default Certificate. Each party hereto will, at the reasonable request of the other party hereto, deliver to such other party a certificate stating whether such first party has knowledge that, or has received notice from any Person that, any Casualty, Condemnation, Default, Event of Default, Environmental Event or Non-Performance Event has occurred and is continuing. Section 12.03 Severability. Except as expressly provided otherwise in this Lease, each provision hereof will be separate and independent and the breach of any such provision by the Lessee, or a breach of any obligation hereunder by the Lessor, will not discharge or relieve the Lessee from its obligations to perform each and every covenant to be performed by the Lessee hereunder. If any provision hereof or the application thereof to any Person or circumstance will be invalid or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances other than those as to which it is invalid or unenforceable, will not be affected thereby, and each provision hereof will be valid and will be enforceable to the extent permitted by Law. Section 12.04 Binding Effect; Amendments. All provisions contained in this Lease will be binding upon, inure to the benefit of and be enforceable by, the respective permitted successors and assigns of the Lessor and the Lessee to the same extent as if each successor and assignee were named as a party hereto. The Lessee may not assign its rights hereunder or any interest (by operation of law or otherwise) herein without the prior written consent of the Lessor. Subject to the provisions of Section 2.03 of this Lease and the other Operative Documents, the Lessor may assign all or any portion of any Property and/or its rights under this Lease. All amendments, waivers, consents or approvals arising pursuant to this Lease will be consummated in accordance with the Participation Agreement. Any amendment, waiver, consent or approval made otherwise than as expressly permitted by this Section 12.04 will be null and void. Section 12.05 Governing Law. THIS LEASE SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS TO MATTERS RELATING TO THE CREATION OF THE LEASEHOLD ESTATES HEREUNDER AND THE EXERCISE OF RIGHTS AND REMEDIES WITH RESPECT THERETO, WHICH WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATES IN WHICH SUCH ESTATES ARE LOCATED. WITHOUT LIMITING THE FOREGOING, IN THE EVENT THAT THIS LEASE IS DEEMED TO CONSTITUTE A FINANCING WHICH IS THE INTENTION OF THE PARTIES, THE LAWS OF THE STATE OF NEW YORK, 36 LEASE Proprietary & Confidential WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, WILL GOVERN THE CREATION, TERMS AND PROVISIONS OF THE INDEBTEDNESS EVIDENCED HEREBY AND/OR ANY LEASE SUPPLEMENT, BUT THE LIEN CREATED HEREBY AND/OR ANY LEASE SUPPLEMENT AND THE CREATION AND THE ENFORCEMENT OF SAID LIEN WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATES IN WHICH SUCH ESTATES ARE LOCATED. Section 12.06 Counterparts. The parties may sign this Lease in any number of counterparts and on separate counterparts, each of which will be an original but all of which when taken together will constitute one and the same instrument, except that, if this Lease constitutes "chattel paper" within the meaning of the UCC only one counterpart stamped or marked "COUNTERPART NUMBER ONE" or "COUNTERPART NUMBER l" will constitute, to the extent applicable, "chattel paper" or other "collateral" within the meaning of the Uniform Commercial Code in effect in any jurisdiction. Section 12.07 No Recourse. No recourse will be had against the Lessor, the Agent, the Proceeds Trustee, any Certificate Holder or any Note Holder or their respective successors, assigns, controlling persons, directors, officers, partners, employees, agents or shareholders, and their successors and assigns for any claim based on any failure by the Lessor in the performance or observance of any of the agreements, covenants or provisions contained in this Lease or any Lease Supplement and in the event of any such failure, recourse will be had solely against the Properties; provided, however, that nothing contained in this Lease shall be taken to prevent enforcement of this Lease or of any claim against the Lessor or any other Person arising out of or in connection with this Lease based on fraud, gross negligence or willful misconduct of the Lessor or such other Person. Section 12.08 Lessor's Right to Cure Lessee's Default. If the Lessee fails to make any payment or perform any act required to be made or performed under this Lease, the Lessor, without waiving any default or releasing Lessee from any obligation, may (but will be under no obligation to) make such payment or perform such act for the account and at the cost and expense of the Lessee, and may enter upon the Property or any portion thereof for such purpose and take all such action thereon as, at the Lessor's sole discretion, may be necessary or appropriate therefor. No such entry will be deemed an eviction of the Lessee or a breach of the Lessor's covenant for quiet possession pursuant to Section 2.03. All sums so paid by the Lessor and all costs and expenses (including reasonable attorneys' fees and expenses so incurred, together with interest thereon at the Default Rate to the extent permitted by Law) will be paid by the Lessee to the Agent (on behalf of the Lessor) on demand as Additional Rent. 37 LEASE Proprietary & Confidential Section 12.09 Lessee's Right to Contest Real Property Taxes. The Lessee, at its own cost and expense and in compliance with Section 6.01(c), will have the sole right, at any time, to seek, in good faith, a reduction in the assessed valuation of any Property or any portion thereof or to contest, in good faith, any real or personal property taxes for any Property or any portion thereof or to contest, in good faith, any dues, fees or assessments payable under the Participation Agreement. The Lessor will cooperate with, but shall not be required to join in, any proceeding or contest brought by the Lessee unless the provisions of any Legal Requirement require that the proceeding or contest be brought by or in the name of the owner of the applicable Property, provided that the Lessor shall not be required to so cooperate unless all reasonable costs and expenses of the Lessor in connection therewith are paid or reimbursed by the Lessee. In that case the Lessor joins in the proceeding or contest or permits it to be brought in the Lessor's name as long as the Lessee reimburses the Lessor for any and all costs and expenses reasonably incurred by the Lessor in connection therewith. The Lessee, on a final non-appealable determination of the proceeding or contest, shall immediately pay, discharge and satisfy any decision or judgment rendered, together with all costs, interest and penalties incidental to the decision or judgment. Section 12.10 Limitations on Amounts Payable. Notwithstanding anything to the contrary contained in this Lease or any of the other Operative Documents, the amounts which the Lessee is obliged to pay, as Fixed Rent pursuant to this Lease and the other Operative Documents, and the amounts which the Lessor, the Agent, the Certificate Holders and the Note Holders are entitled to receive as Fixed Rent pursuant to this Lease and the other Operative Documents, are subject to limitations pursuant to Section 9.17 of the Participation Agreement. Section 12.11 Payments to the Agent. The Lessee hereby acknowledges, and the Lessor hereby directs, that all payments of Fixed Rent, Additional Rent and other sums due to the Lessor hereunder will be made to the Agent (on behalf of the Lessor), to the account specified for the Agent in Schedule I to the Participation Agreement. Section 12.12 Remaining Moneys. Except as otherwise provided for herein or in the Participation Agreement, any and all moneys remaining, and all residual interests in the Properties after all payments of interest on and principal of the Notes, and all payments of current yield on and the Certificate Amount of the Certificates, all payments of other sums due to the parties entitled thereto under the Operative Documents, have been made in accordance with the Operative Documents, will be paid and assigned to the Lessee. Section 12.13 Waiver of Trial by Jury. IN ANY ACTION OR PROCEEDING UNDER OR RELATED TO THIS LEASE, THE OPERATIVE DOCUMENTS OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR 38 LEASE Proprietary & Confidential AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THE FOREGOING, THE LESSOR AND THE LESSEE HEREBY AGREE THAT ANY SUCH ACTION OR PROCEEDING WILL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY, IRRESPECTIVE OF WHICH PARTY COMMENCES SUCH ACTION OR PROCEEDING. Section 12.14 Exculpation of the Lessor. It is expressly agreed, anything herein to the contrary notwithstanding, that each and all of the representations, warranties, covenants, undertakings and agreements herein made on the part of the Lessor are made and intended not as personal representations, warranties, covenants, undertakings and agreements by the Lessor, or for the purpose or with the intention of binding the Lessor, personally, but are made and intended for the purpose of binding only the Trust Estate and this Lease is executed and delivered by the Lessor not in its own right but solely in the exercise of the powers expressly conferred upon it as Trustee; and no personal liability or personal responsibility is assumed by or will at any time be asserted or enforceable against the Lessor on account of this Lease or on account of any representation, warranty, covenant, undertaking or agreement of the Lessor, either expressed or implied herein, all such personal liability, if any, being expressly waived and released by the Lessee and by all Persons claiming by, through or under it, and that all recourse against the Lessor under this Lease will be limited to the Trust Estate. Section 12.15 No Merger of Title. There will be no merger of this Lease nor of the leasehold estate created by this Lease with the ownership of any Property or the Alterations by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, this Lease or the leasehold estate created by this Lease or any interest in this Lease or interest in the fee or leasehold ownership of any Property or the Alterations and no such merger will occur unless and until all Persons having any interest in (x) the leasehold estate created by this Lease and (y) the ownership of such Property or the Alterations, or any portion thereof, join in a written instrument effecting such merger and duly record the same. Section 12.16 Registered Instrument. (a) This Lease is a registered instrument. The Lessee will keep a record of ownership (the "Record of Ownership") in which it will register, and will register any transfer of, the Lessor's interest in this Lease and in the rights to receive any payments hereunder. (b) No transfer by the Lessor (whether or not with the Lessee's consent) of any interst in this Lease or in the rights to receive any payments hereunder shall be permitted or effective unless such transfer is made upon the Lessee's Record of Ownership. Prior to entry by the Lessee into the Lessee's Record of Ownership of any transfer by the Lessor as provided in this Section 12.16, the Lessee shall deem and treat the Lessor as the owner of this Lease for all purposes, provided that the Lessee shall 39 LEASE Proprietary & Confidential register each such transfer promptly upon the occurrence thereof and shall provide the Lessor with evidence thereof immediately upon written request. 40 LEASE Proprietary & Confidential IN WITNESS WHEREOF, the parties hereto have caused this Lease to be duly executed by their respective Officers thereunto duly authorized as of the date hereof. LESSOR: WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC DISTRIBUTION STATUTORY TRUST By:_____________________________________ Name: Title: LEASE Proprietary & Confidential STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) On this day of , 2001, before me personally came , to me known, who, being by me duly sworn, did depose and say that he is of Wells Fargo Bank Northwest, National Association, the national banking association described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of such association. ______________________________ Notary Public LEASE Proprietary & Confidential LESSEE: RITE AID REALTY CORP. By:________________________________ Name: Title: LEASE Proprietary & Confidential STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) On this day of , 2001, before me personally came , to me known, who, being by me duly sworn, did depose and say that he is of Rite Aid Realty Corp., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of such corporation. ______________________________ Notary Public Schedule A to the Lease Exhibit A Form of Lease Supplement [Previously distributed] EX-10 20 exh10-40.txt EXHIBIT 10.40 EXECUTION COPY GROUND LEASE AGREEMENT Dated as of June 27, 2001 between THRIFTY PAYLESS, INC., as Ground Lessor and WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC Distribution Statutory Trust, as Ground Lessee PREMISES: 2801 West Avenue H Lancaster, California This instrument was drafted by and after recording return to: Thomas E. Charbonneau, Esq. Chadbourne & Parke LLP 30 Rockefeller Plaza New York, New York 10112 GROUND LEASE AGREEMENT (this "Ground Lease") dated as of June 27, 2001, between THRIFTY PAYLESS, INC., a California corporation with an address at c/o Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011, as "Ground Lessor" and WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC Distribution Statutory Trust, a Connecticut statutory trust having an address c/o Wells Fargo Bank Northwest, National Association, 213 Court Street, Suite 902, Middletown, Connecticut 06547, Attn: Corporate Trust Services, as "Ground Lessee". In consideration of the mutual agreements herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I Definitions Capitalized terms used herein but which are not defined herein shall, unless the context otherwise requires, have the meanings assigned to them in Appendix A to the Participation Agreement dated as of the date hereof by and among Rite Aid Realty Corp., as Lessee, Rite Aid Corporation, as Guarantor, Ground Lessee, the financial institutions named therein as Note Holders and as Certificate Holders, and Citicorp USA, Inc., as Agent (as amended, modified or supplemented from time to time, the "Participation Agreement"). In addition, the rules of construction set forth in Part I of Appendix A to the Participation Agreement shall apply to this Lease. ARTICLE II Preliminary Statement Ground Lessor owns that certain parcel of land as described on Exhibit A annexed hereto (the "Land") (the Land, together with any easements benefiting the Land or appurtenant thereto being collectively, the "Parcel") and is willing to lease the Parcel to the Ground Lessee under the terms and conditions set forth in this Ground Lease. The Ground Lessee desires to lease such land from the Ground Lessor as provided herein. ARTICLE III Lease of the Parcel; Termination SECTION 3.01. Lease of Parcel. Ground Lessor hereby leases the Parcel to Ground Lessee and Ground Lessee hereby leases the Parcel from Ground Lessor, for the Ground Lease Term (as defined in Section 17.01), subject to all the terms and conditions hereof, together with the Improvements and any and all replacements, alterations, modifications, additions or improvements thereto and further together with all rights of way or uses, licenses, easements, tenements, 1 hereditaments and appurtenances now or hereafter belonging or pertaining to the Parcel (collectively, the "Property"). Effective from and after the date hereof, Ground Lessor waives and relinquishes any Lien or other right in the nature of a landlord's lien or privilege which it might now or hereafter otherwise have in or with respect to the Property or any part thereof. SECTION 3.02. Election To Terminate. Ground Lessee may elect to terminate this Ground Lease upon the payment of $1 to Ground Lessor at any time following the expiration or termination of the Lease; provided, however, that no such termination shall be effective without the prior written consent of the Agent. Upon such termination, Ground Lessee's obligations hereunder, including its obligation to make rental payments hereunder, shall terminate. SECTION 3.03. Automatic Termination. Upon payment in full of the Termination Value in accordance with and subject to the provisions of the Lease and the Participation Agreement, and upon compliance with all of the requirements of Section 10.05 of the Lease, this Ground Lease shall terminate and Ground Lessee's and Ground Lessor's obligations hereunder shall terminate. ARTICLE IV Payments SECTION 4.01. Ground Lease Rental Payments. Ground Lessee shall pay to Ground Lessor (a) Ten ($10) Dollars as rental payment for the Property for the period commencing on the date hereof and continuing until the expiration or earlier termination of the Lease, receipt of which is hereby acknowledged by Ground Lessor and (b) Ten Dollars ($10) per annum in arrears as rental payment for the Property for the remainder of the Ground Lease Term, such payments to commence on the first annual anniversary of the first day following the expiration or earlier termination of the Lease, and on each annual anniversary thereof throughout the balance of the Ground Lease Term, except that the last installment thereof shall be payable on the last day of the Ground Lease Term. SECTION 4.02. Method of Payment. Payments under this Ground Lease shall be paid to such account or at such place as Ground Lessor or Ground Lessee, as the case may be, shall specify from time to time in writing. Each such payment due hereunder shall be made in immediately available funds prior to 12:00 p.m. (New York time), on the scheduled date on which such payment shall be due, but, if such date shall not be a Business Day, such payment shall be made on the next succeeding Business Day with the same force and effect as though made on such scheduled date. SECTION 4.03. Late Payment. If any payment under this Ground Lease shall not be paid when due, Ground Lessee shall pay to Ground Lessor (or Ground 2 Lessor shall pay to Ground Lessee, as the case may be) interest (to the extent permitted by Law) on such overdue amount from and including the due date thereof to but excluding the date of payment thereof (unless such payment shall be made after 12:00 p.m. (New York time)) at the place of payment on such date of payment, in which case such date of payment shall be included) at the Default Rate. ARTICLE V Quiet Enjoyment Ground Lessor represents and warrants to Ground Lessee that it has full right and authority to lease the Property to Ground Lessee, all pursuant to the terms of this Ground Lease and that it has good, marketable and indefeasible fee title to the Property free and clear of all Liens except Permitted Encumbrances, and Ground Lessor represents and warrants that, at all times during the Ground Lease Term, it will defend and hold harmless Ground Lessee and its successors and assigns in their peaceable, quiet, exclusive and undisputed enjoyment of the Property against the claims of all Persons. ARTICLE VI Use of Property; Easements; Waivers SECTION 6.01. Use. Ground Lessee may use the Property for any legal purpose, including without limitation, the same purpose and business as Lessee may use the Property under the Lease, and only in accordance with the provisions thereof. SECTION 6.02. Easements. Provided that no event of default hereunder shall have occurred and be continuing, Ground Lessor hereby consents in each instance to the following actions by Ground Lessee and the Lessee under the Lease, but at Ground Lessee's or Lessee's, as applicable, sole cost and expense: (i) the granting of easements, licenses, rights-of-way and other rights and privileges in the nature of easements reasonably necessary or desirable for the use, repair, or maintenance of the Property; or (ii) the release of existing easements or other rights in the nature of easements which are for the benefit to any Property; provided, that in the case of such actions by Lessee, such actions are permitted under the terms of the Lease. SECTION 6.03. Ground Lessor Waivers. Ground Lessor acknowledges the rights of Ground Lessee and the Lessee under the Lease to finance and to secure under the Uniform Commercial Code, inventory, furnishings, furniture, equipment, machinery, leasehold improvements (so long as such leasehold improvements are personal property and not fixtures) and all other personal property located on, at or under the Property, other than in the case of Lessee, any Equipment Collateral and the Improvements, and Ground Lessor agrees to execute lessor waivers in favor of any purchase money seller, lessor or lender which has 3 financed or provided or may finance or provide in the future such items of personal property. ARTICLE VII Alterations During the Ground Lease Term, Ground Lessee, in its discretion, may from time to time alter or improve, or cause to be altered or improved, the Property or any part thereof in any manner it deems necessary or desirable to carry on any activity permitted under Article VI, including any alteration, demolition or removal of any existing buildings, equipment, machinery, roads or other structures or items of personal property or fixtures, any grading or landscaping of the Parcel and any excavation of or for any foundations or fuel storage or waste treatment areas and any construction or addition of any buildings, equipment, roads or other structures or items of personal property or fixtures, but subject to any express restrictions on Ground Lessee contained in this Ground Lease. ARTICLE VIII Liens Ground Lessor shall not directly or indirectly create, incur, assume or suffer to exist any Lien on or with respect to the Property or the premises covered by the Property, title thereto or any interest therein, except Permitted Encumbrances, and Ground Lessor shall promptly, at its own expense, take such action as may be necessary to duly discharge any such Lien. If Ground Lessor shall fail to promptly discharge any such Lien, Ground Lessee, at its option, may, upon not less than five (5) days notice to Ground Lessor, cause the same to be so discharged, and sums expended by Ground Lessee in connection therewith shall be repaid by Ground Lessor to Ground Lessee on demand. If the Lease shall expire or be terminated and this Ground Lease shall thereafter remain in effect, Ground Lessee shall keep, or cause the Property to be kept, free and clear of Liens arising by, through or in respect of Ground Lessee, other than Liens which do not involve any material danger of the sale, forfeiture or loss of any part of the fee estate in and to the Property or any interest of Ground Lessor therein; provided, however, that Ground Lessee shall not be required to discharge any such Liens (i) during any period that a Default or Event of Default shall exist, or (ii) which result from a breach of Ground Lessor's obligations under Article IX hereof. On final determination of such Lien (which shall be the responsibility of Ground Lessee) described in the preceding sentence, Ground Lessee shall immediately pay any judgment rendered with all proper costs and charges and shall have the Lien released or judgment satisfied at Ground Lessee's expense. If any such Lien (which shall be the responsibility of Ground Lessee) placed on such property ripens into final judgment, Ground Lessor, at its option, may pay any such final judgment and all sums expended by Ground Lessor in connection therewith shall be repaid by Ground Lessee to Ground 4 Lessor on demand. Ground Lessee shall not directly or indirectly create, incur, assume or suffer to exist any Lessor Liens. ARTICLE IX Taxes and Charges Ground Lessee shall use commercially reasonable efforts to cause the Lessee under the Lease to pay (or cause to be paid), prior to delinquency, all Charges which arise or accrue during the Term of the Lease. If the Lease shall expire or be terminated and this Ground Lease shall remain in effect, Ground Lessee shall pay or cause to be paid throughout the remaining Ground Lease Term before delinquency all Charges; provided, however, that neither party shall be required to make any such payments if such party shall in good faith be contesting any such Charges, so long as such contest does not involve any material danger of the sale, forfeiture or loss of any part of the Property, title thereto or any interest of Ground Lessee or Ground Lessor therein. If either party fails to make any payment as herein provided required to be made by such party, the other party at its option ma y pay the same and any moneys so paid shall be payable on demand by the party responsible for such payment. ARTICLE X Insurance Ground Lessee shall use commercially reasonable efforts to cause the Lessee under the Lease to maintain insurance coverage with respect to the Property in accordance with Section 6.05 of the Lease during the Term of the Lease. If the Lease shall expire or be terminated and this Ground Lease shall thereafter remain in effect, Ground Lessee shall, without cost to Ground Lessor, maintain or cause to be maintained in effect throughout the remaining Ground Lease Term, with insurers of recognized responsibility, insurance policies with respect to the Property insuring against loss or damage to the person and property of Ground Lessee and Ground Lessor and others, all from such risks and in such amounts as owners of similar properties maintain with respect to such property, including liability insurance; provided, however, that neither party shall in any event be required to maintain any such insurance in amounts greater than is generally maintained by responsible owners of similar property. If the Ground Lessee shall fail to maintain such insurance during any period in which the Lease is no longer in effect, the Ground Lessor may (but shall be under no obligation to) maintain or cause such insurance to be maintained at the sole cost and expense of the Ground Lessee. 5 ARTICLE XI Casualty or Condemnation SECTION 11.01. Termination upon a Casualty or Condemnation. If, during the Term of the Lease, a Casualty or Condemnation shall occur, as a result of which the Lease shall terminate with respect to the California Property, this Ground Lease shall thereafter terminate upon full compliance by Lessee with the provisions of Articles VII and, if applicable, X of the Lease, and the obligations of Ground Lessee hereunder shall thereupon terminate. If such Casualty or Condemnation shall occur during any period in which the Lease is no longer in effect, this Ground Lease shall thereafter terminate at the election of the Ground Lessee, provided, however, that until the Notes and the Investment have been paid (or re-paid, as the case may be) in full, no such termination shall be effective without the prior written consent of the Agent. Upon such termination, the obligations of Ground Lessee hereunder shall terminate. SECTION 11.02. Application of Payments upon a Casualty or Condemnation. Any payment, including condemnation awards, received at any time by Ground Lessor or Ground Lessee from any Governmental Authority or other Person as a result of the occurrence of a Casualty or Condemnation when the Lease is in effect shall be distributed in accordance with Article VII of the Lease. Any such payment received by Ground Lessor or Ground Lessee as a result of a Casualty or Condemnation during any period in which the Lease is no longer in effect, shall be applied as follows: so much of such payments as shall be necessary to pay in full all sums owing (i) with respect to the Notes and the Investment, and (ii) to Ground Lessee, the Lenders, the Lessor or the Agent otherwise in respect of the transactions contemplated by the Participation Agreement or any other Operative Document shall be retained by, or paid over to, Ground Lessee, and the balance (if any) of such payments shall be retained by, or paid over to Ground Lessor (provided that no Default or Event of Default then exists). ARTICLE XII Default The following events shall (but only if the Lease is no longer in effect) constitute an event of default hereunder (whatever the reason for such default and whether it shall be voluntary or involuntary or come about or be effected by operation of law or be pursuant to or in compliance with any Law): (a) Ground Lessee shall fail to make any payment of rental or other payment due hereunder and such failure shall continue unremedied for a period of ten (10) days after receipt of written notice thereof from Ground Lessor; or 6 (b) Ground Lessee shall fail to perform or observe any other covenant, condition or agreement to be performed or observed by it hereunder and such failure shall continue unremedied for a period of thirty (30) days after receipt of written notice thereof from Ground Lessor, except that so long as Ground Lessee has commenced to cure such failure within such thirty (30) day period and proceeds with reasonable diligence and dispatch to cure such failure, such failure shall not constitute an event of default hereunder. Upon the occurrence and during the continuance of an event of default hereunder, Ground Lessor shall have the right, upon ten (10) Business Days written notice to Ground Lessee, to enter upon and take possession of the Property and cancel all rights hereunder. Any such entry and possession by Ground Lessor shall be without liability or responsibility to Ground Lessee. Ground Lessor shall have the right, after the occurrence and during the continuance of an event of default hereunder, to terminate this Ground Lease by giving ten (10) days written notice to Ground Lessee of Ground Lessor's election to terminate same. The remedies set forth above are exclusive of any other rights or remedies of Ground Lessor which exist at law or in equity. Notwithstanding anything to the contrary contained in this Ground Lease, no event, occurrence or failure to perform by (or on behalf of) Ground Lessee shall constitute a default or an event of default hereunder, and Ground Lessor shall have no right to enter upon and take possession of the Property or terminate this Ground Lease, so long as any sums remain to be paid at any time by Lessee under the Lease or any sums remain to be paid to Ground Lessee, the Holders, the Lessor or Agent under the Participation Agreement or any other Operative Document. ARTICLE XIII Lease; Assignment; Sale SECTION 13.01. Generally. Ground Lessee may from time to time, without Ground Lessor's consent: (a) Lease the California Property and Ground Lessee's interests hereunder pursuant to the Lease; (b) Lease the California Property or assign this Ground Lease or any interests of Ground Lessee hereunder to any Person during the Additional Portion of the Ground Lease Term; and (c) Assign and create liens and security interests in Ground Lessee's interests hereunder in accordance with the Participation Agreement and the Trust Agreement; 7 Any subletting or assignment permitted hereunder shall relieve Ground Lessee of its obligations hereunder. SECTION 13.02. Ground Lessor. Ground Lessor will not sell, transfer or convey the California Property or any of its rights or interests in the California Property or assign this Ground Lease or any rights or interests of Ground Lessor hereunder, except in accordance with the provisions of the Participation Agreement. ARTICLE XIV Notices Unless otherwise specifically provided herein, all notices and other communications required or permitted hereunder shall be in writing and shall be addressed and become effective as provided in the Participation Agreement. ARTICLE XV Binding Effect; Successors and Assigns The terms and provisions of this Ground Lease and the respective rights and obligations hereunder of Ground Lessee and Ground Lessor shall be binding upon, and inure to the benefit of, their respective permitted successors and assigns. ARTICLE XVI Possession Upon Termination Upon termination of the Ground Lease Term, whether by lapse of time or because of any of the conditions or provisions contained herein, Ground Lessee will peaceably and quietly yield up and surrender possession of the California Property to Ground Lessor without representation or warranty except that at the time thereof there shall be no Liens (created directly by Ground Lessee) prohibited by Article VIII on the California Property. ARTICLE XVII Ground Lease Term SECTION 17.01. Ground Lease Term. The term of this Ground Lease shall commence on the date hereof and shall expire, unless terminated earlier pursuant to the provisions of this Ground Lease, on February 10, 2035 (the "Initial Term"). The Initial Term of this Ground Lease shall be automatically extended for three (3) five year periods (each a "Renewal Term") unless on or before the date which occurs ninety (90) days prior to the expiration of the Initial Term or each Renewal Term, as the case may be, the Ground Lessee provides notice in writing to Ground Lessor of its election not to extend the Ground Lease Term. 8 The Initial Term and each successive Renewal Term are referred to herein as the "Ground Lease Term". In no event shall any termination of the Lease or the discharge of the obligations of the Lessee under the Lease in any bankruptcy, insolvency or reorganization proceeding permit the early termination of this Ground Lease. SECTION 17.02. Ground Lessor's Bankruptcy. It is expressly understood and agreed that for purposes of Section 365(h) of the Bankruptcy Code, 11 U.S.C. ss.365(h), (a) Ground Lessee shall be deemed to be in possession of the Property by virtue of the possessory interest therein granted to Ground Lessee under this Ground Lease whether or not all or any part of the Property has been (further) leased by Ground Lessee and (b) in the event of any rejection or disaffirmance of this Ground Lease in any bankruptcy or similar proceeding relating to Ground Lessor, Ground Lessee may elect to remain in possession of the Property for the balance of the Ground Lease Term, including all extensions exercisable hereunder, at the option of Ground Lessee. SECTION 17.03. Underlying Lease. If Ground Lessor owns a leasehold estate, and not a fee estate, in the Parcel, the terms and conditions of the lease governing Ground Lessor's leasehold estate are incorporated herein by reference. Ground Lessee shall use commercially reasonable efforts to cause the Lessee under the Lease to comply with all requirements of that underlying lease. During any period in which the Lease is no longer in effect, Ground Lessor shall have no liability or responsibility to Ground Lessee or the Holders for the failure of Ground Lessee to comply or to cause Ground Lessee's assignee, sublettee or other tenant to comply, with the terms and conditions of that underlying lease or for the results or consequences of any such failure. ARTICLE XVIII Indemnification The Ground Lessor hereby agrees to indemnify each Indemnified Party from and against, and to pay any and all Losses which may be imposed on, incurred by, or asserted against any Indemnified Party in any way relating to or arising out of this Agreement or the Property pursuant to the provisions of Section 9.14 of the Participation Agreement, which provisions are hereby incorporated herein by reference as if fully set forth herein. ARTICLE XIX The Lease During the Term of the Lease, Ground Lessor shall look solely to the Lessee under the Lease for the performance and discharge of Ground Lessee's obligations and liabilities under this Ground Lease (other than with respect to Liens created directly by Ground Lessee) with the same force and effect as 9 though Ground Lessee had performed the same, and Ground Lessee shall have no liability hereunder, no default or event of default shall arise hereunder and the rights of Ground Lessee hereunder shall not be affected, as a result of any failure of Ground Lessee to perform or discharge such liabilities or obligations notwithstanding (a) any continuation of any such failure after the end of the Term of the Lease or (b) that such failure first became known or apparent after the end of the Term of the Lease. No such performance or discharge by or on behalf of the Lessee under the Lease shall be deemed an acknowledgment by Ground Lessor of the Lessee under the Lease as Ground Lessee hereunder, or a merger of the Lease with this Ground Lease or a merger of the estate of Lessor under the Lease with the estate of the Lessee thereunder. ARTICLE XX Bankruptcy of Ground Lessee If this Ground Lease shall terminate as a result of a rejection or disaffirmance in any bankruptcy, insolvency or reorganization proceeding affecting Ground Lessee, then so long as any amounts are payable or due with respect to the Instruments or otherwise with respect to the transactions contemplated by the Participation Agreement and the other Operative Documents, the Agent, or a Person designated by Agent (in either case, the "Bankruptcy Ground Lessee"), shall have the right, exercisable by notice to Ground Lessor within 60 days after the effective date of such termination, to enter into a new lease of the Property with Ground Lessor, the term of which shall begin on the date of the termination, rejection or disaffirmance of this Ground Lease and shall continue for the remainder of the Ground Lease Term. The new lease shall otherwise contain the same terms and conditions as those set forth herein, except for requirements which are no longer applicable or have already been performed, and the Bankruptcy Ground Lessee shall have no obligation to remedy prior defaults on the part of Ground Lessee hereunder. Ground Lessor will cause such new lease to have the same priority relative to other rights or interests to or in the Property as this Ground Lease (other than with respect to Liens created directly by Ground Lessee), and Ground Lessor covenants to discharge or cause to be subordinated to such new lease any Lien which is or is herein required to be subject or subordinate to this Ground Lease, other than Liens of Persons claiming by, through or under the Bankruptcy Ground Lessee, Ground Lessee or the Agent as to which Ground Lessor shall have no obligation. The provisions of this Article XX shall survive the termination of this Ground Lease and shall continue in full force and effect thereafter to the same extent as if this Article XX were a separate and independent contract among Ground Lessor, Ground Lessee and the Agent. From the date on which the Agent shall serve upon Ground Lessor notice of the exercise of its right to a new lease, the Bankruptcy Ground Lessee may use and enjoy the Property without hindrance by Ground Lessor. 10 ARTICLE XXI Personal Liability No Person shall become personally liable for the performance or observance of any agreements, obligations, covenants or conditions to be performed or observed by Ground Lessee under this Ground Lease, or any liabilities with respect thereto. ARTICLE XXII Miscellaneous SECTION 22.01. Severability. Any provision of this Ground Lease that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without inva lidating 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. SECTION 22.02. Amendment. Neither this Ground Lease nor any of the terms hereof may be terminated, amended, supplemented, waived or modified orally, but only by an instrument in writing signed by the party against which the enforcement of the termination, amendment, supplement, waiver or modification shall be sought, and, in the case of Ground Lessee, consented to by, the Agent. SECTION 22.03. Headings. The Table of Contents and headings of the various Articles and Sections of this Ground Lease are for convenience of reference only and shall not modify, define or limit any of the terms or provisions hereof. SECTION 22.04. Counterparts. This Ground Lease may be executed by the parties hereto in separate counterparts. All such counterparts shall together constitute but one and the same instrument. SECTION 22.05. GOVERNING LAW. THIS GROUND LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE IN WHICH THE PARCEL IS LOCATED APPLICABLE TO AGREEMENTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. SECTION 22.06. Recording. This Ground Lease or a memorandum hereof may be recorded by either party hereto in the appropriate real estate records and Ground Lessor shall pay all costs of recording and all applicable recording or transfer taxes or related charges. 11 SECTION 22.07. Estoppel Certificates. Ground Lessor will execute, acknowledge and deliver to Ground Lessee, or Agent, promptly upon request by such Person (but not more oft en than two times in any twelve month period) an estoppel certificate certifying (a) that this Ground Lease is unmodified and in full force and effect (or, if there have been modifications, that this Ground Lease is in full force and effect, as modified, and stating the date of each instrument so modifying this Ground Lease), (b) the dates, if any, to which rent has been paid and (c) whether any Default exists hereunder known to it and, if any such Default exists, specifying the nature and period of existence thereof and what action it is taking or proposes to take with respect thereto, and whether notice thereof has been given to Ground Lessee. Any such certificate may be relied upon by the Agent, the Lessor, any Holder of a Note and any prospective purchaser or transferee of Ground Lessee's interest under this Ground Lease or any part thereof. SECTION 22.08. Liabilities of Trustee. Except for the liability of Wells Fargo Bank Northwest, National Association ("WFBN") for its representations and warranties under Section 3.03 of the Participation Agreement, for its own gross negligence and willful misconduct and as otherwise provided in the Operative Documents, it is expressly understood and agreed by Ground Lessor and Ground Lessee that (a) this Ground Lease is executed and delivered by WFBN, not in its individual capacity but solely as trustee of Ground Lessee under the Trust Agreement, in the exercise of the powers and authority conferred and vested in it as trustee under the Trust Agreement, (b) each of the undertakings and agreements herein made on the part of Ground Lessee is made and intended not as a personal representation, undertaking and agreement by WFBN but is made and intended for the purpose of binding only the Ground Lessee, (c) nothing herein contained shall be construed as creating any liability on WFBN, individually or personally, to perform any obligation of Ground Lessee either expressed or implied contained herein or in the Operative Documents, all such liability, if any, being expressly waived by Ground Lessor and Ground Lessee and by any Person lawfully claiming by, though or under the parties to this Agreement and (d) under no circumstances shall WFBN be personally liable for the payment of any indebtedness or expenses of Ground Lessee or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by Ground Lessee under this Ground Lease or the other Operative Documents. SECTION 22.09. Security for Ground Lessee's Obligations to Agent. In order to secure a portion of the indebtedness evidenced by the Instruments, the Participation Agreement provides, among other things, for the assignment by Ground Lessee to the Agent of Ground Lessee's right, title and interest in, to and under this Ground Lease, to the extent set forth in the Participation Agreement, and for the creation of a mortgage (or deed of trust) lien on and security interest in such rights and interests as well as Ground Lessee's ownership interest in the Improvements, in favor of the Agent. Ground Lessor hereby consents to such assignment and to the creation of such mortgage (or deed 12 of trust) and security interest and acknowledges receipt of copies of the Participation Agreement. SECTION 22.10. WAIVER OF TRIAL BY JURY. THE GROUND LESSOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, AND THE GROUND LESSEE BY ITS ACCEPTANCE OF THIS GROUND LEASE IRREVOCABLY AND UNCONDITIONALLY WAIVES, ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR COUNTERCLAIM ARISING IN CONNECTION WITH, OUT OF OR OTHERWISE RELATING TO THIS GROUND LEASE OR ANY OTHER DOCUMENT OR INSTRUMENT HERETOFORE, NOW OR HEREAFTER EXECUTED AND/OR DELIVERED IN CONNECTION THEREWITH OR IN ANY WAY RELATED TO THIS TRANSACTION OR OTHERWISE WITH RESPECT TO THE PROPERTY. SECTION 22.11. Additional Property. This Ground Le ase shall automatically be deemed to include any additional land contiguous to the Parcel which is leased to the Ground Lessor pursuant to a ground lease or which is acquired in fee by the Ground Lessor. IN WITNESS WHEREOF, the undersigned have each caused this Ground Lease Agreement to be duly executed and delivered as of the day and year first above written. [Remainder of the Page Intentionally Left Blank] 13 SIGNATURE PAGE TO GROUND LEASE Ground Lessor: THRIFTY PAYLESS, INC. By: ________________________________ Name: Title: 14 SIGNATURE PAGE TO GROUND LEASE Ground Lessee: WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC DISTRIBUTION STATUTORY TRUST By: _________________________________ Name: Title: 15 STATE OF ) : ss.: COUNTY OF ) [ADD CALIFORNIA ACKNOWLEDGMENT] STATE OF ) : ss.: COUNTY OF ) [ADD CALIFORNIA ACKNOWLEDGMENT] Exhibit A (Description of the Land) Land located in Los Angeles County, California, more particularly described as follows: BEING THAT PORTION OF THE SOUTH HALF OF SECTION 5, TOWNSHIP 7 NORTH, RANGE 12 WEST, SAN BERNARDINO BASE AND MERIDIAN, IN THE CITY OF LANCASTER, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF, LYING WESTERLY OF THE FOLLOWING DESCRIBED LINE: COMMENCING AT THE SOUTHWEST CORNER OF SAID SECTION 5; THENCE NORTH 89 DEGREES 55 MINUTES 01 SECONDS EAST, COINCIDENT WITH THE SOUTH LINE OF SAID SECTION 5 (KNOWN AS WEST AVENUE H), A DISTANCE OF 1,320.66 FEET TO THE POINT OF BEGINNING; THENCE NORTH 00 DEGREES 04 MINUTES 59 SECONDS WEST, AS MEASURED AT RIGHT ANGLES FROM SAID SOUTH LINE, A DISTANCE OF 118.83 FEET; THENCE NORTH 89 DEGREES 55 MINUTES 01 SECONDS EAST, PARALLEL WITH SAID SOUTH LINE, A DISTANCE OF 54 FEET TO THE BEGINNING OF A NON-TANGENT CURVE CONCAVE EASTERLY, HAVING A RADIUS OF 915.69 FEET, A RADIAL LINE AT SAID POINT BEARS SOUTH 88 DEGREES 35 MINUTES 16 SECONDS EAST; THENCE NORTHERLY, COINCIDENT WITH SAID CURVE, THROUGH A CENTRAL ANGLE OF 10 DEGREES 37 MINUTES 01 SECONDS, AN ARC DISTANCE OF 169.68 FEET TO THE BEGINNING OF A REVERSE CURVE CONCAVE TO THE WESTERLY HAVING A RADIUS OF 1,091.69 FEET; THENCE NORTHERLY, COINCIDENT WITH SAID CURVE, THROUGH A CENTRAL ANGLE OF 12 DEGREES 39 MINUTES 36 SECONDS, AN ARC DISTANCE OF 241.22 FEET; THENCE NORTH 00 DEGREES 37 MINUTES 51 SECONDS WEST, TANGENT TO SAID CURVE AND PARALLEL WITH THE WEST LINE OF SAID SECTION 5, A DISTANCE OF 235 FEET; THENCE NORTH 89 DEGREES 55 MINUTES 01 SECONDS EAST, PARALLEL WITH SAID SOUTH LINE, A DISTANCE OF 146.85 FEET; THENCE NORTH 00 DEGREES 37 MINUTES 51 SECONDS WEST, PARALLEL WITH SAID WEST LINE, A DISTANCE OF 1,861.07 FEET TO THE CENTER QUARTER SECTION LINE OF SAID SECTION 5 (KNOWN AS WEST AVENUE G-8). EXCEPT THOSE PORTIONS THEREOF QUITCLAIMED BY THE LANCASTER REDEVELOPMENT AGENCY TO THE CITY OF LANCASTER, BY DEED RECORDED FEBRUARY 27, 1998 AS INSTRUMENT NO. 98-316693 BEING THOSE PORTIONS OF THE SOUTH HALF OF SECTION 5, TOWNSHIP 7 NORTH, RANGE 12 WEST, SAN BERNARDINO BASE AND MERIDIAN, IN THE CITY OF LANCASTER, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF, DESCRIBED AS FOLLOWS (PARCELS A, B, C, D, E, AND F): PARCEL A: THE NORTH 45 FEET THEREOF. EXCEPT THEREFROM THAT PORTION LYING EASTERLY OF A LINE PARALLEL WITH AND 42 FEET EASTERLY OF THE EXCEPT LINE OF THE SOUTHWEST QUARTER OF SECTION 5. PARCEL B: THE WEST 57.5 FEET THEREOF. EXCEPT THE NORTH 45 FEET THEREOF. PARCEL C: THE SOUTH 67.5 FEET THEREOF. EXCEPT THE WEST 57.5 FEET THEREOF. ALSO EXCEPT THE SOUTH 250 FEET OF THE SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER OF SAID SECTION 5 OF THE REMAINDER. ALSO EXCEPT THAT PORTION LYING EAST OF THE WEST LINE OF THE LAND DEEDED TO THE STATE OF CALIFORNIA, FOR THE ANTELOPE VALLEY FREEWAY, IN DEED RECORDED JUNE 26, 1967 AS INSTRUMENT NO. 427, OF THE REMAINDER. PARCEL D: BEGINNING AT THE INTERSECTION IN THE EAST LINE OF THE ABOVE DESCRIBED PARCEL "B" WITH THE NORTHWEST CORNER OF THE ABOVE DESCRIBED PARCEL "C"; THENCE EASTERLY COINCIDENT WITH THE NORTH LINE OF SAID PARCEL "C," A DISTANCE OF 351.75 FEET TO A POINT OF CUSP AN THE BEGINNING OF A 286.36 FOOT RADIUS TANGENT CURVE CONCAVE NORTHERLY; THENCE WESTERLY, COINCIDENT WITH SAID CURVE, THROUGH A CENTRAL ANGLE OF 11.4 DEGREES 26 MINUTES 34 SECONDS, AN ARC DISTANCE OF 57.19 3 FEET TO THE BEGINNING OF A REVERSE CURVE CONCAVE TO THE SOUTHERLY HAVING A RADIUS OF 317.36 FEET; THENCE WESTERLY, COINCIDENT WITH SAID CURVE, THROUGH A CENTRAL ANGLE OF 11 DEGREES 26 MINUTES 34 SECONDS, AN ARC DISTANCE OF 63.38 FEET; THENCE WESTERLY, PARALLEL WITH SAID NORTH LINE, A DISTANCE OF 232.10 FEET TO SAID EAST LINE; THENCE SOUTHERLY, COINCIDENT WITH SAID EAST LINE, A DISTANCE OF 12 FEET TO THE POINT OF BEGINNING. PARCEL E: BEGINNING AT THE INTERSECTION IN THE EAST LINE OF THE ABOVE DESCRIBED PARCEL "B" WITH THE NORTHWEST CORNER OF THE ABOVE DESCRIBED PARCEL "D"; THENCE EASTERLY COINCIDENT WITH THE NORTH LINE OF SAID PARCEL "D", A DISTANCE OF 14.16 FEET; THENCE NORTHWESTERLY, IN A DIRECT LINE TO A POINT ON SAID EAST LINE OF PARCEL "B", DISTANCE NORTHERLY 13.87 FEET FROM THE POINT OF BEGINNING; THENCE SOUTHERLY, COINCIDENT WITH SAID EAST LINE, A DISTANCE OF 13.87 FEET TO THE POINT OF BEGINNING. PARCEL F: BEGINNING AT THE INTERSECTION IN THE SOUTH LINE OF THE ABOVE DESCRIBED PARCEL "A" WITH THE NORTHEAST CORNER OF THE ABOVE DESCRIBED PARCEL "B"; THENCE EASTERLY COINCIDENT WITH THE SOUTH LINE OF SAID PARCEL "A", A DISTANCE OF 28.84 FEET; THENCE SOUTHWESTERLY, IN A DIRECT LINE, TO A POINT ON THE SAID EAST LINE OF PARCEL "B", DISTANT SOUTHERLY 33.28 FEET FROM THE POINT OF BEGINNING; THENCE NORTHERLY, COINCIDENT WITH THE EAST LINE, A DISTANCE OF 33.28 FEET TO THE POINT OF BEGINNING. ALSO EXCEPT ALL OIL AND MINERAL RIGHTS, AS RESERVED BY FELTON WARREN, IN DEED RECORDED OCTOBER 24, 1951 IN BOOK 37485 PAGE 30, OFFICIAL RECORDS. ALSO EXCEPT OIL, GAS, HYDROCARBON SUBSTANCES AND MINERALS OF EVERY KIND AND CHARACTER LYING MORE THAN FIVE HUNDRED (500) FEET BELOW THE SURFACE, TOGETHER WITH THE RIGHT TO DRILL INTO, THROUGH AND TO USE AND OCCUPY ALL PARTS OF THE SITE LYING MORE THAN FIVE HUNDRED (500) FEET BELOW THE SURFACE THEREOF FOR ANY AND ALL PURPOSES INCIDENTAL TO THE EXPLORATION FOR AND PRODUCTION OF OIL, GAS, HYDROCARBON SUBSTANCES OR MINERALS FROM SAID SITE OR OTHER LANDS, BUT WITHOUT, HOWEVER, ANY RIGHT TO USE EITHER THE SURFACE OF THE SITE OR ANY PORTION THEREOF WITHIN FIVE HUNDRED (500) FEET OF THE SURFACE FOR ANY PURPOSE OR PURPOSES WHATSOEVER, OR TO USE THE SITE IN SUCH A MANNER AS TO CREATE A DISTURBANCE TO THE USE OR ENJOYMENT OF THE SITE, AS EXCEPTED AND RESERVED BY THE LANCASTER REDEVELOPMENT AGENCY, A PUBLIC BODY, CORPORATE AND POLITIC, IN DEED RECORDED FEBRUARY 27, 1998 AS INSTRUMENT NO. 98-316694. Street Address: 2801 West Avenue H, Lancaster, CA 93536 4 EX-10 21 exh10-41.txt EXHIBIT 10.41 Execution Copy Proprietary and Confidential SECURITY AGREEMENT between RITE AID REALTY CORP. and WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC Distribution Statutory Trust Dated as of June 27, 2001.(i) TABLE OF CONTENTS Page ARTICLE I SECURITY INTERESTS ................................................ 1 1.1. Grant of Security Interests............................................ 1 1.2. Power of Attorney...................................................... 2 ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS ................ 2 2.1. Necessary Filings...................................................... 2 2.2. No Liens............................................................... 2 2.3. Other Financing Statements............................................. 3 2.4. Chief Executive Office................................................. 3 2.5. Location of Equipment.................................................. 3 2.6. Recourse............................................................... 4 2.7. Trade Names; Change of Name............................................ 4 ARTICLE III PROVISIONS CONCERNING COLLATERAL ................................ 4 3.1. Protection of Lessor's Security........................................ 4 3.2. Further Actions........................................................ 4 3.3. Financing Statements................................................... 5 ARTICLE IV REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT...................... 5 4.1. Remedies; Obtaining the Equipment Collateral Upon Default ............. 5 4.2. Remedies; Disposition of the Equipment Collateral ..................... 6 4.3. Waiver of Claims....................................................... 7 4.4. Remedies Cumulative.................................................... 8 4.5. Discontinuance of Proceedings.......................................... 8 ARTICLE V MISCELLANEOUS ..................................................... 8 5.1. Notices................................................................ 8 5.2. Waiver; Amendment...................................................... 9 5.3. Obligations Absolute................................................... 9 5.4. Successors and Assigns; Reliance on Representations ................... 9 5.5. Headings Descriptive................................................... 9 5.6. Governing law.......................................................... 9 5.7. Company's Duties....................................................... 9 5.8. Termination; Release................................................... 10 5.9. Counterparts........................................................... 10 5.10. Severability........................................................... 10 (i) Page ---- 5.11. Benefit of Agreement................................................... 10 5.12. Exculpation of Trustee................................................. 11 SCHEDULE I - Schedule of Equipment SCHEDULE II - Schedule of Equipment Locations SCHEDULE III - Schedule of Trade and Fictitious Names (ii) SECURITY AGREEMENT Proprietary and Confidential SECURITY AGREEMENT SECURITY AGREEMENT (this "Agreement"), dated as of June 27, 2001, made by RITE AID REALTY CORP., a Delaware corporation (the "Company") in favor of WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of the RAC Distribution Statutory Trust (the "Lessor"). Except as otherwise defined herein, capitalized terms used herein and defined in the Participation Agreement (as defined below) shall be used herein as so defined, and the rules of construction set forth in Part I of Appendix A to the Participation Agreement shall apply to this Security Agreement. W I T N E S S E T H : WHEREAS, the Company, Rite Aid Corporation, the Lessor, the persons named therein as Note Holders and Certificate Holders and Citicorp USA, Inc., as Agent have entered into a Participation Agreement, dated as of the date hereof (the "Participation Agreement"); WHEREAS, in connection with the transactions contemplated by the Participation Agreement, the Company and the Lessor have entered into the Lease pursuant to which the Lessor has agreed to lease the Property to the Lessor; WHEREAS, it is a condition precedent to the consummation of the transactions contemplated by the Participation Agreement that the Company shall have executed and delivered to the Lessor this Agreement; NOW, THEREFORE, in consideration of the benefits accruing to the Company, the receipt and sufficiency of which are hereby acknowledged, the Company hereby makes the following representations and warranties to the Lessor and hereby covenants and agrees with the Lessor as follows: ARTICLE I SECURITY INTERESTS 1.1 Grant of Security Interests. As security for the prompt and complete payment and performance when due of all of the Company's obligations under the Operative Documents (including its obligation to pay Rent, Termination Value and the Residual Value Amount) (collectively, the "Obligations"), the Company does hereby assign and transfer unto the Lessor, and does hereby pledge and grant to the Lessor, a continuing security interest in, all of the right, title and interest of the Company in, to and under all of the following, whether now existing or hereafter from time to time acquired: (i) the equipment described on Schedule I hereto (the "Equipment"), and (ii) all proceeds (as defined in the UCC) and products of the foregoing (all of the above, collectively, the "Equipment Collateral"). 1.2. Power of Attorney. The Company hereby constitutes and appoints the Lessor its true and lawful attorney, irrevocably, with full power after the occurrence of and during the continuance of a Default, Event of Default or Non-Performance Event (in the name of the Company or otherwise) to act, require, demand, receive, compound and give acquittance for any and all moneys and claims for moneys due or to become due to the Company under or arising out of the Equipment Collateral, and to file any claims or take any action or institute any proceedings which the Lessor may deem to be necessary or advisable to protect its interests, which appointment as attorney is coupled with an interest. ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS The Company represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows: 2.1. Necessary Filings. All filings, registrations and recordings necessary or appropriate to create, preserve and perfect the security interest granted by the Company to the Lessor hereby in respect of the Equipment Collateral have been accomplished and the security interest granted to the Lessor pursuant to this Agreement in and to the Equipment Collateral creates a perfected security interest therein prior to the rights of all other Persons therein and subject to no other Liens (other than Liens granted pursuant to the Security Documents) and is entitled to all the rights, priorities and benefits afforded by the UCC or other relevant law as enacted in any relevant jurisdiction to perfected security interests, in each case to the extent that the Equipment Collateral consists of the type of property in which a security interest may be perfected by filing a financing statement under the UCC as enacted in any relevant jurisdiction. 2.2. No Liens. The Company is and will be the owner of all Equipment Collateral free from any Lien, security interest, encumbrance or other right, title or interest of any Person (other than Liens granted pursuant to the Security Documents), and the Company shall defend the Equipment Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Lessor. 2.3. Other Financing Statements. As of the date hereof, there is no financing statement (or similar statement or instrument of registration under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Equipment Collateral (other than financing statements filed in respect of Liens granted pursuant to the Security Documents), and so long as the Termination Date (as defined in Section 5.8) has not occurred, the Company will not execute or authorize to be filed in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) or statements relating to the Equipment Collateral, except financing statements filed or to be filed in respect of and covering the security interests granted hereby by the Company or in connection with the other Security Documents. 2.4. Chief Executive Office. The chief executive office of the Company is located at 30 Hunter Lane, Camp Hill, Pennsylvania 17011-2404. The Company will not move its chief executive office except to such new location as the Company may establish in accordance with the immediately succeeding sentence. The Company shall not establish new locations for its chief executive office until (i) it shall have given to Lessor and the Agent not less than 15 days' prior written notice of its intention to do so, clearly describing such new location and providing such other information in connection therewith as the Lessor and the Agent ma y reasonably request, (ii) with respect to such new location, it shall have taken all action reasonably satisfactory to the Lessor and the Agent to maintain the security interest of the Lessor in the Equipment Collateral intended to be granted hereby at all times fully perfected and in full force and effect and (iii) at the request of the Lessor, it shall have furnished an opinion of counsel reasonably acceptable to the Lessor and the Agent to the effect that all financing or continuation statements and ame ndments or supplements thereto have been filed in the appropriate filing office or offices, and all other actions have been taken, in order to perfect (and maintain the perfection of) the security interest granted hereby. 2.5. Location of Equipment. All Equipment is located at one of the locations shown on Schedule II hereto. The Company agrees that all Equipment shall be kept at any one of the locations shown on Schedule II hereto, or such new location as the Company may establish in accordance with the immediately succeeding sentence. The Company may establish a new location for any of the Equipment only if (i) it shall have given to the Lessor and the Agent not less than 15 days' prior written notice of its intention so to do, clearly describing such new location and providing such other information in connection therewith as the Lessor and the Agent may request, (ii) with respect to such new location, it shall have taken all action reasonably satisfactory to the Lessor and the Agent to maintain the security interest of the Lessor in the Equipment Collateral intended to be granted hereby at all times fully perfected and in full force and effect and (iii) at the request of the Lessor, it shall have furnished an opinion of counsel reasonably acceptable to the Lessor and the Agent to the effect that all financing or continuation statements and amendments or supplements thereto have been filed in the appropriate filing office or offices, and all other actions have been taken, in order to perfect (and maintain the perfection of) the security interest granted hereby. 2.6. Recourse. This Agreement is made with full recourse to the Company. 2.7. Trade Names; Change of Name. The Company has not operated in any jurisdiction under, or in the preceding five years has had or has operated in any jurisdiction under, any trade names, fictitious names or other names except its legal name and such other trade or fictitious names as are listed on Schedule III hereto. The Company shall not change its legal name or assume or operate in any jurisdiction under any trade, fictitious or other name except those names listed on Schedule III hereto and new names established in accordance with the immediately succeeding sentence. The Company shall not assume or operate in any jurisdiction under any new trade, fictitious or other name until (i) it shall have given to the Lessor and the Agent not less than 15 days' prior written notice of its intention so to do, clearly describing such new name and the jurisdictions in which such new name shall be used and providing such other information in connection therewith as the Lessor and the Agent may reasonably request, (ii) with respect to such new name, it shall have taken all action reasonably requested by the Lessor to maintain the security interest of the Lessor in the Equipment Collateral intended to be granted hereby at all times fully perfected and in full force and effect and (iii) at the request of the Lessor, it shall have furnished an opinion of counsel reasonably acceptable to the Lessor and the Agent to the effect that all financing or continuation statements and amendments or supplements thereto have been filed in the appropriate filing office or offices, and all other actions have been taken, in order to perfect (and maintain the perfection of) the security interest granted hereby. ARTICLE III PROVISIONS CONCERNING COLLATERAL 3.1. Protection of Lessor's Security. The Company will do nothing to impair the rights of the Lessor in the Equipment Collateral. The Company will at all times keep the Equipment insured in favor of the Lessor, at the Company's own expense to the extent and in the manner provided in the Section 5.03 of the Senior Credit Facility. The Company assumes all liability and responsibility in connection with the Equipment Collateral and the liability of the Company to pay the Obligations shall in no way be affected or diminished by reason of the fact that any Equipment Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable to the Company. 3.2. Further Actions. The Company will, at its own expense and upon the request of the Lessor, make, execute, endorse, acknowledge, file and/or deliver to the. Lessor from time to time such lists and descriptions of the Equipment Collateral, fina ncing statements and other assurances or instruments and take such further steps relating to the Equipment Collateral, which the Lessor or the Agent deems reasonably appropriate or advisable to perfect, preserve or protect its security interest in the Equipment Collateral. 3.3. Financing Statements. The Company agrees to execute and deliver to the Lessor such financing statements, in form reasonably acceptable to the Lessor, as the Lessor may from time to time reasonably request or as are necessary or desirable in the opinion of the Lessor to establish and maintain a valid, enforceable, first priority perfected security interest in the Equipment Collateral as provided herein and the other rights and security contemplated hereby all in accordance with the UCC as enacted in any and all relevant jurisdictions or any other relevant law. The Company will pay any applicable filing fees, recordation taxes and related expenses relating to the Equipment Collateral. The Company hereby authorizes the Lessor to file any such financing statements without the signature of the Company where permitted by law. ARTICLE IV REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT OR NON-PERFORMANCE EVENT 4.1. Remedies; Obtaining the Equipment Collateral Upon Default. The Company agrees that, if any Event of Default or Non-Performance Event shall have occurred and be continuing, then and in every such case, the Lessor, in addition to any rights now or hereafter existing under applicable law, shall have all rights as a secured creditor under any UCC, and such additional rights and remedies to which a secured creditor is entitled under the laws in effect, in all relevant jurisdictions and may: (i) personally, or by agents or attorneys, immediately take possession of the Equipment Collateral or any part thereof, from the Company or any other Person who then has possession of any part thereof with or without notice or process of law, and for that purpose may enter upon such Company's premises where any of the Equipment Collateral is located and remove the same and use in connection with such removal any and all services, supplies, aids and other facilities of the Company; (ii) sell, assign or otherwise liquidate any or all of the Equipment Collateral or any part thereof in accordance with Section 4.2 hereof, or direct the Company to sell, assign or otherwise liquidate any or all of the Equipment Collateral or any part thereof, and, in each case, take possession of the proceeds of any such sale or liquidation;. (iii) take possession of the Equipment Collateral or any part thereof, by directing the Company in writing to deliver the same to the Lessor at any place or places designated by the Lessor, in which event such Company shall at its own expense: (x) forthwith cause the same to be moved to the place or places so designated by the Lessor and there delivered to the Lessor; (y) store and keep any Equipment Collateral so delivered to the Lessor at such place or places pending further action by the Lessor as provided in Section 4.2 hereof; and (z) while the Equipment Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition; it being understood that each Company's obligation so to deliver the Equipment Collateral is of the essence of this Agreement and that, accordingly, upon application to a court of equity having jurisdiction, the Lessor shall be entitled to a decree requiring specific performance by the Company of said obligation. 4.2. Remedies; Disposition of the Equipment Collateral. If any Event of Default shall have occurred and be continuing, then any Equipment Collateral repossessed by the Lessor under or pursuant to Section 4.1 hereof and any other Equipment Collateral whether or not so repossessed by the Lessor, may be sold, assigned, leased or otherwise disposed of under one or more contracts or as an entirety, and without the necessity of gathering at the place of sale the property to be sold, and in general in such manner, at such time or times, at such place or places and on such terms as the Lessor may, in compliance with any mandatory requirements of applicable law, determine to be commercially reasonable. Any of the Equipment Collateral may be sold, leased or otherwise disposed of, in the condition in which the same existed when taken by the Lessor or after any overhaul or repair at the expense of the Company which the Lessor shall determine to be commercially reasonable. Any such disposition which shall be a private sale or other private proceedings permitted by such requirements shall be made upon not less than 10 days' prior written notice to the Company specifying the time at which such disposition is to be made and the intended sale price or other consideration therefor, and shall be subject, for the 10 days after the giving of such notice, to the right of the Company or any nominee of the Company to acquire the Equipment Collateral involved at a price or for such other consideration at least equal to the intended sale price or other consideration so specified. Any such disposition which shall be a public sale permitted by such requirements shall be made upon not less than 10 days' prior written notice to the Company specifying the time and place of such sale and, in the absence of applicable requirements of law, shall be by public auction (which may, at the Lessor's option, be subject to reserve), after publication of notice of such auction (where required by applicable law) not less than 10 days prior thereto. The Lessor 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 the sale, and such sale may be made at any time or place to which the sale may be so adjourned. To the extent permitted by any such requirement of law, the Lessor may bid for and become the purchaser of the Equipment Collateral or any item thereof, offered for sale in accordance with this Section without accountability to the Company. If, under mandatory requirements of applicable law, the Lessor shall be required to make disposition of the Equipment Collateral within a period of time which does not permit the giving of notice to the Company as hereinabove specified, the Lessor need give the Company only such notice of disposition as shall be reasonably practicable in view of such mandatory requirements of applicable law. The Company agrees to do or cause to be done all such other acts and things as may be reasonably necessary to make such sale or sales of all or any portion of the Equipment Collateral valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at the Company's expense. 4.3 Waiver of Claims. Except as otherwise provided in this Agreement, THE COMPANY HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE LESSOR'S TAKING POSSESSION OR THE LESSOR'S DISPOSITION OF ANY OF THE EQUIPMENT COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES, and the Company hereby further waives, to the extent permitted by law: (i) all damages occasioned by such taking of possession except any damages which are the direct result of the Lessor's gross negligence or willful misconduct; (ii) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Lessor's rights hereunder; and (iii) all rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Equipment Collateral or any portion thereof, and the Company, for itself and all who may claim under it, insofar as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. Any sale of, or the grant of options to purchase, or any other realization upon, any Equipment Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the Company therein and thereto, and shall be a perpetual bar both at law and in equity against the Company and against any and all Persons claiming or attempting to claim the Equipment Collateral so sold, optioned or realized upon, or any part thereof, from, through and under the Company. 4.4. Remedies Cumulative. Each and every right, power and remedy hereby specifically given to the Lessor shall be in addition to every other right, power and remedy specifically given under this Agreement and the other Operative Documents, or now or hereafter existing at law, in equity or by statute and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Lessor. All such rights, powers and remedies shall be cumulative and the exercise or the beginning of the exercise of one shall not be deemed a waiver of the right to exercise any other or others. No delay or omission of the Lessor in the exercise of any such right, power or remedy and no renewal or extension of any of the Obligations shall impair any such right, power or remedy or shall be construed to be a waiver of any Default, Event of Default or Non-Performance Event or an acquiescence therein. No notice to or demand on the Company in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Lessor to any other or further action in any circumstances without notice or demand. In the event that the Lessor shall bring any suit to enforce any of its rights hereunder and shall be entitled to judgment, then in such suit the Lessor may recover reasonable expenses, including reasonable attorneys' fees, and the amounts thereof shall be included in such judgment. 4.5. Discontinuance of Proceedings. In case the Lessor shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Lessor, then and in every such case the Company and the Lessor shall be restored to their former positions and rights hereunder with respect to the Equipment Collateral subject to the security interest created under this Agreement, and all rights, remedies and powers of the Lessor shall continue as if no such proceeding had been instituted. ARTICLE V MISCELLANEOUS 5.1. Notices. Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be made in accordance with Section 9.02 of the Participation Agreement. 5.2. Waiver; Amendment. None of the terms and cond itions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless done so in accordance with Section 9.04 of the Participation Agreement. 5.3. Obligations Absolute. The obligations of the Company hereunder shall remain in full force and effect without regard to, and shall not be impaired by (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of the Company; (b) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Agreement or any other Operative Document; or (c) any amendment to or modification of any Operative Document or any security for any of the Obligations; whe ther or not the Company shall have notice or knowledge of any of the foregoing. 5.4. Successors and Assigns; Reliance on Representations. (a) This Agreement shall be binding upon the Company and its successors and assigns (although the Company may not assign its rights and obligations hereunder except in accordance with the provisions of the Participation Agreement) and shall inure to the benefit of the Lessor and its successors and assigns. The Company acknowledges and consents to the assignment of this Agreement by the Lessor to the Agent pursuant to the Assignment and Security Agreement. (b) All agreements, statements, representations and warranties made by the Company herein or in any certificate or other instrument delivered by the Company or on its behalf under this Agreement shall be considered to have been relied upon by the Lessor and shall survive the execution and delivery of this Agreement and the other Operative Agreements regardless of any investigation made by the Lessor or on its behalf. 5.5. Headings Descriptive. The headings of the several sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 5.6. Governing law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 5.7. Company's Duties. It is expressly agreed, anything herein contained to the contrary notwithstanding, that the Company shall remain liable to perform all of the obligations, if any, assumed by it with respect to the Equipment Collateral and the Lessor shall not have any obligations or liabilities with respect to any Equipment Collateral by reason of or arising out of this Agreement, nor shall the Lessor be required or obligated in any manner to perform or fulfill any of the obligations of the Company under or with respect to any Equipment Collateral. 5.8. Termination; Release. (a) After the Termination Date (defined below), this Agreement shall terminate and the Lessor, at the request and expense of the Company, will promptly execute and deliver to the Company a proper instrument or instruments (including Uniform Commercial Code termination statements on form UCC-3) acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to the Company (without recourse and without any representation or warranty) such of the Equipment Collateral as may be in the possession of the Lessor and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used in this Agreement, "Termination Date" shall mean the date upon which the Operative Documents have been terminated and all Obligations then owing have been paid in full. (b) In the event that any part of the Equipment Collateral is sold in connection with a sale permitted by Section 6.04 or 6.06(b) of the Participation Agreement (other than a sale to the Company or a Subsidiary thereof) or otherwise released and the proceeds of such sale or sales or from such release are applied in accordance with the provisions of Section 6.06(b) of the Participation Agreement, to the extent required to be so applied, such Equipment Collateral will be sold free and clear of the Liens created by this Agreement and the Lessor, at the request and expense of the Company, will duly assign, transfer and deliver to the Company (without recourse and without any representation or warranty) such of the Equipment Collateral as is then being (or has been) so sold or released and as may be in the possession of the Lessor and has not theretofore been released pursuant to this Agreement. 5.9. 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 and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Company and the Lessor. 5.10. Severability. Any provision of this Agreement 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. 5.11. Benefit of Agreement. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of and be enforceable by each of the parties hereto and its successors and assigns. 5.12 Exculpation of Trustee. Except for its own gross negligence and willful misconduct and as otherwise expressly provided in the Operative Documents, it is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by WFBN, not in its individual capacity but solely as Trustee under the Trust Agreement, in the exercise of the powers and authority conferred and vested in it as the Trustee under the Trust Agreement, (b) each of the undertakings and agreements herein made on the part of the Trustee is made and intended not as a personal representation, undertaking and agreement by WFBN but is made and intended for the purpose for binding only the Trustee and the Trust Estate, (c) nothing herein contained shall be construed as creating any liability on WFBN, individually or personally, to perform any obligation of the Trustee either expressed or implied contained herein or in the Operative Documents, all such liability, if any, being expressly waived by the parties to this Agreement and by any Person lawfully claiming by, through or under the parties to this Agreement and (d) under no circumstances shall WFBN be personally liable for the payment of any indebtedness or expenses of the Trustee or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trustee hereunder. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. RITE AID REALTY CORP. By ____________________ Name: Title: Accepted and Agreed to: WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC Statutory Trust By_________________________________________________ Name: Title: Schedule I to Security Agreement EQUIPMENT SCHEDULE "Equipment" shall mean all right, title and interest in, to and under all of the Company's "equipment", as such term is defined in the Uniform Commercial Code of the State of New York as in effect from time to time, located at the Locations (as defined below) and, in any event, including, but not limited to, all machinery, equipment, furnishings and vehicles, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Locations" shall mean, collectively, the distribution centers operated by the Company and located at (a) 601 Chelsea Road, Perryman, Maryland and (b) 2801 West Avenue H, Lancaster, California. Schedule II to Security Agreement SCHEDULE OF EQUIPMENT LOCATIONS 601 Chelsea Road 2801 West Avenue H Perryman, Maryland Lancaster, California (Harford County) (Los Angeles County) Schedule III to Security Agreement SCHEDULE OF TRADE AND FICTITIOUS NAMES None. EX-10 22 exh10-42.txt EXHIBIT 10.42 EXECUTION COPY Proprietary & Confidential RITE AID CORPORATION --------------- PARENT GUARANTY --------------- Dated as of June 27, 2001. PARENT GUARANTY Proprietary & Confidential PARENT GUARANTY PARENT GUARANTY, dated as of June __, 2000 (this "Guaranty"), by RITE AID CORPORATION, a Delaware corporation (the "Guarantor"), to WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as trustee of the RAC DISTRIBUTION STATUTORY TRUST (the "Lessor"). Capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Participation Agreement dated as of the date hereof among the Lessor, Rite Aid Realty Corp. (the "Lessee"), the Guarantor, Wells Fargo Bank Northwest, National Association, not in its individual capacity except as expressly provided therein but solely as Trustee of RAC Distribution Statutory Trust, the Persons named therein as Certificate Holders and Note Holders, and Citicorp USA, Inc., as Agent (the "Agent") (as the same may be amended from time to time, the "Participation Agreement"). Preliminary Statement A. As contemplated by the Participation Agreement, the Lessor will acquire (i) a fee interest in two certain parcels of land located in Perryman, Maryland, and a fee interest in certain improvements located thereon and (ii) a leasehold interest in a certain parcel of land located in Lancaster, California, and a fee interest in certain improvements located thereon. B. The Lessor will finance its acquisition of its interests in the Properties through the issuance of Notes and Certificates. C. The Guarantor intends this Guaranty to be an inducement for (i) the Lessor and the Agent to enter into the transactions contemplated by the Operative Documents, (ii) the Note Holders to purchase the Notes, and (iii) the Certificate Holders to purchase the Certificates, all of which the Agent, the Lessor, the Trust, the Note Holders and the Certificate Holders would be unwilling to do if the Guarantor did not execute and deliver this Guaranty. NOW, THEREFORE, in consideration of the premises and intending to be legally bound by this Guaranty, the Guarantor hereby agrees to be bound as follows: 1. Guaranty. The Guarantor unconditionally guarantees and agrees with the Lessor that (i) all Rent, the Residual Value Amount, the Termination Value, all indemnification payments required to be made pursuant to Section 9.14 of the Participation Agreement and all other sums stated in the Operative Documents to the extent payable by the Lessee thereunder will be promptly paid in full when due, whether at stated maturity, by acceleration or otherwise, in accordance with the provisions of the Operative Documents and (ii) the Lessee will perform, comply with and observe all PARENT GUARANTY Proprietary & Confidential other obligations, covenants, terms, conditions and undertakings of the Lessee contained in the Operative Documents. 2. Nature of the Guaranty. (a) This Guaranty shall be irrevocable, and in all events shall be continuing, unconditional and absolute, and if for any reason any sums stated in the other Operative Documents to be payable by Lessee, or any part thereof, shall not be paid promptly when due, or any other obligation, covenant, term, condition or undertaking of the Lessee contained in any Operative Document shall not be performed, complied with or observed in accordance with said Operative Document, subject in each case, in respect of such obligation to pay or perform, to the terms of the Operative Documents, then in each such instance upon demand of payment, performance, compliance or observance, made by the Lessor to the Guarantor, the Guarantor shall pay, perform, comply with or observe the same to or for the benefit of the Lessor pursuant to and in accordance with the provisions of the Operative Documents, regardless of any defenses or rights of set-off or counterclaim, regardless of whether the Lessor shall have taken any steps to enforce its rights against the Guarantor, the Lessee or any other Person, to collect such sums, or any part thereof, and regardless of any other condition or contingency. The Guarantor also agrees to pay on demand to the Lessor such further amounts as shall be sufficient to cover the costs and expenses of collecting such sums, or part thereof, or of otherwise enforcing this Guaranty, including, in any case, compensation to their respective attorneys for all services rendered in that connection. (b) Any and all payments by the Guarantor hereunder shall be made free and clear of and without deduction for any and all Charges. If the Guarantor shall be required by Law to deduct any Charges from or in respect of any sum payable hereunder, (i) the amounts payable by the Guarantor shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this paragraph 2(b)) the Lessor receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Guarantor shall make such deductions and (iii) the Guarantor shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Law. 3. The Guarantor hereby unconditionally (a) waives any requirement that the Agent, the Lessor, the Trust, the Note Holders and the Certificate Holders first make demand upon, or seek to enforce remedies against, any other Person or any of the collateral or property of such other Person before demanding payment from, or seeking to enforce this Guaranty against, the Guarantor; (b) covenants that this Guaranty will not be discharged except by complete satisfaction of all obligations of the Lessee contained in the Operative Documents; (c) agrees that this Guaranty shall remain in full effect without regard to, and shall not be affected or impaired by, any invalidity, illegality, irregularity or unenforceability in who le or in part of any other Operative Document (and the Guarantor hereby waives any defense relating to the enforceability of the Operative Documents or any provision contained therein) or except as expressly set forth herein or 2 PARENT GUARANTY Proprietary & Confidential in the Operative Documents, or any limitation of the liability of the Company thereunder or any limitation on the method or terms of payment thereunder which may now or hereafter be caused or imposed in any manner whatsoever; (d) waives diligence, presentment and protest with respect to, and, except as expressly provided herein or in the Operative Documents, any notice of default in, the payment of any amount at any time payable under or in connection with the Instruments or any of the Operative Documents; and (e) agrees that each and every right, power and remedy given under this Guaranty or any other Operative Document shall be cumulative and not exclusive, and be in addition to all other rights, powers and remedies now or hereafter granted or otherwise existing. 4. The Guarantor hereby irrevocably waives any claim, remedy or right that it may now have or hereafter acquire against the Lessee that arise from the existence, payment, performance or enforcement of the obligations of the Lessee under any other Operative Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Agent, the Lessor, the Trust, any Note Holder or any Certificate Holder against the Lessee whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from the Lessee directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right. If any amount shall be paid to the Guarantor in violation of the preceding sentence at any time prior to the indefeasible cash payment in full of all amounts payable under this Guaranty, such amount shall be held in trust for the benefit of the Lessor, and shall forthwith be paid to the Lessor and be credited and applied to the amounts payable under this Guaranty. The Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangement contemplated by the Operative Documents and that the waiver set forth in this subsection is knowingly made in contemplation of such benefits. Notwithstanding the foregoing, the obligation to hold amounts in trust shall not have effect to the extent that it would otherwise create or take effect as a charge or security interest over such amounts. 5. The obligations, undertakings and conditions to be performed or observed by the Guarantor under this Guaranty shall not be affected or impaired by reason of the happening from time to time of any of the following with respect to the Operative Documents, all without notice to, or the further consent of, the Guarantor: (a) the waiver by the Agent, the Lessor, the Trust, any Note Holder or any Certificate Holder or any other Person of the observance or performance by the Lessee or the Guarantor of any of the obligations, undertakings or conditions contained in any of the Operative Documents, except to the extent of such waiver; 3 PARENT GUARANTY Proprietary & Confidential (b) the extension, in whole or in part, of the time for payment of any amount owing or payable under any of the Instruments, the Loan Agreement, or any other Operative Document or of any other sums or obligations under or arising out of or on account of the Instruments, the Loan Agreement or any other Operative Document except to the extent of such extension; (c) the modification or amendment (whether material or otherwise) of any of the obligations of the Lessee, the Lessor, the Guarantor or any other guarantor under any Operative Document, except to the extent of such modification or amendment; (d) the taking or the omission of any of the actions referred to in any other Operative Document (including, without limitation, the giving of any consent referred to therein); (e) any failure, omission, delay or lack on the part of the Agent, the Lessor, the Trust, any Note Holder, any Certificate Holder, or any other Person to enforce, assert or exercise any right, power or remedy conferred on the Agent, the Lessor, the Trust, any Note Holder or any Certificate Holder or any other Person in any of the Operative Documents or any action on the part of the Agent, the Lessor, any Note Holder or any Certificate Holder, or any other Person granting indulgence or extension in any form; (f) the release or discharge of the Agent, the Lessor, the Trust, the Lessee or any other Person from the performance or observance of any obligation, undertaking or condition to be performed by the Agent, the Lessee or any other Person under any Instrument or any other Operative Document by operation of Law; (g) the receipt and acceptance by the Agent, the Lessor, the Trust, a Note Holder, a Certificate Holder, or any other Person of notes, checks or other instruments for the payment of money and extensions and renewals thereof; (h) any action, inaction or election of remedies by the Agent, the Lessor, the Trust, a Note Holder, a Certificate Holder or any other Person which results in any impairment or destruction of any sub rogation rights of the Guarantor, or any rights of the Guarantor to proceed against any other Person for reimbursement; (i) the surrender by the Agent, the Lessor, the Trust, any Note Holder, any Certificate Holder or any other Person of any security at any time held for the performance or observance of any of the agreements, covenants, 4 PARENT GUARANTY Proprietary & Confidential terms or conditions contained in the Instruments or any of the other Operative Documents; (j) any event or circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor, indemnitor or surety under the laws of the States of New York or any other applicable jurisdiction; (k) any other circumstances whatsoever (with or without notice to or knowledge of the Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Guarantor with respect to its obligations hereunder or under the other Operative Documents, in bankruptcy or in any other instance, except based on payment or performance; (l) any change in circumstances, whether or not foreseen or foreseeable, whether or not imputable to the Guarantor, any Note Holder, any Certificate Holder, the Agent or the Lessor and whether or not such change in circumstances shall or might in any manner and to any extent vary the risk of the Guarantor hereunder; (m) any sublease or other use of any of the Properties, or any sale, transfer, disposition, grant of security interest, mortgaging or assignment by the Lessee of any of its interests, rights or obligations, in, to and under the Lease, or with respect to any of the Properties or any part thereof, whether or not permitted by the terms of any of the Operative Documents; (n) any assignment or grant of security interest by any Note Holder of all of any part of such Note Holder's right, title and interest in its Notes or in the Collateral; (o) any assignment or grant of security interest by any Certificate Holder of all or part of such Certificate Holder's right, title and interest in its Certificates or in the Collateral; (p) any sale by the Lessor, or its successors or assigns, of any of the Properties or any part thereof; (q) any consolidation or merger of the Lessee, whether permitted under the terms of the Participation Agreement or otherwise, or the sale, transfer or other disposition by the Lessee of all or substantially all of the assets and/or liabilities of the Lessee or any change in the ownership of the Lessee; 5 PARENT GUARANTY Proprietary & Confidential (r) the voluntary or involuntary liquidation, dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, the arrangement, composition or readjustment of the Lessee, or any other similar proceeding affecting the status, existence, assets or obligations of the Lessee, or the limitation on damages for the breach of, or the disaffirmation of, any of the Operative Documents in any such proceeding; (s) any invalidity or unenforceability, for any reason, of the Lease or any other Operative Document, or of any provision thereof, or of any of the obligations, or any defect in the Lessor's title to, or any mortgage or other security interest granted in, any of the Properties or any part thereof; or (t) any other cause, whether similar or dissimilar to the foregoing; it being the intention of the Guarantor that this Guaranty be absolute and unconditional in any and all circumstances and that this Guaranty shall be discharged only by the indefeasible payment in full of all sums and the performance of all obligations with respect to which this Guaranty relates. 6. An Event of Default under the Participation Agreement shall constitute an Event of Default hereunder. 7. Notice of acceptance of this Guaranty and notice of the execution and delivery of any other instrument referred to in this Guaranty are hereby waived by the Guarantor. 8. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the obligations to be paid is rescinded or must otherwise be restored or returned by any Person, upon the insolvency, bankruptcy or reorganization of the Guarantor, or otherwise, all as though such payment had not been made. The provisions of this paragraph shall survive the termination of this Guaranty. 9. This Guaranty shall remain in full force and effect until payment in full of all sums payable by the Lessee under the Operative Documents, the termination of all commitments thereunder and the performance in full of all obligations of the Guarantor in accordance with the provisions of this Guaranty, subject to reinstatement as provided in Section 8. Subject as aforesaid, the Guarantor's payment obligations hereunder shall be deemed satisfied upon the actual and timely receipt by the Agent of all amounts payable hereunder in full in cash. This Guaranty is a guaranty of payment and performance when due and not a guaranty of collection. 6 PARENT GUARANTY Proprietary & Confidential 10. In case any provision of this Guaranty or any application thereof shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions and any other application thereof shall not in any way be affected or impaired thereby. 11. TIME IS OF THE ESSENCE IN THIS GUARANTY AND THE TERMS HEREIN SHALL BE SO CONSTRUED. This Guaranty shall be binding upon the Guarantor and its successors and shall inure to the benefit of, and be enforceable by the Lessor and its respective successors and assigns. This Guaranty may not be changed, waived, discharged or terminated orally, but only by a statement in writing signed by the Guarantor, the Agent, the Lessor, the Note Holders and the Certificate Holders. This Guaranty may be enforced as to any one or more defaults either separately or cumulatively. 12. (a) THIS GUARANTY SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW (OR ANY SIMILAR SUCCESSOR PROVISION THERETO) BUT EXCLUDING ALL OTHER CONFLICT-OF-LAW RULES. (b) The 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 Guaranty or any other Operative Document, or for recognition or enforcement of any judgment, and the Guarantor hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. The Guarantor 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 Guaranty shall affect any right that the Note Holders, the Certificate Holders, the Agent or the Lessor may otherwise have to bring any action or proceeding relating to this Guaranty in the courts of any jurisdiction. (c) The Guarantor 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 Guaranty or any other Operative Document in any New York State or federal court. The Guarantor 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. 7 PARENT GUARANTY Proprietary & Confidential 13. All notices, demands, requests, consents, approvals and other instruments hereunder shall be given in the manner and at the appropriate address set forth in the Participation Agreement or at such other address as such party shall designate by notice to each of the other parties hereto. 14. The Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the amounts which the Guarantor is obligated to pay hereunder and notice of or proof of reliance by the Agent, the Lessor, the Trust, the Note Holders or the Certificate Holders upon this Guaranty or acceptance of this Guaranty. The indebtedness evidenced by the Operative Documents shall conclusively be deemed to have been created, contracted, incurred, renewed, extended, amended or waived in reliance upon this Guaranty, and all dealings between the Guarantor, the Agent, the Lessor, the Note Holders and the Certificate Holders shall likewise be conclusively presumed to have been had or consummated in reliance upon this Guaranty. 15. The rules of construction set forth in Appendix A to the Participation Agreement apply to this Guaranty. 8 PARENT GUARANTY Proprietary & Confidential IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed as of the day and year first above written. RITE AID CORPORATION By: __________________________ Name: Title: 9 EX-10 23 exh10-43.txt EXHIBIT 10.43 EXECUTION COPY Proprietary and Confidential RITE AID REALTY CORP. ---------------- INSTRUMENT GUARANTY ---------------- Dated as of June 27, 2001 INSTRUMENT GUARANTY Proprietary and Confidential INSTRUMENT GUARANTY INSTRUMENT GUARANTY, dated as of June 27, 2001 (this "Instrument Guaranty"), by Rite Aid Realty Corp., a Delaware corporation (the "Company"), to each of the Note Holders and Certificate Holders. Capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Participation Agreement dated as of the date hereof among the Company, Wells Fargo Bank Northwest, National Association, not in its individual capacity except as expressly set forth therein but solely as Trustee of the RAC Distribution Statutory Trust, Rite Aid Corporation, the Persons named therein as Note Holders and Certificate Holders, and Citicorp USA, Inc., as Agent (the "Participation Agreement"). Preliminary Statement A. As contemplated by the Participation Agreement, the Lessor will acquire (i) a fee interest in two certain parcels of land located in Perryman, Maryland and a fee interest in certain improvements located thereon and (ii) a leasehold interest in a certain parcel of land located in Lancaster, California and a fee interest in certain improvements located thereon. B. The Lessor will finance its acquisition of its interests in the Properties through the issuance of Notes and Certificates. The Company intends this Instrument Guaranty to be an inducement for the Holders to purchase the Notes and Certificates which the Holders would be unwilling to do if the Company did not execute and deliver this Instrument Guaranty. NOW, THEREFORE, in consideration of the premises and intending to be legally bound by this Instrument Guaranty, the Company hereby agrees to be bound as follows: l. (a) The Company unconditionally guarantees and agrees that, subject to the following sentence, all sums due under the Instruments (including all principal or Certificate Amount of, and interest or Distributions on, as the case may be, the Instruments), together with any other sums which may become due pursuant to any Operative Document with respect to the Instruments (including Charges and Additional Costs), but only to the extent provided in the Operative Documents, whether the same shall accrue before or after the filing of a proceeding under the Bankruptcy Law, will be promptly paid in full (i) when due (after any grace periods permitted under the Operative Documents), whether at stated maturity, by acceleration or otherwise, in accordance with the provisions of the Instruments and the Operative Documents, or (ii) upon the INSTRUMENT GUARANTY Proprietary and Confidential occurrence of an Event of Default. Notwithstanding anything to the contrary herein contained, it is expressly understood and agreed that unless an Event of Default shall have occurred and be continuing, this Instrument Guaranty shall not constitute a guaranty of an amount in excess of and shall be limited to the amount of the Residual Value Amount that may be payable at any time, which shall be allocated in accordance with Article VII of the Participation Agreement. This Instrument Guaranty shall be irrevocable, and in all events shall be continuing, unconditional and absolute, and if for any reason any such sums, or any part thereof, shall not be paid promptly when due, upon demand therefor by the Holders upon the Company, the Company shall pay the same to the Person entitled thereto pursuant to and in accordance with the provisions hereof, regardless of any defenses (other than the defense of payment, including payment to the Agent pursuant to the Participation Agreement) or rights of set-off or counterclaim, regardless of whether any Note Holder or Certificate Holder shall have taken any steps to enforce its rights against the Company, the Lessor, the Trustee or any other Person, to collect such sums, or any part thereof, and regardless of any other condition or contingency. Subject to the limitation provided in the second sentence of this subsection (a), the Company also agrees to pay to the Note Holders and the Certificate Holders from time to time such further amounts as shall be sufficient to cover the costs and expenses of collecting such sums, or part thereof, or of otherwise enforcing this Instrument Guaranty, including, in any case, compensation to their respective attorneys for all services rendered in that connection. (b) Any and all payments by the Company hereunder shall be made free and clear of and without deduction for any and all Charges. Subject to the limitation provided in the second sentence of Section 1(a), if the Company shall be required by Law to deduct any Charges from or in respect of any sum payable hereunder to any Holder, (i) the sum payable by the Company shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this paragraph 1(b)) the Holder receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Company shall make such deductions, and (iii) the Company shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Law. 2. The Company hereby unconditionally (a) waives any requirement that the Note Holders and the Certificate Holders from time to time first make demand upon, or seek to enforce remedies against, any other Person or any of the collateral or property of such other Person before demanding payment from, or seeking to enforce this Instrument Guaranty against, the Company; 2 INSTRUMENT GUARANTY Proprietary and Confidential (b) covenants that this Instrument Guaranty will not be discharged except by complete satisfaction by indefeasible payment in cash in full of all payment obligations contained in the Instruments and in the Operative Documents with respect to the Instruments; (c) agrees that this Instrument Guaranty shall remain in full effect without regard to, and shall not be affected or impaired by, any invalidity, illegality, irregularity or unenforceability in whole or in part of the Instruments, the Participation Agreement, any other Operative Document (and the Company hereby waives any defense relating to the enforceability of the Operative Documents or any provision contained therein), or any limitation of the liability of the Company thereunder (except for the limitation contained in the second sentence of Section 1(a) hereof and exc ept for any other limitation expressly set forth in the Operative Documents), or any limitation on the method or terms of payment thereunder which may now or hereafter be caused or imposed in any manner whatsoever; (d) waives diligence, presentment and protest with respect to, and any notice of default in, the payment of any amount at any time payable under or in connection with the Instruments or any of the Operative Documents (except for notices required to be delivered under the Operative Documents); and (e) agrees that each and every right, power and remedy given under this Instrument Guaranty or any other Operative Document shall be cumulative and not exclusive, and shall be in addition to all other rights, powers and remedies now or hereafter granted or otherwise existing. 3. The obligations, undertakings and conditions to be performed or observed by the Company under this Instrument Guaranty shall not be affected or impaired by reason of the happening from time to time of any of the following with respect to the Instruments and the other Operative Documents, all without notice to, or the further consent of, the Company (except for notices required to be delivered and consents to be obtained under the Operative Documents): (a) the waiver by the Lessor, any Note Holder, any Certificate Holder or any other Person of the observance or performance by the Company of any of the obligations, undertakings or conditions contained in any of such Instruments, except to the extent of such waiver; (b) the extension, in whole or in part, of the time for payment of any amount owing or payable under any of the Instruments, the Participation Agreement or any other Operative Document or of any other sums or obligations 3 INSTRUMENT GUARANTY Proprietary and Confidential under or arising out of or on account of the Instruments, the Participation Agreement or any other Operative Document except to the extent of such extension; (c) provided the Company has consented to the same if required under the Participation Agreement, the modification or amendment (whether material or otherwise) of any of the obligations of the Lessor under any of the Instruments or any other Operative Document or of the Company under any Operative Document, except to the extent of such modification or amendment; (d) the taking or the omission of any of the actions referred to in any Instrument or any other Operative Document (including, without limitation, the giving of any consent referred to therein); (e) any failure, omission, delay or lack on the part of the Agent, the Lessor, any Note Holder, any Certificate Holder or any other Person to enforce, assert or exercise any right, power or remedy conferred on the Lessor, any such Note Holder, any such Certificate Holder or any other Person in any of such Instruments or any action on the part of the Lessor, any Note Holder, any Certificate Holder or any other Person granting indulgence or extension in any form; (f) the release or discharge of the Agent, the Lessor or any other Person from the performance or observance of any obligation, undertaking or condition to be performed by the Agent, the Lessor or such other Person under any Instrument or any other Operative Document by operation of Law; (g) the receipt and acceptance by the Agent, the Lessor or a Holder of an Instrument, or any other Person of notes, checks or other instruments for the payment of money and extensions and renewals thereof; (h) any action, inaction or election of remedies by the Lessor or a Holder of an Instrument or any other Person which results in any impairment or destruction of any subrogation rights of the Company, or any rights of the Company to proceed against any other Person for reimbursement; (i) the surrender by the Agent, the Lessor or any Holder of an Instrument or any other Person of any security at any time held for the performance or observance of any of the agreements, covenants, terms or conditions contained in the Instruments or any of the Operative Documents; 4 INSTRUMENT GUARANTY Proprietary and Confidential (j) any event or circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor, indemnitor or surety under the laws of the State of New York or any other jurisdiction; (k) any other circumstance whatsoever (with or without notice to or knowledge of the Company) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company with respect to its obligations hereunder or under the other Operative Documents, in bankruptcy or in any other instance, except based on payment or performance; (l) any change in circumstances, whether or not foreseen or foreseeable, whether or not imputable to the Company, the Agent or the Lessor and whether or not such change in circumstances shall or might in any manner and to any extent vary the risk of the Company hereunder; (m) the invalidity or unenforceability of any of the Operative Documents; or (n) any other cause, whether similar or dissimilar to the foregoing; it being the intention of the Company that this Instrument Guaranty be absolute and unconditional in any and all circumstances and that this Instrument Guaranty shall be discharged only by the indefeasible payment in full of all sums with respect to which this Instrument Guaranty relates. 4. An "Event of Default" hereunder shall mean any "Event of Default" (as defined in the Participation Agreement). 5. Notice of acceptance of this Instrument Guaranty and notice of the execution and delivery of any other instrument referred to in this Instrument Guaranty are hereby waived by the Company. 6. This Instrument Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the obligations to be paid, is rescinded or must otherwise be restored or returned by any Holder of an Instrument, upon the insolvency, bankruptcy or reorganization of the Company, or otherwise, all as though such payment had not been made. The provisions of this paragraph 6 shall survive the termination of this Instrument Guaranty. 7. This Instrument Guaranty shall remain in full force and effect until payment and performance in full of all obligations of the Company in accordance with the provisions of this Instrument Guaranty. The Company's payment obligations 5 INSTRUMENT GUARANTY Proprietary and Confidential hereunder shall be deemed satisfied upon receipt by Agent on behalf of the Lessor of all amounts payable hereunder. This Instrument Guaranty is a guaranty of payment and not a guaranty of collection. 8. (a) TIME IS OF THE ESSENCE IN THIS INSTRUMENT GUARANTY AND THE TERMS HEREIN SHALL BE SO CONSTRUED. This Instrument Guaranty shall be binding upon the Company and its successors and shall inure to the benefit of, and be enforceable by, the Holders of the Instruments and their respective successors and assigns as to the obligations respectively owed them and guaranteed hereunder. This Instrument Guaranty may not be changed, waived, discharged or terminated orally, but only by a statement in writing signed by the Company and the Holders of the Instruments, in compliance with the requirements set forth in the Participation Agreement. This Instrument Guaranty may be enforced as to any one or more defaults either separately or cumulatively. (b) THIS INSTRUMENT GUARANTY SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW (OR ANY SIMILAR SUCESSOR PROVISION THERETO) BUT EXCLUDING ALL OTHER CONFLICT-OF-LAW RULES. 9. All notices, demands, requests, consents, approvals and other instruments hereunder shall be given in the manner and at the appropriate address set forth in the Participation Agreement or at such other address as such party shall designate by notice to each of the other parties hereto. 10. Notwithstanding anything to the contrary contained in this Instrument Guaranty or any of the other Operative Documents, the amounts which the Company is obligated to pay pursuant to this Instrument Guaranty and the other Operative Documents, and the amounts which the Holders of the Instruments are entitled to receive pursuant to this Instrument Guaranty and other Operative Documents, are subject to limitations pursuant to Section 9.17 of the Participation Agreement. 11. The Company waives any and all notice of the creation, renewal, extension or accrual of any of the amounts which the Company is obligated to pay hereunder and notice of or proof of reliance by the Holders of the Instruments upon this Instrument Guaranty or acceptance of this Instrument Guaranty. The indebtedness evidenced by the Instruments shall conclusively be deemed to have been created, contracted, incurred, renewed, extended, amended or waived in reliance upon this Instrument Guaranty, and all dealings between the Company and the Holders of the 6 INSTRUMENT GUARANTY Proprietary and Confidential Instruments shall likewise be conclusively presumed to have been had or consummated in reliance upon this Instrument Guaranty. 12. The rules of construction set forth in Appendix A to the Participation Agreement apply to this Instrument Guaranty. 7 [SIGNATURE PAGE TO INSTRUMENT GUARANTY] IN WITNESS WHEREOF, the Company has caused this Instrument Guaranty to be duly executed as of the day and year first above written. RITE AID REALTY CORP. By: ____________________________ Name: Title: 8 EX-10 24 exh10-44.txt EXHIBIT 10.44 EXECUTION COPY Proprietary & Confidential LOAN AGREEMENT Dated as of June 27, 2001 Among WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC Distribution Statutory Trust as Trustee, THE PERSONS NAMED HEREIN, as Note Holders, and CITICORP USA, INC., as Agent Loan Agreement Proprietary and Confidential TABLE OF CONTENTS Section Page - ------- ---- PRELIMINARY STATEMENT......................................................... 1 ARTICLE I DEFINITIONS ........................................................ 1 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES ................................. 2 2.01. The Advances ........................................................ 2 2.02. The Notes ........................................................... 2 2.03. Interest ............................................................ 2 2.04. Payment ............................................................. 2 2.05. Maturity Date ....................................................... 2 2.06. Expiration of the Commitment ........................................ 2 2.07. Use of Proceeds ..................................................... 3 2.08. Evidence of Debt .................................................... 3 2.09. Prepayment .......................................................... 3 2.10. Non-Recourse Obligations ............................................ 3 2.11. Transfer and Exchanges............................................... 3 2.12. Additional Costs .................................................... 4 2.13. Taxes; Indemnification, Etc ......................................... 4 2.14. Exculpation of the Trustee .......................................... 4 ARTICLE III CONDITIONS OF LENDING............................................. 4 3.01. Conditions Precedent to Funding on the Funding Date ................. 4 ARTICLE IV REPRESENTATIONS AND WARRANTIES .................................... 4 4.01. Representations and Warranties of the Trustee ....................... 4 ARTICLE V COVENANTS OF THE TRUSTEE............................................ 4 5.01. Covenants ........................................................... 4 5.02. Reporting Requirements .............................................. 5 ARTICLE VI EVENTS OF DEFAULT.................................................. 6 6.01. Events of Default ................................................... 6 6.02. Remedies............................................................. 6 6.03. Power of Attorney.................................................... 7 ARTICLE VII TRUSTEE REPLACEMENT EVENT......................................... 7 7.01. Trustee Replacement Event ........................................... 7 7.02. Right to Replace Trustee ............................................ 8 ARTICLE VIII MISCELLANEOUS ................................................... 8 8.01. Amendments, Etc...................................................... 8 8.02. Notices, Etc. ....................................................... 8 8.03. No Waiver; Remedies ................................................. 8 i Loan Agreement Proprietary and Confidential 8.04. Governing Law ....................................................... 8 8.05. Execution in Counterparts ........................................... 8 8.06. Interest ............................................................ 9 Schedule I - Note Holders Exhibit A - Form of A-Note Exhibit B - Form of B-Note ii Loan Agreement Proprietary and Confidential LOAN AGREEMENT THIS LOAN AGREEMENT dated as of June 27, 2001 (this "Agreement") is among Wells Fargo Northwest, National Association, not in its individual capacity but solely as Trustee of RAC Distribution Statutory Trust (the "Trustee"), the Persons named as Note Holders on Schedule I hereto and/or any assignee thereof permitted pursuant to the Participation Agreement and who shall, from time to time, become a party to this Agreement pursuant to the terms hereof (collectively, the "Note Holders"), and Citicorp USA, Inc., as agent for the Note Holders (the "Agent") (together with any successor appointed pursuant to Article VIII of the Participation Agreement). PRELIMINARY STATEMENT (1) The Trustee desires to finance the acquisition of (i) a fee interest in two certain parcels of land located in Perryman, Maryland, and a fee interest in certain improvements thereon and (ii) a leasehold interest in a certain parcel of land located in Lancaster, California, and a fee interest in certain improvements located thereon, all as described in the Participation Agreement dated as of the date hereof among Rite Aid Realty Corp., Wells Fargo Northwest, National Association, not in its individual capacity but solely as Trustee, Rite Aid Corporation, the Note Holders, the Certificate Holders, and the Agent (the "Participation Agreement"). (2) The Trustee has requested that the Note Holders lend to the Trustee up to $_________, which amount together with the aggregate Equity Investments by the Certificate Holders of up to $________ will be used to finance the acquisition of the property described above. (3) The Note Holders have indicated their willingness to lend the amounts requested by the Trustee on the terms and conditions of this Agreement and the other Operative Documents. NOW, THEREFORE, in consideration of the premises and intending to be legally bound by this Agreement, the parties hereby agree to be bound as follows: ARTICLE I DEFINITIONS Capitalized terms used but not otherwise defined in this Agreement have the respective meanings specified in Appendix A to the Participation Agreement; and the rules of interpretation set forth in Appendix A to the Participation Agreement shall apply to this Agreement. Loan Agreement Proprietary and Confidential ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES Section 2.01. The Advances. Subject to the terms and conditions set forth in the Participation Agreement, each of the Note Holders agrees, severally and not jointly and severally to make an Advance on the Funding Date to the Agent for the account of the Trustee in an aggregate amount not to exceed its Note Commitment. Each Advance shall be made and disbursed in accordance with the procedures and requirements set forth in Article I of the Participation Agreement. Section 2.02. The Notes. The Advances made by the A-Note Holders shall be evidenced by promissory notes in substantially the form attached as Exhibit A hereto (each an "A-Note"). The Advances made by the B-Note Holders shall be evidenced by promissory notes in substantially the form attached as Exhibit B hereto (each a "B-Note" and together with the A-Notes, collectively, the "Notes"). The Notes shall be issued on the Funding Date in the aggregate amount of the respective Note Holder's Note Commitment to acquire A-Notes or B-Notes, as applicable. Section 2.03. Interest. The Notes shall bear interest on the then outstanding principal amount at the Applicable Rate and shall bear interest, to the extent permitted by Law, on any overdue principal, and interest at the Default Rate (computed, in each and every case, as provided in the Participation Agreement). Section 2.04. Payment. Interest only on the unpaid principal balance of the Notes from time to time outstanding shall be payable in arrears on each Payment Date until each such Note is paid in full; provided, however, that interest payable at the Default Rate shall be payable on demand. All payments of amounts due hereunder shall be made in the manner provided in Section 9.09 of the Participation Agreement. To the extent the Agent receives funds from the Lessee representing payments of Rent due under the Lease, such amounts shall be credited against payments otherwise due from the Trustee hereunder; provided, however, that, subject to Section 2.10, any failure of the Lessee to make such payments of Rent directly to the Agent shall not relieve, excuse or postpone the Trustee's obligations hereunder. In the event that the Base Term Expiration Date shall be on a date prior to the Maturity Date, the Notes shall be subject to mandatory prepayment in full on the Base Term Expiration Date. Section 2.05. Maturity Date. The Notes shall mature on June 27, 2005, subject to extension as provided in Section 5.09 of the Participation Agreement (the "Maturity Date"). Section 2.06. Expiration of the Commitment. Unless earlier terminated in accordance with the provisions of the Operative Documents, the Note Commitment of each Note Holder shall automatically and permanently expire on the Funding Date and the Note Holders shall have no further obligation to fund additional Advances. 2 Loan Agreement Proprietary and Confidential Section 2.07. Use of Proceeds . The proceeds of the Advances shall be available (and the Trustee agrees that it shall use such proceeds) solely to finance Acquisition Costs in accordance with the Operative Documents. Section 2.08. Evidence of Debt. The Agent shall maintain in accordance with its usual practice an account or accounts of the indebtedness of the Trustee to the Note Holders resulting from each Advance and evidenced by the Notes, including the amounts of principal and interest payable and paid to the Note Holders from time to time hereunder. Section 2.09. Prepayment. The Notes shall be prepaid to the extent and in the manner expressly permitted or required in Section 7.03 of the Participation Agreement. Section 2.10. Non-Recourse Obligations . Each Note Holder agrees that it will look solely to the Collateral for payment of any and all amounts due hereunder or under the other Operative Documents. No recourse to or against the Trustee or any employee, officer, director, incorporator, stockholder or agent of the Trustee shall be had for the payment of any amount owing by the Trustee under this Agreement or the other Operative Documents, or for the payment by the Trustee of any fee in respect hereof or any other obligation or claim of or against the Trustee arising out of or based upon this Agreement or the other Operative Documents. Section 2.11. Transfer and Exchanges. (a) Conditions to Transfer. The Notes may be transferred or exchanged only in accordance with Section 5.03 of the Participation Agreement. (b) Exchange Procedure. The Trustee shall mark on each such new Note (in this Section 2.11 called a "New Note") issued pursuant to Section 2.11(a) in exchange or in substitution for or in lieu of an outstanding Note (in this Section 2.11 called an "Old Note"), with information provided by the Agent (i) the date to which interest has been paid on the Old Note(s) and (ii) the amount of all payments and prepayments previously made on the Old Note(s), which are allocable to such New Notes. Interest shall be deemed to have been paid on such New Note to the date to which interest shall have been paid on the Old Note(s) and all payments and prepayments marked on such New Notes shall be deemed to have been made thereon. (c) Validity. Each New Note is sued in exchange or in substitution for an Old Note(s) pursuant to Section 2.11(a) shall be a valid obligation evidencing the same interest as such Old Note(s) or the portion thereof allocable to such New Note, and each and every New Note shall be entitled to the benefits and security of this Agreement and the other Operative Documents. 3 Loan Agreement Proprietary and Confidential Section 2.12. Additional Costs. The Note Holders shall be entitled to the payment of Additional Costs in accordance with the provisions of the Operative Documents. Section 2.13. Taxes; Indemnification, Etc. The Note Holders shall be entitled to the benefits of Sections 5.04, 5.05 and 9.14 of the Participation Agreement with respect to taxes and indemnification. Section 2.14. Exculpation of the Trustee. It is expressly agreed, anything herein to the contrary notwithstanding, that each and all of the representations, warranties, covenants, undertakings and agreements herein made on the part of the Trust are made and intended not as personal representations, warranties, covenants, undertakings and agreements by the Trustee, or for the purpose or with the intention of binding the Trustee, personally, but are made and intended for the purpose of binding only the Trust Estate. No personal liability or personal responsibility is assumed by or shall at any time be asserted or enforceable against the Trustee on account of this Agreement or on account of any representation, warranty, covenant, undertaking or agreement of the Trustee, whether expressed or implied herein, all such personal liability, if any, being expressly waived and released. ARTICLE III CONDITIONS OF LENDING Section 3.01. Conditions Precedent to Funding on the Funding Date. The obligation of each Note Holder to make an Advance on the Funding Date is subject to the fulfillment of each of the conditions precedent as set forth in Section 2.01 of the Participation Agreement. ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01. Representations and Warranties of the Trustee. The Trustee hereby represents and warrants to the Note Holders and the Agent that each of the representations and warranties of the Trustee set forth in Section 3.04 of the Participation Agreement is true and correct on the Funding Date. ARTICLE V COVENANTS OF THE TRUSTEE Section 5.01. Covenants. So long as any Advance shall remain unpaid or the Note Holders shall have any Note Commitment outstanding hereunder, the Trustee will not: (a) Change in Nature of Business. (i) Enter into any business other than the business of (A) acquiring, financing and leasing the Properties pursuant to the 4 Loan Agreement Proprietary and Confidential Participation Agreement and the Lease and (B) acquiring other assets and leasing such assets to other lessees having an unsecured credit rating of AA or better by S&P and AA2 or better by Moody's on the date of any such lease; provided such lease is a triple net lease substantially in the form of the Lease and on terms not significantly less favorable to the Lessor or (ii) become a party to any agreement other than this Agreement, the other Operative Documents to which it is a party and the other agreements specifically contemplated by this Agreement (including subsection 5.01(a)(i)(B)). (b) Liens, Etc. Create, incur or suffer to exist any Lessor Liens. (c) Disposition of Assets. Convey, sell, lease, assign, transfer or otherwise dispose of directly or indirectly (or agree to any of the foregoing at a future time) all or any material portion of the Properties or any of its business or assets, whether now owned or hereafter acquired, other than as expressly specified or permitted in the Operative Documents. (d) Amendment, Etc. of Operative Documents. Cancel, terminate, amend, or waive any provision of, the Operative Documents without the prior written consent of the Majority Note Holders in accordance with Section 9.04 of the Participation Agreement. (e) Indebtedness. Contract for, create, incur or assume any indebtedness other than pursuant to or under the Operative Documents. Section 5.02. Reporting Requirements. So long as any Advance shall remain unpaid or the Note Holders shall have any Note Commitment outstanding hereunder, the Trustee will, unless the Note Holders shall otherwise consent in writing, furnish to the Agent: (a) Default Notice. As soon as possible and in any event within two (2) Business Days after an officer of the Trustee obtains actual knowledge thereof, a notice setting forth details of (i) any Default or Event of Default and (ii) any Trustee Replacement Event (as defined below) and the action that the Trustee has taken and proposes to take with respect thereto. (b) Other Notices. Promptly upon receipt thereof, copies of any other notices, requests and other documents received by the Trustee under or pursuant to any other Operative Document (other than those (i) issued or sent by the Agent or the Note Holders or (ii) otherwise delivered to the Agent pursuant to the Participation Agreement or the other Operative Documents). (c) Other Information. Such other information respecting any Property in the possession or control of the Trustee as any Note Holder, through the Agent, may from time to time reasonably request in writing identifying this 5 Loan Agreement Proprietary and Confidential Section 5.02(c), it being understood that the Trustee is under no obligation to expend any funds (other than for mailing and copying costs) to produce such information. ARTICLE VI EVENTS OF DEFAULT Section 6.01. Events of Default. The occurrence and continuance of any Event of Default under the Participation Agreement shall constitute an "Loan Event of Default" hereunder (whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body). Section 6.02. Remedies. During the continuance of any Loan Event of Default: (a) if such event is an Event of Default specified in Section 6.01(h) or (i) of the Participation Agreement, the Notes hereunder (with accrued interest thereon) and all other amounts owing under this Loan Agreement and the Notes shall become due and payable upon the earlier of (i) notice to the Trustee and the Company pursuant to the Participation Agreement and (ii) operation of Law; (b) if such event is any other Event of Default under the Participation Agreement, the Majority Note Holders may, by notice to the Trustee, subject to the provisions of Sections 6.02(g) and 6.03 of the Participation Agreement, declare all of the Notes hereunder (with accrued interest thereon) and all other amounts owing with respect to the Notes under this Agreement to be due and payable forthwith, whereupon all Notes shall immediately become due and payable; (c) at any time thereafter so long as any Loan Event of Default shall be continuing, the Agent shall, subject to the provisions of Sections 6.02(g) and 6.03 of the Participation Agreement, upon the written instructions of the Majority Note Holders exercise any or all of the rights and powers and pursue any and all remedies available to it hereunder and under the Participation Agreement and the other Operative Documents and shall have any and all rights and remedies available under the UCC or any provision of law; and (d) notwithstanding the foregoing provisions, the Agent shall not have the right to exercise any of its rights or remedies under this Section 6.02 against the Trustee unless the Age nt shall also exercise a remedy under the Participation Agreement. Except as expressly provided above in this Article VI, presentment, demand, protest and all other notices of any kind are hereby expressly waived. 6 Loan Agreement Proprietary and Confidential Section 6.03. Power of Attorney. The Trustee hereby irrevocably appoints the Agent as its true and lawful attorney-in-fact (and not agent-in-fact), with the power of substitution. Such power shall be exercisable only upon the occurrence and continuance of a Loan Event of Default hereunder. ARTICLE VII TRUSTEE REPLACEMENT EVENT Section 7.01. Trustee Replacement Event. The occurrence of any one or more of the following events (whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall constitute a Trustee Replacement Event ("Trustee Replacement Event"): (a) the Trust shall default in the due performance or observance by it of any term, covenant or agreement contained in this Agreement or the Notes, and such default shall have continued unremedied for a period of at least forty-five (45) days after the Trustee's receipt of notice thereof from the Agent; provided, however, that if such failure is capable of cure but cannot be cured by payment of money or cannot be cured by diligent efforts within such forty- five (45) day period but such diligent efforts shall be properly commenced within the cure period and the Trustee is diligently pursuing, and shall continue to pursue diligently, remedy of such failure, the cure period shall be extended for an additional period of time as may be necessary to cure such failure; or (b) any representation, warranty or statement made by the Trustee herein or in any other Operative Document, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto, shall prove to be untrue in any material respect on the date as of which made, and such misrepresentation or breach of warranty shall remain unremedied for a period of at least thirty (30) days after notice to the Trustee from the Agent; or (c) the Trust or the Trustee shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the Trust or the Trustee and the petition is not dismissed within sixty (60) days after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Trust or the Trustee and is not removed within sixty (60) days; or the Trust or the Trustee commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Trust or the Trustee or there is commenced against the Trust or the Trustee any such proceeding which remains undismissed for a period of sixty (60) days; or the Trust or the Trustee is adjudicated insolvent or bankrupt, which adjudication is not withdrawn or 7 Loan Agreement Proprietary and Confidential reversed within sixty (60) days; or any order of relief or other order approving any such case or proceeding is entered which order is not withdrawn or reversed within sixty (60) days; or the Trust or the Trustee suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of sixty (60) days; or the Trust or the Trustee makes a general assignment for the benefit of creditors; or any action is taken by the Trust or the Trustee for the purpose of effecting any of the foregoing and in the case of any of the foregoing, there is a delay or disruption whether prior to or following the expiration of any of the foregoing time periods of any amounts payable to the Note Holders or the Agent under this Agreement or any of the other Operative Documents. Section 7.02. Right to Replace Trustee. Upon the occurrence of any Trustee Replacement Event, the Agent, with the consent of the Majority Note Holders and (so long as no Event of Default under the Participation Agreement exists and the Agent is not pursuing remedies against the Lessee by virtue thereof) the Company, shall have the right to remove the Trustee and replace such Trustee; provided, however, that any successor Trustee shall satisfy the requirements of Section 4.10 of the Trust Agreement. ARTICLE VIII MISCELLANEOUS Section 8.01. Amendments, Etc. No amendment, waiver, modification or supplement of any provision of this Agreement, nor consent to any departure by the Trustee therefrom, shall in any event be effective unless the same shall be in writing and otherwise in accordance with Section 9.04 of the Participation Agreement. Section 8.02. Notices, Etc. All notices and other communications provided for hereunder shall be given in the manner and at the addresses provided in the Participation Agreement. Section 8.03. No Waiver; Remedies. No failure on the part of the Note Holders or the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 8.04. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. Section 8.05. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 8 Loan Agreement Proprietary and Confidential Section 8.06. Interest. The provisions set forth in Section 9.17 of the Participation Agreement shall apply hereto as if fully set forth herein. 9 SIGNATURE PAGE TO LOAN AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC Distribution Statutory Trust By: _________________________________ Name: Title: SIGNATURE PAGE TO LOAN AGREEMENT CITICORP USA, INC., as Note Holder By: _________________________________ Name: Title: THE CHASE MANHATTAN BANK, as Note Holder By: _________________________________ Name: Title: CREDIT SUISSE FIRST BOSTON, as Note Holder By: _________________________________ Name: Title: FLEET RETAIL FINANCE INC., as Note Holder By: _________________________________ Name: Title: SIGNATURE PAGE TO LOAN AGREEMENT CITICORP USA, INC., as Agent By: _________________________________ Name: Title: Schedule I to the Loan Agreement Proprietary and Confidential SCHEDULE I Note Holders: Citicorp USA, Inc. The Chase Manhattan Bank Credit Suisse First Boston Fleet Retail Finance Inc. Exhibit A Loan Agreement Proprietary and Confidential EXHIBIT A (Form of A-Note) THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR "BLUE SKY" LAW, AND MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE IN VIOLATION OF SUCH ACT OR LAWS A-NOTE No. __________ WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC Distribution Statutory Trust (the "Trustee"), hereby promises to pay to ___________ or registered assigns (the "Note Holder"), on the Maturity Date (as defined in the Loan Agreement, as defined below), and as hereinafter provided, the principal sum of [___________] ($__________) and to pay interest on the then outstanding unpaid principal amount hereof from the date hereof to maturity (whether at the Maturity Date, by acceleration or otherwise) at the Applicable Rate, and to pay interest on any overdue principal and interest, at the Default Rate, in each case computed on the basis of a 360-day year, for the actual number of days elapsed except as otherwise provided in Article V of the Participation Agreement dated as of June 27, 2001 (the "Participation Agreement") among Rite Aid Realty Corp., the Trustee, Rite Aid Corporation, the Note Holders, the Certificate Holders, and Citicorp USA, Inc., as Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in Appendix A to the Participation Agreement. Interest accrued and unpaid on this Note shall be payable on each Payment Date in the manner set forth in the Participation Agreement, including the Maturity Date; provided, however, that interest payable at the Default Rate shall be payable on demand. This Note is subject to prepayment in the manner, to the extent, under the circumstances and at the price provided for in the Participation Agreement. Reference is also made to the Participation Agreement regarding certain additional amounts that may be due hereunder. All advances and repayments of the principal hereof shall be recorded by the Note Holder, and, prior to any transfer hereof, endorsed by the Note Holder, on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof, or on such other schedule as shall be in accordance with the Note Holder's then applicable procedures, which schedule shall be attached hereto and made a part hereof; provided, however, that the failure of the Note Holder to make such notation or any error in such notation shall not affect the obligations of the Trustee under this Note, the Loan Agreement or any other Operative Document. Exhibit A Loan Agreement Proprietary and Confidential Upon the occurrence and during the continuance of an Event of Default, the principal hereof and the interest accrued and unpaid hereon may be declared to be due and payable forthwith as provided in the Participation Agreement. This Note is one of the "A-Notes" issued and to be issued under the Loan Agreement, dated as of June 27, 2001 (the "Loan Agreement"), among the Trustee, the Note Holders party thereto and Citicorp USA, Inc., as Agent. The A-Notes are to be secured by the Collateral to the extent provided in the Participation Agreement. Reference is hereby made to the Participation Agreement and the Security Documents for the provisions upon which the A-Notes are to be secured, and the rights of the Holders of the A-Notes. The provisions of the Loan Agreement and the rights of the Holders of the A-Notes may be changed and modified to the extent permitted by and as provided in the Loan Agreement. Prior to due presentment of this Note for registration of transfer, the Agent may deem and treat the Person in whose name this Note is registered on the Record as the absolute owner hereof (whether or not this Note shall be overdue) for the purpose of receiving payment and for all other purposes, and the Agent shall not be affected by any notice to the contrary. In accordance with the provisions of the Participation Agreement, the transfer of this Note must be registered by the Agent. No provision of this Note or of the Loan Agreement shall require the payment or permit the collection of interest in excess of the maximum permitted by applicable Law. Reference is made to the Participation Agreement for provisions for interest rate and computations in the event that the otherwise agreed rate is at any time limited by applicable Law. THE A-NOTES ARE PAYABLE ONLY FROM THE COLLATERAL IN ACCORDANCE WITH ARTICLES VI AND VII OF THE PARTICIPATION AGREEMENT. PURSUANT TO SECTION 2.10 OF THE LOAN AGREEMENT, THE TRUSTEE SHALL NOT BE PERSONALLY LIABLE FOR THE PAYMENT OF ANY AMOUNTS DUE UNDER THE A-NOTES. THIS NOTE SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. By acceptance of this Note the Holder hereof expressly acknowledges the terms and provisions of the Loan Agreement and the Participation Agreement, and shall be subject to and shall have the right to enforce such terms and provisions as if they were expressly stated herein. A-2 Exhibit A Loan Agreement Proprietary and Confidential IN WITNESS WHEREOF, the Trustee has caused this Note to be duly executed by its duly authorized officer. Dated: June 27, 2001 WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee, of RAC Distribution Statutory Trust By: _________________________________ Name: Title: A-3 Exhibit A Loan Agreement Proprietary and Confidential ADVANCE AND PAYMENT SCHEDULE Amount of Unpaid Amount of Principal Principal Notation Date Advance Repaid Balance Made By - -------- --------- --------- --------- -------- A-4 Exhibit B Loan Agreement Proprietary and Confidential EXHIBIT B (Form of B-Note) THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR "BLUE SKY" LAW, AND MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE IN VIOLATION OF SUCH ACT OR LAWS B-NOTE No. __________ WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC Distribution Statutory Trust (the "Trustee") hereby promises to pay to _______ or registered assigns (the "Note Holder"), on the Maturity Date (as defined in the Loan Agreement, as defined below), and as hereinafter provided, the principal sum of [____________] ($____________) and to pay interest on the then outstanding unpaid principal amount hereof from the date hereof to maturity (whether at the Maturity Date, by acceleration or otherwise) at the Applicable Rate, and to pay interest on any overdue principal and interest, at the Default Rate, in each case computed on the basis of a 360-day year, for the actual number of days elapsed except as otherwise provided in Article V of the Participation Agreement dated as of June 27, 2001 (the "Participation Agreement") among Rite Aid Realty Corp., Rite Aid Corporation, the Trustee, the Note Holders, the Certificate Holders, and Citicorp USA, Inc., as Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in Appendix A to the Participation Agreement. Interest accrued and unpaid on this Note shall be payable on each Payment Date in the manner set forth in the Participation Agreement, including the Maturity Date; provided, however, that interest payable at the Default Rate shall be payable on demand. This Note is subject to prepayment in the manner, to the extent, under the circumstances and at the price provided for in the Participation Agreement. Reference is also made to the Participation Agreement regarding certain additional amounts that may be due hereunder. All advances and repayments of the principal hereof shall be recorded by the Note Holder, and, prior to any transfer hereof, endorsed by the Note Holder, on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof, or on such other schedule as shall be in accordance with the Note Holder's then applicable procedures which schedule shall be attached hereto and made a part hereof; provided, however, that the failure of the Note Holder to make such notation or Exhibit B Loan Agreement Proprietary and Confidential any error in such notation shall not affect the obligations of the Trustee under this Note, the Loan Agreement or any other Operative Document. Upon the occurrence and during the continuance of an Event of Default, the principal hereof and the interest accrued and unpaid hereon may be declared to be due and payable forthwith as provided in the Participation Agreement. This Note is one of the "B-Notes" issued and to be issued under the Loan Agreement, dated as of June 27, 2001 (the "Loan Agreement"), among the Trustee, the Note Holders party thereto and Citicorp USA, Inc., as Agent. The B-Notes are to be secured by the Collateral. Reference is hereby made to the Participation Agreement and the Security Documents for the provisions upon which the B-Notes are to be secured, and the rights of the Holders of the B-Notes. The provisions of the Loan Agreement and the rights of the Holders of the B-Notes may be changed and modified to the extent permitted by and as provided in the Loan Agreement. Prior to due presentment of this Note for registration of transfer, the Agent may deem and treat the Person in whose name this Note is registered on the Record as the absolute owner hereof (whether or not this Note shall be overdue) for the purpose of receiving payment and for all other purposes, and the Agent shall not be affected by any notice to the contrary. In accordance with the provisions of the Participation Agreement, the transfer of this Note must be registered by the Agent. No provision of this Note or of the Loan Agreement shall require the payment or permit the collection of interest in excess of the maximum permitted by applicable Law. Reference is made to the Participation Agreement for provisions for interest rate and computations in the event that the otherwise agreed rate is at any time limited by applicable Law. THE B-NOTES ARE PAYABLE ONLY FROM THE COLLATERAL IN ACCORDANCE WITH ARTICLES VI AND VII OF THE PARTICIPATION AGREEMENT. PURSUANT TO SECTION 2.10 OF THE LOAN AGREEMENT, THE TRUSTEE SHALL NOT BE PERSONALLY LIABLE FOR THE PAYMENT OF ANY AMOUNTS DUE UNDER THE B-NOTES. THIS NOTE SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. By acceptance of this Note the Holder hereof expressly acknowledges the terms and provisions of the Loan Agreement and the Participation Agreement, and shall be subject to and shall have the right to enforce such terms and provisions as if they were expressly stated herein. B-2 Exhibit B Loan Agreement Proprietary and Confidential IN WITNESS WHEREOF, the Trustee has caused this Note to be duly executed by its duly authorized officer. Dated: June 27, 2001 WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee, of RAC Distribution Statutory Trust By: _________________________________ Name: Title: B-3 Exhibit B Loan Agreement Proprietary and Confidential ADVANCE AND PAYMENT SCHEDULE Amount of Unpaid Amount of Principal Principal Notation Date Advance Repaid Balance Made By - -------- --------- --------- --------- -------- B-4 EX-10 25 exh10-45.txt EXHIBIT 10.45 EXECUTION COPY Proprietary & Confidential ASSIGNMENT AND SECURITY AGREEMENT ASSIGNMENT AND SECURITY AGREEMENT (this "Security Agreement"), dated as of June 27, 2001, by WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC Distribution Statutory Trust (the "Trustee"), in favor of CITICORP USA, INC., as Agent (the "Agent"), for its benefit and for the benefit of the Holders from time to time of the Notes and Certificates (as such terms are defined in the Participation Agreement referred to below). Preliminary Statements A. The Trustee will finance the acquisition of its interests in the Properties by issuing the Notes and Certificates. B. It is a condition precedent to the purchase of the Notes and Certificates and the consummation of the transactions contemplated by the Operative Documents that the Trustee grant the assignment and security interest contemplated by this Security Agreement to the Agent for its benefit and for the benefit of the Holders from time to time of the Notes and the Certificates. NOW, THEREFORE, in consideration of the agreements contained herein, and in order to induce the Holders to purchase the Notes and Certificates, the parties hereto agree as follows: 1. Definitions. All capitalized terms used but not otherwise defined herein have the meanings assigned to such terms in the Participation Agreement dated as of June 27, 2001 among Rite Aid Realty Corp., Rite Aid Corporation, the Trustee, the Persons named therein as Note Holders and Certificate Holders and the Agent (the "Participation Agreement"). In addition, the rules of construction set forth in Part I of Appendix A to the Participation Agreement shall apply to this Security Agreement. 2. Creation of Security Interest. As security for the full payment when due (whether at stated maturity, by acceleration or otherwise) of all obligations of the Trustee to the Note Holders, the Certificate Holders and the Agent under the Operative Documents, whether for principal, interest, Certificate Amount, Distributions, fees, expenses or otherwise, including any extensions or renewals thereof or replacements therefor (the "Obligations"), the Trustee hereby assigns and grants to and creates in favor of the Agent, for its benefit and the ratable benefit of the Holders from time to time of the Notes and Certificates, in accordance with the ASSIGNMENT AND SECURITY AGREEMENT Proprietary & Confidential priorities set forth in the Participation Agreement, a lien on and first priority security interest (the "Security Interest") in and to the following collateral, whether now existing or hereafter acquired: (a) the Parent Guaranty, (b) the Security Agreement, (c) all of its direct and indirect interests and rights in, to and under the Intercreditor Agreement and (d) the Lease, including the Lease Supplements and all rights and remedies of the Trustee as Lessor thereunder in the event that the Lease is determined to be, and is recharacterized as, a mortgage, security agreement and/or other financing document securing or evidencing a financing transaction (collectively, the "Assigned Agreements"), includ ing (1) all rights of the Trustee (as Lessor or otherwise) to receive moneys due and to become due under or pursuant to the Assigned Agreements, (2) all claims of the Trustee for damages arising out of or for breach of or default under the Assigned Agreements, (3) all rights of the Trustee to terminate, amend, supplement, modify or waive performance of the Assigned Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder and (4) all proceeds of any Assigned Agreement, and (e) such portion of the Properties that do not constitute real property and are covered by the Mortgages (collectively, the "Covered Property") and all additions thereto and renewals and replacements thereof and all substitutions therefor which are now owned or hereafter acquired by the Trustee, or in which the Trustee has or will have an interest, and all proceeds of the Covered Property and any rights to any insurance policies covering the Covered Property (the Covered Property, all proceeds therefrom and the Assigned Agreements being referred to collectively as the "Collateral"); provided that until the occurrence of an Event of Default (as defined in the Loan Agreement), the Trustee may exercise all of its rights, interests and benefits under the Assigned Agreements in any lawful manner. 3. Rights and Remedies Upon Event of Default. During the continuance of an Event of Default (as defined in the Loan Agreement), the Agent may, upon the direction of the Majority Holders in accordance with and subject to the limitations of Article VI of the Participation Agreement: (i) foreclose this Security Agreement, and thereafter exercise all of the Trustee's rights, interests and benefits under the Collateral in any manner permitted by Law and (ii) exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party after default under the Uniform Commercial Code of the State of New York (the "UCC"), including the right to take possession of and sell the Covered Property or any portion thereof, and to take such other measures as the Agent may deem necessary for the care, protection and preservation thereof. The Trustee will pay to the Agent, as provided in Section 9.13 of the Participation Agreement, any and all reasonable expenses, including reasonable legal expenses and attorneys' fees, incurred or paid by the Agent in protecting its interest in the Collateral and in enforcing its rights 2 ASSIGNMENT AND SECURITY AGREEMENT Proprietary & Confidential hereunder with respect thereto. Any notice of sale, disposition or other intended action by the Agent with respect to such of the Collateral as is governed by the UCC sent to the Trustee in accordance with the provisions hereof at least five (5) days prior to such action, will constitute reasonable notice to the Trustee, and the method of sale or disposition or other intended action set forth or specified in such notice shall conclusively be deemed to be commercially reasonable within the meaning of the UCC unless objected to by the Trustee within five (5) days after receipt by the Trustee of such notice. The proceeds of any disposition of the Collateral will be applied by the Agent to the payment of the Obligations in such priority and proportions as set forth in the Participation Agreement. Notwithstanding the foregoing, the Trustee will not be liable for any deficiency if the proceeds realized from the Collateral are insufficient to pay the Obligations. 4. No Duty on Agent's Part. The powers conferred on the Agent hereunder are solely to protect the Agent's interests in the Collateral and will not impose any duty upon it to exercise any such powers. The Agent will be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents will be responsible to the Trustee or the Holders for any act or failure to act hereunder, except for its own gross negligence or willful misconduct or as otherwise provided by applicable Law. 5. Termination; Release of Security Interest. This Security Agreement will terminate, and all of the Collateral will be released automatically from the Security Interest granted hereby, upon the satisfaction in full of all of the Obligations. 6. Miscellaneous. (a) Successors. This Security Agreement will be binding upon the parties and their respective successors, assigns and legal representatives. (b) Notices. Any notice, request, approval, consent, order, instruction, direction, report or other communication under this Security Agreement given by either party to the other party will be in writing and will be delivered in the manner set forth in Section 9.02 of the Participation Agreement. (c) Amendments. No waiver, amendment or modification of any of the provisions of this Security Agreement will be valid unless set forth in a written instrument signed by each of the parties hereto in accordance with the provisions of Section 9.04 of the Participation Agreement. 3 ASSIGNMENT AND SECURITY AGREEMENT Proprietary & Confidential (d) Interpretation. All section, subsection and paragraph captions are for convenience of reference only and will not affect the construction of any provisions hereof. (e) Applicable Law. THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). (f) Further Assurances. Each of the parties hereto agrees that it will promptly and duly execute and deliver to the other party hereto such documents and assurances and take such further action as such other party may from time to time reasonably request to carry out more effectively the intent and purpose of this Security Agreement, or to establish and protect the rights and remedies created or intended to be created hereunder in favor of any party. (g) Counterparts. This Security Agreement may be executed in multiple counterparts, each of which, taken together, will constitute a single fully executed original. (h) Exculpation of the Trustee. It is expressly agreed, anything herein to the contrary notwithstanding, that each and all of the representations, warranties, covenants, undertakings and agreements herein made on the part of the Trustee are made and intended not as personal representations, warranties, covenants, undertakings and agreements by the Trustee, or for the purpose or with the intention of binding the Trustee, personally, but are made and intended for the purpose of binding only the Trust Estate. No personal liability or personal responsibility is assumed by or will at any time be asserted or enforceable against the Trustee on account of this Security Agreement or on account of any representation, warranty, covenant, undertaking or agreement of the Trustee, whether expressed or implied herein, all such personal liability, if any, being expressly waived and released by the Agent and by all Persons claiming by, through or under it. 4 ASSIGNMENT AND SECURITY AGREEMENT Proprietary & Confidential IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed by their respective Officers thereunto duly authorized, as of the day and year first above written. WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity but solely as Trustee of RAC Distribution Statutory Trust By: ______________________________ Name: Title: 5 ASSIGNMENT AND SECURITY AGREEMENT Proprietary & Confidential CITICORP USA, INC., as Agent By: ______________________________ Name: Title: EX-10 26 exh10-46.txt EXHIBIT 10.46 EXECUTION COPY Proprietary & Confidential AMENDED AND RESTATED DECLARATION OF TRUST (RAC DISTRIBUTION STATUTORY TRUST) Dated as of June 27, 2001 among The Persons Named as Certificate Holders on Schedule I Hereto and WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, as Trustee Trust Agreement Proprietary & Confidential TABLE OF CONTENTS ARTICLE I ORGANIZATION....................................................... 2 Section 1.1. Organization; Purpose of Trust; Authority of Trustee; Title to Trust Estate ....................................... 2 Section 1.2. Purpose ..................................................... 2 Section 1.3. Authority of the Trustee..................................... 3 Section 1.4. Declaration of Trust; Title to Trust Estate ................. 4 Section 1.5. Representations of the Certificate Holders .................. 4 ARTICLE II CERTIFICATES ..................................................... 4 Section 2.1. Certificates; Procedure for Investment ...................... 4 Section 2.2. Return of Investment ........................................ 5 Section 2.3. Distributions ............................................... 5 Section 2.4. Computation of Distributions ................................ 5 Section 2.5. Loan Event of Default ....................................... 5 Section 2.6. Payment from Trust Estate Only .............................. 6 Section 2.7. Persons Deemed Owners ....................................... 6 Section 2.8. Mutilated, Destroyed, Lost or Stolen Certificates ........... 6 ARTICLE III COLLECTIONS AND DISTRIBUTIONS.................................... 7 Section 3.1. Collections and Remittances by the Trustee................... 7 Section 3.2. Payments to the Agent ....................................... 7 Section 3.3. Effect of Sales by the Trustee .............................. 7 ARTICLE IV CERTAIN PROVISIONS RESPECTING THE TRUSTEE......................... 8 Section 4.1. Acceptance of Trusts and Duties ............................. 8 Section 4.2. Limitation of Power ......................................... 8 Section 4.3. Notice of Event of Default, Etc ............................. 8 Section 4.4. Action Upon Instructions .................................... 9 Section 4.5. Certain Duties and Responsibilities of the Trustee........... 10 Section 4.6. Certain Rights of the Trustee ............................... 11 Section 4.7. NO REPRESENTATIONS OR WARRANTIES AS TO THE PROPERTIES OR DOCUMENTS ..................................................... 13 Section 4.8. Status of Moneys Received ................................... 13 Section 4.9. Permitted Activities ........................................ 13 Section 4.10. Resignation or Removal of the Trustee ...................... 14 Section 4.11. Estate and Rights of Successor the Trustee ................. 14 ii Trust Agreement Proprietary & Confidential Section 4.12. Merger or Consolidation of the Trustee...................... 14 Section 4.13. Co-Trustees ................................................ 15 Section 4.14. Doing Business in Other Jurisdictions ...................... 15 Section 4.15. Books and Records .......................................... 15 ARTICLE V TRANSFER OF CERTIFICATE HOLDER'S INTEREST.......................... 16 ARTICLE VI TERMINATION OF AND AMENDMENTS TO TRUST............................ 16 Section 6.1. Expiration; Termination...................................... 16 Section 6.2. Distribution of Trust Estate Upon Termination................ 17 Section 6.3. Amendments .................................................. 17 ARTICLE VII MISCELLANEOUS.................................................... 17 Section 7.1. Compensation and Indemnification............................. 17 Section 7.2. Notices ..................................................... 18 Section 7.3. Applicable Law............................................... 18 Section 7.4. Tax Reports.................................................. 19 Section 7.5. Headings .................................................... 19 Section 7.6. Successors and Assigns ...................................... 19 Section 7.7. Severability................................................. 19 Section 7.8. Only Written Waivers ........................................ 19 Section 7.9. Counterparts................................................. 19 Section 7.10. Rights in Trust Agreement .................................. 19 Section 7.11. No Personal Liability....................................... 20 iii Trust Agreement Proprietary & Confidential AMENDED AND RESTATED DECLARATION OF TRUST THIS AMENDED AND RESTATED DECLARATION OF TRUST (this "Trust Agreement") dated as of June 27, 2001, is between Wells Fargo Bank Northwest, National Association (the "Bank"; the Bank and any institution that acts as a successor trustee in accordance with the terms of Section 4.10, the "Trustee"), and the Persons named on Schedule I hereto (together with any permitted successors and assigns, each a "Certificate Holder"). Capitalized terms used in this Trust Agreement without specific definition herein have the meanings assigned thereto in Appendix A to the Participation Agreement dated as of the date hereof, among Rite Aid Realty Corp., a Delaware corporation (the "Company"), Rite Aid Corporation, the Trustee, the Persons named therein as Note Holders and Certificate Holders, and Citicorp USA, Inc., as Agent (the "Participation Agreement"). In addition, the rules of construction set forth in Part I of Appendix A to the Participation Agreement shall apply to this Trust Agreement. TO WITNESS THAT WHEREAS, the Trustee has previously executed and delivered a Declaration of Trust dated as of June 27, 2001, in form attached hereto as Exhibit A (the "Existing Trust Agreement") and filed a Certificate of Trust with the Connecticut Secretary of State to form a Connecticut Statutory Trust named the RAC Distribution Statutory Trust in accordance with the provisions of Chapter 615 of Title 34 of the Connecticut General Statutes, ss.34-500 to ss.34-547 (the "Trust Act"); WHEREAS, the Certificate Holders, as trustors, and the Bank, as trustee, desire to enter into this Trust Agreement in order to amend and restate the Existing Trust Agreement for the benefit of the Certificate Holders to finance the Properties more particularly described in the Participation Agreement and the related Lease Supplements; WHEREAS, the Bank is willing to serve as trustee for the Trust; and WHEREAS, the Trustee, on behalf of the Trust, will enter into certain agreements and instruments (hereinafter called the "Trust Related Agreements"), as more specifically set forth in Section 1.3 hereof. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree to establish the Trust under the following terms and conditions: Trust Agreement Proprietary & Confidential ARTICLE I ORGANIZATION Section 1.1. Organization; Purpose of Trust; Authority of Trustee; Title to Trust Estate. (a) The name of the Trust is "RAC Distribution Statutory Trust" in which name the Trustee may engage in the business of the Trust and sue and be sued. To the extent necessary or desirable, the Trustee may engage in the business of the Trust, make and execute contracts and other instruments on behalf of the Trust and sue or be sued in the name of the Trustee or the Trust, but any such action will not be deemed to render the Trustee personally liable for the obligations of the Trust. (b) The principal office of the Trust, and such additional offices as the Trustee may establish, will be located at such place or places inside or outside the State of Connecticut as the Trustee may designate from time to time in writing to the Certificate Holders. Initially, the principal office of the Trust will be at 213 Court Street, Suite 902, Middletown, Connecticut 06547, Attention: Corporate Trust Services. Section 1.2. Purpose. (a) The purpose of the Trust is (i) to acquire, finance and lease the Properties pursuant to the Participation Agreement and the Lease, for the benefit of the Certificate Holders, (ii) to execute and deliver the Operative Documents to which the Lessor or the Trustee is or will be a party, and to perform its obligations thereunder, (iii) as the Certificate Holders may jointly direct from time, acquire other assets and lease such assets to other lessees having an unsecured credit rating of AA or better by S&P and AA2 or better by Moody's on the date of any such lease; provided, however, that such additional leasing transactions are funded only with additional equity investments in the Trust and the relating lease is a triple net lease substantively similar to the Lease and on terms not materially less favorable to the Lessor, and (iv) subject to the provisions of Section 5.01 of the Loan Agreement, to conduct such other business activities as the Certificate Holders may direct from time to time. The Trustee will use the proceeds of the Equity Investments contemplated by the Participation Agreement only to acquire, finance and lease the Properties as the Certificate Holders may from time to time direct. (b) It is the intention of the Certificate Holders that the interest in the Properties and the remainder of the Trust Estate held by the Trustee constitute a first priority Lien (subject to Permitted Encumbrances and to the other limitations expressed in the Operative Documents) in all right, title and interest in the Properties and the remainder of the Trust Estate for the benefit of the Note Holders and the Certificate Holders to secure the Trustee's and the Company's performance of their respective obligations pursuant to the Operative Documents, and the Trustee may engage in activities ancillary and incidental thereto as set forth in the Operative Documents. Except as expressly permitted under the terms of the Operative Documents, the Bank in its 2 Trust Agreement Proprietary & Confidential capacity as the Trustee will not (i) engage in any business or activity, (ii) have any property, rights or interest, whether real or personal, tangible or intangible, (iii) incur any legal liability or obligation, whether fixed or contingent, matured or unmatured, other than in the normal course of the administration of the Trust or (iv) subject any of the Trust Estate to any lien, security interest or other claim or encumbrance, other than in favor of the Trustee, the Agent, the Note Holders and the Certificate Holders pursuant to the provisions of the Operative Documents. (c) THE TRUST IS NOT A BUSINESS TRUST. THE SOLE PURPOSE OF THE TRUST IS AS SET FORTH IN SECTION 1.2(a). THE TRUSTEE MAY NOT TRANSACT BUSINESS OF ANY KIND WITH RESPECT TO THE TRUST ESTATE, NOR WILL THIS TRUST AGREEMENT BE DEEMED TO BE, OR CREATE OR EVIDENCE THE EXISTENCE OF A CORPORATION DE FACTO OR DE JURE, OR A MASSACHUSETTS TRUST, OR ANY OTHER TYPE OF BUSINESS TRUST, ASSOCIATION OR JOINT VENTURE BETWEEN OR AMONG THE TRUSTEE, THE CERTIFICATE HOLDERS, THE AGENT AND THE NOTE HOLDERS. Section 1.3. Authority of the Trustee. The Certificate Holders hereby authorize and direct the Trustee: (a) to execute and deliver each of the Operative Documents (including the Loan Agreement, the Notes and the Certificates, subject to the terms of, and in the manner provided in, this Trust Agreement and the other Operative Documents) and any other documents and instruments related thereto to which the Trustee is or will be a party, in the respective form thereof delivered by or on behalf of the Certificate Holders to the Trustee for execution; and (b) to do all such other things and take all such other actions as may be necessary, appropriate or convenient to consummate the transactions contemplated by, and perform from time to time the duties and obligations of the Trustee under, this Trust Agreement and the other Operative Documents. Each Certificate Holder agrees that its execution and delivery of the Participation Agreement and its commitment to make available Equity Investments pursuant to Section 1.02 of the Participation Agreement will constitute, without further action, authorization and direction by such Certificate Holder to the Trustee, to take the actions specified in this Section 1.3. After termination or expiration of the Lease and so long as the Trustee (in its capacity as trustee of this Trust) is a party to any Operative Document, the Certificate Holders, at the Trustee's written request, agree to direct the Trustee in connection with any express duties or obligations of the Trustee under the Operative Documents. 3 Trust Agreement Proprietary & Confidential Section 1.4. Declaration of Trust; Title to Trust Estate. (a) The Bank hereby acknowledges that it has received the sum of $1.00 and other valuable consideration from the Certificate Holders as grantors of the Trust and declares that it will hold such sum and the Trust Estate in trust subject to the terms and conditions set forth herein for the use and benefit of the Certificate Holders, subject only to the obligations of the Trustee under the Operative Documents and any Permitted Encumbrances. It is the intention of the parties hereto that, to the extent the Trust is not considered a mere financing vehicle, then solely for income and franchise tax purposes, the Trust will be treated as a grantor trust. It is the intention of the parties hereto that the Trust will be a grantor trust organized under Section 34-500 of the Trust Act, and that this Trust Agreement will constitute the governing instrument of the Trust. Effective as of the date hereof, the Trustee will have all of the rights, powers and duties set forth herein and in the Trust Act with respect to accomplishing the purposes of the Trust. The Trustee has filed a certificate of trust required by Section 34-503 of the Trust Act in connection with the formation of the Trust under the Trust Act. The parties intend that the Trust does not and will not constitute a "business trust" within the meaning of Title of the United States Code. (b) Legal title to the Trust Estate will be vested in the Trustee, and it will have full authority, control and power over the Trust Estate and the business of the Trust. The Trustee declares that it will hold the Trust Estate in trust subject to the terms and conditions set forth herein for the benefit of the Certificate Holders subject only to the obligations of the Trustee under the Operative Documents and any Permitted Encumbrances. No legal title to any of the Trust Estate will be vested in the Certificate Holders and they will have no interest in the Trust Estate other than their respective beneficial interests in the Trust Estate conferred by this Trust Agreement, which beneficial interests will be personal property. Section 1.5. Representations of the Certificate Holders. Each Certificate Holder hereby represents and warrants that it is validly existing under the laws of its jurisdiction of formation having full legal right and authority to enter into and carry out its obligations under this Trust Agreement. ARTICLE II CERTIFICATES Section 2.1. Certificates; Procedure for Investment. (a) The Equity Investments made by each Certificate Holder and each Certificate Holder's interest in the Trust Estate will be evidenced by a certificate of the Trustee, substantially in the form of Exhibit B hereto (each a "Certificate" and, collectively, the "Certificates"), issued in the name of such Certificate Holder, with appropriate insertions and schedules, in a face amount equal to such Certificate Holder's Certificate Commitment. The Certificates will 4 Trust Agreement Proprietary & Confidential (i) be dated as of the Funding Date, (ii) be stated to mature on the Maturity Date and (iii) bear Distributions on the unpaid Certificate Amount thereof from time to time outstanding at the Applicable Rate. (b) Each Certificate Holder severally (and not jointly) agrees that on the Funding Date it will make an Equity Investment in accordance with Article I of the Participation Agreement. (c) Each Certificate Holder is hereby authorized to record the date and amount of each Equity Investment, the amount of all accrued and unpaid Distributions and each payment or repayment on the grid annexed to and constituting a part of each Certificate held by such Certificate Holder, and any such recordation will constitute prima facie evidence of the accuracy of the information as recorded; provided, however, that the failure to make any such recordation will not affect the obligations of the Trustee under such instrument. Section 2.2. Return of Equity Investment. The Trustee will, from the Trust Estate, return the Equity Investment evidenced by each Certificate, as provided in the Participation Agreement. Section 2.3. Distributions. (a) Each Certificate, and its related Certificate Amount, will be entitled to Distributions on the unpaid amount thereof at a rate per annum equal to the Applicable Rate. (b) If all or a portion of the Equity Investment of, or Distributions on, any Certificate is not paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount, without limiting the rights of the Certificate Holders under any Operative Document, will bear interest, to the extent permitted by Law, at a rate per annum equal to the Default Rate. (c) Distributions on each Certificate will be payable in arrears on each Payment Date in the manner set forth in the Participation Agreement. Section 2.4. Computation of Distributions. To the extent permitted by Law, Distributions in respect of each Certificate Amount will be calculated in all cases by the Agent as provided in Section 5.01 of the Participation Agreement on the outstanding Certificate Amount at the Applicable Rate and will be calculated at the Default Rate in respect of any overdue Certificate Amount and Distributions. Section 2.5. Loan Event of Default. Upon the occurrence of a Loan Event of Default and all of the Notes becoming due and payable, whether automatically or with the consent, or at the request, of the Majority Holders, the Certificate 5 Trust Agreement Proprietary & Confidential Commitments of the Certificate Holders will be terminated, the Equity Investments evidenced by the Certificates (with accrued Distributions thereon) and all other amounts owing to the Certificate Holders under this Trust Agreement and the other Operative Documents will immediately become due and payable, subject to the rights and interests of the Note Holders under the Operative Documents. Section 2.6. Payment from Trust Estate Only. All payments to be made by the Trustee in respect of the Certificates and this Trust Agreement will be made only from the income and the proceeds from the Trust Estate, and only to the extent that the Trustee has received sufficient income or proceeds from the Trust Estate to make such payments in accordance with the terms of Sections 3.2 and 3.3. The Certificate Holders agree that they will look solely to the income and proceeds from the Trust Estate to the extent available for distribution to them as herein provided, and that the Trustee is not nor will it be liable in its individual capacity to any Certificate Holder for any amount payable hereunder or under the Certificates. Section 2.7. Persons Deemed Owners. Prior to due presentation of a Certificate for registration of transfer, the Trustee and any agent of the Trustee may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving Distributions pursuant to Section 2.2, Section 2.3 and Article III and for all other purposes whatsoever, and neither the Trustee nor any agent of the Trustee will be affected by any notice to the contrary; provided, however, that in determining whether the Certificate Holders evidencing the requisite Equity Investments have given any request, demand, authorization, direction, notice, consent or waiver hereunder, the Certificates owned by the Company or any Affiliate thereof will be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee is protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Certificates which an Officer in the Corporate Trust Department of the Trustee knows to be so owned will be so disregarded. Section 2.8. Mutilated, Destroyed, Lost or Stolen Certificates. (a) If any Certificate becomes mutilated, destroyed, lost or stolen, then upon the written request of the holder thereof, the Trustee will execute and deliver to such holder a new Certificate. Such new Certificate will be: (i) registered in the name in which such mutilated, destroyed, lost or stolen Certificate was registered; (ii) in the same original Certificate Amount as such mutilated, destroyed, lost or stolen Certificate; and (iii) dated the date of such mutilated, destroyed, lost or stolen Certificate. If the Certificate being replaced has become mutilated, it will be surrendered to the Trustee and canceled. If the Certificate being replaced has been destroyed, lost or stolen, the holder thereof will furnish to the Trustee such security or indemnity as reasonably may be required by it to save the Trustee harmless from any loss and evidence satisfactory to the Trustee of the destruction, loss or theft of such Certificate and the ownership thereof. Upon request, the 6 Trust Agreement Proprietary & Confidential Trustee will advise the affected Certificate Holder of (i) the aggregate Certificate Amount of, and the aggregate accrued and unpaid Distributions on, such mutilated, destroyed, lost or stolen Certificate that were paid to any holder thereof at any time prior to the delivery of such new Certificate; and (ii) the date on which Distributions in respect of such mutilated, destroyed, lost or stolen Certificate had been paid to any holder thereof at the time of such delivery. (b) Any duplicate Certificate issued pursuant to this Section 2.8 will constitute complete and indefeasible evidence of ownership of such Certificate, as if originally issued, whether or not the lost, stolen or destroyed Certificate is found at any time. ARTICLE III COLLECTIONS AND DISTRIBUTIONS Section 3.1. Collections and Remittances by the Trustee. The Trustee agrees that, subject to the provisions of this Trust Agreement and during the term of this Trust, the Trustee will administer the Trust Estate and, at the direction of the Agent or the Majority Holders, take steps to collect all sums payable by the Lessee under the Lease (to the extent not payable directly to the Agent pursuant to the Lease, the Participation Agreement or to the Holders pursuant to the other Operative Documents). The Trustee agrees to distribute all proceeds received from the Trust Estate in accordance with the Participation Agreement. The Trustee will make such distributions promptly upon receipt of such proceeds by the Trustee, it being understood and agreed that the Trustee will not be obligated to make such distributions until the funds for such distributions have been received by the Trustee in cash or its equivalent reasonably acceptable to the Trustee. All distributions to a Certificate Holder will be made by the Trustee to the order of such Certificate Holder, delivered to such Certificate Holder in accordance with its payment instructions set forth on Schedule I to the Participation Agreement. Section 3.2. Payments to the Agent. Until the Loan Agreement and the Notes have been discharged pursuant to the terms thereof, (a) all payments of any kind included in the Trust Estate will be payable directly to the Agent unless otherwise specified in the Operative Documents for distribution in accordance with the provisions of Artic le VI or VII of the Participation Agreement, as applicable, and (b) if any payments are received by the Trustee, the Trustee upon receipt thereof will forward such payments to the Agent without deduction, set-off or adjustment of any kind. Section 3.3. Effect of Sales by the Trustee. Any sale of all or any part of the Trust Estate by the Trustee permitted hereunder or under the Participation Agreement will bind the Certificate Holders and will be effective for the benefit of the purchasers thereof and their respective successors and assigns to divest and transfer all 7 Trust Agreement Proprietary & Confidential right, title and interest vested in the Trustee or the Certificate Holders hereunder in the property so sold. No purchaser will be required to inquire as to compliance by the Trustee with any of the terms hereof or to see to the application of any proceeds of any such sale. ARTICLE IV CERTAIN PROVISIONS RESPECTING THE TRUSTEE Section 4.1. Acceptance of Trusts and Duties. The Bank, as Trustee, accepts the trusts hereby created and agrees to perform the same as herein expressed and agrees to receive and disburse all moneys constituting part of the Trust Estate in accordance with the terms of this Trust Agreement. Section 4.2. Limitation of Power. The Trustee does not have the power, right, duty or authority to manage, control, possess, use, sell, lease, dispose of or otherwise deal with the Properties or any portion thereof or any other property at any time constituting a part of the Trust Estate, or otherwise to take or refrain from taking any action under or in connection with the Operative Documents, except that the Trustee will have the power, right, duty or authority to (a) execute and deliver the Operative Documents to which the Trustee is to be a party, (b) exercise and carry out, or cause to be exercised and carried out, the rights, duties and obligations of the Trustee hereunder and under the other Operative Documents, (c) receive, collect and distribute and deal with the sums due under the Lease and the other Operative Documents and the proceeds thereof as provided in the Operative Documents and (d) take or refrain from taking such actions as expressly provided in written instructions received by the Trustee from the Agent or the Majority Holders pursuant to Section 4.3 or 4.4. Other than as expressly provided in this Trust Agreement, the Trustee does not have the authority to make management decisions relating to the Trust Estate and may take only ministerial actions without the consent of the Agent or the Majority Holders. Section 4.3. Notice of Event of Default, Etc. In the event that an Officer of the Trustee has knowledge of, or has received a copy of any consent, waiver or modification or request therefor or for any other action with respect to any of the Operative Documents, the Trustee will give prompt written notice thereof (in no event later than five (5) days after receipt or actual knowledge thereof) to the Certificate Holders and the Agent and to any other Person identified in writing by the Certificate Holders to the Trustee. In the event an Officer of the Trustee has knowledge of a Default or an Event of Default, the Trustee will give prompt written notice by certified mail, postage prepaid, of such event to the Certificate Holders, the Note Holders and the Agent and any other Person identified in writing by the Certificate Holders to the Trustee. Subject to the terms of Section 4.4 and any restrictions contained in the other Operative Documents, the Trustee will take such action with respect to any such event as may be 8 Trust Agreement Proprietary & Confidential specified in written instructions received by the Trustee from the Agent or the Majority Holders. For all purposes of this Trust Agreement and the other Operative Documents, in the absence of actual knowledge, the Trustee will not be deemed to have knowledge of a Default or an Event of Default unless the Trustee receives written notice thereof. If the Trustee has given notice of any such event and has not received written instructions from the Agent or the Majority Holders within thirty (30) days after mailing such notice, then the Trustee will provide written notice to the Certificate Holders, the Note Holders and the Agent ten (10) days in advance of the date it proposes to take any action, describing such action and following the giving of such notice and subject to the terms of the Operative Documents, may take such action, or refrain from taking such action, with respect to such Default or an Event of Default as it deems advisable and in the best interests of the Note Holders and Certificate Holders; provided, however, that the Trustee will have no obligation to take action in the event it does not receive direction from the Agent or the Majority Holders. Section 4.4. Action Upon Instructions. (a) Subject to the terms of Sections 4.5, 4.6 and 7.1 and the other Operative Documents, upon the written instructions at any time and from time to time of the Agent or the Majority Holders, the Trustee will take such of the following actions as may be specified in such instructions: (i) give such notice or direction or exercise such right or power under the Lease or any other Operative Document specified in such instructions; (ii) approve as satisfactory to the Trustee all matters required by the terms of any Operative Document to be satisfactory to the Trustee; (iii) after the termination or expiration of the Lease, unless the Company has purchased the Properties, convey the Properties for such amount, on such terms and to such purchaser or purchasers as may be designated in such instructions, or otherwise lease or dispose of the Properties on such terms as may be designated in such instructions; and (iv) any other action as specified by the Agent or the Majority Holders in such instructions. (b) In connection with the exercise by the Trustee of its rights under Section 6.02 of the Participation Agreement or Article IX of the Lease, the Trustee will only take such actions as the Agent or the Majority Holders may direct from time to time; provided, however, that the Trustee will not be obligated to take any actions which are inconsistent with the provisions of Section 4.5(c). 9 Trust Agreement Proprietary & Confidential Section 4.5. Certain Duties and Responsibilities of the Trustee. (a) (i) The Trustee will perform such duties and only such duties as are specifically set forth herein and in the other Operative Documents and no implied covenants or obligations will be read into this Trust Agreement against the Trustee, and the Trustee agrees that it will not, nor will it have a duty to, manage, control, use, sell, maintain, insure, register, lease, operate, modify, dispose of or otherwise deal with the Properties or any portion of the Trust Estate in any manner whatsoever, except as required by the terms of the Operative Documents and as otherwise provided herein; and (ii) in the absence of willful misconduct or gross negligence on the Trustee's part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Trust Agreement. (b) No provision hereof will be construed to relieve the Bank, in its individual capacity, or the Trustee of liability for its gross negligence or willful misconduct, for the creation of any Lessor Lien arising by, through or under the Bank or its negligence in the handling of funds, it being understood that, without limiting the foregoing: (i) the Trustee will not be liable in its individual capacity for any error of judgment made in good faith by an Officer of the Trustee, unless it is proven that the Trustee was grossly negligent or had engaged in willful misconduct; (ii) the Trustee will not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the written direction of the Agent or the Majority Holders pursuant to the express provisions hereof; (iii) no provision hereof will require the Bank, in its individual capacity, to expend or risk its own funds in the performance of any of its duties as the Trustee hereunder or under any of the other Operative Documents, or in the exercise of any of its rights or powers; (iv) the Trustee will not be personally responsible for or in respect of the validity or sufficiency of this Trust Agreement or for the due execution hereof by any Certificate Holder; (v) except as expressly provided in this Trust Agreement, in accepting the trust created hereby, the Trustee acts solely as trustee and not in its individual capacity, and all Persons having any claim against the Trustee by reason of the transactions contemplated by this Trust Agreement will, other than as expressly provided 10 Trust Agreement Proprietary & Confidential in this Trust Agreement and the other Operative Documents, look solely to the Trust Estate for payment or satisfaction thereof; and (vi) the Bank will be liable for (A) any Taxes on, with respect to or measured by any amounts paid to it as compensation for services or otherwise under the Operative Documents, (B) its acts or omissions not related to the transactions contemplated by the Operative Documents, (C) the inaccuracy of representations and warranties made by the Bank, in its individual capacity, in the Participation Agreement or any certificate or document delivered pursuant thereto, and (D) its negligence in the handling of funds. (c) The Trustee will not be required to take any action hereunder or under the other Operative Documents, nor will any other provision of this Trust Agreement or any other Operative Document be deemed to impose a duty on the Trustee to take any action, if the Trustee determines, or has been advised by counsel, that such action is likely to result in personal liability to it or is contrary to applicable Law or any of the Operative Documents. (d) Whether or not therein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustee will be subject to the provisions of this Section 4.5. Section 4.6. Certain Rights of the Trustee. Except as otherwise provided in Section 4.5: (a) the Trustee may rely and will be protected in acting or refraining from acting upon any signature, resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction or authorization by any party hereto or to any other Operative Document will be sufficiently evidenced by a request, direction or authorization in writing, delivered to the Trustee and signed in the name of such party by the president, any vice president, the treasurer or the secretary of such party, as the case may be, and any resolution of the board of directors or committee thereof of such party will be sufficiently evidenced by a copy of such resolution certified by the secretary or an assistant secretary of such party, as the case may be, to have been duly adopted and to be in full force and effect on the date of such certification, and, upon request of the Trustee, delivered to the Trustee; (c) whenever in the administration of this Trust Agreement the Trustee deems it desirable that a matter be proven or established prior to taking, suffering or omitting any action hereunder, the Trustee may in good faith rely upon a certificate in 11 Trust Agreement Proprietary & Confidential writing, delivered to the Trustee and signed by the president, any vice president, any assistant vice president, the treasurer, any assistant treasurer, the secretary or any assistant secretary of the Agent or a Certificate Holder; (d) the Trustee may exercise its powers and perform its duties by or through such attorneys, agents and servants as it may appoint; and it will be entitled to the advice of counsel and will be protected by the advice of such counsel in anything done or omitted to be done in accordance with such advice (provided that such advice pertains to such matters as the Trustee may reasonably presume to be within the scope of such counsel's area of expertise and provided further that notice of such advice of counsel to the Trustee will have been given to the Certificate Holders, the Agent and the Company as promptly as practicable); (e) the Trustee will not be under any obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of the Majority Holders, unless the Majority Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses (including reasonable fees and expenses of its legal counsel) and liabilities which may be incurred by it in compliance with such request or direction; (f) provided that no Officer of the Trustee has actual knowledge of the inaccuracy thereof, the Trustee will not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee determines to make such further inquiry or investigation, it will be entitled to examine the books and records of the Company or the Guarantor related to the Properties or any portion thereof to reasonably determine whether the Company is in compliance with the terms and conditions of the Lease and to examine any Property, by agent or attorney, all upon the terms and conditions contained in the Lease; and (g) without limiting the generality of Section 4.5, the Trustee will not have any duty (i) to see to any recording or filing of the Operative Documents or any UCC financing statements or memoranda of leases or to see to the maintenance of any such recording or filing, (ii) to see to any insurance on the Properties or any portion thereof or to effect or maintain any such insurance, whether or not the Company is in default with respect thereto, other than to promptly forward to the Certificate Holders and the Agent copies of all certificates, reports and other written information which it receives from the Company pursuant to the requirements of the Lease or the Participation Agreement (unless the Certificate Holders and the Agent are to receive such certificates, reports and other written information directly from the Company), (iii) to see to the 12 Trust Agreement Proprietary & Confidential payment or discharge of any Tax or any Lien owing with respect to, assessed or levied against any part of the Trust Estate (other than in respect of Lesser Liens created by the Bank or the Trustee), (iv) to confirm or verify any financial statements of the Guarantor, or (v) to inspect the Properties or any portion thereof at any time or ascertain or inquire as to the performance or observance of any of the Company's covenants under the Operative Documents. Section 4.7. NO REPRESENTATIONS OR WARRANTIES AS TO THE PROPERTIES OR DOCUMENTS. THE BANK HAS NOT INSPECTED THE PROPERTIES OR ANY PORTION THEREOF PRIOR TO DELIVERY TO AND ACCEPTANCE BY THE COMPANY. THE BANK HAS NOT MADE NOR DOES IT MAKE (A) ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO ANY ENVIRONMENTAL MATTER OR CONDITION, VALUE, DESIGN, OPERATION, CONDITION, QUALITY, DURABILITY, SUITABILITY, MERCHANTABILITY OR FITNESS FOR USE OR FITNESS FOR A PARTICULAR PURPOSE, ABSENCE OF LATENT OR OTHER DEFECTS WHETHER OR NOT DISCOVERABLE, ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, OR ANY OTHER WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTIES OR ANY PORTION THEREOF, OR AS TO TITLE THERETO, OR (B) ANY REPRESENTATION OR WARRANTY AS TO THE VALIDITY, LEGALITY OR ENFORCEABILITY OF THE OPERATIVE DOCUMENTS (OTHER THAN AS TO THIS TRUST AGREEMENT AGAINST THE BANK), OR AS TO THE CORRECTNESS OF ANY STATEMENT CONTAINED IN ANY THEREOF, EXCEPT AS SET FORTH IN SECTIONS 3.03 AND 3.04 OF THE PARTICIPATION AGREEMENT. Section 4.8. Status of Moneys Received. All moneys received by the Trustee under or pursuant to any provision of this Trust Agreement constitute trust funds for the purpose for which they were paid or are held, but need not be segregated in any manner from any other moneys and may be deposited by the Trustee under such conditions as may be prescribed or permitted by applicable Law for trust funds, or, at the direction of the Majority Holders may be invested in Permitted Investments. Section 4.9. Permitted Activities. The Bank or any corporation in or with which the Bank may be interested or affiliated or any officer or director of any such corporation may acquire and hold Certificates hereunder (subject to the restrictions of Section 5.03 of the Participation Agreement), and have commercial relations and otherwise deal with the Company and the Guarantor or with any other corporation having relations with the Company or the Guarantor to the full extent permitted by applicable Law. 13 Trust Agreement Proprietary & Confidential Section 4.10. Resignation or Removal of the Trustee. The Trustee or any successor thereto may resign at any time without cause by giving at least sixty (60) days' prior written notice to each Certificate Holder, Note Holder, the Agent and the Company, and the Majority Certificate Holders may at any time remove the Trustee without cause by an instrument in writing delivered to the Trustee, the Agent and the Company, such resignation or removal to be effective on the later of the date specified in such notice or written instrument or the date on which a successor trustee is appointed hereunder. With the written consent of the Agent (and, so long as an Event of Default has not occurred and is continuing), the Company, the Majority Certificate Holders may, at any time upon thirty (30) days' prior written notice to the Agent and the Company by an instrument in writing, appoint a successor trustee; provided, however, that a successor trustee will be a bank or trust company which is organized under the laws of the United States of America or any state thereof and has a combined capital and surplus of at least $500,000,000. If the Majority Certificate Holders do not appoint a successor trustee within thirty (30) days after the giving of notice of such resignation or removal, then the Agent or the Trustee may apply to any court of competent jurisdiction to appoint a successor trustee to act until such time, if any, as a successor is, or successors are, appointed by the Majority Certificate Holders as provided above. Any successor trustee so appointed by such court will immediately and without further act be superseded by a successor trustee appointed by the Majority Certificate Holders within one year from the date of the appointment by such court. Section 4.11. Estate and Rights of Successor the Trustee. Any successor trustee, whether appointed by the Majority Certificate Holders or by a court, will execute and deliver to the predecessor trustee an instrument accepting such appointment, and thereupon each successor trustee, without further act, will become vested with all the estates, properties, rights, powers, duties and trusts of the predecessor trustee in the trusts hereunder with like effect as if originally named as the Trustee herein, but nevertheless upon the written request of such successor trustee, such predecessor trustee will execute and deliver an instrument transferring to such successor trustee, upon the trusts herein expressed, all the estates, properties, rights, powers and trusts of such predecessor trustee, and such predecessor trustee will duly assign, transfer, deliver and pay over to such successor trustee any property or moneys then held by such predecessor trustee upon the trusts herein expressed. Section 4.12. Merger or Consolidation of the Trustee. Any corporation into which the Trustee may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Trustee will be a party, or any corporation to which substantially all of the corporate trust business of the Trustee may be transferred, will be a successor trustee under this Trust Agreement without further act. 14 Trust Agreement Proprietary & Confidential Section 4.13. Co-Trustees. At any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Estate may at the time be located, the Majority Certificate Holders and the Trustee jointly will have the power, and will execute and deliver all instruments, to appoint one or more persons approved by the Majority Certificate Holders and the Trustee, to act as co-trustee, or co-trustees, jointly with the Trustee, or separate trustee or separate trustees, of all or any part of the Trust Estate, and to vest in such Person or Persons, in such capacity, such title to the Trust Estate or any part thereof, and such rights, powers, duties, trusts or obligations as the Majority Certificate Holders and the Trustee may consider necessary or desirable. If the Majority Certificate Holders have not joined in such appointment within fifteen (15) days after the receipt by it of a request to do so, then the Trustee alone will have power to make such appointment. The Trustee will not be liable for any act or omission of any co-trustee or separate trustee appointed under this Section 4.13. Any co-trustee appointed hereunder will be entitled to the same rights, privileges and immunities as the Trustee under this Trust Agreement and the other Operative Documents and will not be liable for the acts or omissions of the Trustee. Section 4.14. Doing Business in Other Jurisdictions. Notwithstanding anything contained herein to the contrary, the Trustee will not be required to take any action in any jurisdiction, other than in the jurisdiction of its organization, the State of New York and other than in any other jurisdiction in which the Trustee is authorized to do business, if solely as a result of such action, (a) the taking of such action would require the consent or approval or authorization or order of or the giving of notice to, or the registration with or the taking of any other action in respect of, any Governmental Authority of any jurisdiction, other than the state of the Trustee's organization or any other jurisdiction in which the Trustee is authorized to do business; (b) the Bank would incur any Tax under the laws of any jurisdiction or any political subdivision thereof in existence on the date hereof, other than the state of the Trustee's organization or any other jurisdiction in which the Trustee is authorized to do business; or (c) the Bank would become subject to personal jurisdiction in any jurisdiction, other than the state of the Trustee's organization or any other jurisdiction in which the Trustee is authorized to do business, for causes of action arising from acts unrelated to the consummation of the transactio ns contemplated by the Operative Documents by the Bank or the Trustee; provided, that if, pursuant to the foregoing paragraph, the Trustee is not required to take an action, then the Trustee promptly appoints an additional trustee pursuant to Section 4.13 hereof to proceed with such action. Section 4.15. Books and Records. The Trustee will be responsible for keeping the customary books and records relating to the receipt and disbursement of all moneys actually received and disbursed by it. 15 Trust Agreement Proprietary & Confidential ARTICLE V TRANSFER OF CERTIFICATE HOLDER'S INTEREST Any transfer by a Certificate Holder of its Certificates and its interests under this Trust and in and to the Trust Estate will comply with Section 5.03 of the Participation Agreement and applicable securities laws. ARTICLE VI TERMINATION OF AND AMENDMENTS TO TRUST Section 6.1. Expiration; Termination. The Trust created hereby will expire and this Trust Agreement will terminate and be of no further force or effect upon the earlier of: (a) the sale, transfer or other final disposition by the Trustee of all property constituting the Trust Estate, including all right, title and interest of the Trustee in and to the Properties and any other portion of the Trust Estate, and the full and final distribution by the Trustee of all moneys, proceeds and other property constitut ing the Trust Estate pursuant to the provisions of the Participation Agreement plus one year, and (b) 21 years less one day after the date of the death of the last survivor of the descendants, living on the date of this Trust Agreement of JOHN D., LAURENCE S., NELSON A. OR DAVID ROCKEFELLER, children of JOHN D. ROCKEFELLER, JR.; otherwise this Trust Agreement and the Trust created hereby will continue in full force and effect in accordance with the provisions hereof. However, except upon the occurrence of the event described in clause (a) above, no expiration of the Trust or termination of this Trust Agreement will be effective until all Liens on the Trust Estate that secure any unpaid indebtedness have been released and all indebtedness of the Trustee, as Trustee hereunder, or otherwise payable from or secured by a Lien on the Trust Estate or the rents, profits, income or proceeds thereof, is paid in full. Upon the termination of the Trust as provided herein, if not sooner transferred to the Company or another Person pursuant to the Lease, the other Operative Documents or otherwise, all right, title and interest in the Trust Estate and the Properties will be conveyed to the Certificate Holders or their designees. Except as otherwise provided in this Section 6.1, neither the Certificate Holders nor any other Person will be entitled to revoke or terminate the Trust established hereunder. Upon the dissolution and winding up of the Trust as provided herein, the Trustee will cause the Certificate of Trust of the Trust to be canceled by filing a certificate of cancellation in accordance with the Trust Act. 16 Trust Agreement Proprietary & Confidential Section 6.2. Distribution of Trust Estate Upon Termination. Upon any termination of this Trust pursuant to the provisions of Section 6.1, the Trustee will convey the Trust Estate to such purchaser or purchasers thereof or other Person entitled thereto and for such amount and on such terms as are specified in written instructions from the Agent or the Majority Certificate Holders delivered to the Trustee prior to the date of termination; provided, that in the event such written instructions are not delivered to the Trustee on or before the date of termination, the Trustee transfers title to the Trust Estate to the Certificate Holders. Upon making such transfer or sale the Trustee will be entitled to immediate receipt of any sums due and owing to the Trustee for expenses (including reasonable attorneys' fees and expenses) incurred pursuant hereto or as compensation for services rendered hereunder and not theretofore paid and the Trustee will be discharged and free of any further liability hereunder subject to Section 4.5(b). Section 6.3. Amendments. Subject to Section 9.04 of the Participation Agreement, at any time and from time to time, upon the written request of the Agent or the Majority Certificate Holders, (a) the Trustee will execute a supplement hereto for the purpose of adding provisions to, or changing or eliminating provisions of, this Trust Agreement as specified in such request, and (b) the Trustee will enter into or consent to such written amendment of or supplement to the Operative Documents as the Company or the Agent, as the case may be, may agree to and as may be specified in such request, or execute and deliver such written waiver or modification of the terms of the Operative Documents as may be specified in such request; provided, however, if in the reasonable opinion of the Trustee, any document required to be executed by it pursuant to this Section 6.3 affects any right or duty of, or immunity or indemnity in favor of, the Trustee under this Trust Agreement or the other Operative Documents, the Trustee may in its reasonable discretion decline to execute such document. ARTICLE VII MISCELLANEOUS Section 7.1. Compensation and Indemnification. (a) The Trustee will receive reasonable compensation for its services hereunder (as set forth in the letter dated June 2001, from the Bank to Citibank, N.A.) and will be reimbursed for the Trustee's reasonable expenses (including the disbursements and reasonable fees of its counsel) pursuant to Section 9.13 or 9.14 of the Participation Agreement. If an Event of Default occurs and is continuing and the Trustee is required pursuant to the provisions of this Trust Agreement to take any action in connection therewith, the Trustee will be reimbursed for any expenses it may incur in relation to taking any such action (including the disbursements and fees of counsel) in each case as provided in Section 9.13 or 9.14 of the Participation Agreement and the other Operative Documents. To secure the payment of any such fees and expenses, the Trustee will have a lien on the Trust Estate which will be prior to any interest therein of the Certificate Holders. 17 Trust Agreement Proprietary & Confidential (b) The Certificate Holders will reimburse and indemnify and protect and save harmless the Trustee, its officers, directors, agents successors and assigns from and against any and all losses, damages, liabilities, claims, actions, suits, obligations, penalties, demands, disbursements and expenses, including Taxes and counsel fees, and including tort claims for which the Trustee is strictly liable, which may be asserted against or incurred by reason of the Bank's being the Trustee or acting hereunder or under the other Operative Documents or the performance or enforcement of any of the terms hereof, or arising out of or relating to this Trust Agreement or the other Operative Documents or the Properties or the Rent and other sums payable therefor, or the building, construction, purchase, installation, acceptance, rejection, ownership, delivery, lease, possession, use, operation, condition, sale, return or other disposition of the Properties or in any way relating to or arising out of the Trust Estate or the action or the inaction of the Trustee hereunder or by reason of any occurrence while so acting; provided, however, that the Certificate Holders will not be so obligated in respect of any such losses, damages, liabilities, claims, actions, suits, obligations, penalties, demands, disbursements and expenses, including Taxes and counsel fees pursuant to this Section 7.1, aris ing from or as a result of (i) the willful misconduct or gross negligence of the Bank, (ii) any Taxes on, with respect to or measured by any amounts paid to the Bank as compensation for services or otherwise under the Operative Documents, or (iii) the inaccuracy of representations and warranties made by the Bank in its individual capacity in the Participation Agreement or in any certificate or documents delivered pursuant thereto. The provisions of this Section 7.1 (other than the requirements for compensation of the Trustee after its resignation, which will terminate upon the resignation or removal of the Trustee) will continue in force and effect notwithstanding the termination of this Trust, the resignation or removal of the Trustee or the obligation of any other party to any other Operative Document to make any payment to the Trustee which a Certificate Holder is required to make pursuant to this Section 7.1. The obligations of the Certificate Holders under this Section 7.1 will be several, and not joint, and pro rata in accordance with their respective Certificate Amounts (and if a determination is to be made after all Certificate Amounts are paid, such determination will be made based upon the Certificate Amounts immediately prior to final payment thereof). To secure the same, the Trustee will have a lien on the Trust Estate which will be prior to any interest therein of the Certificate Holders. Section 7.2. Notices. All notices and communications provided for herein will be in writing and will be deemed to have been given when delivered in accordance with Section 9.02 of the Participation Agreement. Section 7.3. Applicable Law. The Trust will be administered in the State of Connecticut, and this Trust Agreement in all respects be governed by, and construed and enforced in accordance with, the laws of the State of Connecticut under the Trust Act, including all matters of construction, validity, effect and performance. 18 Trust Agreement Proprietary & Confidential Section 7.4. Tax Reports. In the event any tax report or tax return is required to be made by the Trustee with respect to the Trust Estate and the Company is not required to prepare and file the same pursuant to the Lease, each Certificate Holder will prepare such tax report or return in respect of its interest in the Trust and deliver a copy thereof to the Trustee. The Trustee agrees to promptly forward to each Certificate Holder any communications with respect to taxes pertaining to the Trust Estate which are received by the Trustee from tax authorities or from the Company. Section 7.5. Headings. The headings of the various Sections herein are for convenience of reference only and will not define or limit any of the terms or provisions hereof. Section 7.6. Successors and Assigns. All covenants and agreements contained herein will be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. The Certificate Holders may only assign their interests in the Certificates in accordance with Section 5.03 of the Participation Agreement. Section 7.7. Severability. Any provision of this Trust Agreement which is prohibited or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition on unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provisions in any other jurisdiction. Section 7.8. Only Written Waivers. No term or provision of this Trust Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party or other person against whom enforcement of the change, waiver, discharge or termination is sought and otherwise in accordance with Section 9.04 of the Participation Agreement; and any waiver of the terms hereof will be effective only in the specific instance and for the specific purpose given. Section 7.9. Counterparts. This instrument may be simultaneously executed in any number of counterparts, each of which when so executed will be deemed to be an original, and such counterparts together will constitute and be one and the same instrument. Section 7.10. Rights in Trust Agreement. Except as expressly provided to the contrary in the other Operative Documents, nothing in this Trust Agreement, whether express or implied, will be construed to give any Person other than the Trustee and each Certificate Holder and their respective successors and assigns, any legal or equitable right, remedy or claim under or in respect of this Trust Agreement. 19 Trust Agreement Proprietary & Confidential Section 7.11. No Personal Liability. Neither the Bank nor any Certificate Holder will in any way be liable or responsible or have any obligation in its individual capacity to the Note Holders for the validity, effectiveness, enforceability or payment of the Notes or for the payment or performance of any other Operative Document to which the Trustee is a party. No Person will have any recourse to the personal assets of the Bank or any Certificate Holder for such obligations, provided, however, that nothing herein will prevent recourse to the Trust Estate. The Bank will have no recourse to the personal assets of any Certificate Holder for any obligations arising hereunder, other than the obligations set forth in Section 7.1; provided, however, that nothing therein will prevent recourse to the interest of the Certificate Holders in the Trust Estate. 20 Trust Agreement Proprietary & Confidential IN WITNESS WHEREOF, the Certificate Holders and the Bank have caused this Trust Agreement to be duly executed all as of the day and year first above written. WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, as the Bank By: ___________________________________ Name: Title: 21 Trust Agreement Proprietary & Confidential CERTIFICATE HOLDERS: CITICORP USA, INC., as Certificate Holder By: ____________________________ Name: Title: THE CHASE MANHATTAN BANK, as Certificate Holder By: ____________________________ Name: Title: CREDIT SUISSE FIRST BOSTON, as Certificate Holder By: ____________________________ Name: Title: FLEET RETAIL FINANCE INC., as Certificate Holder By: ____________________________ Name: Title: 22 SCHEDULE I TO THE TRUST AGREEMENT Proprietary & Confidential SCHEDULE I TO AMENDED AND RESTATED DECLARATION OF TRUST CERTIFICATE HOLDERS CITICORP USA, INC. THE CHASE MANHATTAN BANK CREDIT SUISSE FIRST BOSTON FLEET RETAIL FINANCE INC. EXHIBIT A TO THE TRUST AGREEMENT Proprietary & Confidential EXHIBIT A TO AMENDED AND RESTATED DECLARATION OF TRUST DECLARATION OF TRUST dated as of June 25, 2001 See attached. EXHIBIT B TO THE TRUST AGREEMENT EXHIBIT B TO AMENDED AND RESTATED DECLARATION OF TRUST [FORM OF CERTIFICATE] THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR "BLUE SKY" LAW, AND MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE IN VIOLATION OF SUCH ACT OR LAWS. RAC DISTRIBUTION STATUTORY TRUST CERTIFICATE NO. __ Evidencing an interest in the Trust Estate, as defined below. Dated: June 27, 2001 ________________________Dollars ($---------------) THIS CERTIFIES THAT __________________________________ (the "Certificate Holder") is the registered owner of a Certificate evidencing an interest in the Trust Estate created pursuant to (and defined in) that certain Amended and Restated Declaration of Trust, dated as of June 27, 2001 (the "Trust Agreeme nt"), between the Certificate Holders identified therein, and Wells Fargo Bank Northwest, National Association, as Trustee, which creates the trust identified under the title hereof. To the extent not otherwise defined herein, capitalized terms used herein will have the meanings assigned to such terms in Appendix A to the Participation Agreement (as defined in the Trust Agreement), unless the context otherwise requires. In addition, the rules of construction set forth in Part I of Appendix A to the Participation Agreement shall apply to this Certificate. This Certificate is one of the duly authorized Certificates. This Certificate is being delivered pursuant to, is entitled to the benefits of, and is subject to the terms, provisions and conditions of the Trust Agreement, to which Trust Agreement the holder of this Certificate by virtue of its acceptance hereof assents and by which such holder is bound. This Certificate entitles the registered owner hereof to the payment of the Certificate Amount hereof in an amount equal to ____________ DOLLARS ($____________), as recorded either on the grid attached to this Certificate or in the records of the Certificate Holder (and such recordation shall constitute prima facie evidence of EXHIBIT B TO THE TRUST AGREEMENT the information so recorded; provided, however, that the failure to make any such recordation shall not in any way affect the Trustee's obligation to repay this Certificate) together with the Distributions on the amount of said Certificate Amount remaining unpaid from time to time from the date of this Certificate until payment hereof is made or duly provided. All payments of the Certificate Amount hereof and Distributions on such sum shall be due and payable in such amounts and at the times provided in the Trust Agreement. Interest on any overdue Certificate Amount and (to the extent permitted by applicable Law) Distributions shall be paid from the due date thereof at the Default Rate. All payments of the Certificate Amount and Distributions and other amounts hereunder to be made by the Trustee shall be made only from the income and proceeds from the Trust Estate and only to the extent that the Trustee shall have sufficient income or proceeds from the Trust Estate to make such payments in accordance with the terms of Articles II and III of the Trust Agreement. Each holder hereof, by its acceptance of this Certificate, agrees: (i) that it will look solely to the income and proceeds from the Trust Estate to the extent available for distribution to the holder hereof; and (ii) that in any action or proceeding brought on this Certificate or on the obligations evidenced hereby, no deficiency or other monetary judgment shall be sought or obtained against the Trustee by reason of the ownership of this Certificate, except as is necessary to enforce the rights and remedies of such holder under the Trust Agreement and the other Operative Documents (including the foreclosure of the Lien on the Properties or other collateral security), in which event any such judgment shall be enforceable against the Trustee only to the extent of the interest of the Trustee in the Trust Estate and any such judgment shall not be enforceable by execution or be a Lien on any of the assets of the Trustee or the Bank other than the interest of the Trustee in the Trust Estate. The entire outstanding Certificate Amount of, and Distributions on, this Certificate shall be payable in immediately available funds as provided in Article III of the Trust Agreement, but in any event no later than the Maturity Date. There shall be maintained a register for the purpose of registering transfers and exchanges of Certificates, at the Trustee's Corporate Trust Department, or at the office of any successor the Trustee. Each holder of this Certificate, by its acceptance hereof, agrees that each payment received for the account of such holder hereunder in respect of the Certificate Amount of, or Distributions on, this Certificate shall be applied in the manner set forth in Article III of the Trust Agreement. 2 EXHIBIT B TO THE TRUST AGREEMENT This Certificate is one of the Certificates referred to in the Trust Agreement that have been delivered pursuant to the terms of the Trust Agreement. The Trust Estate is held by the Trustee as security for the Trustee's performance of its respective obligations under the Operative Documents. Reference is hereby made to the Trust Agreement and the other Operative Documents for a statement of: (i) the rights of the holder of, and the nature and extent of the security, if any, for, this Certificate; (ii) the rights of the holders of, and the nature and extent of the security, if any, for, other Certificates; and (iii) the terms, rights and conditions of the trusts created by the Trust Agreement. This Certificate is not subject to prepayment except as provided in Section 7.03 of the Partic ipation Agreement. This Certificate is a registered Certificate and is transferable, as provided in the Trust Agreement, only upon surrender of this Certificate for registration and transfer duly accompanied by a written instrument of transfer duly executed by the registered holder hereof or his attorney duly authorized in writing. Prior to due registration of transfer of this Certificate, the Trustee and the Agent may treat the Person in whose name this Certificate is registered as the owner hereof for the purpose of receiving payments of the Certificate Amount and Distributions hereunder and under the Trust Agreement and for all other purposes whatsoever, whether or not this Certificate be overdue, and the Trustee shall not be affected by notice to the contrary. IN WITNESS WHEREOF, the Trustee has caused this Certificate to be executed in its corporate name by its duly authorized officer as of the date hereof. WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity, but solely as Trustee of RAC Distribution Statutory Trust By: ________________________________ Name: Title: This Certificate is one of the Certificates referred to in the within mentioned Trust Agreement. 3 EXHIBIT B TO THE TRUST AGREEMENT GRID ATTACHED TO CERTIFICATE DATED JUNE 27, 2001 OF RAC DISTRIBUTION STATUTORY TRUST WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, AS TRUSTEE PAYABLE TO THE ORDER OF [INSERT CERTIFICATE HOLDER NAME] Certificate Amounts advanced by the Certificate Holder to the Trustee, and payments of such Certificate Amounts.
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4 EX-10 27 exh10-47.txt EXHIBIT 10.47 RITE AID CORPORATION STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 12 day of June, 2001, by and between Rite Aid Corporation (the "Company"), a corporation organized under the laws of the State of Delaware, and each purchaser, whose name and address is set forth on the signature page hereof, together with their permitted transferees (the "Purchasers"). WHEREAS, the Company desires to issue and sell to the Purchasers, and the Purchasers desire to purchase from the Company, shares ("Shares") of the Company's Common Stock, par value $1.00 per share (the "Common Stock"); and WHEREAS, the Company proposes to enter into this same form of purchase agreement with certain other investors (collectively, the "Other Purchasers") and to consummate sales of Shares to the Other Purchasers on substantially the same terms and conditions. The term "Placement Agent" shall collectively mean Salomon Smith Barney Inc. and Credit Suisse First Boston Corporation. NOW THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, the Company and the Purchasers do hereby agree as follows: 1. Agreement to Sell and Purchase the Shares. At the Closing (as defined in Section 2 herein), the Company will, subject to the terms and conditions of this Agreement, sell to the Purchasers, and the Purchasers will, subject to the terms and conditions of this Agreement, buy from the Company, the number of Shares set forth on the signature page hereto at a purchase price of $7.50 per Share (the "Purchase Price") The obligations of the Purchasers are several and not joint. 2. Delivery of the Shares at the Closing. The closing of the sale to, and the purchase by, the Purchasers of the Shares (the "Closing") shall occur at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036-6522, simultaneously with Closing of the Refinancing (as defined herein) (the "Closing Date"). Prior to the time of Closing, the Company shall deliver to one or more custodians for the Purchasers, one or more certificates registered in the name of the nominee of the custodian, evidencing the Shares (the "Share Certificates") against delivery to the Company of the aggregate Purchase Price. The custodians will execute such documents reasonably necessary to evidence receipt of such Share Certificates. If for any reason, the Closing does not occur within twenty-four hours of the Company's delivery to the custodians of the Share Certificates, the custodians shall immediately return such Share Certificates to the Company or an authorized representative thereof. At the Closing, the Company will deliver to the Purchaser (i) the Legal Opinions set forth in Section 3.22 herein, (ii) an executed copy of the Registration Rights Agreement (as defined herein), and (iii) the Officer's Certificate set forth in Section 6.1(e) herein. At the Closing, the Purchasers will deliver to the Company (i) the aggregate Purchase Price in immediately available funds to an account designated by the Company in writing, and (ii) an executed copy of the Registration Rights Agreement (as defined herein). 1 As used herein, the term "Refinancing" shall mean the Company's refinancing of its Senior Credit Agreement dated as of June 12, 2000 on terms and conditions not materially less favorable to the Company than the terms of that certain bank commitment letter attached as Exhibit A hereto and without the waiver by the Agents (as such term is defined in the Commitment Letter) of any material condition contained therein (the "Commitment Letter"). 3. Representations, Warranties and Covenants of the Company. The Company hereby represents and warrants to, and covenants with, the Purchasers as follows: 3.1 Organization. The Company is duly organized and validly existing and in good standing under the laws of Delaware, and has all requisite corporate power and authority to enter into this Agreement and the Registration Rights Agreement (as defined herein) and to consummate the transactions contemplated hereby and thereby. Each subsidiary of the Company listed on Exhibit 21 to the 2001 10-K (as defined herein) (collectively, the "Subsidiaries") is duly organized and except for those Subsidiaries included on Schedule 3.1 herein, is validly existing and in good standing under their respective jurisdiction of organization. 3.2 Validity. The execution, delivery and performance of this Agreement and the Registration Rights Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action, corporate or otherwise, on the part of the Company. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company enforceable against it in accordance with their terms. 3.3 Issuance, Sale and Delivery of the Shares. The Shares have been duly authorized for issuance and sale to the Purchasers pursuant to this Agreement, and, when issued, sold and delivered in accordance with this Agreement against payment therefore of the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable and will be free of restrictions on transfer other than restrictions on transfer set forth under this Agreement. The issuance of the Shares is not subject to preemptive rights. 3.4 Capital Stock. As of June 1, 2001 and without giving effect to the transactions contemplated by this Agreement and the proposed agreements with Other Purchasers, the authorized capital stock of the Company consisted of (i) 600,000,000 shares of Common Stock, of which approximately 403,761,696 shares were issued and outstanding and (ii) 20,000,000 shares of preferred stock, of which 3,360,237 shares of Series B Preferred Stock were outstanding. The outstanding shares of Common Stock and Preferred Stock are validly issued, fully paid and non-assessable and have been issued in compliance with applicable law. None of the outstanding shares of Common Stock or Preferred Stock are entitled to cumulative voting rights or preemptive rights. Except as set forth on Schedule 3.4 hereto, the Company has outstanding no option, warrant or other commitment to issue or to acquire any shares of its capital stock or any security or obligations convertible into or exchangeable for its capital stock, nor has it given any person or entity any right to acquire from the Company or sell to the Company any shares of its capital stock. Schedule 3.4 hereto sets forth as of the date hereof the outstanding shares of Common Stock, assuming the exercise of all outstanding options and warrants, the conversion of all securities or obligations convertible into or exchangeable for shares of its Common Stock and the issuance of the maximum number of shares of Common Stock subject to outstanding commitments of the Company. 2 3.5 Compliance with Other Instruments. Neither the execution and delivery by the Company of this Agreement or the Registration Rights Agreement, nor the consummation of the transactions contemplated hereby or thereby, nor the issuance and sale of the Shares will (a) conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or to which any of the property or assets of the Company or any Subsidiary is subject, (b) result in any violation of the provisions of the certificate of incorporation or by-laws of the Company or any Subsidiary or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any Subsidiary or any of its respective properties, (c) result in the creation under any agreement or instrument of any lien, security interest, encumbrance or other claim upon any of the respective assets of the Company or any Subsidiary, or (d) create in any person or entity any right to terminate any agreement with the Company or otherwise exercise any rights against the Company or cause any payment or performance obligation of the Company to be accelerated, except in each case (a-d) as would not, individually or in the aggregate have a material adverse effect on the business, results of operations, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted) ("Material Adverse Effect"). 3.6 Governmental Consents. No consent, approval or authorization of, or declaration or filing with, any governmental authority or agency or any securities exchange on the part of the Company is required for the valid execution and delivery of this Agreement and the Registration Rights Agreement, the consummation of the transactions contemplated hereby and thereby, or the valid offer, issue, sale and delivery of the Shares pursuant to this Agreement other than the filings with the Securities and Exchange Commission required to comply with its obligations under the Registration Rights Agreement. The Company is not in violation of any of the listing requirements of the New York Stock Exchange, except where such violation would not, individually or in the aggregate, have a material adverse effect on (i) the Shares, (ii) the ability of the Company to perform its obligations under this Agreement and the Registration Rights Agreement, or (iii) the assets, business, properties or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted). 3.7 Offering Materials. The Company has not distributed and will not distribute prior to the Closing Date, any offering material in connection with the offering and sale of the Shares other than (i) the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2001 (the "2001 10-K"); (ii) the Company's Preliminary Proxy filed with the Securities and Exchange Commission (the "SEC") on May 21, 2001 (the "Preliminary Proxy"); (iii) the Company's Definitive Proxy filed with the SEC on May 31, 2001 (the "Definitive Proxy"); and (iv) and any other document filed by the Company with the SEC since October 11, 2000 through the Closing Date (together with the 2001 10-K, the Preliminary Proxy and the Definitive Proxy, the "SEC Documents") pursuant to its reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 3 3.8 Environmental and Safety Laws. Neither the Company nor any Subsidiary is in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, except where any such violations would not, individually or in the aggregate, have a Material Adverse Effect, and to the best of the Company's knowledge, no material expenditures are or are reasonably expected to be required in order to comply with any such existing statute, law, or regulation. 3.9 Litigation. Except as disclosed in the SEC Documents or on Schedule 3.9 hereto, there is no action, suit, proceeding, or investigation pending, or to the Company's knowledge, currently threatened against the Company or any Subsidiary that questions the validity of this Agreement or the Registration Rights Agreement, or the Company's ability to consummate the transactions contemplated hereby or thereby, or that might have, either individually or in the aggregate, a Material Adverse Effect. 3.10 Compliance With Laws. Except as disclosed in the SEC Documents or on Schedule 3.9 hereto, neither the Company nor any Subsidiary has received any notification from any governmental entity (i) asserting a violation of any law, statute, ordinance or regulation or the terms of any judgments, orders, decrees, injunctions or writs applicable to the conduct of their respective business; (ii) threatening to revoke any license, franchise permit or government authorization; or (iii) restricting or in any way limiting its operations as currently conducted or proposed to be conducted, except where any such violations would not, individually or in the aggregate, have a Material Adverse Effect. 3.11 Changes. Except for transactions contemplated by this Agreement and the Registration Rights Agreement, or as disclosed in the SEC Documents or on Schedule 3.11 hereto, and other than transactions conducted in the ordinary course of business, since March 3, 2001, there has not been: (a) any change in the assets, liabilities, financial condition, or operating results of the Company, that have not been and are not expected to be, individually or in the aggregate, materially adverse to the assets, business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted); (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted); (c) any waiver or compromise by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company; 4 (e) any material change to a material contract or arrangement by which the Company or any of its assets is bound or subject; (f) any material change in any compensation arrangement or agreement with any key employee, officer, director or stockholder; (g) any sale, assignment, or transfer of any patents, trademarks, copyrights, trade secrets, or other intangible assets; (h) any resignation or termination of employment of any key officer of the Company; and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer; (i) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company; (j) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable or contested by the Company in good faith; (k) any loans or guarantees made by the Company to or for the benefit of its employees, stockholders, officers, or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business, except for certain short term loans made by the Company to its officers described on Schedule 3.11 hereto; (l) any declaration, setting aside, or payment of any dividend or other distribution of the Company's assets in respect of any of the Company's capital stock, except for dividends paid-in-kind on outstanding Series B Preferred Stock or any dividends payable on the proposed Series C Preferred Stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company; (m) any other event or condition of any character that would reasonably be expected to have a Material Adverse Effect; or (n) any agreement or commitment by the Company to do any of the things described in this Section 3.11. 3.12 Integration. Neither the Company nor any affiliate (as such term is defined in Rule 501(b) under the Securities Act) nor any person, firm or corporation acting on its behalf, has directly or indirectly, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated 5 with the sale of the Shares in a manner that would require the registration of the Shares under the Securities Act. For purposes of Sections 3.12, 3.14 and 3.20 of this Agreement, we have assumed that the Placement Agents (i) will not solicit offers for or offer Common Stock by any form of general solicitation or general advertising (as those terms are defined in Regulation D of the Securities Act), and (ii) will solicit offers for Common Stock only from, and will offer Common Stock only to, institutional investors that it reasonably believes to be "Accredited Investors" as defined in Rule 501(a)(1), (2), (3), or (7) under the Securities Act. 3.13 Permits. Each of the Company and the Subsidiaries has all franchises, permits, licenses, and any similar authority necessary for the conduct of their business as now being conducted by it, except for those franchises, permits, licenses the lack of which would not have a Material Adverse Effect, and the Company believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as presently conducted or proposed to be conducted. Neither the Company nor any Subsidiary is in default under any such franchisees, permits, license or other similar authority except where such default would not have a Material Adverse Effect. 3.14 Offering. Assuming the truth and accuracy of the Purchasers' representations and warranties set forth in this Agreement, the offer and sale and issuance of the Shares as contemplated by this Agreement are exempt from the registration requirements of the Securities Act, and neither the Company nor any authorized agent acting on its behalf will take any action hereof that would cause the loss of such exemption. 3.15 Intellectual Property. Each of the Company and the Subsidiaries own or possess sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and proprietary rights and processes necessary for their respective business as now conducted and as proposed to be conducted without conflict with, or infringement of, the rights of others, except where the failure to have such rights, individually or in the aggregate, would not have a Material Adverse Effect. 3.16 Employee Relations. To the best of the Company's knowledge, there is no strike, labor dispute or union organization activities pending or threatened between the Company and its employees. To the best of its knowledge and except as disclosed in the SEC Documents, the Company has complied in all material respects with all applicable state and federal equal opportunity and other laws related to employment. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate employment with the Company, nor does the Company have any present intention to terminate the employment of any of the foregoing. 3.17 Additional Information. Since October 11, 2000, the Company has timely filed, and at the Closing Date, the Company will have timely filed, all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission pursuant to the reporting requirements of the Exchange Act. The Company represents and warrants that as of their respective filing dates, the information contained in the 2001 10-K (without exhibits) and the Definitive Proxy, complied with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the 2001 10-K and the Definitive Proxy, except for the failure to include certain financial information as described therein, and neither the 2001 10-K nor the Definitive Proxy (including all exhibits included in the 2001 10-K and the Definitive Proxy and all financial statements and schedules thereto and documents incorporated by reference therein), at the time they were respectively filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 6 3.18 Terms of Other Purchasers' Agreements. Except as set forth on Schedule 3.18 herein and other than certain closing mechanics and covenants related to publicity and the use of such Other Purchaser's name, the terms, conditions, rights and benefits contained in this Agreement and the Registration Rights Agreement are the same terms, conditions, rights and benefits as those contained in the Other Purchasers' Stock Purchase Agreement and Registration Rights Agreement, or any other similar agreement. Except as set forth on Schedule 3.18 herein, neither the Company nor any underwriter acting on behalf of the Company has entered into any separate agreement with any Other Purchaser to provide different or more favorable terms, including, but not limited to terms that provide any Other Purchaser liquidity for the Shares, or any form of compensation or value in the event the filing or effectiveness of any the registration statements required by the Registration Rights Agreement is delayed, or withdrawn, or suspended; provided, however, that this representation shall not include that certain Stock Purchase Agreement dated May 17, 2001, by and between the Company and Transamerica Investment Management, LLC and the Other Purchasers named therein. 3.19 Brokers. There is no broker, investment banker, financial advisor, finder or other person which has been retained by or is authorized to act on behalf of the Company who might be entitled to any fee or commission for which the Purchasers will be liable in connection with the execution of this Agreement or the transactions contemplated hereby. 3.20 Offering of Securities. Neither the Company nor any person, firm or corporation acting on its behalf has sold or offered the Shares or any similar securities of the Company to, or solicited any offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any person or persons in such manner as would subject the offering, issuance or sale of any of the Shares to the provisions of Section 5 of the Securities Act. Neither the Company nor any person, firm or corporation acting on behalf of the Company has taken or will take any action which would subject the offering, issuance or sale of any of the Shares to the provisions of Section 5 of the Securities Act. 3.21 Investment Company Status. Neither the Company nor any Subsidiary is, or upon consummation of the sale of the Shares will be, an "investment company," a company controlled by an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended. 3.22 Legal Opinions. At the Closing, Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Company, will deliver its legal opinion to the Purchasers with respect to (i) the Company's due incorporation and valid existence under the laws of the state of Delaware; (ii) the due execution, authorization and delivery of this Agreement and the Registration Rights Agreement; (iii) corporate power and corporate authority to execute and deliver 7 this Agreement and the Registration Rights Agreement; (iv) no violation of the Company's Certificate of Incorporation or Bylaws or certain specified laws; (v) enforceability of this Agreement and the Registration Rights Agreement; (vi) no registration of the Shares; and (vii) the Shares are duly authorized, fully paid and non-assessable, each of such opinions in (i) through (vii) subject to customary qualifications, assumptions and carve-outs for a transaction of this nature. At the Closing, the Senior Executive Vice President and General Counsel of the Company will deliver its legal opinion to the Purchasers with respect to no violation of material contracts of the Company, such opinion subject to customary qualifications, carve-outs and assumptions for a transaction of this nature. 4. Representations, Warranties and Covenants of the Purchasers. Each Purchaser, severally and not jointly, represents and warrants to, and covenants with, the Company as follows: 4.1 Organization. The Purchaser is validly existing under the laws of its jurisdiction of organization and has all requisite power and authority to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions contemplated hereby and thereby. 4.2 Validity. The execution, delivery and performance of this Agreement and the Registration Rights Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action, corporate, trust or otherwise, on the part of the Purchaser. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Purchaser and constitute valid and binding obligations of the Purchaser enforceable against it in accordance with their terms. 4.3 Governmental Consents. No consent, approval, authorization, waiting period or other order of any court, regulatory body, administrative agency or other governmental body is required on the part of the Purchaser for the execution and delivery of this Agreement and the Registration Rights Agreement or the consummation of the transactions contemplated hereby or thereby. 4.4 Ability to Protect Its Own Interests and Bear Economic Risks. The Purchaser represents that by reason of the business and financial experience of its management, the Purchaser has the capacity to evaluate the risks and merits of, and make an informed decision with regard to, an investment in the Company and the transactions contemplated by this Agreement. The Purchaser further represents that the Purchaser is able to bear the economic risk of an investment in the Shares, and has an adequate income independent of any income produced from an investment in the Shares and has sufficient net worth to sustain a loss of all of its investment in the Shares without economic hardship if such a loss should occur. 4.5 Accredited Investor. The Purchaser represents that it is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. 8 4.6 Access to Information. The Company has made available to the Purchaser all reports, schedules, forms, statements and other documents filed by the Company with the SEC from October 11, 2000 through the Closing Date pursuant to the reporting requirements of the Exchange Act, and the Purchaser has received physical delivery of all such documents, records and information which the Purchaser has requested, and has had adequate opportunity to ask questions of, and receive answers from, the Company's officers, employees, agents, accountants, and representatives concerning the Company's business, operations, financial condition, assets, liabilities, and all other matters relevant to its investment in the Shares. 4.7 Advice of own Counsel. The Purchaser has, with respect to all legal matters relating to this Agreement and the offer and sale of the Shares, relied solely upon the advice of the Purchaser's own counsel and has not relied upon or consulted the counsel to the Placement Agent or counsel to the Company. 4.8 Restrictions on Dispositions. The Purchaser understands and agrees that the Shares have not been, and will not upon issuance be registered under the Securities Act, and each certificate or other document evidencing any of the Shares shall be endorsed with the legend in substantially the form set forth below, as well as any other legends required by applicable law. The Purchaser covenants that the Purchaser shall not transfer the Shares represented by any such certificate without complying with the restrictions on transfer described in the legends endorsed on such certificate and understands that the Company shall refuse to register any transfer of Shares not complying with the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE ASSIGNED UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, OR (B) EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS ARE AVAILABLE. AS A CONDITION TO PERMITTING ANY TRANSFER OF THESE SECURITIES, THE COMPANY MAY REQUIRE THAT IT BE FURNISHED WITH AN OPINION OF COUNSEL OR SUCH OTHER EVIDENCE REASONABLY ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER 4.9 Acquisition for Own Account. The Purchaser is acquiring the number of Shares set forth on the signature page hereto, for its own account and for investment and not with a view toward distribution in a manner which would violate the Securities Act. The Purchaser will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares except in compliance with the Securities Act, the rules and regulations thereunder and any applicable state securities laws. The Purchaser has, in connection with its decision to purchase the number of Shares set forth on the signature page hereto, not relied upon any representations or other information (whether oral or written) other than the representations and warranties of the Company contained herein. 9 4.10 Permitted Transfer. The Purchasers may transfer Shares to any fund or account advised by the Purchaser or any affiliate thereof if the transferee is a qualified institutional buyer (as defined in Rule 144A under the Securities Act of 1933, as amended) and agrees in writing to be bound by the terms hereof. 5. Negative Covenants of the Company. From the date hereof through the Closing Date, the Company shall, except as contemplated by this Agreement or the Commitment Letter, or as consented to by the Purchaser or reasonably necessary to consummate the Refinancing, operate its business in the ordinary course and substantially in accordance with past practice. From the date hereof through the Closing Date, the Company shall promptly advise the Purchaser of any change that is reasonably likely to cause a representation or warranty to be untrue, cause a covenant to be unsatisfied, or would have a Material Adverse Effect. Nothing contained in this Section 5 will prevent the Company from consummating any additional debt-for-equity exchanges, or any sale of the Company's equity or debt securities or the other transactions, in each case, as contemplated by or required by the Commitment Letter. 6. Conditions of Parties' Obligations. 6.1 Conditions of the Purchaser's Obligations. The obligations of the Purchaser under Sections 1 and 2 hereof are subject to the fulfillment prior to or on the Closing Date of all of the following conditions, any of which may be waived in whole or in part by the Purchaser. (a) Continued Accuracy of the Company's Covenants, Representations and Warranties. The representations and warranties of the Company contained in Section 3 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (b) Consents and Waivers. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state or any stock exchange or of any third party that are required in connection with the issuance and sale of the Shares pursuant to this Agreement shall be duly obtained and effective as of the Closing Date. (c) No Material Adverse Change. There shall be no material adverse change in the business, properties, prospects, or assets of the Company from and after the date of this Agreement. (d) Consummation of the Refinancing. The Company shall simultaneously with the Closing, consummate the Refinancing. 10 (e) Officer's Certificate. The Company shall have delivered to the Purchasers, a certificate dated the Closing Date, executed by the Senior Executive Vice President and General Counsel of the Company, certifying the satisfaction of the conditions specified in (a), (b), (c) and (d) of this Section 6.1. (f) Registration Rights Agreement. The Purchaser and the Company shall have executed and delivered the Registration Rights Agreement (as defined herein). (g) Legal Opinions. The Company shall have delivered to the Purchasers, the Legal Opinions set forth in Section 3.22 herein. 6.2 Conditions of the Company's Obligations. The obligations of the Company under Sections 1 and 2 hereof are subject to the fulfillment prior to or on the Closing Date of all of the following conditions, any of which may be waived in whole or in part by the Company. (a) Continued Accuracy of Purchaser's Covenants, Representations and Warranties. The representations and warranties of the Purchaser contained in Section 4 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (b) Consents and Waivers. All authorizations, approvals, permits, or the expiration of any waiting periods, if any, of any governmental authority or regulatory body of the United States or of any state or any stock exchange or of any third party that are required in connection with the purchase of the Shares pursuant to this Agreement shall be duly obtained and effective as of the Closing Date. 6.3 Conditions of Each Party's Obligations. The respective obligations of each party to consummate the transactions contemplated hereunder are subject to the parties being reasonably satisfied as to the absence of (i) litigation challenging or seeking damages in connection with the transactions contemplated by this Agreement, and (ii) any provision of any applicable law or regulation, or any judgment, injunction, order or decree prohibiting or enjoining the transactions contemplated by this Agreement. 7. Survival of Representations, Warranties and Agreements. The covenants and agreements of the Company contained herein shall survive the Closing; provided, however, notwithstanding any investigation made by any party to this Agreement or by the Placement Agent, all representations and warranties made by the Company and the Purchasers herein shall survive until the later of (i) twelve months from the Closing Date, and (ii) one hundred and eighty days 11 after the effective date of the Shelf Registration Statement (as such term is defined in the Registration Rights Agreement). Any claim for indemnification made pursuant to Section 11 herein arising out of the inaccuracy or breach of any representation or warranty must be made prior to the termination of the applicable survival period, in which case such representation or warranty which is the subject of such claim shall survive with respect to such claim until the final resolution hereof. 8. Registration Rights Agreement. Simultaneous with the execution and delivery of this Agreement, the Company and the Purchasers will enter into a registration rights agreement in substantially the form attached as Exhibit B hereto (the "Registration Rights Agreement"). 9. Broker's Fee. There is no broker, investment banker, financial advisor, finder or other person which has been retained by or is authorized to act on behalf of any Purchaser who might be entitled to any fee or commission for which the Company will be liable in connection with the execution of this Agreement or the transactions contemplated hereby. Each Purchaser acknowledges that the Company will pay to the Placement Agent a fee in respect to the sale of the Shares to the Purchaser. 10. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified airmail, confirmed facsimile or nationally recognized overnight express courier postage prepaid, and shall be deemed given when so mailed and shall be delivered as addressed as follows: (a) if to the Company, to: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attn: Elliot S. Gerson, Esq. Senior Executive Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attn: Stacy J. Kanter, Esq. or to such other person at such other place as the Company shall designate to the Purchaser in writing; and (b) if to any Purchaser, at its address as set forth at the end of this Agreement, or at such other address or addresses as may have been furnished to the Company in writing. 12 11. Indemnification. (a) The Company will indemnify each Purchaser, each of its directors, officers, agents, employees, representatives and controlling persons against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of any inaccuracy or breach or any representation or warranty made by the Company (for as long as such representations and warranties survive pursuant to Section 5 hereof), or the breach of any of the agreements or covenants contained in this Agreement, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action. It is agreed that the indemnity agreement contained in this Section 11 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). (b) Each Purchaser, severally and not jointly, shall indemnify the Company, each of its directors, officers, agents, employees, representatives and controlling persons against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of any inaccuracy or breach of any representation or warranty made by the Purchaser (for as long as such representatives and warranties survive pursuant to Section 5 herein), or the breach of any of the agreements or covenants contained in this Agreement, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action. It is agreed that the indemnity agreement contained in this Section 11 shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Purchaser (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 11 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed), and the Indemnified Party may participate in such defense with 13 counsel reasonably acceptable to and paid for by the Indemnifying Party but otherwise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 11 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 11 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. 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. 12. Termination. Either party to this Agreement may terminate this Agreement by giving written notice to such other non-terminating party if the Closing has not occurred by July 13, 2001; provided, however, that the right to terminate this Agreement under this Section 12 shall not be available to any party who is in breach of this Agreement and such breach has not been waived by the other party hereto, or whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before July 13, 2001. If this Agreement is terminated pursuant to this Section 12, then all rights and obligations of the parties hereunder shall terminate without any liability of either party to the other party; provided, however, that Sections 21, 24 and 26 shall survive any termination of this Agreement. 13. Amendment. This Agreement may not be modified or amended except pursuant to an instrument in writing, signed by the Company and the Purchaser. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively) only with the written consent of the Company and the Purchaser. 14 14. Headings and Subheadings. The headings and subheadings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement and are not to be considered in interpreting or construing this Agreement. 15. Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any conflicts of law provisions thereof. 17. 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 when one or more counterparts have been signed by each party hereto and delivered to the other parties. 18. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any federal or state court located in the State of New York, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 8 shall be deemed effective service of process on such party. 19. No Implied Waiver. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 20. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 21. Expenses. Each of the Company and the Purchasers shall pay and be responsible for all of its respective fees and expenses incurred in connection with the preparation and negotiation of this Agreement and the consummation of the transactions contemplated hereby. Notwithstanding the foregoing, the Company will pay at the Closing, reasonable legal fees and expenses of one counsel 15 representing all of the Purchasers, in an amount not to exceed $35,000; provided, however, that if the Closing does not occur and the failure of the Closing to occur is a result of the breach by the Purchasers of its obligations under this Agreement, which breach has not been waived by the Company, or the Purchaser's failure to fulfill any obligation under this Agreement, then the Company shall not have any liability for any fees or expenses of the Purchasers. 22. Entire Agreement. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and such Agreement supersedes and replaces all other prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof. 23. Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 24. Publicity. Except as required by law or by obligations pursuant to any listing agreement with, or requirement of, any national securities exchange or national quotation system on which the Common Stock is listed, admitted to trading or quoted, the Company shall not, without the prior written consent of the Purchaser make any public announcement or issue any press release which includes the name of the Purchaser or any Affiliate of the Purchaser with respect to the transactions contemplated by this Agreement. The Company agrees that it will not use in advertising or publicity the names of the undersigned, any of its partners or employees, any of the funds or accounts managed by it or any of its affiliates, or any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof, in any case without the prior written consent of the Purchaser. 25. Listing of Shares on the New York Stock Exchange. The Company shall promptly take all action reasonably necessary in order to list the Shares on the New York Stock Exchange. 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. RITE AID CORPORATION By: --------------------------------------------- Name: Elliot S. Gerson Title: Senior Executive Vice President and General Counsel PURCHASER Print or Type: Name of Purchaser (Individual or Institution): American Century Mutual Funds, Inc. (on behalf of its Vista series of Shares) Name and Title of Individual(s) representing Purchaser (if an Institution): Name: Charles A. Etherington Title: Vice President, Associate General Counsel Number of Shares to be Purchased Aggregate Price - ------------------------------------- ----------------------------------- 3,000,000 $22,500,000 Signature by: Individual Purchaser or Individual(s) representing Purchaser: ------------------------------------ Name: Charles A. Etherington Title: Vice President, Associate General Counsel Address: American Century Investments 4500 Main Street Kansas City, Missouri 64111 RITE AID CORPORATION By: ----------------------------------------- Name: Elliot S. Gerson Title: Senior Executive Vice President and General Counsel PURCHASER Print or Type: Name of Purchaser (Individual or Institution): American Century World Mutual Funds, Inc., (on behalf of its Global Growth series of shares) Name and Title of Individual(s) representing Purchaser (if an Institution): Name: Charles A. Etherington Title: Vice President, Associate General Counsel Number of Shares to be Purchased Aggregate Price - ---------------------------------- ----------------------------------- 400,000 $3,000,000 Signature by: Individual Purchaser or Individual(s) representing Purchaser: ------------------------------------ Name: Charles A. Etherington Title: Vice President, Associate General Counsel Address: American Century Investments 4500 Main Street Kansas City, Missouri 64111 EXHIBIT A COMMITMENT LETTER EXHIBIT B REGISTRATION RIGHTS AGREEMENT SCHEDULE 3.1 Thrifty Wilshire, Inc Reads, Inc. Leader Drugs, Inc. Rite Aid of Massachusetts, Inc. The Muir Company PL Xpress Inc. SCHEDULE 3.4 CAPITAL STOCK
Rite Aid Common Stock Outstanding as of June 1, 2001: 403,761,696 3,360,237 Series B, $100 Par, Preferred Stock Convertible to Common Stock at $5.50 per Share: 61,095,218 In the Money Stock Options (a) 44,787,450 ----------- Common Stock on a Fully diluted Basis as of June 1, 2001: 509,644,364 Debt for Equity Exchanges Agreed to and Priced but Not Yet Settled: Exchange of RCF Facility for stock 8,562,174 (b) Exchange of RCF Facility for stock 12,654,598 (b) ----------- 21,216,772 ----------- Common Stock on a Pro Forma Fully diluted Basis as of June 1, 2001: 530,861,136 ===========
(a) Includes 37.4 million shares which are not yet vested. (b) May be issued initially as Series C Convertible Preferred Stock. Not Included in the Above Total are the Following: A. $152,016,000 of 5.25% Convertible Subordinated Noted due 2002 that are convertible into 27.672 shares of common stock per $1,000 note. B. Warrants held by J. P. Morgan to purchase 2,500,000 shares of Rite Aid common stock at $11.00 per Share. C. Private debt for equity exchanges that were agreed to but not yet priced: $31,500,000 Exchange of 10.5% Notes Due 9/15/02 for stock $15,300,000 Exchange of 10.5% Notes Due 9/15/02 for stock $2,200,000 Exchange of RCF Facility for stock $14,477,000 Exchange of Bank Debt for stock $6,504,000 Exchange of 10.5% Notes Due 9/15/02 for stock $10,000,000 Exchange of 10.5% Notes Due 9/15/02 for stock ----------- $79,981,000 D. Shareholder suit settlement for 20,000,000 shares of common stock. E. 3,000,000 common stock purchase warrants proposed to be issued in connection with the exchange of $152 million of the Company's 10.5% Senior Secured Notes for a new series of 12.5% Senior Secured Notes due 2006. F. 7,559,599 stock options that are not in the money including 1,583,750 shares not yet vested. G. 26,573,426 shares of common stock to be issued for $150 million. SCHEDULE 3.9 LITIGATION Federal Investigations There are currently pending federal governmental investigations, both civil and criminal, by the SEC and the United States Attorney, involving our financial reporting and other matters. We are cooperating fully with the SEC and the United States Attorney. We have begun settlement discussions with the United States Attorney for the Middle District of Pennsylvania. The United States Attorney has proposed that the government would not institute any criminal proceedings against the Company if we enter into a consent judgment providing for civil penalty payable over a period of years. The amount of the civil penalty has not been agreed to and there can be no assurance that a settlement will be reached or that the amount of such penalty will not have a material adverse effect on our financial condition and results of operations. The U.S. Department of Labor has commenced an investigation of matters relating to our employee benefit plans, including our principal 401(k) plan, which permitted employees to purchase our common stock. Purchases of our common stock under the plan were suspended in October 1999. In January 2001, we appointed an independent trustee to represent the interests of these plans in relation to the company and to investigate possible claims the plans may have against us. Both the independent trustee and the Department of Labor have asserted that the plans may have claims against us. The investigations, with which we are cooperating fully, are ongoing and we cannot predict their outcomes. In addition, a purported class action lawsuit on behalf of the plans and their participants has been filed by a participant in the plans in the United States District Court for the Eastern District of Pennsylvania. These investigations and settlement discussions are ongoing and we cannot predict their outcomes. If we were convicted of any crime, certain contracts and licenses that are material to our operations may be revoked, which would have a material adverse effect on our results of operations and financial condition. In addition, substantial penalties, damages or other monetary remedies assessed against us, including a settlement, could also have a material adverse effect on our results of operations, financial condition and cash flows. Stockholder Litigation We, certain of our directors, our former chief executive officer Martin Grass, our former president Timothy Noonan, our former chief financial officer Frank Bergonzi, and our former auditor KPMG LLP, have been sued in a number of actions, most of which purport to be class actions, brought on behalf of stockholders who purchased our securities on the open market between May 2, 1997 and November 10, 1999. All of these cases have been consolidated in the U.S. District Court for the Eastern District of Pennsylvania. On November 9, 2000, we announced that we had reached an agreement to settle the consolidated securities class action lawsuits pending against us in the U.S. District Court for the Eastern District of Pennsylvania and the derivative lawsuits pending there and in the Delaware Court of Chancery. Under the agreement, which has been submitted to the U.S. District Court for the Eastern District of Pennsylvania for approval, we will pay $45 million in cash, which will be fully funded by our officers' and directors' liability insurance, and issue shares of common stock in 2002. The shares will be valued over a 10 day trading period in January 2002. If the value determined is at least $7.75 per share, we will issue 20 million shares. If the value determined is less than $7.75 per share, we have the option to deliver any combination of common stock, cash and short-term notes, with a total value of $155 million. As additional consideration for the settlement, we have assigned to the plaintiffs all of our claims against the above named executives and KPMG LLP. Several members of the class have elected to "opt-out" of the class and, as a result, if the settlement is approved by the court, they will be free to individually pursue their claims. Management believes that their claims, individually and in the aggregate, are not material. Drug Pricing and Reimbursement Matters On October 5, 2000, we settled, for an immaterial amount, and without admitting any violation of the law, the lawsuit filed by the Florida Attorney General alleging that our non-uniform pricing policy for cash prescription purchases was unlawful under Florida law. The filing of the complaint by the Florida Attorney General, and our press release issued in conjunction therewith, precipitated the filing of a purported federal class action in California and several purported state class actions, all of which (other than those pending in New York that were filed on October 5, 1999 and those pending in California that were filed on January 3, 2000) have been dismissed. A motion to dismiss the action in New York is currently pending. On May 30, 2001, a complaint filed in New Jersey in which the plaintiff made similar allegation and which the trial court dismissed for failing to state a claim upon which relief could be based was reinstated by the appellate court. We believe that the remaining lawsuits are without merit under applicable state consumer protection laws. As a result, we intend to continue to vigorously defend against them and we do not anticipate that if fully adjudicated, they will result in an award of damages. However, such outcomes cannot be assured and a ruling against us could have a material adverse effect on the financial position and results of operations of the company as well as necessitate substantial additional expenditures to cover legal costs as we pursue all available defenses. We are being investigated by multiple state attorneys general for our reimbursement practices relating to partially-filled prescriptions and fully-filled prescriptions that are not picked up by ordering customers. We are supplying similar information with respect to these matters to the Department of Justice. We believe that these investigations are similar to investigations which were, and are being, undertaken with respect to the practices of others in the retail drug industry. We also believe that our existing policies and procedures fully comply with the requirements of applicable law and intend to fully cooperate with these investigations. We cannot, however, predict their outcomes at this time. An individual acting on behalf of the United States of America, has filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania under the Federal False Claims Act alleging that we defrauded federal health care plans by failing to appropriately issue refunds for partially filled prescriptions and prescriptions which were not picked up by customers. The Department of Justice has not decided whether to join this lawsuit, as is its right under the law, and its investigation is continuing. We have filed a motion to dismiss the complaint for failure to state a claim. If any of these cases result in a substantial monetary judgment against us or is settled on unfavorable terms, our results of operations, financial position and cash flows could be materially adversely affected. Store Management Overtime Litigation We are a defendant in a class action pending in the California Superior Court in San Diego with three subclasses, comprised of our California store managers, assistant managers and managers-in-training. The plaintiffs seek back pay for overtime not paid to them and injunctive relief to require us to treat our store management as non-exempt. They allege that we decided to minimize labor costs by causing managers, assistant managers and managers-in-training to perform the duties and functions of associates for in excess of forty hours per week without paying them overtime. We believe that in-store management were and are properly classified as exempt from the overtime provisions of California law. On May 21, 2001, we entered into a Memorandum of Agreement with the plaintiffs under which, subject to approval of the court, we will settle this lawsuit for a maximum of $25.0 million, a charge for which was taken in fiscal 2000. The settlement amount is payable in four equal installments of 25%, the first of which is payable upon final court approval of the settlement and the balance is payable six, 12 and 18 months thereafter. Other We are subject from time to time to lawsuits arising in the ordinary course of business. In the opinion of our management, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve amounts that would not have a material adverse effect on our financial condition, results of operations or cash flows if decided adversely. SCHEDULE 3.11 CHANGES RITE AID CORPORATION RESTRICTED STOCK LOANS ISSUED 5/01-6/15/01
Vested Name SS# Shares Gross Income Total W/H - --------------------------- ----------- ------- ------------- ------------- Lovett ###-##-#### 10,000 $84,500.00 $28,096.25 ------- ------------- ------------- Non ss.16B Officer 10,000 $84,500.00 $28,096.25 ------- ------------- ------------- Gerson ###-##-#### 12,500 $106,750.00 $47,877.38 Hall ###-##-#### 36,591 $312,487.14 $140,150.49 Jessick ###-##-#### 124,622 $1,064,271.88 $477,325.94 Mastrian ###-##-#### 12,500 $106.750.00 $47,877.38 Miller ###-##-#### 382,387 $3,265,584.98 $1,464,614.87 Sammons ###-##-#### 247,841 $2,116,562.14 $949,278.13 Sari ###-##-#### 8,750 $74,725.00 $33,514.17 Sorkin ###-##-#### 8,750 $74,725.00 $33,514.17 Standley ###-##-#### 124,622 $1,064,271.88 $477,325.94 ------- ------------- ------------- ss.16B Officers 958,563 $8,186,128.02 $3,671,478.47 ------- ------------- ------------- Total Loan Amounts 968,563 $8,270,628.02 $3,699,574.72 ======= ============= =============
[RESTUBBED TABLE]
In Rate: 4.25% Name Loan Amt. Interest Total - --------------------------- ------------- ----------- ------------- Lovett $28,096.25 $107.96 $28,204.21 ------------- ----------- ------------- Non ss.16B Officer $28,096.25 $107.96 $28,204.21 ------------- ----------- ------------- Gerson $47,877.38 $2074.90 $49,952.28 Hall $140,150.49 $6073.80 $146,224.29 Jessick $477,325.94 $20,686.22 $498,012.16 Mastrian $47,877.38 $2,074.90 $49,952.28 Miller $1,464,614.87 $63,473.06 $1,528,087.93 Sammons $949,278.13 $41,139.55 $900,417.68 Sari $33,514.17 $1,452.43 $34,966.60 Sorkin $33,514.17 $1,452.43 $34,966.60 Standley $477,325.94 $20,686.22 $498,012.16 ------------- ----------- ------------- ss.16B Officers $3,671,478.47 $159,133.49 $3,830,591.97 ------------- ----------- ------------- Total Loan Amounts $3,699,574.72 $159,221.45 $3,858,796.18 ============= =========== =============
SCHEDULE 3.19 OTHER PURCHASERS' AGREEMENTS The obligations of the Putnam Purchasers and the Fidelity Purchasers are several and not joint. EX-10 28 exh10-48.txt EXHIBIT 10.48 RITE AID CORPORATION STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 12 day of June, 2001, by and between Rite Aid Corporation (the "Company"), a corporation organized under the laws of the State of Delaware, and each purchaser, whose name and address is set forth on the signature page hereof, together with their permitted transferees (the "Purchasers"). WHEREAS, the Company desires to issue and sell to the Purchasers, and the Purchasers desire to purchase from the Company, shares ("Shares") of the Company's Common Stock, par value $1.00 per share (the "Common Stock"); and WHEREAS, the Company proposes to enter into this same form of purchase agreement with certain other investors (collectively, the "Other Purchasers") and to consummate sales of Shares to the Other Purchasers on substantially the same terms and conditions. The term "Placement Agent" shall collectively mean Salomon Smith Barney Inc. and Credit Suisse First Boston Corporation. NOW THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, the Company and the Purchasers do hereby agree as follows: 1. Agreement to Sell and Purchase the Shares. At the Closing (as defined in Section 2 herein), the Company will, subject to the terms and conditions of this Agreement, sell to the Purchasers, and the Purchasers will, subject to the terms and conditions of this Agreement, buy from the Company, the number of Shares set forth on the signature page hereto at a purchase price of $7.50 per Share (the "Purchase Price"). 2. Delivery of the Shares at the Closing. The closing of the sale to, and the purchase by, the Purchasers of the Shares (the "Closing") shall occur at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036-6522, simultaneously with Closing of the Refinancing (as defined herein) (the "Closing Date"). Prior to the time of Closing, the Company shall deliver to one or more custodians for the Purchasers, one or more certificates registered in the name of the nominee of the custodian, evidencing the Shares (the "Share Certificates") against delivery to the Company of the aggregate Purchase Price. The custodians will execute such documents reasonably necessary to evidence receipt of such Share Certificates. If for any reason, the Closing does not occur within twenty-four hours of the Company's delivery to the custodians of the Share Certificates, the custodians shall immediately return such Share Certificates to the Company or an authorized representative thereof. At the Closing, the Company will deliver to the Purchaser (i) the Legal Opinions set forth in Section 3.22 herein, (ii) an executed copy of the Registration Rights Agreement (as defined herein), and (iii) the Officer's Certificate set forth in Section 6.1(e) herein. At the Closing, the Purchasers will deliver to the Company (i) the aggregate Purchase Price in immediately available funds to an account designated by the Company in writing, and (ii) an executed copy of the Registration Rights Agreement (as defined herein). 1 As used herein, the term "Refinancing" shall mean the Company's refinancing of its Senior Credit Agreement dated as of June 12, 2000 on terms and conditions not materially less favorable to the Company than the terms of that certain bank commitment letter attached as Exhibit A hereto and without the waiver by the Agents (as such term is defined in the Commitment Letter) of any material condition contained therein (the "Commitment Letter"). 3. Representations, Warranties and Covenants of the Company. The Company hereby represents and warrants to, and covenants with, the Purchasers as follows: 3.1 Organization. The Company is duly organized and validly existing and in good standing under the laws of Delaware, and has all requisite corporate power and authority to enter into this Agreement and the Registration Rights Agreement (as defined herein) and to consummate the transactions contemplated hereby and thereby. Each subsidiary of the Company listed on Exhibit 21 to the 2001 10-K (as defined herein) (collectively, the "Subsidiaries") is duly organized and except for those Subsidiaries included on Schedule 3.1 herein, is validly existing and in good standing under their respective jurisdiction of organization. 3.2 Validity. The execution, delivery and performance of this Agreement and the Registration Rights Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action, corporate or otherwise, on the part of the Company. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company enforceable against it in accordance with their terms. 3.3 Issuance, Sale and Delivery of the Shares. The Shares have been duly authorized for issuance and sale to the Purchasers pursuant to this Agreement, and, when issued, sold and delivered in accordance with this Agreement against payment therefore of the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable and will be free of restrictions on transfer other than restrictions on transfer set forth under this Agreement. The issuance of the Shares is not subject to preemptive rights. 3.4 Capital Stock. As of June 1, 2001 and without giving effect to the transactions contemplated by this Agreement and the proposed agreements with Other Purchasers, the authorized capital stock of the Company consisted of (i) 600,000,000 shares of Common Stock, of which approximately 403,761,696 shares were issued and outstanding and (ii) 20,000,000 shares of preferred stock, of which 3,360,237 shares of Series B Preferred Stock were outstanding. The outstanding shares of Common Stock and Preferred Stock are validly issued, fully paid and non-assessable and have been issued in compliance with applicable law. None of the outstanding shares of Common Stock or Preferred Stock are entitled to cumulative voting rights or preemptive rights. Except as set forth on Schedule 3.4 hereto, the Company has outstanding no option, warrant or other commitment to issue or to acquire any shares of its capital stock or any security or obligations convertible into or exchangeable for its capital stock, nor has it given any person or entity any right to acquire from the Company or sell to the Company any shares of its capital stock. Schedule 3.4 hereto sets forth as of the date hereof the outstanding shares of Common Stock, assuming the exercise of all outstanding options and warrants, the conversion of all securities or obligations convertible into or exchangeable for shares of its Common Stock and the issuance of the maximum number of shares of Common Stock subject to outstanding commitments of the Company. 2 3.5 Compliance with Other Instruments. Neither the execution and delivery by the Company of this Agreement or the Registration Rights Agreement, nor the consummation of the transactions contemplated hereby or thereby, nor the issuance and sale of the Shares will (a) conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or to which any of the property or assets of the Company or any Subsidiary is subject, (b) result in any violation of the provisions of the certificate of incorporation or by-laws of the Company or any Subsidiary or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any Subsidiary or any of its respective properties, (c) result in the creation under any agreement or instrument of any lien, security interest, encumbrance or other claim upon any of the respective assets of the Company or any Subsidiary, or (d) create in any person or entity any right to terminate any agreement with the Company or otherwise exercise any rights against the Company or cause any payment or performance obligation of the Company to be accelerated, except in each case (a-d) as would not, individually or in the aggregate have a material adverse effect on the business, results of operations, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted) ("Material Adverse Effect"). 3.6 Governmental Consents. No consent, approval or authorization of, or declaration or filing with, any governmental authority or agency or any securities exchange on the part of the Company is required for the valid execution and delivery of this Agreement and the Registration Rights Agreement, the consummation of the transactions contemplated hereby and thereby, or the valid offer, issue, sale and delivery of the Shares pursuant to this Agreement other than the filings with the Securities and Exchange Commission required to comply with its obligations under the Registration Rights Agreement. The Company is not in violation of any of the listing requirements of the New York Stock Exchange, except where such violation would not, individually or in the aggregate, have a material adverse effect on (i) the Shares, (ii) the ability of the Company to perform its obligations under this Agreement and the Registration Rights Agreement, or (iii) the assets, business, properties or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted). 3.7 Offering Materials. The Company has not distributed and will not distribute prior to the Closing Date, any offering material in connection with the offering and sale of the Shares other than (i) the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2001 (the "2001 10-K"); (ii) the Company's Preliminary Proxy filed with the Securities and Exchange Commission (the "SEC") on May 21, 2001 (the "Preliminary Proxy"); (iii) the Company's Definitive Proxy filed with the SEC on May 31, 2001 (the "Definitive Proxy"); and (iv) and any other document filed by the Company with the SEC since October 11, 2000 through the Closing Date (together with the 2001 10-K, the Preliminary Proxy and the Definitive Proxy, the "SEC Documents") pursuant to its reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 3 3.8 Environmental and Safety Laws. Neither the Company nor any Subsidiary is in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, except where any such violations would not, individually or in the aggregate, have a Material Adverse Effect, and to the best of the Company's knowledge, no material expenditures are or are reasonably expected to be required in order to comply with any such existing statute, law, or regulation. 3.9 Litigation. Except as disclosed in the SEC Documents or on Schedule 3.9 hereto, there is no action, suit, proceeding, or investigation pending, or to the Company's knowledge, currently threatened against the Company or any Subsidiary that questions the validity of this Agreement or the Registration Rights Agreement, or the Company's ability to consummate the transactions contemplated hereby or thereby, or that might have, either individually or in the aggregate, a Material Adverse Effect. 3.10 Compliance With Laws. Except as disclosed in the SEC Documents or on Schedule 3.9 hereto, neither the Company nor any Subsidiary has received any notification from any governmental entity (i) asserting a violation of any law, statute, ordinance or regulation or the terms of any judgments, orders, decrees, injunctions or writs applicable to the conduct of their respective business; (ii) threatening to revoke any license, franchise permit or government authorization; or (iii) restricting or in any way limiting its operations as currently conducted or proposed to be conducted, except where any such violations would not, individually or in the aggregate, have a Material Adverse Effect. 3.11 Changes. Except for transactions contemplated by this Agreement and the Registration Rights Agreement, or as disclosed in the SEC Documents or on Schedule 3.11 hereto, and other than transactions conducted in the ordinary course of business, since March 3, 2001, there has not been: (a) any change in the assets, liabilities, financial condition, or operating results of the Company, that have not been and are not expected to be, individually or in the aggregate, materially adverse to the assets, business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted); (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted); (c) any waiver or compromise by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company; 4 (e) any material change to a material contract or arrangement by which the Company or any of its assets is bound or subject; (f) any material change in any compensation arrangement or agreement with any key employee, officer, director or stockholder; (g) any sale, assignment, or transfer of any patents, trademarks, copyrights, trade secrets, or other intangible assets; (h) any resignation or termination of employment of any key officer of the Company; and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer; (i) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company; (j) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable or contested by the Company in good faith; (k) any loans or guarantees made by the Company to or for the benefit of its employees, stockholders, officers, or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business, except for certain short term loans made by the Company to its officers described on Schedule 3.11 hereto; (l) any declaration, setting aside, or payment of any dividend or other distribution of the Company's assets in respect of any of the Company's capital stock, except for dividends paid-in-kind on outstanding Series B Preferred Stock or any dividends payable on the proposed Series C Preferred Stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company; (m) any other event or condition of any character that would reasonably be expected to have a Material Adverse Effect; or (n) any agreement or commitment by the Company to do any of the things described in this Section 3.11. 3.12 Integration. Neither the Company nor any affiliate (as such term is defined in Rule 501(b) under the Securities Act) nor any person, firm or corporation acting on its behalf, has directly or indirectly, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Shares in a manner that would require the registration of the Shares under the Securities Act. For purposes of Sections 3.12, 3.14 and 3.20 of this Agreement, we have assumed that the Placement Agents (i) will not solicit offers for or offer Common Stock by any form of general solicitation or general advertising (as those terms are defined in Regulation D of the Securities Act), and (ii) will solicit offers for Common Stock only from, and will offer Common Stock only to, institutional investors that it reasonably believes to be "Accredited Investors" as defined in Rule 501(a)(1), (2), (3), or (7) under the Securities Act. 5 3.13 Permits. Each of the Company and the Subsidiaries has all franchises, permits, licenses, and any similar authority necessary for the conduct of their business as now being conducted by it, except for those franchises, permits, licenses the lack of which would not have a Material Adverse Effect, and the Company believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as presently conducted or proposed to be conducted. Neither the Company nor any Subsidiary is in default under any such franchisees, permits, license or other similar authority except where such default would not have a Material Adverse Effect. 3.14 Offering. Assuming the truth and accuracy of the Purchasers' representations and warranties set forth in this Agreement, the offer and sale and issuance of the Shares as contemplated by this Agreement are exempt from the registration requirements of the Securities Act, and neither the Company nor any authorized agent acting on its behalf will take any action hereof that would cause the loss of such exemption. 3.15 Intellectual Property. Each of the Company and the Subsidiaries own or possess sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and proprietary rights and processes necessary for their respective business as now conducted and as proposed to be conducted without conflict with, or infringement of, the rights of others, except where the failure to have such rights, individually or in the aggregate, would not have a Material Adverse Effect. 3.16 Employee Relations. To the best of the Company's knowledge, there is no strike, labor dispute or union organization activities pending or threatened between the Company and its employees. To the best of its knowledge and except as disclosed in the SEC Documents, the Company has complied in all material respects with all applicable state and federal equal opportunity and other laws related to employment. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate employment with the Company, nor does the Company have any present intention to terminate the employment of any of the foregoing. 3.17 Additional Information. Since October 11, 2000, the Company has timely filed, and at the Closing Date, the Company will have timely filed, all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission pursuant to the reporting requirements of the Exchange Act. The Company represents and warrants that as of their respective filing dates, the information contained in the 2001 10-K (without exhibits) and the Definitive Proxy, complied with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the 2001 10-K and the Definitive Proxy, except for the failure to include certain financial information as described therein, and neither the 2001 10-K nor the Definitive Proxy (including all exhibits included in the 2001 10-K and the Definitive Proxy and all financial statements and schedules thereto and documents incorporated by reference therein), at the time they were respectively filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 6 3.18 Terms of Other Purchasers' Agreements. Except as set forth on Schedule 3.18 herein and other than certain closing mechanics and covenants related to publicity and the use of such Other Purchaser's name, the terms, conditions, rights and benefits contained in this Agreement and the Registration Rights Agreement are the same terms, conditions, rights and benefits as those contained in the Other Purchasers' Stock Purchase Agreement and Registration Rights Agreement, or any other similar agreement. Except as set forth on Schedule 3.18 herein, neither the Company nor any underwriter acting on behalf of the Company has entered into any separate agreement with any Other Purchaser to provide different or more favorable terms, including, but not limited to terms that provide any Other Purchaser liquidity for the Shares, or any form of compensation or value in the event the filing or effectiveness of any the registration statements required by the Registration Rights Agreement is delayed, or withdrawn, or suspended; provided, however, that this representation shall not include that certain Stock Purchase Agreement dated May 17, 2001, by and between the Company and Transamerica Investment Management, LLC and the Other Purchasers named therein. 3.19 Brokers. There is no broker, investment banker, financial advisor, finder or other person which has been retained by or is authorized to act on behalf of the Company who might be entitled to any fee or commission for which the Purchasers will be liable in connection with the execution of this Agreement or the transactions contemplated hereby. 3.20 Offering of Securities. Neither the Company nor any person, firm or corporation acting on its behalf has sold or offered the Shares or any similar securities of the Company to, or solicited any offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any person or persons in such manner as would subject the offering, issuance or sale of any of the Shares to the provisions of Section 5 of the Securities Act. Neither the Company nor any person, firm or corporation acting on behalf of the Company has taken or will take any action which would subject the offering, issuance or sale of any of the Shares to the provisions of Section 5 of the Securities Act. 3.21 Investment Company Status. Neither the Company nor any Subsidiary is, or upon consummation of the sale of the Shares will be, an "investment company," a company controlled by an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended. 3.22 Legal Opinions. At the Closing, Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Company, will deliver its legal opinion to the Purchasers with respect to (i) the Company's due incorporation and valid existence under the laws of the state of Delaware; (ii) the due execution, authorization and delivery of this Agreement and the Registration Rights Agreement; (iii) corporate power and corporate authority to execute and deliver this Agreement and the Registration Rights Agreement; (iv) no violation of the Company's Certificate of Incorporation or Bylaws or certain specified laws; (v) enforceability of this Agreement and the Registration Rights Agreement; (vi) no registration of the Shares; and (vii) the Shares are duly authorized, fully paid and non-assessable, each of such opinions in (i) through (vii) subject to customary qualifications, assumptions and carve-outs for a transaction of this nature. At the Closing, the Senior Executive Vice President and General Counsel of the Company will deliver its legal opinion to the Purchasers with respect to no violation of material contracts of the Company, such opinion subject to customary qualifications, carve-outs and assumptions for a transaction of this nature. 7 4. Representations, Warranties and Covenants of the Purchasers. Each Purchaser, severally and not jointly, represents and warrants to, and covenants with, the Company as follows: 4.1 Organization. The Purchaser is validly existing under the laws of its jurisdiction of organization and has all requisite power and authority to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions contemplated hereby and thereby. 4.2 Validity. The execution, delivery and performance of this Agreement and the Registration Rights Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action, corporate, trust or otherwise, on the part of the Purchaser. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Purchaser and constitute valid and binding obligations of the Purchaser enforceable against it in accordance with their terms. 4.3 Governmental Consents. No consent, approval, authorization, waiting period or other order of any court, regulatory body, administrative agency or other governmental body is required on the part of the Purchaser for the execution and delivery of this Agreement and the Registration Rights Agreement or the consummation of the transactions contemplated hereby or thereby. 4.4 Ability to Protect Its Own Interests and Bear Economic Risks. The Purchaser represents that by reason of the business and financial experience of its management, the Purchaser has the capacity to evaluate the risks and merits of, and make an informed decision with regard to, an investment in the Company and the transactions contemplated by this Agreement. The Purchaser further represents that the Purchaser is able to bear the economic risk of an investment in the Shares, and has an adequate income independent of any income produced from an investment in the Shares and has sufficient net worth to sustain a loss of all of its investment in the Shares without economic hardship if such a loss should occur. 4.5 Accredited Investor. The Purchaser represents that it is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. 8 4.6 Access to Information. The Company has made available to the Purchaser all reports, schedules, forms, statements and other documents filed by the Company with the SEC from October 11, 2000 through the Closing Date pursuant to the reporting requirements of the Exchange Act, and the Purchaser has received physical delivery of all such documents, records and information which the Purchaser has requested, and has had adequate opportunity to ask questions of, and receive answers from, the Company's officers, employees, agents, accountants, and representatives concerning the Company's business, operations, financial condition, assets, liabilities, and all other matters relevant to its investment in the Shares. 4.7 Advice of own Counsel. The Purchaser has, with respect to all legal matters relating to this Agreement and the offer and sale of the Shares, relied solely upon the advice of the Purchaser's own counsel and has not relied upon or consulted the counsel to the Placement Agent or counsel to the Company. 4.8 Restrictions on Dispositions. The Purchaser understands and agrees that the Shares have not been, and will not upon issuance be registered under the Securities Act, and each certificate or other document evidencing any of the Shares shall be endorsed with the legend in substantially the form set forth below, as well as any other legends required by applicable law. The Purchaser covenants that the Purchaser shall not transfer the Shares represented by any such certificate without complying with the restrictions on transfer described in the legends endorsed on such certificate and understands that the Company shall refuse to register any transfer of Shares not complying with the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE ASSIGNED UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, OR (B) EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS ARE AVAILABLE. AS A CONDITION TO PERMITTING ANY TRANSFER OF THESE SECURITIES, THE COMPANY MAY REQUIRE THAT IT BE FURNISHED WITH AN OPINION OF COUNSEL OR SUCH OTHER EVIDENCE REASONABLY ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER 4.9 Acquisition for Own Account. The Purchaser is acquiring the number of Shares set forth on the signature page hereto, for its own account and for investment and not with a view toward distribution in a manner which would violate the Securities Act. The Purchaser will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares except in compliance with the Securities Act, the rules and regulations thereunder and any applicable state securities laws. The Purchaser has, in connection with its decision to purchase the number of Shares set forth on the signature page hereto, not relied upon any representations or other information (whether oral or written) other than the representations and warranties of the Company contained herein. 9 4.10 Permitted Transfer. The Purchasers may transfer Shares to any fund or account advised by the Purchaser or any affiliate thereof if the transferee is a qualified institutional buyer (as defined in Rule 144A under the Securities Act of 1933, as amended) and agrees in writing to be bound by the terms hereof. 5. Negative Covenants of the Company. From the date hereof through the Closing Date, the Company shall, except as contemplated by this Agreement or the Commitment Letter, or as consented to by the Purchaser or reasonably necessary to consummate the Refinancing, operate its business in the ordinary course and substantially in accordance with past practice. From the date hereof through the Closing Date, the Company shall promptly advise the Purchaser of any change that is reasonably likely to cause a representation or warranty to be untrue, cause a covenant to be unsatisfied, or would have a Material Adverse Effect. Nothing contained in this Section 5 will prevent the Company from consummating any additional debt-for-equity exchanges, or any sale of the Company's equity or debt securities or the other transactions, in each case, as contemplated by or required by the Commitment Letter. 6. Conditions of Parties' Obligations. 6.1 Conditions of the Purchaser's Obligations. The obligations of the Purchaser under Sections 1 and 2 hereof are subject to the fulfillment prior to or on the Closing Date of all of the following conditions, any of which may be waived in whole or in part by the Purchaser. (a) Continued Accuracy of the Company's Covenants, Representations and Warranties. The representations and warranties of the Company contained in Section 3 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (b) Consents and Waivers. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state or any stock exchange or of any third party that are required in connection with the issuance and sale of the Shares pursuant to this Agreement shall be duly obtained and effective as of the Closing Date. (c) No Material Adverse Change. There shall be no material adverse change in the business, properties, prospects, or assets of the Company from and after the date of this Agreement. (d) Consummation of the Refinancing. The Company shall simultaneously with the Closing, consummate the Refinancing. 10 (e) Officer's Certificate. The Company shall have delivered to the Purchasers, a certificate dated the Closing Date, executed by the Senior Executive Vice President and General Counsel of the Company, certifying the satisfaction of the conditions specified in (a), (b), (c) and (d) of this Section 6.1. (f) Registration Rights Agreement. The Purchaser and the Company shall have executed and delivered the Registration Rights Agreement (as defined herein). (g) Legal Opinions. The Company shall have delivered to the Purchasers, the Legal Opinions set forth in Section 3.22 herein. 6.2 Conditions of the Company's Obligations. The obligations of the Company under Sections 1 and 2 hereof are subject to the fulfillment prior to or on the Closing Date of all of the following conditions, any of which may be waived in whole or in part by the Company. (a) Continued Accuracy of Purchaser's Covenants, Representations and Warranties. The representations and warranties of the Purchaser contained in Section 4 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (b) Consents and Waivers. All authorizations, approvals, permits, or the expiration of any waiting periods, if any, of any governmental authority or regulatory body of the United States or of any state or any stock exchange or of any third party that are required in connection with the purchase of the Shares pursuant to this Agreement shall be duly obtained and effective as of the Closing Date. 6.3 Conditions of Each Party's Obligations. The respective obligations of each party to consummate the transactions contemplated hereunder are subject to the parties being reasonably satisfied as to the absence of (i) litigation challenging or seeking damages in connection with the transactions contemplated by this Agreement, and (ii) any provision of any applicable law or regulation, or any judgment, injunction, order or decree prohibiting or enjoining the transactions contemplated by this Agreement. 7. Survival of Representations, Warranties and Agreements. The covenants and agreements of the Company contained herein shall survive the Closing; provided, however, notwithstanding any investigation made by any party to this Agreement or by the Placement Agent, all representations and warranties made by the Company and the Purchasers herein shall survive until the later of (i) twelve months from the Closing Date, and (ii) one hundred and eighty days after the effective date of the Shelf Registration Statement (as such term is defined in the Registration Rights Agreement). Any claim for indemnification made pursuant to Section 11 herein arising out of the inaccuracy or breach of any representation or warranty must be made prior to the termination of the applicable survival period, in which case such representation or warranty which is the subject of such claim shall survive with respect to such claim until the final resolution hereof. 11 8. Registration Rights Agreement. Simultaneous with the execution and delivery of this Agreement, the Company and the Purchasers will enter into a registration rights agreement in substantially the form attached as Exhibit B hereto (the "Registration Rights Agreement"). 9. Broker's Fee. There is no broker, investment banker, financial advisor, finder or other person which has been retained by or is authorized to act on behalf of any Purchaser who might be entitled to any fee or commission for which the Company will be liable in connection with the execution of this Agreement or the transactions contemplated hereby. Each Purchaser acknowledges that the Company will pay to the Placement Agent a fee in respect to the sale of the Shares to the Purchaser. 10. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified airmail, confirmed facsimile or nationally recognized overnight express courier postage prepaid, and shall be deemed given when so mailed and shall be delivered as addressed as follows: (a) if to the Company, to: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attn: Elliot S. Gerson, Esq. Senior Executive Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attn: Stacy J. Kanter, Esq. or to such other person at such other place as the Company shall designate to the Purchaser in writing; and (b) if to any Purchaser, at its address as set forth at the end of this Agreement, or at such other address or addresses as may have been furnished to the Company in writing. 11. Indemnification. (a) The Company will indemnify each Purchaser, each of its directors, officers, agents, employees, representatives and controlling persons against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of any inaccuracy or breach or any representation or warranty made by the Company (for as long as such representations and warranties survive pursuant to Section 5 hereof), or the breach of any of the agreements or covenants contained in this Agreement, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action. It is agreed that the indemnity agreement contained in this Section 11 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). 12 (b) Each Purchaser, severally and not jointly, shall indemnify the Company, each of its directors, officers, agents, employees, representatives and controlling persons against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of any inaccuracy or breach of any representation or warranty made by the Purchaser (for as long as such representatives and warranties survive pursuant to Section 5 herein), or the breach of any of the agreements or covenants contained in this Agreement, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action. It is agreed that the indemnity agreement contained in this Section 11 shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Purchaser (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 11 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed), and the Indemnified Party may participate in such defense with counsel reasonably acceptable to and paid for by the Indemnifying Party but otherwise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 11 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. 13 (d) If the indemnification provided for in this Section 11 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. 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. 12. Termination. Either party to this Agreement may terminate this Agreement by giving written notice to such other non-terminating party if the Closing has not occurred by July 13, 2001; provided, however, that the right to terminate this Agreement under this Section 12 shall not be available to any party who is in breach of this Agreement and such breach has not been waived by the other party hereto, or whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before July 13, 2001. If this Agreement is terminated pursuant to this Section 12, then all rights and obligations of the parties hereunder shall terminate without any liability of either party to the other party; provided, however, that Sections 21, 24 and 26 shall survive any termination of this Agreement. 13. Amendment. This Agreement may not be modified or amended except pursuant to an instrument in writing, signed by the Company and the Purchaser. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively) only with the written consent of the Company and the Purchaser. 14 14. Headings and Subheadings. The headings and subheadings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement and are not to be considered in interpreting or construing this Agreement. 15. Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any conflicts of law provisions thereof. 17. 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 when one or more counterparts have been signed by each party hereto and delivered to the other parties. 18. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any federal or state court located in the State of New York, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 8 shall be deemed effective service of process on such party. 19. No Implied Waiver. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 20. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 21. Expenses. Each of the Company and the Purchasers shall pay and be responsible for all of its respective fees and expenses incurred in connection with the preparation and negotiation of this Agreement and the consummation of the transactions contemplated hereby. Notwithstanding the foregoing, the Company will pay at the Closing, reasonable legal fees and expenses of one counsel representing all of the Purchasers, in an amount not to exceed $35,000; provided, however, that if the Closing does not occur and the failure of the Closing to occur is a result of the breach of this Agreement by the Purchasers which breach has not been waived by Company, or the Purchaser's failure to fulfill any obligation under this Agreement, then the Company shall not have any liability for any fees or expenses of the Purchasers. 15 22. Entire Agreement. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and such Agreement supersedes and replaces all other prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof. 23. Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 24. Publicity. Except as required by law or by obligations pursuant to any listing agreement with, or requirement of, any national securities exchange or national quotation system on which the Common Stock is listed, admitted to trading or quoted, the Company shall not, without the prior written consent of the Purchaser make any public announcement or issue any press release which includes the name of the Purchaser or any Affiliate of the Purchaser with respect to the transactions contemplated by this Agreement. The Company agrees that it will not use in advertising or publicity the names of the undersigned, any of its partners or employees, any of the funds or accounts managed by it or any of its affiliates, or any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof, in any case without the prior written consent of the Purchaser. 25. Listing of Shares on the New York Stock Exchange. The Company shall promptly take all action reasonably necessary in order to list the Shares on the New York Stock Exchange. 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. RITE AID CORPORATION By: ---------------------------------------------- Name: Title: PURCHASER Print or Type: Name of Purchaser (Individual or Institution): Bessent Global Equity Master Name and Title of Individual(s) representing Purchaser (if an Institution): Name: Arthur S. Ainsberg Title: Chief Operating Officer Bessent Capital LLC Number of Shares to be Purchased Aggregate Price ----------------------- --------------------- 2,310,000 $17,325,000 Signature by: Individual Purchaser or Individual(s) representing Purchaser: ---------------------------- Name: Arthur S. Ainsberg Title: Chief Operating Officer Bessent Capital LLC Address: Bessent Capital LLC 900 Third Avenue New York, New York 10022 RITE AID CORPORATION By: ---------------------------------------------- Name: Title: PURCHASER Print or Type: Name of Purchaser (Individual or Institution): Quantum Partners Bessent Global Name and Title of Individual(s) representing Purchaser (if an Institution): Name: Arthur S. Ainsberg Title: Chief Operating Officer Bessent Capital LLC Number of Shares to be Purchased Aggregate Price ----------------------- --------------------- 358,000 $2,685,000 Signature by: Individual Purchaser or Individual(s) representing Purchaser: ---------------------------- Name: Arthur S. Ainsberg Title: Chief Operating Officer Bessent Capital LLC Address: Bessent Capital LLC 900 Third Avenue New York, New York 10022 EXHIBIT A COMMITMENT LETTER EXHIBIT B REGISTRATION RIGHTS AGREEMENT SCHEDULE 3.1 Thrifty Wilshire, Inc Reads, Inc. Leader Drugs, Inc. Rite Aid of Massachusetts, Inc. The Muir Company PL Xpress Inc. SCHEDULE 3.4 CAPITAL STOCK
Rite Aid Common Stock Outstanding as of June 1, 2001: 403,761,696 3,360,237 Series B, $100 Par, Preferred Stock Convertible to Common Stock at $5.50 per Share: 61,095,218 In the Money Stock Options (a) 44,787,450 ------------- Common Stock on a Fully diluted Basis as of June 1, 2001: 509,644,364 Debt for Equity Exchanges Agreed to and Priced but Not Yet Settled: Exchange of RCF Facility for stock 8,562,174 (b) Exchange of RCF Facility for stock 12,654,598 (b) ------------- 21,216,772 ------------- Common Stock on a Pro Forma Fully diluted Basis as of June 1, 2001: 530,861,136 =============
(a) Includes 37.4 million shares which are not yet vested. (b) May be issued initially as Series C Convertible Preferred Stock. Not Included in the Above Total are the Following: A. $152,016,000 of 5.25% Convertible Subordinated Noted due 2002 that are convertible into 27.672 shares of common stock per $1,000 note. B. Warrants held by J. P. Morgan to purchase 2,500,000 shares of Rite Aid common stock at $11.00 per Share. C. Private debt for equity exchanges that were agreed to but not yet priced: $31,500,000 Exchange of 10.5% Notes Due 9/15/02 for stock $15,300,000 Exchange of 10.5% Notes Due 9/15/02 for stock $2,200,000 Exchange of RCF Facility for stock $14,477,000 Exchange of Bank Debt for stock $6,504,000 Exchange of 10.5% Notes Due 9/15/02 for stock $10,000,000 Exchange of 10.5% Notes Due 9/15/02 for stock ----------- $79,981,000 D. Shareholder suit settlement for 20,000,000 shares of common stock. E. 3,000,000 common stock purchase warrants proposed to be issued in connection with the exchange of $152 million of the Company's 10.5% Senior Secured Notes for a new series of 12.5% Senior Secured Notes due 2006. F. 7,559,599 stock options that are not in the money including 1,583,750 shares not yet vested. G. 26,573,426 shares of common stock to be issued for $150 million. SCHEDULE 3.9 LITIGATION Federal Investigations There are currently pending federal governmental investigations, both civil and criminal, by the SEC and the United States Attorney, involving our financial reporting and other matters. We are cooperating fully with the SEC and the United States Attorney. We have begun settlement discussions with the United States Attorney for the Middle District of Pennsylvania. The United States Attorney has proposed that the government would not institute any criminal proceedings against the Company if we enter into a consent judgment providing for civil penalty payable over a period of years. The amount of the civil penalty has not been agreed to and there can be no assurance that a settlement will be reached or that the amount of such penalty will not have a material adverse effect on our financial condition and results of operations. The U.S. Department of Labor has commenced an investigation of matters relating to our employee benefit plans, including our principal 401(k) plan, which permitted employees to purchase our common stock. Purchases of our common stock under the plan were suspended in October 1999. In January 2001, we appointed an independent trustee to represent the interests of these plans in relation to the company and to investigate possible claims the plans may have against us. Both the independent trustee and the Department of Labor have asserted that the plans may have claims against us. The investigations, with which we are cooperating fully, are ongoing and we cannot predict their outcomes. In addition, a purported class action lawsuit on behalf of the plans and their participants has been filed by a participant in the plans in the United States District Court for the Eastern District of Pennsylvania. These investigations and settlement discussions are ongoing and we cannot predict their outcomes. If we were convicted of any crime, certain contracts and licenses that are material to our operations may be revoked, which would have a material adverse effect on our results of operations and financial condition. In addition, substantial penalties, damages or other monetary remedies assessed against us, including a settlement, could also have a material adverse effect on our results of operations, financial condition and cash flows. Stockholder Litigation We, certain of our directors, our former chief executive officer Martin Grass, our former president Timothy Noonan, our former chief financial officer Frank Bergonzi, and our former auditor KPMG LLP, have been sued in a number of actions, most of which purport to be class actions, brought on behalf of stockholders who purchased our securities on the open market between May 2, 1997 and November 10, 1999. All of these cases have been consolidated in the U.S. District Court for the Eastern District of Pennsylvania. On November 9, 2000, we announced that we had reached an agreement to settle the consolidated securities class action lawsuits pending against us in the U.S. District Court for the Eastern District of Pennsylvania and the derivative lawsuits pending there and in the Delaware Court of Chancery. Under the agreement, which has been submitted to the U.S. District Court for the Eastern District of Pennsylvania for approval, we will pay $45 million in cash, which will be fully funded by our officers' and directors' liability insurance, and issue shares of common stock in 2002. The shares will be valued over a 10 day trading period in January 2002. If the value determined is at least $7.75 per share, we will issue 20 million shares. If the value determined is less than $7.75 per share, we have the option to deliver any combination of common stock, cash and short-term notes, with a total value of $155 million. As additional consideration for the settlement, we have assigned to the plaintiffs all of our claims against the above named executives and KPMG LLP. Several members of the class have elected to "opt-out" of the class and, as a result, if the settlement is approved by the court, they will be free to individually pursue their claims. Management believes that their claims, individually and in the aggregate, are not material. Drug Pricing and Reimbursement Matters On October 5, 2000, we settled, for an immaterial amount, and without admitting any violation of the law, the lawsuit filed by the Florida Attorney General alleging that our non-uniform pricing policy for cash prescription purchases was unlawful under Florida law. The filing of the complaint by the Florida Attorney General, and our press release issued in conjunction therewith, precipitated the filing of a purported federal class action in California and several purported state class actions, all of which (other than those pending in New York that were filed on October 5, 1999 and those pending in California that were filed on January 3, 2000 ) have been dismissed. A motion to dismiss the action in New York is currently pending. On May 30, 2001, a complaint filed in New Jersey in which the plaintiff made similar allegation and which the trial court dismissed for failing to state a claim upon which relief could be based was reinstated by the appellate court. We believe that the remaining lawsuits are without merit under applicable state consumer protection laws. As a result, we intend to continue to vigorously defend against them and we do not anticipate that if fully adjudicated, they will result in an award of damages. However, such outcomes cannot be assured and a ruling against us could have a material adverse effect on the financial position and results of operations of the company as well as necessitate substantial additional expenditures to cover legal costs as we pursue all available defenses. We are being investigated by multiple state attorneys general for our reimbursement practices relating to partially-filled prescriptions and fully-filled prescriptions that are not picked up by ordering customers. We are supplying similar information with respect to these matters to the Department of Justice. We believe that these investigations are similar to investigations which were, and are being, undertaken with respect to the practices of others in the retail drug industry. We also believe that our existing policies and procedures fully comply with the requirements of applicable law and intend to fully cooperate with these investigations. We cannot, however, predict their outcomes at this time. An individual acting on behalf of the United States of America, has filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania under the Federal False Claims Act alleging that we defrauded federal health care plans by failing to appropriately issue refunds for partially filled prescriptions and prescriptions which were not picked up by customers. The Department of Justice has not decided whether to join this lawsuit, as is its right under the law, and its investigation is continuing. We have filed a motion to dismiss the complaint for failure to state a claim. If any of these cases result in a substantial monetary judgment against us or is settled on unfavorable terms, our results of operations, financial position and cash flows could be materially adversely affected. Store Management Overtime Litigation We are a defendant in a class action pending in the California Superior Court in San Diego with three subclasses, comprised of our California store managers, assistant managers and managers-in-training. The plaintiffs seek back pay for overtime not paid to them and injunctive relief to require us to treat our store management as non-exempt. They allege that we decided to minimize labor costs by causing managers, assistant managers and managers-in-training to perform the duties and functions of associates for in excess of forty hours per week without paying them overtime. We believe that in-store management were and are properly classified as exempt from the overtime provisions of California law. On May 21, 2001, we entered into a Memorandum of Agreement with the plaintiffs under which, subject to approval of the court, we will settle this lawsuit for a maximum of $25.0 million, a charge for which was taken in fiscal 2000. The settlement amount is payable in four equal installments of 25%, the first of which is payable upon final court approval of the settlement and the balance is payable six, 12 and 18 months thereafter. Other We are subject from time to time to lawsuits arising in the ordinary course of business. In the opinion of our management, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve amounts that would not have a material adverse effect on our financial condition, results of operations or cash flows if decided adversely. SCHEDULE 3.11 CHANGES Rite Aid Corporation Restricted Stock Loans issued 5/01-6/15/01
Vested In Rate: Name SS# Shares Gross Income Total W/H Loan Amt. - --------------------------- -------------- ---------- ---------------- --------------- ---------------- Lovett ###-##-#### 10,000 $84,500.00 $28,096.25 $28,096.25 ------- ------------- ------------- ------------- Nonss.16B Officer 10,000 $84,500.00 $28,096.25 $28,096.25 ------- ------------- ------------- ------------- Gerson ###-##-#### 12,500 $106,750.00 $47,877.38 $47,877.38 Hall ###-##-#### 36,591 $312,487.14 $140,150.49 $140,150.49 Jessick ###-##-#### 124,622 $1,064,271.88 $477,325.94 $477,325.94 Mastrian ###-##-#### 12,500 $106.750.00 $47,877.38 $47,877.38 Miller ###-##-#### 382,387 $3,265,584.98 $1,464,614.87 $1,464,614.87 Sammons ###-##-#### 247,841 $2,116,562.14 $949,278.13 $949,278.13 Sari ###-##-#### 8,750 $74,725.00 $33,514.17 $33,514.17 Sorkin ###-##-#### 8,750 $74,725.00 $33,514.17 $33,514.17 Standley ###-##-#### 124,622 $1,064,271.88 $477,325.94 $477,325.94 ------- ------------- ------------- ------------- ss.16B Officers 958,563 $8,186,128.02 $3,671,478.47 $3,671,478.47 ------- ------------- ------------- ------------- Total Loan Amounts 968,563 $8,270,628.02 $3,699,574.72 $3,699,574.72 ======= ============= ============= =============
[RESTUB]
4.25% Name SS# Interest Total - --------------------------- -------------- -------------- ---------------- Lovett ###-##-#### $107.96 $28,204.21 ----------- ------------- Nonss.16B Officer $107.96 $28,204.21 ----------- ------------- Gerson ###-##-#### $2074.90 $49,952.28 Hall ###-##-#### $6073.80 $146,224.29 Jessick ###-##-#### $20,686.22 $498,012.16 Mastrian ###-##-#### $2,074.90 $49,952.28 Miller ###-##-#### $63,473.06 $1,528,087.93 Sammons ###-##-#### $41,139.55 $900,417.68 Sari ###-##-#### $1,452.43 $34,966.60 Sorkin ###-##-#### $1,452.43 $34,966.60 Standley ###-##-#### $20,686.22 $498,012.16 ----------- ------------- ss.16B Officers $159,133.49 $3,830,591.97 ----------- ------------- Total Loan Amounts $159,221.45 $3,858,796.18 =========== =============
SCHEDULE 3.19 OTHER PURCHASERS' AGREEMENTS The obligations of the Putnam Purchasers, Fidelity Purchasers and American Century Purchasers are several and not joint. EX-10 29 exh10-49.txt EXHIBIT 10.49 RITE AID CORPORATION STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 12 day of June, 2001, by and between Rite Aid Corporation (the "Company"), a corporation organized under the laws of the State of Delaware, and each purchaser, whose name and address is set forth on the signature page hereof, together with their permitted transferees (the "Purchasers"). WHEREAS, the Company desires to issue and sell to the Purchasers, and the Purchasers desire to purchase from the Company, shares ("Shares") of the Company's Common Stock, par value $1.00 per share (the "Common Stock"); and WHEREAS, the Company proposes to enter into this same form of purchase agreement with certain other investors (collectively, the "Other Purchasers") and to consummate sales of Shares to the Other Purchasers on substantially the same terms and conditions. The term "Placement Agent" shall collectively mean Salomon Smith Barney Inc. and Credit Suisse First Boston Corporation. NOW THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, the Company and the Purchasers do hereby agree as follows: 1. Agreement to Sell and Purchase the Shares. At the Closing (as defined in Section 2 herein), the Company will, subject to the terms and conditions of this Agreement, sell to the Purchasers, and the Purchasers will, subject to the terms and conditions of this Agreement, buy from the Company, the number of Shares set forth on the signature page hereto at a purchase price of $7.50 per Share (the "Purchase Price"). The obligations of the Purchasers are several and not joint. 2. Delivery of the Shares at the Closing. The closing of the sale to, and the purchase by, the Purchasers of the Shares (the "Closing") shall occur at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036-6522, simultaneously with Closing of the Refinancing (as defined herein) (the "Closing Date"). Prior to the time of Closing, the Company shall deliver to one or more custodians for the Purchasers, one or more certificates registered in the name of the nominee of the custodian, evidencing the Shares (the "Share Certificates") against delivery to the Company of the aggregate Purchase Price. The custodians will execute such documents reasonably necessary to evidence receipt of such Share Certificates. If for any reason, the Closing does not occur within twenty-four hours of the Company's delivery to the custodians of the Share Certificates, the custodians shall immediately return such Share Certificates to the Company or an authorized representative thereof. At the Closing, the Company will deliver to the Purchaser (i) the Legal Opinions set forth in Section 3.22 herein, (ii) an executed copy of the Registration Rights Agreement (as defined herein), and (iii) the Officer's Certificate set forth in Section 6.1(e) herein. At the Closing, the Purchasers will deliver to the Company (i) the aggregate Purchase Price in immediately available funds to an account designated by the Company in writing, and (ii) an executed copy of the Registration Rights Agreement (as defined herein). 1 As used herein, the term "Refinancing" shall mean the Company's refinancing of its Senior Credit Agreement dated as of June 12, 2000 on terms and conditions not materially less favorable to the Company than the terms of that certain bank commitment letter attached as Exhibit A hereto and without the waiver by the Agents (as such term is defined in the Commitment Letter) of any material condition contained therein (the "Commitment Letter"). 3. Representations, Warranties and Covenants of the Company. The Company hereby represents and warrants to, and covenants with, the Purchasers as follows: 3.1 Organization. The Company is duly organized and validly existing and in good standing under the laws of Delaware, and has all requisite corporate power and authority to enter into this Agreement and the Registration Rights Agreement (as defined herein) and to consummate the transactions contemplated hereby and thereby. Each subsidiary of the Company listed on Exhibit 21 to the 2001 10-K (as defined herein) (collectively, the "Subsidiaries") is duly organized and except for those Subsidiaries included on Schedule 3.1 herein, is validly existing and in good standing under their respective jurisdiction of organization. 3.2 Validity. The execution, delivery and performance of this Agreement and the Registration Rights Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action, corporate or otherwise, on the part of the Company. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company enforceable against it in accordance with their terms. 3.3 Issuance, Sale and Delivery of the Shares. The Shares have been duly authorized for issuance and sale to the Purchasers pursuant to this Agreement, and, when issued, sold and delivered in accordance with this Agreement against payment therefore of the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable and will be free of restrictions on transfer other than restrictions on transfer set forth under this Agreement. The issuance of the Shares is not subject to preemptive rights. 3.4 Capital Stock. As of June 1, 2001 and without giving effect to the transactions contemplated by this Agreement and the proposed agreements with Other Purchasers, the authorized capital stock of the Company consisted of (i) 600,000,000 shares of Common Stock, of which approximately 403,761,696 shares were issued and outstanding and (ii) 20,000,000 shares of preferred stock, of which 3,360,237 shares of Series B Preferred Stock were outstanding. The outstanding shares of Common Stock and Preferred Stock are validly issued, fully paid and non-assessable and have been issued in compliance with applicable law. None of the outstanding shares of Common Stock or Preferred Stock are entitled to cumulative voting rights or preemptive rights. Except as set forth on Schedule 3.4 hereto, the Company has outstanding no option, warrant or other commitment to issue or to acquire any shares of its capital stock or any security or obligations convertible into or exchangeable for its capital stock, nor has it given any person or entity any right to acquire from the Company or sell to the Company any shares of its capital stock. Schedule 3.4 hereto sets forth as of the date hereof the outstanding shares of Common Stock, assuming the exercise of all outstanding options and warrants, the conversion of all securities or obligations convertible into or exchangeable for 2 shares of its Common Stock and the issuance of the maximum number of shares of Common Stock subject to outstanding commitments of the Company. 3.5 Compliance with Other Instruments. Neither the execution and delivery by the Company of this Agreement or the Registration Rights Agreement, nor the consummation of the transactions contemplated hereby or thereby, nor the issuance and sale of the Shares will (a) conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or to which any of the property or assets of the Company or any Subsidiary is subject, (b) result in any violation of the provisions of the certificate of incorporation or by-laws of the Company or any Subsidiary or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any Subsidiary or any of its respective properties, (c) result in the creation under any agreement or instrument of any lien, security interest, encumbrance or other claim upon any of the respective assets of the Company or any Subsidiary, or (d) create in any person or entity any right to terminate any agreement with the Company or otherwise exercise any rights against the Company or cause any payment or performance obligation of the Company to be accelerated, except in each case (a-d) as would not, individually or in the aggregate have a material adverse effect on the business, results of operations, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted) ("Material Adverse Effect"). 3.6 Governmental Consents. No consent, approval or authorization of, or declaration or filing with, any governmental authority or agency or any securities exchange on the part of the Company is required for the valid execution and delivery of this Agreement and the Registration Rights Agreement, the consummation of the transactions contemplated hereby and thereby, or the valid offer, issue, sale and delivery of the Shares pursuant to this Agreement other than the filings with the Securities and Exchange Commission required to comply with its obligations under the Registration Rights Agreement. The Company is not in violation of any of the listing requirements of the New York Stock Exchange, except where such violation would not, individually or in the aggregate, have a material adverse effect on (i) the Shares, (ii) the ability of the Company to perform its obligations under this Agreement and the Registration Rights Agreement, or (iii) the assets, business, properties or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted). 3.7 Offering Materials. The Company has not distributed and will not distribute prior to the Closing Date, any offering material in connection with the offering and sale of the Shares other than (i) the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2001 (the "2001 10-K"); (ii) the Company's Preliminary Proxy filed with the Securities and Exchange Commission (the "SEC") on May 21, 2001 (the "Preliminary Proxy"); (iii) the Company's Definitive Proxy filed with the SEC on May 31, 2001 (the "Definitive Proxy"); and (iv) and any other document filed by the Company with the SEC since October 11, 2000 through the Closing Date (together with the 2001 10-K, the Preliminary Proxy and the Definitive Proxy, the "SEC Documents") pursuant to its reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 3 3.8 Environmental and Safety Laws. Neither the Company nor any Subsidiary is in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, except where any such violations would not, individually or in the aggregate, have a Material Adverse Effect, and to the best of the Company's knowledge, no material expenditures are or are reasonably expected to be required in order to comply with any such existing statute, law, or regulation. 3.9 Litigation. Except as disclosed in the SEC Documents or on Schedule 3.9 hereto, there is no action, suit, proceeding, or investigation pending, or to the Company's knowledge, currently threatened against the Company or any Subsidiary that questions the validity of this Agreement or the Registration Rights Agreement, or the Company's ability to consummate the transactions contemplated hereby or thereby, or that might have, either individually or in the aggregate, a Material Adverse Effect. 3.10 Compliance With Laws. Except as disclosed in the SEC Documents or on Schedule 3.9 hereto, neither the Company nor any Subsidiary has received any notification from any governmental entity (i) asserting a violation of any law, statute, ordinance or regulation or the terms of any judgments, orders, decrees, injunctions or writs applicable to the conduct of their respective business; (ii) threatening to revoke any license, franchise permit or government authorization; or (iii) restricting or in any way limiting its operations as currently conducted or proposed to be conducted, except where any such violations would not, individually or in the aggregate, have a Material Adverse Effect. 3.11 Changes. Except for transactions contemplated by this Agreement and the Registration Rights Agreement, or as disclosed in the SEC Documents or on Schedule 3.11 hereto, and other than transactions conducted in the ordinary course of business, since March 3, 2001, there has not been: (a) any change in the assets, liabilities, financial condition, or operating results of the Company, that have not been and are not expected to be, individually or in the aggregate, materially adverse to the assets, business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted); (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted); (c) any waiver or compromise by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company; 4 (e) any material change to a material contract or arrangement by which the Company or any of its assets is bound or subject; (f) any material change in any compensation arrangement or agreement with any key employee, officer, director or stockholder; (g) any sale, assignment, or transfer of any patents, trademarks, copyrights, trade secrets, or other intangible assets; (h) any resignation or termination of employment of any key officer of the Company; and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer; (i) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company; (j) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable or contested by the Company in good faith; (k) any loans or guarantees made by the Company to or for the benefit of its employees, stockholders, officers, or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business, except for certain short term loans made by the Company to its officers described on Schedule 3.11 hereto; (l) any declaration, setting aside, or payment of any dividend or other distribution of the Company's assets in respect of any of the Company's capital stock, except for dividends paid-in-kind on outstanding Series B Preferred Stock or any dividends payable on the proposed Series C Preferred Stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company; (m) any other event or condition of any character that would reasonably be expected to have a Material Adverse Effect; or (n) any agreement or commitment by the Company to do any of the things described in this Section 3.11. 3.12 Integration. Neither the Company nor any affiliate (as such term is defined in Rule 501(b) under the Securities Act) nor any person, firm or corporation acting on its behalf, has directly or indirectly, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Shares in a manner that would require the registration of the 5 Shares under the Securities Act. For purposes of Sections 3.12, 3.14 and 3.20 of this Agreement, we have assumed that the Placement Agents (i) will not solicit offers for or offer Common Stock by any form of general solicitation or general advertising (as those terms are defined in Regulation D of the Securities Act), and (ii) will solicit offers for Common Stock only from, and will offer Common Stock only to, institutional investors that it reasonably believes to be "Accredited Investors" as defined in Rule 501(a)(1), (2), (3), or (7) under the Securities Act. 3.13 Permits. Each of the Company and the Subsidiaries has all franchises, permits, licenses, and any similar authority necessary for the conduct of their business as now being conducted by it, except for those franchises, permits, licenses the lack of which would not have a Material Adverse Effect, and the Company believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as presently conducted or proposed to be conducted. Neither the Company nor any Subsidiary is in default under any such franchisees, permits, license or other similar authority except where such default would not have a Material Adverse Effect. 3.14 Offering. Assuming the truth and accuracy of the Purchasers' representations and warranties set forth in this Agreement, the offer and sale and issuance of the Shares as contemplated by this Agreement are exempt from the registration requirements of the Securities Act, and neither the Company nor any authorized agent acting on its behalf will take any action hereof that would cause the loss of such exemption. 3.15 Intellectual Property. Each of the Company and the Subsidiaries own or possess sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and proprietary rights and processes necessary for their respective business as now conducted and as proposed to be conducted without conflict with, or infringement of, the rights of others, except where the failure to have such rights, individually or in the aggregate, would not have a Material Adverse Effect. 3.16 Employee Relations. To the best of the Company's knowledge, there is no strike, labor dispute or union organization activities pending or threatened between the Company and its employees. To the best of its knowledge and except as disclosed in the SEC Documents, the Company has complied in all material respects with all applicable state and federal equal opportunity and other laws related to employment. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate employment with the Company, nor does the Company have any present intention to terminate the employment of any of the foregoing. 3.17 Additional Information. Since October 11, 2000, the Company has timely filed, and at the Closing Date, the Company will have timely filed, all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission pursuant to the reporting requirements of the Exchange Act. The Company represents and warrants that as of their respective filing dates, the information contained in the 2001 10-K (without exhibits) and the Definitive Proxy, complied with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the 2001 10-K and the Definitive Proxy, except for the failure to include certain financial information as described therein, and 6 neither the 2001 10-K nor the Definitive Proxy (including all exhibits included in the 2001 10-K and the Definitive Proxy and all financial statements and schedules thereto and documents incorporated by reference therein), at the time they were respectively filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.18 Terms of Other Purchasers' Agreements. Except as set forth on Schedule 3.18 herein and other than certain closing mechanics and covenants related to publicity and the use of such Other Purchaser's name, the terms, conditions, rights and benefits contained in this Agreement and the Registration Rights Agreement are the same terms, conditions, rights and benefits as those contained in the Other Purchasers' Stock Purchase Agreement and Registration Rights Agreement, or any other similar agreement. Except as set forth on Schedule 3.18 herein, neither the Company nor any underwriter acting on behalf of the Company has entered into any separate agreement with any Other Purchaser to provide different or more favorable terms, including, but not limited to terms that provide any Other Purchaser liquidity for the Shares, or any form of compensation or value in the event the filing or effectiveness of any the registration statements required by the Registration Rights Agreement is delayed, or withdrawn, or suspended; provided, however, that this representation shall not include that certain Stock Purchase Agreement dated May 17, 2001, by and between the Company and Transamerica Investment Management, LLC and the Other Purchasers named therein. 3.19 Brokers. There is no broker, investment banker, financial advisor, finder or other person which has been retained by or is authorized to act on behalf of the Company who might be entitled to any fee or commission for which the Purchasers will be liable in connection with the execution of this Agreement or the transactions contemplated hereby. 3.20 Offering of Securities. Neither the Company nor any person, firm or corporation acting on its behalf has sold or offered the Shares or any similar securities of the Company to, or solicited any offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any person or persons in such manner as would subject the offering, issuance or sale of any of the Shares to the provisions of Section 5 of the Securities Act. Neither the Company nor any person, firm or corporation acting on behalf of the Company has taken or will take any action which would subject the offering, issuance or sale of any of the Shares to the provisions of Section 5 of the Securities Act. 3.21 Investment Company Status. Neither the Company nor any Subsidiary is, or upon consummation of the sale of the Shares will be, an "investment company," a company controlled by an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended. 3.22 Legal Opinions. At the Closing, Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Company, will deliver its legal opinion to the Purchasers with respect to (i) the Company's due incorporation and valid existence under the laws of the state of Delaware; (ii) the due execution, authorization and delivery of this Agreement and the Registration Rights Agreement; (iii) corporate power and corporate authority to execute and 7 deliver this Agreement and the Registration Rights Agreement; (iv) no violation of the Company's Certificate of Incorporation or Bylaws or certain specified laws; (v) enforceability of this Agreement and the Registration Rights Agreement; (vi) no registration of the Shares; and (vii) the Shares are duly authorized, fully paid and non-assessable, each of such opinions in (i) through (vii) subject to customary qualifications, assumptions and carve-outs for a transaction of this nature. At the Closing, the Senior Executive Vice President and General Counsel of the Company will deliver its legal opinion to the Purchasers with respect to no violation of material contracts of the Company, such opinion subject to customary qualifications, carve-outs and assumptions for a transaction of this nature. 4. Representations, Warranties and Covenants of the Purchasers. Each Purchaser, severally and not jointly, represents and warrants to, and covenants with, the Company as follows: 4.1 Organization. The Purchaser is validly existing under the laws of its jurisdiction of organization and has all requisite power and authority to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions contemplated hereby and thereby. 4.2 Validity. The execution, delivery and performance of this Agreement and the Registration Rights Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action, corporate, trust or otherwise, on the part of the Purchaser. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Purchaser and constitute valid and binding obligations of the Purchaser enforceable against it in accordance with their terms. 4.3 Governmental Consents. No consent, approval, authorization, waiting period or other order of any court, regulatory body, administrative agency or other governmental body is required on the part of the Purchaser for the execution and delivery of this Agreement and the Registration Rights Agreement or the consummation of the transactions contemplated hereby or thereby. 4.4 Ability to Protect Its Own Interests and Bear Economic Risks. The Purchaser represents that by reason of the business and financial experience of its management, the Purchaser has the capacity to evaluate the risks and merits of, and make an informed decision with regard to, an investment in the Company and the transactions contemplated by this Agreement. The Purchaser further represents that the Purchaser is able to bear the economic risk of an investment in the Shares, and has an adequate income independent of any income produced from an investment in the Shares and has sufficient net worth to sustain a loss of all of its investment in the Shares without economic hardship if such a loss should occur. 4.5 Accredited Investor. The Purchaser represents that it is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. 4.6 Access to Information. The Company has made available to the Purchaser all reports, schedules, forms, statements and other documents filed by the Company 8 with the SEC from October 11, 2000 through the Closing Date pursuant to the reporting requirements of the Exchange Act, and the Purchaser has received physical delivery of all such documents, records and information which the Purchaser has requested, and has had adequate opportunity to ask questions of, and receive answers from, the Company's officers, employees, agents, accountants, and representatives concerning the Company's business, operations, financial condition, assets, liabilities, and all other matters relevant to its investment in the Shares. 4.7 Advice of own Counsel. The Purchaser has, with respect to all legal matters relating to this Agreement and the offer and sale of the Shares, relied solely upon the advice of the Purchaser's own counsel and has not relied upon or consulted the counsel to the Placement Agent or counsel to the Company. 4.8 Restrictions on Dispositions. The Purchaser understands and agrees that the Shares have not been, and will not upon issuance be registered under the Securities Act, and each certificate or other document evidencing any of the Shares shall be endorsed with the legend in substantially the form set forth below, as well as any other legends required by applicable law. The Purchaser covenants that the Purchaser shall not transfer the Shares represented by any such certificate without complying with the restrictions on transfer described in the legends endorsed on such certificate and understands that the Company shall refuse to register any transfer of Shares not complying with the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE ASSIGNED UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, OR (B) EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS ARE AVAILABLE. AS A CONDITION TO PERMITTING ANY TRANSFER OF THESE SECURITIES, THE COMPANY MAY REQUIRE THAT IT BE FURNISHED WITH AN OPINION OF COUNSEL OR SUCH OTHER EVIDENCE REASONABLY ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER 4.9 Acquisition for Own Account. The Purchaser is acquiring the number of Shares set forth on the signature page hereto, for its own account and for investment and not with a view toward distribution in a manner which would violate the Securities Act. The Purchaser will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares except in compliance with the Securities Act, the rules and regulations thereunder and any applicable state securities laws. The Purchaser has, in connection with its decision to purchase the number of Shares set forth on the signature page hereto, not relied upon any representations 9 or other information (whether oral or written) other than the representations and warranties of the Company contained herein. 4.10 Permitted Transfer. The Purchasers may transfer Shares to any fund or account advised by Fidelity Management & Research Company or any affiliate thereof if the transferee is a qualified institutional buyer (as defined in Rule 144A under the Securities Act of 1933, as amended) and agrees in writing to be bound by the terms hereof. 5. Negative Covenants of the Company. From the date hereof through the Closing Date, the Company shall, except as contemplated by this Agreement or the Commitment Letter, or as consented to by the Purchaser or reasonably necessary to consummate the Refinancing, operate its business in the ordinary course and substantially in accordance with past practice. From the date hereof through the Closing Date, the Company shall promptly advise the Purchaser of any change that is reasonably likely to cause a representation or warranty to be untrue, cause a covenant to be unsatisfied, or would have a Material Adverse Effect. Nothing contained in this Section 5 will prevent the Company from consummating any additional debt-for-equity exchanges, or any sale of the Company's equity or debt securities or the other transactions, in each case, as contemplated by or required by the Commitment Letter. 6. Conditions of Parties' Obligations. 6.1 Conditions of the Purchaser's Obligations. The obligations of the Purchaser under Sections 1 and 2 hereof are subject to the fulfillment prior to or on the Closing Date of all of the following conditions, any of which may be waived in whole or in part by the Purchaser. (a) Continued Accuracy of the Company's Covenants, Representations and Warranties. The representations and warranties of the Company contained in Section 3 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (b) Consents and Waivers. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state or any stock exchange or of any third party that are required in connection with the issuance and sale of the Shares pursuant to this Agreement shall be duly obtained and effective as of the Closing Date. (c) No Material Adverse Change. There shall be no material adverse change in the business, properties, prospects, or assets of the Company from and after the date of this Agreement. (d) Consummation of the Refinancing. The Company shall simultaneously with the Closing, consummate the Refinancing. 10 (e) Officer's Certificate. The Company shall have delivered to the Purchasers, a certificate dated the Closing Date, executed by the Senior Executive Vice President and General Counsel of the Company, certifying the satisfaction of the conditions specified in (a), (b), (c) and (d) of this Section 6.1. (f) Registration Rights Agreement. The Purchaser and the Company shall have executed and delivered the Registration Rights Agreement (as defined herein). (g) Legal Opinions. The Company shall have delivered to the Purchasers, the Legal Opinions set forth in Section 3.22 herein. 6.2 Conditions of the Company's Obligations. The obligations of the Company under Sections 1 and 2 hereof are subject to the fulfillment prior to or on the Closing Date of all of the following conditions, any of which may be waived in whole or in part by the Company. (a) Continued Accuracy of Purchaser's Covenants, Representations and Warranties. The representations and warranties of the Purchaser contained in Section 4 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (b) Consents and Waivers. All authorizations, approvals, permits, or the expiration of any waiting periods, if any, of any governmental authority or regulatory body of the United States or of any state or any stock exchange or of any third party that are required in connection with the purchase of the Shares pursuant to this Agreement shall be duly obtained and effective as of the Closing Date. 6.3 Conditions of Each Party's Obligations. The respective obligations of each party to consummate the transactions contemplated hereunder are subject to the parties being reasonably satisfied as to the absence of (i) litigation challenging or seeking damages in connection with the transactions contemplated by this Agreement, and (ii) any provision of any applicable law or regulation, or any judgment, injunction, order or decree prohibiting or enjoining the transactions contemplated by this Agreement. 7. Survival of Representations, Warranties and Agreements. The covenants and agreements of the Company contained herein shall survive the Closing; provided, however, notwithstanding any investigation made by any party to this Agreement or by the Placement Agent, all representations and warranties made by the Company and the Purchasers herein shall survive until the later of (i) twelve months from the Closing Date, and (ii) one hundred and eighty days after the effective date of the Shelf Registration Statement (as such term is defined in 11 the Registration Rights Agreement). Any claim for indemnification made pursuant to Section 11 herein arising out of the inaccuracy or breach of any representation or warranty must be made prior to the termination of the applicable survival period, in which case such representation or warranty which is the subject of such claim shall survive with respect to such claim until the final resolution hereof. 8. Registration Rights Agreement. Simultaneous with the execution and delivery of this Agreement, the Company and the Purchasers will enter into a registration rights agreement in substantially the form attached as Exhibit B hereto (the "Registration Rights Agreement"). 9. Broker's Fee. There is no broker, investment banker, financial advisor, finder or other person which has been retained by or is authorized to act on behalf of any Purchaser who might be entitled to any fee or commission for which the Company will be liable in connection with the execution of this Agreement or the transactions contemplated hereby. Each Purchaser acknowledges that the Company will pay to the Placement Agent a fee in respect to the sale of the Shares to the Purchaser. 10. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified airmail, confirmed facsimile or nationally recognized overnight express courier postage prepaid, and shall be deemed given when so mailed and shall be delivered as addressed as follows: (a) if to the Company, to: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attn: Elliot S. Gerson, Esq. Senior Executive Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attn: Stacy J. Kanter, Esq. or to such other person at such other place as the Company shall designate to the Purchaser in writing; and (b) if to any Purchaser, at its address as set forth at the end of this Agreement, or at such other address or addresses as may have been furnished to the Company in writing. 11. Indemnification. (a) The Company will indemnify each Purchaser, each of its directors, officers, agents, employees, representatives and controlling persons against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of any 12 inaccuracy or breach or any representation or warranty made by the Company (for as long as such representations and warranties survive pursuant to Section 5 hereof), or the breach of any of the agreements or covenants contained in this Agreement, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action. It is agreed that the indemnity agreement contained in this Section 11 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). (b) Each Purchaser, severally and not jointly, shall indemnify the Company, each of its directors, officers, agents, employees, representatives and controlling persons against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of any inaccuracy or breach of any representation or warranty made by the Purchaser (for as long as such representatives and warranties survive pursuant to Section 5 herein), or the breach of any of the agreements or covenants contained in this Agreement, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action. It is agreed that the indemnity agreement contained in this Section 11 shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Purchaser (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 11 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed), and the Indemnified Party may 13 participate in such defense with counsel reasonably acceptable to and paid for by the Indemnifying Party but otherwise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 11 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 11 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. 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. 12. Termination. Either party to this Agreement may terminate this Agreement by giving written notice to such other non-terminating party if the Closing has not occurred by July 13, 2001; provided, however, that the right to terminate this Agreement under this Section 12 shall not be available to any party who is in breach of this Agreement and such breach has not been waived by the other party hereto, or whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before July 13, 2001. If this Agreement is terminated pursuant to this Section 12, then all rights and obligations of the parties hereunder shall terminate without any liability of either party to the other party; provided, however, that Sections 21, 24 and 26 shall survive any termination of this Agreement. 13. Amendment. This Agreement may not be modified or amended except pursuant to an instrument in writing, signed by the Company and the Purchaser. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively) only with the written consent of the Company and the Purchaser. 14 14. Headings and Subheadings. The headings and subheadings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement and are not to be considered in interpreting or construing this Agreement. 15. Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any conflicts of law provisions thereof. 17. 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 when one or more counterparts have been signed by each party hereto and delivered to the other parties. 18. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any federal or state court located in the State of New York, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 8 shall be deemed effective service of process on such party. 19. No Implied Waiver. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 20. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 21. Expenses. Each of the Company and the Purchasers shall pay and be responsible for all of its respective fees and expenses incurred in connection with the preparation and negotiation of this Agreement and the consummation of the transactions contemplated hereby. Notwithstanding the foregoing, the Company will pay at the Closing, reasonable legal fees and expenses of one counsel representing all of the Purchasers, in an amount not to 15 exceed $35,000; provided, however, that if the Closing does not occur and the failure of the Closing to occur is a result of the breach of this Agreement by the Purchasers, which breach has not been waived by the Company, or the Purchaser's failure to fulfill any obligation under this Agreement, then the Company shall not have any liability for any fees or expenses of the Purchasers. 22. Entire Agreement. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and such Agreement supersedes and replaces all other prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof. 23. Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 24. Publicity. Except as required by law or by obligations pursuant to any listing agreement with, or requirement of, any national securities exchange or national quotation system on which the Common Stock is listed, admitted to trading or quoted, the Company shall not, without the prior written consent of the Purchaser make any public announcement or issue any press release which includes the name of the Purchaser or any Affiliate of the Purchaser with respect to the transactions contemplated by this Agreement. The Company agrees that it will not use in advertising or publicity the names of the undersigned, Fidelity Management & Research Company, any of its partners or employees, any of the funds or accounts managed by it or any of its affiliates, or any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof, in any case without the prior written consent of Fidelity Management & Research Company. 25. Listing of Shares on the New York Stock Exchange. The Company shall promptly take all action reasonably necessary in order to list the Shares on the New York Stock Exchange. 26. Purchaser is a Portfolio of a Massachusetts Business Trust. A copy of each Purchaser's Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts. The Company acknowledges and agrees that this Agreement is not executed on behalf of or binding upon any of the trustees, officers, directors or shareholders of Purchaser individually, but is binding only upon the assets and property of Purchaser. The Company agrees that no trustee, officer, director or shareholder of Purchaser may be held personally liable or responsible for any obligations of the Purchaser arising out of this Agreement. With respect to all obligations of Purchaser arising out of this agreement, the Company shall look for payment or satisfaction of any claim solely to the assets and property of Purchaser. The Company is expressly put on notice that the rights and obligations of each series of shares of Purchaser under its Declaration of Trust are separate and distinct from those of any and all other series. 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. RITE AID CORPORATION By: ------------------------------------------- Name: Elliot S. Gerson Title: Senior Executive Vice President and General Counsel EXHIBIT A COMMITMENT LETTER EXHIBIT B REGISTRATION RIGHTS AGREEMENT SCHEDULE 3.1 Thrifty Wilshire, Inc Reads, Inc. Leader Drugs, Inc. Rite Aid of Massachusetts, Inc. The Muir Company PL Xpress Inc. SCHEDULE 3.4 CAPITAL STOCK
Rite Aid Common Stock Outstanding as of June 1, 2001: 403,761,696 3,360,237 Series B, $100 Par, Preferred Stock Convertible to Common Stock at $5.50 per Share: 61,095,218 In the Money Stock Options (a) 44,787,450 ----------- Common Stock on a Fully diluted Basis as of June 1, 2001: 509,644,364 Debt for Equity Exchanges Agreed to and Priced but Not Yet Settled: Exchange of RCF Facility for stock 8,562,174(b) Exchange of RCF Facility for stock 12,654,598(b) ----------- 21,216,772 ----------- Common Stock on a Pro Forma Fully diluted Basis as of June 1, 2001: 530,861,136 ===========
(a) Includes 37.4 million shares which are not yet vested. (b) May be issued initially as Series C Convertible Preferred Stock. Not Included in the Above Total are the Following: A. $152,016,000 of 5.25% Convertible Subordinated Noted due 2002 that are convertible into 27.672 shares of common stock per $1,000 note. B. Warrants held by J. P. Morgan to purchase 2,500,000 shares of Rite Aid common stock at $11.00 per Share. C. Private debt for equity exchanges that were agreed to but not yet priced: $31,500,000 Exchange of 10.5% Notes Due 9/15/02 for stock $15,300,000 Exchange of 10.5% Notes Due 9/15/02 for stock $2,200,000 Exchange of RCF Facility for stock $14,477,000 Exchange of Bank Debt for stock $6,504,000 Exchange of 10.5% Notes Due 9/15/02 for stock $10,000,000 Exchange of 10.5% Notes Due 9/15/02 for stock ----------- $79,981,000 D. Shareholder suit settlement for 20,000,000 shares of common stock. E. 3,000,000 common stock purchase warrants proposed to be issued in connection with the exchange of $152 million of the Company's 10.5% Senior Secured Notes for a new series of 12.5% Senior Secured Notes due 2006. F. 7,559,599 stock options that are not in the money including 1,583,750 shares not yet vested. G. 26,573,426 shares of common stock to be issued for $150 million. SCHEDULE 3.9 LITIGATION Federal Investigations There are currently pending federal governmental investigations, both civil and criminal, by the SEC and the United States Attorney, involving our financial reporting and other matters. We are cooperating fully with the SEC and the United States Attorney. We have begun settlement discussions with the United States Attorney for the Middle District of Pennsylvania. The United States Attorney has proposed that the government would not institute any criminal proceedings against the Company if we enter into a consent judgment providing for civil penalty payable over a period of years. The amount of the civil penalty has not been agreed to and there can be no assurance that a settlement will be reached or that the amount of such penalty will not have a material adverse effect on our financial condition and results of operations. The U.S. Department of Labor has commenced an investigation of matters relating to our employee benefit plans, including our principal 401(k) plan, which permitted employees to purchase our common stock. Purchases of our common stock under the plan were suspended in October 1999. In January 2001, we appointed an independent trustee to represent the interests of these plans in relation to the company and to investigate possible claims the plans may have against us. Both the independent trustee and the Department of Labor have asserted that the plans may have claims against us. The investigations, with which we are cooperating fully, are ongoing and we cannot predict their outcomes. In addition, a purported class action lawsuit on behalf of the plans and their participants has been filed by a participant in the plans in the United States District Court for the Eastern District of Pennsylvania. These investigations and settlement discussions are ongoing and we cannot predict their outcomes. If we were convicted of any crime, certain contracts and licenses that are material to our operations may be revoked, which would have a material adverse effect on our results of operations and financial condition. In addition, substantial penalties, damages or other monetary remedies assessed against us, including a settlement, could also have a material adverse effect on our results of operations, financial condition and cash flows. Stockholder Litigation We, certain of our directors, our former chief executive officer Martin Grass, our former president Timothy Noonan, our former chief financial officer Frank Bergonzi, and our former auditor KPMG LLP, have been sued in a number of actions, most of which purport to be class actions, brought on behalf of stockholders who purchased our securities on the open market between May 2, 1997 and November 10, 1999. All of these cases have been consolidated in the U.S. District Court for the Eastern District of Pennsylvania. On November 9, 2000, we announced that we had reached an agreement to settle the consolidated securities class action lawsuits pending against us in the U.S. District Court for the Eastern District of Pennsylvania and the derivative lawsuits pending there and in the Delaware Court of Chancery. Under the agreement, which has been submitted to the U.S. District Court for the Eastern District of Pennsylvania for approval, we will pay $45 million in cash, which will be fully funded by our officers' and directors' liability insurance, and issue shares of common stock in 2002. The shares will be valued over a 10 day trading period in January 2002. If the value determined is at least $7.75 per share, we will issue 20 million shares. If the value determined is less than $7.75 per share, we have the option to deliver any combination of common stock, cash and short-term notes, with a total value of $155 million. As additional consideration for the settlement, we have assigned to the plaintiffs all of our claims against the above named executives and KPMG LLP. Several members of the class have elected to "opt-out" of the class and, as a result, if the settlement is approved by the court, they will be free to individually pursue their claims. Management believes that their claims, individually and in the aggregate, are not material. Drug Pricing and Reimbursement Matters On October 5, 2000, we settled, for an immaterial amount, and without admitting any violation of the law, the lawsuit filed by the Florida Attorney General alleging that our non-uniform pricing policy for cash prescription purchases was unlawful under Florida law. The filing of the complaint by the Florida Attorney General, and our press release issued in conjunction therewith, precipitated the filing of a purported federal class action in California and several purported state class actions, all of which (other than those pending in New York that were filed on October 5, 1999 and those pending in California that were filed on January 3, 2000 ) have been dismissed. A motion to dismiss the action in New York is currently pending. On May 30, 2001, a complaint filed in New Jersey in which the plaintiff made similar allegation and which the trial court dismissed for failing to state a claim upon which relief could be based was reinstated by the appellate court. We believe that the remaining lawsuits are without merit under applicable state consumer protection laws. As a result, we intend to continue to vigorously defend against them and we do not anticipate that if fully adjudicated, they will result in an award of damages. However, such outcomes cannot be assured and a ruling against us could have a material adverse effect on the financial position and results of operations of the company as well as necessitate substantial additional expenditures to cover legal costs as we pursue all available defenses. We are being investigated by multiple state attorneys general for our reimbursement practices relating to partially-filled prescriptions and fully-filled prescriptions that are not picked up by ordering customers. We are supplying similar information with respect to these matters to the Department of Justice. We believe that these investigations are similar to investigations which were, and are being, undertaken with respect to the practices of others in the retail drug industry. We also believe that our existing policies and procedures fully comply with the requirements of applicable law and intend to fully cooperate with these investigations. We cannot, however, predict their outcomes at this time. An individual acting on behalf of the United States of America, has filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania under the Federal False Claims Act alleging that we defrauded federal health care plans by failing to appropriately issue refunds for partially filled prescriptions and prescriptions which were not picked up by customers. The Department of Justice has not decided whether to join this lawsuit, as is its right under the law, and its investigation is continuing. We have filed a motion to dismiss the complaint for failure to state a claim. If any of these cases result in a substantial monetary judgment against us or is settled on unfavorable terms, our results of operations, financial position and cash flows could be materially adversely affected. Store Management Overtime Litigation We are a defendant in a class action pending in the California Superior Court in San Diego with three subclasses, comprised of our California store managers, assistant managers and managers-in-training. The plaintiffs seek back pay for overtime not paid to them and injunctive relief to require us to treat our store management as non-exempt. They allege that we decided to minimize labor costs by causing managers, assistant managers and managers-in-training to perform the duties and functions of associates for in excess of forty hours per week without paying them overtime. We believe that in-store management were and are properly classified as exempt from the overtime provisions of California law. On May 21, 2001, we entered into a Memorandum of Agreement with the plaintiffs under which, subject to approval of the court, we will settle this lawsuit for a maximum of $25.0 million, a charge for which was taken in fiscal 2000. The settlement amount is payable in four equal installments of 25%, the first of which is payable upon final court approval of the settlement and the balance is payable six, 12 and 18 months thereafter. Other We are subject from time to time to lawsuits arising in the ordinary course of business. In the opinion of our management, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve amounts that would not have a material adverse effect on our financial condition, results of operations or cash flows if decided adversely. SCHEDULE 3.11 CHANGES Rite Aid Corporation Restricted Stock Loans issued 5/01-6/15/01
Vested In Rate: 4.25% Name SS# Shares Gross Income Total W/H Loan Amt. Interest Total - ---------------------- -------------- ------- -------------- -------------- -------------- ------------ -------------- Lovett ###-##-#### 10,000 $84,500.00 $28,096.25 $28,096.25 $107.96 $28,204.21 ------- ------------- ------------- ------------- ----------- ------------- Nonss.16B Officer 10,000 $84,500.00 $28,096.25 $28,096.25 $107.96 $28,204.21 ------- ------------- ------------- ------------- ----------- ------------- Gerson ###-##-#### 12,500 $106,750.00 $47,877.38 $47,877.38 $2074.90 $49,952.28 Hall ###-##-#### 36,591 $312,487.14 $140,150.49 $140,150.49 $6073.80 $146,224.29 Jessick ###-##-#### 124,622 $1,064,271.88 $477,325.94 $477,325.94 $20,686.22 $498,012.16 Mastrian ###-##-#### 12,500 $106.750.00 $47,877.38 $47,877.38 $2,074.90 $49,952.28 Miller ###-##-#### 382,387 $3,265,584.98 $1,464,614.87 $1,464,614.87 $63,473.06 $1,528,087.93 Sammons ###-##-#### 247,841 $2,116,562.14 $949,278.13 $949,278.13 $41,139.55 $900,417.68 Sari ###-##-#### 8,750 $74,725.00 $33,514.17 $33,514.17 $1,452.43 $34,966.60 Sorkin ###-##-#### 8,750 $74,725.00 $33,514.17 $33,514.17 $1,452.43 $34,966.60 Standley ###-##-#### 124,622 $1,064,271.88 $477,325.94 $477,325.94 $20,686.22 $498,012.16 ------- ------------- ------------- ------------- ----------- ------------- ss.16B Officers 958,563 $8,186,128.02 $3,671,478.47 $3,671,478.47 $159,133.49 $3,830,591.97 ------- ------------- ------------- ------------- ----------- ------------- Total Loan Amounts 968,563 $8,270,628.02 $3,699,574.72 $3,699,574.72 $159,221.45 $3,858,796.18 ======= ============= ============= ============= =========== =============
SCHEDULE 3.19 OTHER PURCHASERS' AGREEMENTS The obligations of the Putnam Purchasers and the American Century Purchasers are several and not joint. EX-10 30 exh10-50.txt EXHIBIT 10.50 RITE AID CORPORATION STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 12 day of June, 2001, by and between Rite Aid Corporation (the "Company"), a corporation organized under the laws of the State of Delaware, and each purchaser, whose name and address is set forth on the signature page hereof, together with their permitted transferees (the "Purchasers"). WHEREAS, the Company desires to issue and sell to the Purchasers, and the Purchasers desire to purchase from the Company, shares ("Shares") of the Company's Common Stock, par value $1.00 per share (the "Common Stock"); and WHEREAS, the Company proposes to enter into this same form of purchase agreement with certain other investors (collectively, the "Other Purchasers") and to consummate sales of Shares to the Other Purchasers on substantially the same terms and conditions. The term "Placement Agent" shall collectively mean Salomon Smith Barney Inc. and Credit Suisse First Boston Corporation. NOW THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, the Company and the Purchasers do hereby agree as follows: 1. Agreement to Sell and Purchase the Shares. At the Closing (as defined in Section 2 herein), the Company will, subject to the terms and conditions of this Agreement, sell to the Purchasers, and the Purchasers will, subject to the terms and conditions of this Agreement, buy from the Company, the number of Shares set forth on the signature page hereto at a purchase price of $7.50 per Share (the "Purchase Price"). The obligations of the Purchasers are several and not joint. 2. Delivery of the Shares at the Closing. The closing of the sale to, and the purchase by, the Purchasers of the Shares (the "Closing") shall occur at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036-6522, simultaneously with Closing of the Refinancing (as defined herein) (the "Closing Date"). At least two business days prior to the time of the scheduled Closing, the Company shall deliver to one or more custodians for the Purchasers, one or more certificates registered in the name of the nominee of the custodian, evidencing the Shares (the "Share Certificates") and notify counsel to the Purchaser of such delivery. The custodians will execute such documents reasonably necessary to evidence receipt of such Share Certificates. If for any reason, the Closing does not occur within forty-eight hours of the Company's delivery to the custodians of the Share Certificates, the custodians shall immediately return such Share Certificates to the Company or an authorized representative thereof. At the Closing, the Company will deliver to the Purchaser (i) the Legal Opinions set forth in Section 3.22 herein, (ii) an executed copy of the Registration Rights Agreement (as defined herein), and (iii) the Officer's Certificate set forth in Section 6.1(e) herein. At the Closing, the Purchasers will deliver to the Company (i) the aggregate Purchase Price in immediately available funds to an account designated by the Company in writing, and (ii) an executed copy of the Registration Rights Agreement (as defined herein). 1 As used herein, the term "Refinancing" shall mean the Company's refinancing of its Senior Credit Agreement dated as of June 12, 2000 on terms and conditions not materially less favorable to the Company than the terms of that certain bank commitment letter attached as Exhibit A hereto and without the waiver by the Agents (as such term is defined in the Commitment Letter) of any material condition contained therein (the "Commitment Letter"). 3. Representations, Warranties and Covenants of the Company. The Company hereby represents and warrants to, and covenants with, the Purchasers as follows: 3.1 Organization. The Company is duly organized and validly existing and in good standing under the laws of Delaware, and has all requisite corporate power and authority to enter into this Agreement and the Registration Rights Agreement (as defined herein) and to consummate the transactions contemplated hereby and thereby. Each subsidiary of the Company listed on Exhibit 21 to the 2001 10-K (as defined herein) (collectively, the "Subsidiaries") is duly organized and except for those Subsidiaries included on Schedule 3.1 herein, is validly existing and in good standing under their respective jurisdiction of organization. 3.2 Validity. The execution, delivery and performance of this Agreement and the Registration Rights Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action, corporate or otherwise, on the part of the Company. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company enforceable against it in accordance with their terms. 3.3 Issuance, Sale and Delivery of the Shares. The Shares have been duly authorized for issuance and sale to the Purchasers pursuant to this Agreement, and, when issued, sold and delivered in accordance with this Agreement against payment therefore of the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable and will be free of restrictions on transfer other than restrictions on transfer set forth under this Agreement. The issuance of the Shares is not subject to preemptive rights. 3.4 Capital Stock. As of June 1, 2001 and without giving effect to the transactions contemplated by this Agreement and the proposed agreements with Other Purchasers, the authorized capital stock of the Company consisted of (i) 600,000,000 shares of Common Stock, of which approximately 403,761,696 shares were issued and outstanding and (ii) 20,000,000 shares of preferred stock, of which 3,360,237 shares of Series B Preferred Stock were outstanding. The outstanding shares of Common Stock and Preferred Stock are validly issued, fully paid and non-assessable and have been issued in compliance with applicable law. None of the outstanding shares of Common Stock or Preferred Stock are entitled to cumulative voting rights or preemptive rights. Except as set forth on Schedule 3.4 hereto, the Company has outstanding no option, warrant or other commitment to issue or to acquire any shares of its capital stock or any security or obligations convertible into or exchangeable for its capital stock, nor has it given any person or entity any right to acquire from the Company or sell to the Company any shares of its capital stock. Schedule 3.4 hereto sets forth as of the date hereof the outstanding shares of Common Stock, assuming the exercise of all outstanding options and warrants, the conversion of all securities or obligations convertible into or exchangeable for 2 shares of its Common Stock and the issuance of the maximum number of shares of Common Stock subject to outstanding commitments of the Company. 3.5 Compliance with Other Instruments. Neither the execution and delivery by the Company of this Agreement or the Registration Rights Agreement, nor the consummation of the transactions contemplated hereby or thereby, nor the issuance and sale of the Shares will (a) conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or to which any of the property or assets of the Company or any Subsidiary is subject, (b) result in any violation of the provisions of the certificate of incorporation or by-laws of the Company or any Subsidiary or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any Subsidiary or any of its respective properties, (c) result in the creation under any agreement or instrument of any lien, security interest, encumbrance or other claim upon any of the respective assets of the Company or any Subsidiary, or (d) create in any person or entity any right to terminate any agreement with the Company or otherwise exercise any rights against the Company or cause any payment or performance obligation of the Company to be accelerated, except in each case (a-d) as would not, individually or in the aggregate have a material adverse effect on the business, results of operations, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted) ("Material Adverse Effect"). 3.6 Governmental Consents. No consent, approval or authorization of, or declaration or filing with, any governmental authority or agency or any securities exchange on the part of the Company is required for the valid execution and delivery of this Agreement and the Registration Rights Agreement, the consummation of the transactions contemplated hereby and thereby, or the valid offer, issue, sale and delivery of the Shares pursuant to this Agreement other than the filings with the Securities and Exchange Commission required to comply with its obligations under the Registration Rights Agreement. The Company is not in violation of any of the listing requirements of the New York Stock Exchange, except where such violation would not, individually or in the aggregate, have a material adverse effect on (i) the Shares, (ii) the ability of the Company to perform its obligations under this Agreement and the Registration Rights Agreement, or (iii) the assets, business, properties or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted). 3.7 Offering Materials. The Company has not distributed and will not distribute prior to the Closing Date, any offering material in connection with the offering and sale of the Shares other than (i) the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2001 (the "2001 10-K"); (ii) the Company's Preliminary Proxy filed with the Securities and Exchange Commission (the "SEC") on May 21, 2001 (the "Preliminary Proxy"); (iii) the Company's Definitive Proxy filed with the SEC on May 31, 2001 (the "Definitive Proxy"); and (iv) and any other document filed by the Company with the SEC since October 11, 2000 through the Closing Date (together with the 2001 10-K, the Preliminary Proxy and the Definitive Proxy, the "SEC Documents") pursuant to its reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 3 3.8 Environmental and Safety Laws. Neither the Company nor any Subsidiary is in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, except where any such violations would not, individually or in the aggregate, have a Material Adverse Effect, and to the best of the Company's knowledge, no material expenditures are or are reasonably expected to be required in order to comply with any such existing statute, law, or regulation. 3.9 Litigation. Except as disclosed in the SEC Documents or on Schedule 3.9 hereto, there is no action, suit, proceeding, or investigation pending, or to the Company's knowledge, currently threatened against the Company or any Subsidiary that questions the validity of this Agreement or the Registration Rights Agreement, or the Company's ability to consummate the transactions contemplated hereby or thereby, or that might have, either individually or in the aggregate, a Material Adverse Effect. 3.10 Compliance With Laws. Except as disclosed in the SEC Documents or on Schedule 3.9 hereto, neither the Company nor any Subsidiary has received any notification from any governmental entity (i) asserting a violation of any law, statute, ordinance or regulation or the terms of any judgments, orders, decrees, injunctions or writs applicable to the conduct of their respective business; (ii) threatening to revoke any license, franchise permit or government authorization; or (iii) restricting or in any way limiting its operations as currently conducted or proposed to be conducted, except where any such violations would not, individually or in the aggregate, have a Material Adverse Effect. 3.11 Changes. Except for transactions contemplated by this Agreement and the Registration Rights Agreement, or as disclosed in the SEC Documents or on Schedule 3.11 hereto, and other than transactions conducted in the ordinary course of business, since March 3, 2001, there has not been: (a) any change in the assets, liabilities, financial condition, or operating results of the Company, that have not been and are not expected to be, individually or in the aggregate, materially adverse to the assets, business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted); (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted); (c) any waiver or compromise by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company; 4 (e) any material change to a material contract or arrangement by which the Company or any of its assets is bound or subject; (f) any material change in any compensation arrangement or agreement with any key employee, officer, director or stockholder; (g) any sale, assignment, or transfer of any patents, trademarks, copyrights, trade secrets, or other intangible assets; (h) any resignation or termination of employment of any key officer of the Company; and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer; (i) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company; (j) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable or contested by the Company in good faith; (k) any loans or guarantees made by the Company to or for the benefit of its employees, stockholders, officers, or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business, except for certain short term loans made by the Company to its officers described on Schedule 3.11 hereto; (l) any declaration, setting aside, or payment of any dividend or other distribution of the Company's assets in respect of any of the Company's capital stock, except for dividends paid-in-kind on outstanding Series B Preferred Stock or any dividends payable on the proposed Series C Preferred Stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company; (m) any other event or condition of any character that would reasonably be expected to have a Material Adverse Effect; or (n) any agreement or commitment by the Company to do any of the things described in this Section 3.11. 3.12 Integration. Neither the Company nor any affiliate (as such term is defined in Rule 501(b) under the Securities Act) nor any person, firm or corporation acting on its behalf, has directly or indirectly, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Shares in a manner that would require the registration of the 5 Shares under the Securities Act. For purposes of Sections 3.12, 3.14 and 3.20 of this Agreement, we have assumed that the Placement Agents (i) will not solicit offers for or offer Common Stock by any form of general solicitation or general advertising (as those terms are defined in Regulation D of the Securities Act), and (ii) will solicit offers for Common Stock only from, and will offer Common Stock only to, institutional investors that it reasonably believes to be "Accredited Investors" as defined in Rule 501(a)(1), (2), (3), or (7) under the Securities Act. 3.13 Permits. Each of the Company and the Subsidiaries has all franchises, permits, licenses, and any similar authority necessary for the conduct of their business as now being conducted by it, except for those franchises, permits, licenses the lack of which would not have a Material Adverse Effect, and the Company believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as presently conducted or proposed to be conducted. Neither the Company nor any Subsidiary is in default under any such franchisees, permits, license or other similar authority except where such default would not have a Material Adverse Effect. 3.14 Offering. Assuming the truth and accuracy of the Purchasers' representations and warranties set forth in this Agreement, the offer and sale and issuance of the Shares as contemplated by this Agreement are exempt from the registration requirements of the Securities Act, and neither the Company nor any authorized agent acting on its behalf will take any action hereof that would cause the loss of such exemption. 3.15 Intellectual Property. Each of the Company and the Subsidiaries own or possess sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and proprietary rights and processes necessary for their respective business as now conducted and as proposed to be conducted without conflict with, or infringement of, the rights of others, except where the failure to have such rights, individually or in the aggregate, would not have a Material Adverse Effect. 3.16 Employee Relations. To the best of the Company's knowledge, there is no strike, labor dispute or union organization activities pending or threatened between the Company and its employees. To the best of its knowledge and except as disclosed in the SEC Documents, the Company has complied in all material respects with all applicable state and federal equal opportunity and other laws related to employment. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate employment with the Company, nor does the Company have any present intention to terminate the employment of any of the foregoing. 3.17 Additional Information. Since October 11, 2000, the Company has timely filed, and at the Closing Date, the Company will have timely filed, all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission pursuant to the reporting requirements of the Exchange Act. The Company represents and warrants that as of their respective filing dates, the information contained in the 2001 10-K (without exhibits) and the Definitive Proxy, complied with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the 2001 10-K and the Definitive Proxy, except for the failure to include certain financial information as described therein, and 6 neither the 2001 10-K nor the Definitive Proxy (including all exhibits included in the 2001 10-K and the Definitive Proxy and all financial statements and schedules thereto and documents incorporated by reference therein), at the time they were respectively filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.18 Terms of Other Purchasers' Agreements. Except as set forth on Schedule 3.18 herein and other than certain closing mechanics and covenants related to publicity and the use of such Other Purchaser's name, the terms, conditions, rights and benefits contained in this Agreement and the Registration Rights Agreement are the same terms, conditions, rights and benefits as those contained in the Other Purchasers' Stock Purchase Agreement and Registration Rights Agreement, or any other similar agreement. Except as set forth on Schedule 3.18 herein, neither the Company nor any underwriter acting on behalf of the Company has entered into any separate agreement with any Other Purchaser to provide different or more favorable terms, including, but not limited to terms that provide any Other Purchaser liquidity for the Shares, or any form of compensation or value in the event the filing or effectiveness of any the registration statements required by the Registration Rights Agreement is delayed, or withdrawn, or suspended; provided, however, that this representation shall not include that certain Stock Purchase Agreement dated May 17, 2001, by and between the Company and Transamerica Investment Management, LLC and the Other Purchasers named therein. 3.19 Brokers. There is no broker, investment banker, financial advisor, finder or other person which has been retained by or is authorized to act on behalf of the Company who might be entitled to any fee or commission for which the Purchasers will be liable in connection with the execution of this Agreement or the transactions contemplated hereby. 3.20 Offering of Securities. Neither the Company nor any person, firm or corporation acting on its behalf has sold or offered the Shares or any similar securities of the Company to, or solicited any offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any person or persons in such manner as would subject the offering, issuance or sale of any of the Shares to the provisions of Section 5 of the Securities Act. Neither the Company nor any person, firm or corporation acting on behalf of the Company has taken or will take any action which would subject the offering, issuance or sale of any of the Shares to the provisions of Section 5 of the Securities Act. 3.21 Investment Company Status. Neither the Company nor any Subsidiary is, or upon consummation of the sale of the Shares will be, an "investment company," a company controlled by an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended. 3.22 Legal Opinions. At the Closing, Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Company, will deliver its legal opinion to the Purchasers with respect to (i) the Company's due incorporation and valid existence under the laws of the state of Delaware; (ii) the due execution, authorization and delivery of this Agreement and the Registration Rights Agreement; (iii) corporate power and corporate authority to execute and 7 deliver this Agreement and the Registration Rights Agreement; (iv) no violation of the Company's Certificate of Incorporation or Bylaws or certain specified laws; (v) enforceability of this Agreement and the Registration Rights Agreement; (vi) no registration of the Shares; and (vii) the Shares are duly authorized, fully paid and non-assessable, each of such opinions in (i) through (vii) subject to customary qualifications, assumptions and carve-outs for a transaction of this nature. At the Closing, the Senior Executive Vice President and General Counsel of the Company will deliver its legal opinion to the Purchasers with respect to no violation of material contracts of the Company, such opinion subject to customary qualifications, carve-outs and assumptions for a transaction of this nature. 4. Representations, Warranties and Covenants of the Purchasers. Each Purchaser, severally and not jointly, represents and warrants to, and covenants with, the Company as follows: 4.1 Organization. The Purchaser is validly existing under the laws of its jurisdiction of organization. The Purchasers are funds advised by Putnam Investment Management, LLC or affiliates thereof, and have all requisite power and authority to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions contemplated hereby and thereby. 4.2 Validity. The execution, delivery and performance of this Agreement and the Registration Rights Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action, corporate, trust or otherwise, on the part of the Purchaser. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Purchaser and constitute valid and binding obligations of the Purchaser enforceable against it in accordance with their terms. 4.3 Governmental Consents. No consent, approval, authorization, waiting period or other order of any court, regulatory body, administrative agency or other governmental body is required on the part of the Purchaser for the execution and delivery of this Agreement and the Registration Rights Agreement or the consummation of the transactions contemplated hereby or thereby. 4.4 Ability to Protect Its Own Interests and Bear Economic Risks. The Purchaser represents that by reason of the business and financial experience of its management, the Purchaser has the capacity to evaluate the risks and merits of, and make an informed decision with regard to, an investment in the Company and the transactions contemplated by this Agreement. The Purchaser further represents that the Purchaser is able to bear the economic risk of an investment in the Shares, and has an adequate income independent of any income produced from an investment in the Shares and has sufficient net worth to sustain a loss of all of its investment in the Shares without economic hardship if such a loss should occur. 4.5 Accredited Investor. The Purchaser represents that it is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. 8 4.6 Access to Information. The Company has made available to the Purchaser all reports, schedules, forms, statements and other documents filed by the Company with the SEC from October 11, 2000 through the Closing Date pursuant to the reporting requirements of the Exchange Act, and the Purchaser has received physical delivery of all such documents, records and information which the Purchaser has requested, and has had adequate opportunity to ask questions of, and receive answers from, the Company's officers, employees, agents, accountants, and representatives concerning the Company's business, operations, financial condition, assets, liabilities, and all other matters relevant to its investment in the Shares. 4.7 Advice of own Counsel. The Purchaser has, with respect to all legal matters relating to this Agreement and the offer and sale of the Shares, relied solely upon the advice of the Purchaser's own counsel and has not relied upon or consulted the counsel to the Placement Agent or counsel to the Company. 4.8 Restrictions on Dispositions. The Purchaser understands and agrees that the Shares have not been, and will not upon issuance be registered under the Securities Act, and each certificate or other document evidencing any of the Shares shall be endorsed with the legend in substantially the form set forth below, as well as any other legends required by applicable law. The Purchaser covenants that the Purchaser shall not transfer the Shares represented by any such certificate without complying with the restrictions on transfer described in the legends endorsed on such certificate and understands that the Company shall refuse to register any transfer of Shares not complying with the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE ASSIGNED UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, OR (B) EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS ARE AVAILABLE. AS A CONDITION TO PERMITTING ANY TRANSFER OF THESE SECURITIES, THE COMPANY MAY REQUIRE THAT IT BE FURNISHED WITH AN OPINION OF COUNSEL OR SUCH OTHER EVIDENCE REASONABLY ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER 4.9 Acquisition for Own Account. The Purchaser is acquiring the number of Shares set forth on the signature page hereto, for its own account and for investment and not with a view toward distribution in a manner which would violate the Securities Act. The Purchaser will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares except in compliance with the Securities Act, the rules and regulations thereunder and any 9 applicable state securities laws. The Purchaser has, in connection with its decision to purchase the number of Shares set forth on the signature page hereto, not relied upon any representations or other information (whether oral or written) other than the representations and warranties of the Company contained herein. 4.10 Permitted Transfer. The Purchasers may transfer Shares to any fund or account advised by Putnam Investment Management, LLC or any affiliate thereof if the transferee is a qualified institutional buyer (as defined in Rule 144A under the Securities Act of 1933, as amended) and agrees in writing to be bound by the terms hereof. 5. Negative Covenants of the Company. From the date hereof through the Closing Date, the Company shall, except as contemplated by this Agreement or the Commitment Letter, or as consented to by the Purchaser or reasonably necessary to consummate the Refinancing, operate its business in the ordinary course and substantially in accordance with past practice. From the date hereof through the Closing Date, the Company shall promptly advise the Purchaser of any change that is reasonably likely to cause a representation or warranty to be untrue, cause a covenant to be unsatisfied, or would have a Material Adverse Effect. Nothing contained in this Section 5 will prevent the Company from consummating any additional debt-for-equity exchanges, or any sale of the Company's equity or debt securities or the other transactions, in each case, as contemplated by or required by the Commitment Letter. 6. Conditions of Parties' Obligations. 6.1 Conditions of the Purchaser's Obligations. The obligations of the Purchaser under Sections 1 and 2 hereof are subject to the fulfillment prior to or on the Closing Date of all of the following conditions, any of which may be waived in whole or in part by the Purchaser. (a) Continued Accuracy of the Company's Covenants, Representations and Warranties. The representations and warranties of the Company contained in Section 3 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (b) Consents and Waivers. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state or any stock exchange or of any third party that are required in connection with the issuance and sale of the Shares pursuant to this Agreement shall be duly obtained and effective as of the Closing Date. (c) No Material Adverse Change. There shall be no material adverse change in the business, properties, prospects, or assets of the Company from and after the date of this Agreement. 10 (d) Consummation of the Refinancing. The Company shall simultaneously with the Closing, consummate the Refinancing. (e) Officer's Certificate. The Company shall have delivered to the Purchasers, a certificate dated the Closing Date, executed by the Senior Executive Vice President and General Counsel of the Company, certifying the satisfaction of the conditions specified in (a), (b), (c) and (d) of this Section 6.1. (f) Registration Rights Agreement. The Purchaser and the Company shall have executed and delivered the Registration Rights Agreement (as defined herein). (g) Legal Opinions. The Company shall have delivered to the Purchasers, the Legal Opinions set forth in Section 3.22 herein. 6.2 Conditions of the Company's Obligations. The obligations of the Company under Sections 1 and 2 hereof are subject to the fulfillment prior to or on the Closing Date of all of the following conditions, any of which may be waived in whole or in part by the Company. (a) Continued Accuracy of Purchaser's Covenants, Representations and Warranties. The representations and warranties of the Purchaser contained in Section 4 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (b) Consents and Waivers. All authorizations, approvals, permits, or the expiration of any waiting periods, if any, of any governmental authority or regulatory body of the United States or of any state or any stock exchange or of any third party that are required in connection with the purchase of the Shares pursuant to this Agreement shall be duly obtained and effective as of the Closing Date. 6.3 Conditions of Each Party's Obligations. The respective obligations of each party to consummate the transactions contemplated hereunder are subject to the parties being reasonably satisfied as to the absence of (i) litigation challenging or seeking damages in connection with the transactions contemplated by this Agreement, and (ii) any provision of any applicable law or regulation, or any judgment, injunction, order or decree prohibiting or enjoining the transactions contemplated by this Agreement. 7. Survival of Representations, Warranties and Agreements. The covenants and agreements of the Company contained herein shall survive the Closing, provided, however, notwithstanding any investigation made by any party to this Agreement or by the Placement Agent, all representations and warranties made by the Company and the Purchasers herein shall 11 survive until the later of (i) twelve months from the Closing Date, and (ii) one hundred and eighty days after the effective date of the Shelf Registration Statement (as such term is defined in the Registration Rights Agreement). Any claim for indemnification made pursuant to Section 11 herein arising out of the inaccuracy or breach of any representation or warranty must be made prior to the termination of the applicable survival period, in which case such representation or warranty which is the subject of such claim shall survive with respect to such claim until the final resolution hereof. 8. Registration Rights Agreement. Simultaneous with the execution and delivery of this Agreement, the Company and the Purchasers will enter into a registration rights agreement in substantially the form attached as Exhibit B hereto (the "Registration Rights Agreement"). 9. Broker's Fee. There is no broker, investment banker, financial advisor, finder or other person which has been retained by or is authorized to act on behalf of any Purchaser who might be entitled to any fee or commission for which the Company will be liable in connection with the execution of this Agreement or the transactions contemplated hereby. Each Purchaser acknowledges that the Company will pay to the Placement Agent a fee in respect to the sale of the Shares to the Purchaser. 10. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified airmail, confirmed facsimile or nationally recognized overnight express courier postage prepaid, and shall be deemed given when so mailed and shall be delivered as addressed as follows: (a) if to the Company, to: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attn: Elliot S. Gerson, Esq. Senior Executive Vice President and General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attn: Stacy J. Kanter, Esq. or to such other person at such other place as the Company shall designate to the Purchaser in writing; and (b) if to any Purchaser, at its address as set forth at the end of this Agreement, or at such other address or addresses as may have been furnished to the Company in writing. 11. Indemnification. (a) The Company will indemnify each Purchaser, each of its directors, officers, agents, employees, representatives and controlling 12 persons against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of any inaccuracy or breach or any representation or warranty made by the Company (for as long as such representations and warranties survive pursuant to Section 5 hereof), or the breach of any of the agreements or covenants contained in this Agreement, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action. It is agreed that the indemnity agreement contained in this Section 11 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). (b) Each Purchaser, severally and not jointly, shall indemnify the Company, each of its directors, officers, agents, employees, representatives and controlling persons against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of any inaccuracy or breach of any representation or warranty made by the Purchaser (for as long as such representatives and warranties survive pursuant to Section 5 herein), or the breach of any of the agreements or covenants contained in this Agreement, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action. It is agreed that the indemnity agreement contained in this Section 11 shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Purchaser (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 11 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed), and the Indemnified Party may participate in such defense with 13 counsel reasonably acceptable to and paid for by the Indemnifying Party but otherwise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 11 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 11 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. 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. 12. Termination. Either party to this Agreement may terminate this Agreement by giving written notice to such other non-terminating party if the Closing has not occurred by July 13, 2001; provided, however, that the right to terminate this Agreement under this Section 12 shall not be available to any party who is in breach of this Agreement and such breach has not been waived by the other party hereto, or whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before July 13, 2001. If this Agreement is terminated pursuant to this Section 12, then all rights and obligations of the parties hereunder shall terminate without any liability of either party to the other party; provided, however, that Sections 21, 24 and 26 shall survive any termination of this Agreement. 13. Amendment. This Agreement may not be modified or amended except pursuant to an instrument in writing, signed by the Company and the Purchaser. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively) only with the written consent of the Company and the Purchaser. 14 14. Headings and Subheadings. The headings and subheadings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement and are not to be considered in interpreting or construing this Agreement. 15. Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any conflicts of law provisions thereof. 17. 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 when one or more counterparts have been signed by each party hereto and delivered to the other parties. 18. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any federal or state court located in the State of New York, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 8 shall be deemed effective service of process on such party. 19. No Implied Waiver. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 20. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 21. Expenses. Each of the Company and the Purchasers shall pay and be responsible for all of its respective fees and expenses incurred in connection with the preparation and negotiation of this Agreement and the consummation of the transactions contemplated hereby. Notwithstanding the foregoing, the Company will pay at the Closing, reasonable legal fees and expenses of one counsel representing all of the Purchasers, in an amount not to exceed 15 $35,000; provided, however, that if the Closing does not occur and the failure of the Closing to occur is a result of the breach of this Agreement by the Purchasers which breach has not been waived by the Company, or the Purchaser's failure to fulfill any obligations under this Agreement, then the Company shall not have any liability for any fees or expenses of the Purchasers. 22. Entire Agreement. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and such Agreement supersedes and replaces all other prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof. 23. Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 24. Publicity. Except as required by law or by obligations pursuant to any listing agreement with, or requirement of, any national securities exchange or national quotation system on which the Common Stock is listed, admitted to trading or quoted, the Company shall not, without the prior written consent of the Purchaser make any public announcement or issue any press release which includes the name of the Purchaser or any Affiliate of the Purchaser with respect to the transactions contemplated by this Agreement. The Company agrees that it will not use in advertising or publicity the names of the undersigned, Putnam Investment Management, LLC, any of its partners or employees, any of the funds or accounts managed by it or any of its affiliates, or any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof, in any case without the prior written consent of Putnam Investment Management, LLC. 25. Listing of Shares on the New York Stock Exchange. The Company shall promptly take all action reasonably necessary in order to list the Shares on the New York Stock Exchange. 26. Notice of Limitation of Liability. A copy of the Agreement and Declaration of Trust of each Putnam fund or series investment company (each a "Fund") that is a Massachusetts business trust is on file with the Secretary of Sate of The Commonwealth of Massachusetts and notice is hereby given that this Agreement is executed on behalf of the Trustees of the relevant Fund as Trustees and not individually and that the obligations of this Agreement are not binding upon any of the Trustees, officers or shareholders of the Fund individually but are bind only upon the assets and property of such Fund. 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. RITE AID CORPORATION By: __________________________________ Name: Title: PURCHASER Print or Type: Name of Purchaser (Individual or Institution): ________________________________ Name and Title of Individual(s) representing Purchaser (if an Institution): Name: ______________________________________ Title: _____________________________________ Name: ______________________________________ Title: _____________________________________ Number of Shares to be Purchased Aggregate Price ---------------------- --------------------- Signature by: Individual Purchaser or Individual(s) representing Purchaser: ---------------------------- Name: Title: ---------------------------- Name: Title: Address: ---------------------------- ---------------------------- EXHIBIT A COMMITMENT LETTER EXHIBIT B REGISTRATION RIGHTS AGREEMENT SCHEDULE 3.1 Thrifty Wilshire, Inc Reads, Inc. Leader Drugs, Inc. Rite Aid of Massachusetts, Inc. The Muir Company PL Xpress Inc. SCHEDULE 3.4 CAPITAL STOCK
Rite Aid Common Stock Outstanding as of June 1, 2001: 403,761,696 3,360,237 Series B, $100 Par, Preferred Stock Convertible to Common Stock at $5.50 per Share: 61,095,218 In the Money Stock Options (a) 44,787,450 ----------- Common Stock on a Fully diluted Basis as of June 1, 2001: 509,644,364 Debt for Equity Exchanges Agreed to and Priced but Not Yet Settled: Exchange of RCF Facility for stock 8,562,174 (b) Exchange of RCF Facility for stock 12,654,598 (b) ----------- 21,216,772 ----------- Common Stock on a Pro Forma Fully diluted Basis as of June 1, 2001: 530,861,136 ===========
(a) Includes 37.4 million shares which are not yet vested. (b) May be issued initially as Series C Convertible Preferred Stock. Not Included in the Above Total are the Following: A. $152,016,000 of 5.25% Convertible Subordinated Noted due 2002 that are convertible into 27.672 shares of common stock per $1,000 note. B. Warrants held by J. P. Morgan to purchase 2,500,000 shares of Rite Aid common stock at $11.00 per Share. C. Private debt for equity exchanges that were agreed to but not yet priced: $31,500,000 Exchange of 10.5% Notes Due 9/15/02 for stock $15,300,000 Exchange of 10.5% Notes Due 9/15/02 for stock $2,200,000 Exchange of RCF Facility for stock $14,477,000 Exchange of Bank Debt for stock $6,504,000 Exchange of 10.5% Notes Due 9/15/02 for stock $10,000,000 Exchange of 10.5% Notes Due 9/15/02 for stock ----------- $79,981,000 D. Shareholder suit settlement for 20,000,000 shares of common stock. E. 3,000,000 common stock purchase warrants proposed to be issued in connection with the exchange of $152 million of the Company's 10.5% Senior Secured Notes for a new series of 12.5% Senior Secured Notes due 2006. F. 7,559,599 stock options that are not in the money including 1,583,750 shares not yet vested. G. 26,573,426 shares of common stock to be issued for $150 million. SCHEDULE 3.9 LITIGATION Federal Investigations There are currently pending federal governmental investigations, both civil and criminal, by the SEC and the United States Attorney, involving our financial reporting and other matters. We are cooperating fully with the SEC and the United States Attorney. We have begun settlement discussions with the United States Attorney for the Middle District of Pennsylvania. The United States Attorney has proposed that the government would not institute any criminal proceedings against the Company if we enter into a consent judgment providing for civil penalty payable over a period of years. The amount of the civil penalty has not been agreed to and there can be no assurance that a settlement will be reached or that the amount of such penalty will not have a material adverse effect on our financial condition and results of operations. The U.S. Department of Labor has commenced an investigation of matters relating to our employee benefit plans, including our principal 401(k) plan, which permitted employees to purchase our common stock. Purchases of our common stock under the plan were suspended in October 1999. In January 2001, we appointed an independent trustee to represent the interests of these plans in relation to the company and to investigate possible claims the plans may have against us. Both the independent trustee and the Department of Labor have asserted that the plans may have claims against us. The investigations, with which we are cooperating fully, are ongoing and we cannot predict their outcomes. In addition, a purported class action lawsuit on behalf of the plans and their participants has been filed by a participant in the plans in the United States District Court for the Eastern District of Pennsylvania. These investigations and settlement discussions are ongoing and we cannot predict their outcomes. If we were convicted of any crime, certain contracts and licenses that are material to our operations may be revoked, which would have a material adverse effect on our results of operations and financial condition. In addition, substantial penalties, damages or other monetary remedies assessed against us, including a settlement, could also have a material adverse effect on our results of operations, financial condition and cash flows. Stockholder Litigation We, certain of our directors, our former chief executive officer Martin Grass, our former president Timothy Noonan, our former chief financial officer Frank Bergonzi, and our former auditor KPMG LLP, have been sued in a number of actions, most of which purport to be class actions, brought on behalf of stockholders who purchased our securities on the open market between May 2, 1997 and November 10, 1999. All of these cases have been consolidated in the U.S. District Court for the Eastern District of Pennsylvania. On November 9, 2000, we announced that we had reached an agreement to settle the consolidated securities class action lawsuits pending against us in the U.S. District Court for the Eastern District of Pennsylvania and the derivative lawsuits pending there and in the Delaware Court of Chancery. Under the agreement, which has been submitted to the U.S. District Court for the Eastern District of Pennsylvania for approval, we will pay $45 million in cash, which will be fully funded by our officers' and directors' liability insurance, and issue shares of common stock in 2002. The shares will be valued over a 10 day trading period in January 2002. If the value determined is at least $7.75 per share, we will issue 20 million shares. If the value determined is less than $7.75 per share, we have the option to deliver any combination of common stock, cash and short-term notes, with a total value of $155 million. As additional consideration for the settlement, we have assigned to the plaintiffs all of our claims against the above named executives and KPMG LLP. Several members of the class have elected to "opt-out" of the class and, as a result, if the settlement is approved by the court, they will be free to individually pursue their claims. Management believes that their claims, individually and in the aggregate, are not material. Drug Pricing and Reimbursement Matters On October 5, 2000, we settled, for an immaterial amount, and without admitting any violation of the law, the lawsuit filed by the Florida Attorney General alleging that our non-uniform pricing policy for cash prescription purchases was unlawful under Florida law. The filing of the complaint by the Florida Attorney General, and our press release issued in conjunction therewith, precipitated the filing of a purported federal class action in California and several purported state class actions, all of which (other than those pending in New York that were filed on October 5, 1999 and those pending in California that were filed on January 3, 2000 ) have been dismissed. A motion to dismiss the action in New York is currently pending. On May 30, 2001, a complaint filed in New Jersey in which the plaintiff made similar allegation and which the trial court dismissed for failing to state a claim upon which relief could be based was reinstated by the appellate court. We believe that the remaining lawsuits are without merit under applicable state consumer protection laws. As a result, we intend to continue to vigorously defend against them and we do not anticipate that if fully adjudicated, they will result in an award of damages. However, such outcomes cannot be assured and a ruling against us could have a material adverse effect on the financial position and results of operations of the company as well as necessitate substantial additional expenditures to cover legal costs as we pursue all available defenses. We are being investigated by multiple state attorneys general for our reimbursement practices relating to partially-filled prescriptions and fully-filled prescriptions that are not picked up by ordering customers. We are supplying similar information with respect to these matters to the Department of Justice. We believe that these investigations are similar to investigations which were, and are being, undertaken with respect to the practices of others in the retail drug industry. We also believe that our existing policies and procedures fully comply with the requirements of applicable law and intend to fully cooperate with these investigations. We cannot, however, predict their outcomes at this time. An individual acting on behalf of the United States of America, has filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania under the Federal False Claims Act alleging that we defrauded federal health care plans by failing to appropriately issue refunds for partially filled prescriptions and prescriptions which were not picked up by customers. The Department of Justice has not decided whether to join this lawsuit, as is its right under the law, and its investigation is continuing. We have filed a motion to dismiss the complaint for failure to state a claim. If any of these cases result in a substantial monetary judgment against us or is settled on unfavorable terms, our results of operations, financial position and cash flows could be materially adversely affected. Store Management Overtime Litigation We are a defendant in a class action pending in the California Superior Court in San Diego with three subclasses, comprised of our California store managers, assistant managers and managers-in-training. The plaintiffs seek back pay for overtime not paid to them and injunctive relief to require us to treat our store management as non-exempt. They allege that we decided to minimize labor costs by causing managers, assistant managers and managers-in-training to perform the duties and functions of associates for in excess of forty hours per week without paying them overtime. We believe that in-store management were and are properly classified as exempt from the overtime provisions of California law. On May 21, 2001, we entered into a Memorandum of Agreement with the plaintiffs under which, subject to approval of the court, we will settle this lawsuit for a maximum of $25.0 million, a charge for which was taken in fiscal 2000. The settlement amount is payable in four equal installments of 25%, the first of which is payable upon final court approval of the settlement and the balance is payable six, 12 and 18 months thereafter. Other We are subject from time to time to lawsuits arising in the ordinary course of business. In the opinion of our management, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve amounts that would not have a material adverse effect on our financial condition, results of operations or cash flows if decided adversely. SCHEDULE 3.11 CHANGES Rite Aid Corporation Restricted Stock Loans issued 5/01-6/15/01
Vested In Rate: 4.25% Name SS# Shares Gross Income Total W/H Loan Amt. Interest Total - ---------------------- -------------- ------- ------------- ------------- ------------- ----------- ------------- Lovett ###-##-#### 10,000 $ 84,500.00 $ 28,096.25 $ 28,096.25 $ 107.96 $ 28,204.21 ------- ------------- ------------- ------------- ----------- ------------- Non ss.16B Officer 10,000 $ 84,500.00 $ 28,096.25 $ 28,096.25 $ 107.96 $ 28,204.21 ------- ------------- ------------- ------------- ----------- ------------- Gerson ###-##-#### 12,500 $ 106,750.00 $ 47,877.38 $ 47,877.38 $ 2074.90 $ 49,952.28 Hall ###-##-#### 36,591 $ 312,487.14 $ 140,150.49 $ 140,150.49 $ 6073.80 $ 146,224.29 Jessick ###-##-#### 124,622 $1,064,271.88 $ 477,325.94 $ 477,325.94 $ 20,686.22 $ 498,012.16 Mastrian ###-##-#### 12,500 $ 106.750.00 $ 47,877.38 $ 47,877.38 $ 2,074.90 $ 49,952.28 Miller ###-##-#### 382,387 $3,265,584.98 $1,464,614.87 $1,464,614.87 $ 63,473.06 $1,528,087.93 Sammons ###-##-#### 247,841 $2,116,562.14 $ 949,278.13 $ 949,278.13 $ 41,139.55 $ 900,417.68 Sari ###-##-#### 8,750 $ 74,725.00 $ 33,514.17 $ 33,514.17 $ 1,452.43 $ 34,966.60 Sorkin ###-##-#### 8,750 $ 74,725.00 $ 33,514.17 $ 33,514.17 $ 1,452.43 $ 34,966.60 Standley ###-##-#### 124,622 $1,064,271.88 $ 477,325.94 $ 477,325.94 $ 20,686.22 $ 498,012.16 ------- ------------- ------------- ------------- ----------- ------------- ss.16B Officers 958,563 $8,186,128.02 $3,671,478.47 $3,671,478.47 $159,133.49 $3,830,591.97 ------- ------------- ------------- ------------- ----------- ------------- Total Loan Amounts 968,563 $8,270,628.02 $3,699,574.72 $3,699,574.72 $159,221.45 $3,858,796.18 ======= ============= ============= ============= =========== =============
SCHEDULE 3.19 OTHER PURCHASERS' AGREEMENTS The obligations of the Fidelity Purchasers and American Century Purchasers are several and not joint. EX-10 31 exh10-51.txt EXHIBIT 10.51 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as of the 17 day of May, 2001 by and among Rite Aid Corporation, a Delaware corporation (the "Company"), Transamerica Investment Management, LLC ("Transamerica") and the Other Purchasers (as defined below) (together with Transamerica, the "Purchasers"). W I T N E S S E T H WHEREAS, the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, shares of the Company's common stock, par value $1.00 per share (the "Common Stock"), all in accordance with the terms and provisions of this Agreement; and WHEREAS, this Agreement memorializes an oral understanding between the parties hereto reached on March 22, 2001 and May 2, 2001 with respect to the issuance and sale to the Purchaser of the Common Stock at the Purchase Price and the Additional Purchase Price (as defined herein); NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows: 1. Sale and Purchase of the Securities. (a) Upon the terms and subject to the conditions herein contained, the Company agrees to sell to the Purchasers, and the Purchasers agree, severally and not jointly, to purchase from the Company, at the Closing (as hereinafter defined), such number of whole shares (the "Shares") of Common Stock as shall equal the dollar amount (such amount with respect to each Purchaser, the "Investment") set forth for opposite the name of such Purchaser on Schedule 1 hereto, divided by the Purchase Price (as hereinafter defined). The aggregate amount of all Investments shall equal $125,000,000. Subject to Section 3 below, the purchase price per share (the "Purchase Price") will equal ninety-five percent (95%) (the "VWAC Discount") of the average of the volume weighted average price (based on a trading day from 9:30 a.m. to 4:00 p.m. New York City time) on the New York Stock Exchange (the "NYSE") as reported by Bloomberg Financial LP using the AQR function (the "VWAC") for the Common Stock for each of the thirty (30) consecutive trading days (the "Pricing Period") ending on and including the third trading day prior to the Closing Date (as defined herein). The Company will inform the Purchaser not later than 6:00 p.m. New York City time on the last date of the Pricing Period as to the amount of the Purchase Price. Notwithstanding anything to the contrary contained herein, in no event shall the Purchase Price be greater than $5.50. (b) The term "Other Purchasers" means certain funds internal to Transamerica, not yet identified, to be designated by Transamerica by written notice delivered to the Company not later than 5:00 p.m. New York City time on the business day immediately following the last day of the Pricing Period, and which will execute a counterpart to this Agreement. Such counterpart shall include the amount of any Investment and any Additional Purchase Amount, as defined below, to be made by such Other Purchaser. 2. Additional Purchase. Upon the terms and subject to the conditions herein contained, the Purchasers have also agreed, severally and not jointly, to purchase in the aggregate from the Company, and the Company agrees to sell to the Purchasers, such number of additional whole shares of Common Stock (the "Additional Purchase Shares" and together with the Shares, the "Securities") as shall equal the dollar amount set forth opposite the name of such Purchaser on Schedule 1 hereto, (such amount with respect to each Purchaser, the "Additional Purchase Amount") divided by $6.50 (the "Additional Purchase Price"). The aggregate amount of all Additional Purchase Amounts shall equal $25,000,000. Transamerica will inform the Company not later than 5:00 p.m. New York City time on the business day immediately following the last day of the Pricing Period as to the number of Additional Purchase Shares each Purchaser will purchase and Transamerica shall provide the Company prior to the Closing with a supplement to or amendment of Schedule 1 hereto detailing such Additional Purchase Shares. 3. Purchase Price Protection. If the Company enters into any agreement with a third party whereby the Company agrees to sell substantially for cash from the date hereof and prior to the Closing Date, Common Stock or any security convertible or exchangeable into Common Stock and such sale is contingent upon the consummation of the Refinancings (as defined herein) (each, an "Other Financing"), then the Purchase Price shall be adjusted, but only if such adjustment would result in a lower Purchase Price to the Purchaser, to equal the effective purchase price per share of Common Stock paid by such third party. Notwithstanding anything to the contrary contained herein, in no event will there be an adjustment to the Additional Purchase Price. 2 4. Closing. The closing of the sale to, and purchase by, the Purchasers of the Shares and the Additional Purchase Shares (the "Closing") shall occur at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036-6522, simultaneously with closing of the Refinancings or at such other time and place as the Company and Transamerica may mutually agree in writing (the "Closing Date"). At the Closing, the Company shall deliver to Transamerica on behalf of the Purchasers, one or more certificates evidencing the Securities (in such denominations and registered in the names set forth on Schedule 1 hereto as supplemented or amended form time to time prior to the Closing) against delivery to the Company of the Investments and the Additional Purchase Amounts, payable in each case by wire transfer of immediately available funds to an account that the Company will designate in writing to Transamerica. 5. Representations and Warranties of the Purchaser; Restrictions on Transfer. Each Purchaser severally and not jointly represents and warrants to the Company as follows: 5.1 Organization. The Purchaser is validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all requisite corporate power and authority to enter into this Agreement and the Registration Rights Agreement (as defined herein) and to consummate the transactions contemplated hereby and thereby. 5.2 Validity. The execution, delivery and performance of this Agreement and the Registration Rights Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action, corporate or otherwise, on the part of the Purchaser. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Purchaser and constitute a valid and binding obligations of the Purchaser enforceable against it in accordance with their terms. 5.3 Brokers. There is no broker, investment banker, financial advisor, finder or other person which has been retained by or is authorized to act on behalf of the Purchaser who might be entitled to any fee or commission for which the Company will be liable in connection with the execution of this Agreement or the transactions contemplated hereby. 3 5.4 Restrictions on Dispositions. The Purchaser understands that the Securities have not been, and will not upon issuance be, registered under the Securities Act of 1933, as amended (the "Securities Act"), and that the certificates evidencing the Securities shall bear the following legend to that effect: "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED." The Company agrees to remove such restrictive legend on a certificate representing the Securities duly presented and upon satisfaction of the conditions set forth in the immediately preceding paragraph. 5.5 Acquisition for Own Account. The Purchaser is acquiring the Securities for its own account for investment and not with a view toward distribution in a manner which would violate the Securities Act. 5.6 Ability to Protect Its Own Interests and Bear Economic Risks. The Purchaser represents that by reason of the business and financial experience of its management, the Purchaser has the capacity to evaluate the risks and merits of, and make an informed decision with regard to, an investment in the Company and the transactions contemplated by this Agreement and the Registration Rights Agreement. The Purchaser further represents that the Purchaser is able to bear the economic risk of an investment in the Securities, and has an adequate income independent of any income produced from an investment in the Securities and has sufficient net worth to sustain a loss of all of its investment in the Securities without economic hardship if such a loss should occur. 5.7 Accredited Investor. The Purchaser represents that it is an "accredited investor" as that term is defined in Regulation D promulgated under the Securities Act. 4 5.8 Access to Information. The Issuer has made available to the Purchaser all reports, schedules, forms, statements and other documents required to be filed by the Company with the Securities and Exchange Commission pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Purchaser has received physical delivery of all such documents, records and information which the Purchaser has requested, and has had adequate opportunity to ask questions of, and receive answers from, the Company's officers, employees, agents, accountants, and representatives concerning the Company's business, operations, financial condition, assets, liabilities, and all other matters relevant to its investment in the Securities. 6. Representations and Warranties by the Company. The Company represents and warrants to the Purchaser as follows: 6.1 Organization. The Company is duly organized and validly existing and in good standing under the laws of Delaware, and has all requisite corporate power and authority to enter into this Agreement and the Registration Rights Agreement (as defined herein) and to consummate the transactions contemplated hereby and thereby. 6.2 Validity. The execution, delivery and performance of this Agreement and the Registration Rights Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action, corporate or otherwise, on the part of the Company. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Company and constitutes legal, valid and binding obligations of the Company enforceable against it in accordance with their terms. 6.3 Brokers. There is no broker, investment banker, financial advisor, finder or other person which has been retained by or is authorized to act on behalf of the Company who might be entitled to any fee or commission for which the Purchaser will be liable in connection with the execution of this Agreement or the transactions contemplated hereby. 6.4 Capital Stock and Related Matters. (a) As of May 14, 2001 and without giving effect to the transactions contemplated by this Agreement, the authorized capital stock of the Company consisted of (i) 600,000,000 shares of Common Stock, of which approximately 394,341,787 shares were issued and outstanding and (ii) 20,000,000 shares of preferred stock, of which 3,360,237 shares of Series B Preferred Stock 5 were outstanding. The outstanding shares of Common Stock and Preferred Stock are validly issued, fully paid and non-assessable and have been issued in compliance with applicable law. None of the outstanding shares of Common Stock or Preferred Stock are entitled to cumulative voting rights or preemptive rights. Except as set forth on Schedule 6.4 or Schedule 6.19 hereto, the Company has outstanding no option, warrant or other commitment to issue or to acquire any shares of its capital stock or any security or obligations convertible into or exchangeable for its capital stock, nor has it given any person or entity any right to acquire from the Company or sell to the Company any shares of its capital stock. Schedule 6.4 hereto sets forth as of the date hereof the outstanding shares of Common Stock, assuming the exercise of all outstanding options and warrants, the conversion of all securities or obligations convertible into or exchangeable for shares of its Common Stock and the issuance of the maximum number of shares of Common Stock subject to outstanding commitments of the Company. 6.5 Governmental Consents, etc. No consent, approval or authorization of, or declaration or filing with, any governmental authority or agency or any securities exchange on the part of the Company is required for the valid execution and delivery of this Agreement and the Registration Rights Agreement, the consummation of the transactions contemplated hereby and thereby, or the valid offer, issue, sale and delivery of the Securities pursuant to this Agreement other than the filings with the Securities and Exchange Commission required to comply with its obligations under the Registration Rights Agreement. The Company is not in violation of any of the listing requirements of the New York Stock Exchange, except where such violation would not, individually or in the aggregate, have a material adverse effect on (i) the Securities, (ii) the ability of the Company to perform its obligations under this Agreement and the Registration Rights Agreement, or (iii) the assets, business, properties or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted). 6.6 Offering of Securities. Neither the Company nor any person, firm or corporation acting on its behalf has sold or offered the Securities or any similar securities of the Company to, or solicited any offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any person or persons in such manner as would subject the offering, issuance or sale of any of the Securities to the provisions of Section 5 of the Securities Act. Neither the Company nor any person, firm or corporation acting on behalf of the Company has taken or will take any action which would subject the offering, issuance or sale of any of the Securities to the provisions of Section 5 of the Securities Act. 6 6.7 Integration. Neither the Company nor any affiliate (as such term is defined in Rule 501(b) under the Securities Act) nor any person, firm or corporation acting on its behalf has, directly or indirectly, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Securities in a manner that would require the registration of the Securities under the Securities Act. 6.8 Compliance with Other Instruments, etc. Neither the execution and delivery by the Company of this Agreement or the Registration Rights Agreement, nor the consummation of the transactions contemplated hereby or thereby, nor the issuance and sale of the Securities will (a) conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the property or assets of the Company is subject, including any agreement or instrument relating to the Refinancings, (b) result in any violation of the provisions of the certificate of incorporation or by-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its properties, (c) result in the creation under any agreement or instrument of any lien, security interest, encumbrance or other claim upon any of the assets of the Company, or (d) create in any person or entity any right to terminate any agreement with the Company or otherwise exercise any rights against the Company or cause any payment or performance obligation of the Company to be accelerated, except in each case (a-d) as would not, individually or in the aggregate have a material adverse effect on the business, results of operations, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted). 6.9 Valid Issuance of Securities. The Securities have been duly authorized for issuance and sale to the Purchaser pursuant to this Agreement, and, when issued, sold and delivered in accordance with this Agreement against payment therefore of the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable and will be free of restrictions on transfer other than restrictions on transfer set forth under this Agreement. The issuance of the Securities is not subject to preemptive rights. 7 6.10 Permits. The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, except for those franchises, permits, licenses the lack of which would not materially and adversely affect the business, properties, prospects or financial condition of the Company, and believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as presently conducted or proposed to be conducted. The Company is not in default in any material respect under any such franchises, permits, licenses or other similar authority. 6.11 Offering. Assuming the truth and accuracy of Transamerica's and each other Purchaser's representations and warranties set forth in this Agreement, the offer and sale and issuance of the Securities as contemplated by this Agreement are exempt from the registration requirements of the Securities Act, and neither the Company nor any authorized agent acting on its behalf will take any action hereof that would cause the loss of such exemption. 6.12 Financial Statements. The Company has caused to be delivered to the Purchaser a restated audited consolidated balance sheet of the Company as of February 26, 2000 (the "Balance Sheet") and restated audited consolidated statements of income and retained earnings and cash flows of the Company for the fiscal year ended February 26, 2000 (collectively with the Balance Sheet, the "Financial Statements"), together with an unqualified opinion thereon from the Company's independent accountants. The Company has also caused to be delivered to the Purchaser unaudited consolidated balance sheets of the Company as of May 27, 2000, August 26, 2000, and November 25, 2000 (the "Unaudited Balance Sheets") and unaudited consolidated statements of income and retained earnings and cash flows of the Company for the thirteen weeks ended May 27, 2000, twenty-six weeks ended August 26, 2000, and thirty-nine weeks ended November 25, 2000 (collectively with the Unaudited Balance Sheet, the "Unaudited Financial Statements"). The Financial Statements and Unaudited Financial Statements were prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis (except as may be indicated in the notes thereto) and fairly present, in all material respects, the financial position and the results of operations of the Company as of the dates, and for the periods, referred to therein. 6.13 Environmental and Safety Laws. To the best of its knowledge, the Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, except where any such violations would not, individually or in the aggregate, have a material adverse effect on the assets, business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is 8 presently proposed to be conducted) and to the best of its knowledge, no material expenditures are or are reasonably expected to be required in order to comply with any such existing statute, law, or regulation. 6.14 Litigation. Except as disclosed in the SEC Documents, as hereinafter defined, or on Schedule 6.14 hereto, there is no action, suit, proceeding, or investigation pending, or to the Company's knowledge, currently threatened against the Company that questions the validity of this Agreement or the Registration Rights Agreement, or the Company's ability to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse change in the assets, business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted). 6.15 Intellectual Property. To the best of its knowledge, (but without having conducted any special investigation or patent search), the Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted without conflict with, or infringement of, the rights of others, except where the failure to have such rights, individually or in the aggregate, would not have a material adverse effect on the assets, business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted). 6.16 Securities and Exchange Commission Documents. Since October 11, 2000, the Company has timely filed, and at the Closing Date the Company will have timely filed, all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission pursuant to the reporting requirements of the Exchange Act (all of the foregoing filed prior to the Closing Date and after October 10, 2000, and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to herein as the "SEC Documents"). The Company has made available to the Purchaser true and complete copies of the SEC Documents. As of their respective filing dates, the SEC Documents complied with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder applicable to the SEC Documents, except for the failure to include certain financial information as described therein, and none of the SEC Documents, at the time they were filed with the Securities and Exchange Commission, contained any untrue statement of a 9 material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 6.17 Employee Relations. To the best of the Company's knowledge, there is no strike, labor dispute or union organization activities pending or threatened between the Company and its employees. To the best of its knowledge and except as disclosed in the SEC Documents, the Company has complied in all material respects with all applicable state and federal equal opportunity and other laws related to employment. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate employment with the Company, nor does the Company have any present intention to terminate the employment of any of the foregoing. 6.18 Compliance With Laws. Except as disclosed in the SEC Documents, the Company has not received any notification from any governmental entity (a) asserting a violation of any law, statute, ordinance or regulation or the terms of any judgements, orders, decrees, injunctions or writs applicable to the conduct of its business, (b) threatening to revoke any license, franchise permit or government authorization, or (c) restricting or in any way limiting its operations as currently conducted or proposed to be conducted, except where any such violations would not, individually or in the aggregate, have a material adverse effect on the assets, business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted). 6.19 Changes. Except for transactions contemplated by this Agreement and the Registration Rights Agreement, the Refinancings or as disclosed in the SEC Documents or on Schedule 6.19 hereto, and other than transactions conducted in the ordinary course of business, since March 3, 2001, there has not been: (a) any change in the assets, liabilities, financial condition, or operating results of the Company, that have not been and are not expected to be, individually or in the aggregate, materially adverse to the assets, business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted); (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted); 10 (c) any waiver or compromise by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company; (e) any material change to a material contract or arrangement by which the Company or any of its assets is bound or subject; (f) any material change in any compensation arrangement or agreement with any key employee, officer, director or stockholder other than that certain amendment to Robert Miller's Employment Agreement dated May 7, 2001, and that certain amendment to Mary Sammon's employment agreement dated May 7, 2001, copies of which are attached as Exhibit A hereto; (g) any sale, assignment, or transfer of any patents, trademarks, copyrights, trade secrets, or other intangible assets; (h) any resignation or termination of employment of any key officer of the Company; and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer; (i) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company; (j) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable or contested by the Company in good faith; (k) any loans or guarantees made by the Company to or for the benefit of its employees, stockholders, officers, or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business, except for certain short term loans made by the Company to its officers described on Schedule 6.19 hereto; 11 (l) any declaration, setting aside, or payment of any dividend or other distribution of the Company's assets in respect of any of the Company's capital stock, except for dividends paid-in-kind on outstanding Series B Preferred Stock or any dividends payable on the proposed Series C Preferred Stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company; (m) any other event or condition of any character that would reasonably be expected to have a material and adverse effect on the business, properties, prospects, or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted); or (n) any agreement or commitment by the Company to do any of the things described in this Section 6.19. 7. Conditions of Parties' Obligations. 7.1 Conditions of the Purchaser's Obligations. The obligations of the Purchaser under Sections 1, 2 and 4 hereof are subject to the fulfillment prior to or on the Closing Date of all of the following conditions, any of which may be waived in whole or in part by the Purchaser. (a) Continued Accuracy of the Company's Covenants, Representations and Warranties. The representations and warranties of the Company contained in Section 6 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (b) Consents and Waivers. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state or any stock exchange or of any third party that are required in connection with the issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing Date. (c) No Material Adverse Change. There shall be no material adverse change in the business, properties, prospects, or assets of the Company from and after the date of this Agreement. 12 (d) Officer's Certificate. The Company shall have delivered to the Purchaser a certificate dated the Closing Date, executed by the Senior Executive Vice President and General Counsel of the Company, certifying the satisfaction of the conditions specified in (a), (b) and (c) of this Section 7.1. (e) Registration Rights Agreement. The Purchaser and the Company shall have executed and delivered the Registration Rights Agreement in substantially the form of Exhibit B hereto. (f) Refinancings. The Company shall have (i) increased the aggregate principal amount of borrowings available under its Senior Credit Agreement dated as of June 12, 2000 (the "Senior Credit Agreement") by at least $800 million, or entered into a new senior credit agreement having an aggregate principal amount of borrowings available under it equal to at least $1.9 billion (a "New Senior Credit Agreement"), or any combination thereof, (ii) extended the maturity of the Senior Credit Agreement to, or entered into a New Senior Credit Agreement with, a maturity date no earlier than January 1, 2005, and (iii) as a result of clauses (i) and (ii) in this Section 7(f), the Company shall have no more than $400 million of indebtedness for borrowed money outstanding, having a final maturity date earlier than January 1, 2005; provided, however, such amount shall not include any such balance that constitutes an accrued expense or trade payable or the Company's 10.5% Senior Secured Notes due 2002, (the events set forth in clauses (i), (ii) and (iii) above being hereinafter referred to herein as the "Refinancings"), all of which on terms and conditions not materially less favorable to the Company than the terms and conditions set forth on Exhibit C hereto (the "Commitment Letter"). (g) 2001 Financial Statements. The Company shall have delivered to the Purchaser the audited consolidated balance sheet of the Company as of March 3, 2001 (the "2001 Audited Balance Sheet") and audited consolidated statements of income and retained earnings and cash flows of the Company for the fiscal year ended March 3, 2001 (collectively, with the 2001 Audited Balance Sheet, the "2001 Audited Financial Statements"), together with an unqualified opinion thereon from Deloitte & Touche LLP. Upon delivery of the 2001 Financial Statements to the Purchaser, the Company hereby represents and warrants that the 2001 Audited Financial Statements were prepared in conformity with generally accepted accounting principles applied on a consistent basis (except as may be indicated in the notes thereto) and will fairly present, in all material respects, the financial position and the results of operations of the Company as of the dates, and for the periods, referred to therein. 13 (h) Opinion of Counsel. The Purchaser shall have received an opinion of the counsel to the Company, dated as of the Closing Date with respect to the due authorization and valid issuance of the Securities, subject to customary qualifications and assumptions. 7.2 Conditions of the Company's Obligations. The obligations of the Company under Section 1, 2 and 4 hereof are subject to the fulfillment prior to or on the Closing Date of all of the following conditions, any of which may be waived in whole or in part by the Company. (a) Continued Accuracy of Purchaser's Covenants, Representations and Warranties. The representations and warranties of the Purchaser contained in Section 5 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). 7.3 Conditions of Each Party's Obligations. The respective obligations of each party to consummate the transactions contemplated hereunder are subject to the parties being reasonably satisfied as to the absence of (a) litigation challenging or seeking damages in connection with the transactions contemplated by this Agreement, and (b) any provision of any applicable law or regulation, or any judgment, injunction, order or decree prohibiting or enjoining the transactions contemplated by this Agreement. 8. Negative Covenants of the Company. From the date hereof through the Closing Date, the Company shall promptly advise the Purchaser of any change that the Company reasonably believes would cause a representation or warranty to be untrue, cause a covenant to be unsatisfied, or would have a material adverse effect on the business, assets, properties or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted). Nothing contained in this Section 8 will prevent the Company from consummating any additional debt-for-equity exchanges, or any sale of equity or debt securities of the Company or the other transactions contemplated by or required by the Commitment Letter. 14 9. Registration Rights Agreement. The Company and the Purchaser will enter into a registration rights agreement (the "Registration Rights Agreement") providing among other matters, that (i) the Company will file a registration statement (the "Registration Statement") with the Securities and Exchange Commission registering the Securities for resale within thirty (30) days following the Closing Date, (ii) the Company will use its reasonable best efforts to cause the Registration Statement to become effective as soon as practicable, but no later than one hundred twenty (120) days following the Closing Date, and (iii) the Purchaser shall have customary piggyback registration rights. The Company will use its reasonable best efforts to keep the Registration Statement effective for a period ending on the earlier of (i) two (2) years from the effective date of the Registration Statement or such shorter period that will terminate when the Securities have been sold pursuant to the Registration Statement, and (ii) the date on which the Securities become eligible for resale pursuant to Rule 144(k) under the Securities Act. The Purchaser's registration rights will be subject to customary blackout and cutback provisions. The Company will use its reasonable best efforts to become eligible to use the registration statement on Form S-3 as soon as possible on or after October 12, 2001. 10. Indemnification. (a) The Company will indemnify the Purchaser, each of its directors, officers, agents, employees, representatives and controlling persons against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of any inaccuracy or breach or any representation or warranty made by the Company (for as long as such representations and warranties survive pursuant to Section 11.3 hereof), or the breach of any of the agreements or covenants contained in this Agreement, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action. It is agreed that the indemnity agreement contained in this Section 10 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). (b) Each Purchaser, severally and not jointly, shall indemnify the Company, each of its directors, officers, agents, employees, representatives and controlling persons against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of any inaccuracy or breach of any representation or warranty made by the 15 Purchaser (for as long as such representatives and warranties survive pursuant to Section 11.3 herein), or the breach of any of the agreements or covenants contained in this Agreement, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action. It is agreed that the indemnity agreement contained in this Section 10 shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Purchaser (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 10 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed), and the Indemnified Party may participate in such defense with counsel reasonably acceptable to and paid for by the Indemnifying Party but otherwise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 10 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 10 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in 16 connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. 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. 11. Miscellaneous. 11.1 Termination. Either party to this Agreement may terminate this Agreement by giving written notice to such other non-terminating party if the Closing has not occurred by August 31, 2001; provided, however, that the right to terminate this Agreement under this Section 11.01 shall not be available to any party who is in breach of this Agreement and such breach has not been waived by the other party hereto, or whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before August 31, 2001. If this Agreement is terminated pursuant to this Section 11.1, then all rights and obligations of the parties hereunder shall terminate without any liability of either party to the other party; provided, however, that Section 11.9 shall survive any termination of this Agreement. 11.2 Entire Agreement. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and such Agreement supersedes and replaces all other prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof. 11.3 Survival of Representations and Warranties.. Notwithstanding any investigation conducted or notice or knowledge obtained by or on behalf of any party hereto, each representation and warranty in this Agreement or in any schedules hereto or certificates delivered pursuant to this Agreement shall survive the Closing for a period of 180 days. Any claim for indemnification under Section 10 arising out of the inaccuracy or breach of any representation or warranty must be made prior to the termination of the applicable survival period and such representation or warranty which is the subject of such claim shall survive with respect to such claim until the final resolution thereof. 11.4 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 17 11.5 Governing Law. This Agreement shall be governed by and construed under the laws of the State of New York without giving effect to conflicts of laws, rules or principles. 11.6 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. 11.7 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience of reference only and are not to be considered in construing or interpreting this Agreement. 11.8 Notices. Unless otherwise provided, all notices and other communications required or permitted under this Agreement shall be in writing and shall be mailed by United States first-class mail, postage prepaid, sent by facsimile or delivered personally by hand or by a nationally recognized courier addressed to the party to be notified at the address or facsimile number indicated for such person on the signature page hereof, or at such other address or facsimile number as such party may designate. All such notices and other written communications shall be effective on the date of mailing, confirmed facsimile transfer or delivery. 11.9 Expenses. The Company shall pay all reasonable legal fees and expenses incurred by the Purchaser in connection with the preparation and negotiation of this Agreement, and the consummation of the transactions contemplated hereby, up to a maximum of $80,000; provided, however, that if the Closing does not occur and the failure of the Closing to occur is not attributable to the breach by the Company of its obligations under Section 7.1 hereof which have not been waived in whole or in part by the Purchaser, then the Company shall not have any liability for any fees or expenses of the Purchaser. 11.10 Attorney's Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs, and disbursements in addition to any other relief to which such party may be entitled. 18 11.11 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Purchaser. 11.12 Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any federal or state court located in the State of New York, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 11.8 shall be deemed effective service of process on such party. 11.13 No Implied Waiver. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 11.14 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 11.15 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so 19 long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. [Execution Page Follows] 20 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. RITE AID CORPORATION By:_________________________ Name: Title: Address: 30 Hunter Lane Camp Hill, PA 17011 Telephone No: (717) 761-2633 Facsimile No: (717) 975-5952 TRANSAMERICA INVESTMENT MANAGEMENT, LLC By:_________________________ Name: Title: Address:____________________ ____________________ ____________________ Telephone No:_______________ Facsimile No:_______________ 21 SCHEDULE 1 INVESTMENT (Including Additional Purchase Amount)
Number of Number of shares Additional Additional of Common Purchase Purchase Investment Stock Amount Shares ---------- --------- ---------- ---------- Transamerica Investment Management, LLC $150,000,000 $25,000,000
22 SCHEDULE 6.4 CAPITALIZATION
Rite Aid Common Stock Outstanding as of May 14, 2001: 394,341,787 3,360,237 Series B, $100 Par, Preferred Stock Convertible to Common Stock at $5.50 per Share: 61,095,218 In the Money Stock Options (a) 44,172,650 Common Stock on a Fully diluted Basis as of May 15, 2001: 499,609,655 Debt for Equity Exchanges Agreed to and Priced but Not Yet Settled: Exchange of PCS Facility for stock 714,979 Exchange of RCF Facility for stock 1,429,957 Exchange of RCF Facility for stock 1,443,814 Exchange of RCF Facility for stock 8,562,174(b) Exchange of RCF Facility for stock 12,654,598(b) ----------- 24,805,522 ----------- Common Stock on a Pro Forma Fully diluted Basis as of May 15, 2001: 524,415,177 ===========
(a) Includes 38.2 million shares which are not yet vested. (b) May be issued initially as Series C Convertible Preferred Stock. Not Included in the Above Total are the Following: A: $152,016,000 of 5.25% Convertible Subordinated Notes due 2002 that are Convertible into 27.672 Shares of Common Stock per $1,000 note. B. Warrants Held by J.P. Morgan to purchase 2,500,000 Shares of Rite Aid Common Stock at $11.00 per Share. 23 C. Private Debt for Equity Exchanges that were Agreed to but Not Yet Priced: $40,000,000 Exchange of 10.5% Notes Due 9/15/02 for stock $15,300,000 Exchange of 10.5% Notes Due 9/15/02 for stock $ 2,200,000 Exchange for RCF Facility for stock ----------- $57,500,000 =========== D. Shareholder suit settlement for 20,000,000 shares of common stock. E. 3,000,000 common stock purchase warrants proposed to be issued in connection with the exchange of $152 million of the Company's 10.5% Senior Secured Notes for a new series of 12.5% Senior Secured Notes due 2006. F. 9,244,149 stock options that are not in the money including 1,819,000 shares not yet vested. 24 SCHEDULE 6.14 LITIGATION Federal Investigations There are currently pending federal governmental investigations, both civil and criminal, by the SEC and the United States Attorney, involving our financial reporting and other matters. We are cooperating fully with the SEC and the United States Attorney. The U.S. Department of Labor has commenced an investigation of matters relating to our employee benefit plans, including our principal 401(k) plan, which permitted employees to purchase our common stock. Purchases of our common stock under the plan were suspended in October 1999. In January 2001, we appointed an independent trustee to represent the interests of these plans in relation to the company and to investigate possible claims the plans may have against us. Both the independent trustee and the Department of Labor have asserted that the plans may have claims against us. The investigations, with which we are cooperating fully, are ongoing and we cannot predict their outcomes. In addition, a purported class action lawsuit on behalf of the plans and their participants has been filed by a participant in the plans in the United States District Court for the Eastern District of Pennsylvania. These investigations are ongoing and we cannot predict their outcomes. If we were convicted of any crime, certain contracts and licenses that are material to our operations may be revoked, which would have a material adverse effect on our results of operations and financial condition. In addition, substantial penalties, damages or other monetary remedies assessed against us could also have a material adverse effect on our results of operations, financial condition and cash flows. Stockholder Litigation We, certain of our directors, our former chief executive officer Martin Grass, our former president Timothy Noonan, our former chief financial officer Frank Bergonzi, and our former auditor KPMG LLP, have been sued in a number of actions, most of which purport to be class actions, brought on behalf of stockholders who purchased our securities on the open market between May 2, 1997 and November 10, 1999. All of these cases have been consolidated in the U.S. District Court for the Eastern District of Pennsylvania. On November 9, 2000, we announced that we had reached an agreement to settle the consolidated securities class action lawsuits pending against us in the U.S. District Court for the Eastern District of Pennsylvania and the derivative lawsuits pending there and in the Delaware Court of Chancery. 25 Under the agreement, which has been submitted to the courts for approval, we will pay $45 million in cash, which will be fully funded by our officers' and directors' liability insurance, and issue shares of common stock in 2002. The shares will be valued over a 10 day trading period in January 2002. If the value determined is at least $7.75 per share, we will issue 20 million shares. If the value determined is less than $7.75 per share, we have the option to deliver any combination of common stock, cash and short-term notes, with a total value of $155 million. As additional consideration for the settlement, we have assigned to the plaintiffs all of our claims against the above named executives and KPMG LLP. Several members of the class have elected to "opt-out" of the class and, as a result, if the settlement is approved by the court, they will be free to individually pursue their claims. Management believes that their claims, individually and in the aggregate, are not material. Drug Pricing and Reimbursement Matters On October 5, 2000, we settled, for an immaterial amount, and without admitting any violation of the law, the lawsuit filed by the Florida Attorney General alleging that our non-uniform pricing policy for cash prescription purchases was unlawful under Florida law. The filing of the complaint by the Florida Attorney General, and our press release issued in conjunction therewith, precipitated the filing of a purported federal class action in California and several purported state class actions, all of which (other than those pending in New York that were filed on October 5, 1999 and those pending in California that were filed on January 3, 2000 ) have been dismissed. A motion to dismiss the action in New York is currently pending. We believe that the remaining lawsuits are without merit under applicable state consumer protection laws. As a result, we intend to continue to vigorously defend against them and we do not anticipate that if fully adjudicated, they will result in an award of damages. However, such outcomes cannot be assured and a ruling against us could have a material adverse effect on the financial position and results of operations of the company as well as necessitate substantial additional expenditures to cover legal costs as we pursue all available defenses. We are being investigated by multiple state attorneys general for our reimbursement practices relating to partially-filled prescriptions and fully-filled prescriptions that are not picked up by ordering customers. We are supplying similar information with respect to these matters to the Department of Justice. We believe that these investigations are similar to investigations which were, and are being, undertaken with respect to the practices of others in the retail drug industry. We also believe that our existing policies and procedures fully comply with the requirement of applicable law and intend to 26 fully cooperate with these investigations. We cannot, however, predict their outcomes at this time. An individual acting on behalf of the United States of America, has filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania under the Federal False Claims Act alleging that we defrauded federal health care plans by failing to appropriately issue refunds for partially filled prescriptions and prescriptions which were not picked up by customers. The Department of Justice has not decided whether to join this lawsuit, as is its right under the law, and its investigation is continuing. We have filed a motion to dismiss the complaint for failure to state a claim. If any of these cases result in a substantial monetary judgment against us or is settled on unfavorable terms, our results of operations, financial position and cash flows could be materially adversely affected. Store Management Overtime Litigation We are a defendant in a class action pending in the California Superior Court in San Diego with three subclasses, comprised of our California store managers, assistant managers and managers-in-training. The plaintiffs seek back pay for overtime not paid to them and injunctive relief to require us to treat our store management as non-exempt. They allege that we decided to minimize labor costs by causing managers, assistant managers and managers-in-training to perform the duties and functions of associates for an excess of forty hours per week without paying them overtime. We believe that in-store management were and are properly classified as exempt from the overtime provisions of California law. We have filed a motion to decertify the class which is currently pending. Our results of operations and financial position could be materially adversely affected by an adverse judgment in this matter. Other We are subject from time to time to lawsuits arising in the ordinary course of business. In the opinion of our management, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve amounts that would not have a material adverse effect on our financial condition, results of operations or cash flows if decided adversely. 27 SCHEDULE 6.19 CHANGES Rite Aid Corporation Restricted Stock Loans issued 5/01-6/15/01
Vested Int. Rate: 4.25% Name SS # Shares Gross Income Total W/H Loan Amt. Interest Total - ---------------------- ----------- ------- -------------- -------------- -------------- ------------ -------------- Lovett ###-##-#### 10,000 $ 84,500.00 $ 28,096.25 $ 28,096.25 $ 107.96 $ 28,204.21 ------- -------------- -------------- -------------- ------------ -------------- Non ss.16b Officer 10,000 $ 84,500.00 $ 28,096.25 $ 28,096.25 $ 107.96 $ 28,204.21 ------- -------------- -------------- -------------- ------------ -------------- Gerson ###-##-#### 12,500 $ 106,750.00 $ 47,877.38 $ 47,877.38 $ 2,074.90 $ 49,952.28 Hall ###-##-#### 36,591 $ 312,487.14 $ 140,150.49 $ 140,150.49 $ 6,073.80 $ 146,224.29 Jessick ###-##-#### 124,622 $ 1,064,271.88 $ 477,325.94 $ 477,325.94 $ 20,686.22 $ 498,012.16 Mastrian ###-##-#### 12,500 $ 106,750.00 $ 47,877.38 $ 47,877.38 $ 2,074.90 $ 49,952.28 Miller ###-##-#### 382,387 $ 3,265,584.98 $ 1,464,614.87 $ 1,464,614.87 $ 63,473.06 $ 1,528,087.93 Sammons ###-##-#### 247,841 $ 2,116,562.14 $ 949,278.13 $ 949,278.13 $ 41,139.55 $ 990,417.68 Sari ###-##-#### 8,750 $ 74,725.00 $ 33,514.17 $ 33,514.17 $ 1,452.43 $ 34,966.60 Sorkin ###-##-#### 8,750 $ 74,725.00 $ 33,514.17 $ 33,514.17 $ 1,452.43 $ 34,966.60 Standley ###-##-#### 124,622 $ 1,064,271.88 $ 477,325.94 $ 477,325.94 $ 20,686.22 $ 498,012.16 ------- -------------- -------------- -------------- ------------ -------------- ss.16b Officer's 958,563 $ 8,186,128.02 $ 3,671,478.47 $ 3,671,478.47 $ 159,113.49 $ 3,830,591.97 ------- -------------- -------------- -------------- ------------ -------------- Total Loan Amounts 968,563 $ 8,270,628.02 $ 3,699,574.72 $ 3,699,574.72 $ 159,221.45 $ 3,858,796.18 ======= ============== ============== ============== ============ ==============
28 On May 16, 2001, Rite Aid issued a press release announcing the details of a comprehensive $3.0 billion refinancing package that includes a commitment for a new $1.9 billion senior secured credit facility fully underwritten by Citibank NA, J.P. Morgan Chase & Co., Credit Suisse First Boston Corporation and Fleet Retail Finance, Inc. The closing of the new credit facility is subject to the satisfaction of customary closing conditions and Rite Aid's issuance of approximately $1.05 billion in new debt or equity securities, of which $527 million, as of May 16, 2001, has been committed or arranged.. Rite Aid plans to raise, at a minimum, the additional $523 million by issuing equity and fixed income securities and through real estate mortgage financings in transactions which are intended to close simultaneously with, and which will be conditioned upon, the closing of the new credit facility. The new credit facility will be secured by inventory, accounts receivable and certain other assets owned by Rite Aid's subsidiaries. The facility will be used to repay Rite Aid's first and second lien debt, pay expenses associated with the planned refinancing and for general working capital purposes. Rite Aid also announced that one of the holders has committed to exchange $152 million of our 10.5% senior secured notes due 2002 for $152 million of new 12.5% senior secured notes maturing in 2006. The new notes will be secured by a second lien on the collateral securing the new credit facility. In connection with the exchange, the holder will receive five-year warrants to purchase 3.0 million shares of Rite Aid common stock at $6.00 per share. The exchange will take place simultaneously with, and is contingent upon, the closing of the new credit facility. Rite Aid also announced that included in the $527 million that has already been committed are recently completed or contracted private exchanges of common stock for $226.2 million of our bank debt and 10.5% senior secured notes due 2002. 29 EXHIBIT A AMENDMENT TO EMPLOYMENT AGREEMENT 30 EXHIBIT B REGISTRATION RIGHTS AGREEMENT 31 EXHIBIT C COMMITMENT LETTER 32 June 25, 2001 Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq. Senior Executive Vice President and General Counsel Ladies and Gentlemen: Reference is made to that certain stock purchase agreement made as of May 17, (the "Stock Purchase Agreement") by and between Rite Aid Corporation ("Rite Aid") and Transamerica Investment Management, LLC the Other Purchasers (collectively, the "Purchasers"). All capitalized terms used but not defined herein shall have the meanings set forth in the Stock Purchase Agreement. In connection with the sale of the Shares by Rite Aid, we hereby agree that the following will be added to the end of Section 2.1(d) of the Registration Rights Agreement and shall be included in the Registration Rights Agreement executed by Rite Aid and the Purchasers: "Notwithstanding anything to the contrary contained in this Section 2.1(d), the Company may cause one or more additional Blackout Periods (each, an "Additional Blackout Period"), in order to file a post effective amendment to the Shelf Registration Statement to: (i) include and update the Company's financial statements for the Company's first fiscal quarter ending June 2, 2001, which post effective amendment will be filed with the Commission not later than the three (3) business days following the date the Company files its Quarterly Report on Form 10-Q for such quarter with the Commission, and (ii) include and update the Company's financial statements for the Company's second quarter ending September 1, 2001, which post effective amendment will be filed with the Commission not later than the three (3) business days following the date the Company files its Quarterly Report on Form 10-Q for such quarter with the Commission. No Additional Blackout Period shall count against the Blackout Periods permitted above, provided, that, the Commission declares the post effective amendment which resulted in the Additional Blackout Period effective not later than the twentieth (20) day following the date the Company files such post effective amendment with the Commission. In the event the Commission does not declare any such post effective amendment effective within such twenty-day period, then such Additional Blackout Period shall count as a Blackout Period." In addition, Section 2.1(d) will be amended by replacing "ninety (90)" with "seventy-five (75)". If you are in agreement with the foregoing, please execute and return a copy of this Letter Agreement which will constitute our agreement with respect to the subject matter hereof. 2 Very truly yours, TRANSAMERICA INVESTMENT MANAGEMENT, LLC By:____________________ Name: Title: Agreed to and accepted as of the date first written above RITE AID CORPORATION By:______________________________________ Name: Elliot S. Gerson Title: Senior Executive Vice President and General Counsel 3 EX-10 32 exh10-52.txt EXHIBIT 10.52 RITE AID CORPORATION $152,025,000 12.50% Senior Secured Notes due 2006 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT June 27, 2001 State Street Bank and Trust Company and the Holders of the 12.50% Senior Secured Notes due 2006 c/o State Street Bank and Trust Company Corporate Trust Goodwin Square, 23rd Floor 225 Asylum Street Hartford, CT 06103 Ladies and Gentlemen: Rite Aid Corporation, a Delaware corporation (the "Company"), proposes to issue to the entities listed on Schedule I hereto (the "Exchanging Holders") an aggregate of $152,025,000 principal amount of its 12.50% Senior Secured Notes due 2006 (the "Securities") in exchange for a like aggregate principal amount of its validly tendered 10.50% Senior Secured Notes due 2002 (the "Existing Notes"), in accordance with the Note Exchange Agreement dated as of June 27, 2001 (the "Exchange Agreement") by and among the Company and the Exchanging Holders. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Exchange Agreement. As an inducement to the Exchanging Holders to tender the Existing Notes, the Company and each of the subsidiaries of the Company listed on the signature pages hereto (the "Subsidiary Guarantors") agrees, jointly and severally, with the Trustee (as defined herein), for the benefit of the Exchanging Holders and the holders of the Securities and the Exchange Securities (as defined herein) (collectively, the "Holders"), as follows: 1. Registered Exchange Offer. The Company and the Subsidiary Guarantors shall (i) prepare and, not later than the date that is forty-five (45) days after the Closing Date (the date of such filing being referred to herein as the "Filing Date"), file with the Commission a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act with respect to a proposed offer to the Holders of the Securities (the "Registered Exchange Offer") to issue and deliver to such Holders, in exchange for the Securities, a like aggregate principal amount of debt securities of the Company (the "Exchange Securities") that are identical in all material respects to the Securities, except for the transfer restrictions relating to the Securities, (ii) use their best efforts to cause the Exchange Offer Registration Statement to become effective under the Securities Act no later than 180 days after the Filing Date, (iii) as soon as practicable after the effectiveness of the Exchange Offer Registration Statement, initiate the Registered Exchange Offer as set forth in the following paragraph and (iv) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders in accordance with the following paragraph (such period being called the "Exchange Offer Registration Period"). The Exchange Securities will be issued under the same indenture as the Securities (the "Indenture") among the Company, the Subsidiary Guarantors and the trustee named therein (the "Trustee"), as the Securities, with such modifications as may be appropriate to account for the registration of the Exchange Securities under the Securities Act. As soon as practicable after the effectiveness of the Exchange Offer Registration Statement, the Company shall commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company or an Exchanging Dealer (as defined herein) not complying with the requirements of the next sentence, (b) is not holding Securities that have, or that are reasonably likely to have, the status of an unsold allotment in an initial distribution, (c) acquires the Exchange Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any person to participate, and is not participating, in the distribution of the Exchange Securities) and to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under 2 the securities laws of the several states of the United States. The Company, the Holders and each Exchanging Dealer (as defined below) acknowledge that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, each Holder that is a broker-dealer electing to exchange Securities, acquired for its own account as a result of market-making activities or other trading activities, for Exchange Securities (an "Exchanging Dealer"), is required, in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer, to deliver a prospectus containing substantially the information set forth (i) in Annex A hereto on the cover of such prospectus, (ii) in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section of such prospectus and (iii) in Annex C hereto in the "Plan of Distribution" section of such prospectus. In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder of Securities a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders of Securities; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; (d) permit Holders to withdraw tendered Securities at any time prior to the end of the Registered Exchange Offer, as set forth in the materials originally mailed to Holders of Securities or otherwise extended by the Company; (e) prior to effectiveness of the Exchange Offer Registration Statement, if requested or required by the Securities and Exchange Commission (the "Commission"), use its best efforts to provide a supplemental letter to the Commission (A) stating that the Company is conducting the Registered Exchange Offer in reliance on the position of the Commission in Exxon Capital Holdings Corporation (pub. avail. May 13, 1988) and Morgan Stanley and Co., Inc. (pub. avail. June 5, 1991); and (B) including a representation that the Company has not entered into any arrangement or understanding with any person to distribute the Exchange Securities to be received in the Registered Exchange Offer and 3 that, to the best of the Company's information and belief, each Holder participating in the Registered Exchange Offer is acquiring the Exchange Securities in the ordinary course of business and has no arrangement or understanding with any person to participate in the distribution of the Exchange Securities; and (f) otherwise comply in all respects with all laws that are applicable to the Registered Exchange Offer. As soon as practicable after the close of the Registered Exchange Offer, the Company shall: (a) accept for exchange all Securities tendered and not validly withdrawn pursuant to the Registered Exchange Offer; (b) deliver to the Trustee for cancellation all Securities so accepted for exchange; and (c) cause the Trustee promptly to authenticate and deliver to each Holder, Exchange Securities equal in principal amount to the Securities of such Holder so accepted for exchange. The Company shall use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein in order to permit such prospectus to be used by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer, such period shall be the earlier of one year from the close of the Registered Exchange Offer and the date on which all Exchanging Dealers have sold all Exchange Securities held by them and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 90 days after the consummation of the Registered Exchange Offer. The Indenture shall provide that the Securities and the Exchange Securities shall vote and consent together on all matters as to which the Indenture provides for voting and consent as one class and that neither the Securities nor the Exchange Securities will have the right to vote or consent as a separate class on any matter. 4 Interest on each Exchange Security issued pursuant to the Registered Exchange Offer will accrue from the last interest payment date on which interest was paid on the Securities surrendered in exchange therefor or, if no interest has been paid on the Securities, from the date of the closing of the Exchange Offer. Each Holder hereby acknowledges and agrees that any such Holder using the Registered Exchange Offer to participate in a distribution of the Exchange Securities (x) could not under Commission policy as in effect on the date of this Agreement rely on the position of the Commission in Morgan Stanley and Co., Inc. (pub. avail. June 5, 1991) and Exxon Capital Holdings Corporation (pub. avail. May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993 and similar no-action letters; and (y) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction which must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K under the Securities Act if the resales are of Exchange Securities obtained by such Holder in exchange for Securities acquired by such Holder directly from the Company or one of its affiliates. Accordingly, each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate and is not participating in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act and (iii) such Holder is not an affiliate of the Company or, if it is such an affiliate (as defined in Section 10 (e)), such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain 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 not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not, as of the 5 consummation of the Registered Exchange Offer, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If (i) because of any change in law or applicable interpretations thereof by the Commission's staff the Company is not permitted to effect the Registered Exchange Offer as contemplated by Section 1 hereof, or (ii) the Registered Exchange Offer is not completed within 220 days after the Filing Date, or (iii) a Holder of Securities notifies the Company following the completion of the Registered Exchange Offer that the Securities held by such Holder are not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer, or (iv) certain Holders of the Securities are prohibited by law or the policy of the Commission from participating in the Registered Exchange Offer or the Exchange Securities may not be freely transferable by such Holders, then the following provisions shall apply: (a) The Company and the Subsidiary Guarantors shall promptly file (but in no event more than 30 days after so required or requested pursuant to this Section 2) with the Commission, and thereafter shall use their best efforts to cause to be declared effective, a shelf registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined below) by the Holders thereof from time to time in accordance with the methods of distribution set forth in such registration statement (hereafter, a "Shelf Registration Statement" and, together with any Exchange Offer Registration Statement, a "Registration Statement"). (b) The Company and the Subsidiary Guarantors shall keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be used by Holders of Transfer Restricted Securities for a period ending on the earlier of (i) two years from the effective date of the Shelf Registration Statement or such shorter period that will terminate when all the Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant thereto and (ii) the date on which the Securities become eligible for resale without volume restrictions pursuant to Rule 144 under the Securities Act (in any such case, such period being called the "Shelf Registration Period"). The Company and the Subsidiary Guarantors shall be deemed not to have complied with this paragraph (b) if they voluntarily take any action that would result in Holders of Transfer Restricted Securities covered thereby not being able to offer and sell such Transfer 6 Restricted Securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions hereof, the Company and the Subsidiary Guarantors shall ensure that (i) any Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Shelf Registration Statement and any amendment thereto (in either case, other than with respect to information included therein in reliance upon or in conformity with written information furnished to the Company by or on behalf of any Holder specifically for use therein (the "Holders' Information")) does not contain 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 not misleading and (iii) any prospectus forming part of any Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to Holders' Information), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 3. Additional Interest. (a) If (i) the Exchange Offer Registration Statement is not filed with the Commission on or prior to forty-five (45) days after the Closing Date, (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective within 180 days after the Filing Date (or in the case of a Shelf Registration, after the day the filing is required by Section 2 (a)), (iii) the Registered Exchange Offer is not consummated on or prior to 40 days after the Exchange Offer Registration Statement is declared effective, (iv) if the Company is required to file the Shelf Registration Statement in accordance with Section 2, the Company does not so file the Shelf Registration Statement on or prior to the 30th day after the Company's obligation to file such Shelf Registration Statement arises, or (v) the applicable Registration Statement is filed and declared effective but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being again effective within 30 days or being succeeded within 30 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (v), a "Registration Default"), the Company shall be obligated to pay additional interest ("Additional Interest") to each Holder of Transfer Restricted Securities, during the period of one or more such Registration Defaults, at a rate of 0.25% per annum on the applicable principal amount of Transfer Restricted Securities held by such Holder for the first 90-day period immediately following the occurrence of a Registration 7 Default, and such rate will increase by an additional 0.25% with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum additional rate of 1.00% per annum. Such obligation to pay Additional Interest shall survive until (i) the applicable Registration Statement is filed, (ii) the Exchange Offer Registration Statement is declared effective and the Registered Exchange Offer is consummated with respect to all properly tendered Securities, (iii) the Shelf Registration Statement is declared effective or (iv) the Shelf Registration Statement again becomes effective (or is superseded by another effective Shelf Registration Statement), as the case may be. Following the cure of all Registration Defaults, the accrual of Additional Interest will cease. As used herein, the term "Transfer Restricted Securities" means (i) each Security until the date on which such Security has been exchanged for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) each Security until the date on which it has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) each Security until the date on which it is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable without restriction pursuant to Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary in this Section 3 (a), the Company shall not be required to pay Additional Interest to a Holder of Transfer Restricted Securities if such Holder failed to comply with its obligations to make the representations set forth in the second to last paragraph of Section 1 or failed to provide the information required to be provided by it, if any, pursuant to Section 4 (n). (b) The Company shall notify the Trustee and the paying agent under the Indenture immediately upon the happening of each and every Registration Default. The Company shall pay the Additional Interest due on the Transfer Restricted Securities by depositing with the paying agent (which may not be the Company for these purposes), in trust, for the benefit of the Holders thereof, prior to 10:00 a.m., New York City time, on the next applicable interest payment date specified by the Indenture and the Securities, sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each applicable interest payment date specified by the Indenture and the Securities to the record holder entitled to receive the interest payment to be made on such date. Each obligation to pay Additional Interest shall be deemed to accrue from and including the date of the applicable Registration Default. 8 (c) The parties hereto agree that the Additional Interest provided for in this Section 3 constitute a reasonable estimate of and are intended to constitute the sole damages that will be suffered by Holders of Transfer Restricted Securities by reason of the failure of (i) the Shelf Registration Statement or the Exchange Offer Registration Statement to be filed, (ii) the Shelf Registration Statement to remain effective or (iii) the Exchange Offer Registration Statement to be declared effective and the Registered Exchange Offer to be consummated, in each case to the extent required by this Agreement. 4. Registration Procedures. In connection with any Registration Statement, the following provisions shall apply: (a) The Company shall (i) furnish to each Holder, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and shall use its reasonable best efforts to reflect in each such document, when so filed with the Commission, such comments as any Holder may reasonably propose; (ii) include the information set forth (A) in Annex A hereto on the cover of such prospectus, (B) in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section of such prospectus and (C) in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement, and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; and (iii) if requested by any Holder, include the information required by Items 507 or 508 of Regulation S-K, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement. (b) The Company shall advise each Exchanging Dealer and the Holders (if applicable) and, if requested by any such person, confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when any Registration Statement and any amendment thereto has been filed with the Commission and when such Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to any Registration Statement or the prospectus included therein or for additional information; 9 (iii) if known by the Company, of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities or the Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the making of any changes in any Registration Statement or the prospectus included therein in order that the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) The Company and the Subsidiary Guarantors shall make every reasonable effort to obtain the withdrawal at the earliest possible time of any order suspending the effectiveness of any Registration Statement. (d) The Company shall furnish to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, at least one conformed copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall, during the Shelf Registration Period, promptly deliver to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, as many copies of the prospectus (including each preliminary prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Company and the Subsidiary Guarantors consent to the use of such prospectus or any amendment or supplement thereto by each of the selling Holders of Transfer Restricted Securities in connection with the offer and sale of the Transfer Restricted Securities covered by such prospectus or any amendment or supplement thereto. (f) The Company shall furnish to each Exchanging Dealer, and to any Holder who so requests, without charge, at least one conformed copy of 10 the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any Exchanging Dealer or any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (g) The Company shall, during the Exchange Offer Registration Period or the Shelf Registration Period, as applicable, promptly deliver to each Exchanging Dealer and such other persons that are required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement or the Shelf Registration Statement and any amendment or supplement thereto as such Exchanging Dealer or other persons may reasonably request; and the Company and the Subsidiary Guarantors consent to the use of such prospectus or any amendment or supplement thereto by any such Exchanging Dealer or other persons, as applicable, as aforesaid. (h) Prior to the effective date of any Registration Statement, the Company and the Subsidiary Guarantors shall use their best efforts to register or qualify, or cooperate with the Holders of Securities or Exchange Securities included therein and their respective counsel in connection with the registration or qualification of, such Securities or Exchange Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any such Holder reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities or Exchange Securities covered by such Registration Statement; provided that the Company and the Subsidiary Guarantors shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of Securities or Exchange Securities to facilitate the timely preparation and delivery of certificates representing Securities or Exchange Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders thereof may request in writing prior to sales of Securities or Exchange Securities pursuant to such Registration Statement. (j) If any event contemplated by Section 4(b)(ii) through (v) occurs during the period for which the Company is required to maintain an effective Registration Statement, the Company and the Subsidiary Guarantors shall promptly prepare and file with the Commission a post-effective amendment 11 to the Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to purchasers of the Securities or Exchange Securities from a Holder, the prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (k) Not later than the effective date of the applicable Registration Statement, the Company shall provide a CUSIP number for the Securities and the Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Securities or the Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company and the Subsidiary Guarantors shall comply with all applicable rules and regulations of the Commission and shall make generally available to the Company's security holders as soon as practicable after the effective date of the applicable Registration Statement an earning statement satisfying the provisions of Section 11(a) of the Securities Act; provided that in no event shall such earning statement be delivered later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the applicable Registration Statement, which statement shall cover such 12-month period. (m) The Company and the Subsidiary Guarantors shall cause the Indenture to be qualified under the Trust Indenture Act as required by applicable law in a timely manner. (n) The Company may require each Holder of Transfer Restricted Securities to be registered pursuant to any Shelf Registration Statement to furnish to the Company such information concerning the Holder and the distribution of such Transfer Restricted Securities as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement, and the Company may exclude from such registration the Transfer Restricted Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) In the case of a Shelf Registration Statement, each Holder of Transfer Restricted Securities to be registered pursuant thereto agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company pursuant to Section 4(b)(ii) through (v), such Holder 12 will discontinue disposition of such Transfer Restricted Securities until such Holder's receipt of copies of the supplemental or amended prospectus contemplated by Section 4(j) or until advised in writing (the "Advice") by the Company that the use of the applicable prospectus may be resumed. If the Company shall give any notice under Section 4(b)(ii) through (v) during the period that the Company is required to maintain an effective Registration Statement (the "Effectiveness Period"), such Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Transfer Restricted Securities covered by such Registration Statement shall have received (x) the copies of the supplemental or amended prospectus contemplated by Section 4(j) (if an amended or supplemental prospectus is required) or (y) the Advice (if no amended or supplemental prospectus is required). (p) In the case of a Shelf Registration Statement, the Company and the Subsidiary Guarantors shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as Holders of a majority in aggregate principal amount of the Securities or Exchange Securities being sold or the managing underwriters, if any, shall reasonably request in order to facilitate any disposition of Securities or Exchange Securities pursuant to such Shelf Registration Statement. (q) In the case of any Shelf Registration Statement, the Company and the Subsidiary Guarantors, as applicable, shall: (i) make reasonably available for inspection by the Holders of, representatives and counsel to, a majority in aggregate principal amount of the Securities to be registered thereunder, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by such Holders or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries; (ii) cause the Company's officers, directors and employees to supply all relevant information reasonably requested by the Holders or any such underwriter, attorney, accountant or agent in connection with any such Shelf Registration Statement as is customary for similar due diligence examinations; provided, however, that any information that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such information shall be kept confidential by the Holders or any such underwriter, 13 attorney, accountant or agent, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; (iii) make such representations and warranties to the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings; (iv) if requested by Holders of a majority in aggregate principal amount of the Securities to be registered thereunder or by any underwriter participating in any disposition pursuant to such Shelf Registration Statement, to use its reasonable best efforts to have its counsel issue legal opinions and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the underwriters, if any) addressed to each selling Holder and the underwriters, if any, covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (v) if requested by Holders of a majority in aggregate principal amount of the Securities to be registered thereunder or by any underwriter participating in any disposition pursuant to such Shelf Registration Statement, to use its reasonable best efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which, in each case, financial statements and financial data are, or are required to be, included in the Shelf Registration Statement), addressed to each selling Holder of Securities registered thereunder and the underwriters, if any, in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings; and (vi) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities being sold and the underwriters, if any, and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company and the Subsidiary Guarantors. 14 The actions set forth in clauses (iii), (iv), (v) and (vi) of this subsection shall be performed at (A) the effectiveness of such Shelf Registration Statement and each post-effective amendment thereto; and (B) each closing under any underwriting or similar agreement as and to the extent required thereunder. (r) If a Registered Exchange Offer is to be consummated, upon delivery of the Securities by Holders to the Company (or to such other person as directed by the Company) in exchange for the Exchange Securities, the Company shall mark, or cause to be marked, on the Securities so exchanged that such Securities are being canceled in exchange for the Exchange Securities. In no event shall the Securities be marked as paid or otherwise satisfied. (s) The Company will use its reasonable best efforts to cause the Securities covered by a Registration Statement to be rated with at least one nationally recognized statistical rating agency, if so requested by Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities being sold with respect to the related Registration Statement or by any underwriters. (t) In the event that any broker-dealer shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the National Association of Securities Dealers, Inc.) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Rules and By-Laws, including, without limitation, by: (i) if such Rules or By-Laws shall so require, engaging a "qualified independent underwriter" (as defined in such Rules) to participate in the preparation of the Registration Statement, to exercise usual standards of due diligence with respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities; (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 6 hereof; and 15 (iii) providing such information to such Broker-Dealer as may be required in order for such Broker-Dealer to comply with the requirements of such Rules. 5. Registration Expenses. The Company and the Subsidiary Guarantors shall bear all expenses incurred in connection with the performance of its obligations under Sections 1, 2, 3 and 4 and, in the case of a Shelf Registration Statement, the Company and the Subsidiary Guarantors shall reimburse the Holders for the reasonable fees and disbursements of one firm of attorneys (in addition to any local counsel) chosen by the Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities to be sold pursuant to each Registration Statement (the "Special Counsel") acting for the Holders in connection therewith. 6. Indemnification. (a) In the event of a Shelf Registration Statement or in connection with any prospectus delivery pursuant to an Exchange Offer Registration Statement by an Exchanging Dealer, the Company and the Subsidiary Guarantors shall, jointly and severally, indemnify and hold harmless each Holder (including, without limitation, any such Exchanging Dealer), their affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls such Holder, as applicable, within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6 and Section 7 as a Holder) from and against any loss, claim, damage or liability, joint or several or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of Securities or Exchange Securities), to which that Holder may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming a part thereof or in any amendment or supplement thereto or (ii) 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 light of the circumstances under which they were made, not misleading, and shall reimburse each Holder promptly upon demand for any legal or other expenses reasonably incurred by that Holder in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company and the Subsidiary Guarantors shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or 16 alleged omission from any of such documents in reliance upon and in conformity with any Holders' Information; and provided further, however, that with respect to any such untrue statement in or omission from any related preliminary prospectus, the indemnity agreement contained in this Section 6(a) shall not inure to the benefit of any Holder from whom the person asserting any such loss, claim, damage, liability or action received Securities or Exchange Securities to the extent that such loss, claim, damage, liability or action of or with respect to such Holder results from the fact that both (A) a copy of the final prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such Securities or Exchange Securities to such person and (B) the untrue statement in or omission from the related preliminary prospectus was corrected in the final prospectus unless, in either case, such failure to deliver the final prospectus was a result of non-compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g). (b) In the event of a Shelf Registration Statement, each Holder shall indemnify and hold harmless the Company, the Subsidiary Guarantors, their affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Company or any such Subsidiary Guarantor, as the case may be, within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6 (b) and Section 7 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming a part thereof or in any amendment or supplement thereto or (ii) 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 light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Holders' Information furnished to the Company or any Subsidiary Guarantor by such Holder, and shall reimburse the Company or such Subsidiary Guarantor, as the case may be, for any legal or other expenses reasonably incurred by the Company or such Subsidiary Guarantor, as the case may be, in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that no such Holder shall be liable for any indemnity claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Securities or Exchange Securities pursuant to such Shelf Registration Statement. 17 (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. 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. After notice from the indemnifying party to the 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 other than the reasonable costs of investigation; provided, however, that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in 18 addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability or claims that were raised or could have been raised by such plaintiff in such proceeding. 7. Contribution. If the indemnification provided for in Section 6 is unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Subsidiary Guarantors from the offering and sale of the Securities and the Exchange Offer, on the one hand, and a Holder with respect to the sale by such Holder of Securities or Exchange Securities on the other, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Subsidiary Guarantors on the one hand and such Holder on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Subsidiary Guarantors on the one hand and a Holder on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the aggregate principal amount of Existing Notes received by the Company in exchange for the Securities on the one hand bear to the total proceeds received by such Holder with respect to its sale of Securities or Exchange Securities on the other. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the 19 omission or alleged omission to state a material fact relates to the Company and the Subsidiary Guarantors or information supplied by the Company and the Subsidiary Guarantors on the one hand or to any Holders' Information supplied by such Holder on the other, the intent of the parties and their relative 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 7 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7 shall be deemed to include, for purposes of this Section 7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 7, an indemnifying party that is a Holder of Securities or Exchange Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Securities or Exchange Securities sold by such indemnifying party to any purchaser exceeds the amount of any damages which such indemnifying party has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. 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. 8. Rules 144 and 144A. So long as Transfer Restricted Securities remain outstanding, after July 26, 2001, the Company shall use its reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, will upon the written request of any Holder of Transfer Re stricted Securities, make publicly available other information so long as necessary to permit sales of such Holder's securities pursuant to Rules 144 and 144A. So long as Transfer Restricted Securities remain outstanding, the Company covenants that after July 26, 2001 it will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including, without limitation, the requirements of Rule 144A(d)(4)). So long as Transfer Restricted Securities remain outstanding, upon the written request of any Holder of Transfer Restricted Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. 20 Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 9. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities included in such offering, subject to the consent of the Company (which shall not be unreasonably withheld or delayed), and such Holders shall be responsible for all underwriting commissions and discounts in connection therewith. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 10. Miscellaneous. (a) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose Securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities being sold by such Holders pursuant to such Registration Statement. (b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telecopier or air courier guaranteeing next-day delivery: (1) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 10(b), which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture; and 21 (2) if to the Company or any Subsidiary Guarantor, initially at the address of the Company set forth in the Indenture. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being delivered to a next-day air courier; five business days after being deposited in the mail; and when receipt is acknowledged by the recipient's telecopier machine, if sent by telecopier. (c) Successors And Assigns. This Agreement shall be binding upon the Company and the Subsidiary Guarantors and their successors and assigns. (d) Counterparts. This Agreement may be executed in any number of counterparts (which may be delivered in original form or by telecopier) and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) Definition of Terms. For purposes of this Agreement, (a) the term "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (h) Remedies. In the event of a breach by the Company, the Subsidiary Guarantors or by any Holder of any of their obligations under this Agreement, each Holder, the Company or each Subsidiary Guarantor, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages (other than the recovery of damages for a breach by the Company or such Subsidiary Guarantors, as the case may be, of its obligations under Sections 1 or 2 hereof for which Additional Interest has been paid pursuant to Section 3 hereof), will be entitled to specific performance of its rights under this Agreement. The Company, each Subsidiary Guarantor and each Holder agree that monetary damages would not be adequate compensation for any 22 loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (i) No Inconsistent Agreements. The Company and each of the Subsidiary Guarantors represents, warrants and agrees that (i) it has not entered into, shall not, on or after the date of this Agreement, enter into any agreement that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof, (ii) it has not previously entered into any agreement granting any registration rights with respect to any of its debt securities to any person, except for such agreements where the Company has complied and is in compliance with its registration obligations to date, and (iii) without limiting the generality of the foregoing, so long as Transfer Restricted Securities remain outstanding, without the written consent of the Holders of a majority in aggregate principal amount of the then outstanding Transfer Restricted Securities, it shall not grant to any person the right to request the Company to register any debt securities of the Company under the Securities Act unless the rights so granted are not, in conflict or inconsistent with the provisions of this Agreement. (j) No Piggyback on Registrations. Neither the Company nor any of its security holders (other than the Holders of Transfer Restricted Securities in such capacity) shall have the right to include any securities of the Company in any Shelf Registration or Registered Exchange Offer other than Transfer Restricted Securities. (k) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 23 (l) Notice of Limitation of Liability. A copy of the Agreement and Declaration of Trust of each Fidelity fund or series investment company (each, a "Fund") that is a Massachusetts business trust is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this Agreement is executed on behalf of the Trustees of the relevant Fund as Trustees and not individually and that the obligations of this Agreement are not binding upon any of the Trustees, officers or shareholders of the Fund individually but are binding only upon the assets property of such Fund. 24 Please confirm that the foregoing correctly sets forth the agreement among the Company and the Holders. Very truly yours, RITE AID CORPORATION, By:__________________________________ Name: Elliot S. Gerson Title: Senior Executive Vice President, General Counsel and Assistant Secretary THRIFTY PAYLESS, INC., as a Subsidiary Guarantor, By:__________________________________ Name: Title: EACH OF THE SUBSIDIARY GUARANTORS LISTED ON SCHEDULE A HERETO, By:__________________________________ Name: Title: Authorized Signatory 25 Accepted: HOLDERS OF THE SECURITIES By: State Street Bank and Trust Company, on behalf of the Holders in its capacity as Trustee, By:___________________________ Name: Title: 26 SCHEDULE I Exchanging Holders 1. Fidelity Charles Street Trust: Fidelity Asset Manager: Growth 2. Fidelity Charles Street Trust: Fidelity Asset Manager: Income 3. Fidelity Devonshire Trust: Fidelity Equity-Income Fund 4. Fidelity Advisor Series I: Fidelity Advisor Asset Allocation Fund 5. Fidelity Advisor Series II: Fidelity Advisor High Income Fund 6. Fidelity Advisor Series II: Fidelity Advisor High Yield Fund 7. Fidelity Charles Street Trust: Fidelity Asset Manager: Aggressive 8. Fidelity Charles Street Trust: Fidelity Asset Manager 9. Fidelity Puritan Trust: Fidelity Balanced Fund 10. Fidelity Summer Street Trust: Fidelity Capital & Income Fund 11. Fidelity Fixed-Income Trust: Fidelity High Income Fund 12. Variable Insurance Products Fund: Equity-Income Portfolio 13. Variable Insurance Products Fund III: Balanced Portfolio 14. Fidelity Canadian Balanced Fund 15. Fidelity Global Asset Allocation Fund 16. Commonwealth of Massachusetts Pension Reserve Investment Management Board 17. Fidelity Management Trust Company, as Trustee for the Fidelity Group Trust for Employee Benefit Plans, Fidelity High Yield Collective Trust 18. Pension Investment Committee of General Motors for General Motors Employees Domestic Group Pension Trust 27 SCHEDULE A Subsidiary Guarantors 112 Burleigh Avenue Norfolk, LLC 1515 West State Street Boise, Idaho, LLC 1525 Cortyou Road-Brooklyn Inc. 1740 Associates, LLC 3581 Carter Hill Road-Montgomery Corp. 4042 Warrensville Center Road-Warrensville Ohio, Inc. 5277 Associates, Inc. 537 Elm Street Corporation 5600 Superior Properties, Inc. 657-659 Broadway St. Corp. 764 South Broadway-Geneva, Ohio, LLC Ann & Government Streets-Mobile, Alabama, LLC Apex Drug Stores, Inc. Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC Broadview and Wallings-Broadview Heights Ohio, Inc. Central Avenue and Main Street-Petal, MS, LLC Dominion Action Four Corporation Dominion Action One Corporation Dominion Action Three Corporation Dominion Action Two Corporation Dominion Drug Stores Corporation Drug Fair of PA, Inc. Drug Fair, Inc. Eagle Managed Care Corp. Eighth and Water Streets-Ulrichsville, Ohio, LLC England Street-Asheland Corporation GDF, Inc. Gettysburg and Hoover-Dayton, Ohio, LLC Gratiot & Center-Saginaw Township, Michigan, LLC Harco, Inc. Jaime Nathan Travis Corporation K&B Alabama Corporation K&B Florida Corporation K&B Louisiana Corporation K&B Mississippi Corporation K&B Services, Inc. K&B Tennessee Corporation K&B Texas Corporation 28 K&B Trainees, Inc. K&B, Incorporated Katz & Besthoff, Incorporated Keystone Centers, Inc. Lakehurst and Broadway Corporation Mayfield & Chillicothe Roads-Chesterland, LLC Munson & Andrews LLC Name Rite, LLC Northline & Dix-Toledo-Southgate, LLC Ocean Acquisition Corporation P.L.D. Enterprises, Inc. Patton Drive and Navy Boulevard Property Corporation Paw Paw Lake Road & Paw Paw Avenue-Coloma, Michigan, LLC PDS-1 Michigan, Inc. Perry Distributors, Inc. Perry Drug Stores, Inc. PL Xpress, Inc. Portfolio Medical Services, Inc. Rack Rite Distributors, Inc. Ram-Utica, Inc. RDS Detroit, Inc. Reads, Inc. Rite Aid Drug Palace, Inc. Rite Aid Hdqtrs. Corp. Rite Aid of Alabama, Inc. Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Florida, Inc. Rite Aid of Georgia, Inc. Rite Aid of Illinois, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Massachusetts, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of North Carolina, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. 29 Rite Aid of South Carolina, Inc. Rite Aid of Tennessee, Inc. Rite Aid of Vermont, Inc. Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Rite Aid Realty Corp. Rite Aid Rome Distribution Center, Inc. Rite Aid Transport, Inc. Rite Aid Venturer #1, Inc. Rite Fund, Inc. Rite Investments Corporation RX Choice, Inc. Script South Seven Mile and Evergreen-Detroit, LLC Silver Springs Road-Baltimore, Maryland/One, LLC Silver Springs Road- Baltimore, Maryland/Two, LLC Sophie One Corp. State & Fortification Streets-Jackson, Mississippi, LLC State Street and Hill Road-Gerard, Ohio, LLC Super Distributors, Inc. Super Ice Cream Suppliers, Inc. Super Laboratories, Inc. Super Pharmacy Network, Inc. Super Tobacco Distributors, Inc. The Lane Drug Company The Muir Company Thrifty Corporation Thrifty Payless, Inc. Thrifty Wilshire, Inc. Tyler and Sanders Roads, Birmingham-Alabama, LLC Virginia Corporation W.R.A.C., Inc. Fairground, LLC Laverdiere's Enterprises, Inc. Leader Drugs, Inc. 30 ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the [Closing Date] (as defined herein), it will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 31 ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Securities, where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." 32 ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the [Closing Date], it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until _______________, 200_, all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Registered Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the [Closing Date] the Company will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Registered Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any broker-dealers and will indemnify the Holders of the Securities (including, any broker-dealers) against certain liabilities, including liabilities under the Securities Act. ANNEX D [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: Address: If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-10 33 exh10-53.txt EXHIBIT 10.53 REGISTRATION RIGHTS AGREEMENT DATED AS OF JUNE 27, 2001 By and Between RITE AID CORPORATION and THE INVESTORS INDICATED ON THE SIGNATURE PAGE HERETO REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of June 27, 2001, by and between RITE AID CORPORATION, a Delaware corporation (the "Company"), and the entities listed on the signature page hereto (the "Exchanging Holders"). W I T N E S S E T H: WHEREAS, the Company has agreed to issue to the Exchanging Holders a warrant, dated June 27, 2001 (the "Warrant"), to purchase up to 3,000,000 shares (the "Warrant Shares") of the Company's Common Stock, par value $1.00 per share (the "Common Stock"), in accordance with the terms thereof; WHEREAS, in connection with the issuance of the Warrant to the Exchanging Holders, the Company has agreed to provide to the holders of the Warrant and the Warrant Shares the registration rights set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to and on the terms and conditions herein set forth, the parties hereto hereby agree as follows: ARTICLE I Certain Definitions As used in this Agreement, the following terms shall have the meanings ascribed to them below: 1.1 "Commission" shall mean the Securities and Exchange Commission or any federal agency at the time administering the Securities Act. 1.2 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any federal statute then in effect which has replaced such statute. 1.3 "Group" shall mean two or more Persons that would be deemed a "group" for purposes of Rule 13d-5 under the Exchange Act. 2 1.4 "Holder" means each of the Exchanging Holders for so long as it owns any Registrable Securities and any other Person who is a holder or beneficial owner of Registrable Securities for so long as such Person owns any Registrable Securities. 1.5 "Person" shall mean an individual, corporation, limited liability company, joint venture, partnership, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity that may be treated as a person under applicable law. 1.6 "Registrable Securities" shall mean the Common Stock issued or issuable upon exercise of the Warrant. As to any Registrable Securities, such securities shall cease to be Registrable Securities when (i) a registration statement registering such Registrable Securities under the Securities Act has been declared or becomes effective and such Registrable Securities have been sold or otherwise transferred by the Holder thereof pursuant to such effective registration statement; (ii) such Registrable Securities are sold pursuant to Rule 144 under circumstances in which any legend borne by such Registrable Securities relating to restrictions on the transferability thereof, under the Securities Act or otherwise, is removed by the Company or such Registrable Securities are eligible to be sold pursuant to paragraph (k) of Rule 144; or (iii) such Registrable Securities shall cease to be outstanding. 1.7 "Rule 144" shall mean Rule 144 promulgated under the Securities Act. 1.8 "Securities Act" shall mean Securities Act of 1933, as amended, or any federal statute then in effect which has replaced such statute. ARTICLE II Public Offering Pursuant to Registration Rights 2.1 Demand Registrations. (a) Holders of Registrable Securities representing not less than one-third of the then-outstanding Registrable Securities (the 3 "Initiating Holders") may require that the Company effect a registration under the Securities Act at any time or times with respect to at least 25% of the Common Stock issued or issuable upon exercise of the Warrant (or, if less, all remaining Registrable Securities) (a "Demand Registration"). Upon receipt of written notice of such demand, the Company will promptly give written notice of the proposed registration to all Holders other than Initiating Holders and will include in such registration (x) all Registrable Securities specified in such demand, together with Registrable Securities of like kind of any other Holder joining in such demand as are specified in a written request received by the Company within 20 days after delivery of the Company's notice and (y) all shares of equity securities of the Company which the Company or other holders of equity securities having registration rights may elect to register. Notwithstanding anything in this Section 2.1(a) to the contrary, the Holders will collectively be entitled to no more than an aggregate of two (2) Demand Registrations. (b) The Company shall file a registration statement with respect to each Demand Registration requested pursuant to Section 2.1(a) as soon as practicable after receipt of the demand of the Initiating Holders; provided, however, that (x) if in the good faith judgment of the Board of Directors of the Company (the "Board"), deferral of such Demand Registration or delivery of any prospectus supplement to be delivered pursuant to Section 2.5 would be in the best interests of the Company in that such registration or delivery would interfere with any other material corporate transaction (as evidenced by an appropriate resolution of the Board) of the Company or would require the disclosure of material non-public information, then the Company shall have the right to defer such filing or delivery, as the case may be, in order to effect such other material corporate transaction; provided, further, however, that the Company may not defer the filing or delivery, as the case may be, for any period or periods aggregating more than 90 days after receipt of the demand of the Initiating Holders; (y) the Company shall not be required to file any registration statement or deliver any prospectus supplement (i) if such filing or delivery is prohibited by applicable law or (ii) if the Company has already filed a registration statement which has not yet been declared effective or 30 days prior to the anticipated consummation of a public offering by the Company of its equity securities and 90 days subsequent to the consummation of such public offering; and (z) if the Company undertakes a registration within 90 days following an exercise of its deferral right, the Holders shall have "piggyback" rights under Section 2.2 hereof such that they shall be entitled to include therein a number of shares equal to not less than one-third (1/3) of the number of shares of Common Stock to be sold in such offering unless such inclusion would be in conflict with the express registration rights of any other party pursuant to any agreement by and between the Company and 4 such party as in existence on the date hereof, in which instance such Holders shall be entitled to include in such offering the maximum number of shares not resulting in such conflict. (c) If the Initiating Holders intend to distribute the Registrable Securities covered by a Demand Registration by means of an underwriting, they shall so advise the Company as part of their demand made pursuant to Section 2.1(a) and the Company shall include such information in its written notice to Holders. The Initiating Holders shall have the right to select the managing underwriter(s) for any underwritten Demand Registration, subject to the approval of the Board (which will not be unreasonably withheld or delayed). The right of any Holder to participate in an underwritten Demand Registration shall be conditioned upon such Holder's participation in such underwriting in accordance with the terms and conditions thereof, and the Company and all such Holders will enter into an underwriting agreement in customary form. (d) The Holders will have absolute priority over any other securities of the Company sought to be included in a Demand Registration. If such other securities are included in any Demand Registration that is not an underwritten offering, all Registrable Securities of the Holders included in such offering shall be sold prior to or concurrently with the sale of any of such other securities. If other securities of the Company are included in any Demand Registration that is an underwritten offering, and the managing underwriter for such offering advises the Company that in its opinion the amount of securities to be included exceeds the amount of securities which can be sold in such offering without adversely affecting the marketability thereof, the Company will include in such registration all Registrable Securities requested to be included therein by the Holders prior to the inclusion of any other securities of the Company. If the number of Registrable Securities requested by the Holders to be included in such registration exceeds the amount of securities which in the opinion of such managing underwriter can be sold without adversely affecting the marketability of such offering, such Registrable Securities shall be included pro rata among the Holders based on the percentage of the then-outstanding Registrable Securities held by each such Holder. 5 2.2 Piggyback Registration. (a) If the Company shall determine to register any equity securities of the Company for its own account or for the account of other holders of equity securities of the Company on any registration form (other than Form S-4 or S-8 or other successor forms) which permits the inclusion of Registrable Securities held by any Holder (a "Piggyback Registration"), the Company will promptly give each Holder written notice thereof and, subject to Section 2.2(c), shall include in such registration all Registrable Securities requested to be included therein pursuant to the written requests of Holders received within 20 days after delivery of the Company's notice. (b) If the Piggyback Registration relates to a shelf registration statement on an applicable form, the Company will cause such registration to remain effective for a period ending on the earlier of (i) the date two years after the date the Commission declares such shelf registration statement effective, and (ii) the date on which there ceases to be any Registrable Securities outstanding. (c) If the Piggyback Registration relates to an underwritten public offering, the Company shall so advise the Holders as part of the written notice given pursuant to Section 2.2(a). In such event, the right of any Holder to participate in such registration shall be conditioned upon such Holder's participation in such underwriting in accordance with the terms and conditions thereof. The Board shall have the right to select the managing underwriter(s) for any underwritten Piggyback Registration. All Holders proposing to distribute their Registrable Securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form. (d) If such proposed Piggyback Registration is an underwritten offering and the managing underwriter for such offering advises the Company that the securities requested to be included therein exceeds the amount of securities that can be sold in such offering, except as provided in Section 2.1(b), any securities to be sold in such offering by the Company or other holders of the Company's securities initiating such offering shall have priority over any Registrable Securities held by Holders, and the number of shares to be included by a Holder and other holders of the Company's securities that did not initiate the offering in such registration shall be reduced pro rata on the basis of the percentage of the then outstanding Registrable Securities held by each such Holder and all other holders exercising similar registration rights. 6 2.3 Expenses of Registration. All expenses incurred in connection with up to two Demand Registrations and all Piggyback Registrations shall be borne by the Company, including, in the case of an underwritten offering, the reasonable cost of one counsel selected by a majority of the Holders participating in such underwritten offering reasonably acceptable to the Company (the Company herein acknowledging that Goodwin Procter LLP is acceptable counsel) up to a maximum of $25,000, provided, that the expenses borne by the Company shall not include the fees or disbursements of any other adviser of any Holder. All underwriting discounts, selling commissions and other similar fees relating to Registrable Securities included in the registration statement of the Company shall be borne by the Holders of such Registrable Securities pro rata on the basis of the amount of Registrable Securities sold by them. 2.4 Registration Procedures. In the case of each registration effected by the Company pursuant to this Article II, the Company will keep each Holder advised in writing as to the initiation of such registration and as to the completion thereof. At its expense, the Company will use its reasonable best efforts to: (a) cause such registration to be declared effective by the Commission and, in the case of a Demand Registration, keep such registration effective for a period of [one year] or until the Holders whose Registrable Securities are included therein have completed the distribution described in the registration statement relating thereto, whichever first occurs; (b) as soon as reasonably possible, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus included therein (including post-effective amendments, prospectus supplements and pricing supplements) as may be necessary to effect and maintain the effectiveness of such registration statement for the period specified in Section 2.4(a); (c) provide (A) the Holders of the Registrable Securities to be included in such registration statement, (B) the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act) if any, thereof, (C) the sales or placement agent therefor, if any, (D) counsel for such underwriters or agent, and (E) not more than one counsel for all the holders of such Registrable Securities the opportunity to participate in the preparation of such registration statement, each 7 prospectus included therein or filed with the Commission, and each amendment or supplement thereto; (d) (A) register or qualify the Registrable Securities to be included in such registration statement under such securities laws or blue sky laws of such jurisdictions as any Holder of such Registrable Securities and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, and (B) take any and all other actions as may be reasonably necessary or advisable to enable each such Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that the Company shall not be required for any other purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 2.4(d) or (2) consent to general service of process or taxation in any such jurisdiction; (e) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as any Holder from time to time may reasonably request; (f) promptly notify the selling Holders of Registrable Securities, the sales or placement agent, if any, therefor and the managing underwriter or underwriters, if any, thereof and confirm such advice in writing, (A) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and with respect to such registration statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission, the Blue Sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such registration statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 3 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for the sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (F) at any time when a prospectus is required to be delivered under the Securities Act, that such registration statement, prospectus, prospectus amendment or supplement or post-effective amendment, or any document incorporated by reference in any of the foregoing, contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or 8 necessary to make the statements therein not misleading in light of the circumstances then existing; (g) obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (h) if requested by any managing underwriter or underwriters, any placement or sales agent or any Holder of Registrable Securities, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such Holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold by such Holder or agent or to any underwriters, the name and description of such Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such Holder or agent or to such underwriters; (i) furnish to each Holder of Registrable Securities included in such registration statement, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 2.4(c) an executed copy of such registration statement, each such amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and such number of copies of such registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically and reasonably so requested by such Holder, agent or underwriter, as the case may be) and 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 the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Holder and by any such agent and underwriter, if any, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; 9 (j) cause all Registrable Securities covered by such registration to be listed on each securities exchange or inter-dealer quotation system on which similar securities issued by the Company are then listed; (k) provide a transfer agent and registrar for all Registrable Securities covered by such registration and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (l) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Conduct (the "Rules of Conduct") of the National Association of Securities Dealers, Inc. ("NASD") thereof, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise use its reasonable best efforts to assist such broker-dealer in complying with the requirements of such Rules of Conduct, including, without limitation, by providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Conduct; (m) otherwise comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable but in no event later than eighteen months after the effective date of such registration statement, an earnings statement covering the period of at least twelve months, but not more than 18 months, beginning with the first month after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder); and (n) make available to any Holder the Registrable Securities of which are being sold in an underwritten offering registered pursuant to this Agreement, to any underwriter of such sale and to any counsel retained by such Holder in connection therewith, at reasonable times and places, all records and documents of the Company that are reasonably pertinent to the registration statement filed in connection with such sale. The Company shall cause its officers, directors and employees to supply all information reasonably requested by such Holder, underwritten or counsel in connection therewith. In addition, in connection with any underwritten Demand Registration, the Company will enter into an underwriting agreement reasonably satisfactory to the Initiating Holders containing reasonable and 10 customary underwriting provisions, including, without limitation, indemnification and contribution provisions. 2.5 Delivery of Prospectus Supplement. Subject to Section 2.1(b), in the event that the Company would be required, pursuant to Section 2.4(f) above, to notify the selling Holders of Registrable Securities, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company shall promptly, but in no event later than five business days, prepare and furnish to each such Holder, to each placement or sales agent, if any, and to each underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to initial purchasers of Registrable Securities, such prospectus shall not contain 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 not misleading in light of the circumstances then existing. Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company pursuant to Section 2.4(f) hereof, such Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the registration statement applicable to such Registrable Securities until such Holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. 2.6 Furnishing Information by the Holders. The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such Holder and such Holder's intended method of distribution of such Registrable Securities as the Company may from time to time reasonably request in writing, but only to the extent that such information is required in order to comply with the Securities Act. Each such Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities or omits to state any material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish information so required so that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, an untrue statement of 11 a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. 2.7 Indemnification. (a) The Company will indemnify each Holder whose Registrable Securities are to be included in a registration pursuant to this Article II, each of such Holder's officers, directors, partners, agents, employees and representatives and each person controlling such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, with respect to each registration, qualification or compliance effected pursuant to this Article II, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, or other document incorporated by reference therein, or compliance, 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, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to a Holder to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder and provided for use in such registration statement, prospectus, offering circular or other document or the Holder delivered a registration or prospectus in violation of Section 2.5 hereof after notice was provided by the Company as provided in Section 2.5. It is agreed that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). (b) Each Holder whose Registrable Securities are included in any registration effected pursuant to this Article II shall indemnify the Company, each of its directors, officers, agents, employees and representatives, and each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, each other such Holder and each of their officers, directors, partners, agents, employees and representatives and each person controlling such Holder, and each underwriter, if any, of such Registrable Securities and each Person who controls any such underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) 12 arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document incident to such registration, qualification or compliance, 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, and will reim burse such indemnified persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in strict conformity with written information furnished to the Company by such Holder and provided specifically for use therein; provided, however, that (x) no Holder shall be liable hereunder for any amounts in excess of the gross proceeds received by such Holder pursuant to such registration, and (y) the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 2.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed, the Company herein and hereby approving Goodwin Procter LLP as counsel to the Exchanging Holders for the purposes of this Section 2.7(c)), and the Indemnified Party may participate in such defense with counsel reasonably acceptable to and paid for by the Indemnifying Party but otherwise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.7 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably 13 required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 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. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in an underwriting agreement entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 2.8 Other Obligations. With a view to making available the benefits of certain rules and regulations of the Commission which may effectuate the registration of Registrable Securities or permit the sale of Registrable Securities to the public without registration, the Company agrees to: (a) exercise reasonable best efforts to cause the Company to be eligible to utilize Form S-3 (or any similar form) for the registration of securities; (b) at such time as any Registrable Securities are eligible for transfer under Rule 144(k), upon the request of the holder of such Registrable 14 Securities, remove any restrictive legend from the certificates evidencing such Registrable Securities at no cost to such holder; (c) make and keep available public information as defined in Rule 144 under the Securities Act at all times; (d) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and (e) furnish any Holder upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after 90 days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the Commission (including Rule 144A) allowing a holder of Registrable Securities to sell any such Registrable Securities without registration. ARTICLE III Representations and Warranties The Company represents and warrants to, and agrees with, the Exchanging Holders and each of the Holders from time to time of Registrable Securities that: (a) The compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the property or assets of the Company is subject nor will such action result in any violation of the provisions of the certificate of incorporation or by-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its properties; and no consent, approval, 15 authorization, order, registration or qualification of or with any such court or govern mental agency or body is required for the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Securities Act of the Registrable Securities, and such consents, approvals, authorizations, registrations or qualifications as may be required under State securities or blue sky laws in connection with the offering and distribution of the Registrable Securities. (b) This Agreement has been duly authorized, executed and delivered by the Company. ARTICLE IV Termination This Agreement shall terminate immediately following the moment at which there exist no securities of the Company that constitute Registrable Securities; provided, however, that Section 2.7 hereof shall survive indefinitely. ARTICLE V Miscellaneous 5.1 Recapitalization, Exchanges, etc. Affecting the Common Stock. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (a) the Registrable Securities and (b) any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for the Registrable Securities, by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. In the event of any change in the capitalization of the Company as a result of any stock split, stock dividend or stock combination, the provisions of this Agreement shall be appropriately adjusted. 5.2 Injunctive Relief. It is hereby agreed and acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved Person will be irreparably damaged and 16 will not have an adequate remedy at law. Any such Person shall, therefore, in addition to any other remedies available under applicable law, be entitled to injunctive relief, including specific performance, to enforce such obligations, without the posting of any bond, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 5.3 Parties in Interest. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and assigns of the parties hereto. In the event that any transferee of any Holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing of any kind, be deemed a party hereto for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. 5.4 Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statements as to the results thereto) made by or on behalf of any Holder of Registrable Securities, any director, officer or partner of such Holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive delivery of and payment for the Registrable Securities pursuant to the Warrant and the transfer of Registrable Securities by such Holder. 5.5 Amendment; Waiver. (a) This Agreement may be amended only by a written instrument signed by the Company and by Holders holding more than a majority of the then outstanding Registrable Securities. (b) No provision of this Agreement may be waived orally, but only by a written instrument signed by the party against whom enforcement of such waiver is sought. Holders shall be bound from and after the date of the receipt of a written notice from the Company setting forth such amendment or waiver, 17 whether or not the Registrable Securities shall have been marked to indicate such amendment or waiver. 5.6 Notices. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing (including a writing delivered by facsimile transmission) and shall be deemed to have been duly given if delivered personally, or sent by either certified or registered mail, return receipt requested, postage prepaid, or by overnight courier guaranteeing next day delivery, or by telex or telecopier, at the following addresses: if to the Company: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq. Senior Executive Vice President and General Counsel Telecopier: (717) 975-7867 with a copy to Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036-6522 Attention: Stacy J. Kanter Telecopier: (212) 735-2000 if to the Exchanging Holders to the name of such Exchanging Holder at the following address: 82 Devonshire Street E20E Boston, MA 01203 Facsimile No.: (617) 476-7774 with a copy to: H. David Henken, P.C. Goodwin Procter LLP 53 State Street Boston, MA 02109 Facsimile No.: (617) 523-1231 18 The Exchanging Holders may, by written notice given to the Company in accordance with this Section 4.5, change the address to which such notice or other communications are to be sent to it. All such notices and communications shall be deemed to have been given on the date of delivery thereof, if delivered by hand, on the fifth day after the mailing thereof, if mailed, on the next day after the sending thereof, if by overnight courier and when receipt is acknowledged, if telecopied. 5.7 Inspection. So long as this Agreement shall be in effect, this Agreement and any amendments hereto shall be made available for inspection by any Holder at the principal offices of the Company. 5.8 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 5.9 Headings. Article, section and paragraph headings are inserted for convenience only and do not constitute a part of this Agreement. 5.10 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to this subject matter. 5.11 Illegality. In case any provision in this Agreement shall be declared or held invalid, illegal or unenforceable, in whole or in part, whether generally or in any particular jurisdiction, such provision shall be deemed amended to the extent, but only to the extent, necessary to cure such invalidity, illegality or unenforceability, and the validity, legality and enforceability of the remaining provisions, both generally and in every other jurisdiction, shall not in any way be affected or impaired thereby. 5.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall 19 constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 5.13 Notice of Limitation of Liability. A copy of the Agreement and Declaration of Trust of each Fidelity fund or series investment company (each, a "Fund") that is a Massachusetts business trust is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this Agreement is executed on behalf of the Trustees of the relevant Fund as Trustees and not individually and that the obligations of this Agreement are not binding upon any of the Trustees, officers or shareholders of the Fund individually but are binding only upon the assets property of such Fund. 20 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above. RITE AID CORPORATION By: --------------------------------------------- Name: Elliot S. Gerson Title: Senior Executive Vice President, General Counsel and Assistant Secretary [The Exchanging Holders] By: -------------------------------------------- Title: ------------------------------------------ EX-10 34 exh10-54.txt EXHIBIT 10.54 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of June 27, 2001, by and between RITE AID CORPORATION, a Delaware corporation (the "Company"), and the purchasers listed on the signature page herein, together with their permitted transferees (the "Purchasers"). W I T N E S S E T H WHEREAS, the Company has entered into a stock purchase agreement with each of the respective Purchasers whereby the Company has agreed to sell and the Purchasers have agreed to buy (collectively, the "Purchase Agreements") shares of the Company's Common Stock; and; WHEREAS, in connection with the sale of the Purchase Shares to the Purchasers, the Company has agreed to provide the Purchasers with the registration rights set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to and on the terms and conditions herein set forth, the parties hereto hereby agree as follows: ARTICLE I Certain Definitions As used in this Agreement, the following terms shall have the meanings ascribed to them below: 1.1 "Aggregate Purchase Price Proportion" with respect to each Purchaser shall mean a fraction, (x) the numerator of which shall be the product of (i) the number of Purchase Shares purchased by such Purchaser and (ii) the Purchase Price per Share, and (y) the denominator of which shall be the product of (i) the number of Purchase Shares purchased by all of the Purchasers and (ii) the Purchase Price per Share. 1.2 "Blackout Period" shall have the meaning set forth in Section 2.1(d). 1.3 "Closing Date" shall have the meaning set forth in the Purchase Agreements. 1.4 "Commission" shall mean the Securities and Exchange Commission or any federal agency at the time administering the Securities Act. 1.5 "Common Stock" shall mean the common stock of the Company, par value $1.00 per share. 1.6 "Effectiveness Deadline Date" shall have the meaning set forth in Section 2.1(b). 1.7 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any federal statute then in effect which has replaced such statute. 1.8 "Filing Deadline" shall mean the date the Company is obligated to file a registration statement pursuant to Section 2.1(a). 1.9 "Holder" shall mean each Purchaser for so long as it owns any Registrable Securities and any other Person who is a Holder or beneficial owner of Registrable Securities for so long as such Person holds or beneficially owns any Registrable Securities. 1.10 "Person" shall mean an individual, corporation, limited liability company, joint venture, partnership, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity that may be treated as a person under applicable law. 1.11 "Purchase Price" shall have the meaning set forth in the Purchase Agreements. 1.12 "Purchase Shares" shall mean the shares of Common Stock purchased by the Purchasers pursuant to the Purchase Agreements. 1.13 "Registrable Securities" shall mean the Purchase Shares, provided that such securities shall cease to be Registrable Securities when (i) a registration statement registering such Registrable Securities under the Securities Act has been declared or becomes effective and such Registrable Securities have been sold or otherwise transferred by the Holder thereof 2 pursuant to such effective registration statement; (ii) such Registrable Securities are sold pursuant to Rule 144 under circumstances in which any legend borne by such Registrable Securities relating to restrictions on the transferability thereof, under the Securities Act or otherwise, is removed by the Company or such Registrable Securities are eligible to be sold pursuant to paragraph (k) of Rule 144; or (iii) such Registrable Securities shall cease to be outstanding. 1.14 "Rule 144" shall mean Rule 144 promulgated under the Securities Act. 1.15 "Securities Act" shall mean the Securities Act of 1933, as amended, or any federal statute then in effect which has replaced such statute. 1.16 "Shelf Registration Statement" shall have the meaning set forth in Section 2.1(a). ARTICLE II Registration Rights 2.1 Shelf Registration (a) The Company will use its best efforts to prepare and file with the Commission, as soon as practicable, but in any event, no later than the date that is twenty (20) days after the Closing Date, a shelf registration statement on Form S-1 or any other appropriate form (it being understood by all parties that the Company will not be eligible to use Form S-3 prior to October 11, 2001) under Rule 415 of the Securities Act, or any similar rule that may be adopted by the Commission relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such shelf registration statement (together with all amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference thereto, the "Shelf Registration Statement"), provided that the Company may also register for sale on its own account or that of any other holder of equity securities of the Company pursuant to the Shelf Registration Statement such additional shares of the Company's stock as it shall desire. 3 (b) The Company will use its best efforts to cause the registration statement filed pursuant to Section 2.1(a) to be declared effective as soon as reasonably practicable but not later than ninety (90) days after the date of the Purchase Agreements (the "Effectiveness Deadline Date"), and subject to Section 2.1(d), to remain effective for a period ending on the earlier of (i) the date two years after the date the Commission declares the Shelf Registration Statement effective, and (ii) the date on which there ceases to be any Registrable Securities outstanding. (c) Each Holder of Registrable Securities that wishes to sell Registrable Securities pursuant to a Shelf Registration Statement and related prospectus agrees to deliver a notice and questionnaire in the form attached hereto as Exhibit A (a "Notice and Questionnaire") at least three (3) business days prior to the intended distribution of Registrable Securities under the Shelf Registration Statement. Provided that the Shelf Registration Statement has been declared effective, the Company shall, as promptly as is practicable after a Holder has delivered a Notice and Questionnaire and such other information as the Company may reasonably require, (i) if required by applicable law, file with the Commission a post-effective amendment to the Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related prospectus or amendment to any document incorporated therein by reference or file any other required document so that such Holder is named as a selling security holder in the Shelf Registration Statement and the related prospectus in such a manner as to permit such Holder to deliver such prospectus to the purchaser of the Registrable Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use its best efforts to cause such post-effective amendments to be declared effective under the Act as promptly as is practicable, (ii) provide such Holder with such number of copies of any documents filed pursuant to the foregoing as the Holder shall reasonably request and (iii) notify such Holder as promptly as practicable after the effectiveness of any post-effective amendment filed hereunder provided, however, that if the Notice and Questionnaire is delivered during a Blackout Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Blackout Period in accordance with Section 2.1(d) hereof. (d) Notwithstanding anything to the contrary contained in this Agreement, the Company shall have the right to delay the effectiveness of the Shelf Registration Statement or to suspend, after the lapse (except as provided below) of a period of sixty (60) days after the effective date of such Shelf Registration Statement, the right of a Holder to sell Registrable Securities under an effective Shelf Registration Statement, during no more than 4 (2) periods aggregating to not more than seventy-five (75) days in any twelve-month period (a "Blackout Period") in the event that (i) (a) the Company would, in accordance with the reasonable advice of its counsel, be required to disclose in the prospectus, information not otherwise required by law to be publicly disclosed, and (b) in the reasonable judgment of the Board of Directors of the Company, there is a reasonable likelihood that such disclosure, or any other action to be taken in connection with the prospectus, would materially and adversely affect or interfere with any financing, acquisition, merger, material joint venture, disposition of assets (not in the ordinary course of business), corporate reorganization or other similar transaction involving the Company, or (ii) a change to the Shelf Registration Statement is required so that, as of such date, the Shelf Registration Statement and prospectus do not contain 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 not misleading, provided, however, that during any such Blackout Period, the Company shall also delay the filing, effectiveness and usage of any registration statement with respect to any securities of the Company or any other shareholder of the Company. The Company shall promptly give the Holders written notice of such determination containing a general statement of the reasons for such postponement and an approximation of the anticipated delay; and provided further, however, that the implementation of any Blackout Period shall be done in good faith, and not for the purpose or intention of impeding such rights. Notwithstanding anything to the contrary contained in this Section 2.1(d), the Company may cause one or more additional Blackout Periods (each, an "Additional Blackout Period"), in order to file a post effective amendment to the Shelf Registration Statement to: (i) include and update the Company's financial statements for the Company's first fiscal quarter ending June 2, 2001, which post effective amendment will be filed with the Commission not later than the three (3) business days following the date the Company files its Quarterly Report on Form 10-Q for such quarter with the Commission, and (ii) include and update the Company's financial statements for the Company's second quarter ending September 1, 2001, which post effective amendment will be filed with the Commission not later than the three (3) business days following the date the Company files its Quarterly Report on Form 10-Q for such quarter with the Commission. No Additional Blackout Period shall count against the Blackout Periods permitted above, provided, that, the Commission declares the post effective amendment which resulted in the Additional Blackout Period effective not later than the twentieth (20) day following the date the Company files such post effective amendment with the Commission. In the event the Commission does not declare any such post effective amendment effective within such twenty-day period, then such Additional Blackout Period shall count as a Blackout Period. 5 (e) The Holders of at least a majority of the then outstanding Registrable Securities may elect to sell Registrable Securities in an underwritten offering in accordance with the conditions set forth in this Section 2.1(e). In any such underwritten offering, the investment banker or bankers and manager or managers that will administer the offering will be selected by, and the underwriting arrangements with respect thereto will be approved by a majority in interest of the Holders, subject, in each case, to the consent of the Company, which consent will not be unreasonably withheld, and the Holders will be responsible for all underwriting commissions and discounts with respect to the Purchase Shares sold by such Holder, in connection therewith. The Company shall not be obligated to arrange for more than two underwritten offering pursuant to the Shelf Registration Statement. No Holder may participate in any underwritten offering hereunder unless the Holder (i) agrees to sell the Holder's Registrable Securities on the basis provided in any underwriting arrangements approved pursuant hereto and (ii) completes and executes all other questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 2.2 Piggyback Registration. (a) If (A) (i) the Company has not filed the Shelf Registration Statement, or (ii) the Company is no longer obligated to maintain the effectiveness of the Shelf Registration Statement pursuant to Section 2.1(b) above and the Holder, together with its affiliated Holders, holds or beneficially owns at least one percent (1%) of the Company's outstanding Common Stock, and (B) the Company shall determine to register any equity securities of the Company for its own account or for the account of other holders of equity securities of the Company on any registration form (other than Form S-4 or S-8 or other successor forms) which permits the inclusion of Registrable Securities held by any Holder (a "Piggyback Registration"), then the Company will promptly give each Holder written notice thereof and, subject to Section 2.2(c), shall include in such registration all Registrable Securities requested to be included therein pursuant to the written requests of Holders received within 20 days after delivery of the Company's notice. (b) If the Piggyback Registration relates to an underwritten public offering, the Company shall so advise the Holders as part of the written notice given pursuant to Section 2.2(a). In such event, the right of any Holder to participate in such registration shall be conditioned upon such Holder's participation in such underwriting in accordance with the terms and conditions thereof. The Board of Directors shall have the right to select the managing underwriter(s) for any under written Piggyback Registration. All 6 Holders proposing to distribute their Registrable Securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form. (c) If such proposed Piggyback Registration is an under written offering and the managing underwriter for such offering advises the Company that the securities requested to be included therein exceeds the amount of securities that can be sold in such offering, any securities to be sold by the Company or other holders of the Company's securities initiating such offering or otherwise contractually entitled to be included in such offering prior to the Holders of the Registrable Securities shall have priority over any Registrable Securities held by Holders, and the number of shares to be included by a Holder and other holders of the Company's securities that did not initiate the offering and not having priority over the Holders in such registration shall be reduced pro rata on the basis of the percent age of the then outstanding Registrable Securities held by each such Holder and all other holders exercising similar registration rights. (d) Notwithstanding the provisions of this Section 2.2, the Company shall have the right at any time after it shall have given written notice to the Holders pursuant to Section 2.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after filing but prior to effectiveness. 2.3 Expenses of Registration. All expenses incurred in connection with the registrations described herein shall be borne by the Company, including, in the case of an underwritten offering, the fees of one counsel selected by a majority of the Holders of the Registrable Securities participating in such underwritten offering, up to a maximum of $25,000, provided, that the expenses borne by the Company shall not include the fees or disbursements of any other adviser of any Holder. All underwriting discounts, selling commissions and other similar fees relating to Registrable Securities included in the registration statement of the Company shall be borne by the Holders of such Registrable Securities pro rata on the basis of the amount of Registrable Securities sold by them. 2.4 Registration Procedures. In the case of each registration effected by the Company pursuant to this Article II involving the registration of Registrable Securities, the Company will keep each Holder advised in writing as to the initiation of such registration and as to the completion thereof. At its expense, the Company will use its best efforts to: 7 (a) cause such registration to be declared effective by the Commission; (b) as soon as reasonably possible, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus included therein (including post-effective amendments, prospectus supplements and pricing supplements) as may be necessary, including in the case of a Shelf Registration Statement such amendments and supplements as are necessary to effect and maintain the effectiveness of such registration statement for the period specified in Section 2.1(b); (c) provide (i) the Holders of the Registrable Securities to be included in such registration statement, (ii) the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act) if any, thereof, (iii) the sales or placement agent therefor, if any, (iv) counsel for such underwriters or agent, and (v) not more than one counsel for all the Holders of such Registrable Securities the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; (d) (i) register or qualify the Registrable Securities to be included in such registration statement under such securities laws or blue sky laws of such jurisdictions as any Holder of such Registrable Securities and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, and (ii) take any and all other actions as may be reasonably necessary or advisable to enable each such Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that the Company shall not be required for any other purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 2.4(d) or (2) consent to general service of process or taxation in any such jurisdiction; (e) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as any Holder from time to time may reasonably request; 8 (f) promptly notify the selling Holders of Registrable Securities, the sales or placement agent, if any, therefor and the managing under writer or underwriters, if any, thereof and confirm such advice in writing, (i) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and with respect to such registration statement or any post-effective amendment, when the same has become effective, (ii) of any comments by the Commission, the Blue Sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such registration statement or prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for the sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (v) at any time when a prospectus is required to be delivered under the Securities Act, that such registration statement, prospectus, prospectus amendment or supplement or post-effective amendment, or any document incorporated by reference in any of the foregoing, contains 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 not misleading in light of the circumstances then existing; (g) obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (h) if requested by any managing underwriter or underwriters, any placement or sales agent or any Holder of Registrable Securities, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such Holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold by such Holder or agent or to any underwriters, the name and description of such Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such Holder or agent or to such underwriters; 9 (i) furnish to each Holder of Registrable Securities included in such registration statement, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 2.4(c) an executed copy of such registration statement, each such amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and such number of copies of such registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically and reasonably so requested by such Holder, agent or underwriter, as the case may be) and 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 the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Holder and by any such agent and underwriter, if any, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (j) cause all Registrable Securities covered by such registration to be listed on each securities exchange or inter-dealer quotation system on which similar securities issued by the Company are then listed; (k) provide a transfer agent and registrar for all Registrable Securities covered by such registration and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (l) cooperate with the Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends; (m) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Conduct (the "Rules of Conduct") of the National Association of Securities Dealers, Inc. ("NASD") thereof, whether as a Holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise use its reasonable best efforts to assist such broker-dealer in complying with the requirements of such Rules of Conduct, including, without limitation, by providing such information to such 10 broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Conduct; and (n) otherwise comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable but in no event later than eighteen months after the effective date of such registration statement, an earnings statement covering the period of at least twelve months, but not more than 18 months, beginning with the first month after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). (o) make available to any Holder the Registrable Securities of which are being sold in an underwritten offering registered pursuant to this Agreement, to any underwriter of such sale and to any counsel retained by such Holder in connection therewith, at reasonable times and places, all records and documents of the Company that are reasonably pertinent to the registration statement filed in connection with such sale. The Company shall cause its officers, directors and employees to supply all information reasonably requested by such Holder, underwritten or counsel in connection therewith. In addition, in connection with any underwritten offering pursuant to Section 2.1(e) herein, the Company will enter into an agreement with the Underwriters containing reasonable and customary terms and conditions, including, without limitation, representations, warranties and indemnities. 2.5 Delivery of Prospectus Supplement. Subject to Section 2.1(d) herein, in the event that the Company would be required, pursuant to Section 2.4(f) above, to notify the selling Holders of Registrable Securities, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company shall promptly, but in no event later than five business days, prepare and furnish to each such Holder, to each placement or sales agent, if any, and to each underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to initial purchasers of Registrable Securities, such prospectus shall not contain 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 not misleading in light of the circumstances then existing. Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company pursuant to Section 2.4(f) hereof, such Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the registration statement applicable to such Registrable Securities until such Holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all 11 copies, other than permanent file copies, then in such Holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. 2.6 Furnishing Information by the Holders. The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such Holder and such Holder's intended method of distribution of such Registrable Securities as the Company may from time to time request in writing. Each such Holder agrees to promptly notify the Company of any inaccuracy or change in information previously furnished by such Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities or omits to state any material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish information so required so that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, 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 not misleading in light of the circumstances then existing. 2.7 Indemnification. (a) The Company will indemnify each Holder whose Registrable Securities are to be included in a registration pursuant to this Article II, each of such Holder's officers, directors, partners, agents, employees and representatives and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to each registration, qualification or compliance effected pursuant to this Article II, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement or alleged untrue statement of a material fact contained in any registration statement, any amendment thereto, or other document incorporated by reference therein, or compliance, 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, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any prospectus, or any amendment thereto, 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 in light of the circumstances in which 12 they were made, and will reimburse each such indemnified person for any reasonable legal and other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to a Holder to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or alleged untrue statement or omission or alleged omission based upon information furnished in writing to the Company by such Holder and provided for use in such registration statement, prospectus, offering circular or other document or the Holder delivered a registration or prospectus in violation of Section 2.5 hereof after notice was provided by the Company as provided in Section 2.5. It is agreed that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). (b) Each Holder whose Registrable Securities are included in any registration effected pursuant to this Article II shall indemnify the Company, each of its directors, officers, agents, employees and representatives, and each Person who controls the Company within the meaning of Section 15 of the Securities Act, each other such Holder and each of their officers, directors, partners, agents, employees and representatives and each person controlling such Holder, and each underwriter, if any, of such Registrable Securities and each Person who controls any such underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement or alleged untrue statement of a material fact contained in any registration statement, any amendment thereto, offering circular or other document incident to such registration, qualification or compliance, 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, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any prospectus, or any amendment thereto, 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 in light of the circumstances in which they were made, and will reimburse such indemnified persons for any reasonable legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement or omission is made in such registration statement, prospectus, offering circular or other document in reliance upon and in strict conformity with written information furnished to the Company by such Holder and provided specifically for use therein; 13 provided, that (x) no Holder shall be liable hereunder for any amounts, together with all previous payments under this Section 2.7(b), in excess of the net proceeds received by such Holder pursuant to such registration, and (y) the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 2.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed), and the Indemnified Party may participate in such defense with counsel reasonably acceptable to and paid for by the Indemnifying Party but otherwise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.7 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the 14 Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 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. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in an underwriting agreement entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 2.8 Other Obligations. With a view to making available the benefits of certain rules and regulations of the Commission which may effectuate the registration of Registrable Securities or permit the sale of Registrable Securities to the public without registration, the Company agrees to: (a) at such time as any Registrable Securities are eligible for transfer under Rule 144(k), upon the request of the Holder of such Registrable Securities, remove any restrictive legend from the certificates evidencing such Registrable Securities at no cost to such Holder; (b) make and keep available public information as defined in Rule 144 under the Securities Act at all times; (c) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and (d) furnish any Holder upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after 90 days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents as a Holder may reasonably request in availing itself of any rule or 15 regulation of the Commission (including Rule 144A) allowing a Holder of Registrable Securities to sell any such Registrable Securities without registration. ARTICLE III Liquidity Enhancement 3.1 If the Shelf Registration Statement is not declared effective by the Commission on or prior to the Effectiveness Deadline Date, the Company will pay in cash to each respective Purchaser, ("Liquidity Enhancement"), an amount equal to the product of $10,000 and such Purchaser's Aggregate Purchase Price Proportion for each day in the period beginning on the Effectiveness Deadline Date and ending on the date the Commission declares the Shelf Registration Statement effective. The Company will pay any Liquidity Enhancement accrued and owed to a Purchaser on the first business day of each month. ARTICLE IV Termination This Agreement shall terminate immediately following the moment at which there exist no securities of the Company that constitute Registrable Securities; provided, however, that Section 2.7 hereof shall survive indefinitely. ARTICLE V Miscellaneous 5.1 Recapitalization, Exchanges, etc. Affecting the Common Stock. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (a) the Registrable Securities and (b) any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for the Registrable Securities, by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. In the event of any change in the capitalization of the Company as a result of any 16 stock split, stock dividend or stock combination, the provisions of this Agreement shall be appropriately adjusted. 5.2 Injunctive Relief. It is hereby agreed and acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved Person will be irreparably damaged and will not have an adequate remedy at law. Any such Person shall, therefore, in addition to any other remedies available under applicable law, be entitled to injunctive relief, including specific performance, to enforce such obligations, without the posting of any bond, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 5.3 Parties in Interest. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and assigns of the parties hereto. In the event that any transferee of any Holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing of any kind, be deemed a party hereto for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. 5.4 Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statements as to the results thereto) made by or on behalf of any Holder of Registrable Securities, any director, officer or partner of such Holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive the transfer of Registrable Securities by such Holder. 17 5.5 Amendment; Waiver. (a) This Agreement may be amended only by a written instrument signed by the Company and by Holders holding more than a majority of the then outstanding Registrable Securities. Notwithstanding the foregoing, no amendment may be made to this Agreement that adversely affects (i) any Holder without the consent of such Holder, or (ii) all of the members of any group of Holders (a "Group") differently from any other group of Holders, except with the consent of more than a majority of the Holders in interest of such adversely affected Group. (b) No provision of this Agreement may be waived orally, but only by a written instrument signed by the party against whom enforcement of such waiver is sought. Holders shall be bound from and after the date of the receipt of a written notice from the Company setting forth such amendment or waiver, whether or not the Registrable Securities shall have been marked to indicate such amendment or waiver. 5.6 Notices. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing (including a writing delivered by facsimile transmission) and shall be deemed to have been duly given if delivered personally, or sent by either certified or registered mail, return receipt requested, postage prepaid, or by overnight courier guaranteeing next day delivery, or by telex or telecopier, at the following addresses: if to the Company: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq., Senior Executive Vice President and General Counsel Telecopier: (717) 975-3762 with a copy to Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attention: Stacy J. Kanter, Esq. Telecopier: (212) 735-2000 18 if to a Purchaser, at the address set forth on the signature page attached hereto: Any Purchaser may, by written notice given to the Company in accordance with this Section 5.6, change the address to which such notice or other communications are to be sent to it. All such notices and communications shall be deemed to have been given on the date of delivery thereof, if delivered by hand, on the fifth day after the mailing thereof, if mailed, on the next day after the sending thereof, if by overnight courier and when receipt is acknowledged, if telecopied. 5.7 Inspection. So long as this Agreement shall be in effect, this Agreement and any amendments hereto shall be made available for inspection by any Holder at the principal offices of the Company. 5.8 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 5.9 Headings. Article, section and paragraph headings are inserted for convenience only and do not constitute a part of this Agreement. 5.10 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof. There are no restrictions, agreements, promises, representations, warranties, covenants or under takings with respect to the subject matter hereof other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to this subject matter. 5.11 Illegality. In case any provision in this Agreement shall be declared or held invalid, illegal or unenforceable, in whole or in part, whether generally or in any particular jurisdiction, such provision shall be deemed amended to the extent, but only to the extent, necessary to cure such invalidity, illegality or unenforceability, and the validity, legality and enforceability of the remaining provisions, both generally and in every other jurisdiction, shall not in any way be affected or impaired thereby. 19 5.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 5.13 Notice of Limitation of Liability. A copy of the Agreement and Declaration of Trust of each Putnam fund or series investment company and each Fidelity fund or series investment company (each, a "Fund") that is a Massachusetts business trust is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this Agreement is executed on behalf of the Trustees of the relevant Fund as Trustees and not individually and that the obligations of this Agreement are not binding upon any of the Trustees, officers or shareholders of the Fund individually but are binding only upon the assets property of such Fund. 20 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above. RITE AID CORPORATION By:_______________________________________ Name: Elliot S. Gerson Title: Senior Executive Vice President and General Counsel 21 AMERICAN CENTURY MUTUAL FUNDS, INC. (on behalf of its Vista series of Shares) By:_______________________________________ Name: Title: AMERICAN CENTURY WORLD MUTUAL FUNDS, INC. (on behalf of its Global Growth series of shares) By:_______________________________________ Name: Title: 22 BESSENT GLOBAL EQUITY MASTER By:_______________________________________ Name: Title: QUANTUM PARTNERS BESSENT GLOBAL By:_______________________________________ Name: Title: 23 INSERT FIDELITY SIGNATURE PAGE 24 INSERT PUTNAM SIGNATURE PAGE 25 EXHIBIT A Selling Securityholder Notice and Questionnaire The undersigned Holder of shares of the common stock of Rite Aid Corporation (the "Company") that are Registrable Securities (as that term is defined in the Registration Rights Agreement, dated as of June ___, 2001 (the "Registration Rights Agreement") by and among the Company and the Purchasers (as defined in the Registration Rights Agreement), understands that the Company has filed with the Securities and Exchange Commission (the "Commission" a registration statement (the "Shelf Registration Statement" for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"). All capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in the Registration Rights Agreement. Each beneficial owner of Registrable Securities is entitled to the benefits of the Registration Rights Agreement. In order to sell or otherwise dispose of any Registrable Securities pursuant to the Shelf Registration Statement, a beneficial owner of Registrable Securities generally will be required to be named as a selling securityholder in the related prospectus, deliver a prospectus to the purchaser of Registrable Securities and be bound by those provisions of the Registration Rights Agreement applicable to such beneficial owner (including certain indemnification provisions, as described below). Beneficial owners are required to complete and deliver this Notice and Questionnaire prior to the effectiveness of the Shelf Registration Statement so that such beneficial owners may be named as selling securityholders in the related prospectus at the time of effectiveness. Upon receipt of a completed Notice and Questionnaire from a beneficial owner following the effectiveness of the Shelf Registration Statement, the Company will, as promptly as practicable, file such amendments to the Shelf Registration Statement or supplements to the related prospectus as are necessary to permit such Holder to deliver such prospectus to the purchaser of Registrable Securities. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and the related prospectus. A-1 Notice The undersigned beneficial owner (the "Selling Securityholder") of Registrable Securities hereby gives notice to the Company of its intention to sell or otherwise dispose of Registrable Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under Item 3) pursuant to the Shelf Registration Statement. The undersigned, by signing and returning this Notice and Questionnaire, understands that it will be bound by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement. The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: Questionnaire 1. (a) Full Legal Name of Selling Securityholder: (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities listed in (3) below are held: (c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) through which Registrable Securities listed in (3) below are held: 2. Address for Notices to Selling Securityholder: Telephone: Fax: Contact Person: 3. Beneficial Ownership of Registrable Securities: (a) Type and Principal Amount of Registrable Securities beneficially owned: A-2 (b) CUSIP No(s). of such Registrable Securities beneficially owned: 4. Beneficial Ownership of the Company's securities owned by the Selling Securityholder: Except as set forth below in this Item (4), the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securities listed above in Item (3). (a) Type and Amount of Other Securities beneficially owned by the Selling Securityholder: (b) CUSIP No(s). of such Other Securities beneficially owned: 5. Relationship with the Company: Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or their predecessors or affiliates) during the past three years. State any exceptions here: 6. Plan of Distribution: Except as set forth below, the undersigned (including its donees or pledgees) intends to distribute the Registrable Securities listed above in Item (3) pursuant to the Shelf Registration Statement only as follows if at all): A-3 (a) block trades in which the broker or dealer so engaged will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by the broker or dealer for its own account pursuant to this prospectus; (c) an exchange distribution in accordance with the rules of any stock exchange on which the securities are listed; (d) ordinary brokerage transactions and transactions in which the broker solicits purchases; (e) privately negotiated transactions; (f) short sales; (g) through the writing of options on the securities, whether or the options are listed on an options exchange; (h) through the distribution of the securities by any selling security holder to its partners, members or stockholders; (i) one or more underwritten offerings on a firm commitment or best efforts basis; and (j) any combination of any of these methods of sale. State any exceptions here: The undersigned acknowledges that it understands its obligation to comply with the provisions of the Exchange Act and the rules thereunder relating to stock manipulation, particularly Regulation M thereunder (or any successor rules or regulations), in connection with any offering of Registrable Securities pursuant to the Shelf Registration Statement. The undersigned agrees that neither it nor any person acting on its behalf will engage in any transaction in violation of such provisions. A-4 The Selling Securityholder hereby acknowledges its obligations under the Registration Rights Agreement to indemnify and hold harmless certain persons as set forth therein. Pursuant to the Registration Rights Agreement, the Company has agreed under certain circumstances to indemnify the Selling Securityholders against certain liabilities. In accordance with the undersigned's obligation under the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided. herein that may occur subsequent to the date hereof at anytime while the Shelf Registration Statement remains effective. All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing at the address set forth below. By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and the related prospectus. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Shelf Registration Statement and the related prospectus. A-5 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Dated: Beneficial Owner By: Name: Title: PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO RITE AID CORPORATION. AT: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq. Senior Executive Vice President and General Counsel Facsimile: (717) 975-3762 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, NY 10036 Attention: Stacy J. Kanter, Esq. Facsimile: (212) 735-2000 A-6 EX-10 35 exh10-55.txt EXHIBIT 10.55 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of June 27, 2001, by and between RITE AID CORPORATION, a Delaware corporation (the "Company"), TRANSAMERICA INVESTMENT MANAGEMENT, LLC ("Transamerica") and the Other Purchasers (as defined below and, together with Transamerica, the "Purchasers"). W I T N E S S E T H: WHEREAS, the Company has agreed to issue and sell to the Purchasers the Purchase Shares (as defined below) in accordance with the terms of a Stock Purchase Agreement between the Company and Transamerica dated as of the date hereof (the "Purchase Agreement"); WHEREAS, in connection with the sale of the Purchase Shares to the Purchasers, the Company has agreed to provide the Purchasers with the registration rights set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to and on the terms and conditions herein set forth, the parties hereto hereby agree as follows: ARTICLE I Certain Definitions As used in this Agreement, the following terms shall have the meanings ascribed to them below: 1.1 "Blackout Period" shall have the meaning set forth in Section 2.1(d). 1.2 "Commission" shall mean the Securities and Exchange Commission or any federal agency at the time administering the Securities Act. 1.3 "Common Stock" shall mean the common stock of the Company, par value $1.00 per share. 1.4 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any federal statute then in effect which has replaced such statute. 1.5 "Filing Deadline" shall mean the date the Company is obligated to file a registration statement pursuant to Section 2.1(a). 1.6 "Holder" shall mean each Purchaser for so long as it owns any Registrable Securities and any other Person who is a Holder or beneficial owner of Registrable Securities for so long as such Person holds or beneficially owns any Registrable Securities. 1.7 "Other Purchasers" shall mean certain funds internal to Transamerica, not yet identified, to be designated by Transamerica by written notice delivered to the Company on or prior to the second business day immediately preceding the Closing Date (as defined in the Purchase Agreement), and which will execute a counterpart to this Agreement. 1.8 "Person" shall mean an individual, corporation, limited liability company, joint venture, partnership, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity that may be treated as a person under applicable law. 1.9 "Purchase Shares" shall mean the shares of Common Stock purchased by the Purchasers pursuant to the Stock Purchase Agreement. 1.10 "Registrable Securities" shall mean the Purchase Shares, provided that such securities shall cease to be Registrable Securities when (i) a registration statement registering such Registrable Securities under the Securities Act has been declared or becomes effective and such Registrable Securities have been sold or otherwise transferred by the Holder thereof pursuant to such effective registration statement; (ii) such Registrable Securities are sold pursuant to Rule 144 under circumstances in which any legend borne by such Registrable Securities relating to restrictions on the transferability thereof, under the Securities Act or otherwise, is removed by the Company or such Registrable Securities are eligible to be sold pursuant to paragraph (k) of Rule 144; or (iii) such Registrable Securities shall cease to be outstanding. 2 1.11 "Rule 144" shall mean Rule 144 promulgated under the Securities Act. 1.12 "Securities Act" shall mean Securities Act of 1933, as amended, or any federal statute then in effect which has replaced such statute. 1.13 "Shelf Registration Statement" shall have the meaning set forth in Section 2.1(a). ARTICLE II Registration Rights 2.1 Shelf Registration (a) The Company will use its best efforts to prepare and file with the Commission, as soon as practicable, but in any event, no later than the date that is thirty (30) days after the Closing Date (as such term is defined in the Purchase Agreement) a shelf registration statement on Form S-1 or any other appropriate form (it being understood by all parties that the Company will not be eligible to use Form S-3 prior to October 11, 2001) under Rule 415 of the Securities Act, or any similar rule that may be adopted by the Commission relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such shelf registration statement (together with all amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference thereto, the "Shelf Registration Statement"), provided that the Company may also register for sale on its own account or that of any other holder of equity securities of the Company pursuant to the Shelf Registration Statement such additional shares of the Company's stock as it shall desire. (b) The Company will use its reasonable best efforts to cause the registration statement filed pursuant to Section 2.1(a) to be declared effective and, subject to Section 2.1(d), to remain effective for a period ending on the earlier of (i) the date two years after the effective date of the Registration Statement and (ii) the date on which there cease to be any Registrable Securities outstanding. 3 (c) Each Holder of Registrable Securities that wishes to sell Registrable Securities pursuant to a Shelf Registration Statement and related prospectus agrees to deliver a notice and questionnaire in the form attached hereto as Exhibit A (a "Notice and Questionnaire") at least three (3) business days prior to the intended distribution of Registrable Securities under the Shelf Registration Statement. Provided that the Shelf Registration Statement has been declared effective, the Company shall, as promptly as is practicable after a Holder has delivered a Notice and Questionnaire and such other information as the Company may reasonably require, (i) if required by applicable law, file with the Commission a post-effective amendment to the Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related prospectus or amendment to any document incorporated therein by reference or file any other required document so that such Holder is named as a selling security holder in the Shelf Registration Statement and the related prospectus in such a manner as to permit such Holder to deliver such prospectus to the purchaser of the Registrable Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use its best efforts to cause such post-effective amendments to be declared effective under the Act as promptly as is practicable, (ii) provide such Holder with such number of copies of any documents filed pursuant to the foregoing as the Holder shall reasonably request and (iii) notify such Holder as promptly as practicable after the effectiveness of any post-effective amendment filed hereunder provided, however, that if the Notice and Questionnaire is delivered during a Blackout Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Blackout Period in accordance with Section 2.1(d) hereof. (d) Notwithstanding anything to the contrary contained in this Agreement, the Company shall have the right to delay the effectiveness of the Shelf Registration Statement or to suspend, after the lapse of a period of sixty (60) days after the effective date of such Shelf Registration Statement, the right of a Holder to sell Registrable Securities under an effective Shelf Registration Statement, during no more than (2) periods aggregating to not more than seventy-five (75) days in any twelve-month period (a "Blackout Period") in the event that (i) (a) the Company would, in accordance with the reasonable advice of its counsel, be required to disclose in the prospectus, information not otherwise required by law to be publicly disclosed, and (b) in the reasonable judgment of the Board of Directors of the Company, there is a reasonable likelihood that such disclosure, or any other action to be taken in connection with the prospectus, would materially and adversely affect or interfere with any financing, acquisition, merger, material joint venture, disposition 4 of assets (not in the ordinary course of business), corporate reorganization or other similar transaction involving the Company, or (ii) a change to the Shelf Registration Statement is required so that, as of such date, the Shelf Registration Statement and prospectus do not contain 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 not misleading, provided, however, that during any such Blackout Period, the Company shall also delay the filing or effectiveness of any registration statement with respect to any securities of the Company or any other shareholder of the Company. The Company shall promptly give the Holders written notice of such determination containing a general statement of the reasons for such postponement and an approximation of the anticipated delay; and provided further, however, that the implementation of any Blackout Period shall be done in good faith, and not for the purpose or intention of impeding such rights. Notwithstanding anything to the contrary contained in this Section 2.1(d), the Company may cause one or more additional Blackout Periods (each, an "Additional Blackout Period"), in order to file a post effective amendment to the Shelf Registration Statement to: (i) include and update the Company's financial statements for the Company's first fiscal quarter ending June 2, 2001, which post effective amendment will be filed with the Commission not later than the three (3) business days following the date the Company files its Quarterly Report on Form 10-Q for such quarter with the Commission, and (ii) include and update the Company's financial statements for the Company's second quarter ending September 1, 2001, which post effective amendment will be filed with the Commission not later than the three (3) business days following the date the Company files its Quarterly Report on Form 10-Q for such quarter with the Commission. No Additional Blackout Period shall count against the Blackout Periods permitted above, provided, that, the Commission declares the post effective amendment which resulted in the Additional Blackout Period effective not later than the twentieth (20) day following the date the Company files such post effective amendment with the Commission. In the event the Commission does not declare any such post effective amendment effective within such twenty-day period, then such Additional Blackout Period shall count as a Blackout Period. (e) The Holders may elect to sell Registrable Securities in an underwritten offering in accordance with the conditions set forth in this Section 2.1(e). In any such underwritten offering, the investment banker or bankers and manager or managers that will administer the offering will be selected by, and the underwriting arrangements with respect thereto will be approved by a majority in interest of the Holders, subject, in each case, to the consent of the Company, which consent will not be unreasonably withheld, and the Holders will be responsible for all underwriting commissions and discounts with respect to the Purchase Shares sold by 5 such Holder, in connection therewith. The Company shall not be obligated to arrange for more than one underwritten offering pursuant to the Shelf Registration Statement. No Holder may participate in any underwritten offering hereunder unless the Holder (i) agrees to sell the Holder's Registrable Securities on the basis provided in any underwriting arrangements approved pursuant hereto and (ii) completes and executes all other questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 2.2 Piggyback Registration. (a) If (i) the Company has not filed the Shelf Registration Statement, or (ii) the Company is no longer obligated to maintain the effectiveness of the Shelf Registration Statement pursuant to Section 2.1(b) above and the Holder holds or beneficiary owns at least one percent (1%) of the Company's outstanding Common Stock, and (iii) the Company shall determine to register any equity securities of the Company for its own account or for the account of other holders of equity securities of the Company on any registration form (other than Form S-4 or S-8 or other successor forms) which permits the inclusion of Registrable Securities held by any Holder (a "Piggyback Registration"), then the Company will promptly give each Holder written notice thereof and, subject to Section 2.2(c), shall include in such registration all Registrable Securities requested to be included therein pursuant to the written requests of Holders received within 20 days after delivery of the Company's notice. (b) If the Piggyback Registration relates to an underwritten public offering, the Company shall so advise the Holders as part of the written notice given pursuant to Section 2.2(a). In such event, the right of any Holder to participate in such registration shall be conditioned upon such Holder's participation in such underwriting in accordance with the terms and conditions thereof. The Board of Directors shall have the right to select the managing underwriter(s) for any underwritten Piggyback Registration. All Holders proposing to distribute their Registrable Securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form. (c) If such proposed Piggyback Registration is an underwritten offering and the managing underwriter for such offering advises the Company that the securities requested to be included therein exceeds the amount of securities that can be sold in such offering, any securities to be sold by the Company or other holders of the Company's securities initiating such offering or otherwise 6 contractually entitled to be included in such offering prior to the Holders of the Registrable Securities shall have priority over any Registrable Securities held by Holders, and the number of shares to be included by a Holder and other holders of the Company's securities that did not initiate the offering and not having priority over the Holders in such registration shall be reduced pro rata on the basis of the percentage of the then outstanding Registrable Securities held by each such Holder and all other holders exercising similar registration rights. (d) Notwithstanding the provisions of this Section 2.2, the Company shall have the right at any time after it shall have given written notice to the Holders pursuant to Section 2.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after filing but prior to effectiveness. 2.3 Expenses of Registration. All expenses incurred in connection with the registrations described herein shall be borne by the Company, including, in the case of an underwritten offering, the fees of one counsel for all of the Holders of the Registrable Securities of which are being registered pursuant to such registration statement, up to a maximum of $10,000, provided that the expenses borne by the Company shall not include the fees or disbursements of any other adviser of any Holder. All underwriting discounts, selling commissions and other similar fees relating to Registrable Securities included in registration statement of the Company shall be borne by the Holders of such Registrable Securities pro rata on the basis of the amount of Registrable Securities sold by them. 2.4 Registration Procedures. In the case of each registration effected by the Company pursuant to this Article II involving the registration of Registrable Securities, the Company will keep each Holder advised in writing as to the initiation of such registration and as to the completion thereof. At its expense, the Company will use its best efforts to: (a) cause such registration to be declared effective by the Commission; (b) as soon as reasonably possible, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus included therein (including post-effective amendments, prospectus supplements and pricing supplements) as may be necessary, including in the case of a Shelf Registration Statement such amendments and supplements as are necessary to effect and maintain the effectiveness of such registration statement for the period specified in Section 2.1(b); 7 (c) provide (i) the Holders of the Registrable Securities to be included in such registration statement, (ii) the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act) if any, thereof, (iii) the sales or placement agent therefor, if any, (iv) counsel for such underwriters or agent, and (v) not more than one counsel for all the Holders of such Registrable Securities the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; (d) (i) register or qualify the Registrable Securities to be included in such registration statement under such securities laws or blue sky laws of such jurisdictions as any Holder of such Registrable Securities and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, and (ii) take any and all other actions as may be reasonably necessary or advisable to enable each such Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that the Company shall not be required for any other purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 2.4(d) or (2) consent to general service of process or taxation in any such jurisdiction; (e) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as any Holder from time to time may reasonably request; (f) promptly notify the selling Holders of Registrable Securities, the sales or placement agent, if any, therefor and the managing under writer or underwriters, if any, thereof and confirm such advice in writing, (i) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and with respect to such registration statement or any post-effective amendment, when the same has become effective, (ii) of any comments by the Commission, the Blue Sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such registration statement or prospectus or for additional information, (iii) of the issuance by the 8 Commission of any stop order suspending the effectiveness of such registration statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for the sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (v) at any time when a prospectus is required to be delivered under the Securities Act, that such registration statement, prospectus, prospectus amendment or supplement or post-effective amendment, or any document incorporated by reference in any of the foregoing, contains 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 not misleading in light of the circumstances then existing; (g) obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (h) if requested by any managing underwriter or underwriters, any placement or sales agent or any Holder of Registrable Securities, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such Holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold by such Holder or agent or to any underwriters, the name and description of such Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such Holder or agent or to such underwriters; (i) furnish to each Holder of Registrable Securities included in such registration statement, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 2.4(c) an executed copy of such registration statement, each such amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and such number of copies of such registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically and reasonably so requested by such Holder, agent or underwriter, as the case may be) and of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in 9 conformity with the requirements of the Securities Act; and the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Holder and by any such agent and underwriter, if any, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (j) cause all Registrable Securities covered by such registration to be listed on each securities exchange or inter-dealer quotation system on which similar securities issued by the Company are then listed; (k) provide a transfer agent and registrar for all Registrable Securities covered by such registration and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (l) cooperate with the Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends; (m) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Conduct (the "Rules of Conduct") of the National Association of Securities Dealers, Inc. ("NASD") thereof, whether as a Holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise use its reasonable best efforts to assist such broker-dealer in complying with the requirements of such Rules of Conduct, including, without limitation, by providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Conduct; and (n) otherwise comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable but in no event later than eighteen months after the effective date of such registration statement, an earnings statement covering the period of at least twelve months, but not more than 18 months, beginning with the first month after the effective date of the registration statement, which earnings statement shall 10 satisfy the provisions of Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). (o) make available to any Holder the Registrable Securities of which are being sold in an underwritten offering registered pursuant to this Agreement, to any underwriter of such sale and to any counsel retained by such Holder in connection therewith, at reasonable times and places, all records and documents of the Company that are reasonably pertinent to the registration statement filed in connection with such sale. The Company shall cause its officers, directors and employees to supply all information reasonably requested by such Holder, underwritten or counsel in connection therewith. 2.5 Delivery of Prospectus Supplement. In the event that the Company would be required, pursuant to Section 2.4(f) above, to notify the selling Holders of Registrable Securities, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company shall as soon as reasonably practicable prepare and furnish to each such Holder, to each placement or sales agent, if any, and to each underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to initial purchasers of Registrable Securities, such prospectus shall not contain 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 not misleading in light of the circumstances then existing. Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company pursuant to Section 2.4(f) hereof, such Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the registration statement applicable to such Registrable Securities until such Holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. 2.6 Furnishing Information by the Holders. The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such Holder and such Holder's intended method of distribution of such Registrable Securities as the Company may from time to time request in writing. Each such Holder agrees to promptly notify the Company of any inaccuracy or change in information previously furnished by such Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or such 11 Holder's intended method of distribution of such Registrable Securities or omits to state any material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish information so required so that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, 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 not misleading in light of the circumstances then existing. 2.7 Indemnification. (a) The Company will indemnify each Holder whose Registrable Securities are to be included in a registration pursuant to this Article II, each of such Holder's officers, directors, partners, agents, employees and representatives and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to each registration, qualification or compliance effected pursuant to this Article II, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement or alleged untrue statement of a material fact con tained in any registration statement, any amendment thereto, or other document incorporated by reference therein, or compliance, 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, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any prospectus, or any amendment thereto, 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 in light of the circumstances in which they were made, and will reimburse each such indemnified person for any reasonable legal and other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to a Holder to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or alleged untrue statement or omission or alleged omission based upon information furnished in writing to the Company by such Holder and provided for use in such registration statement, prospectus, offering circular or other document or the Holder delivered a registration or prospectus in violation of Section 2.5 hereof after notice was provided by the Company as provided in Section 2.5. It is agreed that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without 12 the consent of the Company (which consent shall not be unreasonably withheld or delayed). (b) Each Holder whose Registrable Securities are included in any registration effected pursuant to this Article II shall indemnify the Company, each of its directors, officers, agents, employees and representatives, and each Person who controls the Company within the meaning of Section 15 of the Securities Act, each other such Holder and each of their officers, directors, partners, agents, employees and representatives and each person controlling such Holder, and each underwriter, if any, of such Registrable Securities and each Person who controls any such underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement or alleged untrue statement of a material fact contained in any registration statement, any amendment thereto, offering circular or other document incident to such registration, qualification or compliance, 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, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any prospectus, or any amendment thereto, 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 in light of the circumstances in which they were made, and will reimburse such indemnified persons for any reasonable legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement or omission is made in such registration statement, prospectus, offering circular or other document in reliance upon and in strict conformity with written information furnished to the Company by such Holder and provided specifically for use therein; provided, that (x) no Holder shall be liable hereunder for any amounts, together with all previous payments under this Section 2.7(b), in excess of the net proceeds received by such Holder pursuant to such registration, and (y) the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 2.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any 13 litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed), and the Indemnified Party may participate in such defense with counsel reasonably acceptable to and paid for by the Indemnifying Party but otherwise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.7 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 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. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in an underwriting agreement entered into in connection with an underwritten public offering are in conflict 14 with the foregoing provisions, the provisions in the underwriting agreement shall control. 2.8 Other Obligations. With a view to making available the benefits of certain rules and regulations of the Commission which may effectuate the registration of Registrable Securities or permit the sale of Registrable Securities to the public without registration, the Company agrees to: (a) at such time as any Registrable Securities are eligible for transfer under Rule 144(k), upon the request of the Holder of such Registrable Securities, remove any restrictive legend from the certificates evidencing such Registrable Securities at no cost to such Holder; (b) make and keep available public information as defined in Rule 144 under the Securities Act at all times; (c) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and (d) furnish any Holder upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after 90 days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the Commission (including Rule 144A) allowing a Holder of Registrable Securities to sell any such Registrable Securities without registration. ARTICLE III Termination This Agreement shall terminate immediately following the moment at which there exist no securities of the Company that constitute Registrable Securities; provided, however, that Section 2.7 hereof shall survive indefinitely. 15 ARTICLE IV Miscellaneous 4.1 Recapitalization, Exchanges, etc. Affecting the Common Stock. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (a) the Registrable Securities and (b) any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for the Registrable Securities, by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. In the event of any change in the capitalization of the Company as a result of any stock split, stock dividend or stock combination, the provisions of this Agreement shall be appropriately adjusted. 4.2 Injunctive Relief. It is hereby agreed and acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved Person will be irreparably damaged and will not have an adequate remedy at law. Any such Person shall, therefore, in addition to any other remedies available under applicable law, be entitled to injunctive relief, including specific performance, to enforce such obligations, without the posting of any bond, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 4.3 Parties in Interest. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and assigns of the parties hereto. In the event that any transferee of any Holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing of any kind, be deemed a party hereto for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. 16 4.4 Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statements as to the results thereto) made by or on behalf of any Holder of Registrable Securities, any director, officer or partner of such Holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive the transfer of Registrable Securities by such Holder. 4.5 Amendment; Waiver. (a) This Agreement may be amended only by a written instrument signed by the Company and by Holders holding more than 66% of the then outstanding Registrable Securities and, in the case of any amendment that adversely affects any Holder or all of the members of any group of Holders differently from any of the other Holders, by such Holder or the holders of more than 66% in interest of the securities of the Company held by such group of Holders. (b) No provision of this Agreement may be waived orally, but only by a written instrument signed by the party against whom enforcement of such waiver is sought. Holders shall be bound from and after the date of the receipt of a written notice from the Company setting forth such amendment or waiver, whether or not the Registrable Securities shall have been marked to indicate such amendment or waiver. 4.6 Notices. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing (including a writing delivered by facsimile transmission) and shall be deemed to have been duly given if delivered personally, or sent by either certified or registered mail, return receipt requested, postage prepaid, or by overnight courier guaranteeing next day delivery, or by telex or telecopier, at the following addresses: if to the Company: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq., Senior Executive Vice President and General Counsel Telecopier: (717) 975-3762 17 with a copy to Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attention: Stacy J. Kanter Telecopier: (212) 735-2000 if to a Purchaser: with a copy to: any Purchaser may, by written notice given to the Company in accordance with this Section 6.6, change the address to which such notice or other communications are to be sent to it. All such notices and communications shall be deemed to have been given on the date of delivery thereof, if delivered by hand, on the fifth day after the mailing thereof, if mailed, on the next day after the sending thereof, if by overnight courier and when receipt is acknowledged, if telecopied. 4.7 Inspection. So long as this Agreement shall be in effect, this Agreement and any amendments hereto shall be made available for inspection by any Holder at the principal offices of the Company. 4.8 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 4.9 Headings. Article, section and paragraph headings are inserted for convenience only and do not constitute a part of this Agreement. 4.10 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to this subject matter. 18 4.11 Illegality. In case any provision in this Agreement shall be declared or held invalid, illegal or unenforceable, in whole or in part, whether generally or in any particular jurisdiction, such provision shall be deemed amended to the extent, but only to the extent, necessary to cure such invalidity, illegality or unenforceability, and the validity, legality and enforceability of the remaining provisions, both generally and in every other jurisdiction, shall not in any way be affected or impaired thereby. 4.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 19 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above. RITE AID CORPORATION By: ----------------------------------------- Name: Elliot S. Gerson Title: Senior Executive Vice President and General Counsel 20 TRANSAMERICA INVESTMENT MANAGEMENT, LLC By: ______________________________ Title:____________________________ Name: ____________________________ 21 EXHIBIT A Selling Securityholder Notice and Questionnaire The undersigned Holder of shares of the common stock of Rite Aid Corporation (the "Company") that are Registrable Securities (as that term is defined in the Registration Rights Agreement, dated as of June 27, 2001 (the "Registration Rights Agreement") by and among the Company, Transamerica Investment Management, LLC ("Transamerica") and the Other Purchasers (as defined in the Registration Rights Agreement), understands that the Company has filed with the Securities and Exchange Commission (the "Commission" a registration statement (the "Shelf Registration Statement" for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"). All capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in the Registration Rights Agreement. Each beneficial owner of Registrable Securities is entitled to the benefits of the Registration Rights Agreement. In order to sell or otherwise dispose of any Registrable Securities pursuant to the Shelf Registration Statement, a beneficial owner of Registrable Securities generally will be required to be named as a selling securityholder in the related prospectus, deliver a prospectus to the purchaser of Registrable Securities and be bound by those provisions of the Registration Rights Agreement applicable to such beneficial owner (including certain indemnification provisions, as described below). Beneficial owners are required to complete and deliver this Notice and Questionnaire prior to the effectiveness of the Shelf Registration Statement so that such beneficial owners may be named as selling securityholders in the related prospectus at the time of effectiveness. Upon receipt of a completed Notice and Questionnaire from a beneficial owner following the effectiveness of the Shelf Registration Statement, the Company will, as promptly as practicable, file such amendments to the Shelf Registration Statement or supplements to the related prospectus as are necessary to permit such Holder to deliver such prospectus to the purchaser of Registrable Securities. The Company has agreed to pay liquidated damages pursuant to the Registration Rights Agreement under certain circumstances as set forth therein. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own A-1 securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and the related prospectus. Notice The undersigned beneficial owner (the "Selling Securityholder") of Registrable Securities hereby gives notice to the Company of its intention to sell or otherwise dispose of Registrable Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under Item 3) pursuant to the Shelf Registration Statement. The undersigned, by signing and returning this Notice and Questionnaire, understands that it will be bound by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement. The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: Questionnaire 1. (a) Full Legal Name of Selling Securityholder: _______________________________________________________________________ (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities listed in (3) below are held: _______________________________________________________________________ (c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) through which Registrable Securities listed in (3) below are held: 2. Address for Notices to Selling Securityholder: _______________________________________________________________________ _______________________________________________________________________ Telephone:_____________________________________________________________ Fax:___________________________________________________________________ Contact Person:________________________________________________________ A-2 3. Beneficial Ownership of Registrable Securities: (a) Type and Principal Amount of Registrable Securities beneficially owned: _______________________________________________________________________ _______________________________________________________________________ (b) CUSIP No(s). of such Registrable Securities beneficially owned: _______________________________________________________________________ _______________________________________________________________________ 4. Beneficial Ownership of the Company's securities owned by the Selling Securityholder: Except as set forth below in this Item (4), the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securities listed above in Item (3). (a) Type and Amount of Other Securities beneficially owned by the Selling Securityholder: (b) CUSIP No(s). of such Other Securities beneficially owned: _______________________________________________________________________ _______________________________________________________________________ 5. Relationship with the Company: Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or their predecessors or affiliates) during the past three years. State any exceptions here: _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ 6. Plan of Distribution: A-3 Except as set forth below, the undersigned (including its donees or pledgees) intends to distribute the Registrable Securities listed above in Item (3) pursuant to the Shelf Registration Statement only as follows if at all): such Registrable Securities may be sold from time to time directly by the undersigned or alternatively, through underwriters, broker-dealers or agents. If the Registrable Securities are sold through underwriters or broker-dealers, the Selling Securityholder will be responsible for underwriting discounts or commissions or agent's commissions. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve block transactions) (i) on any national securities exchange or quotation service on which the Registrable Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services, or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of Registrable Securities or otherwise, the undersigned may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities. State any exceptions here: _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ The undersigned acknowledges that it understands its obligation to comply with the provisions of the Exchange Act and the rules thereunder relating to stock manipulation, particularly Regulation M thereunder (or any successor rules or regulations), in connection with any offering of Registrable Securities pursuant to the Shelf Registration Statement. The undersigned agrees that neither it nor any person acting on its behalf will engage in any transaction in violation of such provisions. The Selling Securityholder hereby acknowledges its obligations under the Registration Rights Agreement to indemnify and hold harmless certain persons as set forth therein. A-4 Pursuant to the Registration Rights Agreement, the Company has agreed under certain circumstances to indemnify the Selling Securityholders against certain liabilities. In accordance with the undersigned's obligation under the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided. herein that may occur subsequent to the date hereof at anytime while the Shelf Registration Statement remains effective. All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing at the address set forth below. By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and the related prospectus. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Shelf Registration Statement and the related prospectus. A-5 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Dated: Beneficial Owner By:_________________________________ Name: Title: PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO RITE AID CORPORATION. AT: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq, Senior Executive Vice President and General Counsel Facsimile: (717) 975-3762 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, NY 10036 Attention: Michael Zeidel Facsimile: (212) 735-2000 EX-10 36 exh10-56.txt EXHIBIT 10.56 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of May 31, 2001, by and between RITE AID CORPORATION, a Delaware corporation (the "Company"), and FIR TREE VALUE FUND, L.P., FIR TREE INSTITUTIONAL VALUE FUND, L.P., FIR TREE VALUE PARTNERS LDC and FIR TREE MASTER RECOVERY FUND, L.P. (collectively "Fir Tree"). W I T N E S S E T H: WHEREAS, the Company has agreed to issue to Fir Tree, in exchange for certain outstanding indebtedness of the Company, the Exchange Shares (as defined below) in accordance with the terms of an Equity for Debt Exchange Agreement between the Company and Fir Tree dated as of April 12, 2001 and as amended by that certain Side Letter dated April 30, 2001 (as amended, the "Exchange Agreement"); WHEREAS, in connection with the sale of the Exchange Shares to Fir Tree, the Company has agreed to provide Fir Tree with the registration rights set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to and on the terms and conditions herein set forth, the parties hereto hereby agree as follows: ARTICLE I Certain Definitions As used in this Agreement, the following terms shall have the meanings ascribed to them below: 1.1 "Commission" shall mean the Securities and Exchange Commission or any federal agency at the time administering the Securities Act. 1.2 "Common Stock" shall mean the common stock of the Company, par value $1.00 per share. 1.3 "Deferral Period" shall have the meaning set forth in Section 2.1(d). 1.4 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any federal statute then in effect which has replaced such statute. 1.5 "Exchange Shares" shall mean the shares of Common Stock acquired by Fir Tree pursuant to the Exchange Agreement (including Common Stock issued upon conversion of any preferred stock issued pursuant to the Exchange Agreement). 1.6 "Holder" shall mean Fir Tree for so long as it owns any Registrable Securities and any other Person who is a holder or beneficial owner of Registrable Securities for so long as such Person owns any Registrable Securities. 1.7 "Person" shall mean an individual, corporation, limited liability company, joint venture, partnership, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity that may be treated as a person under applicable law. 1.8 "Registrable Securities" shall mean the Exchange Shares, provided that such securities shall cease to be Registrable Securities when (i) a registration statement registering such Registrable Securities under the Securities Act has been declared or becomes effective and such Registrable Securities have been sold or otherwise transferred by the Holder thereof pursuant to such effective registration statement; (ii) such Registrable Securities are sold pursuant to Rule 144 under circumstances in which any legend borne by such Registrable Securities relating to restrictions on the transferability thereof, under the Securities Act or otherwise, is removed by the Company or such Registrable Securities are eligible to be sold pursuant to paragraph (k) of Rule 144; or (iii) such Registrable Securities shall cease to be outstanding. 1.9 "Rule 144" shall mean Rule 144 promulgated under the Securities Act. 2 1.10 "Securities Act" shall mean Securities Act of 1933, as amended, or any federal statute then in effect which has replaced such statute. 1.11 "Shelf Registration Statement" shall have the meaning set forth in Section 2.1(a). ARTICLE II Registration Rights 2.1 Shelf Registration (a) As soon as is reasonably practicable after the Company files its Annual Report on Form 10-K for the fiscal year ended March 3, 2001, the Company will file a shelf registration statement with the Commission on Form S-1 or any other appropriate form (it being understood by all parties that the Company will not be eligible to use Form S-3 prior to October 11, 2001) under Rule 415 of the Securities Act, or any similar rule that may be adopted by the Commission relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such shelf registration statement (together with all amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference thereto, the "Shelf Registration Statement"), provided that the Company may also register for sale on its own account or that of any other holder of equity securities of the Company pursuant to the Shelf Registration Statement such additional shares of the Company's stock as it shall desire. (b) The Company will use its reasonable best efforts to cause the registration statement filed pursuant to Section 2.1(a) to be declared effective as soon as reasonably practicable and to remain effective for a period ending on the earlier of (i) the date two years after the effective date of the Registration Statement and (ii) the date on which there cease to be any Registrable Securities outstanding. (c) Each Holder of Registrable Securities that wishes to sell Registrable Securities pursuant to a Shelf Registration Statement and related prospectus agrees to deliver a notice and questionnaire in the form attached hereto as Exhibit A (a "Notice and Questionnaire") at least 5 business days prior to the 3 intended distribution of Registrable Securities under the Shelf Registration Statement. Provided that the Shelf Registration Statement has been declared effective, the Company shall, as promptly as is practicable after a Holder has delivered a Notice and Questionnaire and such other information as the Company may reasonably require, (i) if required by applicable law, file with the Commission a post-effective amendment to the Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related Prospectus or amendment to any document incorporated therein by reference or file any other required document so that such Holder is named as a selling security holder in the Shelf Registration Statement and the related prospectus in such a manner as to permit such Holder to deliver such prospectus to purchasers of the Registrable Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use its best efforts to cause such post-effective amendments to be declared effective under the Act as promptly as is practicable, (ii) provide such Holder copies of any documents filed pursuant to the foregoing and (iii) notify such Holder as promptly as practicable after the effectiveness of any post-effective amendment filed hereunder, provided, however, that if the Notice and Questionnaire is delivered during a Deferral Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Deferral Period in accordance with Section 2.1(d) hereof. (d) Notwithstanding anything in Section 2.1(b), 2.1(c) or 2.4 hereof, the Company may take action that would result in the Holders of Registrable Securities being unable to offer and sell Registrable Securities under a Shelf Registration Statement that has been filed pursuant to this Section 2.1 (i) if such action is required by applicable law, (ii) upon the occurrence of any event that requires any change to be made to the Shelf Registration Statement so that, as of such date, the Shelf Registration Statement does not contain 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 not misleading, or (iii) if the continued effectiveness of the Shelf Registration Statement would require the Company to disclose a material financing, acquisition or other corporate development, and the proper officers of the Company have determined that such disclosure is not in the best interests of the Company. The period during which the Company is required to maintain the effectiveness of the Shelf Registration Statement pursuant to Section 2.1(b)(i) shall be extended by the duration of all periods during which the availability of the Shelf Registration Statement and prospectus is suspended in accordance with the foregoing (each such period of suspension being referred to herein as a "Deferral Period") and 4 in no event will the Deferral Periods exceed, in the aggregate, 120 days during any 365 day period. (e) The Holders may elect to sell Registrable Securities in an underwritten offering in accordance with the conditions set forth in this Section 2.1(e). In any such underwritten offering, the investment banker or bankers and manager or managers that will administer the offering will be selected by, and the underwriting arrangements with respect thereto will be approved by a majority in interest of the Holders, subject, in each case, to the consent of the Company, which consent will not be unreasonably withheld, and the Holders will be responsible for all underwriting commissions and discounts in connection therewith. The Company shall not be obligated to arrange for more than one underwritten offering pursuant to the Shelf Registration Statement. No Holder may participate in any underwritten offering hereunder unless the Holder (i) agrees to sell the Holder's Registrable Securities on the basis provided in any underwriting arrangements approved pursuant hereto and (ii) completes and executes all other questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 2.2 Piggyback Registration. (a) If the Shelf Registration Statement has not become effective, and the Company shall determine to register any equity securities of the Company for its own account or for the account of other holders of equity securities of the Company on any registration form (other than Form S-4 or S-8 or other successor forms) which permits the inclusion of Registrable Securities held by any Holder (a "Piggyback Registration"), the Company will promptly give each Holder written notice thereof and, subject to Section 2.2(c), shall include in such registration all Registrable Securities requested to be included therein pursuant to the written requests of Holders received within 20 days after delivery of the Company's notice. (b) If the Piggyback Registration relates to an underwritten public offering, the Company shall so advise the Holders as part of the written notice given pursuant to Section 2.2(a). In such event, the right of any Holder to participate in such registration shall be conditioned upon such Holder's participation in such underwriting in accordance with the terms and conditions thereof. The Board shall have the right to select the managing underwriter(s) for any underwritten Piggyback Registration. All Holders proposing to distribute their Registrable Securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form. 5 (c) If such proposed Piggyback Registration is an underwritten offering, and the managing underwriter for such offering advises the Company that the securities requested to be included therein exceeds the amount of securities that can be sold in such offering, any securities to be sold by the Company or other holders of the Company's securities initiating such offering or otherwise contractually entitled to be included in such offering prior to the Holders of the Registrable Securities shall have priority over any Registrable Securities held by Holders, and the number of shares to be included by a Holder and other holders of the Company's securities that did not initiate the offering in such registration shall be reduced pro rata on the basis of the percentage of the then outstanding Registrable Securities held by each such Holder and all other holders exercising similar registration rights. (d) Notwithstanding the provisions of this Section 2.2, the Company shall have the right at any time after it shall have given written notice to the Holders pursuant to Section 2.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after filing but prior to effectiveness. 2.3 Expenses of Registration. All expenses incurred in connection with the registrations described herein shall be borne by the Company, provided that the expenses borne by the Company shall not include the fees or disbursements of any counsel to or any other adviser of any Holder. All underwriting discounts, selling commissions and other similar fees relating to Registrable Securities included in any registration statement of the Company shall be borne by the Holders of such Registrable Securities pro rata on the basis of the amount of Registrable Securities sold by them. 2.4 Registration Procedures. In the case of each registration effected by the Company pursuant to this Article II involving the registration of Registrable Securities, the Company will keep each Holder advised in writing as to the initiation of such registration and as to the completion thereof. At its expense, the Company will use its best efforts to: (a) cause such registration to be declared effective by the Commission; 6 (b) as soon as reasonably possible, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus included therein (including post-effective amendments, prospectus supplements and pricing supplements) as may be necessary, including in the case of a Shelf Registration Statement such amendments and supplements as are necessary to effect and maintain the effectiveness of such registration statement for the period specified in Section 2.1(b); (c) provide (i) the Holders of the Registrable Securities to be included in such registration statement, (ii) the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act) if any, thereof, (iii) the sales or placement agent therefor, if any, (iv) counsel for such underwriters or agent, and (v) not more than one counsel for all the Holders of such Registrable Securities the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; (d) (i) register or qualify the Registrable Securities to be included in such registration statement under such securities laws or blue sky laws of such jurisdictions as any Holder of such Registrable Securities and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, and (ii) take any and all other actions as may be reasonably necessary or advisable to enable each such Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that the Company shall not be required for any other purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 2.4(d) or (2) consent to general service of process or taxation in any such jurisdiction; (e) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as any Holder from time to time may reasonably request; (f) promptly notify the selling Holders of Registrable Securities, the sales or placement agent, if any, therefor and the managing underwriter or underwriters, if any, thereof and confirm such advice in writing, (i) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and with respect to such registration statement or any post-effective amendment, when the 7 same has become effective, (ii) of any comments by the Commission, the Blue Sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such registration statement or prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation or threatening of any proceedings for that purpose, (iv) if at any time the representations and warranties of the Company contemplated by Section 3 cease to be true and correct in all material respects, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for the sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (vi) at any time when a prospectus is required to be delivered under the Securities Act, that such registration statement, prospectus, prospectus amendment or supplement or post-effective amendment, or any document incorporated by reference in any of the foregoing, contains 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 not misleading in light of the circumstances then existing; (g) obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (h) if requested by any managing underwriter or underwriters, any placement or sales agent or any Holder of Registrable Securities, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold by such Holder or agent or to any underwriters, the name and description of such Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such Holder or agent or to such underwriters; (i) furnish to each Holder of Registrable Securities included in such registration statement, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 2.4(c) an executed copy of such registration statement, each such amendment 8 and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and such number of copies of such registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically and reasonably so requested by such Holder, agent or underwriter, as the case may be) and 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 the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Holder and by any such agent and underwriter, if any, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (j) cause all Registrable Securities covered by such registration to be listed on each securities exchange or inter-dealer quotation system on which similar securities issued by the Company are then listed; (k) provide a transfer agent and registrar for all Registrable Securities covered by such registration and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (l) cooperate with the Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends; (m) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Conduct (the "Rules of Conduct") of the National Association of Securities Dealers, Inc. ("NASD") thereof, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise use its reasonable best efforts to assist such broker-dealer in complying with the requirements of such Rules of Conduct, including, without limitation, by providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Conduct; and 9 (n) otherwise comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable but in no event later than eighteen months after the effective date of such registration statement, an earnings statement covering the period of at least twelve months, but not more than 18 months, beginning with the first month after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). 2.5 Delivery of Prospectus Supplement. In the event that the Company would be required, pursuant to Section 2.4(f) above, to notify the selling Holders of Registrable Securities, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company shall as soon as reasonably practicable prepare and furnish to each such Holder, to each placement or sales agent, if any, and to each underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to initial purchasers of Registrable Securities, such prospectus shall not contain 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 not misleading in light of the circumstances then existing. Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company pursuant to Section 2.4(f) hereof, such Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the registration statement applicable to such Registrable Securities until such Holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. 2.6 Furnishing Information by the Holders. The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such Holder and such Holder's intended method of distribution of such Registrable Securities as the Company may from time to time request in writing. Each such Holder agrees to promptly notify the Company of any inaccuracy or change in information previously furnished by such Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities or omits to state any material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities required to be stated therein or necessary 10 to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish information so required so that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, 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 not misleading in light of the circumstances then existing. 2.7 Indemnification. (a) The Company will indemnify each Holder whose Registrable Securities are to be included in a registration pursuant to this Article II, each of such Holder's officers, directors, partners, agents, employees and representatives and each person controlling such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, with respect to each registration, qualification or compliance effected pursuant to this Article II, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, or other document incorporated by reference therein, or compliance, 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, and will reimburse each such indemnified person for any reasonable legal and other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to a Holder to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement (or alleged untrue statement) or omission (or alleged omission) based upon information furnished to the Company in writing by such Holder and provided for use in such registration statement, prospectus, offering circular or other document or the Holder delivered a registration or prospectus in violation of Section 2.5 hereof after notice was provided by the Company as provided in Section 2.5. It is agreed that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). (b) Each Holder whose Registrable Securities are included in any registration effected pursuant to this Article II shall indemnify the Company, each of its directors, officers, agents, employees and representatives, and each Person who controls the Company within the meaning of Section 15 of the Securities Act or 11 Section 20 of the Exchange Act, each other such Holder and each of their officers, directors, partners, agents, employees and representatives and each person controlling such Holder, and each underwriter, if any, of such Registrable Securities and each Person who controls any such underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document incident to such registration, qualification or compliance, 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, and will reimburse such indemnified persons for any reasonable legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in strict conformity with written information furnished to the Company by such Holder and provided specifically for use therein; provided, however, that (x) no Holder shall be liable hereunder for any amounts in excess of the net proceeds received by such Holder pursuant to such registration, and (y) the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 2.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed), and the Indemnified Party may participate in such defense with counsel reasonably acceptable to and paid for by the Indemnifying Party but otherwise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.7 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional 12 release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 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. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in an underwriting agreement entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 2.8 Other Obligations. With a view to making available the benefits of certain rules and regulations of the Commission which may effectuate the registration of Registrable Securities or permit the sale of Registrable Securities to the public without registration, the Company agrees to: (a) at such time as any Registrable Securities are eligible for transfer under Rule 144(k), upon the request of the holder of such Registrable Securities, remove any restrictive legend from the certificates evidencing such Registrable Securities at no cost to such holder; 13 (b) make and keep available public information as defined in Rule 144 under the Securities Act at all times; (c) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and (d) furnish any Holder upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after 90 days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the Commission (including Rule 144A) allowing a holder of Registrable Securities to sell any such Registrable Securities without registration. 2.9 Hold-Back Agreements. If requested by the Company or any underwriter of securities of the Company, Holders shall not sell or otherwise transfer or dispose of any Common Stock (other than pursuant to such registration) during the period 15 days prior to and 120 days following the effective date of registration statement relating to the offering of the Company's securities for its own account or such longer period that the underwriters may reasonably request. The obligations described in this Section 2.9 shall not apply to a registration on Form S-4 or Form S-8 or similar forms which may be promulgated in the future. ARTICLE III Termination This Agreement shall terminate immediately following the moment at which there exist no securities of the Company that constitute Registrable Securities; provided, however, that Section 2.7 hereof shall survive indefinitely. 14 ARTICLE IV Miscellaneous 4.1 Recapitalization, Exchanges, etc. Affecting the Common Stock. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (a) the Registrable Securities and (b) any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for the Registrable Securities, by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. In the event of any change in the capitalization of the Company as a result of any stock split, stock dividend or stock combination, the provisions of this Agreement shall be appropriately adjusted. 4.2 Injunctive Relief. It is hereby agreed and acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved Person will be irreparably damaged and will not have an adequate remedy at law. Any such Person shall, therefore, in addition to any other remedies available under applicable law, be entitled to injunctive relief, including specific performance, to enforce such obligations, without the posting of any bond, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 4.3 Parties in Interest. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and assigns of the parties hereto. In the event that any transferee of any Holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing of any kind, be deemed a party hereto for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. 4.4 Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Agreement or made 15 pursuant hereto shall remain in full force and effect regardless of any investigation (or statements as to the results thereto) made by or on behalf of any Holder of Registrable Securities, any director, officer or partner of such Holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive the transfer of Registrable Securities by such Holder. 4.5 Amendment; Waiver. (a) This Agreement may be amended only by a written instrument signed by the Company and by Holders holding more than 66% of the then outstanding Registrable Securities and, in the case of any amendment that adversely affects any Holder or all of the members of any group of Holders differently from any of the other Holders, by such Holder or the holders of more than 66% in interest of the securities of the Company held by such group of Holders. (b) No provision of this Agreement may be waived orally, but only by a written instrument signed by the party against whom enforcement of such waiver is sought. Holders shall be bound from and after the date of the receipt of a written notice from the Company setting forth such amendment or waiver, whether or not the Registrable Securities shall have been marked to indicate such amendment or waiver. 4.6 Notices. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing (including a writing delivered by facsimile transmission) and shall be deemed to have been duly given if delivered personally, or sent by either certified or registered mail, return receipt requested, postage prepaid, or by overnight courier guaranteeing next day delivery, or by telex or telecopier, at the following addresses: 16 if to the Company: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq., Senior Executive Vice President and General Counsel Telecopier: (717) 975-3762 with a copy to Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attention: Stacy J. Kanter, Esq. Telecopier: (212) 735-2000 if to Fir Tree : 535 Fifth Avenue 31st Floor New York, New York 10017 Attention: David Sultan Vice President with a copy to: ` Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1700 Pacific Avenue Suite 4100 Dallas, Texas 75201 Attention: Elliot D. Raffkind, Esq. Telecopier: (214) 969-4343 Fir Tree may, by written notice given to the Company in accordance with this Section 6.6, change the address to which such notice or other communications are to be sent to it. All such notices and communications shall be deemed to have been given on the date of delivery thereof, if delivered by hand, on the fifth day after the mailing thereof, if mailed, on the next day after the sending thereof, if by overnight courier and when receipt is acknowledged, if telecopied. 17 4.7 Inspection. So long as this Agreement shall be in effect, this Agreement and any amendments hereto shall be made available for inspection by any Holder at the principal offices of the Company. 4.8 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 4.9 Headings. Article, section and paragraph headings are inserted for convenience only and do not constitute a part of this Agreement. 4.10 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to this subject matter. 4.11 Illegality. In case any provision in this Agreement shall be declared or held invalid, illegal or unenforceable, in whole or in part, whether generally or in any particular jurisdiction, such provision shall be deemed amended to the extent, but only to the extent, necessary to cure such invalidity, illegality or unenforceability, and the validity, legality and enforceability of the remaining provisions, both generally and in every other jurisdiction, shall not in any way be affected or impaired thereby. 4.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 18 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above. RITE AID CORPORATION ------------------------------------------- Name: Title: FIR TREE VALUE FUND, L.P. ------------------------------------------- Name: Title: FIR TREE INSTITUTIONAL VALUE FUND, L.P. ------------------------------------------- Name: Title: FIR TREE VALUE PARTNERS LDC ------------------------------------------- Name: Title: FIR TREE MASTER RECOVERY FUND, L.P. ------------------------------------------- Name: Title: 19 EXHIBIT A Selling Securityholder Notice and Questionnaire The undersigned holder of shares of the common stock of Rite Aid Corporation (the "Company") that are Registrable Securities (as that term is defined in the Registration Rights Agreement, dated as of May 31, 2001 (the "Registration Rights Agreement") by and among the Company and Fir Tree Value Fund, L.P., Fir Tree Institutional Value Fund, L.P., Fir Tree Value Partners LDC and Fir Tree Master Recovery Fund, L.P., understands that the Company has filed with the Securities and Exchange Commission (the "Commission" a registration statement (the "Shelf Registration Statement" for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"). All capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in the Registration Rights Agreement. Each beneficial owner of Registrable Securities is entitled to the benefits of the Registration Rights Agreement. In order to sell or otherwise dispose of any Registrable Securities pursuant to the Shelf Registration Statement, a beneficial owner of Registrable Securities generally will be required to be named as a selling securityholder in the related prospectus, deliver a prospectus to purchasers of Registrable Securities and be bound by those provisions of the Registration Rights Agreement applicable to such beneficial owner (including certain indemnification provisions, as described below). Beneficial owners are required to complete and deliver this Notice and Questionnaire prior to the effectiveness of the Shelf Registration Statement so that such beneficial owners may be named as selling securityholders in the related prospectus at the time of effectiveness. Upon receipt of a completed Notice and Questionnaire from a beneficial owner following the effectiveness of the Shelf Registration Statement, the Company will, as promptly as practicable, file such amendments to the Shelf Registration Statement or supplements to the related prospectus as are necessary to permit such holder to deliver such prospectus to purchasers of Registrable Securities. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being A-1 named as a selling securityholder in the Shelf Registration Statement and the related prospectus. Notice The undersigned beneficial owner (the "Selling Securityholder") of Registrable Securities hereby gives notice to the Company of its intention to sell or otherwise dispose of Registrable Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under Item 3) pursuant to the Shelf Registration Statement. The undersigned, by signing and returning this Notice and Questionnaire, understands that it will be bound by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement. The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: Questionnaire 1. (a) Full Legal Name of Selling Securityholder: --------------------------------------------------------------------- (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities listed in (3) below are held: --------------------------------------------------------------------- (c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) through which Registrable Securities listed in (3) below are held: 2. Address for Notices to Selling Securityholder: --------------------------------------------------------------------- --------------------------------------------------------------------- Telephone: ----------------------------------------------------------- Fax: ----------------------------------------------------------------- Contact Person: ------------------------------------------------------ 3. Beneficial Ownership of Registrable Securities: A-2 (a) Type and Principal Amount of Registrable Securities beneficially owned: -------------------------------------------------------------- -------------------------------------------------------------- (b) CUSIP No(s). of such Registrable Securities beneficially owned: -------------------------------------------------------------- -------------------------------------------------------------- 4. Beneficial Ownership of the Company's securities owned by the Selling Securityholder: Except as set forth below in this Item (4), the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securities listed above in Item (3). (a) Type and Amount of Other Securities beneficially owned by the Selling Securityholder: (b) CUSIP No(s). of such Other Securities beneficially owned: -------------------------------------------------------------- -------------------------------------------------------------- 5. Relationship with the Company: Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or their predecessors or affiliates) during the past three years. State any exceptions here: ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- 6. Plan of Distribution: Except as set forth below, the undersigned (including its donees or pledgees) intends to distribute the Registrable Securities listed above in Item (3) A-3 pursuant to the Shelf Registration Statement only as follows if at all): such Registrable Securities may be sold from time to time directly by the undersigned or alternatively, through underwriters, broker-dealers or agents. If the Registrable Securities are sold through underwriters or broker-dealers, the Selling Securityholder will be responsible for underwriting discounts or commissions or agent's commissions. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve block transactions) (i) on any national securities exchange or quotation service on which the Registrable Securities may be listed or quoted at the time of sale,. (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services, or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of Registrable Securities or otherwise, the undersigned may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities. State any exceptions here: ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- The undersigned acknowledges that it understands its obligation to comply with the provisions of the Exchange Act and the rules thereunder relating to stock manipulation, particularly Regulation M thereunder (or any successor rules or regulations), in connection with any offering of Registrable Securities pursuant to the Shelf Registration Statement. The undersigned agrees that neither it nor any person acting on its behalf will engage in any transaction in violation of such provisions. The Selling Securityholder hereby acknowledges its obligations under the Registration Rights Agreement to indemnify and hold harmless certain persons as set forth therein. Pursuant to the Registration Rights Agreement, the Company has agreed under certain circumstances to indemnify the Selling Securityholders against certain liabilities. A-4 In accordance with the undersigned's obligation under the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided. herein that may occur subsequent to the date hereof at anytime while the Shelf Registration Statement remains effective. All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing at the address set forth below. By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and the related prospectus. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Shelf Registration Statement and the related prospectus. A-5 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Dated: Beneficial Owner By: ------------------------------ Name: Title: PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO RITE AID CORPORATION. AT: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq, Senior Executive Vice President and General Counsel Facsimile: (717) 975-3762 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, NY 10036 Attention: Stacy J. Kanter, Esq. Facsimile: (212) 735-2000 A-6 EX-10 37 exh10-57.txt EXHIBIT 10.57 NOTE EXCHANGE AGREEMENT This NOTE EXCHANGE AGREEMENT (the "Agreement") is entered into as of June 27, 2001, by and among Rite Aid Corporation, a Delaware corporation (the "Company"), and the entities listed on Schedule I hereto (the "Exchanging Holders"). WHEREAS, the Company has issued to the Exchanging Holders, and there remains outstanding, an aggregate of $152,025,000 principal amount of its 10.5% Senior Secured Notes due 2002 (the "Original Notes") in the amounts set forth in Schedule I hereto; WHEREAS, pursuant to an offer to exchange, the Company desires to issue to the Exchanging Holders, and the Exchanging Holders desire to acquire from the Company, in exchange for all of their respective Original Notes, an equal principal amount of 12.5% Senior Secured Notes due September 15, 2006 (the "Exchange Notes") in the amounts set forth in Schedule I hereto and warrants (the "Warrants"), which will expire in five years, to purchase up to an aggregate of 3,000,000 shares of the Company's common stock, $1.00 par value per share (the "Common Stock"), at an exercise price of $6.00 per share, on the terms and subject to the conditions set forth herein, (such exchange, the "Exchange"); and NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: 1. The Exchange Offer. (a) Exchange. Subject to the terms and conditions hereof, the Company hereby agrees to issue to the Exchanging Holders (i) $1,000 aggregate principal amount of Exchange Notes and (ii) a Warrant to purchase 19.7336 shares of Common Stock, for every $1,000 aggregate principal amount of Original Notes tendered in the Exchange. Any unpaid interest on the Original Notes accrued through June 26, 2001 will become immediately due and payable on the Closing Date (as defined herein). (b) Terms of the Exchange Notes. The Exchange Notes will be governed by an Indenture (the "Indenture"), dated as of June 27, 2001 between the Company and State Street Bank and Trust Company, as trustee, the form of which is attached as Exhibit A hereto. Subject to the terms and conditions hereof, interest accrues on the principal amount of the Exchange Notes at 12.5% per annum. Interest is payable on the Exchange Notes and distributions will be made semi-annually in arrears on March 15 and September 15 of each year, commencing on September 15, 2001. 2. Closing. The consummation of the Exchange (the "Closing") shall occur at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York, simultaneously with Closing of the Refinancing (as defined herein), at 9:00 a.m. New York City time on June 27, 2001 (the "Closing Date") or at such other time and place as the Company and the Exchanging Holders mutually agree in writing. Prior to the time of Closing, the Company shall deliver to one or more custodians for the Exchanging Holders, one or more certificates registered in the name of the nominee of the custodian, evidencing the Warrants against delivery to the Company through the facilities of The Depository Trust Company ("DTC"), of an aggregate of $152,025,000 principal amount of its 10.5% Senior Secured Notes due 2002. The custodians will execute such documents reasonably necessary to evidence receipt of such Warrants. If for any reason, the Closing does not occur within twenty-four hours of the Company's delivery to the custodians of the Warrants, the custodians shall immediately return such Warrants to the Company or an authorized representative thereof. At the Closing, the Company will cause to be delivered to the Exchanging Holders (i) the Exchange Notes through the facilities of DTC, (ii) the legal opinion set forth in Section 5 herein and (iii) an executed copy of the Registration Rights Agreement, dated as of the date hereof by and between the Company and the entities party thereto and (iv) an executed copy of the Exchange and Registration Rights Agreement, dated as of the date hereof by and between the Company and the entities party thereto. At the Closing, the Exchanging Holders will cause to be delivered to the Company (i) the Original Notes through the facilities of DTC (ii) an executed copy of the Registration Rights Agreement, dated as of the date hereof by and between the Company and the entities party thereto and (iii) an executed copy of the Exchange and Registration Rights Agreement, dated as of the date hereof by and between the Company and the entities party thereto. As used herein, the term "Refinancing" shall mean the Company's refinancing of its Senior Credit Agreement dated as of June 12, 2000 on terms and conditions not materially less favorable to the Company than the terms of that certain bank commitment letter attached as Exhibit B hereto and without the waiver by the Agents (as such term is defined in the Commitment Letter) of any material condition contained therein (the "Commitment Letter"). 3. Exchanging Holder Representations. Each Exchanging Holder hereby represents and warrants to the Company as follows: (a) Authorization. The Exchanging Holder has requisite power and authority to execute, deliver and perform its obligations under this Agreement. The execution and delivery of this Agreement have been duly and validly authorized, and all necessary action has been taken to make this Agreement a legal, valid and binding obligation of the Exchanging Holder, enforceable in accordance with its terms, except that the enforcement hereof may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law). (b) Access to Information. The Company has made available to the Exchanging Holders all reports, schedules, forms, statements and other documents filed by the 2 Company with the SEC from October 11, 2000 through the Closing Date pursuant to the reporting requirements of the Exchange Act, and the Exchanging Holders have received physical delivery of all such documents, records and information which the Exchanging Holders have requested, and have had adequate opportunity to ask questions of, and receive answers from, the Company's officers, employees, agents, accountants, and representatives concerning the Company's business, operations, financial condition, assets, liabilities, and all other matters relevant in making the Exchange. (c) Title to Original Notes. Immediately prior to the Closing, the Exchanging Holders will have title to the Original Notes being exchanged by it, free and clear of all claims, liens, title defects and objections or equities of any kind and nature whatsoever. (d) Investment Representations. (i) Each Exchanging Holder is the person who exercises full investment discretion with respect to the Original Notes and the Exchanging Holders have neither purchased nor sold for their account any Original Notes since the original issuance thereof. (ii) Each Exchanging Holder is acquiring the Warrants hereunder for its own account, and not as a nominee or agent for any other person, firm or corporation, and not with a view to the sale or distribution of all or any part thereof in any transaction that would be in violation of the securities laws of the United States, and it has no present intention of selling or otherwise distributing any of the Warrants or Common Stock issuable upon exercise of the Warrants in violation of the Securities Act of 1933, as amended (the "Act"). The Exchanging Holders do not have any contract, undertaking, agreement or arrangement with any person, firm or corporation to sell, transfer or grant participations to such person, firm or corporation with respect to any such Warrants or Common Stock issuable upon exercise of the Warrants. (iii) Each Exchanging Holder understands that the Exchange Notes, the Warrants and the Common Stock issuable upon exercise of the Warrants acquired hereunder will not be registered under the Act, in part based upon an exemption from registration predicated on the accuracy and completeness of its representations and warranties appearing herein. Each Exchanging Holder understands and acknowledges that, as a result, it will not be permitted to sell, transfer or assign any of the Exchange Notes, the Warrants or Common Stock issuable upon exercise of the Warrants acquired hereunder until such Exchange Notes, Warrants and Common Stock are registered or an exemption from the registration and prospectus delivery requirements of the Act is available. (iv) Each Exchanging Holder agrees that in no event will it make a disposition of any of the Exchange Notes, the Warrants or Common Stock issuable upon exercise of the Warrants or any interest therein, unless such Exchange Notes or Common Stock issuable upon exercise of the Warrants are registered under the Act or unless and, in the case of the 3 Warrants or Common Stock issuable upon exercise of the Warrants, until (A) it shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition and (B) it shall have furnished the Company with an opinion of counsel, satisfactory in form and content to the Company, to the effect that (x) such disposition will not require registration of such Common Stock issuable upon exercise of the Warrants under the Act or compliance with applicable state securities laws or (y) an exemption from the registration requirements of the Act is available and that all appropriate action necessary for compliance thereunder and under the applicable state securities laws has been taken. (v) Each Exchanging Holder is either (i) a "Qualified Institutional Buyer" as such term is defined in Rule 144A under the Act or (ii) an "Accredited Investor" as such term is defined in Rule 501 of Regulation D promulgated under the Act; does not require the assistance of an investment advisor or other purchaser representative to participate in the transactions contemplated by this Agreement; has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment in the Exchange Notes; has the ability to bear the economic risks of its investment for an indefinite period of time; and has had adequate opportunity to ask questions of, and receive answers from, the Company concerning all matters relevant to the Exchange. (e) No Commission or Remuneration. Each Exchanging Holder has not received any commission or remuneration for acting on the Company's behalf in connection with or in order to solicit or facilitate the Exchange. (f) Section 3(a)(9) Exemption. The Exchanging Holders acknowledge that the transaction contemplated hereby is intended to be exempt from registration by virtue of Section 3(a)(9) of the Securities Act of 1933, as amended. The Exchanging Holder knows of no reason why such exemption would not be available for the transaction contemplated hereby. 4. The Company's Representations. The Company represents and warrants to the Exchanging Holders as follows: (a) Organization, Authority, etc. The Company is a corporation duly incorporated and validly existing under and by virtue of the laws of the State of Delaware and has all requisite corporate power to own or lease and operate its properties and assets and to carry on its business as now conducted and as proposed to be conducted; is duly qualified or licensed to do business and is in good standing as a foreign corporation in all jurisdictions in which it owns or leases property or in which the conduct of its business requires it so to qualify or be licensed, except where the failure to be so licensed or qualified could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the assets, business, properties or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted); and has all requisite corporate power to enter into this Agreement, to issue the Exchange Notes, the Warrants and the Common Stock issuable upon exercise of the Warrants and to perform its obligations hereunder. 4 (b) Corporate Acts and Proceedings. The execution and delivery of this Agreement and the transactions contemplated hereby have been duly and validly authorized, and all necessary corporate action has been taken to make this Agreement a legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law). (c) Valid Issuance. When the Exchange Notes have been duly executed and authenticated in accordance with the terms of the Indenture and delivered upon consummation of the Exchange against receipt of the Original Notes surrendered in exchange therefor as provided herein, the Exchange Notes will constitute valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except to the extent that (a) the enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity) and (b) the waiver contained in Section 5.15 of the Indenture may be deemed unenforceable. When the Warrants are delivered upon consummation of the Exchange against receipt of the Original Notes as provided herein, the Warrants will constitute a valid and binding obligation of the Company, and the Common Stock, when issued upon exercise of the Warrants and payment of the exercise price specified therein in accordance with the terms of the Warrants, will be duly and validly issued, fully paid and nonassessable. (d) Exempt Offering. Subject to the accuracy of the Exchanging Holders' representations and warranties contained in Section 3 hereof, the issuance hereunder of each of the Exchange Notes, the Warrants and the Common Stock issuable upon exercise of the Warrants is exempt from the registration and prospectus delivery requirements of the Act. (e) Brokers. There is no broker, investment banker, financial advisor, finder or other person which has been retained by or is authorized to act on behalf of the Company who might be entitled to any fee or commission for which the Exchanging Holders will be liable in connection with the execution of this Agreement or the transactions contemplated hereby. (f) Compliance with Other Instruments. Neither the execution and delivery by the Company of this Agreement, nor the consummation of the transactions contemplated hereby will (a) conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the property or assets of the Company is subject, (b) result in any violation of the 5 provisions of the certificate of incorporation or by-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its respective properties, (c) result in the creation under any agreement or instrument of any lien, security interest, encumbrance or other claim upon any of the respective assets of the Company, or (d) create in any person or entity any right to terminate any agreement with the Company or otherwise exercise any rights against the Company or cause any payment or performance obligation of the Company to be accelerated, except in each case (a-d) as would not, individually or in the aggregate have a material adverse effect on the business, results of operations, prospects or financial condition of the Company (as such business is presently conducted and as it is presently proposed to be conducted) ("Material Adverse Effect"). (g) Additional Information. Since October 11, 2000, the Company has timely filed, and at the Closing Date, the Company will have timely filed, all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission pursuant to the reporting requirements of the Exchange Act. The Company represents and warrants that as of their respective filing dates, the information contained in the 2001 10-K (without exhibits) and the Definitive Proxy, complied with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the 2001 10-K and the Definitive Proxy, except for the failure to include certain financial information as described therein, and neither the 2001 10-K nor the Definitive Proxy (including all exhibits included in the 2001 10-K and the Definitive Proxy and all financial statements and schedules thereto and documents incorporated by reference therein), at the time they were respectively filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 5. Conditions of Parties' Obligations. (a) Conditions of the Exchanging Holders' Obligations. The obligations of the Exchanging Holders under Sections 1 and 2 hereof are subject to the fulfillment prior to or on the Closing Date of all of the following conditions, any of which may be waived in whole or in part by the Exchanging Holders. (i) Continued Accuracy of the Company's Covenants, Representations and Warranties. The representations and warranties of the Company contained in Section 4 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (ii) No Material Adverse Change. There shall be no material adverse change in the business, properties, prospects, or assets of the Company. 6 (iii) Consummation of the Refinancing. The Company shall simultaneously with the Closing, consummate the Refinancing. (iv) Second Priority Security Agreements. The Company shall have entered into the second priority security agreements listed on Schedule II hereto. (v) Legal Opinions. The Company shall have delivered to the Exchanging Holders, the legal opinions from Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Company, in substantially the form of Exhibit C hereto. (b) The obligations of the Company under Sections 1 and 2 hereof are subject to the fulfillment prior to or on the Closing Date of all of the following conditions, any of which may be waived in whole or in part by the Company. (i) Continued Accuracy of Exchanging Holders' Covenants, Representations and Warranties. The representations and warranties of the Exchanging Holders contained in Section 3 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (c) Conditions of Each Party's Obligations. The respective obligations of each party to consummate the transactions contemplated hereunder are subject to the parties being reasonably satisfied as to the absence of (i) litigation challenging or seeking damages in connection with the transactions contemplated by this Agreement, and (ii) any provision of any applicable law or regulation, or any judgment, injunction, order or decree prohibiting or enjoining the transactions contemplated by this Agreement. 6. Security Interest Opinion. The Company shall cause to be delivered to the Exchanging Holders on July 2, 2001, the legal opinion from Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Company, with respect to the security interest in certain UCC collateral, substantially in the form of Exhibit D hereto. 7. Registration Rights. The Exchanging Holders will have such registration rights as set forth in (i) a registration rights agreement in substantially the form of Exhibit E hereto with respect to the Exchange Notes and (ii) a registration rights agreement in substantially the form of Exhibit F hereto with respect to the shares of Common Stock underlying the Warrants. 8. Legends. Until a registration statement covering the Warrants, the Common Stock issuable upon exercise of the Warrants and the restricted Exchange Notes, if any, is declared effective, all certificates representing the Warrants, the Common Stock issuable upon exercise of the Warrants and the Exchange Notes issued in exchange for the Original Notes hereunder shall bear substantially the following legends: 7 (a) THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE OR UPON DELIVERY OF AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO RITE AID CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. THIS SECURITY IS ALSO SUBJECT TO AND HAS THE BENEFIT OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF JUNE 27, 2001 BETWEEN THE HOLDER AND RITE AID CORPORATION, COPIES OF WHICH ARE ON FILE WITH RITE AID CORPORATION. (b) Any legend required to be placed thereon by any applicable state corporation, commercial or securities law. 9. Removal of Restrictions on Transfer. Any legend endorsed on a certificate representing the Warrants, the Common Stock issuable upon exercise of the Warrants and the Exchange Notes and the stop transfer instructions and record notations with respect to such securities shall be removed and the Company shall issue a certificate representing such securities without such legend to the holder thereof (i) if such securities are registered under the Act, (ii) if a notification under Regulation A under the Act is in effect with respect thereto or (iii) if such securities are eligible for transfer under Rule 144(k) under the Act. 10. Survival of Representations, Warranties and Agreements. All representations and warranties made by the Company and the Exchanging Holders herein shall survive until twelve months from the Closing Date. 11. Miscellaneous. (a) Amendment. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally or by course of dealing, but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. (b) Expenses. Whether or not the transactions contemplated hereby are consummated, each of the Company and the Exchanging Holders will pay their own expenses incurred in connection with the transactions contemplated hereby. (c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier, telex, facsimile, telecopier, or similar writing: 8 (i) if to the Exchanging Holders to the name of such Exchanging Holder at the following address: 82 Devonshire Street E20E Boston, MA 01203 Facsimile No.: (617) 476-7774 , with a copy to H. David Henken, P.C. Goodwin Procter LLP 53 State Street Boston, MA 02109 Facsimile No.: (617) 523-1231 ; and (ii) If to the Company, to: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Elliot S. Gerson, Esq., Senior Executive Vice President and General Counsel Telephone No.: (717) 975-5806 Facsimile No.: (717) 760-7867 , with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036-6522 Attention: Stacy J. Kanter, Esq. Telephone No.: (212) 735-3000 Facsimile No.: (212) 735-2000 (iii) All such notices and communications shall be deemed to have been duly given: (i) when delivered by hand, if personally delivered; (ii) five (5) business days after being deposited in the mail, postage prepaid, if mailed; (iii) one (1) business day after being timely dispatched postage prepaid, if by same-day or next-day courier; (iv) when answered back, if telexed; (v) when receipt acknowledged, if sent by facsimile transmission and (vi) if given by 9 any other means, when delivered at the addresses referred to in this Section. Any of the above addresses may be changed by notice made in accordance with this Section 9(b). (d) Parties in Interest. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, whether so expressed or not. (e) Headings. The headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. (f) Choice of Law. The internal laws of the State of New York shall govern the enforceability and validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties hereto without giving effect to conflicts of laws, rules or principles. (g) Entire Agreement. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and such Agreement supersedes and replaces all other prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof. (h) Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. (i) Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any federal or state court located in the State of New York, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 9(b) shall be deemed effective service of process on such party. (j) No Implied Waiver. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial 10 exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. (k) Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. (l) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. (m) Notice of Limitation of Liability. A copy of the Agreement and Declaration of Trust of each Fidelity fund or series investment company (each, a "Fund") that is a Massachusetts business trust is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this Agreement is executed on behalf of the Trustees of the relevant Fund as Trustees and not individually and that the obligations of this Agreement are not binding upon any of the Trustees, officers or shareholders of the Fund individually but are binding only upon the assets property of such Fund. BEFORE EXECUTING THIS AGREEMENT, THE EXCHANGING HOLDER SHOULD CONSULT WITH ITS TAX ADVISORS REGARDING THE CONSEQUENCES OF THE EXCHANGE OFFER AND OWNERSHIP OF THE EXCHANGE NOTES, THE WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANT. 11 IN WITNESS WHEREOF, the parties hereto have caused this Note Exchange Agreement to be executed as of the date first above written. RITE AID CORPORATION By: ------------------------------------------------- Name: Elliot S. Gerson Title: Senior Executive Vice President, General Counsel and Assistant Secretary [NAME OF EXCHANGING HOLDER] By: ------------------------ Name: Title: Address: Taxpayer Identification Number: SCHEDULE I EXCHANGING HOLDERS
Number Fund 10.50% 12.50% of Number Trust Name Fund Name Notes Notes Warrants - ------ ---------- --------- ----- ----- -------- 321 Fidelity Charles Street Fidelity Asset Manager: Growth 7,095,000 7,095,000 140,010 Trust 328 Fidelity Charles Street Fidelity Asset Manager: Income 590,000 590,000 11,643 Trust 23 Fidelity Devonshire Trust Fidelity Equity-Income Fund 2,505,000 2,505,000 49,433 726 Fidelity Advisor Series I Fidelity Advisor Asset Allocation 200,000 200,000 3,947 Fund 374 Fidelity Advisor Series II Fidelity Advisor High Income Fund 465,000 465,000 9,176 218 Fidelity Advisor Series II Fidelity Advisor High Yield Fund 47,775,000 47,775,000 942,773 347 Fidelity Charles Street Fidelity Asset Manager: Aggressive 395,000 395,000 7,795 Trust 314 Fidelity Charles Street Fidelity Asset Manager 9,660,000 9,660,000 190,626 Trust 304 Fidelity Puritan Trust Fidelity Balanced Fund 1,000,000 1,000,000 19,733 38 Fidelity Summer Street Fidelity Capital & Income Fund 43,940,000 43,940,000 867,094 Trust 455 Fidelity Fixed-Income Fidelity High Income Fund 10,565,000 10,565,000 208,485 Trust 211 Variable Insurance Equity-Income Portfolio 1,285,000 1,285,000 25,358 Products Fund 616 Variable Insurance Balanced Portfolio 215,000 215,000 4,243 Products Fund III 92728 Fidelity Canadian 175,000 175,000 3,453 Balanced Fund 329 Fidelity Global Asset 1,265,000 1,265,000 24,963 Allocation Fund Commonwealth of Massachusetts Pension Reserve Investment 5,530,000 5,530,000 109,127 Management Board 7058 Fidelity High Yield 2,720,000 2,720,000 53,675 Collective Trust 907 Pension Investment Committee of General Motors for General 16,645,000 16,645,000 328,466 Motors Employees Domestic Group Pension Trust 152,025,000 152,025,000 3,000,000
SCHEDULE II 1. Second Priority Subsidiary Security Agreement, dated as of June 27, 2001. 2. Second Priority Subsidiary Guarantee Agreement, dated as of June 27, 2001. 3. Second Priority Indemnity, Subrogation and Contribution Agreement, dated as of June 27, 2001. 4. Collateral Trust and Intercreditor Agreement, dated as of June 27, 2001. 5. Each of the second priority mortgages and deeds of trust, dated as of June 27, 2001. EXHIBIT A INDENTURE A-1 EXHIBIT B COMMITMENT LETTER B-1 EXHIBIT C FORM OF OPINIONS C-1 EXHIBIT D FORM OF OPINION D-1 EXHIBIT E EXCHANGE AND REGISTRATION RIGHTS AGREEMENT E-1 EXHIBIT F REGISTRATION RIGHTS AGREEMENT F-1 EX-10 38 exh10-58.txt EXHIBIT 10.58 THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED OR HYPOTHECATED UNLESS REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE OR UPON DELIVERY OF AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THIS SECURITY IS ALSO SUBJECT TO AND HAS THE BENEFIT OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF JUNE 27, 2001 BETWEEN THE HOLDER AND RITE AID CORPORATION, COPIES OF WHICH ARE ON FILE WITH RITE AID CORPORATION. Warrant No. __ Dated June 27, 2001 WARRANT To Purchase __________ Shares of Common Stock par value $1.00 per share of RITE AID CORPORATION Expiring June 27, 2006 THIS IS TO CERTIFY THAT, for value received, o or registered assigns ("Holder"), is entitled, subject to the terms set forth herein, to purchase from RITE AID CORPORATION, a Delaware corporation ("Rite Aid" or the "Company"), __________ shares (as adjusted from time to time as set forth in Article 4 hereof) of Common Stock of the Company, as constituted on the date hereof (the "Warrant Issue Date"), upon surrender hereof to the Warrant Agent, as defined herein, with the Form of Election to Purchase attached hereto duly executed, and simultaneous payment therefor in lawful money of the Untied States, as hereinafter provided, at the Exercise Price set forth herein. The Warrants are being issued in connection with the exchange by Holder and certain other entities of an aggregate of $152,025,000 principal amount of 10.5% Senior Secured Notes due 2002 of Rite Aid for a like amount of a new issue of 12.5% Senior Secured Notes due 2006 of Rite Aid pursuant to that certain exchange agreement dated as of June 27, 2001, by and between Rite Aid, Holder and the other entities party thereto. The Warrants are subject to certain restrictions on transfer and assignment as set forth in Section 6.4 herein. Certain terms used in this Warrant are defined in Article 5. ARTICLE 1 TERM OF WARRANT AND EXERCISE PRICE SECTION 1.1 Term. Subject to the terms and conditions set forth herein, this Warrant shall be exercisable, in whole or in part, during the term commencing on the Warrant Issue Date and ending at 5:00 p.m., New York time, on June 27, 2006, and shall be null and void thereafter (the "Expiration Date"). SECTION 1.2 Exercise Price. The Exercise Price at which this Warrant may be exercised is $6.00 per share of Common Stock, as may be adjusted from time to time, pursuant to the terms and conditions herein. ARTICLE 2 EXERCISE OF WARRANTS SECTION 2.1 Method of Exercise. To exercise this Warrant, in whole or in part, the Holder shall deliver on any Business Day, which Business Day shall be on or after the Warrant Issue Date, to the Company, at the office of the Warrant Agent, (a) this Warrant, (b) the Form of Election to Purchase attached hereto as Annex A, and (c) payment of the Exercise Price with respect to such Warrant Shares. Such payment of the Exercise Price in an amount equal to the product of (i) the Exercise Price then in effect, times (ii) the number of Warrant Shares for which this Warrant is being exercised (such product, the "Exercise Payment") may be made, at the option of the Holder, (x) by certified bank check in New York Clearing House Funds or wire transfer (such manner of payment, a "Cash Exercise Payment") or (y) canceling such portion of this Warrant in respect of the number of shares that is equal to the number of shares determined by dividing the Exercise Payment by (A) the current market price of the Common Stock as of the date of exercise or (B) if the current market price 2 cannot be determined because the Common Stock is not listed or admitted to unlisted trading on the New York Stock Exchange, another national securities exchange, or NASDAQ, the amount most recently determined by the Company's Board of Directors in its good faith to represent the fair market value per share of the Common Stock, which determination may give affect to options, warrants and convertible securities outstanding. (such manner of payment, a "Non-Cash Exercise Payment"). The person or persons in whose name(s) any certificate(s) shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the share represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised. SECTION 2.2 Issuance of Certificates. The Company shall, as promptly as practicable and in any event within five Business Days after receipt of such Form of Election to Purchase, Warrant and payment, execute and deliver or cause to be executed and delivered, in accordance with such Election to Purchase, a certificate or certificates representing the aggregate number of Warrant Shares for which this Warrant is being exercised, subject to Section 2.4 herein. The share certificate or certificates so delivered shall be in such denominations as may be specified in such Election to Purchase, and shall be issued in the name of the Holder or such other name or names as shall be designated in such Election to Purchase. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and such Holder or any other Person so designated to be named therein shall be deemed for all purposes to have become a Holder of record of shares, as of the date the aforementioned Warrant, Election to Purchase and payment is received by the Company. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of such certificate or certificates, deliver to the Holder a new Warrant evidencing the rights to purchase the remaining shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder specified in such notice, appropriate notation may be made on this Warrant which shall then be returned to the Holder. All Warrants delivered for exercise shall be cancelled by the Company. SECTION 2.3 Shares to Be Fully Paid and Nonassessable. All Warrant Shares shall be validly issued, fully paid and nonassessable and, if the Common Stock is then listed on the NYSE or any other national securities exchange or quoted on Nasdaq, shall be duly listed or quoted thereon, as the case may be. 3 SECTION 2.4 No Fractional Shares Required to Be Issued. The Company shall not be required to issue fractional shares of Common Stock upon exercise of this Warrant. If any fraction of a share would, but for this Section, be issuable upon such exercise of this Warrant, then, in lieu of such fractional share, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the closing sale price (based on a trading day from 9:30 a.m. to 4:00 p.m. New York City time) on the New York Stock Exchange of one share of Common Stock on the date of exercise. SECTION 2.5 Share Legend. The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the Warrant Shares are being acquired solely for the Holder's own account, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any Warrant Shares except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. Upon exercise of this Warrant, the Holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the shares of Common Stock so purchased are being acquired solely for the Holder's own account, for investment, and not with a view toward distribution or resale except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. Each certificate for Warrant Shares, unless at the time of exercise such shares are registered under the Securities Act, shall bear the following legend: "This security has not been registered under the Securities Act of 1933, as amended, and may not be sold or offered for sale unless registered under said Act and any applicable state securities laws or unless an exemption from such registration is available or upon delivery of an opinion of counsel or other evidence reasonably satisfactory to Rite Aid Corporation that such registration is not required. This security is also subject to and has the benefit of a Registration Rights Agreement dated as of June 27, 2001 between the Holder and Rite Aid Corporation, copies of which are on file with Rite Aid Corporation." Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public offering pursuant to a registration statement under the Securities Act) shall also bear such legend unless, in the opinion of counsel selected by the Holder of such certificate (who may be an employee of such Holder) and reasonably acceptable to the Company, the securities represented 4 thereby need no longer be subject to restrictions on resale under the Securities Act. SECTION 2.6 Reservation. The Company has duly reserved and will keep available for issuance upon exercise of the Warrant the total number of Warrant Shares deliverable from time to time upon exercise of all Warrants from time to time outstanding. SECTION 2.7 Taxes. The Company shall pay all expenses and any and all documentary, stamp and other similar taxes which may be payable with respect to the issuance and delivery of Warrant Shares and any new Warrant upon exercise of this Warrant; provided, however, that the Company shall not be required to pay any transfer tax or taxes which may be payable in respect of any transfer involved in the issue of the Warrant or Warrant Shares in the name other than the registered holder of the Warrant surrendered upon exercise of the Warrant, and the Company shall not be required to issue or deliver such Warrant unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the reasonable satisfaction of the Company that such tax has been paid. ARTICLE 3 WARRANT AGENT; TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS SECTION 3.1 Warrant Agent. As long as this Warrant remains outstanding, the Company shall perform the obligations of and be the warrant agent with respect to the Warrant (the "Warrant Agent") at its address set forth on the signature page or at such other address as the Company shall specify by written notice to the Holder. SECTION 3.2 Ownership of Warrant. The Company may deem and treat the Person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by any Person other than the Company) for all purposes and shall not be affected by any notice to the contrary, until due presentment of this Warrant for registration of transfer as provided in this Article 3. SECTION 3.3 Transfer of Warrant. The Company agrees to maintain at the offices of the Warrant Agent books for the registration of transfers of the Warrant, and transfer of this Warrant and all rights hereunder shall be 5 registered, in whole or in part, on such books, upon surrender of this Warrant at the Warrant Agent's offices, together with the Form of Assignment attached hereto as Annex B, duly executed by the Holder or its duly authorized agent or attorney. Subject to Section 6.4 herein, upon surrender and upon payment of funds sufficient to pay any transfer taxes, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in the instrument of assignment (which shall be whole numbers of shares only) and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, if any, and this Warrant shall promptly be cancelled. SECTION 3.4 Division or Combination of Warrants. Subject to Section 6.4 herein, this Warrant may be divided or combined with other Warrants upon present ment hereof and of any Warrant or Warrants with which this Warrant is to be combined at the Warrant Agent, together with the annexed Form of Assignment, specifying the names and denominations (which shall be whole numbers of shares only) in which the new Warrant or Warrants are to be issued, signed by the Holder or Holders thereof or their respective duly authorized agents or attorneys. Subject to compliance with Section 3.3 and 6.4 as to any transfer or assignment which may be involved in the division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. SECTION 3.5 Loss, Theft, Destruction of Warrant Certificates. Upon receipt of evidence reasonably satisfactory to the Company of the ownership of and the loss, theft, destruction or mutilation of any Warrant, and in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to the Company, the Company will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of shares of Common Stock. SECTION 3.6 Expenses of Delivery of Warrants. The Company shall pay all reasonable expenses and other charges (other than transfer taxes) payable in connection with the preparation, issuance and delivery of Warrants hereunder. 6 ARTICLE 4 ANTIDILUTION PROVISIONS SECTION 4.1 Adjustment Generally. The Exercise Price and the number of shares of Common Stock (or other securities or property) issuable upon exercise of this Warrant shall be subject to adjustment from time to time, as follows: SECTION 4.2 Adjustment for Stock Dividends, Distributions and Subdivisions. In the event the Company shall declare or pay any dividend or make any other distribution on all of the Common Stock payable in shares of Common Stock, or shall effect a subdivision of all of the outstanding Common Stock into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock), then and in each such case, the applicable Exercise Price in effect immediately prior to such stock dividend, distribution or subdivision shall, concurrently with the effectiveness of such stock dividend, distribution or subdivision, be proportionately decreased and, the number of Warrant Shares shall, concurrently with the effectiveness of such stock dividend, distribution or subdivision, be proportionately increased, provided, that, in the event such issuance is declared but not effected, the applicable Exercise Price and the number of Warrant Shares shall be readjusted as if such issuance was not declared. SECTION 4.3 Adjustments for Common Stock Subdivisions and Combinations. In case at any time after the date hereof, all or any portion of the Common Stock outstanding shall be subdivided into a greater number of shares of Common Stock, the Exercise Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced and, the number of Warrant Shares shall be proportionately increased, and, conversely in case at any time after the date hereof, all or any portion of the shares of Common Stock outstanding shall each be combined into a smaller number of shares of Common Stock, the Exercise Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased and, the number of Warrant Shares shall be proportionately decreased, such reductions or increases, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. SECTION 4.4 Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc. In the event the Company (i) consolidates with or merges into any other corporation or entity and is not the continuing or surviving corporation or entity of such consolidation or merger, (ii) permits any other 7 corporation or entity to consolidate with or merge into the Company and the Company is the continuing or surviving corporation but, in connection with such consolidation or merger, the shares of Common Stock are changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (iii) transfers all or substantially all of its properties or assets, directly or indirectly, to any other corporation or entity (other than to a wholly owned Subsidiary of the Company if such Subsidiary remains wholly owned by the Company after such transfer or any other transaction or series of transactions related to such transfer), then, and in each such event, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Section 4.4, each Holder, upon any exercise at any time after the consummation of such consolidation, merger or transfer, shall be entitled to receive, in lieu of the shares of Common Stock issuable upon any exercise prior to such consummation, the stock and other securities, cash and property to which such Holder would have been entitled upon such consummation if such Holder had exercised its Warrants immediately prior to such consummation (or, if applicable, any record date with respect to such transaction), subject to adjustments (subsequent to such corporate action) as nearly equivalent as possible to the adjustments provided for in this Article 4. Notwithstanding anything contained herein to the contrary, (A) the Company will not effect any of the transactions described in clauses (i) through (iii) of this Section 4.4 unless, prior to the consummation thereof, each corporation or entity (other than the Company) which may be required to deliver any stock, securities, cash or property upon the exercise of the Warrants shall assume, by written instrument, a copy of which shall be delivered to each Holder, the obligation to deliver to such Holder such shares of stock, securities, cash or property as such holder may be entitled to receive upon exercise of the Warrants. SECTION 4.5 Adjustments for Reclassification, Exchange and Substitution. If the Common Stock issuable upon exercise of the Warrants is changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision, combination or consolidation of shares, or merger, consolidation or asset sale, provided for in Sections 4.2, 4.3 and 4.4), then and in each such case, the applicable Exercise Price then in effect and the number of Warrant Shares shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionateley adjusted such that the Warrants shall be exercisable into, in lieu of the number of shares of Common Stock which the Holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the Holders upon exercise of the Warrants immediately before that change. No class or series 8 of Common Stock shall be so changed into shares of any other class or series of stock unless a proportional and equivalent change is made with respect to all other classes or series of Common Stock. SECTION 4.6 Distribution of Assets. If the Company shall declare or make any dividend or other distribution of securities, evidences of its indebtedness or assets (including without limitation, rights, warrants or options) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash other than ordinary cash distributions not to exceed on an annual basis 12.5% of the Market Price of the Common Stock, stock or other securities, property, rights or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case, the Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of Holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price deter mined by multiplying such Exercise Price by a fraction of which (A) the numerator shall be the Market Price of the Common Stock on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's Board of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the Market Price of the Common Stock on the trading day immediately preceding such record date. SECTION 4.7 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the applicable Exercise Price pursuant to this Article 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. SECTION 4.8 Minimum Adjustment. Notwithstanding any of the foregoing provisions of this Article 4, no adjustment in the Exercise Price or the number of Warrant Shares need be made until all cumulative adjustments amount to 1% or more of the Exercise Price or the number of Warrant Shares as last adjusted. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. SECTION 4.9 Certain Limitations. Notwithstanding any other provision of this Article 4, no adjustment to the Exercise Price shall reduce the Exercise Price below the then par value per share of the Common Stock, and any such purported adjustment shall instead reduce the Exercise Price to such par value. 9 The Company hereby covenants not to take any action (1) to increase the par value per share of the Common Stock, (2) that would or does result in any adjustment in the Exercise Price that would cause the Exercise Price to be less than the then par value per share of the Common Stock or (3) that would or does result in any adjustment to the number of shares for which this Warrant may be exercised that would cause such number to exceed the number of authorized but unissued shares of Common Stock not reserved for other purposes. ARTICLE 5 DEFINITIONS The following terms, as used in this Warrant, have the following meanings: "Business Day" means any day except Saturday, Sunday and any day on which banking institutions located in New York City, New York generally are authorized or required by law or other governmental action to be closed. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents of corporate stock, (iii) in the case of a partnership or limited liability company, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Common Stock" means the common stock, par value $1.00 per share, of the Company. "Company" means Rite Aid Corporation, a Delaware corporation, and its successors. "Exercise Price" means $6.00, per share, subject to adjustment from time to time pursuant to Article 4. "Holder" has the meaning set forth in the first paragraph of this Warrant. 10 "Market Price" means the average of the daily closing prices (based on a trading day from 9:30 a.m. to 4:00 p.m. New York City time) on the New York Stock Exchange for the Common Stock for each of the five (5) consecutive trading days immediately preceding the day in question. "NASD" means The National Association of Securities Dealers, Inc. "Nasdaq" means The National Association of Securities Dealers, Inc. Automated Quotation System. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company, government or any agency or political subdivision thereof or any other entity that may be treated as a person under applicable law. "Securities Act" means the Securities Act of 1933, as amended, and rules and regulations of the Securities and Exchange Commission thereunder. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Trading Day" means (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for business or (y) if the applicable security is quoted on the Nasdaq National Market, a day on which a trade may be made on the Nasdaq National Market or (z) if the applicable security is not otherwise listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "Warrant Agent" has the meaning set forth in Section 3.1. 11 "Warrant Shares" means the shares of Common Stock issuable upon the exercise of the Warrants. ARTICLE 6 MISCELLANEOUS SECTION 6.1 Notices. Notices and other communications provided for herein shall be in writing and may be given by mail, courier, confirmed telex or facsimile transmission and shall, unless otherwise expressly required, be deemed given when received or, if mailed, four Business Days after being deposited in the United States mail with postage prepaid and properly addressed. In the case of the Holder, such notices and communications shall be addressed to its address as shown on the books maintained by the Warrant Agent, unless the Holder shall notify the Warrant Agent that notices and communications should be sent to a different address (or telex or facsimile number), in which case such notices and communications shall be sent to the address (or telex or facsimile number) specified by the Holder. SECTION 6.2 Amendments. The provisions of this Warrant may be amended, modified or waived only with the written consent of the Company and the Holder(s) of at least fifty percent (50%) of the Warrants. SECTION 6.3 Governing Law. THIS WARRANT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW). SECTION 6.4 Transfer; Covenants to Bind Successor and Assigns. All covenants, stipulations, promises and agreements contained in this Warrant by or on behalf of the Company or the Holder shall bind its successors and assigns, whether so expressed or not. This Warrant shall be transferable and assignable by the Holder hereof in whole or from time to time in part to any other Person, without the consent of the Company, and the provisions of this Warrant shall be binding upon and inure to the benefit of the Holder hereof and its successors and assigns; provided, that, this Warrant may not be transferred or assigned, in whole or in part, without compliance with all applicable federal and state securities laws by the transferor and the transferee (including the delivery of any investment 12 representation letters and legal opinions satisfactory to the Company as contemplated by this Agreement). SECTION 6.5 No Stockholder Rights. Prior to exercise of this Warrant, the Holder shall not be entitled to any rights of a stockholder with respect to the shares of Common Stock purchasable upon exercise, including, without limitation, the right to vote such shares of Common Stock, receive dividends or other distributions thereon, exercise preemptive rights or be notified of stockholder meetings, and, except as explicitly stated herein, the Holder shall not be entitled to any notice or other communication concerning the business or affairs of the Company. 13 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in its corporate name by one of its officers thereunto duly authorized, and its corporate seal to be hereunto affixed, attested by its Secretary or an Assistant Secretary, all as of the day and year first above written. RITE AID CORPORATION By:____________________________________ Name: Elliot S. Gerson Title: Senior Executive Vice President, General Counsel and Assistant Secretary Address: 30 Hunter Lane Camp Hill, PA 17011 Attention: Chief Financial Officer Telephone No.: (717) 975-5806 Facsimile No.: (717) 760-7867 [Corporate Seal] Attest: _________________________ Name: Title: ANNEX A [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 2.1] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase _______ Warrant Shares. The undersigned herewith tenders in payment for such securities the Exercise Payment as follows: [ ] Cash Exercise Payment: a certified or official bank check payable in New York Clearing House Funds to the order of [ ] in the amount of $________, or [ ] Non-Cash Exercise Payment: the undersigned hereby elects to make payment of the Exercise Payment pursuant to the Non-Cash Exercise Payment provisions of the attached Warrant. all in accordance with the terms of Section 2.1 of the Warrant dated as of June 27, 2001 between the Holder and Rite Aid Corporation. The undersigned requests that certificates for such securities be registered in the name of the undersigned whose address is ___________________ and that such certificates be delivered to the undersigned at such address. Dated:______________________, 20___ Signature _______________________ (Signature must conform in all respects to name of Holder as specified on the face of the Warrant Certificate or with the name of the assignee appearing on the Form of Assignment attached hereto.) __________________________________ (Insert Social Security or Other Identifying Number of Holder) ANNEX B [FORM OF ASSIGNMENT] (To be executed by the registered Holder if such Holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED ______________ hereby sells, assigns and transfers under _______________________________________________________ (Please print name and address of transferee) the Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ________________ attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: _________________ ,20___ Signature: ____________________________ (Signature must conform in all respects to name of Holder as specified on the face of the Warrant Certificate.) _______________________________________ (Insert Social Security or Other Identifying Number of Holder) EX-10 39 exh10-59.txt EXH10-59.TXT RITE AID CORPORATION $150,000,000 11 1/4% Senior Notes Due 2008 Purchase Agreement New York, New York June 20, 2001 Salomon Smith Barney Inc. Credit Suisse First Boston Corporation J.P. Morgan Securities Inc. Fleet Securities, Inc. As Representatives of the Initial Purchasers c/o Salomon Smith Barney Inc. 388 Greenwich Street New York, New York 10013 Ladies and Gentlemen: Rite Aid Corporation, a corporation organized under the laws of Delaware (the "Company"), proposes to issue and sell to the several parties named in Schedule I hereto (the "Initial Purchasers"), for whom you (the "Representatives") are acting as representatives, $150,000,000 principal amount of its 11 1/4% Senior Notes Due 2008 (the "Securities"). The Securities are to be issued under an indenture (the "Indenture"), to be dated as of June 27, 2001, between the Company and BNY Midwest Trust Company, as trustee (the "Trustee"). The Securities have the benefit of a Registration Rights Agreement (the "Registration Rights Agreement"), to be dated June 27, 2001, among the Company and the Initial Purchasers, pursuant to which the Company has agreed to register the Securities under the Act subject to the terms and conditions therein specified. To the extent there are no additional parties listed on Schedule I other than you, the term Representatives as used herein shall mean you as the Initial Purchasers, and the terms Representatives and Initial Purchasers shall mean either the singular or plural as the context requires. The use of the neuter in this Agreement shall include the feminine and masculine wherever appropriate. Certain terms used herein are defined in Section 17 hereof and the Transaction Description attached hereto as Exhibit B. The sale of the Securities to the Initial Purchasers will be made without registration of the Securities under the Act in reliance upon exemptions from the registration requirements of the Act. In connection with the sale of the Securities, the Company has prepared a preliminary offering memorandum, dated June 15, 2001 (as amended or supplemented at the Execution Time, including any and all exhibits thereto and any information incorporated by reference therein, the "Preliminary Memorandum"), and a final offering memorandum, dated June 20, 2001 (as amended or supplemented at the Execution Time, the "Final Memorandum"). Each of the Preliminary Memorandum and the Final Memorandum sets forth certain information concerning the Company and the Securities. The Company hereby confirms that it has authorized the use of the Preliminary Memorandum and the Final Memorandum, and any amendment or supplement thereto, in connection with the offer and sale of the Securities by the Initial Purchasers. Prior to or concurrently with the Closing (as defined herein), the Company will enter into the transactions described in Exhibit B hereto (the "Transaction Description"). 1. Representations and Warranties. The Company represents and warrants to each Initial Purchaser as set forth below in this Section 1. (a) The Preliminary Memorandum, at the date thereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. At the Execution Time and on the Closing Date (as defined in Section 3 hereof), the Final Memorandum did not, and will not (and any amendment or supplement thereto, at the date thereof and at the Closing Date, will not), contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representation or warranty as to the information contained in or omitted from the Preliminary Memorandum or the Final Memorandum, or any amendment or supplement thereto, in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of the Initial Purchasers through the Representatives specifically for inclusion therein. (b) Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) has, directly or indirectly, made offers or sales of any security, or solicited offers to buy any security, under circumstances that would require the registration of the Securities under the Act. (c) Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer or sale of the Securities in the United States. (d) The Securities satisfy the eligibility requirements of Rule 144A(d)(3) under the Act. (e) Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) has engaged in any directed selling efforts with respect to the Securities being sold in reliance on Regulation S, and each of them has complied with the offering restrictions requirements of Regulation S. Terms used in this paragraph have the meanings given to them by Regulation S. (f) The Company is not, and after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Final Memorandum will not be, an "investment company" within the meaning of the Investment Company Act. (g) The Company is subject to and in compliance, in all material respects, with the reporting requirements of Section 13 or Section 15(d) of the Exchange Act. 2 (h) The Company has not paid or agreed to pay to any person any compensation for soliciting another to purchase any Securities (except as contemplated by this Agreement). (i) The Company has not taken, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act or otherwise, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. (j) On the Closing Date, the Indenture will conform in all material respects to the description thereof contained in the Final Memorandum. (k) Each of the Company and its subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized with full corporate power and authority to own or lease, as the case may be, and to operate its properties and conduct its business as described in the Final Memorandum, and is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction which requires such qualification except to the extent that failure to be so qualified or be in good standing would not reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business (a "Material Adverse Effect"). (l) All the outstanding shares of capital stock of each subsidiary have been duly and validly authorized and issued and are fully paid and nonassessable, and, except for Rx USA, Inc., Rite Aid Lease Management Corporation and Rite Aid Risk Management Corp., all outstanding shares of capital stock of the subsidiaries of the Company are owned by the Company either directly or through wholly owned subsidiaries free and clear of any perfected security interest or any other security interests, claims, liens or encumbrances. (m) The Company's authorized equity capitalization is as set forth in the Final Memorandum. (n) The statements in the Final Memorandum under the headings "Certain United States Federal Income Tax Considerations for Non-United States Holders", "Description of Notes", "Exchange Offer; Registration Rights", "Regulation" and "Legal Proceedings", "Description of Other Indebtedness", "Refinancing Transactions" and "Risk Factors" fairly summarize the matters therein described. (o) This Agreement has been duly authorized, executed and delivered by the Company; the Indenture has been duly authorized and, assuming due authorization, execution and delivery thereof by the Trustee, when executed and delivered by the Company, will constitute a legal, valid and binding instrument enforceable against the Company in accordance with its terms (subject, as to the enforcement of remedies, to applicable bankruptcy, fraudulent conveyance, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally from time to time in effect and to general principles of equity); the Securities have been duly authorized, and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers, will have been 3 duly executed and delivered by the Company and (assuming the due authorization, execution and delivery of the Indenture by the Trustee) will constitute the legal, valid and binding obligations of the Company entitled to the benefits of the Indenture (subject, as to the enforcement of remedies, to applicable bankruptcy, fraudulent conveyance, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally from time to time in effect and to general principles of equity); and the Registration Rights Agreement has been duly authorized and, when executed and delivered by the Company, will constitute a legal, valid and binding instrument enforceable against the Company in accordance with its terms (subject, as to the enforcement of remedies, to applicable bankruptcy, fraudulent conveyance, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally from time to time in effect and to general principles of equity and except that the enforceability of any rights to contribution or indemnification may be violative of public policy under any law, rule or regulation). (p) Subject to compliance by the Initial Purchasers with the representations, warranties and agreements set forth in Section 4 of this Agreement, no consent, approval, authorization, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein, in the Indenture or the Registration Rights Agreement or the other Transactions, except such as will be obtained under the Act and the Trust Indenture Act, the securities laws of any jurisdiction outside the U.S. in which the Securities are offered and such as may be required under the blue sky laws of any jurisdiction and the National Association of Securities Dealers Inc. in connection with the purchase and distribution of the Securities by the Initial Purchasers in the manner contemplated herein and in the Final Memorandum and the Registration Rights Agreement. (q) On the Closing Date, neither the execution and delivery of the Indenture, this Agreement or the Registration Rights Agreement, the issue and sale of the Securities, nor the consummation of any other of the Transactions, nor the fulfillment of the terms hereof or thereof will conflict with, result in a breach or violation of, or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to (other than the liens securing the New Credit Facility, the 10.5% Notes and the 12.5% Notes and the notes issued in exchange therefor), (i) the charter or by-laws of either of the Company or any subsidiary, (ii) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any subsidiary of the Company or any of their properties, as applicable or (iii) any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any of its subsidiaries is subject. (r) The consolidated historical financial statements of the Company and its consolidated subsidiaries included in the Final Memorandum present fairly in all material respects the financial condition, results of operations and cash flows of the Company as of the dates and for the periods indicated, comply as to form with the applicable accounting requirements of the Act and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as otherwise noted therein); the selected financial data set forth under the caption "Selected Consolidated Financial Information" in the Final Memorandum fairly present, on the basis stated in the Final Memorandum, the information included therein. 4 (s) No action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries or its or their property is pending or, to the best knowledge of the Company, threatened that (i) could reasonably be expected to have a material adverse effect on the performance of this Agreement, the Indenture or the Registration Rights Agreement, or the consummation of any of the transactions contemplated hereby or thereby or any of the other Transactions; or (ii) could reasonably be expected to have a Material Adverse Effect, except as set forth in or contemplated in the Final Memorandum (exclusive of any amendment or supplement thereto). (t) The Company and each of its subsidiaries own or lease all such properties as are necessary to the conduct of their respective operations as presently conducted, except where the failure to own or lease such property could not reasonably be expected to have a Material Adverse Effect. (u) Neither the Company nor any subsidiary is in violation or default of (i) any provision of its charter or bylaws; (ii) the terms of any agreement or instrument to which it is a party or bound or to which its property is subject; or (iii) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any subsidiary of the Company or any of their properties, as applicable, except in the case of (ii) and (iii), such violation or default that could not reasonably by expected to have a Material Adverse Effect. (v) Deloitte & Touche LLP, who have certified certain financial statements of the Company and its consolidated subsidiaries and delivered their report with respect to the audited consolidated financial statements included in the Final Memorandum, are, to the knowledge of the Company, independent public accountants with respect to the Company within the meaning of the Act and the applicable published rules and regulations thereunder. (w) There are no stamp or other issuance or transfer taxes or duties or other similar fees or charges required to be paid in connection with the execution and delivery of this Agreement or the issuance or sale by the Company of the Securities. (x) The Company has filed all foreign, federal, state and local tax returns that are required to be filed or has requested extensions thereof (except in any case in which the failure so to file would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Final Memorandum (exclusive of any amendment or supplement thereto)) and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable, except for any such assessment, fine or penalty that is currently being contested in good faith or as would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Final Memorandum (exclusive of any amendment or supplement thereto). 5 (y) No labor problem or dispute with the employees of the Company or any of its subsidiaries exists or is threatened or imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or its subsidiaries' principal suppliers, contractors or customers that could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Final Memorandum (exclusive of any amendment or supplement thereto). (z) The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged; the Company and its subsidiaries are in compliance with the terms of such policies and instruments in all material respects, except where noncompliance could not reasonably be expected to have a Material Adverse Effect; and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Final Memorandum (exclusive of any amendment or supplement thereto). (aa) No subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary's capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary's property or assets to the Company or any other subsidiary of the Company, except as described in or contemplated by the Final Memorandum. (bb) The Company and its subsidiaries possess all licenses, certificates, permits and other authorizations issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such licenses, certificates, permits and other authorizations could not reasonably be expected to have a Material Adverse Effect, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Final Memorandum (exclusive of any amendment or supplement thereto). (cc) The Company and its subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"); (ii) have received and are in compliance with all permits, licenses or other approvals required of 6 them under applicable Environmental Laws to conduct their respective businesses; and (iii) have not received notice of any actual or potential liability for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, except where such non-compliance with Environmental Laws, failure to receive required permits, licenses or other approvals, or liability would not, individually or in the aggregate, have a material adverse change in the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Final Memorandum (exclusive of any amendment or supplement thereto); except as set forth in the Final Memorandum, neither the Company nor any of the subsidiaries has been named as a "potentially responsible party" under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. (dd) Each of the Company and its subsidiaries has fulfilled its obligations, if any, under the minimum funding standards of Section 302 of the United States Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the regulations and published interpretations thereunder with respect to each "plan" (as defined in Section 3(3) of ERISA and such regulations and published interpretations) in which employees of the Company and its subsidiaries are eligible to participate; the Company and its subsidiaries have not incurred any unpaid liability to the Pension Benefit Guaranty Corporation (other than for the payment of premiums in the ordinary course) or to any such plan under Title IV of ERISA. (ee) The Company and its subsidiaries own, possess, license or have other rights to use, on reasonable terms, all patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, licenses, inventions, trade secrets, technology, know-how and other intellectual property (collectively, the "Intellectual Property") necessary for the conduct of the Company's business as now conducted or as proposed in the Final Memorandum to be conducted, except where the failure to own such Intellectual Property could not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received any charge, complaint, claim, demand or notice alleging any interference, infringement, misappropriation or violation of a third party's right in Intellectual Property (including any claim that the Company or any of its subsidiaries must license or refrain from using such Intellectual Property), which, if the subject of any unfavorable ruling, decision or finding could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Any certificate signed by any officer of the Company and delivered to the Representatives or counsel for the Initial Purchasers in connection with the offering of the Securities shall be deemed a representation and warranty by the Company, as to matters covered thereby, to each Initial Purchaser. 2. Purchase and Sale. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company agrees to sell to each Initial Purchaser, and each Initial Purchaser agrees, severally and not jointly, to purchase from the Company, at a purchase price of 100.00% of the principal amount thereof, plus accrued interest, if any, 7 from June 20, 2001 to the Closing Date, the principal amount of Securities set forth opposite such Initial Purchaser's name on Schedule I hereto. 3. Delivery and Payment. Delivery of and payment for the Securities shall be made at 12:00 P.M., New York City time, on June 27, 2001, which date and time may be postponed by agreement between the Representatives and the Company or as provided in Section 9 hereof (such date and time of delivery and payment for the Securities being herein called the "Closing Date"). Delivery of the Securities shall be made to the Representatives for the respective accounts of the several Initial Purchasers against payment by the several Initial Purchasers through the Representatives of the purchase price thereof to or upon the order of the Company by wire transfer payable in same-day funds to the account specified by the Company. Delivery of the Securities shall be made through the facilities of The Depository Trust Company unless the Representatives shall otherwise instruct. 4. Offering by Initial Purchasers. Each Initial Purchaser, severally and not jointly, represents and warrants to and agrees with the Company that: (a) It is a qualified institutional buyer (as defined in Rule 144A under the Act) or an institutional accredited investor (as defined in Rule 501(a) under the Act). (b) It has not offered or sold, and will not offer or sell, any Securities except (i) to those persons it reasonably believes to be qualified institutional buyers (as defined in Rule 144A under the Act) and that, in connection with each such sale, it has taken or will take reasonable steps to ensure that the purchaser of such Securities is aware that such sale is being made in reliance on Rule 144A; or (ii) in accordance with the restrictions set forth in Exhibit A hereto. (c) Neither it nor any person acting on its behalf has made or will make offers or sales of the Securities in the United States by means of any form of general solicitation or general advertising (within the meaning of Regulation D) in the United States. 5. Agreements. The Company agrees with each Initial Purchaser that: (a) The Company will furnish to each Initial Purchaser and to counsel for the Initial Purchasers, without charge, during the period referred to in paragraph (c) below, as many copies of the Final Memorandum and any amendments and supplements thereto as you may reasonably request. (b) The Company will not amend or supplement the Final Memorandum without the prior written consent of the Representatives, which consent will not be unreasonably withheld or delayed. (c) If at any time prior to the completion of the sale of the Securities by the Initial Purchasers (as determined by the Representatives), any event occurs as a result of which the Final Memorandum, as then amended or supplemented, would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary to amend or supplement the Final Memorandum to comply with applicable law, the Company promptly (i) will notify the 8 Representatives of any such event; (ii) subject to the requirements of paragraph (b) of this Section 5, will prepare an amendment or supplement that will correct such statement or omission or effect such compliance; and (iii) will supply any supplemented or amended Final Memorandum to the several Initial Purchasers and counsel for the Initial Purchasers without charge in such quantities as you may reasonably request. (d) The Company will arrange, if necessary, for the qualification of the Securities for sale by the Initial Purchasers under the laws of such jurisdictions as the Representatives may designate and will maintain such qualifications in effect so long as required for the sale of the Securities; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action that would subject it to service of process in suits, other than those arising out of the offering or sale of the Securities, in any jurisdiction where it is not now so subject. The Company will promptly advise the Representatives of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. (e) The Company will not, and will not permit any of its controlled Affiliates to, and will use its reasonable best efforts not to permit any of its other Affiliates to, resell any Securities that have been acquired by any of them. (f) Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf (other than the Initial Purchasers) will, directly or indirectly, make offers or sales of any security, or solicit offers to buy any security, under circumstances that would require the registration of the Securities under the Act. (g) Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf (other than the Initial Purchasers) will engage in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer or sale of the Securities in the United States. (h) So long as any of the Securities are "restricted securities" within the meaning of Rule 144(a)(3) under the Act, the Company will, during any period in which it is not subject to and in compliance with Section 13 or 15(d) of the Exchange Act or it is not exempt from such reporting requirements pursuant to and in compliance with Rule 12g3-2(b) under the Exchange Act, provide to each holder of such restricted securities and to each prospective purchaser (as designated by such holder) of such restricted securities, upon the request of such holder or prospective purchaser, any information required to be provided by Rule 144A(d)(4) under the Act. This covenant is intended to be for the benefit of the holders, and the prospective purchasers designated by such holders, from time to time of such restricted securities. (i) Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf (other than the Initial Purchasers) will engage in any directed selling efforts with respect to the Securities, and each of them will comply with the offering restrictions requirements of Regulation S. Terms used in this paragraph have the meanings given to them by Regulation S. 9 (j) The Company will cooperate with the Representatives and use its best efforts to permit the Securities to be eligible for clearance and settlement through The Depository Trust Company. (k) The Company will not offer, sell, contract to sell, grant any other option to purchase or otherwise dispose of, directly or indirectly, or announce the offering of, or file a registration statement for, any debt securities issued or guaranteed by the Company or any of its direct or indirect subsidiaries, or enter into any agreement to do any of the foregoing (other than (w) the Securities, the New Securities (as defined in the Registration Rights Agreement) and the 12.5% Notes, (x) the exchange offer registration statement filed in connection with the Company's 10.5% Notes and the 12.5% Notes, (y) pursuant to any credit facility permitted under the Indenture and (z) purchase money debt permitted under the Indenture) for a period of 90 days from the date the Securities are issued without the prior written consent of Salomon Smith Barney Inc. (l) The Company will not take, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act or otherwise, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. (m) The Company currently has no plan or intent to be or become, or be or become owned by, an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act. (n) The Company agrees to pay the costs and expenses relating to the following matters: (i) the preparation of the Indenture and the Registration Rights Agreement and the issuance of the Securities; (ii) the preparation, printing or reproduction of the Preliminary Memorandum and Final Memorandum and each amendment or supplement to either of them; (iii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Preliminary Memorandum and Final Memorandum, and all amendments or supplements to either of them, as may, in each case, be reasonably requested for use in connection with the offering and sale of the Securities; (iv) the preparation, printing, authentication, issuance and delivery of certificates for the Securities, including any stamp or transfer taxes in connection with the original issuance and sale of the Securities; (v) the printing (or reproduction) and delivery of this Agreement, any blue sky memorandum and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Securities; (vi) any registration or qualification of the Securities for offer and sale under the securities or blue sky laws of the several states (including filing fees and the reasonable fees and expenses of counsel for the Initial Purchasers relating to such registration and qualification); (vii) admitting the Securities for trading in The Portal Market of the NASD; (viii) the transportation and other expenses incurred by or on behalf of Company representatives in connection with presentations to prospective purchasers of the Securities; (ix) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Company; and (x) all other costs and expenses incident to the performance by the Company of its and their obligations hereunder and under the Indenture and the Registration Rights Agreement. It is understood, however, that, except as provided in Section 5 and Sections 10 7 and 8 of this Agreement, the Initial Purchasers will pay all of their own costs and expenses, including the fees of their counsel. 6. Conditions to the Obligations of the Initial Purchasers. The obligations of the Initial Purchasers to purchase the Securities shall be subject to the accuracy of the representations and warranties on the part of the Company contained herein at the Execution Time and the Closing Date, to the accuracy of the statements of the Company made in any certificates pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) The Initial Purchasers shall have received an opinion, dated the Closing Date, of Elliot S. Gerson, Esq., general counsel for the Company, substantially to the effect set forth below: (i) each of the Company and its Subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized, with full corporate power and authority to own or lease, as the case may be, and to operate its properties and conduct its business as described in the Final Memorandum, and is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction which requires such qualification, except to the extent that the failure to be so qualified or in good standing could not reasonably be expected to have a Material Adverse Effect; (ii) all the outstanding shares of capital stock of the Company and each Subsidiary have been duly and validly authorized and issued and are fully paid and nonassessable, and, except for Rx USA, Inc., Rite Aid Lease Management Corporation and Rite Aid Risk Management Corp., all outstanding shares of capital stock of the Subsidiaries are owned by the Company either directly or through wholly owned subsidiaries free and clear of any perfected security interest and, to the knowledge of such counsel, after due inquiry, any other security interests, claims, liens or encumbrances; (iii) the Company's authorized capital stock is as set forth in the Final Memorandum; (iv) to the knowledge of such counsel, there is no pending or threatened action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries or its or their property that would be required to be disclosed in a registration statement on Form S-1 under the Act and that is not adequately disclosed in the Final Memorandum, except in each case for such proceedings that, if the subject of an unfavorable decision, ruling or finding would not singly or in the aggregate, result in a material adverse change in the condition (financial or otherwise), prospects, earnings, business or properties or results of operations of the Company and its subsidiaries, taken as a whole; 11 (v) this Agreement has been duly authorized, executed and delivered by the Company; (vi) neither the execution and delivery of the Indenture, this Agreement or the Registration Rights Agreement, the issue and sale of the Securities, nor the consummation of any other of the Transactions, nor the fulfillment of the terms hereof or thereof will conflict with, result in a breach or violation of, or imposition of any lien, charge or encumbrance upon any property or asset of the Company or any of its subsidiaries (other than the liens securing the New Credit Facility, the 10.5% Notes and the 12.5% Notes and the notes issued in exchange therefor) pursuant to, (i) the charter or by-laws of the Company or any of its subsidiaries; (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Company or any of its subsidiaries is a party or bound or to which any of their respective properties is subject; or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Company or any of its subsidiaries of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company, any of its subsidiaries or any of their respective properties, except such conflicts, breaches or violations as could not reasonably be expected to have a Material Adverse Effect; or could not reasonably be expected to have a material adverse effect on the Company's performance of this Agreement, the Indenture or the Registration Rights Agreement, or the consummation of any of the transactions contemplated by the Purchase Agreement or such other agreements or any of the other Transactions; (vii) no consent, approval, authorization, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein or in the Indenture or the Registration Rights Agreement or the other Transactions, except such as will be obtained under the Act and the Trust Indenture Act in connection with the transactions contemplated by the Registration Rights Agreement and such as may be required under the blue sky or securities laws of any jurisdiction in connection with the transactions contemplated by this Agreement and the Registration Rights Agreement and such other approvals (specified in such opinion) as have been obtained; and (viii) the statements in the Final Memorandum under the headings "Regulation" and "Legal Proceedings"; insofar as such statements summarized legal matters, agreements, documents or proceedings discussed therein, are accurate and fair summaries of such legal matters, agreements, documents or proceedings. In addition, such counsel will state that it has participated in conferences with officers and other representatives of the Company, counsel for the Company, representatives of the independent accountants of the Company and the Initial Purchasers and their counsel at which the contents of the Final Memorandum and related matters were discussed; although it is not passing upon, and does not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Final Memorandum 12 and has made no independent check or verification thereof, on the basis of the foregoing such counsel has no reason to believe that at the Execution Time and on the Closing Date the Final Memorandum contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (in each case, other than the financial statements and other financial information contained therein, as to which such counsel need express no opinion). (b) The Initial Purchasers shall have received an opinion, dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Company, substantially to the effect set forth below: (i) Based solely on such counsel's review of good-standing certificates, the Company is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized, with full corporate power and authority to own or lease, as the case may be, and to operate its properties and conduct its business as described in the Final Memorandum; (ii) the Indenture has been duly authorized, executed and delivered, and is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether considered in a proceeding in equity or at law and such counsel need not express any opinion as to the applicability or effect of any fraudulent transfer, preference or similar law); the Securities have been duly authorized and when executed by the Company and delivered to and paid for by the Initial Purchasers under this Agreement (assuming due execution and authentication of the Securities by the Trustee under the Indenture), will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether considered in a proceeding in equity or at law and such counsel need not express any opinion as to the applicability or effect of any fraudulent transfer, preference or similar law); the Registration Rights Agreement has been duly authorized, executed and delivered and is a valid and binding agreement by the Company enforceable against the Company in accordance with its terms (subject, as to the enforcement of remedies, to applicable bankruptcy, fraudulent conveyance, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether considered in a proceeding in equity or at law and such counsel need not express any opinion as to the applicability or effect of any fraudulent transfer, preference or similar law); and the 13 statements set forth under the heading "Description of Notes" and "Exchange Offer; Registration Rights" in the Final Memorandum, insofar as such statements purport to summarize certain provisions of the Securities, the Indenture and the Registration Rights Agreement, fairly summarize such provisions in all material respects; (iii) to the knowledge of such counsel, there is no pending or threatened action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries or its or their property that is not adequately disclosed in the Final Memorandum, except in each case for such proceedings that, if the subject of an unfavorable decision, ruling or finding would not singly or in the aggregate, result in a material adverse change in the condition (financial or otherwise), prospects, earnings, business or properties or results of operations of the Company and its subsidiaries, taken as a whole; and the statements in the Final Memorandum under the headings "Certain United States Federal Income Tax Considerations for Non-United States Holders", "Description of Other Indebtedness" and "Refinancing Transactions"; insofar as such statements summarized legal matters, agreements, documents or proceedings discussed therein, are accurate and fair summaries of such legal matters, agreements, documents or proceedings; (iv) this Agreement has been duly authorized, executed and delivered by the Company; (v) the execution and delivery of the Indenture, this Agreement, the Registration Rights Agreement, the issue and sale of the Securities, nor the consummation of any other of the Transactions, nor the fulfillment of the terms hereof or thereof will not (i) conflict with the charter or by-laws of the Company; (ii) constitute a violation of, or a breach or default under the terms of any Applicable Contract or (iii) violate or conflict with, or result in any contravention of, any Applicable Law or Applicable Order. Such counsel need not express any opinion, however, as to whether such execution, delivery or performance will constitute a violation of, or default under, any covenant, restriction or provision with respect to financial ratios or tests or any aspect of the financial condition or results of operation of the Company or any of its subsidiaries; (vi) assuming (i) the accuracy of the representations and warranties of the Company set forth in Section 1 of the Purchase Agreement and of you in Section 4 of the Purchase Agreement, (ii) the due performance by the Company of the covenants and agreements set forth in Section 5 of the Purchase Agreement and the due performance by you of the covenants and agreements set forth in Section 4 of the Purchase Agreement, (iii) your compliance with the offering and transfer procedures and restrictions described in the Offering Memorandum and (iv) the accuracy of the representations and warranties made in accordance with the Offering Memorandum by purchasers to whom you initially resell the Securities, the offer, sale and delivery of the Securities to you in the manner contemplated by the Purchase Agreement and the Offering Memorandum and the initial resale of the Securities by you in the manner contemplated in the Offering Memorandum and the Purchase Agreement, do not require 14 registration under the Securities Act of 1933, as amended, and the Indenture does not require qualification under the Trust Indenture Act of 1939, as amended, it being understood that such counsel does not express any opinion as to any subsequent resale of any Security; (vii) the Company is not and, after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Final Memorandum, will not be an "investment company" as defined in the Investment Company Act; (viii) no Governmental Approval is required in connection with the transactions contemplated herein or in the Indenture or the Registration Rights Agreement or the other Transactions (other than the filing of Uniform Commercial Code financing statements to create the liens securing the New Credit Facility, the 10.5% Notes and the 12.5% Notes), except such as will be obtained under the Act and the Trust Indenture Act in connection with the transactions contemplated by the Registration Rights Agreement; and (ix) such counsel will state that it has participated in conferences with officers and other representatives of the Company, counsel for the Company, representatives of the independent accountants of the Company and you and your counsel at which the contents of the Offering Memorandum and related matters were discussed. Although it is not passing upon, and does not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Offering Memorandum and has made no independent check or verification thereof (except to the limited extent referred to above), on the basis of the foregoing, no facts have come to its attention that have led it to believe that the Offering Memorandum, as of its date or as of Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that such counsel need not express any opinion or belief with respect to the financial statements, schedules and other financial data included or excluded therefrom. The following definitions apply to this paragraph (b): "Applicable Contracts" means those agreements or instruments identified in a schedule to the opinion. "Applicable Laws" means Delaware General Corporation Law (the "DGCL") and those laws, rules and regulations of the State of New York and the federal laws of the United States of America, in each case, which, in our experience, are normally applicable to transactions of the type contemplated by the Agreement, the Indenture, the Registration Rights Agreement and instruments and agreements defining the terms of the Transactions (other than the United States Federal securities laws, state and foreign securities or blue sky laws, antifraud laws and the rules and regulations of the National Association of Securities Dealers Inc.), but without such counsel having made any investigation as to any other laws, rules or 15 regulations, and which are not the subject of a specific opinion therein referring expressly to a particular law or laws. "Governmental Authorities" means any court, regulatory body, administrative agency or governmental body of the State of New York or the United States of America having jurisdiction over the Company under Applicable Laws. "Governmental Approval" means any consent, approval, license, authorization or validation of, or filing, qualification or registration with, any Governmental Authority required to be made or obtained by the Company pursuant to Applicable Laws. "Applicable Orders" means those judgments, orders or decrees, if any, of any Governmental Authority. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the jurisdiction of incorporation of the Company, the State of New York or the Federal laws of the United States, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Initial Purchasers; and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. References to the Final Memorandum in this Section 6(a) include any amendment or supplement thereto at the Closing Date. (c) The Representatives shall have received from Cravath, Swaine & Moore, counsel for the Initial Purchasers, such opinion or opinions, dated the Closing Date and addressed to the Representatives, with respect to the issuance and sale of the Securities, the Indenture, the Registration Rights Agreement, the Final Memorandum (as amended or supplemented at the Closing Date) and other related matters as the Representatives may reasonably require, and the Company shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters. (d) The Company shall have furnished to the Representatives a certificate of the Company, signed by the Chairman of the Board or the President and the principal financial or accounting officer of the Company, dated the Closing Date, to the effect that the signers of such certificate have carefully examined the Final Memorandum, any amendment or supplement to the Final Memorandum and this Agreement and that: (i) the representations and warranties of the Company in this Agreement are true and correct on and as of the Closing Date with the same effect as if made on the Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; and (ii) since the date of the most recent financial statements included in the Final Memorandum (exclusive of any amendment or supplement thereto), there has been no material 16 adverse change in the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated by the Final Memorandum (exclusive of any amendment or supplement thereto). (e) At the Execution Time and at the Closing Date, the Company shall have requested and caused Deloitte & Touche LLP to furnish to the Representatives letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance satisfactory to the Representatives, confirming that they are independent accountants within the meaning of the Act and the Exchange Act and the respective applicable rules and regulations adopted by the Commission thereunder, and stating in effect that: (i) in their opinion the audited financial statements included or incorporated in the Final Memorandum and reported on by them comply as to form in all material respects with the applicable accounting requirements of the Exchange Act and the related rules and regulations adopted by the Commission thereunder that would apply to the Final Memorandum if the Final Memorandum were a prospectus included in a registration statement on Form S-1 under the Act; (ii) on the basis of a reading of the latest unaudited financial statements made available by the Company and its subsidiaries; carrying out certain specified procedures (but not an examination in accordance with generally accepted auditing standards) which would not necessarily reveal matters of significance with respect to the comments set forth in such letter; a reading of the minutes of the meetings of the stockholders, directors and audit, executive and compensation committees of the Company and the Subsidiaries; and inquiries of certain officials of the Company who have responsibility for financial and accounting matters of the Company and its subsidiaries as to transactions and events subsequent to March 3, 2001, nothing came to their attention which caused them to believe that: (1) with respect to the period subsequent to March 3, 2001, there were any changes, at a specified date not more than five days prior to the date of the letter, in the long-term debt less current maturities of the Company and its subsidiaries or common stock of the Company or decreases in the stockholders' equity (deficit) of the Company as compared with the amounts shown on the March 3, 2001 consolidated balance sheet included or incorporated in the Final Memorandum, or for the period from March 4, 2001 to such specified date there were any decreases, as compared with the corresponding period in the preceding year in revenues, net loss or loss from continuing operations before income taxes and cumulative effect of accounting change or in net loss per share of the Company and its subsidiaries, except in all instances for changes or decreases set forth in such letter, in which case the letter shall be accompanied by an explanation by the Company as to the significance thereof unless said explanation is not deemed necessary by the Representatives; or 17 (2) the information included in response to Regulation S-K, Item 301 (Selected Financial Data), Item 302 (Supplementary Financial Information), Item 402 (Executive Compensation) and Item 503(d) (Ratio of Earnings to Fixed Charges) is not in conformity with the disclosure requirements of Regulation S-K. (iii) they have performed certain other specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Company and its subsidiaries) set forth in the Final Memorandum, including the information set forth under the captions "Offering Memorandum Summary", "Risk Factors", "Use of Proceeds", "Capitalization", "Selected Consolidated Financial Data", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business", "Management", "Executive Officer Compensation", "Security Ownership of Certain Beneficial Owners and Management", "Certain Relationships and Related Transactions", and "Description of Other Indebtedness" in the Final Memorandum, agrees with the accounting records of the Company and its subsidiaries, excluding any questions of legal interpretation; References to the Final Memorandum in this Section 6(e) include any amendment or supplement thereto at the date of the applicable letter. (f) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Final Memorandum (exclusive of any amendment or supplement thereto), there shall not have been (i) any change or decrease specified in the letter or letters referred to in paragraph (e) of this Section 6; or (ii) any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Final Memorandum (exclusive of any amendment or supplement thereto) the effect of which, in any case referred to in clause (i) or (ii) above, is, in the sole judgment of the Representatives, so material and adverse as to make it impractical or inadvisable to market the Securities as contemplated by the Final Memorandum (exclusive of any amendment or supplement thereto). (g) The Securities shall have been designated as Portal-eligible securities in accordance with the rules and regulations of the NASD, and the Securities shall be eligible for clearance and settlement through The Depository Trust Company. (h) Subsequent to the Execution Time, there shall not have been any decrease in the rating of any of the Company's debt securities by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act), any notice given of any intended or potential decrease in any such rating (including notice of an adverse change in the outlook for such rating) or of a possible change in any such rating that does not indicate the direction of the possible change. 18 (i) On the Closing Date, the Transactions will have been consummated substantially as described in the Final Memorandum and the Representatives will have received evidence satisfactory thereof, and the agreements and other documents related thereto shall be in full force and effect. (j) Prior to the Closing Date, the Company shall have furnished to the Representatives such further information, certificates and documents as the Representatives may reasonably request. If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Representatives and counsel for the Initial Purchasers, this Agreement and all obligations of the Initial Purchasers hereunder may be canceled at, or at any time prior to, the Closing Date by the Representatives. Notice of such cancellation shall be given to the Company in writing or by telephone or facsimile confirmed in writing. The documents required to be delivered by this Section 6 will be delivered at the office of counsel for the Initial Purchasers, at Cravath, Swaine & Moore, 825 Eighth Avenue, New York, NY 10019, on the Closing Date. 7. Reimbursement of Expenses. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Initial Purchasers set forth in Section 6 hereof is not satisfied, because of any termination pursuant to Section 10 hereof or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Initial Purchasers, the Company will reimburse the Initial Purchasers severally through Salomon Smith Barney Inc. on demand for all reasonable out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities. 8. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless each Initial Purchaser, the directors, officers, employees and agents of each Initial Purchaser and each person who controls any Initial Purchaser within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Memorandum, the Final Memorandum (or in any supplement or amendment thereto), or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in the Preliminary 19 Memorandum or the Final Memorandum, or in any amendment thereof or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Initial Purchasers through the Representatives specifically for inclusion therein; provided further, that with respect to any untrue statement or omission of material fact made in any Preliminary Memorandum, the indemnity agreement contained in this Section 8(a) shall not inure to the benefit of any Initial Purchaser from whom the person asserting any such loss, claim, damage or liability purchased the securities concerned, to the extent that any such loss, claim, damage or liability of such Initial Purchaser occurs under the circumstance where it shall have been determined by a court of competent jurisdiction by final and nonappealable judgment that (x) the Company had previously furnished copies of the Final Memorandum to the Representatives, (y) the untrue statement or omission of a material fact contained in the Preliminary Memorandum was corrected in the Final Memorandum and (z) there was not sent or given to such person, at or prior to the written confirmation of the sale of such securities to such person, a copy of the Final Memorandum. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Initial Purchaser severally and not jointly agrees to indemnify and hold harmless the Company, each of its directors, each of its officers, and each person who controls the Company within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity from the Company to each Initial Purchaser, but only with reference to written information relating to such Initial Purchaser furnished to the Company by or on behalf of such Initial Purchaser through the Representatives specifically for inclusion in the Preliminary Memorandum or the Final Memorandum (or in any amendment or supplement thereto). This indemnity agreement will be in addition to any liability which any Initial Purchaser may otherwise have. The Company acknowledges that the statements set forth in the last paragraph of the cover page regarding the delivery of the Securities and, under the heading "Plan of Distribution", (i) the list of Initial Purchasers and their respective participation in the sale of the Securities; (ii) the sentences related to concessions and reallowances; and (iii) the paragraph related to stabilization, syndicate covering transactions and penalty bids in the Preliminary Memorandum and the Final Memorandum, constitute the only information furnished in writing by or on behalf of the Initial Purchasers for inclusion in the Preliminary Memorandum or the Final Memorandum (or in any amendment or supplement thereto). (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses; and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint 20 counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest; (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party; (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action; or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 8 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company and the Initial Purchasers severally agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which the Company and one or more of the Initial Purchasers may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and by the Initial Purchasers on the other from the offering of the Securities; provided, however, that in no case shall any Initial Purchaser (except as may be provided in any agreement among the Initial Purchasers relating to the offering of the Securities) be responsible for any amount in excess of the purchase discount or commission applicable to the Securities purchased by such Initial Purchaser hereunder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Company and the Initial Purchasers severally shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and of the Initial Purchasers on the other in connection with the statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by the Company, and benefits received by the Initial Purchasers shall be deemed to be equal to the total purchase discounts and commissions in each case set forth on the cover of the Final Memorandum. Relative fault shall be determined by reference to, among other things, whether any untrue or any alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Company on the one hand or the Initial Purchasers on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Initial Purchasers agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the 21 meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person who controls an Initial Purchaser within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of an Initial Purchaser shall have the same rights to contribution as such Initial Purchaser, and each person who controls the Company within the meaning of either the Act or the Exchange Act and each officer and director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d). 9. Default by an Initial Purchaser. If any one or more Initial Purchasers shall fail to purchase and pay for any of the Securities agreed to be purchased by such Initial Purchaser hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Initial Purchasers shall be obligated severally to take up and pay for (in the respective proportions which the principal amount of Securities set forth opposite their names on Schedule I hereto bears to the aggregate principal amount of Securities set forth opposite the names of all the remaining Initial Purchasers) the Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase; provided, however, that in the event that the aggregate principal amount of Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase shall exceed 10% of the aggregate principal amount of Securities set forth on Schedule I hereto, the remaining Initial Purchasers shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Initial Purchasers do not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Initial Purchaser or the Company. In the event of a default by any Initial Purchaser as set forth in this Section 9, the Closing Date shall be postponed for such period, not exceeding two Business Days, as the Representatives and the Company shall determine in order that the required changes in the Final Memorandum or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Initial Purchaser of its liability, if any, to the Company or any nondefaulting Initial Purchaser for damages occasioned by its default hereunder. 10. Termination. This Agreement shall be subject to termination in the absolute discretion of the Representatives, by notice given to the Company prior to delivery of and payment for the Securities, if at any time prior to such time (i) trading in the Company's Common Stock shall have been suspended by the Commission, the New York Stock Exchange or the Pacific Stock Exchange or trading in securities generally on the New York Stock Exchange or the Pacific Stock Exchange shall have been suspended or limited or minimum prices shall have been established on either such Exchange; (ii) a banking moratorium shall have been declared either by Federal or New York State authorities; or (iii) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets is such as to make it, in the sole judgment of the Representatives, impracticable or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Final Memorandum (exclusive of any amendment or supplement thereto). 11. Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers and of the Initial Purchasers set forth in or made 22 pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Initial Purchasers or the Company or any of the officers, directors, employees, agents or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 7 and 8 hereof shall survive the termination or cancellation of this Agreement. 12. Notices. All communications hereunder will be in writing and effective only on receipt, and, if sent to the Representatives, will be mailed, delivered or telefaxed to Salomon Smith Barney Inc. General Counsel (fax no.: (212) 816-7912) and confirmed to the General Counsel, Salomon Smith Barney Inc. at 388 Greenwich Street, New York, New York 10013, Attention: General Counsel; or, if sent to the Company, will be mailed, delivered or telefaxed to Elliot S. Gerson, Esq. (fax no.: (717) 760-7867) and confirmed to Elliot S. Gerson, Esq., Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011. 13. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers, directors, employees, agents and controlling persons referred to in Section 8 hereof, and, except as expressly set forth in Section 5(h) hereof, no other person will have any right or obligation hereunder. 14. Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. 15. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. 16. Headings. The section headings used herein are for convenience only and shall not affect the construction hereof. 17. Definitions. The terms which follow, when used in this Agreement, shall have the meanings indicated. "Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Affiliate" shall have the meaning specified in Rule 501(b) of Regulation D. "Business Day" shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in The City of New York. "Commission" shall mean the Securities and Exchange Commission. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "Execution Time" shall mean the date and time that this Agreement is executed and delivered by the parties hereto. 23 "Investment Company Act" shall mean the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission promulgated thereunder. "NASD" shall mean the National Association of Securities Dealers, Inc. "Regulation D" shall mean Regulation D under the Act. "Regulation S" shall mean Regulation S under the Act. "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission promulgated thereunder. 24 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this Agreement and your acceptance shall represent a binding agreement between the Company and the several Initial Purchasers. Very truly yours, Rite Aid Corporation, By_________________________ Name: Title: 25 The foregoing Agreement is hereby confirmed and accepted as of the date first above written. Salomon Smith Barney Inc. Credit Suisse First Boston Corporation J.P. Morgan Securities Inc. Fleet Securities, Inc. By: Salomon Smith Barney Inc. By____________________________ Name: Title: For themselves and the other several Initial Purchasers named in Schedule I to the foregoing Agreement. 26 SCHEDULE I Principal Amount of Securities Initial Purchasers to be Purchased ------------------ --------------- Salomon Smith Barney Inc. ............................ $ 45,000,000 Credit Suisse First Boston Corporation................ $ 45,000,000 J.P. Morgan Securities Inc............................ $ 45,000,000 Fleet Securities, Inc................................. $ 15,000,000 ------------ Total ....................................... $150,000,000 27 EXHIBIT A Selling Restrictions for Offers and Sales outside the United States (1)(a) The Securities have not been and will not be registered under the Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Act or pursuant to an exemption from the registration requirements of the Act. Each Initial Purchaser represents and agrees that, except as otherwise permitted by Section 4(a)(i) or (ii) of the Agreement to which this is an exhibit, it has offered and sold the Securities, and will offer and sell the Securities, (i) as part of their distribution at any time; and (ii) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 of Regulation S under the Act. Accordingly, each Initial Purchaser represents and agrees that neither it, nor any of its Affiliates nor any person acting on its or their behalf has engaged or will engage in any directed selling efforts with respect to the Securities, and that it and they have complied and will comply with the offering restrictions requirement of Regulation S. Each Initial Purchaser agrees that, at or prior to the confirmation of sale of Securities (other than a sale of Securities pursuant to Section 4(a)(i) or (ii) of the Agreement to which this is an exhibit), it shall have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the distribution compliance period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Act") and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and June 27, 2001, except in either case in accordance with Regulation S or Rule 144A under the Act. Terms used above have the meanings given to them by Regulation S." (b) Each Initial Purchaser also represents and agrees that it has not entered and will not enter into any contractual arrangement with any distributor with respect to the distribution of the Securities, except with its Affiliates or with the prior written consent of the Company. (c) Terms used in this section have the meanings given to them by Regulation S. (2) Each Initial Purchaser represents and agrees that (i) it has not offered or sold, and prior to the expiration of the period of six months from the issue date of the Securities will not offer or sell, any Securities in the United Kingdom, other than to persons whose ordinary business it is to buy, hold, manage or dispose of investments, whether as principal or as agent, for the purpose of their businesses or in circumstances which do not constitute an offer to the public within the meaning of the Public Offers of Securities Regulations 1995 (the "POSR") or the Financial Services Act 1986 of the United Kingdom (the "FSA); (ii) it has complied and will comply with all applicable provisions of the POSR and the FSA with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 (as amended) or is a person to whom the document may otherwise lawfully be issued or passed on. A-1 EXHIBIT B Transaction Description The following transactions are referred to herein as the "Transactions". (i) A new senior secured credit facility (the "New Credit Facility"), which will consist of term loans in an aggregate principal amount of up to $1,400,000,000 and a revolving loan in an aggregate principal amount of $500,000,000, which will be unconditionally guaranteed by the subsidiary guarantors party thereto (the "Subsidiary Guarantors") and those guarantees will be secured by a first priority security interest in certain collateral of the Subsidiary Guarantors (the "Collateral"). (ii) A committed $552.0 million private placement of common stock. (iii) A commitment by a financial institution to exchange $152.0 million of our 10.5% senior secured notes due 2002 (the "10.5% Notes") for $152.0 million of new 12.5 senior secured notes due 2006 (the "12.5% Notes"). The 12.5% senior secured notes will be secured by a second lien on the collateral securing the new credit facility. (iv) Private exchanges of common stock for $303.7 million of the Company's debt under its existing bank facility and 10.5% senior secured notes due 2002, $92.0 million of which had been completed through June 15, 2001. (v) A synthetic lease transaction with respect to two of the Company's distribution centers in the amount of approximately $107.0 million. (vi) The Tender Offer for the 10.5% Notes as set forth in the Offer to Purchase dated May 24, 2001. (vii) The Company will repay the following: (a) all outstanding amounts under its existing senior credit facility, which will be terminated; (b) all outstanding amounts under the RCF Facility, which will be terminated; (c) all outstanding amounts under the PCS Facility, which will be terminated; (d) all outstanding amounts under the Exchange Debt Facility, which will be terminated; (e) all outstanding amounts under (i) the Master Lease and Security Agreement, dated as of March 19, 1998, between RAC Leasing LLC and Rite Aid Realty Corp. and (ii) the Master Lease and Security Agreement, dated as of May 30, 1997, between Sumitomo Bank Leasing and Finance, Inc. and Rite Aid Realty Corp., which will be terminated; and (f) amounts under notes held by Prudential Insurance Company, which will be cancelled. A-2 EX-23 40 ex23_1.txt EX23_1.TXT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Rite Aid Corporation on Form S-1 of our report dated May 8, 2001, except for Note 25, as to which the date is May 16, 2001, appearing in the Prospectus, which is part of this Registration Statement, and of our report dated May 8, 2001 relating to the financial statement schedule appearing elsewhere in this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania July 10, 2001 EX-23 41 ex23_2.txt EX23_2.TXT EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the reference to our firm under the caption "Experts" and to the use of our report dated April 21, 2000 (except Note 12 for which the date is June 15, 2000), with respect to the consolidated financial statements and schedules of PCS Holding Corporation and Subsidiaries, which have not separately been included in the Registration Statement on Form S-1 and related Prospectus of Rite Aid Corporation for the registration of shares of common stock. /s/ ERNST & YOUNG LLP Phoenix, Arizona July 9, 2001 -----END PRIVACY-ENHANCED MESSAGE-----