-----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, IV89KGGCRkpEOfjXqlxtB/H5MyXKSXqXBto/6COJcoB1INSN+v4vd7LSGljCTwI2 xMxuHe2TI84lnx2MZTzKyA== 0000950172-00-000066.txt : 20000202 0000950172-00-000066.hdr.sgml : 20000202 ACCESSION NUMBER: 0000950172-00-000066 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 40 CONFORMED PERIOD OF REPORT: 19991202 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000118 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: 8-K SEC ACT: SEC FILE NUMBER: 001-05742 FILM NUMBER: 508234 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 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 December 2, 1999 (Date of earliest event reported) RITE AID CORPORATION. (Exact Name of Registrant as Specified in its Charter) Delaware 1-5742 23-1614034 (State or Other (Commission (IRS Employer Jurisdiction of File Number) Identification Incorporation) Number) 30 Hunter Lane, Camp Hill, Pennsylvania 17011 (Address of Principal Offices, including zip code) (717) 761-2633 (Registrant's telephone number, including area code) ITEM 5. OTHER EVENTS AGREEMENTS WITH LENDERS The company issued a press release on January 11, 2000 disclosing certain agreements reached with its lenders under its credit facilities and other financing arrangements. In December 1999, the company reached agreements with its lenders to modify certain financial covenants in its credit facilities and other financing arrangements, effective as of December 2, 1999. The press release and agreements with lenders are attached hereto as exhibits and incorporated herein by reference. EMPLOYMENT AGREEMENTS The company has entered into employment agreements, dated as of December 5, 1999 (the "Agreements"), with Robert G. Miller, Mary F. Sammons, David R. Jessick and John T. Standley (collectively, the "Executives") to employ such persons as Chairman of the Board of Directors and Chief Executive Officer, President and Chief Operating Officer, Senior Executive Vice President and Chief Administrative Officer and Executive Vice President and Chief Financial Officer, respectively. Pursuant to the Agreements, the Executives were granted options to purchase shares of the company's common stock (the "Common Stock") and shares of restricted Common Stock. The agreements are attached hereto as exhibits and incorporated herein by reference. ITEM 7. EXHIBITS 4.1 Waiver dated as of January 11, 2000 to the Amended and Restated Credit Agreement dated as of October 25, 1999 and amended as of December 2, 1999 among Rite Aid Corporation, the Banks party thereto and Morgan Guaranty Trust Company of New York, as Agent. 4.2 Amendment dated as of December 2, 1999 to the Amended and Restated Credit Agreement dated as of October 25, 1999 among Rite Aid Corporation, the Banks party thereto and Morgan Guaranty Trust Company of New York, as Agent. 4.3 Waiver dated as of January 11, 2000 to the Term Loan Agreement dated as of October 25, 1999 among Rite Aid Corporation, the Banks party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent. 4.4 Amendment dated as of December 2, 1999 to the Term Loan Agreement dated as of October 25, 1999 among Rite Aid Corporation, the Banks party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent. 4.5 Waiver dated as of January 11, 2000 to the Term Loan Agreement dated as of October 27, 1999 among Rite Aid Corporation, the Banks party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent. 4.6 Term Loan Agreement dated as of October 27, 1999 among Rite Aid Corporation, the Banks party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent. 4.7 Waiver dated as of January 11, 2000 to Guaranty dated as of March 19, 1998, as amended by Amendment No. 1, dated as of June 22, 1998, and as further amended by Amendment No. 2, dated as of October 25, 1999, and as further amended by Amendment No. 3, dated as of December 2, 1999 between Rite Aid Corporation and RAC Leasing LLC. 4.8 Amendment No. 3, dated as of December 23, 1999 to Master Lease and Security Agreement, dated as of March 19, 1998, (as amended by Amendment No. 1, dated as of June 22, 1998, and Amendment No. 2 dated as of October 25, 1999) between RAC Leasing LLC and Rite Aid Realty Corp. 4.9 Amendment No. 3 dated as of December 2, 1999 to Guaranty dated as of March 19, 1998, as amended by Amendment No. 1, dated as of June 22, 1998, and as further amended by Amendment No. 2, dated as of October 25, 1999, from Rite Aid Corporation to RAC Leasing LLC. 4.10 Amendment No. 2 dated as of October 25, 1999 to Guaranty dated March 19, 1998 (as amended by Amendment No. 1, dated as of June 22, 1998) from Rite Aid Corporation to RAC Leasing LLC. 4.11 Amendment No. 1 dated as of June 22, 1998, to Guaranty dated March 19, 1998, from Rite Aid Corporation to RAC Leasing LLC. 4.12 Amendment No. 2 dated as of October 25, 1999 to Master Lease and Security Agreement, dated as of March 19, 1998 (as amended by Amendment No. 1, dated as of June 22, 1998) between RAC Leasing LLC and Rite Aid Realty Corp. 4.13 Amendment No. 1 dated as of June 22, 1998 to Master Lease and Security Agreement, dated as of March 19, 1998 between RAC Leasing LLC and Rite Aid Realty Corp. 4.14 Guaranty, dated as of March 19, 1998, from Rite Aid Corporation to RAC Leasing LLC. 4.15 Master Lease and Security Agreement, dated as of March 19, 1998, between RAC Leasing LLC and Rite Aid Realty Corp. 4.16 Waiver dated as of January 11, 2000 to Guaranty dated as of May 30, 1997, as amended by Amendment No. 1, dated as of October 25, 1999, and as further amended by Amendment No. 2, dated as of December 2, 1999 between Rite Aid Corporation and Sumitomo Bank Leasing and Finance, Inc. 4.17 Amendment No. 2 dated as of December 2, 1999 to Guaranty dated as of May 30, 1997, as amended by Amendment No. 1, dated as of October 25, 1999, from Rite Aid Corporation to Sumotomo Bank Leasing and Finance, Inc. 4.18 Amendment No. 1 dated as of October 25, 1999 to Guaranty dated as of May 30, 1997 from Rite Aid Corporation to Sumotomo Bank Leasing and Finance, Inc. 4.19 Amendment No. 4, dated as of October 25, 1999 to Master Lease and Security Agreement, dated as of May 30, 1997, as amended by Amendment No. 1, dated as of March 11, 1998, and as further amended by Amendment No. 2, dated as of June 22, 1998, and as further amended by Amendment No. 3, dated as of May 26, 1999 between Sumitomo Bank Leasing and Finance, Inc. and Rite Aid Realty Corp. 4.20 Amendment No. 3, dated as of May 26, 1999, to Master Lease and Security Agreement, dated as of May 30, 1997, (as amended by Amendment No. 1, dated as of March 11, 1998, as further amended by Amendment No. 2, dated as of June 22, 1998) between Sumitomo Bank Leasing and Finance, Inc. and Rite Aid Realty Corp. 4.21 Amendment No. 2, dated as of June 22, 1998 to Master Lease and Security Agreement, dated as of May 30, 1997, as amended by Amendment No. 1 to Master Lease and Security Agreement, dated as of March 11, 1998 between Sumitomo Bank Leasing and Finance, Inc. and Rite Aid Realty Corp. 4.22 Amendment No. 1, dated as of March 11, 1998 to Master Lease and Security Agreement, dated as of May 30, 1997 between Sumitomo Bank Leasing and Finance, Inc. and Rite Aid Realty Corp. 4.23 Guaranty, dated as of May 30, 1997 from Rite Aid Corporation to Sumotomo Bank Leasing and Finance, Inc. 4.24 Master Lease and Security Agreement, dated as of May 30, 1997, between Sumitomo Bank Leasing and Finance, Inc. and Rite Aid Realty Corp. 4.25 Waiver No. 1 dated as of January 10, 2000 to Note Agreement dated as of September 30, 1996 (as previously amended pursuant to Amendment No. 1 dated as of October 25, 1999 and Amendment No. 2 dated as of December 2, 1999) among Finco, Inc., Rite Aid Corporation, The Prudential Life Insurance Company of America and PruCo Life Insurance Company and Waiver No. 1 dated as of January 10, 2000 to Guaranty Agreement dated as of September 30, 1996 (as previously amended pursuant to Amendment No. 1 dated as of October 25, 1999 and Amendment No. 2 dated as of December 2, 1999) among Finco, Inc., Rite Aid Corporation, The Prudential Life Insurance Company of America and PruCo Life Insurance Company. 4.26 Amendment No. 2 dated as of December 2, 1999 to Note Agreement dated as of September 30, 1996 (as previously amended pursuant to Amendment No. 1 dated as of October 25, 1999) among Finco, Inc., Rite Aid Corporation, The Prudential Insurance Company of America and PruCo Life Insurance Company and Amendment No. 2 dated as of December 2, 1999 to Guaranty Agreement dated as of September 30, 1996 (as previously amended pursuant to Amendment No. 1 dated as of October 25, 1999) among Finco, Inc., Rite Aid Corporation, The Prudential Insurance Company of America and PruCo Life Insurance Company. 4.27 Amendment No. 1 dated as of October 25, 1999 to Note Agreement dated as of September 30, 1996 among Finco, Inc., Rite Aid Corporation, The Prudential Insurance Company of America and PruCo Life Insurance Company and Amendment No. 1 dated as of October 25, 1999 to Guaranty Agreement dated as of September 30, 1996 among Finco, Inc., Rite Aid Corporation, The Prudential Insurance Company of America and PruCo Life Insurance Company. 4.28 Guaranty Agreement dated as of September 30, 1996 from Rite Aid Corporation to The Prudential Insurance Company of America and PruCo Life Insurance Company. 4.29 Note Agreement dated as of September 30, 1996 among Finco, Inc., The Prudential Insurance Company of America and PruCo Life Insurance Company. 4.30 Amended and Restated Receivables Purchase Agreement dated as of January 11, 2000 among Rite Aid Funding LLC and Corporate Asset Funding Company, Inc. and Corporate Receivables Corporation and Citibank, N.A. and Citicorp North American, Inc, as agent for the Investors and the Banks, and Rite Aid Corporation, as Collection Agent. 4.31 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and Robert G. Miller. 4.32 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and Mary F. Sammons. 4.33 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and David R. Jessick. 4.34 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and John T. Standley. 10.1 Employment Agreement by and between Rite Aid Corporation and Robert G. Miller, dated as of December 5, 1999. 10.2 Employment Agreement by and between Rite Aid Corporation and Mary F. Sammons dated as of December 5, 1999. 10.3 Employment Agreement by and between Rite Aid Corporation and David R. Jessick, dated as of December 5, 1999. 10.4 Employment Agreement by and between Rite Aid Corporation and John T. Standley, dated as of December 5, 1999. 99.1 Press Release, dated January 11, 2000. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. RITE AID CORPORATION Dated: January 14, 2000 By: /s/ Elliott S. Gerson -------------------------------------- Name: Elliott S. Gerson Title: Senior Executive Vice President and General Counsel EXHIBIT INDEX Exhibit Number Description ------- ----------- 4.1 Waiver dated as of January 11, 2000 to the Amended and Restated Credit Agreement dated as of October 25, 1999 and amended as of December 2, 1999 among Rite Aid Corporation, the Banks party thereto and Morgan Guaranty Trust Company of New York, as Agent. 4.2 Amendment dated as of December 2, 1999 to the Amended and Restated Credit Agreement dated as of October 25, 1999 among Rite Aid Corporation, the Banks party thereto and Morgan Guaranty Trust Company of New York, as Agent. 4.3 Waiver dated as of January 11, 2000 to the Term Loan Agreement dated as of October 25, 1999 among Rite Aid Corporation, the Banks party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent. 4.4 Amendment dated as of December 2, 1999 to the Term Loan Agreement dated as of October 25, 1999 among Rite Aid Corporation, the Banks party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent. 4.5 Waiver dated as of January 11, 2000 to the Term Loan Agreement dated as of October 27, 1999 among Rite Aid Corporation, the Banks party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent. 4.6 Term Loan Agreement dated as of October 27, 1999 among Rite Aid Corporation, the Banks party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent. 4.7 Waiver dated as of January 11, 2000 to Guaranty dated as of March 19, 1998, as amended by Amendment No. 1, dated as of June 22, 1998, and as further amended by Amendment No. 2, dated as of October 25, 1999, and as further amended by Amendment No. 3, dated as of December 2, 1999 between Rite Aid Corporation and RAC Leasing LLC. 4.8 Amendment No. 3, dated as of December 23, 1999 to Master Lease and Security Agreement, dated as of March 19, 1998, (as amended by Amendment No. 1, dated as of June 22, 1998, and Amendment No. 2 dated as of October 25, 1999) between RAC Leasing LLC and Rite Aid Realty Corp. 4.9 Amendment No. 3 dated as of December 2, 1999 to Guaranty dated as of March 19, 1998, as amended by Amendment No. 1, dated as of June 22, 1998, and as further amended by Amendment No. 2, dated as of October 25, 1999, from Rite Aid Corporation to RAC Leasing LLC. 4.10 Amendment No. 2 dated as of October 25, 1999 to Guaranty dated March 19, 1998 (as amended by Amendment No. 1, dated as of June 22, 1998) from Rite Aid Corporation to RAC Leasing LLC. 4.11 Amendment No. 1 dated as of June 22, 1998, to Guaranty dated March 19, 1998, from Rite Aid Corporation to RAC Leasing LLC. 4.12 Amendment No. 2 dated as of October 25, 1999 to Master Lease and Security Agreement, dated as of March 19, 1998 (as amended by Amendment No. 1, dated as of June 22, 1998) between RAC Leasing LLC and Rite Aid Realty Corp. 4.13 Amendment No. 1 dated as of June 22, 1998 to Master Lease and Security Agreement, dated as of March 19, 1998 between RAC Leasing LLC and Rite Aid Realty Corp. 4.14 Guaranty, dated as of March 19, 1998, from Rite Aid Corporation to RAC Leasing LLC. 4.15 Master Lease and Security Agreement, dated as of March 19, 1998, between RAC Leasing LLC and Rite Aid Realty Corp. 4.16 Waiver dated as of January 11, 2000 to Guaranty dated as of May 30, 1997, as amended by Amendment No. 1, dated as of October 25, 1999, and as further amended by Amendment No. 2, dated as of December 2, 1999 between Rite Aid Corporation and Sumitomo Bank Leasing and Finance, Inc. 4.17 Amendment No. 2 dated as of December 2, 1999 to Guaranty dated as of May 30, 1997, as amended by Amendment No. 1, dated as of October 25, 1999, from Rite Aid Corporation to Sumotomo Bank Leasing and Finance, Inc. 4.18 Amendment No. 1 dated as of October 25, 1999 to Guaranty dated as of May 30, 1997 from Rite Aid Corporation to Sumotomo Bank Leasing and Finance, Inc. 4.19 Amendment No. 4, dated as of October 25, 1999 to Master Lease and Security Agreement, dated as of May 30, 1997, as amended by Amendment No. 1, dated as of March 11, 1998, and as further amended by Amendment No. 2, dated as of June 22, 1998, and as further amended by Amendment No. 3, dated as of May 26, 1999 between Sumitomo Bank Leasing and Finance, Inc. and Rite Aid Realty Corp. 4.20 Amendment No. 3, dated as of May 26, 1999, to Master Lease and Security Agreement, dated as of May 30, 1997, (as amended by Amendment No. 1, dated as of March 11, 1998, as further amended by Amendment No. 2, dated as of June 22, 1998) between Sumitomo Bank Leasing and Finance, Inc. and Rite Aid Realty Corp. 4.21 Amendment No. 2, dated as of June 22, 1998 to Master Lease and Security Agreement, dated as of May 30, 1997, as amended by Amendment No. 1 to Master Lease and Security Agreement, dated as of March 11, 1998 between Sumitomo Bank Leasing and Finance, Inc. and Rite Aid Realty Corp. 4.22 Amendment No. 1, dated as of March 11, 1998 to Master Lease and Security Agreement, dated as of May 30, 1997 between Sumitomo Bank Leasing and Finance, Inc. and Rite Aid Realty Corp. 4.23 Guaranty, dated as of May 30, 1997 from Rite Aid Corporation to Sumotomo Bank Leasing and Finance, Inc. 4.24 Master Lease and Security Agreement, dated as of May 30, 1997, between Sumitomo Bank Leasing and Finance, Inc. and Rite Aid Realty Corp. 4.25 Waiver No. 1 dated as of January 10, 2000 to Note Agreement dated as of September 30, 1996 (as previously amended pursuant to Amendment No. 1 dated as of October 25, 1999 and Amendment No. 2 dated as of December 2, 1999) among Finco, Inc., Rite Aid Corporation, The Prudential Life Insurance Company of America and PruCo Life Insurance Company and Waiver No. 1 dated as of January 10, 2000 to Guaranty Agreement dated as of September 30, 1996 (as previously amended pursuant to Amendment No. 1 dated as of October 25, 1999 and Amendment No. 2 dated as of December 2, 1999) among Finco, Inc., Rite Aid Corporation, The Prudential Life Insurance Company of America and PruCo Life Insurance Company. 4.26 Amendment No. 2 dated as of December 2, 1999 to Note Agreement dated as of September 30, 1996 (as previously amended pursuant to Amendment No. 1 dated as of October 25, 1999) among Finco, Inc., Rite Aid Corporation, The Prudential Insurance Company of America and PruCo Life Insurance Company and Amendment No. 2 dated as of December 2, 1999 to Guaranty Agreement dated as of September 30, 1996 (as previously amended pursuant to Amendment No. 1 dated as of October 25, 1999) among Finco, Inc., Rite Aid Corporation, The Prudential Insurance Company of America and PruCo Life Insurance Company. 4.27 Amendment No. 1 dated as of October 25, 1999 to Note Agreement dated as of September 30, 1996 among Finco, Inc., Rite Aid Corporation, The Prudential Insurance Company of America and PruCo Life Insurance Company and Amendment No. 1 dated as of October 25, 1999 to Guaranty Agreement dated as of September 30, 1996 among Finco, Inc., Rite Aid Corporation, The Prudential Insurance Company of America and PruCo Life Insurance Company. 4.28 Guaranty Agreement dated as of September 30, 1996 from Rite Aid Corporation to The Prudential Insurance Company of America and PruCo Life Insurance Company. 4.29 Note Agreement dated as of September 30, 1996 among Finco, Inc., The Prudential Insurance Company of America and PruCo Life Insurance Company. 4.30 Amended and Restated Receivables Purchase Agreement dated as of January 11, 2000 among Rite Aid Funding LLC and Corporate Asset Funding Company, Inc. and Corporate Receivables Corporation and Citibank, N.A. and Citicorp North American, Inc, as agent for the Investors and the Banks, and Rite Aid Corporation, as Collection Agent. 4.31 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and Robert G. Miller. 4.32 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and Mary F. Sammons. 4.33 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and David R. Jessick. 4.34 Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and John T. Standley. 10.1 Employment Agreement by and between Rite Aid Corporation and Robert G. Miller, dated as of December 5, 1999. 10.2 Employment Agreement by and between Rite Aid Corporation and Mary F. Sammons dated as of December 5, 1999. 10.3 Employment Agreement by and between Rite Aid Corporation and David R. Jessick, dated as of December 5, 1999. 10.4 Employment Agreement by and between Rite Aid Corporation and John T. Standley, dated as of December 5, 1999. 99.1 Press Release, dated January 11, 2000. EX-4 2 EXHIBIT 4.1 - WAIVER NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT Exhibit 4.1 EXECUTION COPY WAIVER NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT WAIVER dated as of January 11, 2000 to the Amended and Restated Credit Agreement dated as of October 25, 1999 and amended as of December 2, 1999 (the "CREDIT AGREEMENT") among RITE AID CORPORATION (the "BORROWER"), the BANKS party thereto (the "BANKS") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "AGENT"). W I T N E S S E T H : The parties hereto agree as follows: SECTION 1. Defined Terms; References. (a) Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after this Waiver becomes effective, refer to the Credit Agreement as amended hereby. (b) The following additional term, as used herein, has the following meaning: "PUBLIC DEBT" means debt securities of the Borrower issued pursuant to an indenture qualified under (or in form suitable for qualification under) the Trust Indenture Act of 1939, as amended. SECTION 2. Limited Waiver. At the request of the Borrower, the Banks hereby waive (a) any Default under Section 5.01(a), Section 5.01(b), Section 5.01(c) or Section 5.01(d) of the Credit Agreement, to the extent that such Default would arise from failure of the Borrower to deliver to the Banks the financial statements referred to in Section 5.01(a) or Section 5.01(b) of the Credit Agreement and the related officer's certificate and statement of the Borrower's independent accountants referred to in Sections 5.01(c) and 5.01(d) of the Credit Agreement and (b) any Default that would arise under Section 6.01(f) of the Credit Agreement by reason of a default under any Public Debt as a result of the failure of the Borrower to file or deliver financial statements or reports substantially the same as those described in clause (a) above, such waivers to be effective solely for the period commencing on January 11, 2000 and ending on July 11, 2000; provided, however, that (i) the effectiveness of this Waiver is subject to the satisfaction of the conditions specified in Section 3 of this Waiver and (ii) the waiver set forth in clause (b) shall terminate on the earlier of (x) July 11, 2000 or (y) the date that is 10 days prior to the earliest date on which any holder of Public Debt or any trustee or other representative of any such holder shall have a present right to accelerate the maturity thereof by reason of any such default waived hereunder. This Waiver shall be limited precisely as written, and shall not extend to any Default under any other provision of the Credit Agreement or to any Default under Section 5.01(a), Section 5.01(b), Section 5.01(c) or Section 5.0(d) of the Credit Agreement during any other period or to any other Default under Section 6.01(f) of the Credit Agreement. SECTION 3. Conditions to Waiver. The waivers granted pursuant to Section 2 above are subject to the conditions that: (a) the Borrower shall deliver to each of the Banks the following items on or prior to the dates specified below (or, in the reasonable discretion of the Agent, no later than 5 days thereafter): (i) a monthly forecast of cash receipts and disbursements, commencing with February, 2000, no later than the first day of each month in respect of such forecast ; (ii) a monthly reconciliation of actual cash receipts and disbursements to the forecast for such month delivered pursuant to clause (i) above, no later than the 25th day of the next succeeding month; (iii) a weekly sales report for each week, commencing with the week ending January 8, 2000, no later than the 4th day following the last day of the week in respect of which such sales report is to be delivered; (iv) an operating forecast for each month in the fiscal year ending on or closest to February 28, 2001, no later than March 31, 2000; and (v) a monthly reconciliation of actual operating results for each month specified in the operating forecast delivered pursuant to clause (iv) above to the budget for such month, no later than the 30th day of the next succeeding month; and (b) the Borrower shall not directly or indirectly, make or agree to make any payment to or for the account of any holder of Public Debt, or any trustee or other representative of any such holder, on account of principal of, interest on or fees in respect of such Public Debt, except as required by the terms of such Public Debt as in effect on the date hereof. SECTION 4. Governing Law. This Waiver shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. Counterparts. This Waiver 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. SECTION 6. Effectiveness. This Waiver shall become effective on the date when the following conditions are met: (a) the Agent shall have received from each of the Borrower and the Required Banks a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Agent) that such party has signed a counterpart hereof; and (b) the Agent shall have received evidence satisfactory to it that substantially identical waivers to any covenant requiring delivery of financial statements or reports set forth in any other agreement obligations under which are secured by the Collateral shall have become or shall simultaneously become effective. IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be duly executed as of the date first above written. RITE AID CORPORATION By: ____________________________________ Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ____________________________________ Name: Title: EX-4 3 EXHIBIT 4.2 - AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT Exhibit 4.2 EXECUTION COPY AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT AMENDMENT dated as of December 2, 1999 to the Amended and Restated Credit Agreement dated as of October 25, 1999 (the "CREDIT AGREEMENT") among RITE AID CORPORATION (the "BORROWER"), the BANKS party thereto (the "BANKS") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "AGENT"). W I T N E S S E T H : The parties hereto agree as follows: SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby. SECTION 2. Amendments to the Credit Agreement. (a) The following new definition is added to Section 1.01 in its appropriate alphabetical position: "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. (b) The following definitions in Section 1.01 are amended to read in their entirety as follows: "CONSOLIDATED EBITDA" means, for any period, 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 Charges, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments, (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, less (b), to the extent not deducted in determining 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 in any prior period and (ii) LIFO Adjustments. "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, (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; provided that such consolidated stockholders' equity shall be adjusted to exclude the effect of items which have been excluded from Consolidated Net Income for any period commencing after August 28, 1999 by reason of the parenthetical phrase contained in the definition of such term. 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. (c) The definition of October Special Charges in Section 1.01 and Section 1.02(b) are deleted, and Section 1.02(a) is redesignated Section 1.02. (d) Section 5.12 is amended to read in its entirety as follows: SECTION 5.12 Capitalization Leverage Ratio. At no time shall the ratio of (i) Consolidated Debt at such time to (ii) Total Capital at such time, exceed 0.695; provided that upon any sale of the capital stock of PCS, such maximum ratio shall be reset at the level which produces the result that the amount of additional Debt that the Borrower may incur within the limits of this ratio immediately after giving effect to such sale and the repayment of any Debt required in connection therewith is equal to the amount of additional Debt that the Borrower could incur within the limits of this ratio immediately before giving effect to such sale and the repayment of any Debt required in connection therewith. (e) Section 5.13 is amended to read in its entirety as follows: SECTION 5.13. Limitation 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 except: (a) Debt under this Agreement or the 1999 Facility; (b) Debt outstanding on December 2, 1999; (c) Debt incurred to refinance Debt referred to in clause (a) or clause (b) above, provided that the amount thereof that is at the time outstanding or committed is not increased and the maturity thereof is not shortened; and (d) Debt not permitted by clauses (a), (b) and (c) above in an aggregate principal amount at any time outstanding not to exceed $25,000,000. (f) Section 5.14 is amended to read in its entirety as follows: SECTION 5.14. Fixed Charge Coverage. At no time during any period set forth below shall the Fixed Charge Coverage Ratio be less than the ratio set forth below opposite such period: FISCAL QUARTER ENDING ON OR CLOSEST TO RATIO November 30, 1999 1.35 February 29, 2000 1.30 May 31, 2000 and 1.25 thereafter SECTION 3. Representations of Borrower. The Borrower represents and warrants that (i) the representations and warranties of the Borrower set forth in Article 4 of the Credit Agreement will be true on and as of the Amendment Effective Date and (ii) no Default will have occurred and be continuing on such date. SECTION 4. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. Counterparts. This Amendment 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. SECTION 6. Effectiveness. This Amendment shall become effective on the date (not later than December 9, 1999) when the following conditions are met (the "AMENDMENT EFFECTIVE DATE"): (a) the Agent shall have received from each of the Borrower and the Required Banks a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Agent) that such party has signed a counterpart hereof; (b) the Agent shall have received (i) an amendment fee for the account of each Bank from which a signed counterpart hereof (or other written confirmation) shall have been received by the Agent not later than the later of (x) the date on which the other conditions set forth in this Section 6 have been satisfied and (y) the date hereof, in an amount equal to 0.25% of such Bank's Commitment and (ii) payment of all expenses then payable pursuant to Section 9.03 of the Credit Agreement; (c) the Agent shall have received evidence satisfactory to it that (i) the incoming officers of the Borrower previously identified to the Agent as such shall have accepted employment with the Borrower on mutually satisfactory terms and (ii) the Borrower shall have made a public announcement that such incoming officers have accepted such employment; and (d) the Agent shall have received evidence satisfactory to it that substantially identical amendments to the covenants set forth in any other agreement with substantially identical covenants as those set forth in the Credit Agreement and to which the Borrower or any of its Subsidiaries is a party shall have become or shall simultaneously become effective. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. RITE AID CORPORATION By: __________________________________ Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: __________________________________ Name: Title: EX-4 4 EXHIBIT 4.3 - WAIVER NO. 1 TO TERM LOAN AGREEMENT Exhibit 4.3 EXECUTION COPY WAIVER NO. 1 TO TERM LOAN AGREEMENT WAIVER dated as of January 10, 2000 to the Term Loan Agreement dated as of October 25, 1999 (the "CREDIT AGREEMENT") among RITE AID CORPORATION (the "BORROWER"), the BANKS party thereto (the "BANKS") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT"). W I T N E S S E T H : The parties hereto agree as follows: Section 1. Defined Terms; References. (a) Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after this Waiver becomes effective, refer to the Credit Agreement as amended hereby. (b) The following additional term, as used herein, has the following meaning: "PUBLIC DEBT" means debt securities of the Borrower issued pursuant to an indenture qualified under (or in form suitable for qualification under) the Trust Indenture Act of 1939, as amended. Section 2. Limited Waiver. At the request of the Borrower, the Banks hereby waive (a) any Default under Section 5.01(a), Section 5.01(b), Section 5.01(c) or Section 5.01(d) of the Credit Agreement, to the extent that such Default would arise from failure of the Borrower to deliver to the Banks the financial statements referred to in Section 5.01(a) or Section 5.01(b) of the Credit Agreement and the related officer's certificate and statement of the Borrower's independent accountants referred to in Sections 5.01(c) and 5.01(d) of the Credit Agreement and (b) any Default that would arise under Section 6.01(f) of the Credit Agreement by reason of a default under any Public Debt as a result of the failure of the Borrower to file or deliver financial statements or reports substantially the same as those described in clause (a) above, such waivers to be effective solely for the period commencing on January 11, 2000 and ending on July 11, 2000; provided, however, that (i) the effectiveness of this Waiver is subject to the satisfaction of the conditions specified in Section 3 of this Waiver and (ii) the waiver set forth in clause (b) shall terminate on the earlier of (x) July 11, 2000 or (y) the date that is 10 days prior to the earliest date on which any holder of Public Debt or any trustee or other representative of any such holder shall have a present right to accelerate the maturity thereof by reason of any such default waived hereunder. This Waiver shall be limited precisely as written, and shall not extend to any Default under any other provision of the Credit Agreement or to any Default under Section 5.01(a), Section 5.01(b), Section 5.01(c) or Section 5.0(d) of the Credit Agreement during any other period or to any other Default under Section 6.01(f) of the Credit Agreement. Section 3. Conditions to Waiver. The waivers granted pursuant to Section 2 above are subject to the conditions that: (a) the Borrower shall deliver to each of the Banks the following items on or prior to the dates specified below (or, in the reasonable discretion of the Administrative Agent, no later than 5 days thereafter): (i) a monthly forecast of cash receipts and disbursements, commencing with February, 2000, no later than the first day of each month in respect of such forecast; (ii) a monthly reconciliation of actual cash receipts and disbursements to the forecast for such month delivered pursuant to clause (i) above, no later than the 25th day of the next succeeding month; (iii) a weekly sales report for each week, commencing with the week ending January 8, 2000, no later than the 4th day following the last day of the week in respect of which such sales report is to be delivered; (iv) an operating forecast for each month in the fiscal year ending on or closest to February 28, 2001, no later than March 31, 2000; and (v) a monthly reconciliation of actual operating results for each month specified in the operating forecast delivered pursuant to clause (iv) above to the budget for such month, no later than the 30th day of the next succeeding month; and (b) the Borrower shall not directly or indirectly, make or agree to make any payment to or for the account of any holder of Public Debt, or any trustee or other representative of any such holder, on account of principal of, interest on or fees in respect of such Public Debt, except as required by the terms of such Public Debt as in effect on the date hereof. Section 4. Governing Law. This Waiver shall be governed by and construed in accordance with the laws of the State of New York. Section 5. Counterparts. This Waiver 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. Section 6. Effectiveness. This Waiver shall become effective on the date when the following conditions are met: (a) the Administrative Agent shall have received from each of the Borrower and the Required Banks a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Administrative Agent) that such party has signed a counterpart hereof; and (b) the Administrative Agent shall have received evidence satisfactory to it that substantially identical waivers to any covenant requiring delivery of financial statements or reports set forth in any other agreement obligations under which are secured by the Collateral shall have become or shall simultaneously become effective. IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be duly executed as of the date first above written. RITE AID CORPORATION By: __________________________________ Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: __________________________________ Name: Title: EX-4 5 EXHIBIT 4.4 - AMENDMENT NO. 1 TO TERM LOAN AGREEMENT Exhibit 4.4 EXECUTION COPY AMENDMENT NO. 1 TO TERM LOAN AGREEMENT AMENDMENT dated as of December 2, 1999 to the Term Loan Agreement dated as of October 25, 1999 (the "CREDIT AGREEMENT") among RITE AID CORPORATION (the "BORROWER"), the BANKS party thereto (the "BANKS") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT"). W I T N E S S E T H : The parties hereto agree as follows: SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby. SECTION 2. Amendments to the Credit Agreement. (a) The following new definition is added to Section 1.01 in its appropriate alphabetical position: "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. (b) The following definitions in Section 1.01 are amended to read in their entirety as follows: "CONSOLIDATED EBITDA" means, for any period, 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 Charges, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments, (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, less (b), to the extent not deducted in determining 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 in any prior period and (ii) LIFO Adjustments. "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, (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; provided that such consolidated stockholders' equity shall be adjusted to exclude the effect of items which have been excluded from Consolidated Net Income for any period commencing after August 28, 1999 by reason of the parenthetical phrase contained in the definition of such term. 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. (c) The definition of October Special Charges in Section 1.01 and Section 1.02(b) are deleted, and Section 1.02(a) is redesignated Section 1.02. (d) Section 5.12 is amended to read in its entirety as follows: SECTION 5.12 Capitalization Leverage Ratio. At no time shall the ratio of (i) Consolidated Debt at such time to (ii) Total Capital at such time, exceed 0.695; provided that upon any sale of the capital stock of PCS, such maximum ratio shall be reset at the level which produces the result that the amount of additional Debt that the Borrower may incur within the limits of this ratio immediately after giving effect to such sale and the repayment of any Debt required in connection therewith is equal to the amount of additional Debt that the Borrower could incur within the limits of this ratio immediately before giving effect to such sale and the repayment of any Debt required in connection therewith. (e) Section 5.13 is amended to read in its entirety as follows: SECTION 5.13. Limitation 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 except: (a) Debt under this Agreement or the Pro Rata Credit Agreement; (b) Debt outstanding on December 2, 1999; (c) Debt incurred to refinance Debt referred to in clause (a) or clause (b) above, provided that the amount thereof that is at the time outstanding or committed is not increased and the maturity thereof is not shortened; and (d) Debt not permitted by clauses (a), (b) and (c) above in an aggregate principal amount at any time outstanding not to exceed $25,000,000. (f) Section 5.14 is amended to read in its entirety as follows: SECTION 5.14. Fixed Charge Coverage. At no time during any period set forth below shall the Fixed Charge Coverage Ratio be less than the ratio set forth below opposite such period: FISCAL QUARTER ENDING ON OR CLOSEST TO RATIO November 30, 1999 1.35 February 29, 2000 1.30 May 31, 2000 and 1.25 thereafter SECTION 3. Representations of Borrower. The Borrower represents and warrants that (i) the representations and warranties of the Borrower set forth in Article 4 of the Credit Agreement will be true on and as of the Amendment Effective Date and (ii) no Default will have occurred and be continuing on such date. SECTION 4. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. Counterparts. This Amendment 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. SECTION 6. Effectiveness. This Amendment shall become effective on the date (not later than December 9, 1999) when the following conditions are met (the "AMENDMENT EFFECTIVE DATE"): (a) the Administrative Agent shall have received from each of the Borrower and the Required Banks a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Administrative Agent) that such party has signed a counterpart hereof; (b) the Administrative Agent shall have received (i) an amendment fee for the account of each Bank from which a signed counterpart hereof (or other written confirmation) shall have been received by the Administrative Agent not later than the later of (x) the date on which the other conditions set forth in this Section 6 have been satisfied and (y) the date hereof, in an amount equal to 0.25% of such Bank's outstanding Loans and (ii) payment of all expenses then payable pursuant to Section 9.03 of the Credit Agreement; (c) the Administrative Agent shall have received evidence satisfactory to it that (i) the incoming officers of the Borrower previously identified to the Administrative Agent as such shall have accepted employment with the Borrower on mutually satisfactory terms and (ii) the Borrower shall have made a public announcement that such incoming officers have accepted such employment; and (d) the Administrative Agent shall have received evidence satisfactory to it that substantially identical amendments to the covenants set forth in any other agreement with substantially identical covenants as those set forth in the Credit Agreement and to which the Borrower or any of its Subsidiaries is a party shall have become or shall simultaneously become effective. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. RITE AID CORPORATION By: __________________________________ Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: __________________________________ Name: Title: EX-4 6 EXHIBIT 4.5 - WAIVER NO. 1 TO TERM LOAN AGREEMENT EXECUTION COPY WAIVER NO. 1 TO TERM LOAN AGREEMENT WAIVER dated as of January 11, 2000 to the Term Loan Agreement dated as of October 27, 1999 (the "CREDIT AGREEMENT") among RITE AID CORPORATION (the "BORROWER"), the BANKS party thereto (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT"). W I T N E S S E T H : The parties hereto agree as follows: SECTION 1. Defined Terms; References. (a) Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after this Waiver becomes effective, refer to the Credit Agreement as amended hereby. (b) The following additional term, as used herein, has the following meaning: "PUBLIC DEBT" means debt securities of the Borrower issued pursuant to an indenture qualified under (or in form suitable for qualification under) the Trust Indenture Act of 1939, as amended. SECTION 2. Limited Waiver. At the request of the Borrower, the Banks hereby waive (a) any Default under Section 5.01(a), Section 5.01(b), Section 5.01(c) or Section 5.01(d) of the Credit Agreement, to the extent that such Default would arise from failure of the Borrower to deliver to the Banks the financial statements referred to in Section 5.01(a) or Section 5.01(b) of the Credit Agreement and the related officer's certificate and statement of the Borrower's independent accountants referred to in Sections 5.01(c) and 5.01(d) of the Credit Agreement and (b) any Default that would arise under Section 6.01(f) of the Credit Agreement by reason of a default under any Public Debt as a result of the failure of the Borrower to file or deliver financial statements or reports substantially the same as those described in clause (a) above, such waivers to be effective solely for the period commencing on January 11, 2000 and ending on July 11, 2000; provided, however, that (i) the effectiveness of this Waiver is subject to the satisfaction of the conditions specified in Section 3 of this Waiver and (ii) the waiver set forth in clause (b) shall terminate on the earlier of (x) July 11, 2000 or (y) the date that is 10 days prior to the earliest date on which any holder of Public Debt or any trustee or other representative of any such holder shall have a present right to accelerate the maturity thereof by reason of any such default waived hereunder. This Waiver shall be limited precisely as written, and shall not extend to any Default under any other provision of the Credit Agreement or to any Default under Section 5.01(a), Section 5.01(b), Section 5.01(c) or Section 5.0(d) of the Credit Agreement during any other period or to any other Default under Section 6.01(f) of the Credit Agreement. SECTION 3. Conditions to Waiver. The waivers granted pursuant to Section 2 above are subject to the conditions that: (a) the Borrower shall deliver to each of the Banks the following items on or prior to the dates specified below (or, in the reasonable discretion of the Administrative Agent, no later than 5 days thereafter): (i) a monthly forecast of cash receipts and disbursements, commencing with February, 2000, no later than the first day of each month in respect of such forecast ; (ii) a monthly reconciliation of actual cash receipts and disbursements to the forecast for such month delivered pursuant to clause (i) above, no later than the 25th day of the next succeeding month; (iii) a weekly sales report for each week, commencing with the week ending January 8, 2000, no later than the 4th day following the last day of the week in respect of which such sales report is to be delivered; (iv) an operating forecast for each month in the fiscal year ending on or closest to February 28, 2001, no later than March 31, 2000; and (v) a monthly reconciliation of actual operating results for each month specified in the operating forecast delivered pursuant to clause (iv) above to the budget for such month, no later than the 30th day of the next succeeding month; and (b) the Borrower shall not directly or indirectly, make or agree to make any payment to or for the account of any holder of Public Debt, or any trustee or other representative of any such holder, on account of principal of, interest on or fees in respect of such Public Debt, except as required by the terms of such Public Debt as in effect on the date hereof. SECTION 4. Governing Law. This Waiver shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. Counterparts. This Waiver 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. SECTION 6. Effectiveness. This Waiver shall become effective on the date when the following conditions are met: (a) the Administrative Agent shall have received from each of the Borrower and the Required Banks a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Administrative Agent) that such party has signed a counterpart hereof; and (b) the Administrative Agent shall have received evidence satisfactory to it that substantially identical waivers to any covenant requiring delivery of financial statements or reports set forth in any other agreement obligations under which are secured by the Collateral shall have become or shall simultaneously become effective. IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be duly executed as of the date first above written. RITE AID CORPORATION By: __________________________________ Name: Title: J.P. MORGAN VENTURES CORPORATION By: __________________________________ Name: Title: EX-4 7 EXHIBIT 4.6 - TERM LOAN AGREEMENT Exhibit 4.6 $300,000,000 TERM LOAN AGREEMENT dated as of October 27, 1999 among Rite Aid Corporation, The Banks from time to time parties hereto and Morgan Guaranty Trust Company of New York, as Administrative Agent ------------------------------------ JP Morgan Securities Inc., Lead Arranger and Book Runner TABLE OF CONTENTS 1 --------------- PAGE ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions.......................................1 SECTION 1.02. Accounting Terms and Determinations..............16 SECTION 1.03. Other Definitional Provisions....................16 ARTICLE 2 THE CREDITS SECTION 2.01. Initial Outstandings.............................17 SECTION 2.02. Notes............................................17 SECTION 2.03. Maturity of Loans................................18 SECTION 2.04. Interest Rates...................................18 SECTION 2.05. Method of Electing Interest Rates................19 SECTION 2.06. Reduction Events; Mandatory Prepayments..........21 SECTION 2.07. Optional Prepayments.............................22 SECTION 2.08. General Provisions as to Payments................23 SECTION 2.09. Funding Losses...................................24 SECTION 2.10. Computation of Interest..........................24 SECTION 2.11. Regulation D Compensation........................24 ARTICLE 3 CONDITIONS SECTION 3.01. Effectiveness....................................25 ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01. Corporate Existence and Power....................26 SECTION 4.02. Corporate and Governmental Authorization; No Contravention....................................26 SECTION 4.03. Binding Effect...................................26 SECTION 4.04. Financial Information............................26 SECTION 4.05. Full Disclosure..................................27 SECTION 4.06. Litigation.......................................27 SECTION 4.07. Compliance with ERISA............................28 SECTION 4.08. Taxes............................................28 SECTION 4.09. Subsidiaries.....................................28 SECTION 4.10. Environmental Matters............................28 SECTION 4.11. Year 2000 Compliance.............................29 SECTION 4.12. Pledge Agreements................................29 ARTICLE 5 COVENANTS SECTION 5.01. Information......................................29 SECTION 5.02. Payment of Obligations...........................32 SECTION 5.03. Maintenance of Property; Insurance...............32 SECTION 5.04. Conduct of Business and Maintenance of Existence.32 SECTION 5.05. Compliance with Laws.............................33 SECTION 5.06. Inspection of Property, Books and Records........33 SECTION 5.07. Restriction on Other Agreements..................33 SECTION 5.08. Restriction on Debt of Subsidiaries..............33 SECTION 5.09. Restriction on Sales with Leases Back............34 SECTION 5.10. Restriction on Liens.............................34 SECTION 5.11. Capital Expenditures.............................36 SECTION 5.12. Capitalization Leverage Ratio....................36 SECTION 5.13. Limitation on Debt...............................36 SECTION 5.14. Fixed Charge Coverage............................36 SECTION 5.15. Limitation on Investments and Acquisitions.......37 SECTION 5.16. Consolidations, Mergers and Sales of Assets......38 SECTION 5.17. Use of Proceeds..................................38 SECTION 5.18. Restricted Payments..............................38 SECTION 5.19. Synthetic Leases.................................38 ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default................................38 SECTION 6.02. Notice of Default................................41 ARTICLE 7 THE ADMINISTRATIVE AGENT SECTION 7.01. Appointment and Authorization....................41 SECTION 7.02. Administrative Agent and Affiliates..............41 SECTION 7.03. Action by Administrative Agent...................41 SECTION 7.04. Consultation with Experts........................41 SECTION 7.05. Liability of Administrative Agent................42 SECTION 7.06. Indemnification..................................42 SECTION 7.07. Credit Decision..................................42 SECTION 7.08. Successor Administrative Agent...................42 SECTION 7.09. Administrative Agent's Fees......................43 ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair........................................43 SECTION 8.02. Illegality.......................................44 SECTION 8.03. Increased Cost and Reduced Return................44 SECTION 8.04. Taxes............................................46 SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans................................47 ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices..........................................48 SECTION 9.02. No Waivers.......................................48 SECTION 9.03. Expenses; Indemnification........................49 SECTION 9.04. Sharing of Set-Offs..............................49 SECTION 9.05. Amendments and Waivers...........................50 SECTION 9.06. Successors and Assigns...........................50 SECTION 9.07. Governing Law; Submission to Jurisdiction........52 SECTION 9.08. Counterparts.....................................52 SECTION 9.09. WAIVER OF JURY TRIAL.............................52 Pricing Schedule Exhibit A -Note Exhibit B -Assignment and Assumption Agreement TERM LOAN AGREEMENT AGREEMENT dated as of October 27, 1999 among RITE AID CORPORATION, the BANKS from time to time parties hereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent. RECITALS: A. The Borrower (as this and other capitalized terms used in these recitals but not defined in these recitals are defined in Section 1.01 below) is indebted to Morgan in the principal amount of $300,000,000, which indebtedness is evidenced by the Borrower's Demand Promissory Note dated June 16, 1999 (the "ORIGINAL DEMAND NOTE"), certain of the terms of which were modified pursuant to a letter agreement dated October 25, 1999 between the Borrower and Morgan (the "LETTER AGREEMENT", and the Original Demand Note, as modified by the Letter Agreement, the "DEMAND NOTE"). B. Pursuant to the Letter Agreement, the Borrower has agreed to enter into this Agreement so as to, among other things, facilitate assignments of the indebtedness evidenced by the Demand Note; C. The parties intend that, on and after the Effective Date, the Demand Note shall be superseded by the terms of this Agreement and the Notes issued hereunder, and that the indebtedness evidenced and governed by the Demand Note shall on and after the Effective Date be evidenced and governed by this Agreement and the Notes. Therefore, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "ADMINISTRATIVE AGENT" means Morgan Guaranty Trust Company of New York in its capacity as agent for the Banks under the Loan Documents, and its successors in such capacity. "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank. "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. "ASSET SALE" means any sale, lease or other disposition (including any such transaction effected by way of merger or consolidation) by the Borrower or any of its Subsidiaries of any asset, but excluding (i) any sale, lease or other disposition by PCS or any of its Subsidiaries, (ii) the sale or other disposition of capital stock of PCS (or of any non-cash proceeds thereof), (iii) dispositions of inventory, cash, cash equivalents and other cash management investments and obsolete, unused or unnecessary equipment, in each case in the ordinary course of business, (iv) dispositions to the Borrower or a Wholly-Owned Consolidated Subsidiary, (v) any Sale and Leaseback Transaction and (vi) sales of accounts receivable pursuant to the Rite Aid Funding LLC receivables securitization facility in existence on the date hereof, or any successor receivables securitization facility, if and to the extent that the amount of financing available thereunder is not increased above that available on the date hereof. "ASSIGNEE" has the meaning set forth in Section 9.06(c). "ATTRIBUTABLE DEBT" means, as to any particular Sale and Leaseback Transaction under which the Borrower or any 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 Sale and Leaseback Transaction, the then present value of the minimum rental obligations under such Sale and Leaseback 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 payments or, if such interest factor cannot be readily determined, at the rate of 14% per annum. 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. "BANK" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. "BASE RATE" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "BASE RATE LOAN" means a Loan that bears interest at a rate per annum, based on the Base Rate pursuant to the Notice of Borrowing, a Notice of Interest Rate Election, the last sentence of Section 2.05(a) or Article 8. "BASE RATE MARGIN" has the meaning specified in the Pricing Schedule. "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. "BORROWER" means Rite Aid Corporation, a Delaware corporation, and its successors. "BORROWER'S 1999 FORM 10-K" means the Borrower's annual report on Form 10-K for the fiscal year ended February 27, 1999, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. "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. "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 in respect of a Capital Lease. "CAPITAL MARKETS TRANSACTION" means the receipt by the Borrower or a Subsidiary of proceeds of (a) an issuance in the public or private capital markets of long-term debt securities, of equity securities or of equity-linked (e.g., trust preferred) securities (other than the LPG Transaction), (b) a Sale and Leaseback Transaction (other than a Sale and Leaseback Transaction (i) between the Borrower and a Wholly-Owned Consolidated Subsidiary or between Wholly- Owned Consolidated Subsidiaries or (ii) entered into in respect of property acquired by the Borrower or a Subsidiary if such Sale and Leaseback Transaction is entered into within 24 months from the date of such acquisition) or (c) bank borrowings under facilities entered into after the date hereof, to the extent the aggregate incremental financing available thereunder exceeds $200,000,000. "COLLATERAL" means collateral subject to the Collateral Documents. "COLLATERAL DOCUMENTS" means the Pledge Agreements, any additional pledge agreements required to be delivered pursuant to the Loan Documents and any other instruments or agreements executed pursuant to the foregoing. "COMMITMENT SCHEDULE" means the Schedule attached hereto identified as such. "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the aggregate amount of expenditures by the Borrower and its Consolidated Subsidiaries for plant, property and equipment 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 any such expenditures made (i) for the replacement or restoration of assets to the extent financed by condemnation awards or proceeds of insurance received with respect to the loss or taking of or damage to the asset or assets being replaced or restored and (ii) for assets acquired to the extent financed by a Sale and Leaseback Transaction permitted by Section 5.09. "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, 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 Charges, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments, (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, less (b), to the extent not deducted in determining 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 in any prior period and (ii) LIFO Adjustments. "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 during 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, (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 TANGIBLE ASSETS" means 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 Borrower and its Consolidated 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 would be included on such consolidated balance sheet. "CONSOLIDATED NET WORTH" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries determined as of such date; provided that such consolidated stockholders' equity shall be adjusted to exclude the effect of items which have been excluded from Consolidated Net Income for any period commencing after August 28, 1999 by reason of the parenthetical phrase contained in the definition of such term. 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. "CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. "CREDIT EXPOSURE" means, with respect to any Bank, the aggregate outstanding principal amount of such Bank's Loans. "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 (and, for purposes of Section 5.10 and the definitions of Material Debt and Material Financial Obligations, all 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. "DEMAND NOTE" has the meaning set forth in the recitals hereto. "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. "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 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 Administrative Agent. "DRUGSTORE.COM" means drugstore.com, inc., a Delaware corporation, and its successors. "DRUGSTORE.COM PLEDGE AGREEMENT" means the drugstore.com Pledge Agreement dated as of October 25, 1997 between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "EFFECTIVE DATE" means the date this Agreement becomes effective in accordance with Section 3.01. "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. "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 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 Administrative Agent. "EURO-DOLLAR LOAN" means a Loan that bears interest at a Euro-Dollar Rate pursuant to a Notice of Interest Rate Election. "EURO-DOLLAR MARGIN" has the meaning specified in the Pricing Schedule. "EURO-DOLLAR RATE" means a rate of interest determined pursuant to Section 2.04(b) on the basis of a London Interbank Offered Rate. "EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in Section 2.11. "EVENT OF DEFAULT" has the meaning set forth in Section 6.01. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Administrative Agent. "FIXED CHARGE COVERAGE RATIO" means at any date, the ratio of (i) Consolidated EBITDA plus Consolidated Rent to (ii) Consolidated Interest Charges plus Consolidated Rent, in each case for the period of four consecutive fiscal quarters most recently ended on or prior to such date. "FUNDED DEBT" means any Debt maturing more than one year after the date of determination thereof and any Debt, 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 such Debt, which would, in accordance with generally accepted accounting practice, be classified as funded debt but shall not include: (a) any Debt 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 a 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 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 or guarantees other than guarantees of indebtedness for borrowed money. "GROUP OF LOANS" means, at any time, a group of Loans consisting of (i) all Loans which are Base Rate Loans at such time and (ii) all Euro-Dollar Loans having the same Interest Period at such time; provided that, if a Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "GUARANTEE" used as a verb has a corresponding meaning. "INDEMNITEE" has the meaning set forth in Section 9.03(b). "INDENTURES" means (i) the Indenture dated as of December 21, 1998 between the Borrower and Harris Trust and Savings Bank, as trustee, (ii) the Indenture dated as of September 22, 1998 between the Borrower and Harris Trust and Savings Bank, as trustee and (iii) the Indenture dated as of August 1, 1993, between the Borrower and First Trust of New York, National Association, as successor trustee. "INFORMATION" means, collectively, (i) the information provided to the Banks in connection with the waiver dated as of September 29, 1999 to the Existing Credit Agreement and (ii) the information presented to the Banks at meetings in New York City on October 4, 1999 and October 18, 1999 among the Borrower and certain financial institutions. "INTEREST PERIOD" means, with respect to each Euro-Dollar Loan, the period commencing on the date specified in an applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) no Interest Period may end after the Maturity Date. "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. "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. "LOAN" means a Base Rate Loan or a Euro-Dollar Loan and "LOANS" means Base Rate Loans or Euro-Dollar Loans or any combination of the foregoing. "LOAN DOCUMENTS" means this Agreement, the Notes and the Collateral Documents. "LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.04(b). "LPG COMMITMENT" means the Commitment with Respect to Investment in Rite Aid Corporation dated October 18, 1999 between the Borrower and Green Equity Investors III. "LPG TRANSACTION" means the purchase and sale of 3,000,000 shares of 8% Convertible Pay-In-Kind Preferred Stock of the Borrower for a purchase price of $100.00 per share pursuant to the LPG Commitment. "MATERIAL FINANCIAL OBLIGATIONS" means (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 November 1, 2000. "MORGAN" means J.P. Morgan Ventures Corporation, a Delaware corporation and its successors. "MORGAN PRO RATA EXPOSURE" means the Loans. "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. "NET CASH PROCEEDS" means, with respect to any Reduction Event, an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Reduction Event (including, when received, any cash proceeds received as income or other proceeds of any noncash proceeds of any Asset Sale), less (x) any investment banking and underwriting fees and any other expenses reasonably incurred by such Person in respect of such Reduction Event and (y) if such Reduction Event is an Asset Sale, (I) the amount of any Debt secured by a Lien on any asset disposed of in such Asset Sale and discharged from the proceeds thereof and (II) any taxes actually paid or to be payable by such Person (as estimated by a senior financial or accounting officer of the Borrower, giving effect to the overall tax position of the Borrower) in respect of such Asset Sale. "1999 FACILITY" means the $1,300,000,000 Term Loan Agreement dated as of the date of this Amended Agreement among Rite Aid Corporation, the banks listed therein and Morgan Guaranty Trust Company of New York, as administrative agent thereunder. "1999 EXPOSURES" means the undrawn commitments and/or the outstanding loans under the 1999 Facility. "1999 LOAN DOCUMENTS" means the "Loan Documents" as defined in the 1999 Facility. "NOTES" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "NOTE" means any one of such promissory notes issued hereunder. "NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section 2.07. "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. "PCS" means PCS Holding Corporation, a Delaware corporation, and its successors. "PCS EVENT" means (i) the sale or other disposition of capital stock of PCS (or of any non-cash proceeds thereof) or (ii) any sale, lease or other disposition by PCS or any of its Subsidiaries of any asset which would constitute an Asset Sale but for clause (i) of the definition of such term. "PCS PLEDGE AGREEMENT" means the PCS Pledge Agreement dated as of October 25, 1997 between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "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. "PLEDGE AGREEMENTS" means the drugstore.com Pledge Agreement and the PCS Pledge Agreement. "PRICING SCHEDULE" means the Schedule attached hereto identified as such. "PRIME RATE" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "PRO RATA CREDIT AGREEMENT" means the $1,000,000,000 Amended and Restated Credit Agreement dated as of July 19, 1996 and amended and restated as of October 25, 1999 among the Borrower, the banks listed therein and Morgan Guaranty Trust Company of New York, as administrative agent thereunder. "PRO RATA EXPOSURES" means, collectively, the Pro Rata Credit Agreement, the Prudential Pro Rata Exposure and the Morgan Pro Rata Exposure. "PRUDENTIAL PRO RATA EXPOSURE" means the 7.30% Senior Secured Notes due February 28, 2002 issued by Finco, Inc. and guaranteed by the Borrower. "QUARTERLY DATE" means the last day of each Quarterly Period. "QUARTERLY PERIOD" means a three-month period consisting of (i) February, March and April, (ii) May, June and July, (iii) August, September and October or (iv) November, December and January. "REDUCTION EVENT" means the receipt on or after October 15, 1999 by the Borrower or a Subsidiary of proceeds of (i) a PCS Event, (ii) a Capital Markets Transaction or (iii) an Asset Sale. "REFERENCE BANKS" means the principal London offices of Citibank, N.A., Bank of America, N. A. and Morgan Guaranty Trust Company of New York. "REGULATION T, U OR X" means Regulation T, U or X of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REQUIRED BANKS" means at any time Banks having more than 50% of the aggregate amount of the Credit Exposures. "RESTRICTED PAYMENT" means (i) any dividend or other distribution on any shares of the Borrower's capital stock (except dividends payable solely in shares of its capital stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Borrower's capital stock or (b) any option, warrant or other right to acquire shares of the Borrower's capital stock (other than such payments in connection with employee benefit plans in the ordinary course of business). "SALE AND LEASEBACK TRANSACTION" has the meaning set forth in Section 5.09. "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. "SIGNIFICANT SUBSIDIARY" means at any time any Subsidiary or any group of Subsidiaries having consolidated assets, individually or in the aggregate, equal to or greater than 8% of the consolidated assets of the Borrower and its Consolidated Subsidiaries at such time. "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. "SUPER-MAJORITY BANKS" means at any time Banks having at least 90% of the aggregate amount of the Credit Exposures. "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. "TEMPORARY CASH INVESTMENT" means any Investment 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 (as defined in the Pricing Schedule) and P-1 by Moody's (as defined in the Pricing Schedule), (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 acquisition thereof by the Borrower or a Subsidiary 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). "TOTAL CAPITAL" means, at any date, the sum of Consolidated Debt and Consolidated Net Worth, each determined as of such date. "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. "UNITED STATES" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. "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 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 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 Administrative Agent notifies the Borrower that the Required 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 Required Banks. SECTION 1.03. Other Definitional Provisions. 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 of the terms defined in Section 1.01 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 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; provided that amendments, modifications or supplements to the 1999 Loan Documents or the Pro Rata Facilities shall be effective for purposes of references thereto in the Loan Documents only if such amendments are consented to in writing for such purpose by the Super-Majority Banks. 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. Initial Outstandings. On the date hereof, $300,000,000 principal amount is outstanding as a Base Rate Loan made by Morgan. Neither Morgan nor any other Bank has any commitment hereunder to extend additional credit, on a revolving basis or otherwise. SECTION 2.02. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Administrative Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "NOTE" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.01(d), the Administrative Agent shall forward such Note to such Bank. Each Bank shall record the date, amount and type of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.03. Maturity of Loans. Each Loan shall mature, and the principal amount thereof shall be due and payable, on the Maturity Date. SECTION 2.04. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the sum of the Base Rate Margin plus the Base Rate for such day. Such interest shall be payable monthly in arrears on the last day of each calendar month and on the Maturity Date and, with respect to the principal amount of any Base Rate Loan that is prepaid or converted to a Euro-Dollar Loan, on the date of such prepayment or conversion. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the applicable London Interbank Offered Rate for such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. (c) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Loan and (ii) the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than six months as the Administrative Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Reference Banks are offered to such Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day). (d) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (e) Each Reference Bank party hereto agrees to use its best efforts to furnish quotations to the Administrative Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. SECTION 2.05. Method of Electing Interest Rates. (a) The Loans included in each Group of Loans shall bear interest initially at the type of rate specified by the Borrower in the Notice of Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject to Section 2.05(d) and the provisions of Article 8), as follows: (i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day; and (ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans as of any Domestic Business Day or may elect to continue such Loans as Euro-Dollar Loans, as of the end of any Interest Period applicable thereto, for an additional Interest Period, subject to Section 2.09 if any such conversion is effective on any day other than the last day of an Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST RATE ELECTION") to the Administrative Agent not later than 10:30 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each at least $100,000,000 (unless such portion is comprised of Base Rate Loans). If no such notice is timely received before the end of an Interest Period for any Group of Euro-Dollar Loans, the Borrower shall be deemed to have elected that such Group of Loans be converted to Base Rate Loans at the end of such Interest Period. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of Section 2.05(a); (iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if the Loans resulting from such conversion are to be Euro-Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and (iv) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Promptly after receiving a Notice of Interest Rate Election from the Borrower pursuant to Section 2.05(a) the Administrative Agent shall notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. (d) The Borrower shall not be entitled to elect to convert any Loans to, or continue any Loans for an additional Interest Period as, Euro-Dollar Loans if (i) the aggregate principal amount of any Group of Euro-Dollar Loans created or continued as a result of such election would be less than $100,000,000 or (ii) a Default shall have occurred and be continuing when the Borrower delivers notice of such election to the Administrative Agent. (e) If any Loan is converted to a different type of Loan, the Borrower shall pay, on the date of such conversion, the interest accrued to such date on the principal amount being converted. SECTION 2.06. Reduction Events; Mandatory Prepayments. (a) In the event that the Borrower or any of its Subsidiaries shall at any time, or from time to time, receive any Net Cash Proceeds of any Reduction Event, (x) the Borrower shall, not later than the Domestic Business Day following the date of receipt of such Net Cash Proceeds, notify the Agent of such fact and of the amount of such Net Cash Proceeds, (y) the Borrower shall, not later than the Domestic Business Day following the date of receipt of such Net Cash Proceeds, cause the same to be transferred to the Administrative Agent to be held in an escrow account pending application in accordance with the provisions of this Agreement, the Pro Rata Credit Agreement and the 1999 Facility and (z) the Borrower shall, on the third Euro-Dollar Business Day following the date of receipt of such Net Cash Proceeds, apply an amount equal to the largest multiple of $1,000,000 which does not exceed the amount of such Net Cash Proceeds to reduction of the 1999 Exposures and/or the Pro Rata Exposures in accordance with the following provisions of this Section: (i) if the amount of the Net Cash Proceeds in respect of any Reduction Event is less than $5,000,000, then, unless the Required Banks (as defined in the Pro Rata Credit Agreement) otherwise elect, the application thereof shall be deferred until receipt of proceeds such that, together with all other such amounts received and not previously applied, the amount of such Net Cash Proceeds is equal to at least $5,000,000; (ii) if such Reduction Event is a PCS Event, such Net Cash Proceeds shall FIRST be applied ratably to reduce the 1999 Exposures, until the same shall have been reduced to zero, then SECOND shall be applied ratably to reduce the Tranche A Exposures (as defined in the Pro Rata Credit Agreement) until the Tranche A Exposures (as defined in the Pro Rata Credit Agreement) shall have been reduced to zero and then THIRD applied in accordance with paragraph (iv) below; (iii) if such Reduction Event is a Capital Markets Transaction, such Net Cash Proceeds shall first be applied ratably to reduce the 1999 Exposures, subject to Section 2.09(a)(ii) of the 1999 Facility, until the same shall have been reduced to zero, and then applied in accordance with paragraph (iv) below; (iv) if such Reduction Event is not covered by paragraph (ii) or (iii) above, or if there are Net Cash Proceeds in excess of those applied in accordance with paragraphs (ii) and (iii) above, such Net Cash Proceeds shall first be applied ratably to the Pro Rata Exposures until the Pro Rata Exposures shall have been reduced to zero, and then ratably to prepay loans outstanding under the 1999 Facility; (v) the ratable application of Net Cash Proceeds to the Pro Rata Credit Agreement based upon the full amount of the Credit Exposures (as defined in the Pro Rata Credit Agreement) at the relevant time; and (vi) Net Cash Proceeds applied to the Credit Exposures pursuant to paragraph (iv) above shall be applied ratably to prepay the outstanding Loans of the Banks; (b) Upon receipt from the Borrower of a notice pursuant to Section 2.06(a)(y) the Administrative Agent will promptly notify each Bank of the contents thereof, and of the date of the related reduction required hereunder. Any required prepayment shall be made together with accrued interest on the amount prepaid, and shall be applied first to the Group of Base Rate Loans and then to such outstanding Groups of Euro-Dollar Loans the Borrower may elect in such notice, or failing such election as the Administrative Agent may determine in its discretion. (c) Amounts held by the Administrative Agent in escrow pending application as contemplated by this Section 2.06 shall be invested upon the instruction of the Borrower in Temporary Cash Investments for the account of the Borrower. (d) It is expressly understood and agreed that the provisions of this Section 2.06 are not intended to, and do not, create a Lien in any Net Cash Proceeds (except to the extent the same represent proceeds of Collateral). (e) Net Cash Proceeds of a Reduction Event received by the Borrower or a Subsidiary prior to the date hereof shall be deemed for purposes of this Section to have been received on the date hereof. SECTION 2.07. Optional Prepayments. (a) Subject in the case of any Euro-Dollar Loans to Section 2.09, the Borrower may (i) upon at least one Domestic Business Day's notice to the Administrative Agent, prepay any Base Rate Borrowing or (ii) upon at least three Euro-Business Days' notice to the Administrative Agent, prepay any Euro-Dollar Borrowing, in each case in whole at any time, or from time to time in part in amounts aggregating $10,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Borrowing. (b) Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.08. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.01. The Administrative Agent will promptly distribute to each Bank its ratable share of each such payment received by the Administrative Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Base Rate Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.09. Funding Losses. If the Borrower makes any payment of principal with respect to any Euro-Dollar Loan (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of the Interest Period applicable thereto, or the end of an applicable period fixed pursuant to Section 2.04(c) or if the Borrower fails to prepay, continue or convert any Euro-Dollar Loans after notice has been given to any Bank in accordance with Section 2.05(c), 2.06(b) or 2.07(b), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow, prepay, continue or convert, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of clearly demonstrable error. SECTION 2.10. Computation of Interest. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.11. Regulation D Compensation. Each Bank may require the Borrower to pay, contemporaneously with each payment of interest on the Euro- Dollar Loans, additional interest on the related Euro-Dollar Loan of such Bank at a rate per annum determined by such Bank up to but not exceeding the excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank wishing to require payment of such additional interest (x) shall so notify the Borrower and the Administrative Agent, in which case such additional interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place indicated in such notice with respect to each Interest Period commencing at least three Euro-Dollar Business Days after the giving of such notice, and (y) shall notify the Borrower at least five Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans of the amount then due it under this Section. "EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). ARTICLE 3 CONDITIONS SECTION 3.01. Effectiveness. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05): (a) receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the 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) receipt by the Administrative Agent for the account of each Bank of a duly executed Note dated on or before the Effective Date complying with the provisions of Section 2.02; (c) receipt by the Administrative Agent of (i) a letter from Skadden, Arps, Slate, Meagher & Flom LLP, special counsel for the Borrower, permitting the Banks to rely on their opinion delivered pursuant to the Pro Rata Credit Agreement and (ii) an opinion of Elliot S. Gerson, General Counsel of the Borrower, covering such matters relating to the transactions contemplated hereby as the Required Banks may be reasonably request; (d) receipt by the Administrative Agent of an opinion of Davis Polk & Wardwell, special counsel for the Administrative Agent, covering such matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; and (e) receipt by the Administrative Agent of all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement, the Pledge Agreements and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent; On and after the Effective Date, the Demand Note shall be superseded by the terms of this Agreement and the Notes issued hereunder, and the indebtedness evidenced and governed by the Demand Note shall on and after the Effective Date be evidenced and governed by this Agreement and the Notes. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation duly incorporated, 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. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of the Loan Documents are within the Borrower'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 by-laws of the Borrower 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 Pledge Agreements). SECTION 4.03. Binding Effect. This Agreement and each Pledge Agreement constitutes a valid and binding agreement of the Borrower 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 Information. Except as disclosed in the Information: (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of February 27, 1999 and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by KPMG Peat Marwick LLP and set forth in the Borrower's 1999 Form 10-K, a copy of which has been delivered to each of the Banks, 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. (b) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of May 29, 1999 and the related consolidated statements of income and cash flows for the fiscal period then ended, set forth in the Borrower's quarterly report on Form 10-Q for the fiscal quarter then ended, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a), 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. (c) Since May 29, 1999, there has been no material adverse change in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.05. Full Disclosure. All financial statements and other documents furnished by the Borrower to the Banks in connection with this Agreement, including the Information, do not and will not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading. 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. Except as disclosed in the Borrower's 1999 Form 10-K, there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries or which in any manner draws into question the validity or enforceability of any Loan Document. 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 is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. 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. SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all United States Federal income tax returns, and the Borrower and its Significant Subsidiaries have filed all other material tax returns, which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Significant Subsidiary 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. Each of the Borrower's corporate Significant 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. 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, 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 on the business, financial condition, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.11. Year 2000 Compliance. The Borrower has (i) initiated a review and assessment of all areas within the business and operations of the Borrower and each of its Subsidiaries (including those areas affected by suppliers and vendors) that could be adversely affected by the "YEAR 2000 PROBLEM") (that is, the risk that computer applications used by it or any of its Subsidiaries (or their respective supplier and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented such plan in accordance with such timetable. The Borrower reasonably believes that all computer applications that are material to the business or operations of the Borrower or any of its Subsidiaries will on a timely basis be able to perform properly date-sensitive functions for all dates before and from and after January 1, 2000, except to the extent that a failure to do so could not reasonably be expected to have a material adverse effect on the business, financial condition, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.12. Pledge Agreements. The representations and warranties of the Borrower set forth in each Pledge Agreement are true and correct. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any amount payable under any Note remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) 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 fiscal year of the Borrower, 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 material qualification by KPMG Peat Marwick LLP or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 45 days (or (x) in the case of the fiscal quarter most recently ended prior to the date hereof, within 65 days or (y) in the case of any subsequent fiscal quarter, 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 of the first three quarters of each fiscal year of the Borrower, 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 the figures for the corresponding quarter and the corresponding portion of the Borrower's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting 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 the chief financial officer or the chief accounting 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 5.08 to 5.15, inclusive, on the date of such financial statements and (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; (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 five days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (g) 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; (h) if and when any member of the ERISA Group (i) gives or 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 knows that the plan administrator of any Plan has given or 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 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 the chief financial officer or the chief accounting 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; and (i) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Bank, may reasonably request. Information required to be delivered pursuant to Section 5.01(a), 5.01(b), 5.01(f) or 5.01(g) above 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 Section 5.01(c) and (ii) the Borrower shall deliver paper copies of the information referred to in Section 5.01(a), 5.01(b), 5.01(f) or 5.01(g) 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 Lien upon any of its property or assets, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except 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 and necessary 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 Administrative Agent, information presented in reasonable detail as to the insurance so carried. 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 Significant Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Significant Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Significant Subsidiary (except where such Significant Subsidiary merges into the Borrower or any other Subsidiary) to preserve, renew and keep in full force and effect their respective legal existences and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business. 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) 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 on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole. 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 to visit and inspect any of their respective 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. The Borrower will not, and will not permit any Subsidiary to, enter into any agreement which imposes a limitation on incurrence by the Borrower and its Subsidiaries of Liens that is more restrictive than the limitation on Liens set forth in this Agreement (other than agreements with respect to Debt secured by Liens permitted by Section 5.10(a) containing restrictions on the ability to transfer or grant Liens on the assets securing such Debt and other than customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing and customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business) or which imposes other covenants more restrictive than those set forth in this Agreement. SECTION 5.08. Restriction on Debt of Subsidiaries. The Borrower will not permit any Subsidiary to create, issue, incur, assume, or in any other way become liable for any unsecured Debt unless immediately prior thereto the Borrower would be entitled under Section 5.10(e) to create Secured Debt not specifically permitted under Section 5.10 but for subsection (e) thereof in an amount equal to such Debt; provided that the foregoing restriction shall not prevent (i) any Subsidiary from becoming liable to the Borrower or to a Wholly-Owned Consolidated Subsidiary for Debt or (ii) the extension, renewal or refunding of any Debt of any Subsidiary so long as Consolidated Debt is not thereby increased. SECTION 5.09. Restriction on Sales with Leases Back. Except for a sale or transfer by a Subsidiary to the Borrower or a Wholly-Owned Consolidated Subsidiary, the Borrower will not, and will not permit any Subsidiary to, sell or transfer any manufacturing plant, warehouse, retail store or equipment now or hereafter owned and operated by the Borrower or a Subsidiary, with the intention that the Borrower or any 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 that, notwithstanding the foregoing, the Borrower or any Subsidiary may enter into a Sale and Leaseback Transaction if the Borrower or a Subsidiary would be entitled under Section 5.10(e) to create Secured Debt not specifically permitted under Section 5.10 but for Section 5.10(e) in an amount equal to the Attributable Debt respecting such Sale and Leaseback Transaction; provided further that, notwithstanding the foregoing, the Borrower or any Subsidiary may enter into a Sale and Leaseback Transaction if entered into in respect of property acquired by the Borrower or a Subsidiary if such Sale and Leaseback Transaction is entered into within 24 months from the date of such acquisition; and provided still further that, notwithstanding the foregoing, the Borrower or any Subsidiary may enter into a Sale and Leaseback Transaction so long as the Net Cash Proceeds thereof are applied as contemplated by Section 2.06. SECTION 5.10. 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 acquired or constructed by the Borrower or a 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 Borrower or a Subsidiary of property subject to any Lien upon such property existing at the time of acquisition thereof, whether or not assumed by the Borrower or such Subsidiary, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired; provided that the Lien 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; (b) Any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 5.10 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 Secured Debt of a Subsidiary owing to the Borrower or a Wholly-Owned Consolidated Subsidiary; (d) Any Lien created by the Loan Documents, the Pro Rata Credit Agreement or the 1999 Loan Documents; and (e) Secured Debt of the Borrower and its Subsidiaries which would otherwise be prohibited by the foregoing restrictions (not including Secured Debt permitted to be secured under subsections (a) through (d) above) so long as the sum of any such Secured Debt hereafter incurred and outstanding at the time plus Attributable Debt of the Borrower and any Subsidiaries in respect of Sale and Leaseback Transactions hereafter entered into and outstanding at the time (excluding Attributable Debt incurred in respect of any Sale and Leaseback Transaction (i) entered into in respect of property acquired by the Borrower or a Subsidiary not more than 24 months prior to the date such Sale and Leaseback Transaction is entered into or (ii) if the Borrower, within 120 days before or after such Sale and Leaseback Transaction is entered into applies an amount equal to the greater of (A) the net proceeds of the sale of the property so sold and leased back or (B) the fair market value of such property at the date such arrangement is entered into to the retirement of Secured Debt (other than at maturity or pursuant to any mandatory payment provision) or to reduction of the Commitments) plus unsecured Debt of any Subsidiary hereafter incurred and outstanding at the time (excluding unsecured Debt incurred through the extension, renewal or refunding of Debt of such Subsidiary where Consolidated Debt was not thereby increased and excluding any Debt owed to the Borrower or a Wholly-Owned Consolidated Subsidiary) does not at the time exceed 5% of Consolidated Net Tangible Assets. SECTION 5.11. 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: FISCAL YEAR ENDING ON AMOUNT OR CLOSEST TO February 29, 2000 $620,000,000 February 28, 2001 $295,000,000 SECTION 5.12. Capitalization Leverage Ratio. At no time shall the ratio of (i) Consolidated Debt at such time to (ii) Total Capital at such time, exceed 0.695; provided that upon any sale of the capital stock of PCS, such maximum ratio shall be reset at the level which produces the result that the amount of additional Debt that the Borrower may incur within the limits of this ratio immediately after giving effect to such sale and the repayment of any Debt required in connection therewith is equal to the amount of additional Debt that the Borrower could incur within the limits of this ratio immediately before giving effect to such sale and the repayment of any Debt required in connection therewith. SECTION 5.13. Limitation 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 except: (a) Debt under this Agreement, the Pro Rata Credit Agreement or the 1999 Facility; (b) Debt outstanding on December 2, 1999; (c) Debt incurred to refinance Debt referred to in clause (a) or clause (b) above, provided that the amount thereof that is at the time outstanding or committed is not increased and the maturity thereof is not shortened; and (d) Debt not permitted by clauses (a), (b) and (c) above in an aggregate principal amount at any time outstanding not to exceed $25,000,000. SECTION 5.14. Fixed Charge Coverage. At no time during any period set forth below shall the Fixed Charge Coverage Ratio be less than the ratio set forth below opposite such period: FISCAL QUARTER ENDING ON OR CLOSEST TO RATIO November 30, 1999 1.35 February 29, 2000 1.30 May 31, 2000 and 1.25 thereafter SECTION 5.15. Limitation on Investments and Acquisitions. (a) Neither the Borrower nor any Consolidated Subsidiary will make or acquire any Investment in any Person other than: (i) Investments in Consolidated Subsidiaries; provided, that Investments (exclusive of inter-company payables owing to the Borrower or a Subsidiary arising from cash management transactions in the ordinary course of business) in PCS, whether existing on the date hereof or hereafter made, may be made only by the Borrower and only in the form of a contribution to the capital of PCS and without issuance of additional shares of capital stock therefor, and provided further that no such Investment may be made in any Subsidiary of PCS except by PCS or another Subsidiary of PCS; (ii) Temporary Cash Investments; (iii) Investments received as consideration for sale or other disposition of the capital stock of PCS or drugstore.com permitted by Section 5.16; (iv) Investments in drugstore.com existing on the date hereof; and (v) Any Investment 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 (c) does not exceed 10% of Consolidated Net Worth. (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 in connection with all such Business Acquisitions on or after the Closing Date would exceed $15,000,000. SECTION 5.16. Consolidations, Mergers and Sales of Assets. The Borrower will not (i) consolidate or merge with or into any other Person, (ii) sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of the assets of the Borrower and its Subsidiaries, taken as a whole, to any other Person or (iii) sell, lease or otherwise transfer any Collateral to any other Person; provided that (x) the Borrower may merge with another Person if (A) the Borrower is the corporation surviving such merger and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing and (y) the Borrower may sell or otherwise dispose of the capital stock of PCS or drugstore.com, in whole but not in part, so long as the consideration therefor is not less than the fair market value of such capital stock and shall consist solely of a combination of cash and publicly traded securities payable and deliverable at the closing of such sale. SECTION 5.17. Use of Proceeds. The proceeds of the Loans outstanding under this Agreement were used by the Borrower for its general corporate purposes. No such use of proceeds was or 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. SECTION 5.18. Restricted Payments. After the date hereof, neither the Borrower nor any Subsidiary will declare or make any Restricted Payment. SECTION 5.19. Synthetic Leases. Neither the Borrower nor any Subsidiary will enter into any Synthetic Lease 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. 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 shall fail to observe or perform (i) any covenant contained in Sections 5.08 to 5.19, inclusive or (ii) any covenant contained in Section 3(b) or 5(b) of the Pledge Agreement; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in the Loan Documents (other than those covered by clause (a) or (b) above) for 30 days after written notice thereof has been given to the Borrower by the Administrative Agent at the request of any Bank; (d) any material representation, warranty, certification or statement made (or deemed made) by the Borrower in any Loan Document or in any certificate, financial statement or other document delivered pursuant to any 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 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 Significant 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 Significant 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 Significant 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 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) a judgment or order 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) any Lien created by either Pledge Agreement shall at any time fail to constitute a valid and (to the extent required by such Pledge Agreement) perfected Lien on all of the Collateral purported to be subject thereto, securing the obligations purported to be secured thereby, with the priority required by the Loan Documents, or the Borrower shall so assert in writing; or (l) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) 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; then, and in every such event, the Administrative Agent shall if requested by Banks holding Notes evidencing more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes (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 Administrative Agent or the Banks, the Notes (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 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 ADMINISTRATIVE AGENT SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Administrative Agent and Affiliates. Morgan Guaranty Trust Company of New York shall have the same rights and powers under the Loan Documents as any other Bank and may exercise or refrain from exercising the same as though it were not the Administrative Agent, and Morgan Guaranty Trust Company of New York and its 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 the Administrative Agent. SECTION 7.03. Action by Administrative Agent. The obligations of the Administrative Agent under the Loan Documents are only those expressly set forth therein. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6 and in the Pledge Agreement. SECTION 7.04. Consultation with Experts. The Administrative Agent 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 Administrative Agent. Neither the Administrative Agent nor any of its 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 Required Banks (or such other number or percentage of Banks as may be specified in the Loan Documents for particular purposes) or (ii) in the absence of its or their own gross negligence or willful misconduct. Neither the Administrative Agent nor any of its 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 this Agreement 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 Administrative Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Administrative Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be 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 Administrative Agent, its 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 action taken or omitted by such indemnitees hereunder. SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Administrative 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 the Administrative 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. Successor Administrative Agent. The Administrative Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right, with (so long as no Default shall have occurred and be continuing) the consent of the Borrower, to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Administrative Agent by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent. SECTION 7.09. Administrative Agent's Fees. The Borrower shall pay to the Administrative Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Administrative Agent. 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 Loan: (a) the Administrative Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the London interbank market for such Interest Period, or (b) Banks having 50% or more of the aggregate amount of the Credit Exposures advise the Administrative Agent that the London Interbank Offered Rate as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks 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. SECTION 8.02. Illegality. (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 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 Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to convert outstanding Loans into Euro-Dollar Loans or continue outstanding Loans as Euro-Dollar Loans shall be suspended. Before giving any notice to the 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. (b) 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 hereof, 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 Applicable 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 Board of Governors of the Federal Reserve System, but excluding any such requirement with respect to which such Bank is entitled to compensation for the relevant Interest Period under Section 2.11), 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 Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the London interbank market any other condition affecting its Euro-Dollar Loans or its Note and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable 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 Applicable 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 Administrative Agent), the Borrower shall pay to such Bank 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 Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the 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 Applicable 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 Administrative Agent hereunder or under any Note shall be made free 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, in the case of each Bank and the Administrative Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or the Administrative Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its income, and franchise or similar taxes imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or any political subdivision thereof (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 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 8.04) such Bank or the 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 Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (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 Loan Document (hereinafter referred to as "OTHER TAXES"). (c) The Borrower agrees to indemnify each Bank and the 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 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 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, 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 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank 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 or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. 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(a) 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. (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 (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) 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 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: (a) all Loans of such Bank which would otherwise be 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), and (b) after each of its Euro-Dollar Loans has been converted to a Base Rate Loan, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead. 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: (x) in the case of the Borrower or the Administrative Agent, at its address or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or telex number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Administrative Agent under Article 2 or Article 8 shall not be effective until received. SECTION 9.02. No Waivers. No failure or delay by the Administrative Agent or any Bank in exercising any right, power or privilege under any 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 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 Administrative Agent, including fees and disbursements of special counsel for the Administrative Agent, in connection with the preparation and administration of the 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 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 Administrative Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees 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 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. Sharing of Set-Offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note 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 Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes 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 Notes 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 set-off 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 Notes. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note acquired pursuant to the foregoing arrangements may exercise rights of set-off 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. (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 and the Required Banks (and, if the rights or duties of the Administrative Agent are affected thereby, by the Administrative Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) 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, (iv) change Section 9.04 or (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of 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) Morgan Guaranty Trust Company of New York agrees that it will not enter into any amendment or waiver of any Collateral Document except with the consent of the Required Banks; provided that no such amendment or waiver shall, unless consented to by all the Banks, (i) alter in a manner adverse to the Banks the priorities specified in Section 13 of either Pledge Agreement or (ii) effect or permit a release of all or substantially all of the Collateral under either Pledge Agreement. Notwithstanding the foregoing, Collateral shall be released from the Lien of either of the Pledge Agreement from time to time as necessary to effect any sale of Collateral permitted by the Loan Documents, and the Administrative Agent shall execute and deliver all release documents reasonably requested to evidence such release; provided that arrangements satisfactory to the Administrative Agent shall have been made for application of the cash proceeds thereof in accordance with Section 2.06 hereof and for the pledge of any non-cash proceeds thereof pursuant to the Collateral Documents. 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 or other institutions (each a "PARTICIPANT") participating interests in its Commitment 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 Administrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the 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 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 subsection (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 subsection (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "ASSIGNEE") all, or a proportionate part of all, 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 Assumption Agreement in substantially the form of Exhibit B 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 Administrative Agent (such consent of the Borrower and the Administrative Agent not to be unreasonably withheld); provided that (i) if an Assignee is an affiliate of such transferor Bank or is a Bank prior to giving effect to such assignment, such notice shall be given but no such consent shall be required. 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 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 subsection (c), the transferor Bank, the 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 Administrative Agent an administrative fee for processing such assignment in the amount of $2,500. 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 Administrative Agent 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 assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) 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. 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. SECTION 9.09. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT 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. 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: Address: 30 Hunter Lane Camp Hill, PA 17011 Attention: Chief Financial Officer Telephone No.: (717) 975-5750 Facsimile No.: (717) 975-3764 Website: www.riteaid.com J.P. MORGAN VENTURES CORPORATION By:___________________________________ Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By:___________________________________ Name: Title: Address: 60 Wall Street New York, New York 10260-0060 Attention: Loan Department Telex number: 177615 EX-4 8 EXHIBIT 4.7 - WAIVER NO. 1 TO GUARANTY Exhibit 4.7 EXECUTION COPY WAIVER NO. 1 TO GUARANTY WAIVER dated as of January 11, 2000 to Guaranty dated as of March 19, 1998, as amended by Amendment No. 1, dated as of June 22, 1998, and as further amended by Amendment No. 2, dated as of October 25, 1999, and as further amended by Amendment No. 3, dated as of December 2, 1999 (as so amended, the "Guaranty") between RITE AID CORPORATION, a Delaware Corporation (the "Guarantor") and RAC LEASING LLC. W I T N E S S E T H : The parties hereto agree as follows: SECTION 1. DEFINED TERMS; REFERENCES. (a) Unless otherwise specifically defined herein, each term used herein which is defined in the Guaranty has the meaning assigned to such term in the Guaranty. For the purposes of this Waiver, "Public Debt" means debt securities of the Guarantor issued pursuant to an indenture qualified under (or in form suitable for qualification under) the Trust Indenture Act of 1939, as amended. SECTION 2. LIMITED WAIVER. At the request of the Guarantor, the Required Participants hereby waive any Default for breaches of covenants under Section 1.01(a), Section 1.01(b), Section 1.01(c) or Section 1.01(d) of Annex A to the Guaranty, to the extent that such Default would arise from failure of the Guarantor to deliver to the Liquidity Providers the financial statements referred to in Section 1.01(a) or Section 1.01(b) of Annex A to the Guaranty and the related officer's certificate and statement of the Guarantor's independent accountants referred to in Sections 1.01(c) and 1.01(d) of Annex A to the Guaranty, such waivers to be effective solely for the period commencing on January 11, 2000 and ending on July 11, 2000; provided, however, that the effectiveness of this Waiver is subject to the satisfaction of the conditions specified in Section 3 of this Waiver. This Waiver shall be limited precisely as written, and shall not extend to any Default under any other provision of the Guaranty or to any Default under Section 1.01(a), Section 1.01(b), Section 1.01(c) or Section 1.01(d) of Annex A to the Guaranty during any other period. SECTION 3. CONDITIONS TO WAIVER. The waivers granted pursuant to Section 2 above are subject the conditions that: (a) the Guarantor shall deliver to each of the Liquidity Providers the following items on or prior to the dates specified below (or, in the reasonable discretion of the Liquidity Agent, no later than 5 days thereafter): (i) a monthly forecast of cash receipts and disbursements, commencing with February, 2000, no later than the first day of each month in respect of such forecast ; (ii) a monthly reconciliation of actual cash receipts and disbursements to the forecast for such month delivered pursuant to clause (i) above, no later than the 25th day of the next succeeding month; (iii) a weekly sales report for each week, commencing with the week ending January 8, 2000, no later than the 4th day following the last day of the week in respect of which such sales report is to be delivered; (iv) an operating forecast for each month in the fiscal year ending on or closest to February 28, 2001, no later than March 31, 2000; and (v) a monthly reconciliation of actual operating results for each month specified in the operating forecast delivered pursuant to clause (iv) above to the budget for such month, no later than the 30th day of the next succeeding month; and (b) the Guarantor shall not directly or indirectly, make or agree to make any payment to or for the account of any holder of Public Debt, or any trustee or other representative of any such holder, on account of principal of, interest on or fees in respect of such Public Debt, except as required by the terms of such Public Debt as in effect on the date hereof. SECTION 4. GOVERNING LAW. This Waiver shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. COUNTERPARTS. This Waiver 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. SECTION 6. EFFECTIVENESS. This Waiver shall become effective on the date when the following conditions are met: (a) the Liquidity Agent shall have received from each of the Guarantor and the Required Participants a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Liquidity Agent) that such party has signed a counterpart hereof; and (b) the Agent shall have received evidence satisfactory to it that substantially identical waivers to any covenant requiring delivery of financial statements or reports set forth in any other agreement obligations under which are secured by the Collateral shall have become or shall simultaneously become effective. IN WITNESS WHEREOF, each of the parties hereto has caused this Waiver to be executed by their officers thereunto duly authorized as of the date first above written. RITE AID CORPORATION, as Guarantor By: __________________________________ Name: Title: Acknowledged and Agreed: RAC LEASING LLC By: The Diversified Group Incorporated By:_______________________________ Name: Title: EX-4 9 EXHIBIT 4.8 - AMENDMENT NO. 3 MASTER LEASE AND SECURITY AGREEMENT Exhibit 4.8 AMENDMENT NO. 3 Dated as of December 23, 1999 to MASTER LEASE AND SECURITY AGREEMENT between Rite Aid Realty Corp. and RAC Leasing LLC Amendment No. 3, dated as of December 23, 1999 ("Amendment No. 3"), between RAC Leasing LLC, a Wyoming limited liability company, as lessor ("Lessor"), and Rite Aid Realty Corp., a Delaware corporation, as lessee ("Lessee"), amending the Lease referred to below. WHEREAS, Lessor and Lessee have heretofore entered into a Master Lease and Security Agreement, dated as of March 19, 1998, (as amended by Amendment No. 1, dated as of June 22, 1998, and Amendment No. 2 dated as of October 25, 1999, the "Lease"); and WHEREAS, Lessor and Lessee wish to further amend the Lease as hereinafter provided; NOW, THEREFORE, Lessor and Lessee hereby agree as follows: Section 1. Amendments to the Lease. (a) The Commitment of the Lessor set forth on Annex 1 to the Lease is hereby amended in its entirety to read as set forth on Annex 1 attached hereto. (b) The Commitment of the Lessor set forth on the signature pages to Lease Supplement No. 1 to the Lease, dated as of June 22, 1998 is hereby reduced by $12,050,000 to $35,850,000. Section 2. Counterparts. This Amendment No. 3 may be executed in several counterparts, each of which when executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 3. Section 3. Governing Law THIS AMENDMENT NO. 3 SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 4. Continuing Effect Except as herein provided, all provisions, terms and conditions of the Lease shall remain in full force and effect. As amended hereby, the Lease is ratified and confirmed in all respects. [Remainder of this page left intentionally blank. Signatures begin on next page] IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to be duly executed as of the date first above written. RITE AID REALTY CORP., as Lessee By: ____________________________________ Name: Title: RAC LEASING LLC, as Lessor By: The Diversified Group Incorporated, Manager By: _______________________________ Name: Title: EX-4 10 EXHIBIT 4.9 - AMENDMENT NO. 3 TO GUARANTY Exhibit 4.9 EXECUTION COPY AMENDMENT NO. 3 TO GUARANTY AMENDMENT NO. 3 TO GUARANTY ("Amendment No. 3"), dated as of December 2, 1999, from RITE AID CORPORATION, a Delaware corporation (the "Guarantor"), to RAC LEASING LLC, a Wyoming limited liability company (the "Lessor"). WHEREAS, the Lessor and Rite Aid Realty Corp. (the "Lessee") entered into a Master Lease and Security Agreement dated as of March 19, 1998, as amended by Amendment No. 1, dated as of June 22, 1998, and as further amended by Amendment No. 2, dated as of October 25, 1999 (as so amended, the "Lease"); and WHEREAS, the Guarantor and the Lessor entered into a Guaranty, dated as of March 19, 1998, as amended by Amendment No. 1, dated as of June 22, 1998, and as further amended by Amendment No. 2, dated as of October 25, 1999 (as so amended, the "Guaranty"); and WHEREAS, the Guarantor and the Lessor now desire to further amend the Guaranty; and WHEREAS, capitalized terms used but not defined herein shall have the respective meanings given to such terms in Appendix I to the Lease. NOW, THEREFORE, in consideration of the mutual covenants herein contained and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Amendments to Guaranty. Annex A to the Guaranty is hereby amended as follows: (a) The following new definition is added to the definition section of Annex A in its appropriate alphabetical position: "LIFO Adjustments" means, for any period, the net adjustment to costs of goods sold for such period required by the Guarantor's LIFO inventory method, determined in accordance with generally accepted accounting principles. (b) The following definitions contained in Annex A are amended to read in their entirety as follows: "Consolidated EBITDA" means, for any period, 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 Charges, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments, (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, less (b), to the extent not deducted in determining 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 in any prior period and (ii) LIFO Adjustments. "Consolidated Net Income" means, for any period, the net income (or loss) of the Guarantor and its Consolidated Subsidiaries (exclusive of (a) extraordinary items of gain or loss, (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 Guarantor'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 Guarantor and its Consolidated Subsidiaries determined as of such date; provided that such consolidated stockholders' equity shall be adjusted to exclude the effect of items which have been excluded from Consolidated Net Income for any period commencing after August 28, 1999 by reason of the parenthetical phrase contained in the definition of such term. Consolidated Net Worth includes the Guarantor's 8% Convertible Pay-In-Kind Preferred Stock. "Consolidated Rent" means, for any period, the consolidated rental expense of the Guarantor 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. "Credit Agreement" means the Amended and Restated Credit Agreement dated as of October 25, 1999, as amended by Amendment No. 1, dated as of December 2, 1999, among Rite Aid Corporation, the banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Agent, without giving effect to any amendments or waivers thereof made by the requisite parties thereunder after December 2, 1999 unless expressly consented to by the Required Participants. "1999 Facility" means the $1,300,000,000 Term Loan Agreement dated as of October 25, 1999, as amended by Amendment No. 1, dated as of December 2, 1999, among Rite Aid Corporation, the banks listed therein and Morgan Guaranty Trust Company of New York, as Agent, without giving effect to any amendments or waivers thereof made by the requisite parties thereunder after December 2, 1999 unless expressly consented to by the Required Participants. (c) Section 1.12 of Annex A is amended to read in its entirety as follows: "SECTION 1.12 Capitalization Leverage Ratio. At no time shall the ratio of (i) Consolidated Debt at such time to (ii) Total Capital at such time, exceed 0.695; provided that upon any sale of the capital stock of PCS, such maximum ratio shall be reset at the level which produces the result that the amount of additional Debt that the Guarantor may incur within the limits of this ratio immediately after giving effect to such sale and the repayment of any Debt required in connection therewith is equal to the amount of additional Debt that the Guarantor could incur within the limits of this ratio immediately before giving effect to such sale and the repayment of any Debt required in connection therewith." (d) Section 1.13 of Annex A is amended to read in its entirety as follows: "SECTION 1.13. Limitation on Debt. The Guarantor will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any Debt except: (a) Debt under the Credit Agreement or the 1999 Facility; (b) Debt outstanding on December 2, 1999; (c) Debt incurred to refinance Debt referred to in clause (a) or clause (b) above, provided that the amount thereof that is at the time outstanding or committed is not increased and the maturity thereof is not shortened; and (d) Debt not permitted by clauses (a), (b) and (c) above in an aggregate principal amount at any time outstanding not to exceed $25,000,000." (f) Section 1.14 of Annex A is amended to read in its entirety as follows (including the table following the end of the quotation marks: "SECTION 1.14. Fixed Charge Coverage. At no time during any period set forth below shall the Fixed Charge Coverage Ratio be less than the ratio set forth below opposite such period:" Fiscal Quarter Ending on or Ratio Closest to: November 30, 1999 1.35 February 29, 2000 1.30 May 31, 200 and thereafter 1.25 Section 2. Amendment Fee. In consideration of the Required Participants' consent to this Amendment No. 3, concurrently with the execution and delivery of this Amendment No. 3, and as a condition precedent to the effectiveness of this Amendment No. 3, the Guarantor shall pay an amendment fee (the "Amendment Fee") to the Liquidity Agent in an amount equal to 0.25% of $115,000,000 for the ratable benefit of the Lenders and the Lessor. Such fee is payable in full on the date hereof by wire transfer of immediately available funds to an account to be designated by the Liquidity Agent. The Guarantor hereby agrees that the amendment fee have been fully earned and once paid are nonrefundable. Section 3. Conditions Precedent. This Amendment No. 3 shall become effective when the following conditions are met: (i) the Liquidity Agent shall have received the Amendment Fee in accordance with Section 2 of this Amendment No. 3; (ii) the Liquidity Agent shall have received from each of the Guarantor and the Required Participants a duly executed counterpart hereof; and (iii) the Guarantor shall have satisfied all of the conditions precedent to each of (x) Amendment No. 1 to the Credit Agreement and (y) Amendment No. 1 to the 1999 Facility. Section 4. Representations and Warranties. The Guarantor hereby represents and warrants that (a) each of the representations and warranties made in Section 4 of the Guaranty are true and correct with the same force and effect as though made on and as of the date of this Amendment No. 3, except (i) to the extent that any such representations or warranties expressly relate to an earlier date, such representations and warranties were true and correct on and as of such earlier date, (ii) with respect to the representation set forth in Section 4(d) and (e) of the Guaranty, such representation is true and correct on and as of the date hereof as if made on and as of the date hereof except to the extent set forth in the Information (as defined in Annex A) and (iii) with respect to the representation set forth in Section 4(f) of the Guaranty, such representation is true and correct on and as of the date hereof as if made on and as of the date hereof except to the extent set forth in the Guarantor's 1999 Annual Report on Form 10-K for the fiscal year ended February 27, 1999, and (b) no Default or Event of Default has occurred and is continuing. Section 5. Continuing Effect. Except as expressly modified and amended hereby, the Guaranty remains unchanged and in full force and effect in all respects. As expressly modified and amended hereby, the Guarantor hereby ratifies and reaffirms the Guaranty. Section 6. Governing Law. THIS AMENDMENT NO. 3 SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 7. Counterparts. This Amendment No. 3 may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 3. [Remainder of this page left intentionally blank. Signatures begin on next page.] IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 3 to be executed by their officers thereunto duly authorized as of the date first above written. RITE AID CORPORATION, as Guarantor By:__________________________________ Name: Title: Acknowledged and Agreed: RAC LEASING LLC By: The Diversified Group Incorporated By:__________________________________ Name: Title: EX-4 11 EXHIBIT 4.10 - AMENDMENT NO. 2 TO GUARANTY Exhibit 4.10 AMENDMENT NO. 2 TO GUARANTY AMENDMENT NO. 2 TO GUARANTY ("Amendment No. 2"), dated as of October 25, 1999, from RITE AID CORPORATION, a Delaware corporation (the "Guarantor"), to RAC LEASING LLC, a Wyoming limited liability company (the "Lessor"). WHEREAS, the Lessor and Rite Aid Realty Corp. (the "Lessee") entered into a Master Lease and Security Agreement dated as of March 19, 1998, as amended by Amendment No. 1, dated as of June 22, 1998, and as further amended by Amendment No. 2, dated as of the date hereof (as so amended, the "Lease"); and WHEREAS, the Guarantor and the Lessor entered into a Guaranty, dated as of March 19, 1998, as amended by Amendment No. 1, dated as of June 22, 1998 (as so amended, the "Guaranty"); and WHEREAS, the Lessor has pledged and assigned its rights in the Guaranty pursuant to the Amended and Restated Intercreditor and Security Agreement dated as of March 19, 1998, as amended by Amendment No. 1, dated as of June 22, 1998, among the Lessor, the Guarantor, the Lessee, The Sumitomo Bank, Limited, New York Branch, as Collateral Agent and the other parties thereto; and WHEREAS, the obligations of the Guarantor under the Guaranty have been secured under the PCS Pledge Agreement and the drugstore.com Pledge Agreement (as such terms are defined in the Amended and Restated Credit Agreement dated as of October 25, 1999 among the Guarantor, the banks parties thereto and Morgan Guaranty Trust Company of New York, as agent); and WHEREAS, the Guarantor and the Lessor now desire to further amend the Guaranty; and WHEREAS, capitalized terms used but not defined herein shall have the respective meanings given to such terms in Appendix I to the Lease. NOW, THEREFORE, in consideration of the mutual covenants herein contained and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Amendment to Guaranty. Section 11(a) of the Guaranty is hereby amended to read in its entirety as follows: "(a) The covenants set forth in Annex A hereto, are hereby incorporated herein in their entirety with the same force and effect as if such covenants were set forth expressly herein. The Guarantor further covenants and agrees that it shall not cause or permit any increase in the principal amount secured under the PCS Pledge Agreement (as defined in Annex A) or the drugstore.com Pledge Agreement (as defined in Annex A and together with the PCS Pledge Agreement, the "Pledge Agreements") or cause or permit any amendment or waiver to either Pledge Agreement that by its terms materially adversely affects the rights of the holders of the Synthetic Lease Obligations (as defined in the Pledge Agreements) in a manner different from its effect on the rights of holders of any other Secured Obligations (as defined in the Pledge Agreements) without the prior written consent of the Required Participants." Section 2. Pledge Agreements. The Lessor hereby accepts the benefits of and agrees to be bound by the terms of the PCS Pledge Agreement and the drugstore.com Pledge Agreement and confirms its appointment of Morgan Guaranty Trust Company of New York as its agent thereunder in accordance with the terms thereof. Section 3. Secretary's Certificate. The Guarantor hereby agrees to deliver to the Collateral Agent on the date hereof a certificate dated the date of this Amendment No. 2, from the Secretary or Assistant Secretary of the Guarantor certifying (i) as to the incumbency and signature of each officer of the Guarantor authorized to execute and deliver this Amendment No. 2, (ii) that attached thereto are true and complete copies of the Certificate of Incorporation and By-Laws of the Guarantor as in full force and effect on the date of this Amendment No. 2 and (iii) that attached thereto is a true and complete copy of the resolutions of the Board of Directors of the Guarantor authorizing the execution, delivery and performance of this Amendment No. 2 and the transactions contemplated hereby, together with a certificate of another officer of the Guarantor as to the incumbency and signature of such Secretary or Assistant Secretary. Section 4. Representations and Warranties. The Guarantor hereby represents and warrants that (a) each of the representations and warranties made in Section 4 of the Guaranty are true and correct with the same force and effect as though made on and as of the date of this Amendment No. 2, except (i) to the extent that any such representations or warranties expressly relate to an earlier date, such representations and warranties were true and correct on and as of such earlier date, (ii) with respect to the representation set forth in Section 4(d) and (e) of the Guaranty, such representation is true and correct on and as of the date hereof as if made on and as of the date hereof except to the extent set forth in the Information (as defined in Annex A) and (iii) with respect to the representation set forth in Section 4(f) of the Guaranty, such representation is true and correct on and as of the date hereof as if made on and as of the date hereof except to the extent set forth in the Guarantor's 1999 Annual Report on Form 10-K for the fiscal year ended February 27, 1999, and (b) no Default or Event of Default has occurred and is continuing. Section 5. Continuing Effect. Except as expressly modified and amended hereby, the Guaranty remains unchanged and in full force and effect in all respects. As expressly modified and amended hereby, the Guarantor hereby ratifies and reaffirms the Guaranty. Section 6. Governing Law. THIS AMENDMENT NO. 2 SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 7. Counterparts. This Amendment No. 2 may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 2. [Remainder of this page left intentionally blank. Signatures begin on next page.] IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 2 to be executed by their officers thereunto duly authorized as of the date first above written. RITE AID CORPORATION, as Guarantor By: ______________________________ Name: Title: Acknowledged and Agreed: RAC LEASING LLC By: The Diversified Group Incorporated By: ___________________________________ Name: Title: ANNEX A TO GUARANTY DEFINITIONS Definitions. Unless otherwise defined in the text of this Annex A, the following terms, as used in this Annex A, have the following meanings (capitalized terms used in this Annex A but not otherwise defined in this Annex A shall have their respective meanings as set forth in the Guaranty; unless otherwise specified in this Annex A, references to section numbers in this Annex A refer to the numbered sections of this Annex A): "ATTRIBUTABLE DEBT" means, as to any particular Sale and Leaseback Transaction under which the Guarantor or any 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 Sale and Leaseback Transaction, the then present value of the minimum rental obligations under such Sale and Leaseback 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 payments or, if such interest factor cannot be readily determined, at the rate of 14% per annum. 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. "BANK" means each bank listed on the signature pages of the Credit Agreement, each Assignee (as defined in the Credit Agreement) which becomes a Bank pursuant to Section 9.06(c) of the Credit Agreement, and their respective successors. "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 the aggregation of Loans of the same Class to be made to the Guarantor by the Banks pursuant to Article 2 of the Credit Agreement on a single date and for a single Interest Period. "BUSINESS ACQUISITION" means (i) an Investment by the Guarantor 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 Guarantor or any of its Subsidiaries or (ii) an acquisition by the Guarantor or any of its Subsidiaries of the property and assets of any Person (other than the Guarantor or any of its Subsidiaries) that constitute substantially all the assets of such Person or any division or other business unit of such Person. "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 in respect of a Capital Lease. "CLASS" has the meaning set forth in Section 1.03 of the Credit Agreement. "COLLATERAL" means collateral subject to the Collateral Documents. "COLLATERAL DOCUMENTS" means the Pledge Agreements, any additional pledge agreements required to be delivered pursuant to the Loan Documents and any other instruments or agreements executed pursuant to the foregoing. "COMMITMENT" means a Tranche A Commitment or a Tranche B Commitment, and "COMMITMENTS" means any two or more of the foregoing, as the context may require. "COMMITMENT SCHEDULE" means the Schedule attached to the Credit Agreement and identified as such. "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the aggregate amount of expenditures by the Guarantor and its Consolidated Subsidiaries for plant, property and equipment 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 any such expenditures made (i) for the replacement or restoration of assets to the extent financed by condemnation awards or proceeds of insurance received with respect to the loss or taking of or damage to the asset or assets being replaced or restored and (ii) for assets acquired to the extent financed by a Sale and Leaseback Transaction permitted by Section 1.08. "CONSOLIDATED DEBT" means at any date the Debt of the Guarantor and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "CONSOLIDATED EBITDA" for any period, Consolidated Net Income for such period plus, to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) Consolidated Interest Charges, (ii) provision for income taxes, (iii) depreciation and amortization and (iv) charges incurred in connection with store closings not in excess of $48,000,000 and $20,000,000 during the fiscal years ending on or closest to February 28, 2000 and February 28, 2001, respectively; provided that if there shall have been an acquisition or disposition of operations during such period, Consolidated EBITDA shall be calculated on a pro forma basis giving effect thereto as if such acquisition or disposition had occurred on the first day of such period. "CONSOLIDATED INTEREST CHARGES" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Guarantor and its Consolidated Subsidiaries during such period. "CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of the Guarantor and its Consolidated Subsidiaries (exclusive of (a) any non-cash loss on account of a sale of any drugstore and (b) extraordinary items of gain or loss and other non-recurring items of gain or loss, but only to the extent that such non-recurring items of loss do not (i) involve any cash expenditure by the Guarantor during such period or any future period or (ii) exceed $50,000,000 in any fiscal year), determined on a consolidated basis for such period. "CONSOLIDATED NET TANGIBLE ASSETS" means 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 Guarantor and its Consolidated 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 would be included on such consolidated balance sheet. "CONSOLIDATED NET WORTH" means at any date the consolidated stockholders' equity of the Guarantor and its Consolidated Subsidiaries determined as of such date. "CONSOLIDATED RENT" means, for any period, the consolidated rental expense of the Guarantor and its Consolidated Subsidiaries for such period. "CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Guarantor in its consolidated financial statements if such statements were prepared as of such date. "CREDIT AGREEMENT" means the Amended and Restated Credit Agreement dated as of October 25, 1999 among Rite Aid Corporation, the banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Agent, without giving effect to any amendments or waivers thereof made by the requisite parties thereunder after October 25, 1999 unless expressly consented to by the Required Participants. "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 (and, for purposes of Section 1.10 and the definition of Material Financial Obligations, all 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. "DEFAULT" means any condition or event which constitutes an Event of Default under the Credit Agreement or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default under the Credit Agreement. "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. "DRUGSTORE.COM" means drugstore.com, inc., a Delaware corporation, and its successors. "DRUGSTORE.COM PLEDGE AGREEMENT" means the drugstore.com Pledge Agreement dated as of October 25, 1999 between the Guarantor and Morgan Guaranty Trust Company of New York, as agent thereunder. "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. "ERISA GROUP" means the Guarantor, 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 Guarantor or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "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. "EVENT OF DEFAULT" has the meaning set forth in Section 6.01 of the Credit Agreement. "FIXED CHARGE COVERAGE RATIO" means at any date, the ratio of (i) Consolidated EBITDA plus Consolidated Rent to (ii) Consolidated Interest Charges plus Consolidated Rent, in each case for the period of four consecutive fiscal quarters most recently ended on or prior to such date. "FUNDED DEBT" means any Debt maturing more than one year after the date of determination thereof and any Debt, 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 such Debt, which would, in accordance with generally accepted accounting practice, be classified as funded debt but shall not include: (a) any Debt 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 a 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 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 or guarantees other than guarantees of indebtedness for borrowed money. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "GUARANTEE" used as a verb has a corresponding meaning. "INDENTURES" means (i) the Indenture dated as of December 21, 1998 between the Guarantor and Harris Trust and Savings Bank, as trustee, (ii) the Indenture dated as of September 22, 1998 between the Guarantor and Harris Trust and Savings Bank, as trustee and (iii) the Indenture dated as of August 1, 1993, between the Guarantor and First Trust of New York, National Association, as successor trustee. "INFORMATION" means, collectively, (i) the information provided to the Banks in connection with the waiver dated as of September 29, 1999 to the Existing Credit Agreement and (ii) the information presented to the Banks at meetings in New York City on October 4, 1999 and October 18, 1999 among the Borrower and certain financial institutions. "INTEREST PERIOD" shall have the meaning set forth in Section 1.01 of the Credit Agreement. "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 Guarantor of its own capital stock shall not constitute an Investment for purposes of this Annex A. 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. "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 Annex A, the Guarantor 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. "LOAN" means a Tranche A Loan or a Tranche B Loan and "LOANS" means Tranche A Loans or Tranche B Loans or any combination of the foregoing. "LOAN DOCUMENTS" means the Credit Agreement, the Notes and the Collateral Documents. "MATERIAL FINANCIAL OBLIGATIONS" means (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 Guarantor and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $25,000,000. "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. "1999 FACILITY" means the $1,300,000,000 Term Loan Agreement dated as of the date of this Amended Agreement among Rite Aid Corporation, the banks listed therein and Morgan Guaranty Trust Company of New York, as administrative agent thereunder, without giving effect to any amendments or waivers thereof made by the requisite parties thereunder after October 25, 1999 unless expressly consented to by the Required Participants. "1999 EXPOSURES" mans the undrawn commitments and/or the outstanding loans under the 1999 Facility. "1999 LOAN DOCUMENTS" means the "Loan Documents" as defined in the 1999 Facility. "NOTES" means promissory notes of the Guarantor, substantially in the form of Exhibit A hereto, evidencing the obligation of the Guarantor to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PCS" means PCS Holding Corporation, a Delaware corporation, and its successors. "PCS PLEDGE AGREEMENT" means the PCS Pledge Agreement dated as October 25, 1999 between the Guarantor and Morgan Guaranty Trust Company of New York, as agent thereunder. "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "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. "PLEDGE AGREEMENTS" means the drugstore.com Pledge Agreement and the PCS Pledge Agreement. "REFUNDING BANK" shall have the meaning set forth in Section 1.01 of the Credit Agreement. "REGULATION T, U OR X" means Regulation T, U or X of the Board of Governors of the Federal Reserve System, as in effect from time to time. "RESTRICTED PAYMENT" means (i) any dividend or other distribution on any shares of the Guarantor's capital stock (except dividends payable solely in shares of its capital stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Guarantor's capital stock or (b) any option, warrant or other right to acquire shares of the Guarantor's capital stock (other than such payment in connection with employee benefit plans in the ordinary course of business). "SALE AND LEASEBACK TRANSACTION" has the meaning set forth in Section 1.09. "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 Guarantor 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. "SIGNIFICANT SUBSIDIARY" means at any time any Subsidiary or any group of Subsidiaries having consolidated assets, individually or in the aggregate, equal to or greater than 8% of the consolidated assets of the Guarantor and its Consolidated Subsidiaries at such time. "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. "TEMPORARY CASH INVESTMENT" means any Investment 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-I by S&P and P- I 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 acquisition thereof by the Guarantor or a Subsidiary 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). "TERMINATION DATE" means July 19, 2001, or, if such day is not a Euro- Dollar Business Day, the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the Termination Date shall be the next preceding Euro-Dollar Business Day. "TOTAL CAPITAL" means, at any date, the sum of Consolidated Debt and Consolidated Net Worth, each determined as of such date. "TRANCHE A COMMITMENT" means (i) with respect to each Bank listed in the Commitment Schedule, the amount set forth opposite the name of such Bank in the Commitment Schedule as its Tranche A Commitment and (ii) with respect to each Assignee which becomes a Bank pursuant to Section 9.06(c) of the Credit Agreement, the amount of the Tranche A Commitment thereby assumed by it, in each case as such amount may be changed from time to time pursuant to Sections 2.08, 2.10 and 9.06(c) of the Credit Agreement. "TRANCHE A EXPOSURE" means, with respect to each Bank, the amount of its Tranche A Commitment, if still in existence, or the aggregate outstanding principal amount of its Tranche A Loans, if its Tranche A Commitment is no longer in existence. "TRANCHE A LOAN" means a loan made by a Bank pursuant to Section 2. 01(a) of the Credit Agreement. "TRANCHE B COMMITMENT" means (i) with respect to each Bank listed in the Commitment Schedule, the amount set forth opposite the name of such Bank in the Commitment Schedule as its Tranche B Commitment and (ii) with respect to each Assignee which becomes a Bank pursuant to Section 9.06(c) of the Credit Agreement, the amount of the Tranche B Commitment thereby assumed by it, in each case as such amount may be changed from time to time pursuant to Sections 2.08, 2. 10 and 9.06(c) of the Credit Agreement. "TRANCHE B EXPOSURE" means, with respect to each Bank, the amount of its Tranche B Commitment, if still in existence, or the aggregate outstanding principal amount of its Tranche B Loans, if its Tranche B Commitment is no longer in existence. "TRANCHE B LOAN" means a loan made by a Bank pursuant to Section 2.01(b) of the Credit Agreement. "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. "UNITED STATES" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. "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 owned by the Guarantor. Accounting Terms and Determinations. (a) 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 Guarantor's independent public accountants) with the most recent audited consolidated financial statements of the Guarantor and its Consolidated Subsidiaries delivered accordance with such timetable. COVENANTS The Guarantor agrees that, until the Commitments (as defined in the Committed Loan Agreement) of the all of the Lenders have been terminated and all of the Secured Obligations (as defined in the Intercreditor Agreement) have been paid or performed in full: SECTION 1. Information. The Guarantor will deliver to each of the Liquidity Providers: (a) 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 Guarantor's Annual Report on Form 10-K) after the end of each fiscal year of the Guarantor, a consolidated balance sheet of the Guarantor 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 in a manner acceptable to the SEC by KPMG Peat Marwick LLP or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 45 days (or (x) in the case of the fiscal quarter most recently ended prior to October 25, 1999, within 65 days or (y) in the case of any subsequent fiscal quarter, within such longer period of time, not greater than 60 days, to which the SEC may extend the filing deadline for the Guarantor's Quarterly Report on Form 10-Q) after the end of each of the first three quarters of each fiscal year of the Guarantor, a consolidated balance sheet of the Guarantor 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 Guarantor's fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Guarantor's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Guarantor; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer of the Guarantor (i) setting forth in reasonable detail the calculations required to establish whether the Guarantor was in compliance with the requirements of Sections 1.08 to 1.15, inclusive, on the date of such financial statements and (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 Guarantor is taking or proposes to take with respect thereto; (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 five days after any officer of the Guarantor obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Guarantor setting forth the details thereof and the action which the Guarantor is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Guarantor generally, copies of all financial statements, reports and proxy statements so mailed; (g) 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 Guarantor shall have filed with the SEC; (h) if and when any member of the ERISA Group (i) gives or 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 knows that the plan administrator of any Plan has given or 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 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 the chief financial officer or the chief accounting officer of the Guarantor setting forth details as to such occurrence and action, if any, which the Guarantor or applicable member of the ERISA Group is required or proposes to take; and (i) from time to time such additional information regarding the financial position or business of the Guarantor and its Subsidiaries as the Liquidity Agent, at the request of any Liquidity Provider, may reasonably request. Information required to be delivered pursuant to Section 1.01 (a), 1.01 (b), 1.01 (f) or 1.01 (g) above shall be deemed to have been delivered on the date on which the Guarantor provides notice to the Liquidity Providers 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 Liquidity Providers without charge; provided that (i) such notice may be included in a certificate delivered pursuant to Section 1.01(c) and (ii) the Guarantor shall deliver paper copies of the information referred to in Section 1.01(a), 1.01(b), 1.01(f) or 1.01(g) to any Liquidity Provider which requests such delivery. SECTION 2. Payment of Obligations. The Guarantor 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 Lien upon any of its property or assets, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except where any of the items in clause (i) or (ii) above may be contested in good faith by appropriate proceedings, and the Guarantor 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 3. Maintenance of Property; Insurance. (a) The Guarantor will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Guarantor will, and will cause each of its Subsidiaries to, maintain (either in the name of the Guarantor 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 Liquidity Providers, upon request from the Liquidity Agent, information presented in reasonable detail as to the insurance so carried. SECTION 4. Conduct of Business and Maintenance of Existence. Except as otherwise permitted in the covenants set forth in this Annex A, the Guarantor will continue, and will cause each Significant Subsidiary to continue, to engage in business of the same general type as now conducted by the Guarantor and its Significant Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Significant Subsidiary (except where such Significant Subsidiary merges into the Guarantor or any other Subsidiary) to preserve, renew and keep in full force and effect their respective legal existences and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business. SECTION 5. Compliance with Laws. The Guarantor 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) 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 on the business, financial position or results of operations of the Guarantor and its Consolidated Subsidiaries, considered as a whole. SECTION 6. Inspection of Property, Books and Records. The Guarantor 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 Liquidity Provider at such Liquidity Provider's expense to visit and inspect any of their respective 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 7. Restriction on Other Agreements. The Guarantor will not, and will not permit any Subsidiary to, enter into any agreement (other than the Loan Documents and the 1999 Loan Documents) which imposes a limitation on incurrence by the Guarantor and its Subsidiaries of Liens that is more restrictive than the limitation on Liens set forth in the Indentures (other than agreements with respect to Debt secured by Liens permitted by Section 1.10(a) containing restrictions on the ability to transfer or grant Liens on the assets securing such Debt and other than customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing and customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business) or which imposes other covenants more restrictive than those set forth in this Annex A. SECTION 8. Restriction on Debt of Subsidiaries. The Guarantor will not permit any Subsidiary to create, issue, incur, assume, or in any other way become liable for any unsecured Debt unless immediately prior thereto the Guarantor would be entitled under Section 1.10(e) to create Secured Debt not specifically permitted under Section 1.10 but for subsection (e) thereof in an amount equal to such Debt; provided that the foregoing restriction shall not prevent (i) any Subsidiary from becoming liable to the Guarantor or to a Wholly-Owned Consolidated Subsidiary for Debt or (ii) the extension, renewal or refunding of any Debt of any Subsidiary so long as Consolidated Debt is not thereby increased. SECTION 9. Restriction on Sales with Leases Back. Except for a sale or transfer by a Subsidiary to the Guarantor or a Wholly-Owned Consolidated Subsidiary, the Guarantor will not, and will not permit any Subsidiary to, sell or transfer any manufacturing plant, warehouse, retail store or equipment now or hereafter owned and operated by the Guarantor or a Subsidiary, with the intention that the Guarantor or any 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 that, notwithstanding the foregoing, the Guarantor or any Subsidiary may enter into a Sale and Leaseback Transaction if the Guarantor or a Subsidiary would be entitled under Section 1.10(e) to create Secured Debt not specifically permitted under Section 1. 10 but for Section 1.10(e) in an amount equal to the Attributable Debt respecting such Sale and Leaseback Transaction; provided further that, notwithstanding the foregoing, the Guarantor or any Subsidiary may enter into a Sale and Leaseback Transaction if entered into in respect of property acquired by the Guarantor or a Subsidiary if such Sale and Leaseback Transaction is entered into within 24 months from the date of such acquisition; and provided still further that, notwithstanding the foregoing, the Guarantor or any Subsidiary may enter into a Sale and Leaseback Transaction so long as the Net Cash Proceeds thereof are applied as contemplated by Section 2.10 of the Credit Agreement. SECTION 10. Restriction on Liens. The Guarantor 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 acquired or constructed by the Guarantor or a 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 Guarantor or a Subsidiary of property subject to any Lien upon such property existing at the time of acquisition thereof, whether or not assumed by the Guarantor or such Subsidiary, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired; provided that the Lien 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; (b) Any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 1.10 or any Lien securing the Debt of the Guarantor or of any Subsidiary on October 25, 1999 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 Secured Debt of a Subsidiary owing to the Guarantor or a Wholly-Owned Consolidated Subsidiary; (d) Any Lien created by the Loan Documents or the 1999 Loan Documents; and (e) Secured Debt of the Guarantor and its Subsidiaries which would otherwise be prohibited by the foregoing restrictions (not including Secured Debt permitted to be secured under subsections (a) through (d) above) so long as the sum of any such Secured Debt hereafter incurred and outstanding at the time plus Attributable Debt of the Guarantor and any Subsidiaries in respect of Sale and Leaseback Transactions hereafter entered into and outstanding at the time (excluding Attributable Debt incurred in respect of any Sale and Leaseback Transaction (i) entered into in respect of property acquired by the Guarantor or a Subsidiary not more than 24 months prior to the date such Sale and Leaseback Transaction is entered into or (ii) if the Guarantor, within 120 days before or after such Sale and Leaseback Transaction is entered into applies an amount equal to the greater of (A) the net proceeds of the sale of the property so sold and leased back or (B) the fair market value of such property at the date such arrangement is entered into to the retirement of Secured Debt (other than at maturity or pursuant to any mandatory payment provision) or to reduction of the Commitments) plus unsecured Debt of any Subsidiary hereafter incurred and outstanding at the time (excluding unsecured Debt incurred through the extension, renewal or refunding of Debt of such Subsidiary where Consolidated Debt was not thereby increased and excluding any Debt owed to the Guarantor or a Wholly-Owned Consolidated Subsidiary) does not at the time exceed 5% of Consolidated Net Tangible Assets. SECTION 11. 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: FISCAL YEAR ENDING ON AMOUNT OR CLOSEST TO February 29, 2000 $620,000,000 February 28, 2001 $295,000,000 SECTION 12. Capitalization Leverage Ratio. At no time during any period set forth below shall the ratio of (i) Consolidated Debt at such time to (ii) Total Capital at such time, exceed the ratio set forth below opposite such period: FISCAL QUARTER ENDING RATIO ON OR CLOSEST TO November 30, 1999 0.635 February 29, 2000 0.635 May 31, 2000 and thereafter 0.62 SECTION 13. Cash Flow Leverage Ratio. At no time during any period set forth below shall the ratio of (i) Consolidated Debt at such time to (ii) Consolidated EBITDA for the four consecutive fiscal quarters then most recently ended at or prior to such time, exceed the ratio set forth below opposite such period: FISCAL QUARTER ENDING RATIO ON OR CLOSEST TO November 30, 1999 6.30 February 29, 2000 6.00 May 31, 2000 5.75 August 31, 2000 4.75 November 30, 2000 4.50 February 28, 2001 and thereafter 4.00 SECTION 14. Fixed Charge Coverage. At no time during any period set forth below shall the Fixed Charge Coverage Ratio be less than the ratio set forth below opposite such period: FISCAL QUARTER ENDING RATIO ON OR CLOSEST TO November 30, 1999 1.35 February 29, 2000 1.35 May 31, 2000 1.35 August 31, 2000 1.45 November 30, 2000 1.55 February 28, 2001 and thereafter 1.60 SECTION 15. Limitation on Investments and Acquisitions. (a) Neither the Guarantor nor any Consolidated Subsidiary will make or acquire any Investment in any Person other than: (i) Investments in Consolidated Subsidiaries; provided, that Investments (exclusive of inter-company payables owing to the Guarantor or a Subsidiary arising from cash management transactions in the ordinary course of business) in PCS, whether existing on the date hereof or hereafter made, may be made only by the Guarantor and only in the form of a contribution to the capital of PCS and without issuance of additional shares of capital stock therefor, and provided further that no such Investment may be made in any Subsidiary of PCS except by PCS or another Subsidiary of PCS; (ii) Temporary Cash Investments; (iii) Investments received as consideration for sale or other disposition of the capital stock of PCS or drugstore.com permitted by Section 1.16; (iv) Investments in drugstore.com existing on the date hereof; and (v) Any Investment 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 (c) does not exceed 10% of Consolidated Net Worth. (b) The Guarantor 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 Guarantor or any Subsidiary in connection with all such Business Acquisitions on or after the Closing Date would exceed $15,000,000. SECTION 16. Consolidations, Mergers and Sales of Assets. The Guarantor will not (i) consolidate or merge with or into any other Person, (ii) sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of the assets of the Guarantor and its Subsidiaries, taken as a whole, to any other Person or (iii) sell, lease or otherwise transfer any Collateral to any other Person; provided that (x) the Guarantor may merge with another Person if (A) the Guarantor is the corporation surviving such merger and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing and (y) the Guarantor may sell or otherwise dispose of the capital stock of PCS or drugstore.com, in whole but not in part, so long as the consideration therefor is not less than the fair market value of such capital stock and shall consist solely of a combination of cash and publicly traded securities payable and deliverable at the closing of such sale. SECTION 17. Use of Proceeds. The proceeds of the Tranche A Loans made under the Credit Agreement will be used by the Guarantor exclusively to repay commercial paper (or to refund borrowings the proceeds of which were used solely to repay commercial paper), which commercial paper provided funds for the payment of the purchase price of the capital stock of PCS. The proceeds of the Tranche B Loans made under the Credit Agreement will be used by the Guarantor for the Guarantor's general corporate purposes; provided that no Tranche B Loans may be borrowed for a purpose for which Tranche A Loans may be borrowed unless the Tranche A Commitments are at the time fully drawn. No such use of the proceeds 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, other than publicly traded securities issued to the Guarantor in connection with the sale of the capital stock of PCS. The Guarantor will ensure that no such use of proceeds violates Regulation T, U or X. SECTION 18. Restricted Payments. After the date hereof, neither the Guarantor nor any Subsidiary will declare or make any Restricted Payment. SECTION 19. Synthetic Leases. Neither the Guarantor nor any Subsidiary will enter into any Synthetic Lease if, after giving effect thereof, the aggregate amount financed under all Synthetic Leases entered into in any period of twelve consecutive calendar months commencing after October 25, 1999 would exceed $35,000,000. SECTION 20. Tranche A Limitations. (a) No Tranche A Loans may be borrowed under the Credit Agreement unless the commitments under the 1999 Facility are fully drawn. (b) The Guarantor will not for so long as the Tranche B Commitments remain in existence use any source of funds other than additional Tranche A Loans to repay or prepay Tranche A Loans prior to the Termination Date, except as expressly contemplated by Section 2.10 of the Credit Agreement. (c) If the capital stock of PCS is sold for consideration consisting in whole or in part of "margin stock" within the meaning of Regulation U, then for so long as such margin stock is held as substitute collateral under the PCS Pledge Agreement, the Guarantor may not make any Tranche A Borrowing other than a from a Refunding Bank unless it shall have delivered to the Liquidity Agent an opinion of Skadden, Arps, Slate, Meagher & Flom, LLP, satisfactory in form and substance to the Liquidity Agent, to the effect that such Borrowing does not result in a violation of Regulation T, U or X. SECTION 21. Mandatory Payments. The Guarantor agrees to use all Net Cash Proceeds, if any, from the sale of the Collateral (or any part thereof) that are remaining after the application of such Net Cash Proceeds in accordance with all mandatory prepayment provisions set forth in each Debt agreement to which the Guarantor is a party on October 25, 1999, and any refinancings, renewals or extensions thereof, and which is in effect at the time of such sale, to reduce the Lease Balance under the Lease. EX-4 12 EXHIBIT 4.11 - AMENDMENT NO. 1 TO GUARANTY Exhibit 4.11 AMENDMENT NO. 1 TO GUARANTY AMENDMENT NO. 1 TO GUARANTY ("Amendment No. 1"), dated as of June 22, 1998, from RITE AID CORPORATION, a Delaware corporation (the "Guarantor"), to RAC LEASING, a Wyoming limited liability company (the "Lessor"). WHEREAS, the Lessor and Rite Aid Realty Corp. (the "Lessee") entered into a Master Lease and Security Agreement dated as of March 19, 1998 (the "Master Lease"); and WHEREAS, the Guarantor and the Lessor entered into a Guaranty, dated as of March 19, 1998 (the "Guaranty"); and WHEREAS, the Lessor has pledged and assigned its rights in the Guaranty pursuant to the Amended and Restated Intercreditor and Security Agreement dated as of March 19, 1998 among the Lessor, the Guarantor, the Lessee, the Sumitomo Bank, Limited, New York Branch, as Collateral Agent and the other parties thereto (the "Intercreditor Agreement"); and WHEREAS, the Guarantor and the Lessor now desire to amend the Guaranty; and WHEREAS, capitalized terms used but not defined herein shall have the respective meanings given to such terms in Appendix I to the Master Lease. NOW, THEREFORE, in consideration of the mutual covenants herein contained and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Section 3(b) of the Guaranty is hereby amended by inserting at the end thereof the following: "The Guarantor hereby waives, to the fullest extent permitted by law, all rights and benefits under section 2809 of the California Civil Code purporting to reduce a guarantor's obligations in proportion to the principal obligation, all rights and benefits under section 580a of the California Code of Civil Procedure governing determination of fair market value following the exercise of power of sale, all rights and benefits under section 580b of the California Code of Civil Procedure stating that no deficiency may be recovered on a real property purchase money obligation and all rights and benefits under section 580d of the California Code of Civil Procedure stating that no deficiency may be recovered on a note secured by a deed of trust on real property in case such real property is sold under the power of sale contained in such deed of trust, and all rights and benefits under section 726 of the California Code of Civil Procedure and any and all similar laws now in effect or hereafter enacted in the State of California regarding the procedures to be followed by a creditor with real property security and/or limiting the right of such a creditor to a deficiency judgment, including, without limitation, the California law now in effect stating that the Lessor must first proceed against any real property collateral before commencing an action to collect the Obligations, if such sections, or any of them, have any application hereto or any application to the Guarantor. The Guarantor expressly waives any and all benefits under the California Civil Code sections 2808, 2810, 2819, 2821, 2825, 2839, 2845 through 2850, 2854 and 2855." 2. Section 11(a) of the Guaranty is hereby amended by deleting such Section in its entirety and substituting in lieu thereof the following: "(a)The covenants contained in Article V of the Credit Agreement, a copy of which is attached hereto as Annex A, are hereby incorporated herein by reference with the same force and effect as if such covenants were set forth expressly herein. Notwithstanding the foregoing, any amendments or waivers of such covenants approved by the requisite parties under the Credit Agreement shall likewise be effective hereunder; provided, that the Lessor and the Liquidity Providers shall have received a pro rata share (based on the respective commitments of the Lessor, Liquidity Providers and parties to the Credit Agreement) of any consideration given by the Guarantor or any Affiliate of the Guarantor in connection with such amendment or waiver; provided, further, that if at any time there are loans outstanding under the Committed Loan Agreement for a period of three consecutive months or longer, then during the period (the "Voting Period") commencing on the last day of such three-consecutive- month period and ending on the date on which all outstanding loans under the Committed Loan Agreement have been repaid in full, the covenants from the Credit Agreement incorporated herein by reference shall be effective without regard to any amendments or waivers thereof made by the requisite parties under the Credit Agreement during such Voting Period and not specifically consented to by the Required Lenders." 3. The Guarantor hereby agrees to deliver to the Lessor (with sufficient copies for the Collateral Agent and the other Secured Parties) on the date hereof a certificate dated the date of this Amendment No. 1, from the Secretary or Assistant Secretary of the Guarantor certifying (i) as to the incumbency and signature of each officer of the Guarantor authorized to execute and deliver this Amendment No. 1, (ii) that attached thereto are true and complete copies of the Certificate of Incorporation and By-Laws of the Guarantor as in full force and effect on the date of this Amendment No. 1 and (iii) that attached thereto is a true and complete copy of the resolutions of the Board of Directors of the Guarantor authorizing the execution, delivery and performance of this Amendment No. 1 and the transactions contemplated hereby, together with a certificate of another officer of the Guarantor as to the incumbency and signature of such Secretary or Assistant Secretary. 4. The Guarantor hereby represents and warrants that each of the representations and warranties made in Section 4 of the Guaranty are true and correct with the same force and effect as though made on and as of the date of this Amendment No. 1, except to the extent that any such representations or warranties expressly relate to an earlier date, in which case, such representations and warranties were true and correct on and as of such earlier date. 5. Except as expressly modified and amended hereby, the Guaranty remains unchanged and in full force and effect in all respects. As expressly modified and amended hereby, the Guarantor hereby ratifies and affirms the Guaranty. 6. THIS AMENDMENT NO. 1 SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 7. This Amendment No. 1 may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 1 [signatures begin on next page] IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 1 to be executed by their officers thereunto duly authorized as of the date first above written. RITE AID CORPORATION, as Guarantor By:_____________________________________ Name: Title: Acknowledged and Agreed: RAC LEASING LLC By: The Diversified Group Incorporated By:_________________________ Name: Title: EX-4 13 EXHIBIT 4.12 - AMENDMENT NO. 2 TO MASTER LEASE AND SECURITY AGREEMENT Exhibit 4.12 AMENDMENT NO. 2 Dated as of October 25, 1999 to MASTER LEASE AND SECURITY AGREEMENT between Rite Aid Realty Corp. and RAC Leasing LLC Amendment No. 2, dated as of October 25, 1999 ("Amendment No. 2"), between RAC Leasing LLC, a Wyoming limited liability company, as lessor ("Lessor"), and Rite Aid Realty Corp., a Delaware corporation, as lessee ("Lessee"), amending the Lease referred to below. WHEREAS, Lessor and Lessee have heretofore entered into a Master Lease and Security Agreement, dated as of March 19, 1998, (as amended by Amendment No. 1, dated as of June 22, 1998, the "Lease"); and WHEREAS, Lessor and Lessee wish to further amend the Lease as hereinafter provided; NOW, THEREFORE, Lessor and Lessee hereby agree as follows: Section 1. Amendments to the Lease. (a) Appendix 2 to the Lease is hereby amended by deleting the reference to 0.125% in Paragraph (i) of Section (A) thereof and inserting in lieu thereof "0.450%". (b) Appendix 2 to the Lease is hereby further amended by deleting the tables set forth under the headings "Determination of Lessor Applicable Margin and Liquidity Applicable Margin" and "Determination of Lessor Commitment Fee and Liquidity Commitment Fee", respectively, and inserting in lieu thereof the following: [TABLES OMITTED] Section 3. Representations and Warranties. The Lessee represents and warrants to the Liquidity Agent that: (a) The execution, delivery and performance of this Amendment No. 2 and any related documents executed in connection with this Amendment No. 2, including, without limitation, Amendment No. 2 to the Guaranty, dated as of the date hereof, from the Guarantor to the Lessor (the "Amendment to Guaranty") and any documents and certificates furnished pursuant hereto (collectively, the "Amendment Documents") and the performance of the Lease, as amended by the Amendment Documents, have been duly authorized by all necessary action of the Lessee. The Amendment Documents have been duly executed and delivered by the Lessee and each Amendment Document and the Lease, as amended by the Amendment Documents, constitutes a legal, valid and binding obligation of the Lessee, enforceable according to its terms, subject, as to enforceability, to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law); (b) The representations and warranties made under Section 6.2 of the Lease are true and correct with the same force and effect as though made on and as of the date hereof and after giving effect to the Amendment Documents, except (i) to the extent that such representations and warranties expressly relate to an earlier date such representations and warranties were true and correct on and as of such earlier date and (ii) with respect to the representation set forth in Section 6.2(d) of the Lease, such representation is true and correct on and as of the date hereof as if made on and as of the date hereof except to the extent set forth in the Guarantor's 1999 Annual Report on Form 10-K for the fiscal year ended February 27, 1999; and (c) No Default or Event of Default has occurred and is continuing, or will result from the execution, delivery or performance of the Amendment Documents, the performance of the Lease, as amended by the Amendment Documents, or the consummation of the transactions contemplated hereby. Section 4. Conditions Precedent. As a condition precedent to the effectiveness of this Amendment No. 2, the Liquidity Agent shall have received the following items in form and substance satisfactory to it: (a) fully executed counterparts of (i) this Amendment No. 2; (ii) Amendment to Guaranty and (iii) the Fee Agreement, dated as of the date hereof, between the Lessee and the Liquidity Agent (the "Fee Agreement"); (b) a fully executed counterpart of the PCS Pledge Agreement and the drugstore.com Pledge Agreement (as such terms are defined in the Credit Agreement) showing a lien for the benefit of the Collateral Agent and the Secured Parties under the Intercreditor Agreement. (c) any and all fees payable to the Lessor, the Liquidity Providers and the Liquidity Agent in connection with this Amendment No. 2, including, without limitation, the fees payable under the Fee Agreement, together with all costs and expenses incurred by the Liquidity Agent in connection with the preparation, execution and delivery of the Amendment Documents; (d) certificates from the Secretary of State of the State of Delaware evidencing the good standing each of the Lessee and the Guarantor; (e) a certificate from the Secretary or an Assistant Secretary of the Lessee certifying (i) as to the incumbency and signature of the officer of the Lessee to execute and deliver the Amendment Documents to which it is a party, (ii) that the charter and by-laws of the Lessee are in full force and effect and have not been amended or modified since the date last delivered to the Liquidity Agent, and (iii) that attached thereto is a true and complete copy of the resolutions of the Boards of Directors of the Lessee authorizing the execution, delivery and performance of the Amendment Documents, the performance of the Lease, as amended by the Amendment Documents, and the transactions contemplated thereby, together with a certification by another officer of the Lessee as to the incumbency and signature of such Secretary or Assistant Secretary; (f) a certificate from a Responsible Officer of the Lessee, certifying that, to the best knowledge of such officer, the representations and warranties contained in Section 6.2 of the Lease are true and correct on and as of the date of such certificate and after giving effect to the Amendment Documents and that no Default or Event of Default has occurred or is continuing or would result from the execution, delivery and performance of the Amendment Documents or the performance of the Lease, as amended by the Amendment Documents; (g) a legal opinion addressed to the Liquidity Agent from the outside or General Counsel to the Lessee and the Guarantor as to the due authorization, execution and binding effect of the Amendment Documents, and the Lease and the Guaranty, as amended by the Amendment Documents, in form and substance satisfactory to the Liquidity Agent and its counsel; and (h) Such other documents, instruments certificates and information as the Liquidity Agent on behalf of itself and/or the other Required Participants may request. Section 5. Counterparts. This Amendment No. 2 may be executed in several counterparts, each of which when executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 2. Section 6. Governing LaTHIS AMENDMENT NO. 2 SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 7. Continuing EExcept as herein provided, all provisions, terms and conditions of the Lease shall remain in full force and effect. As amended hereby, the Lease is ratified and confirmed in all respects. [Remainder of this page left intentionally blank. Signatures begin on next page] IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed as of the date first above written. RITE AID REALTY CORP., as Lessee By:__________________________________ Name: Title: RAC LEASING LLC, as Lessor By: The Diversified Group Incorporated, Manager By:__________________________________ Name: Title: EX-4 14 EXHIBIT 4.13 - AMENDMENT NO. 1 TO MASTER LEASE AND SECURITY AGREEMENT Exhibit 4.13 AMENDMENT NO. 1 Dated as of June 22, 1998 to MASTER LEASE AND SECURITY AGREEMENT between Rite Aid Realty Corp. and RAC Leasing LLC Amendment No. 1, dated as of June 22, 1998 ("Amendment No. 1"), between RAC Leasing LLC, a Wyoming limited liability company, as lessor ("Lessor"), and Rite Aid Realty Corp., a Delaware corporation, as lessee ("Lessee"), amending the Lease referred to below. WHEREAS, Lessor and Lessee have heretofore entered into a Master Lease and Security Agreement, dated as of March 19, 1998 (the "Lease"); and WHEREAS, Lessor and Lessee wish to amend the Lease as hereinafter provided; NOW, THEREFORE, Lessor and Lessee hereby agree as follows: 1. Section 7.4 of the Lease is hereby amended by adding a new subsection (b) thereto as follows: "(b) Surety Fee. The Lessee shall pay to the Lessor for the period (including any portion thereof when the Lessor's obligations pursuant to Section 3.1 are suspended by reason of the Lessee's inability to satisfy any condition of Article IV), commencing on July 15, 1998 and ending on the Final Payment Date, a surety fee (the "Surety Fee") as set forth in Appendix 2 hereof." 2. Section 31.1(b) of the Lease is hereby amended by deleting clause (iv) of subsection (b) thereof and inserting in its place the following: "(iv) all Transaction Expenses incurred by the Lessor, the Receivable Purchaser, the Collateral Agent, the Conduits, the Liquidity Agent, the Liquidity Providers and the Surety Providers in respect of enforcement of any of their rights or remedies against the Lessee or the Guarantor in respect of the Operative Documents." 3. Annex 1 to the Lease, consisting of the Description of Initial Leased Assets, is amended to read in its entirety as set forth in Annex 1 to this Amendment No. 1. 4. Appendix 1 to the Lease, Definitions and Interpretations is hereby amended as follows: (a a new defined term "Eligible Assignee" is added in the appropriate alphabetical order as follows: ""Eligible Assignee" means any bank or financial institution that, at the time it becomes a party to the Liquidity Asset Purchase Agreement and the Committed Loan Agreement, has a short-term debt rating of at least A-1 by S&P and at least P-1 by Moody's." (b) the definition of the term "Indemnitee" is hereby deleted in its entirety and the following is inserted in its place: ""Indemnitee" means the Lessor, the Liquidity Agent, each Liquidity Provider, each Conduit, the Receivable Purchaser, each Lender, the Collateral Agent, each Surety Provider and each of their respective successors, assigns, directors, shareholders, partners, members, officers, employees and agents." (c) the definition of the term "Operative Documents" is hereby amended by deleting the word "and" after item (p) thereof, and inserting the following: "(r) each Surety Bond; (s) Assignment of Ground Lease, dated as of June 22, 1998 between Thrifty Payless, Inc. and Lessor; (t) Memorandum of Lease, Leasehold Deed of Trust and Security Agreement, dated as of June 22, 1998 between Lessor and Rite Aid Realty Corp; and (u) Assignment of Lease, made as of June 22, 1998 by Lessor, as Assignor to the Collateral Agent." (d) a new defined term "Surety Bond" is added in the appropriate alphabetical order as follows: ""Surety Bond" means each surety bond issued by a Surety Provider for the benefit of a Conduit." (e) a new defined term "Surety Provider" is added in the appropriate alphabetical order as follows: ""Surety Provider" means each of Ambac Assurance Corporation and any other provider of a Surety Bond for the benefit of a Conduit." (f) the definition of the term "Transaction Expenses" is hereby amended by deleting subsections (b) and (c) thereof in their entirety and inserting in their place the following: "(b) the reasonable fees, out-of-pocket expenses and disbursements of any law firm or other external counsel, and (without duplication) the reasonable allocated cost of internal legal services and all disbursements of internal counsel of the Lessor, the Receivable Purchaser, the Collateral Agent, the Conduits, the Liquidity Agent, the Lenders, the Liquidity Providers and the Surety Providers in connection with (1) any amendment, supplement, waiver or consent with respect to any Operative Documents requested or approved by the Lessee and (2) any enforcement of any rights or remedies against the Lessee or the Guarantor or any Affiliate thereof in respect of the Operative Documents; (c) any other reasonable fees, out-of-pocket expenses, disbursements or cost of the Lessor, the Receivable Purchaser, the Collateral Agent, the Conduits, the Liquidity Agent, the Lenders, the Liquidity Providers and the Surety Providers related to the Operative Documents or any of the other transaction documents;" 5. Appendix 2 to the Lease is hereby amended by adding a new section as follows: "Surety Fee The Lessee shall pay on each Scheduled Payment Date, beginning on July 15, 1998 and ending on the Final Payment Date, the Surety Fee, for the benefit of Ambac Assurance Corporation, at the rate of 0.125% of the aggregate of all Liquidity Commitments (as defined in the Liquidity Asset Purchase Agreement) of all Liquidity Providers." 6. In connection with the execution and delivery of this Amendment No. 1, the parties hereby acknowledge and agree that (a) the Maryland Equipment and Systems currently leased under the Lease pursuant to Lease Supplement No. 1 thereto shall be purchased from the Lessor by Sumitomo Bank Leasing and Finance, Inc. and leased to the Lessee pursuant to a Master Lease and Security Agreement between Sumitomo Bank Leasing and Finance, Inc., as lessor and Lessee, dated as of May 30, 1997 and (b) Lease Supplement No. 1 is hereby terminated and of no further force or effect. 7. Lessee hereby represents and warrants that each of the representations and warranties made in Section 6.2 of the Lease is true and correct on the date hereof with the same force and effect as though made on and as of such date, except to the extent that such representations and warranties expressly relate to an earlier date, and that no Default or Event of Default has occurred and is continuing. 8. This Amendment No. 1 may be executed in several counterparts, each of which when executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 1. 9. THIS AMENDMENT NO. 1 SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 10. Except as herein provided, all provisions, terms and conditions of the Lease shall remain in full force and effect. As amended hereby, the Lease is ratified and confirmed in all respects. [signatures begin on next page] IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed as of the date first above written. RITE AID REALTY CORP., as Lessee By:__________________________________ Name: Title: RAC LEASING LLC, as Lessor By: The Diversified Group Incorporated, as manager By:__________________________________ Name: Title: EX-4 15 EXHIBIT 4.14 - GUARANTY Exhibit 4.14 GUARANTY GUARANTY, dated as of March 19, 1998 (the "Guaranty"), from RITE AID CORPORATION, a Delaware corporation (the "Guarantor"), to RAC LEASING LLC, a Wyoming limited liability company (the "Lessor"). W I T N E S S E T H: WHEREAS, the Guarantor wishes to induce the Lessor to enter into (i) a certain Master Lease and Security Agreement (the "Master Lease") dated as of the date hereof and with Rite Aid Realty Corp., a Delaware corporation and a wholly-owned subsidiary of the Guarantor (the "Lessee") and (ii) certain other Operative Documents (as defined in the Master Lease) with the Lessee on or after the date hereof (the Master Lease and such Operative Documents, as each of them may be amended, modified, supplemented, or extended from time to time, are collectively referred to hereinafter as the "Guaranteed Agreements"); and WHEREAS, the Lessor is unwilling to enter into the Guaranteed Agreements with the Lessee unless the Guarantor enters into this Guaranty; and WHEREAS, capitalized terms used but not otherwise defined in this Guaranty have the respective meanings specified in Appendix I of the Master Lease; and the rules of interpretation set forth in Appendix I of the Master Lease shall apply to this Guaranty; NOW, THEREFORE, in order to induce the Lessor to enter into the Guaranteed Agreements and to consummate the transactions contemplated thereby, the Guarantor hereby agrees as follows: 1. Guaranty. (a) The Guarantor unconditionally and irrevocably guarantees to the Lessor the due and punctual performance of and compliance by the Lessee with all obligations, covenants, warranties, undertakings and conditions agreed by the Lessee to be performed, observed or complied with by the Lessee and contained in or arising under the Guaranteed Agreements including but not limited to, the full and punctual payment by the Lessee, when due, whether at the stated due date, by acceleration or otherwise, of any and all rent, obligations, liabilities, indebtedness and other amounts of every kind arising out of the Guaranteed Agreements, all amounts in respect to indemnities provided for in the Guaranteed Agreements, and all damages (whether provided for in the Guaranteed Agreements or otherwise permitted by law) in respect of a failure or refusal by the Lessee to make any such payment, howsoever created, arising or evidenced, voluntary or involuntary, whether direct or indirect, absolute or contingent, now or hereafter existing or owing to the Lessor (all the foregoing obligations and undertakings are collectively referred to hereinafter as the "Obligations"). (b) This Guaranty is an absolute and unconditional guaranty of performance and payment when due under the Guaranteed Agreements and not of collection of any indebtedness contained in or arising under the Guaranteed Agreements. This Guaranty is in no way conditioned upon any attempt to collect from the Lessee or upon any other event or contingency, and shall be binding upon and enforceable against the Guarantor without regard to the validity or enforceability of the Guaranteed Agreements, or of any term thereof. If for any reason the Lessee shall fail or be unable duly and punctually to pay any such amount when due under the Guaranteed Agreements, the Guarantor will forthwith pay, if not already paid by the Lessee, the same immediately upon written demand. (c) In case any of the Guaranteed Agreements shall be terminated as a result of the rejection thereof by any trustee, receiver or liquidating agent of the Lessee or any of its properties in any bankruptcy, insolvency, reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar proceeding, the Guarantor's obligations hereunder shall continue to the same extent as if such agreement had not been so rejected. The Guarantor agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment to the Lessor of the Obligations or any part thereof is rescinded or must otherwise be returned by the Lessor upon the insolvency, bankruptcy or reorganization of the Lessee, or otherwise, as though such payment to the Lessor had not been made. (d) The Guarantor shall pay on demand all reasonable costs, expenses and damages incurred (including, without limitation, attorneys' fees and disbursements) in connection with the enforcement of the obligations of the Guarantor under this Guaranty. 2. Guaranty Continuing and Unlimited. The obligations of the Guarantor hereunder shall be continuing and unlimited, shall not be subject to any non-compulsory counterclaim, set-off, deduction or defense (other than payment or performance) based upon any claim the Guarantor may have against the Lessor or the Lessee or any other Person, and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by any circumstance or condition (whether or not the Guarantor shall have any knowledge or notice thereof) whatsoever which might constitute a legal or equitable discharge or defense including, but not limited to, (a) any express or implied amendment or modification of or supplement to the Guaranteed Agreements or any other agreement referred to in either thereof, or any other instrument applicable to the Lessee or to the Obligations, or any part thereof, or any assignment or transfer of any thereof; (b) any failure on the part of the Lessee to perform or comply with the Guaranteed Agreements or any failure of any other Person to perform or comply with any term of the Guaranteed Agreements, or any other agreement as aforesaid; (c) any waiver, consent, change, extension, indulgence or other action or any action or inaction under or in respect of the Guaranteed Agreements, or any other agreement as aforesaid, or this Guaranty, whether or not the Lessor, the Lessee or the Guarantor has notice or knowledge of any of the foregoing; (d) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding with respect to the Guarantor or the Lessee, or their respective properties or their creditors, or any action taken by any trustee or receiver or by any court in any such proceeding; (e) any furnishing or acceptance of additional security or any release of any security (and the Guarantor authorizes the Lessor to obtain, accept or release said security); (f) any limitation on the liability or Obligations of the Lessee under the Guaranteed Agreements (other than any limitation expressly provided for therein) or any termination, cancellation, frustration, invalidity or unenforceability, in whole or in part, of the Guaranteed Agreements, or any term of any thereof; (g) any lien, charge or encumbrance on or affecting the Guarantor's or any of the Lessee's respective assets and properties; (h) any act, omission or breach on the part of the Lessor or any other Person under the Guaranteed Agreements, or any other agreement at any time existing between the Lessor and the Lessee or any other law, governmental regulation or other agreement applicable to the Lessor or any Obligation; (i) any claim as a result of any other dealings among the Lessor, the Guarantor or the Lessee or any of them; (j) the assignment of the Guaranteed Agreements by the Lessor to any other Person, or the assignment of this Guaranty by the Lessor to any Person; or (k) any change in the name or ownership of the Lessor, the Lessee or any other person referred to herein. 3. Waiver. (a) The Guarantor unconditionally waives: (i) notice of any of the matters referred to in Section 2 hereof; (ii) all notices which may be required by statute, rule of law or otherwise to preserve any rights against the Guarantor hereunder, including, without limitation, notice of the acceptance of this Guaranty, or the creation, renewal, extension, modification or accrual of the Obligations or notice of any other matters relating thereto, any presentment, demand, notice of dishonor, protest, nonpayment of any damages or other amounts payable under the Guaranteed Agreements; (iii) any requirement for the enforcement, assertion or exercise of any right, remedy, power or privilege under or in respect of the Guaranteed Agreements, including, without limitation, diligence in collection or protection of or realization upon the Obligations or any part thereof or any collateral therefor; (iv) any requirement of diligence; (v) any requirement to mitigate the damages resulting from a default by the Lessee under the Guaranteed Agreements; (vi) the occurrence of every other condition precedent to which the Guarantor or the Lessee may otherwise be entitled; (vii) the right to require the Lessor to proceed against the Lessee or any other Person liable on the Obligations, to proceed against or exhaust any security held from the Lessee or any other Person, or to pursue any other remedy in the Lessor's power whatsoever; (viii) the right to have the property of the Lessee first applied to the discharge of the Obligations; and any defense arising by reason of any disability or other defense of the Lessee or by reason of the cessation from any cause whatsoever of the liability, either in whole or in part, of the Lessee to the Lessor for the Obligations, provided that nothing contained herein shall be deemed to be a waiver by Guarantor of the benefit to Guarantor of any notice or grace period to which the Lessee is entitled pursuant to the express terms of the Operative Documents. (b) The Lessor may, at its election, exercise any right or remedy it may have against the Lessee or any security held by the Lessor, including, without limitation, the right to foreclose upon any such security by judicial or nonjudicial sale, without affecting or impairing in any way the liability of the Guarantor hereunder, except to the extent the Obligations have been paid, and the Guarantor waives any defense arising out of the absence, impairment or loss of any right of reimbursement, contribution or subrogation or any other right or remedy of the Guarantor against the Lessee or any such security, whether resulting from such election by the Lessor or otherwise. The Guarantor understands that the liability of the Lessee to the Lessor for the Obligations may be secured by real property and that the Guarantor shall be liable for the full amount of its liability hereunder notwithstanding foreclosure on such real property by trustee sale or any other reason impairing the Guarantor's right to proceed against the Lessee. (c) The Guarantor understands that the Lessor's exercise of certain rights and remedies contained in the Guaranteed Agreements may affect or eliminate the Guarantor's rights of subrogation against the Lessee and that the Guarantor may therefore incur partially or totally nonreimbursable liability hereunder; nevertheless, the Guarantor hereby authorizes and empowers the Lessor, its successors, endorsees and/or assignees, to exercise in its or their sole discretion, any rights and remedies, or any combination thereof, which may then be available, it being the purpose and intent of the Guarantor that its obligations hereunder shall be absolute, independent and unconditional under any and all circumstances. (d) The Guarantor assumes the responsibility for being and keeping informed of the financial condition of the Lessee and of all other circumstances bearing upon the risk of nonpayment of the Obligations and agrees that the Lessor shall not have any duty to advise the Guarantor of information regarding any condition or circumstance or any change in such condition or circumstance. The Guarantor acknowledges that the Lessor has not made any representation to the Guarantor concerning the financial condition of the Lessee. 4. Representations and Warranties of the Guarantor. The Guarantor represents and warrants to the Lessor that: (a) Corporate Existence and Power. The Guarantor is a corporation duly incorporated, 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 this Guaranty 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 by-laws 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. (c) Binding Effect. This Guaranty constitutes a valid and binding agreement of the Guarantor enforceable in accordance with its terms. (d) Financial Information. (i) The consolidated balance sheet of the Guarantor and its Consolidated Subsidiaries as of March 1, 1997 and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by KPMG Peat Marwick LLP, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Guarantor and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (ii) Since March 1, 1997, there has been no material adverse change in the business, financial position, results of operations or prospects of the Guarantor and its Consolidated Subsidiaries, considered as a whole. (e) Full Disclosure. All financial statements and other documents furnished by the Guarantor to the Lessor in connection with this Guaranty and the transactions contemplated hereby do not and will not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading. The Guarantor has disclosed to the Lessor in writing any and all facts which materially and adversely affect the business, operations or condition, financial or otherwise, of the Guarantor and its Subsidiaries or the Guarantor's ability to perform its obligations under this Guaranty. (f) Litigation. There is no action, suit or proceeding pending against, or to the knowledge of the Guarantor threatened against or affecting, the Guarantor or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Guarantor and its Consolidated Subsidiaries or which in any manner draws into question the validity or enforceability of this Guaranty. (g) Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the 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 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. (h) Taxes. The Guarantor and its Subsidiaries have filed all United States Federal income tax returns, and the Guarantor and its Significant Subsidiaries have filed all other material tax returns, which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Guarantor or any Significant Subsidiary 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 Guarantor and its Consolidated Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Guarantor, adequate. (i) Subsidiaries. Each of the Guarantor's Significant Subsidiaries is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and has all corporate or similar entity powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. (j) Environmental Matters. In the ordinary course of its business, the Guarantor conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Guarantor 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 Guarantor 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 on the business, financial condition, results of operations or prospects of the Guarantor and its Consolidated Subsidiaries, considered as a whole. (k) Lessee. On the date hereof, the Guarantor owns 100% of the issued and outstanding shares of capital stock of the Lessee. All such shares have been validly issued, are fully paid and non-assessable and are free and clear of any liens or encumbrances. The Guarantor will continue to own, directly or indirectly, a sufficient number of the issued and outstanding shares of capital stock of the Lessee, so that the Lessee will remain a Subsidiary. (l) Defaults. The Guarantor is not in default under (and no event has occurred which with the giving of notice or lapse of time would result in a default under) any instrument evidencing any debt in excess of $10,000,000 or any agreement relating thereto or any material mortgage, deed of trust, security agreement, lease, franchise or other agreement to which the Guarantor is a party or by which the Guarantor or any of its properties or assets is bound or to which it may be subject. 5. Payments. Each payment by the Guarantor to the Lessor under this Guaranty shall be made by transferring the amount thereof in immediately available funds without set-off or counterclaim; provided that no such payment shall be deemed a waiver of any rights the Guarantor may have. 6. Parties. This Guaranty shall inure to the benefit of the Lessor and its successors, assigns or transferees, and shall be binding upon the Guarantor and its successors and assigns. The Guarantor may not delegate any of its duties under this Guaranty without the prior written consent of the Lessor or any Person to whom the Lessor has assigned this Guaranty. 7. Notices. All notices, demands and other communications between the Lessor and the Guarantor under this Guaranty shall be in writing and shall be delivered or sent to the address or telecopier number shown below, or to such other address or telecopier number as either of us may by written notice to the other have designated for such purpose. Any such notice, demand or other communication shall not be effective until actually received. If to the Lessor: RAC Leasing LLC American National Bank Building 1912 Capitol Avenue, Suite 406 Cheyenne, WY 82003 Attention: Thomas N. Long Telecopier: (307) 635-0413 Telephone: (307) 635-0710 With a copy to: The Diversified Group Incorporated 950 Third Avenue New York, NY 10022 Attention: James Haber Telecopier: (212) 688-7908 Telephone: (212) 688-2700 If to the Guarantor: Rite Aid Corporation 30 Hunter Lane Camp Hill, PA 17011-2404 Attention: Chief Financial Officer Telecopier: 717-975-3764 8. Remedies. The Guarantor stipulates that the remedies at law in respect of any default or threatened default by the Guarantor in the performance of or compliance with any of the terms of this Guaranty are not and will not be adequate, and that any of such terms may be specifically enforced by a decree for specific performance or by an injunction against violation of any such terms or otherwise. 9. Rights to Deal with the Lessee. At any time and from time to time, without terminating, affecting or impairing the validity of this Guaranty of the obligations of the Guarantor hereunder, the Lessor may deal with the Lessee in the same manner and as fully and as if this Guaranty did not exist and shall be entitled, among other things, to grant the Lessee, without notice or demand and without affecting the Guarantor's liability hereunder, such extension or extensions of time to perform, renew, compromise, accelerate or otherwise change the time for payment of or otherwise change the terms of payment or any part thereof contained in or arising under the Guaranteed Agreements, or to waive any Obligation of the Lessee to perform, any act or acts as the Lessor may deem advisable. 10. Subrogation. Until such time as the Obligations (except for any indemnification not then due and payable) shall have been paid or performed in full by the Guarantor, no payment by or for the account of the Guarantor shall entitle the Guarantor by subrogation or otherwise to any payment by the Lessee or from or out of any property of the Lessee, and the Guarantor shall not exercise any right or remedy against the Lessee or any property of the Lessee by reason of any performance by the Guarantor. 11. Guarantor's Covenants. The Guarantor hereby covenants and agrees that until the Obligations and all obligations of the Guarantor under this Guaranty have been paid or discharged in full: (a) The covenants contained in Article V of the Credit Agreement are hereby incorporated herein by reference with the same force and effect as if such covenants were set forth expressly herein. Notwithstanding the foregoing, any amendments or waivers of such covenants approved by the requisite parties under the Credit Agreement shall likewise be effective hereunder provided that the Lessor and the Liquidity Providers shall have received a pro rata share (based on the respective commitments of the Lessor, Liquidity Providers and parties to the Credit Agreement) of any consideration given by the Guarantor or any Affiliate of the Guarantor in connection with such amendment or waiver. (b) The Guarantor will ensure that its obligations under this Guaranty, and the obligations of the Lessee under the Guaranteed Agreements, constitute senior debt for all purposes of all subordinated debt for money borrowed issued, incurred or assumed by the Guarantor or the Lessee, as the case may be, after the date hereof. 12. Survival of Representations, Warranties, etc. All representations, warranties, covenants and agreements made herein and in statements or certificates delivered pursuant hereto shall survive any investigation or inspection made by or on behalf of the Lessor and shall continue in full force and effect until all of the obligations of the Guarantor under this Guaranty shall be fully performed in accordance with the terms hereof, and until the payment in full of all sums payable by the Lessee under the Guaranteed Agreements, and until performance in full of all obligations of the Lessee in accordance with the terms and provisions of such agreements. 13. Third Party Beneficiaries. The Guarantor expressly acknowledges and agrees that each Indemnitee (as such term is defined in the Master Lease) shall be a third party beneficiary of this Guaranty. 14. GOVERNING LAW; WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES HERETO HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE GUARANTOR HEREBY IRREVOCABLY AGREES THAT ANY JUDICIAL PROCEEDINGS BROUGHT AGAINST THE GUARANTOR WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND, BY THE EXECUTION AND DELIVERY OF THIS GUARANTY, THE GUARANTOR ACCEPTS THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. SERVICE OF PROCESS MAY BE MADE BY ANY MEANS AUTHORIZED BY FEDERAL LAW OR THE LAW OF NEW YORK, AS THE CASE MAY BE. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE GUARANTOR AT THE ADDRESS SET FORTH IN SECTION 7 HEREOF, OR AT SUCH OTHER ADDRESS AS MAY BE DESIGNATED BY THE GUARANTOR IN A NOTICE TO THE LESSOR. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE LESSOR OR ITS ASSIGNEE TO BRING PROCEEDINGS AGAINST THE GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION. 15. Miscellaneous. If any term of this Guaranty or any application thereof shall be invalid or unenforceable, the remainder of this Guaranty and any other application of such term shall not be affected thereby. Any term of this Guaranty may be amended, waived, discharged or terminated only by an instrument in writing signed by the Guarantor and the Lessor. The headings in this Guaranty are for purposes of reference only and shall not limit or define the meaning hereof. This Guaranty may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the undersigned have caused this Guaranty to be executed and delivered as of the day and year first above written. RITE AID CORPORATION, as Guarantor By:_____________________________________ Name: Title: Acknowledged and Agreed: RAC LEASING LLC By: The Diversified Group Incorporated By:___________________________________ Name: Title: EX-4 16 EXHIBIT 4.15 - MASTER LEASE AND SECURITY AGREEMENT Exhibit 4.15 MASTER LEASE AND SECURITY AGREEMENT THIS MASTER LEASE AND SECURITY AGREEMENT (this "Lease"), dated as of March 19, 1998, is entered into between RAC LEASING LLC, a Wyoming limited liability Company, as the Lessor, and RITE AID REALTY CORP., a Delaware corporation, as the Lessee. W I T N E S S E T H: WHEREAS, the Lessor wishes to finance the acquisition of the assets described on Annex 1; WHEREAS, the Lessor may in the future agree with the Lessee to finance (i) the development of certain real property and construction of improvements to be used by the Lessee and (ii) the acquisition of certain equipment and systems related to such real property and improvements and (iii) the acquisition of certain other assets to be used by the Lessee; WHEREAS, the Lessee, as Construction Agent, will construct any such improvements which, as constructed, will be the property of the Lessor and will become part of the Leased Assets subject to the terms of this Lease; WHEREAS, the Lessor desires to lease to the Lessee, and the Lessee desires to lease from the Lessor, the Leased Assets from time to time subject to this Lease; and WHEREAS, the Lessee is a wholly-owned direct subsidiary of Rite Aid Corporation, and Rite Aid Corporation is willing to guarantee the payment and performance of all of the Lessee's obligations hereunder and under the other documents entered into by the Lessee in connection herewith; NOW, THEREFORE, in consideration of the foregoing, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions; Interpretation. Capitalized terms used but not otherwise defined in this Lease have the respective meanings specified in Appendix 1 to this Lease; and the rules of interpretation set forth in Appendix 1 to this Lease shall apply to this Lease. ARTICLE II PURCHASE AND LEASE 2.1 Acceptance and Lease of Assets. (a) Properties. Subject to the terms and conditions of this Lease, on each Acquisition Date for a parcel of Land (i) the Lessor shall purchase a fee interest in such parcel of Land, or the Lessee shall convey a leasehold interest in such parcel of Land to the Lessor pursuant to a Ground Lease, and the Lessor shall accept delivery of, such Land pursuant to the terms hereof (and subject to the conditions set forth herein) and (ii) the Lessor shall demise and lease to the Lessee hereunder for the Base Term applicable thereto the Lessor's interest in such Land together with any Improvements which then may be located thereon or thereafter may be constructed thereon pursuant to the Construction Agency Agreement or this Lease, and the Lessee hereby agrees, expressly for the direct benefit of the Lessor, to lease from the Lessor for such Base Term, the Lessor's interest in such Land together with the Lessor's interest in such Improvements. (b) Equipment and Systems. Subject to the terms and conditions of this Lease, from time to time after the Acquisition Date for any Property and on or before the Base Date therefor, (i) the Lessor shall purchase Equipment and Systems relating to such Property pursuant to the terms hereof (and subject to the conditions set forth herein) and (ii) the Lessor shall demise and lease to the Lessee hereunder for the Base Term applicable thereto the Lessor's interest in such Equipment and Systems, and the Lessee hereby agrees, expressly for the direct benefit of the Lessor, to lease from the Lessor for such Base Term, the Lessor's interest in such Equipment and Systems. (c) Additional Assets. Subject to the terms and conditions of this Lease, on each Acquisition Date for any Other Asset not constituting Equipment and Systems (i) the Lessor shall purchase such Other Asset pursuant to the terms hereof (and subject to the conditions set forth herein) and (ii) the Lessor shall demise and lease to the Lessee hereunder for the Base Term applicable thereto the Lessor's interest in such Other Asset, and the Lessee hereby agrees, expressly for the direct benefit of the Lessor, to lease from the Lessor for such Base Term, the Lessor's interest in such Other Asset. 2.2 Acceptance Procedure. The Lessee hereby agrees that the execution and delivery by the Lessee on each Acquisition Date of an appropriately completed Lease Supplement shall, without further act, constitute the unconditional and irrevocable acceptance by the Lessee of all of the Leased Asset which is the subject of such Lease Supplement for all purposes of this Lease and the other Operative Documents on the terms set forth therein and herein, and that all of such Leased Assets shall be deemed to be included in the leasehold estate of this Lease and shall be subject to the terms and conditions of this Lease as of the applicable Acquisition Date (or, in the case of any asset constituting Equipment and Systems, as of such later date on which such asset is acquired by the Lessor). 2.3 Lease Term. This Lease shall be in full force and effect on the Closing Date. The Base Date and the Base Term for each Leased Asset shall be set forth in the applicable Lease Supplement therefor. 2.4 Title. Each Leased Asset is leased to the Lessee without, except as expressly set forth herein, any representation or warranty, express or implied, by the Lessor and subject to the rights of parties in possession, the existing state of title (including, without limitation, Permitted Liens other than Lessor Liens) and all applicable Requirements of Law. The Lessee shall in no event have any recourse against the Lessor for any defect in or exception to title to any Leased Asset other than to the extent resulting from Lessor Liens. ARTICLE III FUNDING OF ADVANCES 3.1 Lessor Commitment. Subject to the conditions and terms hereof, the Lessor shall, upon the written request of the Lessee from time to time, make Advances on Funding Dates for the purpose of (i) in the case of any Property, financing the acquisition, ownership, insurance, renovation and improvement of such Property during the Construction Period applicable thereto, (ii) in the case of any Equipment and Systems, financing the acquisition, ownership and insurance of any asset constituting Equipment and Systems during the Construction Period for the related Property and (iii) in the case of any Other Asset not constituting Equipment and Systems, financing the acquisition of such Other Asset. Notwithstanding any other provision hereof, the Lessor shall not be obligated to make any Advance if, after giving effect thereto, the aggregate original amounts of Advances (x) with respect to the Leased Asset to be funded thereby would exceed the Lessor's Commitment relating thereto or (y) with respect to all Leased Assets would exceed the Lessor's Total Commitment. Notwithstanding anything herein to the contrary, until the Lessee shall have executed and delivered to the Lessor and to Sumitomo Bank Leasing and Finance, Inc., in its capacity as lessor under the Existing Master Lease, amendments to this Lease and the Existing Master Lease necessary to effect the Leased Asset Transfer, the Lessor's Total Commitment shall be $100,000,000. 3.2 Procedures for Advances. (a) With respect to each funding of an Advance, the Lessee shall give the Lessor and the Paying Agent prior written notice not later than 3:00 p.m., New York City time, five (5) Business Days prior to the date of the proposed funding, pursuant to a Funding Request substantially in the form of Exhibit A (a "Funding Request"), specifying: (i) the proposed Funding Date (the "Funding Date"), (ii) the amount of Advance requested, (iii) whether such proposed Funding Date will also be an Acquisition Date, (iv) the Leased Asset to which such Advance is being allocated and the allocation of such Advance among the various categories of costs and expenses listed in clause (c) below, (v) the allocation of the Debt Contribution between CP Tranches and Eurodollar Tranches and (vi) the requested Interest Periods for such CP Tranches. With respect to any Funding Request related to the acquisition of a Property, in addition to the foregoing, the Lessee shall also specify: (i) the Property to be acquired, (ii) whether the Land component thereof is to be acquired through a fee interest or Ground Lease, (iii) the seller and/or ground lessor of the Property, and (iv) the Estimated Improvement Costs for such Property. (b) Except as the parties may otherwise agree in writing, and except for the initial Funding Date for any Leased Asset and Funding Dates caused by the maturity of a CP Tranche on a date other than a Scheduled Payment Date, each Funding Date shall occur on a Scheduled Payment Date. (c) Advances shall be made solely to pay or reimburse the Construction Agent or the Lessee for (i) Land Acquisition Costs and Property Improvement Costs (including Capitalized Interest and Capitalized Commitment Fees relating to any Property), (ii) Other Asset Acquisition Costs (including Capitalized Interest and Capitalized Commitment Fees relating to Equipment and Systems) and (iii) Transaction Expenses paid or payable by the Lessee in connection with the preparation, execution and delivery of the Operative Documents and all fees paid or payable by the Lessee to the Paying Agent and the Lessor in connection with the Operative Documents. (d) All remittances made by the Lessor for the funding of any Advance shall be made through the Paying Agent on the applicable Funding Date in immediately available federal funds by wire transfer to the account designated by the Lessee except that a portion of the initial Advance shall be made (in accordance with instructions to be included in the initial Funding Request) by wire transfer directly to the appropriate Persons for Transaction Expenses. (e) Notwithstanding anything in this Lease or any other Operative Document to the contrary, with respect to the Aircraft listed on Annex 1 hereto, the Lessee may, until the Base Date for such Aircraft, request Advances to pay the cost of outfitting such Aircraft to the Lessee's specifications, and to pay Capitalized Interest and Capitalized Commitment Fees relating thereto, as if such Aircraft constituted Equipment and Systems under this Lease. Any such Advance shall constitute an Advance for all purposes of this Lease and the other Operative Documents. (f) Notwithstanding anything to the contrary in this Lease and the Operative Documents, the Lessee may request up to two Advances, one on the date hereof and another on the immediately succeeding day, solely for the purpose of paying agreed fees and expenses and to make one or more deposits on Aircraft not to exceed $2,500,000. Any such Advance shall constitute an Advance for all purposes under this Lease and the Operative Documents. Such fees and expenses may be allocated for inclusion in the Lease Balance for one or more Leased Assets. ARTICLE IV CONDITIONS PRECEDENT TO CLOSING DATE, ACQUISITION DATES AND ADVANCES 4.1 Closing Date. The closing date (the "Closing Date") shall occur on the earliest date on which the following conditions precedent shall have been satisfied or waived in the reasonable discretion of the parties hereto: (a) Master Lease. This Lease shall have been duly authorized, executed and delivered by the parties hereto. (b) Master Construction Agency Agreement. The Construction Agency Agreement shall have been duly authorized, executed and delivered by the parties hereto. (c) Guaranty. The Guaranty shall have been duly authorized, executed and delivered by the Guarantor. (d) Responsible Employee's Certificate of Lessee. The Lessor shall have received a Responsible Employee's Certificate of the Lessee, in substantially the form of Exhibit E, stating that (i) each and every representation and warranty of the Lessee contained in each Operative Document to which it is a party is true and correct on and as of the Closing Date; (ii) no Default or Event of Default has occurred and is continuing under any Operative Document to which it is a party; (iii) each Operative Document to which the Lessee is a party is in full force and effect with respect to it; and (iv) the Lessee has duly performed and complied with all covenants, agreements and conditions contained herein or in any Operative Document required to be performed or complied with by it. (e) Resolutions and Incumbency Certificate, etc. of Lessee. The Lessee shall have delivered to the Lessor (i) a certificate of its Secretary or an Assistant Secretary attaching and certifying as to (A) the resolutions of its Board of Directors duly authorizing the execution, delivery and performance by it of each Operative Document to which it is or will be a party, (B) its certificate of incorporation and by-laws, and (C) the incumbency and signature of persons authorized to execute and deliver on its behalf the Operative Documents to which it is a party and (ii) a certificate of good standing with respect to it issued by the Secretary of State of the State of its incorporation. (f) Responsible Employee's Certificate of Guarantor. The Lessor shall have received a Responsible Employee's Certificate of the Guarantor, in substantially the form of Exhibit F, stating that (i) each and every representation and warranty of the Guarantor contained in each Operative Document to which it is a party is true and correct on and as of the Closing Date; (ii) each Operative Document to which the Guarantor is a party is in full force and effect with respect to it; and (iii) the Guarantor has duly performed and complied with all covenants, agreements and conditions contained herein or in any Operative Document required to be performed or complied with by it. (g) Resolutions and Incumbency Certificate, etc. of Guarantor. The Guarantor shall have delivered to the Lessor (i) a certificate of its Secretary or an Assistant Secretary attaching and certifying as to (A) the resolutions of its Board of Directors duly authorizing the execution, delivery and performance by it of each Operative Document to which it is or will be a party, (B) its certificate of incorporation and by-laws, and (C) the incumbency and signature of persons authorized to execute and deliver on its behalf the Operative Documents to which it is a party and (ii) a certificate of good standing with respect to it issued by the Secretary of State of the State of its incorporation. (h) Opinions of Counsel. Wolf, Block, Schorr and Solis- Cohen, special counsel to the Lessee, internal counsel for the Company, Wolf, Block, Schorr and Solis-Cohen, special counsel to the Guarantor, and internal counsel for the Guarantor shall each have issued to the Lessor and the Receivable Purchaser an opinion in form and scope satisfactory to the Lessor. (i) Lessor Fee Letter. The Lessor Fee Letter shall have been duly authorized, executed and delivered by the Lessor, the Lessee and the Guarantor, and the Lessor shall have received that portion of the fees payable thereunder on the date hereof. 4.2 Acquisition Date Conditions. (a) All Assets. The occurrence of each Acquisition Date with respect to any Leased Asset is subject to the following conditions precedent: (i) Lease Supplement. The Lease Supplement relating to such Leased Asset shall have been duly executed and delivered by the parties hereto. (ii) Appraisal. The Lessor shall have received an Appraisal of such Leased Asset, which Appraisal shall show, in the case of a Leased Asset consisting of Property, that as of Substantial Completion and the Expiration Date the Fair Market Sales Value of such Property shall not be less than 100% of the sum of the Land Acquisition Cost, Estimated Improvements Cost, Capitalized Interest and Transaction Expenses expected to be funded with respect to such Property. (iii) Filings. The Operative Documents (or memoranda thereof), any supplements thereto and any UCC Financing Statements shall have been recorded, registered and filed, if necessary, in such manner as to perfect and protect the Lessor's interest in such Leased Asset. (iv) Taxes. All taxes, assessments, fees and other charges in connection with the execution, delivery, recording, filing and registration of the Operative Documents shall have been paid or provisions for such payment shall have been made to the satisfaction of the Lessor. (v) Governmental Approvals. All necessary (or, in the reasonable opinion of the Lessor, advisable) Governmental Actions, in each case required by any Requirement of Law, shall have been obtained or made and be in full force and effect. (vi) Requirements of Law. In the reasonable opinion of the Lessor and its counsel, the acquisition and ownership of such Leased Assets as contemplated by the Operative Documents do not and will not violate in any material respect any material Requirement of Law and do not and will not subject the Lessor to any material adverse regulatory prohibitions or constraints. (vii) Responsible Employee's Certificates. The Lessor shall have received a Responsible Employee's Certificate of the Lessee, in substantially the form of Exhibit E, and a Responsible Employee's Certificate of the Guarantor, in substantially the form of Exhibit F. (viii) Insurance. The Lessor shall have received evidence of insurance with respect to each Leased Asset required to be maintained pursuant to this Lease, setting forth the respective coverages, limits of liability, carrier, policy number and period of coverage. (a) Properties. In addition to the conditions specified in (a) above, the occurrence of each Acquisition Date with respect to any Leased Asset consisting of Property is subject to the following conditions precedent: (i) Deed or Ground Lease. The Lessor shall have received a Deed or Ground Lease with respect to the Land constituting a part of such Property. (ii) Mortgage. Except as the Lessor may otherwise agree, the Lessor shall have received a Mortgage relating to such Property duly executed and delivered by the Lessee. (iii) Construction Agency Agreement Supplement. The Construction Agency Agreement Supplement relating to such Property shall have been duly executed and delivered by the parties hereto. (iv) Opinion of Counsel. Counsel to the Lessee in the jurisdiction where such Property is located shall have delivered an opinion as to local law matters in form and scope satisfactory to the Lessor. (v) Environmental Audit. The Lessor shall have received an Environmental Audit for such Property in form and substance acceptable to the Lessor. (vi) Survey and Title Insurance. The Lessee shall have delivered to the Lessor an ALTA/1992 (Urban) Survey of the Land included in such Property prepared by an independent, licensed registered public land surveyor and meeting the Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys as adopted by the American Land Title Association/American Society and American Congress on Surveying and Mapping in 1992, certified to the Lessor and the title company and otherwise in form reasonably acceptable to the Lessor, and an ALTA owners or leasehold title insurance policy covering such Property in favor of the Lessor, such policy to be dated as of the Acquisition Date and in an amount not less than the aggregate Commitment of the Lessor with respect to such Property and to be reasonably satisfactory to the Lessor with an owner's comprehensive (ALTA 9) endorsement and a 3.0 zoning endorsement and such other endorsements requested by the Lessor to the extent available in the State where such Property is located. (vii) Property Insurance. The Lessor shall have received evidence of insurance with respect to such Property required to be maintained pursuant to this Lease, setting forth the respective coverages, limits of liability, carrier, policy number and period of coverage. (viii) Architect's Certificate. The Lessor shall have received a certificate from the Architect, in form and scope satisfactory to the Lessor, certifying that (i) such Property as improved in accordance with the Plans and Specifications and the contemplated use thereof by the Lessee will comply in all material respects with all Requirements of Law (including, without limitation, all zoning and land use laws) and Insurance Requirements and (ii) the Plans and Specifications have been prepared in accordance with applicable Requirements of Law (including, without limitation, building, planning, zoning and fire codes) and upon completion of the Improvements in accordance with the Plans and Specifications, such Improvements on the Property will not encroach in any manner onto any adjoining land (except as permitted by express written easements or as insured by appropriate title insurance). (b) Aircraft.In addition to the conditions specified in (a) above, the occurrence of each Acquisition Date with respect to any Leased Asset consisting of Aircraft is subject to the following conditions precedent: (i) Bill of Sale. The Lessor shall have received an AC Form 8050-2 Bill of Sale (or such other form of bill of sale as may be approved by the FAA on the Acquisition Date for the Aircraft) covering the Aircraft, executed by the owner thereof in favor of the Lessor. (ii) Registration, Etc. The Lessor shall have received evidence satisfactory to it that application for registration of the Aircraft in the name of the Lessee has been duly made with the FAA. (iii) Airworthiness. The Lessor shall have received evidence satisfactory to it that the Aircraft has been certified by the FAA with an appropriate airworthiness certificate and that such certificate is in full force and effect. (iv) Opinion of Counsel. FAA counsel shall have delivered an opinion in form and scope satisfactory to the Lessor. (v) Aircraft Insurance. The Lessor shall have received evidence of insurance with respect to such Aircraft required to be maintained pursuant to this Lease, setting forth the respective coverages, limits of liability, carrier, policy number and period of coverage. 4.3 Conditions Precedent to Each Advance. The obligations of the Lessor to make an Advance on a Funding Date, including the initial Advance occurring on any Acquisition Date, is subject to satisfaction or waiver of the following conditions precedent: (a) Funding Request. The Lessor shall have received a fully executed counterpart of the applicable Funding Request, executed by the Lessee. (b) Accuracy of Representations and Warranties. On the applicable Funding Date the representations and warranties of the Lessee contained herein and in each of the other Operative Documents to which it is a party and of the Guarantor contained in the Guaranty shall each be true and correct in all material respects as though made on and as of such date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct on and as of such earlier date. (c) No Default. There shall not have occurred and be continuing any Default or Event of Default and no Default or Event of Default will have occurred after giving effect to the making of the Advance requested by such Funding Request. (d) Permits. In the case of an Advance relating to a Property, all permits and approvals required by any Governmental Authority in connection with the Construction for which such Advance is being made shall have been issued or obtained and shall be in full force and effect. (e) Title Policy Endorsement. In the case of an Advance relating to a Property, the Lessor shall have received an endorsement to the title policy delivered pursuant to this Lease, dated on or one Business Day before the date of such Advance, (i) indicating that since the date of the preceding Advance relating to such Property there has been no change in the state of title and no additional survey exceptions not theretofore approved by the Lessor and (ii) updating the title policy to the date of such endorsement. (f) Deposit. If the Guarantor has established the Liquidity Collateral Account in accordance with Section 19.1(b)(ii) of this Lease, the Collateral Agent shall have received from the Guarantor, for deposit in the Liquidity Collateral Account in immediately available Dollars, an amount such that immediately after giving effect to such deposit and the Advance to be made on such date, the aggregate account balance of all cash and investments then maintained in the Liquidity Collateral Account shall be an amount at least equal to the Debt Contribution of all outstanding Advances for all Leased Assets then subject to this Lease. ARTICLE V CONDITIONS TO SUBSTANTIAL COMPLETION 5.1 Conditions to Substantial Completion of a Property. Substantial Completion with respect to a Property shall be deemed to have occurred for purposes of the Operative Documents at such time as the Construction shall have been substantially completed in accordance with the Plans and Specifications and all Applicable Law and the Lessee shall have delivered to the Lessor a 3.1 zoning endorsement reasonably satisfactory to the Lessor, and such Property shall be ready for occupancy and operation, as evidenced by certificates of the Architect and the Construction Agent, the Prime Contractor's application for the payment to be made upon substantial completion and the issuance by the appropriate Governmental Authority of certificates of occupancy for all of the Improvements contemplated by the Plans and Specifications, all in form and substance reasonably satisfactory to the Lessor. ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1 Representations of the Lessor. The Lessor represents and warrants to the Lessee that: (a) ERISA. The Lessor is not and will not be funding its Advances 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 a "plan" (as defined in Section 4975(e)(1) of the Code). (b) Status. The Lessor is a single member limited liability company. (c) Company Power and Authority. The Lessor has the power and authority to execute, deliver and perform the terms and provisions of the Operative Documents to which it is or will be a party and has taken all necessary company action to authorize the execution, delivery and performance of the Operative Documents to which it is a party and has duly executed and delivered each Operative Document required to be executed and delivered by it and, assuming the due authorization, execution and delivery thereof on the part of each other party thereto, each such Operative Document constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by insolvency, bankruptcy, reorganization or other similar laws relating to or affecting the enforcement of creditors' rights or by general equitable principles and except as the same may be limited by certain circumstances under law or court decisions in respect of provisions providing for indemnification of a party with respect to liability where such indemnification is contrary to public policy. (d) Investment Company Act. The Lessor is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 6.2 Representations of Lessee. The Lessee represents and warrants to the Lessor that: (a) Corporate Status. The Lessee (i) is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware and (ii) has duly qualified and is authorized to do business and is in good standing in all jurisdictions where the failure to do so might have a material adverse effect on it or its properties. (b) Corporate Power and Authority. The Lessee has the corporate power and authority to execute, deliver and perform the terms and provisions of the Operative Documents to which it is or will be a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Operative Documents to which it is a party and has duly executed and delivered each Operative Document required to be executed and delivered by it and, assuming the due authorization, execution and delivery thereof on the part of each other party thereto, each such Operative Document constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by insolvency, bankruptcy, reorganization or other similar laws relating to or affecting the enforcement of creditors' rights or by general equitable principles and except as the same may be limited by certain circumstances under law or court decisions in respect of provisions providing for indemnification of a party with respect to liability where such indemnification is contrary to public policy. (c) No Violation. Neither the execution, delivery and performance by the Lessee of the Operative Documents to which it is or will be a party nor compliance with the terms and provisions thereof, nor the consummation by the Lessee of the transactions contemplated therein (i) will result in a violation by the Lessee of any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality having jurisdiction over the Lessee or any Leased Asset that would materially adversely affect (x) the validity or enforceability of the Operative Documents to which the Lessee is a party, or the title to, or value or condition of, any Leased Asset, or (y) the business, financial position, or results of operations of the Lessee and its subsidiaries taken as a whole or the ability of the Lessee to perform its obligations under the Operative Documents, (ii) will result in any breach which would constitute a default under, or (other than pursuant to the Operative Documents) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Lessee pursuant to the terms of, any indenture, loan agreement or other agreement for borrowed money to which the Lessee is a party or by which it or any of its property or assets is bound or to which it may be subject (other than Permitted Liens), or (iii) will violate any provision of the certificate of incorporation or by-laws of the Lessee. (d) Litigation. There are no actions, suits or proceedings pending or, to the knowledge of the Lessee, threatened (i) that are reasonably likely to have a material adverse effect on any Leased Asset or on the business, financial position or results of operations of the Lessee and its subsidiaries taken as a whole or (ii) that question the validity of the Operative Documents or the rights or remedies of the Lessor with respect to the Lessee or any Leased Asset under the Operative Documents. (e) Governmental Approvals. No Governmental Action by any Governmental Authority having jurisdiction over the Lessee or any Leased Asset is required to authorize or is required in connection with (i) the execution, delivery and performance by the Lessee of any Operative Document to which it is a party or (ii) the Construction, except for any such Governmental Action which is not yet required to be obtained and will be duly obtained at and when required by Applicable Law. (f) Investment Company Act. The Lessee is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. (g) Public Utility Holding Company Act. The Lessee is not a "holding company" or a "subsidiary company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Company Act of 1935, as amended. (h) Provided Information. The information and materials which have been provided by the Lessee or any Affiliate of the Lessee to the Lessor in writing prior to the Closing Date are true and accurate in all material respects on the date as of which such information and materials are dated or certified and are not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided. (i) Taxes. All United States Federal income tax returns and all other tax returns which are required to have been filed have been or will be filed by or on behalf of the Lessee by the respective due dates, including extensions, and all taxes due with respect to the Lessee shown on such returns or pursuant to any assessment received by the Lessee have been or will be paid or are being contested in good faith by the Lessee by appropriate procedures. The charges, accruals and reserves on the books of the Lessee in respect of taxes or other governmental charges are, in the opinion of the Lessee, adequate. (j) Environmental Laws. The Lessee is in compliance with all Environmental Laws relating to pollution and environmental control in all domestic jurisdictions in which all real property of the Lessee, including all Land, is located, other than those the non-compliance with which would not have a material adverse effect on any Land or the business, financial position or results of operations of the Lessee and its subsidiaries taken as a whole. (k) Offer of Securities, etc. Neither the Lessee nor any Person authorized to act on the Lessee's behalf has, directly or indirectly, offered any interest in any Leased Asset or any other interest similar thereto (the sale or offer of which would be integrated with the sale or offer of such interest in any Leased Asset), for sale to, or solicited any offer to acquire any of the same from, any Person other than the Lessor and other "accredited investors" (as defined in Regulation D of the Securities and Exchange Commission). (l) Properties. Each Prime Construction Contract for a Property will provide for construction of the Improvements thereto for a fixed price or a guaranteed maximum price on or before a date certain, will contain customary retainage provisions and otherwise be in form and substance reasonably satisfactory to the Lessor. Each Property as improved in accordance with the Plans and Specifications for such Property and the contemplated use thereof by the Lessee and its agents, assignees, employees, lessees, licensees and tenants will comply in all material respects with all Requirements of Law (including, without limitation, all zoning and land use laws) and Insurance Requirements, except for such Requirements of Law as the Lessee shall be contesting in good faith by appropriate proceedings. Upon Substantial Completion of the Construction of the Improvements to each Property, all water, sewer, electric, gas, telephone and drainage facilities and all other utilities required to adequately service such Improvements for its intended use will be available pursuant to adequate permits (including any that may be required under applicable Environmental Laws). There is no action, suit or proceeding (including any proceeding in condemnation or eminent domain or under any Environmental Law) pending or, to the best of the Lessee's knowledge, threatened with respect to the Lessee, its Affiliates or such Property which materially adversely affects the title to, or the use, operation or value of, such Property. No fire or other casualty with respect to such Property has occurred which fire or other casualty has had a material adverse effect on the value or condition of such Property. All utilities serving such Property, or proposed to serve such Property in accordance with the related Plans and Specifications, are located in, and vehicular access to the Improvements on such Property is provided by, either public rights-of-way abutting such Property or Appurtenant Rights. All material licenses, approvals, authorizations, consents, permits (including, without limitation, building, demolition and environmental permits, licenses, approvals, authorizations and consents), easements and rights-of-way, including proof and dedication, required for (x) the use, treatment, storage, transport, disposal or disposition of any Hazardous Substance on, at, under or from such Property, and (y) construction of the Improvements in accordance with the Plans and Specification and the Construction Agency Agreement have either been obtained from the appropriate Governmental Authorities having jurisdiction or from private parties, as the case may be, or will be obtained from the appropriate Governmental Authorities having jurisdiction or from private parties, as the case may be, prior to commencing any such construction or use and operation, as applicable. (m) Aircraft. Neither the execution and delivery of a Lease Supplement relating to Aircraft nor any of the transactions relative to Aircraft contemplated by this Lease, require the consent or approval of the FAA, except for notice pursuant to FAA Regulation ss.91.23 (14 C.F.R. ss.91.23). (n) Title; Ground Lease. The Lessor will at all times during the Base Term have good title to all Improvements, subject only to Permitted Liens. Each Ground Lease, if any, is in form and substance sufficient to convey a valid leasehold interest in the applicable Land. Each Deed is in form and substance sufficient to convey to the Lessor good and marketable title to the applicable Property subject only to Permitted Liens. (o) Insurance. The Lessee carries insurance with reputable insurers in respect of its material assets, in such manner, in such amounts and against such risks as is customarily maintained by other Persons of similar size engaged in similar business. (p) Flood Hazard Areas. Except as otherwise identified on the survey delivered pursuant to Section 4.2(b), no portion of any Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency. If any Property is located in such an area, then flood insurance has been obtained for such Property in accordance with Section 17.2 and in accordance with the National Flood Insurance Act of 1968, as amended. (q) Defaults. The Lessee is not in default under (and no event has occurred which with the giving of notice or lapse of time would result in a default under) any instrument evidencing any debt or any agreement relating thereto or any mortgage, deed of trust, security agreement, lease, franchise or other agreement to which the Lessee is a party or by which the Lessee or any of its properties or assets is bound or to which it may be subject. (r) Use of Advances. No part of any Advance will be used directly or indirectly for the purpose of purchasing or carrying, or for payment in full or in part of debt that was incurred for the purposes of purchasing or carrying, any margin security as such term is defined in Section 207.2 of Regulation G of the Board of Governors of the Federal Reserve System (12 C.F.R., Chapter II, Part 207). (s) Solvency. The Lessee is Solvent. 6.3 Representations of the Lessee with Respect to Each Advance. The Lessee represents and warrants to the Lessor as of each Funding Date as follows: (a) Representations. The representations and warranties of the Lessee and of the Guarantor set forth in the Operative Documents (including the representations and warranties set forth in Section 6.2) are true and correct in all material respects on and as of such Funding Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct on and as of such earlier date. There exists no Default or Event of Default, and no Default or Event of Default will occur as a result of, or after giving effect to, the Advance requested by the Funding Request on such date. (b) Improvements. In the case of a Funding Date for any Property, the Construction of the Improvements to such Property to date, if any, has been performed in a good and workmanlike manner, substantially in accordance with the Plans and Specifications for such Property and in compliance with all material Insurance Requirements and Requirements of Law. (c) Liens. The Lessee has not permitted Liens to be placed against any Leased Asset other than Permitted Liens. (d) Advance. The conditions precedent to such Advance set forth in Article IV have been satisfied. The amount of the Advance requested represents amounts owed to third parties in respect of Land Acquisition Costs or to the Lessee or third parties in respect of Other Asset Acquisition Costs or owed or paid by the Construction Agent to third parties in respect of Property Improvements Costs and Transaction Expenses, in each case incurred prior to the date of such Advance and for which neither the Lessee nor the Construction Agent has previously been reimbursed by an Advance, provided that this representation shall not apply to any portion of an Advance made on Substantial Completion which is to be used to pay for open punch list items or other holdbacks. With respect to any portion of an Advance made on Substantial Completion which is to be used to pay for open punch list items or other holdbacks, the Lessee represents that such portion will be used for such purpose to the extent that a contractor is entitled thereto and that neither the Lessee nor the Construction Agent has previously been reimbursed therefor by an Advance. ARTICLE VII PAYMENT OF RENT; FEES 7.1 Rent. The Lessee shall pay Base Rent in arrears on each Leased Asset on each Payment Date during the Base Term for such Leased Asset, on the date required under Section 24.1(i) in connection with the Lessee's exercise of the Remarketing Option and on any date on which this Lease shall terminate. In addition, Lessee shall pay Base Rent in arrears on each Payment Date in respect of the Advance made by Lessor pursuant to Section 3.2(f) hereof. Base Rent shall be calculated as provided in Appendix 2 hereto. 7.2 Payment of Rent. Rent shall be paid absolutely net to the Lessor, so that this Lease shall yield to the Lessor the full amount thereof, without setoff, deduction or reduction. Neither the Lessee's inability or failure to take possession of all or any portion of any Leased Asset when delivered by the Lessor, whether or not attributable to any act or omission of the Lessee or any act or omission of the Lessor, or for any other reason whatsoever, shall delay or otherwise affect the Lessee's obligation to pay Rent for such Leased Asset in accordance with the terms of this Lease. 7.3 Supplemental Rent. The Lessee shall pay to the Lessor any and all Supplemental Rent promptly after receipt of an invoice therefor as the same shall become due and payable, and if the Lessee fails to pay any Supplemental Rent, the Lessor shall have all rights, powers and remedies provided for herein or by law or equity or otherwise in the case of nonpayment of Base Rent. The Lessee shall pay to the Lessor, as Supplemental Rent, among other things, on demand, interest at the applicable Overdue Rate on any installment of Base Rent not paid when due for the period for which the same shall be overdue and on any payment of Supplemental Rent not paid when due or demanded by the Lessor for the period from the due date or the date of any such demand, as the case may be, until the same shall be paid. The expiration or other termination of the Lessee's obligations to pay Base Rent hereunder shall not limit or modify the obligations of the Lessee with respect to Supplemental Rent. Unless expressly provided otherwise in this Lease, in the event of any failure on the part of the Lessee to pay and discharge any Supplemental Rent as and when due, the Lessee shall also promptly pay and discharge any fine, penalty, interest or cost which may be assessed or added under any agreement with a third party for nonpayment or late payment of such Supplemental Rent, all of which shall also constitute Supplemental Rent. 7.4 Fees. The Lessee hereby agrees to pay to the Lessor the fees set forth in this Section 7.4. All such fees shall be non-refundable, except as may otherwise be provided in the Lessor Fee Letter. (a) Commitment Fee. The Lessee shall pay to the Lessor for each Leased Asset, for the period (including any portion thereof when the Lessor's obligations pursuant to Section 3.1 are suspended by reason of the Lessee's inability to satisfy any condition of Article IV) commencing on (and including) the Closing Date and continuing to (but excluding), in the case of the Lessor Commitment Fee, the Base Date for such Leased Asset, and, in the case of the Liquidity Commitment Fee, the Expiration Date for such Leased Asset, a Commitment Fee (the "Commitment Fee") as set forth in Appendix 2. 7.5 Capitalized Interest. If and to the extent that the Lessee does not request an Advance to pay any Capitalized Interest, then the Lessee will pay the amount thereof to the Lessor on the last day of the Interest Period during which such Capitalized Interest has accrued. 7.6 Method of Payment. Each payment of Rent or any other amount due hereunder shall be made by the Lessee to the Lessor prior to 1:00 p.m., New York City time, at the place of payment designated in writing by the Lessor in funds consisting of lawful currency of the United States of America which shall be immediately available on the scheduled date when such payment shall be due, unless such scheduled date shall not be a Business Day, in which case such payment shall be made on the next succeeding Business Day. Payments received after 1:00 p.m., New York City time, on any day shall be deemed received on the next succeeding Business Day. If requested by the Lessee, the Lessor shall make arrangements to permit payments hereunder to be made by the automated clearing house payments system. ARTICLE VIII QUIET ENJOYMENT; RIGHT TO INSPECT 8.1 Quiet Enjoyment. Subject to Sections 2.4 and 8.2, and subject to the rights of the Lessor contained herein and the other terms of the Operative Documents to which the Lessee is a party, the Lessee shall peaceably and quietly have, hold and enjoy each Leased Asset for the Base Term applicable thereto, free of any claim or other action by the Lessor or anyone claiming by, through or under the Lessor (other than the Lessee) with respect to any matters arising from and after the Acquisition Date. Such right of quiet enjoyment is independent of, and shall not affect the Lessor's rights otherwise to initiate legal action to enforce, the obligations of the Lessee under this Lease. 8.2 Right to Inspect. During the Lease Term, the Lessee shall, upon reasonable notice from the Lessor (except that no notice shall be required if an Event of Default under this Lease has occurred and is continuing), permit the Lessor and its authorized representatives to inspect any Leased Asset during normal business hours. Lessor and its authorized representatives shall maintain the confidentiality of any confidential information obtained during the course of any inspection and, at the request and expense of the Lessee, shall execute and deliver non-disclosure agreements to such effect as may be reasonably appropriate. ARTICLE IX NET LEASE, ETC. 9.1 Net Lease. This Lease shall constitute a net lease. Any present or future law to the contrary notwithstanding, this Lease shall not terminate, nor shall the Lessee be entitled to any abatement, suspension, deferment, reduction, setoff, counterclaim, or defense with respect to the Rent, nor shall the obligations of the Lessee hereunder be affected (except as expressly herein permitted and by performance of the obligations in connection therewith) by reason of: (i) any defect in the condition, merchantability, design, construction, quality or fitness for use of any Leased Asset or any part thereof, or the failure of any Leased Asset to comply with all Requirements of Law, including any inability to occupy or use any Leased Asset by reason of such non-compliance; (ii) any damage to, removal, abandonment, salvage, loss, contamination of or Release from, scrapping or destruction of or any requisition or taking of any Leased Asset or any part thereof; (iii) any restriction, prevention or curtailment of or interference with any use of the Leased Asset or any part thereof including eviction; (iv) any defect in title to or rights to any Leased Asset or any Lien on such title or rights or on any Leased Asset (other than Lessor Liens); (v) any change, waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by the Lessor; (vi) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to the Lessee or any other Person, or any action taken with respect to this Lease by any trustee or receiver of the Lessee or any other Person, or by any court, in any such proceeding; (vii) any claim that the Lessee has or might have against any Person, including without limitation the Lessor and any vendor, manufacturer, contractor of or for any portion of any Leased Asset; (viii) any failure on the part of the Lessor to perform or comply with any of the terms of this Lease (other than performance by Lessor of its obligations set forth in Section 2.1 hereof), of any other Operative Document or of any other agreement; (ix) any invalidity or unenforceability or illegality or disaffirmance of this Lease against or by the Lessee or any provision hereof or any of the other Operative Documents or any provision of any thereof; (x) any restriction, prevention or curtailment of or interference with the construction on or any use of any Leased Asset or any part thereof; or (xi) any other cause or circumstances, similar to the foregoing and whether or not the Lessee shall have notice or knowledge of any of the foregoing. The agreement of the Lessee in the preceding sentence shall not affect any claim, action or right that the Lessee may have against the Lessor or any other Person. The parties intend that the obligations of the Lessee hereunder shall be covenants and agreements that are separate and independent from any obligations of the Lessor hereunder or under any other Operative Documents and the obligations of the Lessee shall continue unaffected unless such obligations shall have been modified or terminated in accordance with an express provision of this Lease. 9.2 No Termination or Abatement. The Lessee shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any action for 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 of the Lessor or by any court with respect to the Lessor. The Lessee hereby waives all right (i) to terminate or surrender this Lease (except as provided herein) or (ii) to avail itself of any abatement, suspension, deferment, reduction, setoff, counterclaim or defense with respect to any Rent. The Lessee shall remain obligated under this Lease in accordance with its terms and the Lessee hereby waives any and all rights now or hereafter conferred by statute or otherwise to modify or to avoid strict compliance with its obligations under this Lease. Notwithstanding any such statute or otherwise, the Lessee shall be bound by all of the terms and conditions contained in this Lease. ARTICLE X SUBLEASES 10.1 Subletting. The Lessee may, without the consent of the Lessor, sublease any Leased Asset or any portion thereof to any Person who, to the best of Lessee's knowledge, has not filed, or had filed against it, insolvency proceedings or a petition under the bankruptcy laws of the United States. No sublease or other relinquishment of possession of such Leased Asset 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 Leased Asset, or portion thereof, so sublet. Any sublease of such Leased Asset 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 Leased Asset by the sublessee in a manner materially different than that of the Lessee prior to the sublease. In connection with any sublease, the Lessee may request the Lessor to enter into a customary non-disturbance agreement with the sublessee. The Lessor will act in a commercially reasonable manner in determining whether or not to enter into such non-disturbance agreement. ARTICLE XI LESSEE ACKNOWLEDGMENTS 11.1 Condition of the Properties. THE LESSEE ACKNOWLEDGES AND AGREES THAT ALTHOUGH THE LESSOR WILL OWN AND HOLD TITLE TO THE IMPROVEMENTS, THE CONSTRUCTION AGENT IS SOLELY RESPONSIBLE UNDER THE TERMS OF THE CONSTRUCTION AGENCY AGREEMENT FOR THE DESIGN, DEVELOPMENT, BUDGETING AND CONSTRUCTION OF THE IMPROVEMENTS AND ANY ALTERATIONS OR MODIFICATIONS. THE LESSEE FURTHER ACKNOWLEDGES AND AGREES THAT IT IS LEASING EACH LEASED ASSET "AS IS" WITHOUT, EXCEPT AS EXPRESSLY OTHERWISE PROVIDED HEREIN, REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY THE LESSOR AND SUBJECT TO (A) THE EXISTING STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ANY STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT SHOW, AND (D) VIOLATIONS OF REQUIREMENTS OF LAW WHICH MAY EXIST ON THE DATE HEREOF OR AT ANY TIME HEREAFTER. THE LESSOR HAS NOT MADE, EXCEPT AS EXPRESSLY OTHERWISE PROVIDED HEREIN, AND SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) AND SHALL NOT BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE (OTHER THAN FOR LESSOR LIENS), VALUE, HABITABILITY, USE, CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF ANY LEASED ASSET (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY LEASED ASSET (OR ANY PART THEREOF) AND THE LESSOR SHALL NOT BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN (OTHER THAN FOR LESSOR LIENS) OR THE FAILURE OF ANY LEASED ASSET, OR ANY PART THEREOF, TO COMPLY WITH ANY REQUIREMENT OF LAW. 11.2 Risk of Loss. During the Construction Period and the Base Term for any Leased Asset, the risk of loss of or decrease in the enjoyment and beneficial use of such Leased Asset as a result of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise is assumed by the Lessee, and the Lessor shall in no event be answerable or accountable therefor. ARTICLE XII POSSESSION AND USE, ETC. 12.1 Possession and Use. Each Leased Asset shall be used as described in the applicable Lease Supplement therefor and in a manner consistent with the standards applicable to properties of a similar nature in the geographic area in which such Leased Asset is located or operated and in any event not less than the standards applied by the Lessee and its Affiliates for other comparable properties owned or leased by the Lessee and its Affiliates. 12.2 Charges. The Lessee shall pay, or cause to be paid, all charges and costs required in connection with the use of such Leased Asset as contemplated by this Lease. The Lessee shall not commit or permit any waste of such Leased Asset or any part thereof. The Lessee shall pay or cause to be paid all charges for electricity, power, gas, oil, water, telephone, sanitary sewer service and all other rents and utilities used in or on each Property through the Expiration Date. The Lessee shall be entitled to receive any credit or refund with respect to any utility charge paid by the Lessee and the amount of any credit or refund received by the Lessor on account of any utility charges paid by the Lessee, net of the costs and expenses reasonably incurred by the Lessor in obtaining such credit or refund, shall be promptly paid over to the Lessee. 12.3 Compliance with Requirements of Law and Insurance Requirements. Subject to the terms hereof relating to permitted contests, the Lessee, at its sole cost and expense, shall (i) comply in all material respects with all Requirements of Law and Insurance Requirements relating to each Leased Asset, including the construction, use, operation, maintenance, repair and restoration thereof and the remarketing thereof pursuant to Article XXIV, whether or not compliance therewith shall require structural or extraordinary changes in any Improvements or interfere with the use and enjoyment of such Leased Asset, and (ii) procure, maintain and comply in all material respects with all material licenses, permits, orders, approvals, consents and other authorizations required for the construction, use, operation, maintenance, repair and restoration of the Leased Assets. ARTICLE XIII MAINTENANCE AND REPAIR; RETURN 13.1 Maintenance and Repair. (a) The Lessee, at its sole cost and expense, shall maintain each Leased Asset in good condition (ordinary wear and tear excepted) and make all necessary repairs thereto, of every kind and nature whatsoever, whether interior or exterior, ordinary or extraordinary, structural or nonstructural or foreseen or unforeseen, in each case as required by all Requirements of Law and Insurance Requirements and on a basis consistent with the operation and maintenance of properties comparable in type and location to such Leased Asset and in no event less than the standards applied by the Lessee and its Affiliates in the operation and maintenance of other comparable properties owned or leased by the Lessee and its Affiliates. (b) The Lessor shall under no circumstances be required to build any improvements on any Property, make any replacements, alterations or renewals of any nature or description to any Leased Asset or make any expenditure whatsoever in connection with this Lease (other than for Advances made in accordance with and pursuant to the terms of this Lease and the Construction Agency Agreement). The Lessor shall not be required to maintain, repair or rebuild all or any part of any Leased Asset, and the Lessee waives any right to (i) require the Lessor to maintain, repair, or rebuild all or any part of any Leased Assets, or (ii) make repairs at the expense of the Lessor pursuant to any Requirement of Law, Insurance Requirement, contract, agreement, or covenant, condition or restriction in effect at any time during the Base Term applicable to any Leased Asset. (c) With respect to Aircraft, without limiting the generality of Section 13.1(a), the Lessee, at its sole cost and expense, shall: (i) maintain, service, repair, overhaul and test such Aircraft (A) so as to keep such Aircraft in operating condition as good as when delivered to the Lessee hereunder, ordinary wear and tear excepted, and (B) so as to keep such Aircraft in such operating condition as may be necessary to enable the airworthiness certification of such Aircraft to be maintained in good standing at all times under the Federal Aviation Act of 1958, as amended, except during such period or periods as such Aircraft is being overhauled, maintained, serviced, repaired or tested; (ii) maintain all records, logs and other materials required by the FAA to be maintained in respect of such Aircraft; and (iii) promptly furnish to the Lessor such notification and take such other action on the Lessor's behalf as may be required to be filed by the Lessor with any governmental authority because of the Lessor's interest in such Aircraft. The Lessee shall forthwith upon the Acquisition Date with respect to any Aircraft, cause such Aircraft to be fully registered and at all times thereafter to remain duly registered in the name of the Lessee. The Lessee shall affix or cause to be affixed to each Aircraft in the place designated by the Lessor (or, if no such place shall have been designated, in a prominent place), labels, plates or other markings stating that such Aircraft is owned by the Lessor. The Lessee shall not without the prior permission of the Lessor change or remove (or permit to be changed or removed or otherwise permit a decrease in the visibility of) any insignia or lettering which is on any Aircraft at the time of delivery thereof or which is thereafter placed thereon indicating the Lessor's ownership thereof. 13.2 Return. (a) The Lessee shall, upon the expiration or earlier termination of this Lease, vacate and surrender each Leased Asset to the Lessor in its then-current, "AS IS" condition, subject to the Lessee's obligations under Sections 12.3, 13.1, 14.1, 15.1, 18.1(d), 18.2 and 24.1, unless the Lessee has purchased such Leased Asset from the Lessor as provided herein. (b) Upon termination of the lease of any Aircraft, the Lessee shall have the option of having the aircraft engines installed on such Aircraft be engines of the same model as the original Engines or substitute engines suitable and approved by the FAA for such Aircraft, free and clear of all Liens, encumbrances or rights of others whatsoever and having a value and utility at least equal to, and being in as good operation and condition, ordinary wear and tear excepted, as such original Engines. "Ordinary wear and tear" as used herein is intended to reflect the FAA regulations pertaining to the requirement of a periodic overhauling of aircraft engines. Thus, in returning the Engines, the Lessee, under normal circumstances, shall be required to overhaul them only if the total flying hours of such Engines would require an overhaul under the FAA regulations. Upon the return of any Aircraft, the Lessee shall (i) deliver to the Lessor or its designee, all logs, manuals, inspection data, modification and overhaul records or copies thereof which are applicable to such Aircraft and are of the type that the Lessee customarily retains or is required by law to retain with respect to its own aircraft and (ii) at its own expense, will cause such Aircraft, if not then registered in the name of the Lessor, to be registered in the name of the Lessor or its designee. At the time of such return such Aircraft shall be duly certified as airworthy by the FAA. ARTICLE XIV MODIFICATIONS, ETC. 14.1 Modifications, Substitutions and Replacements. After the date of Substantial Completion for any Leased Asset consisting of Property and after the Acquisition Date for any Other Asset, the Lessee, at its sole cost and expense, may at any time and from time to time make alterations, renovations, improvements and additions to such Leased Asset or any part thereof and substitutions and replacements therefor (collectively, "Modifications"); provided, however, that: (i) except for any Modification required to be made pursuant to a Requirement of Law (a "Required Modification"), no Modification shall impair the value, utility or useful life of such Leased Asset or any part thereof from that which existed immediately prior to such Modification; (ii) the Modification shall be done expeditiously and in a good and workmanlike manner; (iii) the Lessee shall comply with all Requirements of Law and Insurance Requirements applicable to the Modification, including the obtaining of all permits and certificates of occupancy, and the structural integrity of such Leased Asset shall not be adversely affected; (iv) subject to the terms of Article XVI relating to permitted contests, the Lessee shall pay all costs and expenses and shall discharge (or cause to be insured or bonded over) within sixty (60) days after the same shall be filed (or otherwise become effective) any Liens arising with respect to the Modification; (v) such Modifications shall comply with Section 13.1(a); and (vi) the Lessee shall be required to obtain the prior written approval of the Lessor, which approval shall not be unreasonably withheld, with respect to any alterations (other than Required Modifications and/or alterations authorized by the Construction Agency Agreement) that shall (A) materially affect any structural element of the Improvements to any Property or major building system therein, or (B) cost in excess of the Threshold Amount or (C) materially change the nature of the Improvements to any Property or the amount of usable area therein or the utility thereof for the purposes contemplated by the Lessor and the Lessee as of the date hereof and the date of the Lease Supplement therefor. All Modifications shall remain part of such Leased Asset and shall be subject to this Lease and title thereto shall immediately vest in the Lessor; provided, however, that Modifications that meet each of the following conditions shall not be subject to this Lease: (x) such Modifications are not Required Modifications, (y) such Modifications were not financed by the Lessor and (z) such Modifications are readily removable without impairing the value, utility or remaining useful life of the related Leased Asset. So long as no Event of Default has occurred and is continuing, the Lessee may place upon each Leased Asset any trade fixtures, machinery, equipment or other property belonging to the Lessee or third parties and may remove the same at any time during the Lease Term, subject, however, to the terms of Section 13.1; provided that such trade fixtures, machinery, equipment or other property do not materially impair the value, utility or remaining useful life of such Leased Asset; and provided, further, that the Lessee shall keep and maintain at each Property and shall not remove from such Property any Equipment financed or otherwise paid for (directly or indirectly) by the Lessor pursuant to this Lease. Notwithstanding the foregoing proviso, the Lessee may substitute other equipment for such Equipment, which substituted equipment shall have a Fair Market Sales Value and remaining useful life at least equivalent to the Equipment for which it was substituted and, without further act, such substituted equipment shall be Equipment hereunder and be part of the applicable Property. ARTICLE XV WARRANT OF TITLE; EASEMENTS 15.1 Warrant of Title. (a) The Lessee agrees that except as otherwise provided herein and subject to the terms of Article XVI relating to permitted contests, the Lessee shall not directly or indirectly create or allow to remain, and shall promptly discharge at its sole cost and expense, any Lien, defect, attachment, levy, title retention agreement or claim upon any Leased Asset or any Modifications or any Lien, attachment, levy or claim with respect to the Rent, other than Permitted Liens. 15.2 Nothing contained in this Lease shall be construed as constituting the consent or request of the Lessor, expressed or implied, to or for the performance by any contractor, mechanic, laborer, materialman, supplier or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to any Leased Asset or any part thereof. NOTICE IS HEREBY GIVEN THAT THE LESSOR IS NOT AND SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING ANY LEASED ASSET OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF THE LESSOR, IN AND TO ANY LEASED ASSET. 15.3 Grants and Releases of Easements; Lessor's Waivers. Provided that no Default or Event of Default shall have occurred and be continuing and subject to the provisions of Articles XII, XIII and XIV, the Lessor hereby consents in each instance to the following actions by the Lessee, but at the Lessee's sole cost and expense: (a) 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 any Property as herein provided and to give effect to the state of title in effect for such Property as set forth in the title policy therefor; (b) the release of existing easements or other rights in the nature of easements which are for the benefit of any Property; (c) if required by applicable Governmental Authority in connection with the Construction, the dedication or transfer of unimproved portions of any Land for road, highway or other public purposes; and (d) the execution of amendments to any covenants and restrictions affecting any Property; provided, however, that in each case (i) such grant, release, dedication, transfer or amendment does not materially impair the value, utility or remaining useful life of any Property, (ii) such grant, release, dedication, transfer or amendment is reasonably necessary in connection with the use, maintenance, alteration or improvement of any Property, (iii) such grant, release, dedication, transfer or amendment will not cause any Property or any portion thereof to fail to comply in any material respect with the provisions of this Lease or any other Operative Documents and all Requirements of Law (including, without limitation, all applicable zoning, planning, building and subdivision ordinances, all applicable restrictive covenants and all applicable architectural approval requirements); (iv) all governmental consents or approvals required prior to such grant, release, dedication, transfer or amendment have been obtained, and all filings required prior to such action have been made; (v) such grant, release, dedication, transfer or amendment will not result in any down-zoning of any Property or any portion thereof or a material reduction in the maximum density or development rights available to any Property under all Requirements of Law; (vi) the Lessee shall remain obligated under this Lease and under any Operative Document executed by the Lessee consenting to the assignment of the Lessor's interest in this Lease as security for Advances made by it to the Lessor, in each such case in accordance with their terms, as though such grant, release, dedication, transfer or amendment had not been effected; and (vii) the Lessee shall pay and perform any obligations of the Lessor under such grant, release, dedication, transfer or amendment. The Lessor acknowledges the Lessee's right to finance and to secure under the Uniform Commercial Code, inventory, furnishings, furniture, equipment, machinery, leasehold improvements and other personal property located at any Property other than Equipment, and Lessor agrees to execute Lessor waiver forms 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. Without limiting the effectiveness of the foregoing, provided that no Default or Event of Default shall have occurred and be continuing, the Lessor shall, upon the request of the Lessee, and at the Lessee's sole cost and expense, execute and deliver any instruments necessary or appropriate to confirm any such grant, release, dedication, transfer or amendment to any Person permitted under this Section 15.2, including landlord waivers with respect to any of the foregoing. ARTICLE XVI PERMITTED CONTESTS 16.1 Permitted Contests in Respect of Applicable Law. If, to the extent and for so long as (a) a test, challenge, appeal or proceeding for review of any Applicable Law relating to any Leased Asset shall be prosecuted diligently and in good faith in appropriate proceedings by the Lessee or (b) compliance with such Applicable Law shall have been excused or exempted by a valid nonconforming use, variance permit, waiver, extension or forbearance, the Lessee shall not be required to comply with such Applicable Law but only if and so long as any such test, challenge, appeal, proceeding, waiver, extension, forbearance or noncompliance shall not, in the reasonable opinion of the Lessor, involve (A) any risk of criminal liability being imposed on the Lessor, or (B) any material risk of (1) foreclosure, forfeiture or loss of any Leased Asset or any material part thereof, or (2) the nonpayment of Rent or (C) any substantial danger of (1) the sale of, or the creation of any Lien (other than a Permitted Lien) on, any part of any Leased Asset, (2) civil liability being imposed on the Lessor, or (3) enjoinment of, or interference with, the use, possession or disposition of any Leased Asset in any material respect. The Lessor will not be required to join in any proceedings pursuant to this Section 16.1 unless a provision of any Applicable Law requires that such proceedings be brought by or in the name of the Lessor; and in that event the Lessor will join in the proceedings or permit them or any part thereof to be brought in its name if and so long as (i) no Default or Event of Default has occurred and is continuing, (ii) the Lessee has not elected the Remarketing Option, and (iii) the Lessee pays all related expenses and indemnifies the Lessor to its reasonable satisfaction. ARTICLE XVII INSURANCE 17.1 Public Liability and Workers' Compensation Insurance. (a) Property. With respect to each Property, the Lessee shall procure and carry commercial general liability insurance for claims for bodily injury or death sustained by persons or damage to property while on such Property and such other public liability coverages as are ordinarily procured by the Lessee or its Affiliates who own or operate similar properties. Such insurance shall be on terms and in amounts that are materially no less favorable than insurance maintained by the Lessee or its Affiliates with respect to similar properties that they own and that are in accordance with normal industry practice in the state in which such Property is located. The Lessee shall, in the construction of the Improvements (including in connection with any Modifications thereof) and the operation of any Property, comply with, or cause the applicable contractor to comply with, all applicable workers' compensation laws. The insurance required by this clause (a) may be subject to such deductibles and the Lessee may self-insure with respect to the required coverage to the extent approved in writing by the Lessor. (b) Aircraft. With respect to each Aircraft, the Lessee shall procure or cause to be procured and maintain or cause to be maintained public liability insurance with respect to such Aircraft, covering both bodily personal injury and damage to property (as to all Persons, including employees of the Lessee or the Lessor). Policies covering bodily injury and property damage shall provide for coverage in an amount which is not less than the public liability and property damage insurance usually carried with respect to aircraft similar to such Aircraft by corporations of a similar size engaged in the same or similar business and similarly situated with the Lessee and its Affiliates; provided, that such insurance shall at all times be in an amount not less than $30,000,000 per occurrence. (c) Other Assets. With respect to any Other Asset other than Aircraft, the Lessee will carry public liability insurance and property damage insurance with respect to such Other Asset (i) in amounts which are not less than the public liability and property damage insurance applicable to similar assets owned, leased or held by the Lessee and its Affiliates and (ii) of the types usually carried by corporations engaged in the same or a similar business, similarly situated with the Lessee and its Affiliates, and owning or operating similar assets in the state in which such Other Asset is located and which cover risk of the kind customarily insured against by such corporations. The insurance required by this clause (c) may be subject to such deductibles and the Lessee may self-insure with respect to the required coverage to the extent approved in writing by the Lessor. 17.2 Hazard and Other Insurance. (a) Property. With respect to each Property, the Lessee shall keep, or cause to be kept, such Property insured against loss or damage by fire, earthquake, flood and other risks on terms and in amounts that are no less favorable than insurance covering other similar properties owned by the Lessee or its Affiliates and that are in accordance with normal industry practice, provided that such insurance shall at all times be in an amount not less than the greater of the Lease Balance of such Property or the replacement cost thereof. During the construction of any Improvements the Lessee shall also maintain or cause to be maintained builders' risk insurance or equivalent coverages. The insurance required by this clause (a) may be subject to such deductibles and the Lessee may self-insure with respect to the required coverage to the extent approved in writing by the Lessor. (b) Aircraft. With respect to each Aircraft, the Lessee shall procure or cause to be procured and maintain or cause to be maintained all risk aircraft hull insurance with respect to such Aircraft, of the type and in substantially the amounts usually carried by corporations engaged in the same or similar business and similarly situated with the Lessee and its Affiliates; provided that such insurance shall at all times be in an amount not less than the Lease Balance of such Aircraft at such time. (c) Other Assets.With respect to any Other Asset other than Aircraft, the Lessee will maintain in effect physical damage insurance with respect to such Other Asset which is of the type usually carried by corporations engaged in the same or similar business, similarly situated with the Lessee and its Affiliates, and owning or operating similar equipment and which covers risk of the kind customarily insured against by such corporations, and in substantially the amount applicable to similar assets owned, leased or held by the Lessee and its Affiliates; provided that such insurance shall at all times be in an amount not less than the aggregate Lease Balance of all such Other Assets. The insurance required by this clause (c) may be subject to such deductibles and the Lessee may self-insure with respect to the required coverage to the extent approved in writing by the Lessor. 17.3 Insurance Coverage. (a) Upon request the Lessee shall furnish the Lessor and the Collateral Agent with certificates showing the insurance required under Sections 17.1 and 17.2 to be in effect and naming the Lessor, the Receivable Purchaser, the Conduits and the Liquidity Providers as additional insureds with respect to liability coverage (excluding worker's compensation insurance), and naming the Collateral Agent as loss payee with respect to property coverage and showing the mortgagee endorsement required by Section 17.3(c) with respect to such coverage. All such insurance shall be at the sole cost and expense of the Lessee and shall be maintained with respect to each Leased Asset from the Acquisition Date thereof through the Expiration Date therefor. Such certificates shall include a provision for no less than ten (10) days' advance written notice by the insurer to the Lessor in the event of cancellation or reduction of such insurance. In addition, the Lessee shall cause the Lessor, the Receivable Purchaser, the Conduits and the Liquidity Providers to be named as additional insureds under the liability policies maintained with respect to the Construction for each Property. (b) The Lessee agrees that the insurance policy or policies required by Sections 17.1 and 17.2, shall include an appropriate clause pursuant to which such policy shall provide that it will not be invalidated should the Lessee waive, in writing, prior to a loss, any or all rights of recovery against any party for losses covered by such policy, and that the insurance in favor of the Lessor and the other additional insureds and their rights under and interests in said policies shall not be invalidated or reduced by any act or omission or negligence of the Lessee or any other Person having any interest in any Leased Asset. The Lessee and the Lessor each hereby waives any and all rights against the other for loss or damage to or loss of use of its property to the extent of payments made under its property insurance so long as such waiver shall not affect its rights to recover under such insurance. (c) Except as otherwise permitted by clause (d), all such insurance shall be written by reputable insurance companies that are financially sound and solvent and otherwise reasonably appropriate considering the amount and type of insurance being provided by such companies. Any insurance company selected by the Lessee which is rated in Best's Insurance Guide or any successor thereto (or if there be none, an organization having a similar national reputation) shall have a general policyholder rating of "A" and a financial rating of at least "VIII" or be otherwise acceptable to the Lessor. All insurance policies required by Section 17.2 shall include a standard form mortgagee endorsement in favor of the Lessor. (d) The Lessor shall not carry separate insurance concurrent in kind or form or contributing in the event of loss with any insurance required under this Article XVII except that the Lessor may carry separate liability insurance so long as (i) the Lessee's insurance is designated as primary and in no event excess or contributory to any insurance the Lessor may have in force which would apply to a loss covered under the Lessee's policy and (ii) each such insurance policy will not cause the Lessee's insurance required under this Article XVII to be subject to a coinsurance exception of any kind. Each policy maintained by the Lessee shall specifically provide that the policy shall be considered primary insurance which shall apply to any loss or claim before any contribution by any insurance which the Lessor may have in force. (e) The Lessee shall pay as they become due all premiums for the insurance required by Section 17.1 and Section 17.2, and shall renew or replace each policy prior to the expiration date thereof. Throughout the Base Term for any Leased Asset, at the time each of the Lessee's insurance policies is renewed (but in no event less frequently than once each year), the Lessee shall deliver to the Lessor and the Collateral Agent certificates of insurance evidencing that all insurance required by this Article XVII with respect to such Leased Asset is being maintained by the Lessee and is in effect. (f) All insurance proceeds in respect of any property damage loss or occurrence for which the proceeds related thereto are (i) less than or equal to the Threshold Amount, in the absence of the occurrence and continuance of a Default or Event of Default, shall be adjusted by and paid to the Lessee for application toward the reconstruction, repair or refurbishment of the applicable Leased Asset and (ii) greater than the Threshold Amount, shall be adjusted jointly by the Lessee, the Lessor and the Collateral Agent (unless a Default or Event of Default has occurred and is continuing, in which case such proceeds shall be adjusted solely by the Collateral Agent) and held by the Collateral Agent for application in accordance with Article XVIII hereof. ARTICLE XVIII CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS 18.1 Casualty and Condemnation. (a) Subject to the provisions of this Article XVIII, if all or a portion of any Leased Asset is damaged or destroyed in whole or in part by a Casualty or is the subject of a Condemnation, then (i) in the case of a Casualty where the cost of restoration of the affected Leased Asset in the reasonable judgment of the Lessor and the Collateral Agent is (x) less than or equal to the Threshold Amount, any insurance proceeds payable with respect to such Casualty shall be paid directly to the Lessee, or if received by the Lessor or Collateral Agent, shall be paid over to the Lessee for the reconstruction, refurbishment and repair of such Leased Asset, (y) greater than the Threshold Amount, any insurance proceeds payable with respect to such Casualty shall be paid to the Lessor but may be obtained by the Lessee and used for the purpose of reconstructing, refurbishing and repairing the affected Leased Asset upon submission to the Lessor and the Collateral Agent of a Responsible Employee's Certificate to the effect that such Leased Asset can be fully restored to the condition required under this Lease prior to the end of the Base Term for such Leased Asset (after giving effect to any extensions of such Base Term) and as to the cost of such restoration (accompanied by, in the case of a Leased Asset consisting of Property, an Architect's certificate as to the foregoing matters) plus a statement as to the Lessee's affirmative ability to finance such restoration, and upon receipt of such certificate(s) in form reasonably satisfactory to the Lessor and the Collateral Agent such amounts shall be made available to the Lessee in the manner contemplated by the Construction Agency Agreement with respect to Construction and if the foregoing certificate(s) are not delivered to the Lessor and the Collateral Agent such proceeds shall be applied toward the payment of the Lease Balance for such Leased Asset and (ii) in the case of a Condemnation such award or compensation shall be paid to the and the Collateral Agent to be applied in the reasonable discretion of the Collateral Agent, after consultation with the Required Participants to the restoration of the affected Leased Asset or toward the payment of the Lease Balance; provided, however, that if a Default or Event of Default shall have occurred and be continuing, such award, compensation or insurance proceeds shall be paid directly to the Collateral Agent or, if received by the Lessee, shall be held in trust for the Collateral Agent and shall be paid over by the Lessee to the Collateral Agent. All amounts held by the Lessor when a Default or Event of Default exists hereunder on account of any award, compensation or insurance proceeds either paid directly to the Collateral Agent or turned over to the Collateral Agent shall at the request of the Required Participants either be (i) paid to the Lessee for the repair of damage caused by such Casualty or Condemnation in accordance with clause (d) of this Section 18.1, or (ii) (A) if a Default exits, held by the Lessor until such Default is cured or becomes an Event of Default or (B) if an Event of Default exists, applied toward the payment of the Lease Balance of the affected Leased Asset. (b) The Lessee may appear in any proceeding or action to negotiate, prosecute, adjust or appeal any claim for any award, compensation or insurance payment on account of any such Casualty or Condemnation and shall pay all expenses thereof. At the Lessee's reasonable request, and at the Lessee's sole cost and expense, the Lessor shall participate in any such proceeding, action, negotiation, prosecution or adjustment. The Lessor and the Lessee agree that this Lease shall control the rights of the Lessor and the Lessee in and to any such award, compensation or insurance payment. (c) If the Lessor or the Lessee shall receive notice of a Casualty or of an actual, pending or threatened Condemnation of any Leased Asset or any interest therein, the Lessor or the Lessee, as the case may be, shall give notice thereof to the other and to the Collateral Agent promptly after the receipt of such notice. (d) If pursuant to this Section 18.1 and Section 19.1 this Lease shall continue in fullforce and effect following a Casualty or Condemnation with respect to any Leased Asset, the Lessee shall, at its sole cost and expense (and, without limitation, if any award, compensation or insurance payment is not sufficient to restore such Leased Asset in accordance with this paragraph, the Lessee shall pay the shortfall), promptly and diligently repair any damage to such Leased Asset caused by such Casualty or Condemnation in conformity with the requirements of Sections 13.1 and 14.1 using, in the case of any Property, the as-built plans and specifications for such Property (as modified to give effect to any subsequent Modifications, any Condemnation affecting such Property and all applicable Requirements of Law) so as to restore such Leased Asset to at least the same condition, operation, function and value as existed immediately prior to such Casualty or Condemnation with such Modification as the Lessee may elect in accordance with Section 14.1. Upon completion of such restoration, the Lessee shall furnish the Lessor a Responsible Employee's Certificate and, in the case of any Property, an Architect's certificate confirming that such restoration has been completed pursuant to this Lease. (e) In no event shall a Casualty or Condemnation affect the Lessee's obligations to pay Rent pursuant to Section 7.1 or to perform its obligations and pay any amounts due on any Expiration Date or pursuant to Articles XXII and XXV. (f) Any Excess Proceeds received by the Lessor and held by the Collateral Agent in respect of a Casualty or Condemnation affecting any Leased Asset shall be turned over to the Lessee upon the full payment of the Lease Balance for such Leased Asset and all other amounts then due and payable hereunder. 18.2 Environmental Matters. Promptly upon the Lessee's knowledge of the existence of an Environmental Violation that could materially affect the value of any Property, the Lessee shall notify the Lessor and the Collateral Agent in writing of such Environmental Violation. If the cost of remediation of such Environmental Violation would not exceed the limits set forth in Section 19.1, the Lessee will promptly and diligently undertake any response, cleanup, remedial or other action required by Applicable Law of the Lessor or the Lessee to remove, cleanup or mediate such Environmental Violation of the Lessee's sole cost and expense. If the cost of such remediation would exceed the limits set forth in Section 19.1, the Lessor may elect to terminate the Lease with respect to such Property pursuant to Section 19.1 or, alternatively, the Lessor may request that the Lessee undertake any response, cleanup, remedial or other action required by Applicable Law of the Lessor or Lessee to remove, clean up or remediate the Environmental Violation in accordance with the terms of Section 12.3, at the Lessee's sole cost and expense. If the Lessor does not deliver a Termination Notice with respect to such Property pursuant to Section 19.1, then the Lessee shall undertake such response, cleanup, remedial or other action, and the Lessee shall, upon completion of remedial action by the Lessee, cause to be prepared by an environmental consultant reasonably acceptable to the Lessor a report describing the Environmental Violation and the actions taken by the Lessee (or its agents) in response to such Environmental Violation, along with a statement by the Lessee that the Environmental Violation has been remedied to the satisfaction of the Government Authority exercising jurisdiction, or in compliance in all material respects with applicable Environmental Law. Nothing in this Section shall reduce or limit the Lessee's obligations under the indemnity provisions hereof. 18.3 Notice of Environmental Matters. Promptly, but in any event within thirty (30) days from the date the Lessee has actual knowledge thereof, the Lessee shall provide to the Lessor and the Collateral Agent written notice of any pending or threatened claim, action or proceeding involving any Environmental Law or any Release on or in connection with any Property. All such notices shall describe in reasonable detail the nature of the claim, action or proceeding and the Lessee's proposed response thereto. In addition, the Lessee shall provide to the Lessor and the Collateral Agent, within thirty (30) days of receipt, copies of all written communications with any Governmental Authority relating to any Environmental Violation in connection with any Property. The Lessee shall also promptly provide such detailed reports of any such environmental claims as may reasonably be requested by the Lessor. In the event that the Lessor receives written notice of any pending or threatened claim, action or proceeding involving any Environmental Law or any Release on or in connection with any Property, the Lessor shall promptly give notice thereof to the Lessee and the Collateral Agent. ARTICLE XIX TERMINATION OF LEASE 19.1 Mandatory Termination upon Certain Events. (a) If, with respect to any Property, any of: (i) a Significant Condemnation occurs; or (ii)an Environmental Violation occurs or is discovered the cost of remediation of which for the affected Property would exceed 20% of the then effective Lease Balance for such Property, but in no event less than $5,000,000; and the Lessor shall have given written notice to the Lessee that this Lease as to the affected Property is to be terminated as a consequence of the occurrence of such an event (a "Termination Notice"), then, the Lessee shall be obligated to purchase the Lessor's interest in such Property on or prior to the date occurring one hundred eighty (180) days after the date of the Lessee's receipt of the Termination Notice by paying the Lessor an amount equal to the Lease Balance therefor on such date of payment; provided, however, that the Lessor shall not give such notice with respect to any Environmental Violation if the Lessee (x) promptly submits an approved corrective action plan for the remediation of such Environmental Violation to the Lessor, (y) provides reasonable security to the Lessor for the cost of the such remediation and (z) diligently pursues such remediation in accordance with such plan. (b) If on May 19, 1998, (i) the entire Commitment under the Committed Loan Agreement of the Lender existing on the date of this Agreement has not been assigned to, and assumed by, one or more banks or other financial institutions, having a short-term credit rating of A-1 by Standard and Poor's Rating Group and P-1 by Moody's Investor Services, Inc., pursuant to the terms of the Committed Loan Agreement and (ii) such banks or other financial institutions have simultaneously executed and delivered a Liquidity Asset Purchase Agreement (the events in (i) and (ii) hereof being collectively referred to as the "Liquidity Assignment"), then Lessee shall be deemed to have delivered a Purchase Notice pursuant to Section 22.1 of this Lease for all Leased Assets then subject to this Lease, and shall be obligated to purchase all such Leased Assets on June 19, 1998, for an amount equal to the Lease Balance for all such Leased Assets or, if, on May 19, 1998, the Lessee shall have delivered no Lease Supplements under this Lease or if there are no Leased Assets then subject to this Lease, Lessee shall be obligated to pay the Lease Balance outstanding on June 19, 1998 (plus, in either case, the outstanding amount of any Advances made pursuant to Section 3.2(f) hereof); provided that Lessee shall have no such obligation to purchase such Leased Assets or make such payments if: (i) on or before June 19, 1998, the Liquidity Assignment has been completed; or (ii)on or before June 19, 1998, the Lessee shall have (A) caused to be established with the Collateral Agent a segregated account, under the sole dominion and control of the Collateral Agent, for the benefit of the Lender (the "Liquidity Collateral Account"), (B) deposited in such Liquidity Collateral Account in immediately available Dollars an amount equal to the Debt Contribution of all outstanding Advances made under this Lease on or before June 19, 1998 and (C) shall have executed and delivered to the Collateral Agent a security agreement, in form and substance satisfactory to the Collateral Agent and its counsel, in respect of the Liquidity Collateral Account, which security agreement shall grant to the Collateral Agent for the benefit of the Lenders and the Conduits a security interest in any amounts in the Liquidity Collateral Account as security for the performance of the Lessee's obligations under this Lease. (c) If any event or condition described in Section 20.1(f) or (g) of this Lease shall occur or exist in respect of RX Choice, Inc., then the Lessee shall be deemed to have delivered a Purchase Notice pursuant to Section 22.1 of this Lease for all Leased Assets then subject to this Lease, and shall be obligated to purchase all such Leased Assets on or before the day (the "Purchase Date") which occurs 60 days after the occurrence of such event or existence of such condition for an amount equal to the entire Lease Balance for all Leased Assets or, if on such Purchase Date, the Lessee shall have delivered no Lease Supplements under, or there are no Leased Assets then subject to, this Lease, then the Lessee shall be obligated to pay the entire Lease Balance outstanding on the Purchase Date (together with, in either case, the outstanding amount of any Advances made pursuant to Section 3.2(f) hereof); provided, however, that the provisions of this Section 19.1(c) shall be of no further force and effect beginning on the date that is 91 days after the loan provided for under the Senior Loan Agreement (as such term is defined in the Intercreditor Agreement) is repaid in full. 19.2 Termination Procedures. (a) On the date of the payment by the Lessee of the Lease Balance for the affected Property in accordance with the Termination Notice in accordance with Section 19.1(a) of this Lease, this Lease and the Lessor's Commitment shall terminate with respect to such affected Property and, the provisions of Section 25.1 shall be applicable. (b) On the date of payment by the Lessee of the Lease Balance in accordance with Section 19.1(b) or (c) above, this Lease, and the Lessor's Commitment, shall terminate and, with respect to any Leased Assets, the provisions of Section 25.1 shall be applicable. ARTICLE XX EVENTS OF DEFAULT; REMEDIES 20.1 Events of Default. 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 an "Event of Default": (a) the Lessee shall fail to make payment of any Base Rent, Supplemental Rent, Purchase Option Price, Lease Balance or any other amount payable hereunder within three (3) Business Days after the due date therefor, including, without limitation, amounts due pursuant to Section 19.1, 22.1 or 22.2 or Article XXIV; (b) the Lessee shall fail to maintain insurance as required by Article XVII of this Lease; (c) the Lessee shall fail to observe or perform any term, covenant or condition of the Lessee under this Lease or the other Operative Documents to which it is party other than those described in Section 20.1(a) or (b) hereof, and, in each such case, such failure shall have continued for thirty (30) days after the earlier of (i) delivery to the Lessee of written notice thereof from the Lessor or (ii) a Responsible Employee of the Lessee shall have knowledge that such failure, if not cured, will constitute an Event of Default; (d) any representation or warranty made by the Lessee in any of the Operative Documents to which it is a party shall prove to have been inaccurate in any material respect at the time made; (e) any representation or warranty made by the Guarantor in any of the Operative Documents to which it is a party shall prove to have been inaccurate in any material respect at the time made; (f) the Guarantor or any Significant 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; (g) an involuntary case or other proceeding shall be commenced against the Guarantor or any Significant 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 Significant Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (h) an event of default (as defined therein) under the Credit Agreement occurs, unless (i) such event of default has been waived by the requisite parties to the Credit Agreement and (ii) the Lessor and the Liquidity Providers shall have received a pro rata share (based on the respective commitments of the Lessor, Liquidity Providers and parties to the Credit Agreement) of any consideration given by the Guarantor or its Affiliates in connection with obtaining any such waiver; (i) an event of default (as defined therein) under the Existing Master Lease shall occur; (j) a Construction Agency Agreement Event of Default shall occur, or an Event of Default (as defined therein) shall occur under any other Operative Document; (k) the Lessee or the Guarantor shall directly or indirectly contest the validity of any Operative Document in any manner in any court of competent jurisdiction or any lien granted by any Operative Document, or shall repudiate, or purport to discontinue or terminate, the Construction Agency Agreement, this Lease or the Guaranty or the Construction Agency Agreement, this Lease or the Guaranty shall cease to be a legal, valid and binding obligation or shall cease to be in full force and effect for any reason; or (l) the Guarantor shall fail to observe or perform any term, covenant or condition of, or incorporated by reference in, the Guaranty beyond any grace period applicable thereto (it being agreed that the Guarantor's failure to perform any obligation of the Lessee or any covenant incorporated in the Guaranty shall not constitute an Event of Default until any grace period applicable to the Lessee under the Operative Documents or to the Guarantor under the Credit Agreement, as the case may be, shall have expired). 20.2 Remedies. Upon the occurrence of any Event of Default and at any time thereafter, the Lessor may, so long as such Event of Default is continuing, do one or more of the following as the Lessor in its sole discretion shall determine, without limiting any other right or remedy the Lessor may have on account of such Event of Default (including, without limitation, the obligation of the Lessee to purchase the Leased Assets as set forth in Section 22.3): (a) The Lessor may, by notice to the Lessee terminate this Lease as of the date specified in such notice; provided, however, (i) no reletting, reentry or taking of possession of any Leased Asset or all of the Leased Assets (or any portion thereof) by the Lessor will be construed as an election on the Lessor's part to terminate this Lease unless a written notice of such intention is given to the Lessee, (ii) notwithstanding any reletting, reentry or taking of possession, the Lessor may at any time thereafter elect to terminate this Lease for a continuing Event of Default and (iii) no act or thing done by the Lessor or any of its agents, representatives or employees and no agreement accepting a surrender of the Leased Asset shall be valid unless the same be made in writing and executed by the Lessor; (b) The Lessor may (i) demand that the Lessee, and the Lessee shall upon the written demand of the Lessor, return any Leased Asset promptly to the Lessor in the manner and condition required by, and otherwise in accordance with all of the provisions of Section 13.2 hereof as if the Leased Asset were being returned at the end of the Base Term, and the Lessor shall not be liable for the reimbursement of the Lessee for any costs and expenses incurred by the Lessee in connection therewith and (ii) without prejudice to any other remedy which the Lessor may have for possession of any Leased Asset, and to the extent and in the manner permitted by Applicable Law, enter upon such Leased Asset and take immediate possession of (to the exclusion of the Lessee) such Leased Asset or any part thereof and expel or remove the Lessee and any other Person who may be occupying such Leased Asset, by summary proceedings or otherwise, all without liability to the Lessee for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise and, in addition to the Lessor's other damages, the Lessee shall be responsible for all costs and expenses incurred by the Lessor in connection with any reletting, including, without limitation, reasonable brokers' fees and all reasonable costs of any alterations or repairs made by the Lessor; (c) The Lessor may (i) sell all or any part of one or more Leased Assets at public sale free and clear of any rights of the Lessee and without any duty to account to the Lessee with respect to such action or inaction or any proceeds in which event the Lessee's obligation to pay Capitalized Interest or Base Rent hereunder for periods commencing after the date of such sale shall be terminated or proportionately reduced, as the case may be; and (ii) if the Lessor shall so elect, demand that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (the parties agreeing that the Lessor's actual damages would be difficult to predict, but the aforementioned liquidated damages represent a reasonable approximation of such amount), an amount equal to (A) the excess, if any, of (1) the Lease Balance calculated as of the date of such sale (including all Rent due and unpaid to and including such date), over (2) the net proceeds of such sale (that is, after deducting all costs and expenses incurred by the Lessor incident to such conveyance, including, without limitation, repossession costs, brokerage commissions, prorations, transfer taxes, reasonable fees and expenses for counsel, title insurance fees, survey costs, recording fees, and any repair costs); plus (B) interest at the Overdue Rate on the foregoing amount from such date until the date of payment; (d) The Lessor may, at its option, elect not to terminate this Lease and continue to collect all Base Rent, Supplemental Rent, and all other amounts due the Lessor (together with all costs of collection) and enforce the Lessee's obligations under this Lease as and when the same become due, or are to be performed, and at the option of the Lessor, upon any abandonment of any Leased Asset by the Lessee or re-entry of same by the Lessor, the Lessor may, in its sole and absolute discretion, elect not to terminate this Lease and may make the necessary repairs in order to relet any Leased Asset, and relet any Leased Asset or any part thereof for such term or terms (which may be for a term extending beyond the Base Term of this Lease) and at such rental or rentals and upon such other terms and conditions as the Lessor in its reasonable discretion may deem advisable; and upon each such reletting all rentals actually received by the Lessor from such reletting shall be applied to the Lessee's obligations hereunder and the other Operative Documents in such order, proportion and priority as the Lessor may elect in the Lessor's sole and absolute discretion. If such rentals received from such reletting during any period are less than the Rent with respect to such Leased Asset to be paid during that period by the Lessee hereunder, the Lessee shall pay any deficiency, as calculated by the Lessor, to the Lessor on the next Payment Date; (e) Unless all of the Leased Assets have been sold in their entirety, the Lessor may, whether or not the Lessor shall have exercised or shall thereafter at any time exercise any of its rights under paragraph (b), (c) or (d) of this Section 20.2 with respect to the Leased Assets or portions thereof, demand, by written notice to the Lessee specifying a date not earlier than ten (10) days after the date of such notice, that the Lessee purchase, on such date, all unsold Leased Assets (or the remaining portion thereof) in accordance with the provisions of Article XXII; provided, however, that no such written notice shall be required upon the occurrence of any Event of Default in clause (f) or (g) of Section 20.1; (f) The Lessor may exercise any other right or remedy that may be available to it under Applicable Law, or proceed by appropriate court action (legal or equitable) to enforce the terms hereof or to recover damages for the breach hereof. Separate suits may be brought to collect any such damages for any period(s), and such suits shall not in any manner prejudice the Lessor's right to collect any such damages for any subsequent period(s), or the Lessor may defer any such right to suit until after the expiration of the Base Term, in which event such right to suit shall be deemed not to have accrued until the expiration of the Base Term; (g) To the maximum extent permitted by Applicable Law, the Lessee hereby waives the benefit of any appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale of any Leased Asset or any interest therein; (h) The Lessor shall be entitled to enforce payment of the indebtedness and performance of the obligations secured hereby and to exercise all rights and powers under this instrument or under any of the other Operative Documents or other agreement or any laws now or hereafter in force, notwithstanding some or all of the obligations secured hereby may now or hereafter be otherwise secured, whether by mortgage, security agreement, pledge, lien, assignment or otherwise. Neither the acceptance of this instrument nor its enforcement, shall prejudice or in any manner affect the Lessor's right to realize upon or enforce any other security now or hereafter held by the Lessor, it being agreed that the Lessor shall be entitled to enforce this instrument and any other security now or hereafter held by the Lessor in such order and manner as the Lessor may determine in its absolute discretion. No remedy herein conferred upon or reserved to the Lessor is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Operative Documents to the Lessor or to which it may otherwise be entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by the Lessor. In no event shall the Lessor, in the exercise of the remedies provided in this instrument (including, without limitation, in connection with the assignment of rents to Lessor, or the appointment of a receiver and the entry of such receiver on to all or any part of the Leased Assets), be deemed a "mortgagee in possession," and the Lessor shall not in any way be made liable for any act, either of commission or omission, in connection with the exercise of such remedies; or (i) An action of mortgage foreclosure as now provided or hereafter prescribed by law, may forthwith be commenced and prosecuted to judgment, execution and sale, for the collection of the whole amount of such Lease Balance, together with all fees, costs and expenses of such proceedings, including a reasonable attorney's fees. And all errors in such proceedings, together with any stays of or exemptions from execution, or extensions of time of payment, which may be given by any Applicable Law now in force, or which may be enacted hereafter, are hereby forever waived and released. If, pursuant to the exercise by the Lessor of its remedies pursuant to this Section 20.2, the Lease Balance, all other amounts due and owing from the Lessee under this Lease and the other Operative Documents have been paid in full, the Lessor shall remit to the Lessee any excess amounts received by the Lessor. 20.3 Waiver of Certain Rights. If this Lease shall be terminated pursuant to Section 20.2, the Lessee waives, to the fullest extent permitted by law, (a) any notice of re-entry or the institution of legal proceedings to obtain re-entry or possession; (b) any right of redemption, re-entry or repossession; (c) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt or limiting the Lessor with respect to the election of remedies; and (d) any other rights which might otherwise limit or modify any of the Lessor's rights or remedies under this Article XX. 20.4 Power of Sale and Foreclosure. In addition to any other rights herein, Lessor shall upon the occurrence of any Event of Default have the option to exercise its rights under each Mortgage executed in connection herewith, pursuant to which the trustee thereunder has the POWER OF SALE. ARTICLE XXI ASSIGNMENT 21.1 Assignment by Lessor. The Lessor may not assign, sell or transfer all or any part of its rights and obligations hereunder or under the other Operative Documents or the Leased Assets; provided, however, that (i) the Lessor may sell Purchaser Interests to the Receivable Purchaser and (ii) with the consent of the Lessee, the Conduits and the Liquidity Providers, which consent shall not be unreasonably withheld, the Lessor may assign, sell or transfer all or any part of such rights and obligations or the Leased Assets to any financial institution, provided that the Lessor is not thereby released from its obligations hereunder. 21.2 Assignment by Lessee. The Lessee may not assign this Lease or any of its rights or obligations hereunder in whole or in part to any Person without the consent of the Lessor; provided, however, that the Lessee may assign all (and not less than all) of its rights hereunder without such consent to one or more of its Affiliates so long as the Lessee remains fully liable for all of the obligations of the "Lessee" hereunder and under the other Operative Documents. ARTICLE XXII PURCHASE PROVISIONS 22.1 Purchase Option. Provided that the Lessee shall not have given notice of its intention to exercise the Remarketing Option, the Lessee shall have the option (exercisable by giving the Lessor irrevocable written notice (the "Purchase Notice") of the Lessee's election to exercise such option) to purchase all of the Leased Assets under any Lease Supplement (unless provisions with respect to joinder of purchase options for the Leased Assets under more than one Lease Supplement are set forth in a Lease Supplement, in which case such exercise must comply with such provisions) on any Scheduled Payment Date specified in such Purchase Notice at a price equal to the Lease Balance for such Leased Assets (the "Purchase Option Price"). The Lessee shall deliver the Purchase Notice to the Lessor not less than thirty (30) days prior to such purchase. If the Lessee exercises its option to purchase one or more Leased Assets pursuant to this Section 22.1 (the "Purchase Option"), the Lessor shall transfer to the Lessee or its designee all of the Lessor's right, title and interest in and to the applicable Leased Assets as of the date specified in the Purchase Notice upon receipt of the Purchase Option Price in accordance with Section 25.1(a). The Lessee may designate, in a notice given to the Lessor not less than ten (10) Business Days prior to the closing of such purchases (time being of the essence), the transferee or transferees to whom the conveyance shall be made (if other than to the Lessee), in which case such conveyance shall (subject to the terms and conditions set forth herein) be made to such designee; provided, however, that such designation of a transferee or transferees shall not cause the Lessee to be released, fully or partially, from any of its obligations under this Lease, including, without limitation, the obligation to pay the Lessor the Lease Balance on the applicable Expiration Date. 22.2 Acceleration of Purchase Obligation. (a) The Lessee shall be obligated to purchase for an amount equal to the Lease Balance the Lessor's interest in the Leased Assets (notwithstanding any prior election to exercise its Purchase Option pursuant to Section 22.1) (i) automatically and without notice upon the occurrence of any Event of Default specified in clause (f) or (g) of Section 20.1 and (ii) as provided for at Section 20.2(e) immediately upon written demand of the Lessor upon the occurrence of any other Event of Default. (b) The Lessee shall be obligated to purchase the Lessor's interest in the Leased Assets for an amount equal to the Lease Balance immediately upon written demand of the Lessor at any time during the term when (i) subject to Section 21.1, the Lessor ceases to have title as contemplated by Section 15.1 or (ii) any related Security Document (other than this Lease) to which the Lessee is a party shall cease to be in full force and effect, or shall cease to give the Lessor the Liens, rights, powers and privileges purported to be created thereby. (c) Any purchase under Section 22.1 or this Section 22.2 shall be in accordance with Section 25.1(a). 22.3 Purchase of Unimproved Land. Provided that no Default or Event of Default has occurred and is continuing, the Lessee shall have the option (exercisable by giving the Lessor irrevocable written notice of the Lessee's exercise of such option) to purchase any unimproved portion of any Land (and any related easements for utilities and access to be specified at such time) not necessary or desirable for operations of the Improvements constructed or to be constructed on such Land on any Scheduled Payment Date specified in such notice at a price equal to the Fair Market Sales Value, as determined by an Appraisal, of such unimproved portion and such easements. The Lessee shall give such notice to the Lessor not less than thirty (30) days prior to such purchase. If the Lessee exercises its option pursuant to this Section 22.3, the Lessor shall transfer to the Lessee or its designee all of the Lessor's right, title and interest in and to the applicable unimproved portion of Land and grant the related easements as of the date specified in the Lessee's notice under procedures analogous to those set forth in Section 25.1(a). The purchase price paid by the Lessee shall be applied to reduce the Lease Balance for the related Property. ARTICLE XXIII RENEWAL TERMS 23.1 Renewal. (a) Subject to the conditions set forth herein, and unless otherwise specified in the Lease Supplement applicable to any Leased Assets, the Lessee shall have the option (the "Renewal Option"), to extend the Base Term for such Leased Assets for up to three (3) additional one-year periods (each, a "Renewal Term"), with each such Renewal Term to commence on the first day following the Expiration Date then in effect. The Renewal Option with respect to each Renewal Term shall automatically be effective upon satisfaction of each of the following conditions: (A) the Lessor and each Liquidity Provider shall have consented to the renewal of the Lease after receipt of Lessee's request therefor delivered to the Lessor and the Liquidity Agent not later than ninety (90) days prior to each of the fourth, fifth and sixth anniversaries of the Closing Date, (B) (i) no Event of Default under this Lease shall have occurred and be continuing, and (ii) by exercise of such Renewal Option, the Lessee shall be deemed to represent to the Lessor as to the matters set forth in clause (i) of this condition (B), and (C) the Lessee shall not have exercised the Remarketing Option or the Purchase Option for such Leased Assets under this Lease. (b) Each extension of this Lease for a Renewal Term shall be subject to this Lease. Each Renewal Term shall cause the remaining Base Term of relevant Leased Assets to be extended by one additional year from the Expiration Date in effect immediately prior to such extension; thus, if this Lease is extended on each of the anniversaries referred to above, the term of this Lease shall be for ten (10) years; provided, however, that in no event shall the Base Term as extended by any Renewal Term extend beyond the date identified in the applicable Lease Supplement. (c) In the event that the Lessor and each Liquidity Provider have not agreed to extend this Lease at least fifteen (15) days prior to each applicable anniversary date, the Lessee's request for extension shall be deemed to have been rejected. ARTICLE XXIV REMARKETING OPTION 24.1 Option to Remarket. Subject to the fulfillment of each of the conditions set forth in this Section 24.1, the Lessee shall have the option (the "Remarketing Option") from and after June 19, 1998, to market and complete the sale of Lessor's interest in one or more Leased Assets for the Lessor. The Lessee's effective exercise and consummation of the Remarketing Option as to one or more Leased Assets shall be subject to the due and timely fulfillment of each of the following provisions as to such Leased Assets as of the dates set forth below. (a) Not later than six (6) months prior to the Expiration Date, the Lessee shall give to the Lessor written notice of the Lessee's exercise of the Remarketing Option under this Lease, which exercise shall be irrevocable. (b) Not later than one hundred twenty (120) days prior to the Expiration Date, the Lessee shall deliver to the Lessor an Environmental Audit for each Property included in such Leased Assets. Such Environmental Audit shall be prepared by an environmental consultant selected by the Lessee and approved in advance by the Lessor and shall contain conclusions reasonably satisfactory to the Lessor as to the environmental status of such Property. If any such Environmental Audit indicates any exceptions, the Lessee shall have also delivered a Phase Two environmental assessment by such environmental consultant prior to the Expiration Date showing the completion of the remedying of such exceptions in compliance with Applicable Law. (c) On the date of the Lessee's notice to the Lessor of the Lessee's exercise of the Remarketing Option, no Event of Default shall exist, and on the Expiration Date, no Event of Default or Default shall exist. Any Permitted Liens (other than Lessor Liens) on each Leased Asset that were contested by the Lessee shall have been removed on or before the Expiration Date. (d) The Improvements on each Property included in such Leased Assets shall have been constructed in accordance with the Plans and Specifications and shall have achieved Substantial Completion on or before the date of the Lessee's notice to the Lessor of the Lessee's exercise of the Remarketing Option. The Lessee shall have completed in all material respects all Modifications, restoration and rebuilding of such Leased Assets pursuant to Section 14.1 and 18.1 (as the case may be) and shall have fulfilled in all material respects all of the conditions and requirements in connection therewith pursuant to said Sections, in each case by the date of the Lessee's notice to the Lessor of the Lessee's exercise of the Remarketing Option (time being of the essence), regardless of whether the same shall be within the Lessee's control. The Lessee shall have also paid the cost of all Modifications commenced prior to the Expiration Date. The Lessee shall not have been excused pursuant to Section 16.1 from complying with any Applicable Law that involved the extension of the ultimate imposition of such Applicable Law beyond the last day of the Base Term. (e) During the Marketing Period, the Lessee shall use best efforts, in such manner as the Lessee shall reasonably determine, to sell the Lessor's interest in the Leased Assets and will attempt to obtain the highest purchase price therefor and for not less than the Fair Market Sales Value of all of the Leased Assets. The Lessee will be responsible for hiring brokers and making the Leased Assets available for inspection by prospective purchasers. The Lessee shall promptly upon request permit inspection of the Leased Assets and any maintenance records relating to the Leased Assets by the Lessor and any potential purchasers, and shall otherwise do all things necessary to sell and deliver possession of the Leased Assets to any purchaser. All such marketing of the Leased Assets shall be at the Lessee's sole expense. The Lessee's agency under this clause shall, for the first three (3) months of the Marketing Period, be on an exclusive basis. In the event the Lessee is unable to procure during such period a bona fide bid from a non-Affiliated Person with demonstrable financial capacity to consummate such bid for any Leased Asset, from and after such third month, the agency hereunder shall be on a non-exclusive basis. (f) The Lessee shall submit all bids to the Lessor and the Lessor will have the right to review the same and the right to submit any one or more bids. All bids shall be on an all-cash basis unless the Lessor shall otherwise agree in its sole discretion. No such purchaser shall be the Lessee or an Affiliate of the Lessee. The written offer must specify the Expiration Date as the closing date unless the Lessor shall otherwise agree in its sole discretion. (g) In connection with any such sale of Lessor's interest in the Leased Assets, the Lessee will provide to the purchaser all customary "seller's" indemnities, representations and warranties regarding absence of Liens (except Lessor Liens) and the condition of such Leased Assets, including, without limitation, an environmental indemnity for any Property to the extent the same are required by the purchaser. The Lessee shall have obtained, at its cost and expense, all required governmental and regulatory consents and approvals and shall have made all filings as required by Applicable Law in order to carry out and complete the transfer of the Leased Assets. As to the Lessor, any such sale of Lessor's interest in the Leased Assets shall be made on an "as is, with all faults" basis without representation or warranty by the Lessor other than the absence of Lessor Liens. Any agreement as to such sale shall be made subject to the Lessor's rights hereunder. (h) The Lessee shall pay directly, and not from the sale proceeds, all prorations, credits, costs and expenses of the sale of Lessor's interest in the Leased Assets, whether incurred by the Lessor or the Lessee, including without limitation, the cost of all title insurance, surveys, environmental reports, appraisals, transfer taxes, the Lessor's reasonable attorneys' fees, the Lessee's attorneys' fees, commissions, escrow fees, recording fees, and all applicable documentary and other transfer taxes. (i) The Lessee shall pay to the Lessor on or prior to the Expiration Date (or to such other Person as the Lessor shall notify the Lessee in writing) an amount equal to the Contingent Rental Adjustment for such Leased Assets, plus all Base Rent and all other amounts hereunder which have accrued or will accrue with respect thereto prior to or as of the Expiration Date, in the type of funds specified in Section 7.5 hereof. (j) The purchase of Lessor's interest in such Leased Assets shall be consummated on the Expiration Date and the Gross Proceeds of the sale of the Leased Assets shall be paid directly to the Lessor. The Lessor shall remit to the Lessee from Gross Proceeds the documented expenses incurred by the Lessee under clause (h) hereof in connection with such sale. If the remaining Gross Proceeds plus the aggregate Contingent Rental Adjustment received by Lessor, exceeds the Lease Balance for such Leased Assets as of such date, then the excess shall be paid to the Lessee on the Expiration Date. Except as provided in the next sentence hereof or as may be otherwise provided in a Lease Supplement, if one or more of the foregoing provisions shall not be fulfilled as of the date set forth above with respect to the Leased Assets under any Lease Supplement, then the Lessor shall declare by written notice to the Lessee the Remarketing Option to be null and void (whether or not it has been theretofore exercised by the Lessee), in which event all of the Lessee's rights under this Section 24.1 shall immediately terminate and the Lessee shall be obligated to purchase Lessor's interest in such Leased Assets as if it had exercised its option under Section 22.1 on the Expiration Date. Notwithstanding the foregoing, the Lessee shall not be required to purchase Lessor's interest in such Leased Assets pursuant to the preceding sentence if Lessor's interest in such Leased Assets is not sold on or prior to the Expiration Date and the Lessee has otherwise fulfilled all of its obligations under clauses (a) through (i) hereof (including the payment of all amounts referred to therein). Except as expressly set forth herein, the Lessee shall have no right, power or authority to bind the Lessor in connection with any proposed sale of Lessor's interest in the any Leased Asset. In the event that the sale of any Leased Asset is not consummated on the Expiration Date, but such sale is consummated any time thereafter, the Lessor shall remit to the Lessee, promptly after the consummation of the sale of the such Leased Asset, any excess remaining after deducting the then outstanding Lease Balance plus the Imputed Equity Return thereon accruing from and after the Expiration Date from the Gross Proceeds. 24.2 Certain Obligations Continue. During the Marketing Period, the obligation of the Lessee to pay Rent shall continue undiminished until payment in full to the Lessor of the Contingent Rental Adjustment and all other amounts due to the Lessor with respect to the Leased Assets under each Lease Supplement under the Operative Documents to which the Lessee is a party. The Lessor shall have the right, but shall be under no duty, to solicit bids, to inquire into the efforts of the Lessee to obtain bids or otherwise to take action in connection with any such sale of Lessor's interest in the Leased Assets, other than as expressly provided in this Article XXIV. ARTICLE XXV PROCEDURES RELATING TO PURCHASE OR REMARKETING 25.1 Provisions Relating to the Purchase and Conveyance Upon Remarketing. (a) In connection with the Lessee's purchase of the Leased Assets under any Lease Supplement pursuant to Section 22.1 or 22.2, or in connection with a purchase of Lessor's interest in any Leased Asset under Article XIX or the payment of all amounts due under Section 5.1 of the Construction Agency Agreement: (i) the Lessee shall pay the amounts set forth in Section 22.1, Section 22.2, Article XIX, Section 5.1 of the Construction Agency Agreement, as applicable, together with all accrued Rent relating to such Leased Assets and any other amount then due and payable by the Lessee to the Lessor under this Lease or the other Operative Documents; (ii) the Lessor shall execute and deliver to the Lessee (or to the Lessee's designee) at the Lessee's cost and expense a special warranty deed with respect to the Improvements, a special warranty deed or release of Ground Lease with respect to the Land, a bill of sale with respect to the Equipment or any other Leased Asset and an assignment of the Lessor's entire interest in the Leased Assets being sold (which shall include an assignment of all of the Lessor's right, title and interest in and to any Net Proceeds not previously received by the Lessor and, if applicable, a termination notice pursuant to the Ground Lease, in each case in recordable form and otherwise in conformity with local custom and free and clear of the Lien of the Mortgage and any Lessor Liens attributable to the Lessor; (iii) the Leased Assets being sold shall be conveyed to the Lessee "AS IS" and in their then present physical condition; and (iv) the Lessor shall execute and deliver to Lessee and the Lessee's title insurance company an affidavit as to the absence of Lessor Liens. (b) If the Lessee properly exercises the Remarketing Option with respect to the Leased Assets under any Lease Supplement, then the Lessee shall, on the Expiration Date, and at its own cost, transfer possession of the Leased Assets to the Lessor or the independent purchaser(s) thereof, as the case may be, in each case by surrendering the same into the possession of the Lessor or such purchaser(s), as the case may be, free and clear of all Liens other than Lessor Liens, in good condition (as modified by Modifications permitted by this Lease), ordinary wear and tear excepted, and in compliance with Applicable Law. The Lessee shall, on and within a reasonable time before and up to one year after the Expiration Date, cooperate reasonably with the Lessor and the independent purchaser(s) of Lessor's interest in the Leased Assets in order to facilitate the purchase by such purchaser's) of Lessor's interest in the Leased Assets, which cooperation shall include the following, all of which the Lessee shall do on or before the Expiration Date or as soon thereafter as is reasonably practicable: providing copies of all books and records regarding the maintenance and ownership of the Leased Assets and all data and technical and all other information relating thereto, providing a current copy of the Plans and Specifications for the Properties, granting or assigning all licenses (to the extent such licenses are assignable under Applicable Law) necessary for the operation and maintenance of the Leased Assets and cooperating reasonably in seeking and obtaining all necessary Governmental Action. The obligations of the Lessee under this paragraph shall survive the expiration or termination of this Lease. ARTICLE XXVI INDEMNIFICATION 26.1 General Indemnification. The Lessee agrees, whether or not any of the transactions contemplated hereby shall be consummated, to assume liability for, and to indemnify, protect, defend, save and keep harmless each Indemnitee from and against, any and all Claims that may be imposed on, incurred by or asserted against such Indemnitee (whether because of action or omission by such Indemnitee or otherwise), whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to the Closing Date or after the Expiration Date, in any way relating to or arising out of: (a) any of the Operative Documents or any of the transactions contemplated thereby, and any amendment, modification or waiver in respect thereof entered into or acknowledged by the Lessee; (b) the Leased Assets or any part thereof or interest therein; (c) the purchase, design, construction, preparation, installation, inspection, delivery, non-delivery, acceptance, rejection, ownership, management, possession, operation, rental, lease, sublease, repossession, maintenance, repair, alteration, modification, addition or substitution, storage, transfer of title, redelivery, use, financing, refinancing, disposition, operation, condition, sale (including, without limitation, any sale pursuant to any provision hereof), return or other disposition of all or any part or any interest in any Leased Asset or the imposition of any Lien (or incurring of any liability to refund or pay over any amount as a result of any Lien) thereon, including, without limitation: (1) Claims or penalties arising from any violation of law or in tort (strict liability or otherwise), (2) latent or other defects, whether or not discoverable, (3) any Claim based upon a violation or alleged violation of the terms of any restriction, easement, condition or covenant or other matter affecting title to any Leased Asset, (4) the making of any Modifications in violation of any standards imposed by any insurance policies required to be maintained by the Lessee pursuant to this Lease which are in effect at any time with respect to any Leased Asset or any part thereof, (5) any Claim for patent, trademark or copyright infringement, (6) Claims which would otherwise be covered by insurance policies of the Lessee, as required by Article XVII, and (7) Claims arising from any public improvements with respect to any Property resulting in any charge or special assessments being levied against the Property or any plans to widen, modify or realign any street or highway adjacent to any Property, or any Claim for utility "tap-in" fees; (d) the breach by the Lessee of any covenant, representation or warranty made by it or deemed made by it in any Operative Document or any certificate required to be delivered by any Operative Document; (e) the retaining or employment of any broker, finder or financial advisor by the Lessee to act on its behalf in connection with the transactions contemplated hereby; (f) the existence of any Lien on or with respect to any Leased Asset, any Capitalized Interest or Base Rent or Supplemental Rent, title thereto, or any interest therein including any Liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of any Leased Asset or by reason of labor or materials furnished or claimed to have been furnished to the Lessee, or any of its contractors or agents or by reason of the financing of any personalty or equipment purchased or leased by the Lessee or Modifications constructed by the Lessee, except Lessor Liens and Liens in favor of the Lessor; or (g) subject to the accuracy of Lessor's representation set forth in Section 6.1(a), the transactions contemplated by this Lease or by any other Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction described in Section 4975 (c) of the Code; provided, however, the Lessee shall not be required to indemnify any Indemnitee under this Section 26.1 for any of the following: (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee (it being understood that the Lessee shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee caused or contributed to such Claim) or the breach of any representation, warranty or covenant of such Indemnitee set forth in any Operative Document, (2) any Claim resulting from Lessor Liens which the Lessor is responsible for discharging under the Operative Documents, (3) any Claim to the extent attributable to acts or events occurring after the expiration of the Base Term and the return or remarketing of any Leased Asset so long as the Lessor is not exercising remedies against the Lessee in respect of the Operative Documents, (4) any Claim arising from a breach or alleged breach by the Lessor of any agreement entered into in connection with the assignment or participation of Rent and (5) any Claim arising from the Lessor's or any other Indemnitee's violation of any state or federal law or regulation relating to banking or the offer or sale of securities. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under this Lease or any other Operative Document. Without limiting the express rights of any Indemnitee under this Section 26.1, this Section 26.1 shall be construed as an indemnity only and not a guaranty of residual value of any Leased Asset. 26.2 Environmental Indemnity. Without limitation of the other provisions of this Article XXVI, the Lessee hereby agrees to indemnify, hold harmless and defend each Indemnitee from and against any and all claims (including without limitation third party claims for personal injury or real or personal property damage), losses (including but not limited to, to the extent the Lease Balance has not been fully paid, any loss of value of any Property), damages, liabilities, fines, penalties, charges, administrative and judicial proceedings (including informal proceedings) and orders, judgments, remedial action, requirements, enforcement actions of any kind, and all reasonable and documented costs and expenses incurred in connection therewith (including but not limited to reasonable and documented attorneys' and/or paralegals' fees and expenses), including, but not limited to, all costs incurred in connection with any investigation or monitoring of site conditions or any clean-up, remedial, removal or restoration work by any federal, state or local government agency, arising in whole or in part, out of (a) the presence on or under any Property of any Hazardous Materials, or any releases or discharges of any Hazardous Materials on, under, from or onto any Property for which any Indemnitee or Lessee may be legally liable, (b) any activity for which any Indemnitee or Lessee may be legally liable, including, without limitation, construction, carried on or undertaken on or off the Property, and whether by the Lessee or any predecessor in title or any employees, agents, contractors or subcontractors of the Lessee or any predecessor in title, or any other Persons (including such Indemnitee), in connection with the handling, treatment, removal, storage, decontamination, clean-up, transport or disposal of any Hazardous Materials that at any time are located or present on or under or that at any time migrate, flow, percolate, diffuse or in any way move onto or under any Property, (c) loss of or damage to any property or the environment (including, without limitation, clean-up costs, response costs, remediation and removal costs, cost of corrective action, costs of financial assurance, fines and penalties and natural resource damages), or death or injury to any Person, and all expenses associated with the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required by or under Environmental Laws for which any Indemnitee or Lessee may be legally liable, (d) any claim concerning any Indemnitee's or Lessee's lack of compliance with Environmental Laws, or any act or omission by any Indemnitee, the Lessee or any of their agents, employees or contractors causing an environmental condition that requires remediation or would allow any Governmental Authority to record a Lien on the land records, or (e) any residual contamination on or under the Land, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any such Hazardous Materials, and irrespective of whether any of such activities were or will be undertaken in accordance with applicable laws, regulations, codes and ordinances for which any Indemnitee or Lessee may be legally liable; provided, however, the Lessee shall not be required to indemnify any Indemnitee under this Section 26.2 for (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee (it being understood that the Lessee shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee caused or contributed to such Claim) or (2) any Claim to the extent attributable to acts or events occurring after the expiration of the Base Term and the return or remarketing of the Properties so long as the Lessor is not exercising remedies against the Lessee in respect of the Operative Documents. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under this Lease or any other Operative Document. 26.3 Proceedings in Respect of Claims. With respect to any amount that the Lessee is requested by an Indemnitee to pay by reason of Section 26.1 or 26.2, such Indemnitee shall, if so requested by the Lessee and prior to any payment, submit such additional information to the Lessee as the Lessee may reasonably request and which is in the possession of such Indemnitee to substantiate properly the requested payment. In case any action, suit or proceeding shall be brought against any Indemnitee, such Indemnitee shall notify the Lessee of the commencement thereof, and the Lessee shall be entitled, at its expense, to participate in, and, to the extent that the Lessee desires to, assume and control the defense thereof; provided, however, that the Lessee shall have acknowledged in writing its obligation to fully indemnify such Indemnitee in respect of such action, suit or proceeding, and, the Lessee shall keep such Indemnitee fully apprised of the status of such action, suit or proceeding and shall provide such Indemnitee with all information with respect to such action, suit or proceeding as such Indemnitee shall reasonably request, and provided, further, that the Lessee shall not be entitled to assume and control the defense of any such action, suit or proceeding if and to the extent that, (A) in the reasonable opinion of such Indemnitee, (x) such action, suit or proceeding involves any risk of imposition of criminal liability or any risk of imposition of material civil liability on such Indemnitee beyond that for which the Indemnitee is jointly and severally liable with the Lessor or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on any Leased Asset or any part thereof unless, in the case of civil liability, the Lessee shall have posted a bond or other security satisfactory to the relevant Indemnitees in respect to such risk or (y) the control of such action, suit or proceeding would involve a material actual conflict of interest, (B) such proceeding involves Claims not fully indemnified by the Lessee which the Lessee and the Indemnitee have been unable to sever from the indemnified claim(s), or (C) an Event of Default has occurred and is continuing. The Indemnitee may participate in a reasonable manner at its own expense and with its own counsel in any proceeding conducted by the Lessee in accordance with the foregoing. The Lessee shall not enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 26.1 or 26.2 without the prior written consent of the Indemnitee which consent shall not be unreasonably withheld in the case of a money settlement not involving an admission of liability of such Indemnitee; provided, however, that in the event that such Indemnitee withholds consent to any settlement or other compromise, the Lessee shall not be required to indemnify such Indemnitee under Section 26.1 or 26.2 to the extent that the applicable Claim (x) is for legal fees and expenses incurred after the date of the proposed settlement or (y) results in a judgment in excess of such offered money settlement. Each Indemnitee shall at the expense of the Lessee supply the Lessee with such information and documents reasonably requested by the Lessee and in the possession of such Indemnitee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by Section 26.1 or 26.2. Unless an Event of Default shall have occurred and be continuing under Section 20.1(a), (f) or (g) no Indemnitee shall enter into any settlement or other compromise with respect to any Claim for which it is entitled to be indemnified under Section 26.1 or 26.2 without the prior written consent of the Lessee, which consent shall not be unreasonably withheld, unless such Indemnitee waives its right to be indemnified under Section 26.1 or 26.2 with respect to such Claim. Upon payment in full of any Claim by the Lessee pursuant to Section 26.1 or 26.2 to or on behalf of an Indemnitee, the Lessee, without any further action, shall be subrogated to any and all claims that such Indemnitee may have relating thereto (including claims in respect of insurance policies maintained by such Indemnitee at its own expense), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be necessary to preserve any such claims and otherwise cooperate with the Lessee and give such further assurances as are necessary or advisable to enable the Lessee vigorously to pursue such claims. Any amount required to be paid to an Indemnitee pursuant to Section 26.1 or 26.2 shall be paid to such Indemnitee promptly upon receipt of a written demand therefor from such Indemnitee, accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable and, if requested by the Lessee, such determination shall be verified by a nationally recognized independent accounting firm mutually acceptable to the Lessee and the Indemnitee at the expense of the Lessee; provided, however, that if the Lessee has assumed the defense of the related Claim or is paying the costs of the Indemnitee's defense of the related Claim on an ongoing basis, the Lessee shall not be required to pay such amount to the applicable Indemnitee until such time as a judgment is entered with respect to such Claim, the enforcement of which is not stayed or which judgment is not bonded over, or the Claim is otherwise settled or lost. 26.4 General Tax Indemnity. (a) Indemnification. The Lessee agrees to pay and assume liability for, and to indemnify, protect, defend, save and keep harmless each Indemnitee from and against, all Impositions. (b) Contests. If any claim shall be made against any Indemnitee or if any proceeding shall be commenced against any Indemnitee (including a written notice of such proceeding) for any Imposition as to which the Lessee may have an indemnity obligation pursuant to this Section 26.4, or if any Indemnitee shall reasonably determine that any Imposition to which the Lessee may have an indemnity obligation pursuant to this Section 26.4 may be payable, such Indemnitee shall promptly (and in any event, 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 Indemnitee's rights under this Section 26.4 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 Imposition 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 Indemnitee shall be required by law or regulation to take action prior to the end of such 30-day period, such Indemnitee shall in such notice to the Lessee, so inform the Lessee, and such Indemnitee shall not take any action with respect to such claim, proceeding or Imposition 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 Indemnitee shall be required by law or regulation to take action prior to the end of such 10-day period. The Lessee shall be entitled for a period of thirty (30) days from receipt of such notice from the Indemnitee (or such shorter period as the Indemnitee has notified the Lessee is required by law or regulation for the Indemnitee to commence such contest), to request in writing that such Indemnitee contest the imposition of such Tax, at the Lessee's 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 Indemnitee for which the Lessee has not agreed to indemnify such Indemnitee, (y) such contest must be pursued in the name of the Indemnitee, but can be pursued independently from any other proceeding involving a Tax liability of such Indemnitee for which the Lessee has not agreed to indemnify such Indemnitee or (z) the Indemnitee 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 Indemnitee determines in good faith that such contest by the Lessee could have a material adverse impact on the business or operations of the Indemnitee and provides a written explanation to the Lessee of such determination, the Indemnitee 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 Imposition ultimately determined to be due by reason of such claim, and provided, further, that in determining the application of clauses (x) and (y) of the preceding sentence, each Indemnitee shall take any and all reasonable steps to segregate claims for any Taxes for which the Lessee indemnifies hereunder from Taxes for which the Lessee is not obligated to indemnify hereunder, so that the Lessee can control the contest of the former. In all other claims requested to be contested by the Lessee, the Indemnitee shall control the contest of such claim, acting through counsel reasonably acceptable to the Lessee. In no event shall the Lessee be permitted to contest (or the Indemnitee required to contest) any claim, (A) if such Indemnitee 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 will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on any Leased Asset or any part of any thereof unless the Lessee shall have posted and maintained a bond or other security satisfactory to the relevant Indemnitee in respect to such risk, (B) if an Event of Default has occurred and is continuing under Section 20.1(a), (f) or (g) unless the Lessee shall have posted and maintained a bond or other security satisfactory to the relevant Indemnitee 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 Indemnitee on demand all reasonable out-of-pocket costs, losses and expenses that such Indemnitee may incur in connection with contesting such Imposition 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 Indemnitee an interest-free advance in an amount equal to the Imposition that the Indemnitee is required to pay (with no additional net after-tax costs to such Indemnitee). In addition, for Indemnitee controlled contests and claims contested in the name of the Indemnitee 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 Indemnitee for which the Lessee may be liable to pay an indemnity under this Section 26.4(b)) exceeds $50,000 and (B) unless, if requested by the Indemnitee, the Lessee shall have provided to the Indemnitee an opinion of counsel selected by the Lessee (which may be in-house counsel) (except, in the case of income taxes indemnified hereunder which shall be an opinion of independent tax counsel selected by the Indemnitee and reasonably acceptable to the Lessee) that a reasonable basis exists to contest such claim. In no event shall an Indemnitee be required to appeal an adverse judicial determination to the United States Supreme Court. 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 judgement, provided, however, that if the Indemnitee is the controlling party and the Lessee recommends the acceptance of a settlement offer made by the relevant Governmental Authority and such Indemnitee rejects such settlement offer then the amount for which the Lessee will be required to indemnify such Indemnitee 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 Indemnitee shall at the Lessee's 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 26.4(b). No Indemnitee 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 26.4 (and with respect to which contest is required under this Section 26.4(b)) without the prior written consent of the Lessee, unless such Indemnitee waives its right to be indemnified under this Section 26.4 with respect to such claim. Notwithstanding anything contained herein to the contrary, an Indemnitee 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 Indemnitee shall waive its right to indemnification under this Section 26.4 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). (c) Reimbursement for Tax Savings. If (x) an Indemnitee or any Affiliate thereof actually realizes a deduction, offset, credit or refund of any Taxes or any other savings or benefit as a result of any indemnity paid by the Lessee pursuant to this Section 26.4 or (y) by reason of the incurrence or imposition of any Tax (or the circumstances or event giving rise thereto) for which an Indemnitee is indemnified hereunder or any payment made to or for the account of such Indemnitee by the Lessee pursuant to this Section 26.4 or any payment made by an Indemnitee to the Lessee by reason of this Section 26.4(c), such Indemnitee at any time actually realizes a reduction in any Taxes for which the Lessee is not required to indemnify such Indemnitee pursuant to this Section 26.4, then such Indemnitee shall promptly pay to the Lessee (xx) the amount of such deduction, offset, credit, refund, or other savings or benefit together with the amount of any interest received by such Indemnitee on account of such deduction, offset, credit, refund or other savings or benefit or (yy) an amount equal to such reduction in Taxes, as the case may be, in either case together with an amount equal to any reduced Taxes payable by such Indemnitee as a result of such payment. Each Indemnitee agrees to take such actions as the Lessee may reasonably request (provided in the good faith judgment of the Indemnitee, such actions would not result in a material adverse effect on the Indemnitee for which the Indemnitee is not entitled to indemnification from the Lessee) and to otherwise act in good faith to claim such refunds and other available Tax benefits, and take such other actions as may be reasonable to minimize any payment due from the Lessee pursuant to this Section 26.4 and to maximize the amount of any Tax savings available to it. The disallowance or reduction of any credit, refund or other tax savings with respect to which an Indemnitee has made a payment to the Lessee under this Section 26.4(c) shall be treated as a Tax for which the Lessee is obligated to indemnify such Indemnitee hereunder without regard to the exclusions set forth in the definition of Impositions. (d) Payments. Any Imposition identifiable under this Section 26.4 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 Indemnitee pursuant to Section 26.4 shall be paid within thirty (30) days after receipt of a written demand therefor from such Indemnitee 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 26.4 shall be made directly to the Indemnitee entitled thereto or the Lessee, as the case may be, in immediately available funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, by check of the payor payable to the order of the payee by certified mail, postage prepaid at its address. Upon the request of any Indemnitee with respect to a Tax that the Lessee is required to pay, the Lessee shall furnish to such Indemnitee the original or a certified copy of a receipt for the Lessee's payment of such Tax or such other evidence of payment as is reasonably acceptable to such Indemnitee. (e) 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 26.4 and of which the Lessee has knowledge, the Lessee shall promptly notify the Indemnitee of such requirement and, at the Lessee's expense (i) if the Lessee is permitted (unless otherwise requested by the Indemnitee) 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 Indemnitee or the Indemnitee otherwise requests that such report, return or statement for filing by such Indemnitee in such manner as shall be satisfactory to such Indemnitee and send the same to the Indemnitee for filing no later than fifteen (15) days prior to the due date therefor. In any case in which the Indemnitee will file any such report, return or statement, the Lessee shall, upon written request of such Indemnitee, provide such Indemnitee with such information as is reasonably necessary to allow the Indemnitee to file such report, return or statement. (f) Verification. At the Lessee's request, the amount of any indemnity payment by the Lessee or any payment by an Indemnitee to the Lessee pursuant to this Section 26.4 shall be verified and certified by an independent public accounting firm mutually acceptable to the Lessee and the Indemnitee. The Indemnitee shall provide such independent public accounting firm, on a confidential basis, the requisite financial information. The costs of such verification shall be borne by the Lessee unless such verification shall result in an adjustment in the Lessee's favor of the lesser of (i) $10,000, and (ii) five percent of the payment as computed by the Indemnitee, in which case such fee shall be paid by the Indemnitee. In no event shall the Lessee have the right to review the Indemnitee's tax returns or receive any other confidential information from the Indemnitee in connection with such verification. Any information provided to such accountants by any Person shall be and remain the exclusive property of such Person and shall be deemed by the parties to be (and the accountants will confirm in writing that they will treat such information as) the private, proprietary and confidential property of such Person, and no Person other than such Person and the accountants shall be entitled thereto and all such materials shall be returned to such Person. Such accounting firm shall be requested to make its determination within thirty (30) days of the Lessee's request for verifications and the computations of the accounting firm shall be final, binding and conclusive upon the Lessee and the Indemnitee. The parties agree that the sole responsibility of the independent public accounting firm shall be to verify the amount of a payment pursuant to this Lease and that matters of interpretation of this Lease are not within the scope of the independent accounting firm's responsibilities. (g) Tax Ownership. The Lessor represents and warrants that it will not, prior to the termination, claim ownership of (or any tax benefits, including depreciation, with respect to) the Leased Assets for any income tax purposes, it being understood that the Lessee is and will remain the owner of the Leased Assets for such income tax purposes until the termination of this Lease. If, notwithstanding the income tax intentions of the parties as set forth herein, the Lessor actually receives any income tax deductions, reductions in income tax or other income tax benefit as a result of any claim for, or recharacterization requiring such party to take, any tax benefits attributable to ownership of the Leased Assets for income tax purposes, the Lessor shall pay to the Lessee the amount of such income tax savings actually realized by the Lessor (less the amount of any anticipated increase in income tax which the Lessor determines is currently payable as a result of such claim or recharacterization), provided that the Lessee shall agree to reimburse the Lessor for any subsequent increase in the Lessor's income taxes resulting from such claim or recharacterization not taken into account in the payment made to the Lessee, up to the amount paid to the Lessee by the Lessor. The parties agree that this Section 26.4(g) is intended to require a payment to the Lessee if and only if the Lessor shall have actually received an unanticipated tax savings with respect to the Leased Assets that would not have been received if the Lessor had advanced funds to the Lessee in the form of a loan secured by the Leased Assets in an amount equal to the aggregate amount of Advances made with respect to such Leased Assets. Nothing in this Section 26.4(g) shall be construed to require the Lessor to take any affirmative action to realize any tax savings if in its good faith judgment such action may have a material adverse affect on the Lessor. 26.5 Funding Losses. If any payment of Base Rent or any portion of a Lease Balance is made on any day other than the last day of an Interest Period applicable thereto (other than as a result of the failure of the Lessor and each Liquidity Provider to act in accordance with the provisions of the Operative Documents), the Lessee shall reimburse the Lessor, each Conduit and each Liquidity Provider within fifteen (15) days after demand for any resulting loss or expense incurred by it, including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow or prepay, provided that the Lessor, such Conduit and such Liquidity Provider shall have delivered to the Lessee a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error, and provided, further, that such loss shall in no event exceed the then effective Lease Rate which would have been payable for the balance of such Interest Period. In the event that the Lessee pays any portion of the Lease Balance allocated to one or more CP Tranches prior to the maturity date thereof, the Lessee shall pay to the Lessor for the account of each Conduit the interest that would have accrued on its CP Tranches at the applicable CP Rates to such maturity dates. Any amount paid to the Lessor pursuant to the preceding sentence shall be invested in Permitted Investments of the type described in clause (a) of the definition thereof, which investments shall mature as close as possible to, but not later than, the date such CP Tranche(s) mature. All earnings on such Permitted Investments shall be paid over to the Lessee provided that no Event of Default has occurred and is continuing. The Lessor will, at the request of the Lessee, furnish such additional information concerning the determination of such loss as the Lessee may reasonably request. 26.6 Regulation D Compensation. For so long as the Equity Lender or any Liquidity Provider is required to maintain reserves against "Eurocurrency Liabilities" (or any other category of liabilities which include deposits by reference to which the Base Rent is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Liquidity Provider to United States residents), and, as a result, the cost to (i) the Lessor of making or maintaining its Advances, (ii) the Receivable Purchaser of making or maintaining the Seller Loan or its purchases of Purchaser's Interests, or (iii) any Liquidity Provider of making or maintaining its Loans or Liquidity Purchases, which in each case bear interest by reference to the Eurodollar Rate is increased, then the Lessor, on behalf of the Equity Lender, the Receivable Purchaser or such Liquidity Provider, as the case may be, may require the Lessee to pay, contemporaneously with each payment of Base Rent, an additional amount at a rate per annum up to but not exceeding the excess of (i) (A) the applicable Eurodollar Rate divided by (B) one minus the Eurocurrency Reserve Requirements over (ii) the applicable Eurodollar Rate to reimburse the Equity Lender, the Receivable Purchaser, or such Liquidity Provider to the extent any such Person is required to maintain such reserves. In the event that the Equity Lender, the Receivable Purchaser or a Liquidity Provider wishes to require payment of such additional amount, the Lessor (x) shall so notify the Lessee, in which case such additional Rent shall be payable to the Equity Lender or such Liquidity Provider, as the case may be, at the place indicated in such notice and (y) shall furnish to the Lessee at least five (5) Business Days prior to each date on which Rent is payable a certificate setting forth the amount to which it is then entitled under this Section (which shall be consistent with its good faith estimate of the level at which the required related reserves are maintained by it). Each such certificate shall be accompanied by such information as the Lessee may reasonably request as to the computation set forth therein. 26.7 Basis for Determining Eurodollar Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period: (a) deposits in dollars (in the applicable amounts) are not being offered to the Equity Lender or any Liquidity Provider in the relevant market for such Interest Period, or (b) the Lessor advises the Lessee that the Eurodollar Rate as determined by the Liquidity Agent and/or the Equity Lender will not adequately and fairly reflect the cost to the Equity Lender and the Liquidity Providers of funding loans under the Equity Loan Agreement, Loans or Liquidity Purchases, as the case may be, for such Interest Period, the Lessor shall forthwith give notice thereof to the Lessee, whereupon until the Lessor notifies the Lessee that the circumstances giving rise to such suspension no longer exist, (i) the obligation of the Lessor to make Advances based on the Eurodollar Rate shall be suspended and Advances shall be made on the basis of the Alternate Base Rate and (ii) each outstanding Advance shall begin to bear interest at the Alternate Base Rate on the last day of the then current Interest Period applicable thereto. 26.8 Illegality. If, on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, 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 the Lessor, the Equity Lender, the Receivable Purchaser or any Liquidity Provider 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 the Lessor, Receivable Purchaser (or any lender to either) or any Liquidity Provider to make, maintain or fund its Advances, loans under the Equity Loan Agreement, Loans or Liquidity Purchases, as the case may be, based on the Eurodollar Rate and the Lessor shall so notify the Lessee, whereupon until the Lessor notifies the Lessee that the circumstances giving rise to such suspension no longer exist, the obligation to make Advances based on the Eurodollar Rate shall be suspended and Advances shall be made on the basis of the Alternate Base Rate. If such notice is given (i) the Lessee shall be entitled, upon its request, to a reasonable explanation of the factors underlying such notice and (ii) each Advance then outstanding shall begin to bear interest at the Alternate Base Rate either (a) on the last day of the then current Interest Period applicable thereto, if the Lessor may lawfully continue to maintain and fund such Advance to such day or (b) immediately, if the Lessor, the Equity Lender, Receivable Purchaser (or any Affiliate of either) or any Liquidity Provider shall determine that it may not lawfully continue to maintain and fund such Advance, loan under the Equity Loan Agreement, Loan or Liquidity Purchase, as the case may be, to such day. 26.9 Increased Cost and Reduced Return. (a) In the event that the adoption of any applicable law, rule or regulation, or any change therein or in the interpretation or application thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by the Lessor, the Equity Lender, Receivable Purchaser or any Liquidity Provider with any request or directive after the date hereof (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) does or shall subject the Lessor, the Equity Lender, Receivable Purchaser or any Liquidity Provider to any additional tax of any kind whatsoever with respect to the Operative Documents or any Advance, loan under the Equity Loan Agreement, Loan or Liquidity Purchase, as the case may be, made by it, or change the basis or the applicable rate of taxation of payments to the Lessor, the Equity Lender, Receivable Purchaser or any Liquidity Provider of principal, interest or any other amount payable hereunder or under any other Operative Document (except for the imposition of or change in any tax on or measured by the overall net income of the Lessor, the Equity Lender, Receivable Purchaser (or any Affiliate of either) or any Liquidity Provider (other than any such tax imposed by means of withholding)); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, insurance assessment, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, the Lessor, any office of the Equity Lender, Receivable Purchaser or any Liquidity Provider which are not otherwise included in determination of the rate of interest on Advances hereunder; or (iii) does or shall impose on the Lessor, the Equity Lender, Receivable Purchaser or any Liquidity Provider any other condition; and the result of any of the foregoing is to increase the cost to the Lessor, the Equity Lender, Receivable Purchaser or any Liquidity Provider of making or maintaining Advances, Loans or Liquidity Purchases, as the case may be, or to reduce any amount receivable hereunder, then in any such case, the Lessee shall promptly pay to the Lessor, the Equity Lender, the Receivable Purchaser or any Liquidity Provider, upon demand, any additional amounts necessary to compensate such affected Person for such increased cost or reduced amount receivable. (b) If the Lessor, the Equity Lender, Receivable Purchaser or any Liquidity Provider shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, 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, or if any Liquidity Provider shall have determined that a change in the risk weighing of its Commitment is necessary, and any of the foregoing has or would have the effect of reducing the rate of return on capital of the Lessor, the Equity Lender, the Receivable Purchaser or any Liquidity Provider (or any entity directly or indirectly controlling any of such Persons) as a consequence of their respective obligations under the Operative Documents to a level below that which they could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy), then from time to time, within fifteen (15) days after demand by the Lessor on its own behalf or on behalf of the Equity Lender, the Receivable Purchaser, or any Liquidity Provider, the Lessee shall pay to the Lessor such additional amount or amounts as will compensate the Lessor, the Equity Lender, the Receivable Purchaser (or any Affiliate of either) and the Liquidity Providers (or their respective controlling entities) for such reduction. (c) The Lessor will promptly notify the Lessee of any event of which it has knowledge, occurring after the date hereof, which will require the Lessee to make payments pursuant to this Section. A certificate of the Person claiming compensation under this Section and setting forth in reasonable detail its computation of the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, the affected Person may use any reasonable averaging and attribution methods. ARTICLE XXVII ESTOPPEL CERTIFICATES 27.1 Estoppel Certificates. At any time and from time to time upon not less than twenty (20) days' prior request by the Lessor or the Lessee (the "Requesting Party"), the other party (whichever party shall have received such request, the "Certifying Party") shall furnish to the Requesting Party (but in the case of the Lessor, as Certifying Party, not more than four times per year unless required to satisfy the requirements of any sublessees and only to the extent that the required information has been provided to the Lessor by the Lessee) a certificate signed by an individual having the office of vice president or higher in the Certifying Party certifying that this Lease is in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications); the dates to which the Base Rent and Supplemental Rent have been paid; to the best knowledge of the signer of such certificate, whether or not the Requesting Party is in default under any of its obligations hereunder (and, if so, the nature of such alleged default); and such other matters under this Lease as the Requesting Party may reasonably request. Any such certificate furnished pursuant to this Article XXVII may be relied upon by the Requesting Party, and any existing or prospective mortgagee, purchaser or lender, and any accountant or auditor, of, from or to the Requesting Party (or any Affiliate thereof). ARTICLE XXVIII ACCEPTANCE OF SURRENDER 28.1 Acceptance of Surrender. No surrender to the Lessor of this Lease or of all or any portion of any Leased Asset or of any part of any thereof or of any interest therein shall be valid or effective unless agreed to and accepted in writing by the Lessor, and no act by the Lessor or any representative or agent of the Lessor, other than a written acceptance, shall constitute an acceptance of any such surrender. ARTICLE XXIX NO MERGER OF TITLE 29.1 No Merger of Title. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, in whole or in part, (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate, (b) the fee or ground leasehold estate in any Leased Asset, except as may expressly be stated in a written instrument duly executed and delivered by the appropriate Person or (c) a beneficial interest in the Lessor. ARTICLE XXX INTENT OF THE PARTIES 30.1 Ownership of the Properties. (a) It is the intent of the parties hereto that: (i) this Lease constitutes an operating lease from the Lessor to the Lessee for the purposes of the Lessee's financial reporting, (ii) the Lease and other transactions contemplated hereby preserve ownership in the Leased Assets in the Lessee for Federal and state income tax and bankruptcy purposes, (iii) each Lease Supplement grants to the Lessor a Lien on the Leased Assets covered thereby, and (iv) the obligations of the Lessee to pay Base Rent and any part of the Lease Balance shall be treated as payments of interest and principal, respectively, for Federal and state income tax and bankruptcy purposes. The Lessor shall be deemed to have a valid and binding security interest in and Lien on the Leased Assets, free and clear of all Liens other than Permitted Liens, as security for the obligations of the Lessee under the Operative Documents (it being understood and agreed that the Lessee does hereby grant a security interest in and Lien on, and convey, transfer, assign, mortgage and warrant to the Lessor and its successors, transferees and assigns, the Leased Assets and any proceeds or products thereof, to have and hold the same as collateral security for the payment and performance of the obligations of the Lessee under the Operative Documents), and each of the parties hereto agrees that it will not, nor will it permit any Affiliate to at any time, take any action or fail to take any action with respect to the preparation or filing of any income tax return, including an amended income tax return, to the extent that such action or such failure to take action would be inconsistent with the intention of the parties expressed in this Section 30.1. (b) Specifically, without limiting the generality of clause (a) of the Section 30.1, the parties hereto intend and agree that in the event of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any State or Commonwealth thereof affecting the Lessee, the Guarantor, the Lessor, any other Person or any collective actions, the transactions evidenced by the Operative Documents shall be regarded as loans made by the Lessor to the Lessee. ARTICLE XXXI PAYMENT OF CERTAIN EXPENSES 31.1 Transaction Expenses. (a) The Lessee shall pay, or cause to be paid, from time to time all Transaction Expenses in respect of the transactions taking place on the Closing Date and on each Funding Date on such respective date; provided, however, that, if the Lessee has not received written invoices therefor five (5) days prior to such date, such Transaction Expenses shall be paid on the earlier of (i) the next Funding Date and (ii) the date thirty-five (35) days after the Lessee has received written invoices therefor. (b) The Lessee shall pay or cause to be paid (i) the reasonable fees and expenses of the Paying Agent or any successor Paying Agent, (ii) all reasonable Transaction Expenses from time to time incurred by the Lessor in entering into any future amendments or supplements with respect to any of the Operative Documents, whether or not such amendments or supplements are ultimately entered into, or giving or withholding of waivers of consents hereto or thereto, in each case which have been requested by or approved by the Lessee, (iii) all reasonable Transaction Expenses incurred by the Lessor in connection with any purchase of any Leased Asset by the Lessee or other Person pursuant to this Lease and (iv) all Transaction Expenses incurred by the Lessor, the Receivable Purchaser, the Collateral Agent, the Conduits, the Liquidity Agent and the Liquidity Providers in respect of enforcement of any of their rights or remedies against the Lessee or the Guarantor in respect of the Operative Documents. 31.2 Brokers' Fees and Stamp Taxes. The Lessee shall pay or cause to be paid any brokers' fees and any and all stamp, transfer and other similar taxes, fees and excises, if any, including any interest and penalties, which are payable in connection with the transactions contemplated by this Lease and the other Operative Documents. The Lessor and the Lessee each represent to the other that it has not employed any brokers in connection with the transactions contemplated by the Operative Documents. ARTICLE XXXII OTHER COVENANTS AND AGREEMENTS OF LESSEE 32.1 Information. The Lessee will deliver to the Lessor: (a) within five (5) days after a Responsible Employee of the Lessee or any Affiliate of the Lessee obtains knowledge of the occurrence of each Event of Default or each event that, with the giving of notice or time elapse, or both, would constitute an Event of Default continuing on the date of such statement, a statement of the authorized officer setting forth details of such Event of Default or event and the action that the Lessee proposes to take with respect thereto; (b) within five (5) days of any change of the Guarantor's or the Lessee's independent public accountants, notification thereof; (c) promptly upon becoming aware thereof, written notice of any material adverse change in the business, financial position or results of operations of the Guarantor and its Subsidiaries, considered as a whole; (d) as soon as possible and in any event within five (5) days after knowledge of (or such time as a Responsible Employee of Lessee or any Affiliate of the Lessee reasonably should have had knowledge of) the occurrence of any material violation or alleged violation of an Environmental Law relating to any Property, a statement of an authorized officer setting forth the details of such violation and the action which the Lessee proposes to take with respect thereto; (e) from time to time such additional information regarding the business, properties, condition or operations, financial or otherwise, of the Guarantor and its Significant Subsidiaries, or regarding the Leased Assets or the status of any construction thereon, as the Lessor may reasonably request; (f) not later than five (5) Business Days after request, copies of all amendments to and waivers of the Credit Agreement requested by the Guarantor; and (g) not later than five (5) Business days after delivery, copies of all amendments to and waivers of the Credit Agreement. 32.2 Financial Statements. (a) The Lessee will furnish or cause to be furnished to the Lessor and each Liquidity Provider, as and when required by Section 5.01(a)-(d) of the Credit Agreement, all the reports, schedules, certificates and statements required of the Guarantor and its Subsidiaries to be delivered pursuant to Section 5.01(a)-(d) of the Credit Agreement; provided, however, that the Lessee shall not be required to furnish any such document to any such Person pursuant to this Lease if such Person or its Affiliate is a party to the Credit Agreement and receives such document pursuant to the terms thereof. (b) The Lessee will furnish to the Lessor and each Liquidity Provider, not later than ninety (90) days after the end of each of its fiscal years, unaudited financial statements of the Lessee, together with a Responsible Employee Certificate of the Lessee certifying that, to the best knowledge of such Responsible Employee, no Default or Event of Default has occurred and is continuing or, if a Default or Event of Default has occurred and is continuing, the nature thereof and the action the Lessee is taking with respect thereto. 32.3 Other Covenants. If any covenants are set forth in any Lease Supplement, then the Lessee will observe and perform such covenants according to the terms thereof with the same force and effect as if set forth in full herein. ARTICLE XXXIII MISCELLANEOUS 33.1 Survival; Severability; Etc. If any term or provision of this Lease or any application thereof shall be declared invalid or unenforceable, the remainder of this Lease and any other application of such term or provision shall not be affected thereby. If any right or option of the Lessee provided in this Lease would, in the absence of the limitation imposed by this sentence, be invalid or unenforceable as being in violation of the rule against perpetuities or any other rule of law relating to the vesting of an interest in or the suspension of the power of alienation of property, then such right or option shall be exercisable only during the period which shall end twenty-one (21) years after the date of death of the last survivor of the descendants of Franklin D. Roosevelt, the former President of the United States, and John D. Rockefeller, the founder of the Standard Oil Company, known to be alive on the date of the execution, acknowledgement and delivery of this Lease. 33.2 Amendments and Modifications. Neither this Lease nor any provision hereof may be amended, waived, discharged or terminated except by an instrument in writing signed by the Lessor and the Lessee. 33.3 No Waiver. No failure by the Lessor or the Lessee to insist upon the strict performance of any term hereof or to exercise any right, power or remedy upon a default hereunder, and no acceptance of full or partial payment of Rent during the continuance of any such default, shall constitute a waiver of any such default or of any such term. To the fullest extent permitted by law, no waiver of any default shall affect or alter this Lease, and this Lease shall continue in full force and effect with respect to any other then existing or subsequent default. 33.4 Notices. All notices, demands, requests, consents, approvals and other communications hereunder shall be in writing (including by facsimile), and directed to the address of the appropriate party as set forth in Schedule I hereto. 33.5 Successors and Assigns. All the terms and provisions of this Lease shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 33.6 Headings and Table of Contents. The headings and table of contents in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 33.7 Counterparts. This Lease may be executed in any number of counterparts, each of which shall be an original, but all of which shall together constitute one and the same instrument. 33.8 GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT AS TO MATTERS RELATING TO THE CREATION OF THE LEASEHOLD ESTATES HEREUNDER WITH RESPECT TO ANY PROPERTY (AS DEFINED IN THIS LEASE) AND THE EXERCISE OF RIGHTS AND REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE WHERE SUCH PROPERTY IS 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, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, SHALL GOVERN THE CREATION, TERMS AND PROVISIONS OF THE INDEBTEDNESS EVIDENCED HEREBY, BUT THE LIEN CREATED HEREBY AND THE CREATION AND THE ENFORCEMENT OF SAID LIEN WITH RESPECT TO ANY PROPERTY (AS DEFINED IN THIS LEASE) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE WHERE SUCH PROPERTY IS LOCATED. 33.9 Original Lease. The single executed original of this Lease containing the receipt of the Lessor therefor on or following the signature page thereof shall be the Original Executed Counterpart of this Lease (the "Original Executed Counterpart"). To the extent 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 other than the Original Executed Counterpart. 33.10 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS LEASE AND/OR ANY OF THE OTHER OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF SUCH PARTIES. THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LEASE AND EACH SUCH OTHER OPERATIVE DOCUMENTS. 33.11 TRUTH IN LEASING REQUIREMENT IN COMPLIANCE WITH FEDERAL AVIATION REGULATION ss.91.23. THE LESSEE HEREBY ADVISES THE LESSOR THAT FROM THE DATE OF ITS MANUFACTURE TO THE DATE OF THIS LEASE, THE AIRCRAFT LEASED UNDER THIS LEASE HAS BEEN MAINTAINED AND INSPECTED IN ACCORDANCE WITH ss.91.409(f)(3) OF THE FEDERAL AVIATION REGULATIONS. THE LESSEE CERTIFIES THAT IT IS RESPONSIBLE FOR THE STATUS OF COMPLIANCE OF THE AIRCRAFT WITH APPLICABLE MAINTENANCE AND INSPECTION REQUIREMENTS AS SET FORTH UNDER FAA REGULATIONS APPLICABLE TO THE LESSEE'S USE AND OPERATION OF THE AIRCRAFT. IN ADDITION, UPON THE LESSOR'S REQUEST, THE LESSEE AGREES TO ADVISE THE LESSOR WHICH OF THE REQUIRED FAA MAINTENANCE PROGRAMS THE LESSEE HAS SELECTED AND AGREES TO PROVIDE THE LESSOR WITH WRITTEN INSPECTION REPORTS FOR INSPECTIONS ACCOMPLISHED UNDER SAID PROGRAM. THE LESSEE IS SOLELY RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE AND CERTIFIES AND AGREES TO COMPLY WITH ALL APPLICABLE FAA REGULATIONS ISSUED DURING THE TERM OF THIS LEASE. THE LESSEE IS HEREBY ADVISED THAT AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FAA REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE, GENERAL AVIATION DISTRICT OFFICE OR AIR CARRIER DISTRICT OFFICE. THE LESSEE AGREES TO KEEP A COPY OF THIS LEASE IN THE AIRCRAFT AT ALL TIMES DURING THE TERM OF THIS LEASE. THE LESSEE AGREES TO COMPLY WITH ALL REQUIREMENTS OF FEDERAL AVIATION REGULATION ss. 91.23. IN WITNESS WHEREOF, the parties have caused this Lease be duly executed and delivered as of the date first above written. RITE AID REALTY CORP., as Lessee By: ___________________________________ Name: Title: RAC LEASING LLC, as Lessor By: The Diversified Group Incorporated, as manager By: _______________________________ Name: Title: EX-4 17 EXHIBIT 4.16 - WAIVER NO. 1 TO GUARANTY Exhibit 4.16 EXECUTION COPY WAIVER NO. 1 TO GUARANTY WAIVER dated as of January 11, 2000 to Guaranty dated as of May 30, 1997, as amended by Amendment No. 1, dated as of October 25, 1999, and as further amended by Amendment No. 2, dated as of December 2, 1999 (as so amended, the "Guaranty") between RITE AID CORPORATION, a Delaware Corporation (the "Guarantor") and SUMITOMO BANK LEASING AND FINANCE, INC. W I T N E S S E T H : The parties hereto agree as follows: SECTION 1. DEFINED TERMS; REFERENCES. (a) Unless otherwise specifically defined herein, each term used herein which is defined in the Guaranty has the meaning assigned to such term in the Guaranty. For the purposes of this Waiver, "Public Debt" means debt securities of the Guarantor issued pursuant to an indenture qualified under (or in form suitable for qualification under) the Trust Indenture Act of 1939, as amended. SECTION 2. LIMITED WAIVER. At the request of the Guarantor, the Required Participants hereby waive any Default for breaches of covenants under Section 1.01(a), Section 1.01(b), Section 1.01(c) or Section 1.01(d) Annex A to the Guaranty, to the extent that such Default would arise from failure of the Guarantor to deliver to the Liquidity Providers the financial statements referred to in Section 1.01(a) or Section 1.01(b) of Annex A to the Guaranty and the related officer's certificate and statement of the Guarantor's independent accountants referred to in Sections 1.01(c) and 1.01(d) of Annex A to the Guaranty, such waivers to be effective solely for the period commencing on January 11, 2000 and ending on July 11, 2000; provided, however, that the effectiveness of this Waiver is subject to the satisfaction of the conditions specified in Section 3 of this Waiver. This Waiver shall be limited precisely as written, and shall not extend to any Default under any other provision of the Guaranty or to any Default under Section 1.01(a), Section 1.01(b), Section 1.01(c) or Section 1.01(d) of Annex A to the Guaranty during any other period. SECTION 3. CONDITIONS TO WAIVER. The waivers granted pursuant to Section 2 above are subject the conditions that: (a) the Guarantor shall deliver to each of the Liquidity Providers the following items on or prior to the dates specified below (or, in the reasonable discretion of the Liquidity Agent, no later than 5 days thereafter): (i) a monthly forecast of cash receipts and disbursements, commencing with February, 2000, no later than the first day of each month in respect of such forecast ; (ii) a monthly reconciliation of actual cash receipts and disbursements to the forecast for such month delivered pursuant to clause (i) above, no later than the 25th day of the next succeeding month; (iii) a weekly sales report for each week, commencing with the week ending January 8, 2000, no later than the 4th day following the last day of the week in respect of which such sales report is to be delivered; (iv) an operating forecast for each month in the fiscal year ending on or closest to February 28, 2001, no later than March 31, 2000; and (v) a monthly reconciliation of actual operating results for each month specified in the operating forecast delivered pursuant to clause (iv) above to the budget for such month, no later than the 30th day of the next succeeding month; and (b) the Guarantor shall not directly or indirectly, make or agree to make any payment to or for the account of any holder of Public Debt, or any trustee or other representative of any such holder, on account of principal of, interest on or fees in respect of such Public Debt, except as required by the terms of such Public Debt as in effect on the date hereof. SECTION 4. GOVERNING LAW. This Waiver shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. COUNTERPARTS. This Waiver 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. SECTION 6. EFFECTIVENESS. This Waiver shall become effective on the date when the following conditions are met: (a) the Liquidity Agent shall have received from each of the Guarantor and the Required Participants a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Liquidity Agent) that such party has signed a counterpart hereof; and (b) the Agent shall have received evidence satisfactory to it that substantially identical waivers to any covenant requiring delivery of financial statements or reports set forth in any other agreement obligations under which are secured by the Collateral shall have become or shall simultaneously become effective. IN WITNESS WHEREOF, each of the parties hereto has caused this Waiver to be executed by their officers thereunto duly authorized as of the date first above written. RITE AID CORPORATION, as Guarantor By: ________________________________ Name: Title: Acknowledged and Agreed: SUMITOMO BANK LEASING AND FINANCE, INC. By: ___________________________________ Name: Title: EX-4 18 EXHIBIT 4.17 - AMENDMENT NO. 2 TO GUARANTY Exhibit 4.17 EXECUTION COPY AMENDMENT NO. 2 TO GUARANTY AMENDMENT NO. 2 TO GUARANTY ("Amendment No. 2"), dated as of December 2, 1999, from RITE AID CORPORATION, a Delaware corporation (the "Guarantor"), to SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation (the "Lessor"). WHEREAS, the Lessor and Rite Aid Realty Corp. (the "Lessee") entered into a Master Lease and Security Agreement dated as of May 30, 1997, as amended by Amendment No. 1, dated as of March 11, 1998, and as further amended by Amendment No. 2, dated as of June 22, 1998, and as further amended by Amendment No. 3, dated as of May 26, 1999, and as further amended by Amendment No. 4, dated as of October 25, 1999 (as so amended, the "Lease"); and WHEREAS, the Guarantor and the Lessor entered into a Guaranty, dated as of May 30, 1997, as amended by Amendment No. 1, dated as of October 25, 1999 (as so amended, the "Guaranty"); and WHEREAS, the Guarantor and the Lessor now desire to further amend the Guaranty; and WHEREAS, capitalized terms used but not defined herein shall have the respective meanings given to such terms in Appendix I to the Lease. NOW, THEREFORE, in consideration of the mutual covenants herein contained and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Amendments to Guaranty. Annex A to the Guaranty is hereby amended as follows: (a) The following new definition is added to the definition section of Annex A in its appropriate alphabetical position: "LIFO Adjustments" means, for any period, the net adjustment to costs of goods sold for such period required by the Guarantor's LIFO inventory method, determined in accordance with generally accepted accounting principles. (b) The following definitions contained in Annex A are amended to read in their entirety as follows: "Consolidated EBITDA" means, for any period, 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 Charges, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments, (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, less (b), to the extent not deducted in determining 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 in any prior period and (ii) LIFO Adjustments. "Consolidated Net Income" means, for any period, the net income (or loss) of the Guarantor and its Consolidated Subsidiaries (exclusive of (a) extraordinary items of gain or loss, (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 Guarantor'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 Guarantor and its Consolidated Subsidiaries determined as of such date; provided that such consolidated stockholders' equity shall be adjusted to exclude the effect of items which have been excluded from Consolidated Net Income for any period commencing after August 28, 1999 by reason of the parenthetical phrase contained in the definition of such term. Consolidated Net Worth includes the Guarantor's 8% Convertible Pay-In-Kind Preferred Stock. "Consolidated Rent" means, for any period, the consolidated rental expense of the Guarantor 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. "Credit Agreement" means the Amended and Restated Credit Agreement dated as of October 25, 1999, as amended by Amendment No. 1, dated as of December 2, 1999, among Rite Aid Corporation, the banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Agent, without giving effect to any amendments or waivers thereof made by the requisite parties thereunder after December 2, 1999 unless expressly consented to by the Required Participants. "1999 Facility" means the $1,300,000,000 Term Loan Agreement dated as of October 25, 1999, as amended by Amendment No. 1, dated as of December 2, 1999, among Rite Aid Corporation, the banks listed therein and Morgan Guaranty Trust Company of New York, as Agent, without giving effect to any amendments or waivers thereof made by the requisite parties thereunder after December 2, 1999 unless expressly consented to by the Required Participants. (c) Section 1.12 of Annex A is amended to read in its entirety as follows: "SECTION 1.12 Capitalization Leverage Ratio. At no time shall the ratio of (i) Consolidated Debt at such time to (ii) Total Capital at such time, exceed 0.695; provided that upon any sale of the capital stock of PCS, such maximum ratio shall be reset at the level which produces the result that the amount of additional Debt that the Guarantor may incur within the limits of this ratio immediately after giving effect to such sale and the repayment of any Debt required in connection therewith is equal to the amount of additional Debt that the Guarantor could incur within the limits of this ratio immediately before giving effect to such sale and the repayment of any Debt required in connection therewith." (d) Section 1.13 of Annex A is amended to read in its entirety as follows: "SECTION 1.13. Limitation on Debt. The Guarantor will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any Debt except: (a) Debt under the Credit Agreement or the 1999 Facility; (b) Debt outstanding on December 2, 1999; (c) Debt incurred to refinance Debt referred to in clause (a) or clause (b) above, provided that the amount thereof that is at the time outstanding or committed is not increased and the maturity thereof is not shortened; and (d) Debt not permitted by clauses (a), (b) and (c) above in an aggregate principal amount at any time outstanding not to exceed $25,000,000." (f) Section 1.14 of Annex A is amended to read in its entirety as follows (including the table following the end of the quotation marks: "SECTION 1.14. Fixed Charge Coverage. At no time during any period set forth below shall the Fixed Charge Coverage Ratio be less than the ratio set forth below opposite such period:" Fiscal Quarter Ending on or Ratio Closest to: November 30, 1999 1.35 February 29, 2000 1.30 May 31, 200 and thereafter 1.25 Section 2. Amendment Fee. In consideration of the Required Participants' consent to this Amendment No. 2, concurrently with the execution and delivery of this Amendment No. 2, and as a condition precedent to the effectiveness of this Amendment No. 2, the Guarantor shall pay an amendment fee to the Liquidity Agent in an amount equal to 0.25% of $119,000,000 for the ratable benefit of the Lenders and the Lessor. Such fee is payable in full on the date hereof by wire transfer of immediately available funds to an account to be designated by the Liquidity Agent. The Guarantor hereby agrees that the amendment fee have been fully earned and once paid are nonrefundable. Section 3. Conditions Precedent. This Amendment No. 2 shall become effective when the following conditions are met: (i) the Liquidity Agent shall have received the Amendment Fee in accordance with Section 2 of this Amendment No. 2; (ii) the Liquidity Agent shall have received from each of the Guarantor and the Required Participants a duly executed counterpart hereof; and (iii) the Guarantor shall have satisfied all of the conditions precedent to each of (x) Amendment No. 1 to the Credit Agreement and (y) Amendment No. 1 to the 1999 Facility. Section 4. Representations and Warranties. The Guarantor hereby represents and warrants that (a) each of the representations and warranties made in Section 4 of the Guaranty are true and correct with the same force and effect as though made on and as of the date of this Amendment No. 2, except (i) to the extent that any such representations or warranties expressly relate to an earlier date, such representations and warranties were true and correct on and as of such earlier date, (ii) with respect to the representation set forth in Section 4(d) and (e) of the Guaranty, such representation is true and correct on and as of the date hereof as if made on and as of the date hereof except to the extent set forth in the Information (as defined in Annex A hereto) and (iii) with respect to the representation set forth in Section 4(f) of the Guaranty, such representation is true and correct on and as of the date hereof as if made on and as of the date hereof except to the extent set forth in the Guarantor's 1999 Annual Report on Form 10-K for the fiscal year ended February 27, 1999, and (b) no Default or Event of Default has occurred and is continuing. Section 5. Continuing Effect. Except as expressly modified and amended hereby, the Guaranty remains unchanged and in full force and effect in all respects. As expressly modified and amended hereby, the Guarantor hereby ratifies and affirms the Guaranty. Section 6. Governing Law. THIS AMENDMENT NO. 2 SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 7. Counterparts. This Amendment No. 2 may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 2. [Remainder of this page left intentionally blank. Signatures begin on next page.] IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 2 to be executed by their officers thereunto duly authorized as of the date first above written. RITE AID CORPORATION, as Guarantor By:__________________________________ Name: Title: Acknowledged and Agreed: SUMITOMO BANK LEASING AND FINANCE, INC. By:__________________________________ Name: Title: EX-4 19 EXHIBIT 4.18 - AMENDMENT NO. 1 TO GUARANTY Exhibit 4.18 AMENDMENT NO. 1 TO GUARANTY AMENDMENT NO. 1 TO GUARANTY ("Amendment No. 1"), dated as of October 25, 1999, from RITE AID CORPORATION, a Delaware corporation (the "Guarantor"), to SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation (the "Lessor"). WHEREAS, the Lessor and Rite Aid Realty Corp. (the "Lessee") entered into a Master Lease and Security Agreement dated as of May 30, 1997, as amended by Amendment No. 1, dated as of March 11, 1998, and as further amended by Amendment No. 2, dated as of June 22, 1998, and as further amended by Amendment No. 3, dated as of May 26, 1999, and as further amended by Amendment No. 4, dated as of the date hereof (as so amended, the "Lease"); and WHEREAS, the Guarantor and the Lessor entered into a Guaranty, dated as of May 30, 1997 (the "Guaranty"); and WHEREAS, the Lessor has pledged and assigned its rights in the Guaranty pursuant to the Intercreditor and Security Agreement, dated as of May 30, 1998, as amended by Amendment No. 1, dated as of May 26, 1997, among the Lessor, the Guarantor, the Lessee, The Sumitomo Bank, Limited, New York Branch, as Collateral Agent and the other parties thereto; and WHEREAS, the obligations of the Guarantor under the Guaranty have been secured under the PCS Pledge Agreement and the drugstore.com Pledge Agreement (as such terms are defined in the Amended and Restated Credit Agreement dated as of October 25, 1999 among the Guarantor, the banks parties thereto and Morgan Guaranty Trust Company of New York, as agent); and WHEREAS, the Guarantor and the Lessor now desire to amend the Guaranty; and WHEREAS, capitalized terms used but not defined herein shall have the respective meanings given to such terms in Appendix I to the Lease. NOW, THEREFORE, in consideration of the mutual covenants herein contained and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Amendment to Guaranty. Section 11(a) of the Guaranty is hereby amended to read in its entirety as follows: (a) The covenants set forth in Annex A hereto are hereby incorporated herein in their entirety with the same force and effect as if such covenants were set forth expressly herein. The Guarantor further covenants and agrees that it shall not cause or permit any increase in the principal amount secured under the PCS Pledge Agreement (as defined in Annex A) or the drugstore.com Pledge Agreement (as defined in Annex A and together with the PCS Pledge Agreement, the "Pledge Agreements") or cause or permit any amendment or waiver to either Pledge Agreement that by its terms materially adversely affects the rights of the holders of the Synthetic Lease Obligations (as defined in the Pledge Agreements) in a manner different from its effect on the rights of holders of any other Secured Obligations (as defined in the Pledge Agreements) without the prior written consent of the Required Participants." SECTION 2. Pledge Agreements. The Lessor hereby accepts the benefits of and agrees to be bound by the terms of the PCS Pledge Agreement and the drugstore.com Pledge Agreement and confirms its appointment of Morgan Guaranty Trust Company of New York as its agent thereunder in accordance with the terms thereof. SECTION 3. Secretary's Certificate. The Guarantor hereby agrees to deliver to the Collateral Agent on the date hereof a certificate dated the date of this Amendment No. 1, from the Secretary or Assistant Secretary of the Guarantor certifying (i) as to the incumbency and signature of each officer of the Guarantor authorized to execute and deliver this Amendment No. 1, (ii) that attached thereto are true and complete copies of the Certificate of Incorporation and By-Laws of the Guarantor as in full force and effect on the date of this Amendment No. 1 and (iii) that attached thereto is a true and complete copy of the resolutions of the Board of Directors of the Guarantor authorizing the execution, delivery and performance of this Amendment No. 1 and the transactions contemplated hereby, together with a certificate of another officer of the Guarantor as to the incumbency and signature of such Secretary or Assistant Secretary. SECTION 4. Representations and Warranties. The Guarantor hereby represents and warrants that (a) each of the representations and warranties made in Section 4 of the Guaranty are true and correct with the same force and effect as though made on and as of the date of this Amendment No. 1, except (i) to the extent that any such representations or warranties expressly relate to an earlier date, such representations and warranties were true and correct on and as of such earlier date, (ii) with respect to the representation set forth in Section 4(d) and (e) of the Guaranty, such representation is true and correct on and as of the date hereof as if made on and as of the date hereof except to the extent set forth in the Information (as defined in Annex A hereto) and (iii) with respect to the representation set forth in Section 4(f) of the Guaranty, such representation is true and correct on and as of the date hereof as if made on and as of the date hereof except to the extent set forth in the Guarantor's 1999 Annual Report on Form 10-K for the fiscal year ended February 27, 1999, and (b) no Default or Event of Default has occurred and is continuing. SECTION 5. Continuing Effect. Except as expressly modified and amended hereby, the Guaranty remains unchanged and in full force and effect in all respects. As expressly modified and amended hereby, the Guarantor hereby ratifies and affirms the Guaranty. SECTION 6. Governing Law. THIS AMENDMENT NO. 1 SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 7. Counterparts. This Amendment No. 1 may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 1. [Remainder of this page left intentionally blank. Signatures begin on next page.] IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 1 to be executed by their officers thereunto duly authorized as of the date first above written. RITE AID CORPORATION, as Guarantor By: ____________________________ Name: Title: ANNEX A TO GUARANTY DEFINITIONS Definitions. Unless otherwise defined in the text of this Annex A, the following terms, as used in this Annex A, have the following meanings (capitalized terms used in this Annex A but not otherwise defined in this Annex A shall have their respective meanings as set forth in the Guaranty; unless otherwise specified in this Annex A, references to section numbers in this Annex A refer to the numbered sections of this Annex A): "ATTRIBUTABLE DEBT" means, as to any particular Sale and Leaseback Transaction under which the Guarantor or any 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 Sale and Leaseback Transaction, the then present value of the minimum rental obligations under such Sale and Leaseback 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 payments or, if such interest factor cannot be readily determined, at the rate of 14% per annum. 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. "BANK" means each bank listed on the signature pages of the Credit Agreement, each Assignee (as defined in the Credit Agreement) which becomes a Bank pursuant to Section 9.06(c) of the Credit Agreement, and their respective successors. "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 the aggregation of Loans of the same Class to be made to the Guarantor by the Banks pursuant to Article 2 of the Credit Agreement on a single date and for a single Interest Period. "BUSINESS ACQUISITION" means (i) an Investment by the Guarantor 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 Guarantor or any of its Subsidiaries or (ii) an acquisition by the Guarantor or any of its Subsidiaries of the property and assets of any Person (other than the Guarantor or any of its Subsidiaries) that constitute substantially all the assets of such Person or any division or other business unit of such Person. "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 in respect of a Capital Lease. "CLASS" has the meaning set forth in Section 1.03 of the Credit Agreement. "COLLATERAL" means collateral subject to the Collateral Documents. "COLLATERAL DOCUMENTS" means the Pledge Agreements, any additional pledge agreements required to be delivered pursuant to the Loan Documents and any other instruments or agreements executed pursuant to the foregoing. "COMMITMENT" means a Tranche A Commitment or a Tranche B Commitment, and "COMMITMENTS" means any two or more of the foregoing, as the context may require. "COMMITMENT SCHEDULE" means the Schedule attached to the Credit Agreement and identified as such. "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the aggregate amount of expenditures by the Guarantor and its Consolidated Subsidiaries for plant, property and equipment 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 any such expenditures made (i) for the replacement or restoration of assets to the extent financed by condemnation awards or proceeds of insurance received with respect to the loss or taking of or damage to the asset or assets being replaced or restored and (ii) for assets acquired to the extent financed by a Sale and Leaseback Transaction permitted by Section 1.08. "CONSOLIDATED DEBT" means at any date the Debt of the Guarantor and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "CONSOLIDATED EBITDA" for any period, Consolidated Net Income for such period plus, to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) Consolidated Interest Charges, (ii) provision for income taxes, (iii) depreciation and amortization and (iv) charges incurred in connection with store closings not in excess of $48,000,000 and $20,000,000 during the fiscal years ending on or closest to February 28, 2000 and February 28, 2001, respectively; provided that if there shall have been an acquisition or disposition of operations during such period, Consolidated EBITDA shall be calculated on a pro forma basis giving effect thereto as if such acquisition or disposition had occurred on the first day of such period. "CONSOLIDATED INTEREST CHARGES" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Guarantor and its Consolidated Subsidiaries during such period. "CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of the Guarantor and its Consolidated Subsidiaries (exclusive of (a) any non-cash loss on account of a sale of any drugstore and (b) extraordinary items of gain or loss and other non-recurring items of gain or loss, but only to the extent that such non-recurring items of loss do not (i) involve any cash expenditure by the Guarantor during such period or any future period or (ii) exceed $50,000,000 in any fiscal year), determined on a consolidated basis for such period. "CONSOLIDATED NET TANGIBLE ASSETS" means 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 Guarantor and its Consolidated 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 would be included on such consolidated balance sheet. "CONSOLIDATED NET WORTH" means at any date the consolidated stockholders' equity of the Guarantor and its Consolidated Subsidiaries determined as of such date. "CONSOLIDATED RENT" means, for any period, the consolidated rental expense of the Guarantor and its Consolidated Subsidiaries for such period. "CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Guarantor in its consolidated financial statements if such statements were prepared as of such date. "CREDIT AGREEMENT" means the Amended and Restated Credit Agreement dated as of October 25, 1999 among Rite Aid Corporation, the banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Agent, without giving effect to any amendments or waivers thereof made by the requisite parties thereunder after October 25, 1999 unless expressly consented to by the Required Participants. "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 (and, for purposes of Section 1.10 and the definition of Material Financial Obligations, all 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. "DEFAULT" means any condition or event which constitutes an Event of Default under the Credit Agreement or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default under the Credit Agreement. "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. "DRUGSTORE.COM" means drugstore.com, inc., a Delaware corporation, and its successors. "DRUGSTORE.COM PLEDGE AGREEMENT" means the drugstore.com Pledge Agreement dated as of October 25, 1999 between the Guarantor and Morgan Guaranty Trust Company of New York, as agent thereunder. "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. "ERISA GROUP" means the Guarantor, 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 Guarantor or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "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. "EVENT OF DEFAULT" has the meaning set forth in Section 6.01 of the Credit Agreement. "FIXED CHARGE COVERAGE RATIO" means at any date, the ratio of (i) Consolidated EBITDA plus Consolidated Rent to (ii) Consolidated Interest Charges plus Consolidated Rent, in each case for the period of four consecutive fiscal quarters most recently ended on or prior to such date. "FUNDED DEBT" means any Debt maturing more than one year after the date of determination thereof and any Debt, 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 such Debt, which would, in accordance with generally accepted accounting practice, be classified as funded debt but shall not include: (a) any Debt 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 a 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 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 or guarantees other than guarantees of indebtedness for borrowed money. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "GUARANTEE" used as a verb has a corresponding meaning. "INDENTURES" means (i) the Indenture dated as of December 21, 1998 between the Guarantor and Harris Trust and Savings Bank, as trustee, (ii) the Indenture dated as of September 22, 1998 between the Guarantor and Harris Trust and Savings Bank, as trustee and (iii) the Indenture dated as of August 1, 1993, between the Guarantor and First Trust of New York, National Association, as successor trustee. "INFORMATION" means, collectively, (i) the information provided to the Banks in connection with the waiver dated as of September 29, 1999 to the Existing Credit Agreement and (ii) the information presented to the Banks at meetings in New York City on October 4, 1999 and October 18, 1999 among the Borrower and certain financial institutions. "INTEREST PERIOD" shall have the meaning set forth in Section 1.01 of the Credit Agreement. "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 Guarantor of its own capital stock shall not constitute an Investment for purposes of this Annex A. 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. "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 Annex A, the Guarantor 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. "LOAN" means a Tranche A Loan or a Tranche B Loan and "LOANS" means Tranche A Loans or Tranche B Loans or any combination of the foregoing. "LOAN DOCUMENTS" means the Credit Agreement, the Notes and the Collateral Documents. "MATERIAL FINANCIAL OBLIGATIONS" means (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 Guarantor and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $25,000,000. "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. "1999 FACILITY" means the $1,300,000,000 Term Loan Agreement dated as of the date of this Amended Agreement among Rite Aid Corporation, the banks listed therein and Morgan Guaranty Trust Company of New York, as administrative agent thereunder, without giving effect to any amendments or waivers thereof made by the requisite parties thereunder after October 25, 1999 unless expressly consented to by the Required Participants. "1999 EXPOSURES" mans the undrawn commitments and/or the outstanding loans under the 1999 Facility. "1999 LOAN DOCUMENTS" means the "Loan Documents" as defined in the 1999 Facility. "NOTES" means promissory notes of the Guarantor, substantially in the form of Exhibit A hereto, evidencing the obligation of the Guarantor to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PCS" means PCS Holding Corporation, a Delaware corporation, and its successors. "PCS PLEDGE AGREEMENT" means the PCS Pledge Agreement dated as October 25, 1999 between the Guarantor and Morgan Guaranty Trust Company of New York, as agent thereunder. "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "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. "PLEDGE AGREEMENTS" means the drugstore.com Pledge Agreement and the PCS Pledge Agreement. "REFUNDING BANK" shall have the meaning set forth in Section 1.01 of the Credit Agreement. "REGULATION T, U OR X" means Regulation T, U or X of the Board of Governors of the Federal Reserve System, as in effect from time to time. "RESTRICTED PAYMENT" means (i) any dividend or other distribution on any shares of the Guarantor's capital stock (except dividends payable solely in shares of its capital stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Guarantor's capital stock or (b) any option, warrant or other right to acquire shares of the Guarantor's capital stock (other than such payment in connection with employee benefit plans in the ordinary course of business). "SALE AND LEASEBACK TRANSACTION" has the meaning set forth in Section 1.09. "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 Guarantor 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. "SIGNIFICANT SUBSIDIARY" means at any time any Subsidiary or any group of Subsidiaries having consolidated assets, individually or in the aggregate, equal to or greater than 8% of the consolidated assets of the Guarantor and its Consolidated Subsidiaries at such time. "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. "TEMPORARY CASH INVESTMENT" means any Investment 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-I by S&P and P- I 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 acquisition thereof by the Guarantor or a Subsidiary 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). "TERMINATION DATE" means July 19, 2001, or, if such day is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the Termination Date shall be the next preceding Euro-Dollar Business Day. "TOTAL CAPITAL" means, at any date, the sum of Consolidated Debt and Consolidated Net Worth, each determined as of such date. "TRANCHE A COMMITMENT" means (i) with respect to each Bank listed in the Commitment Schedule, the amount set forth opposite the name of such Bank in the Commitment Schedule as its Tranche A Commitment and (ii) with respect to each Assignee which becomes a Bank pursuant to Section 9.06(c) of the Credit Agreement, the amount of the Tranche A Commitment thereby assumed by it, in each case as such amount may be changed from time to time pursuant to Sections 2.08, 2.10 and 9.06(c) of the Credit Agreement. "TRANCHE A EXPOSURE" means, with respect to each Bank, the amount of its Tranche A Commitment, if still in existence, or the aggregate outstanding principal amount of its Tranche A Loans, if its Tranche A Commitment is no longer in existence. "TRANCHE A LOAN" means a loan made by a Bank pursuant to Section 2. 01(a) of the Credit Agreement. "TRANCHE B COMMITMENT" means (i) with respect to each Bank listed in the Commitment Schedule, the amount set forth opposite the name of such Bank in the Commitment Schedule as its Tranche B Commitment and (ii) with respect to each Assignee which becomes a Bank pursuant to Section 9.06(c) of the Credit Agreement, the amount of the Tranche B Commitment thereby assumed by it, in each case as such amount may be changed from time to time pursuant to Sections 2.08, 2. 10 and 9.06(c) of the Credit Agreement. "TRANCHE B EXPOSURE" means, with respect to each Bank, the amount of its Tranche B Commitment, if still in existence, or the aggregate outstanding principal amount of its Tranche B Loans, if its Tranche B Commitment is no longer in existence. "TRANCHE B LOAN" means a loan made by a Bank pursuant to Section 2.01(b) of the Credit Agreement. "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. "UNITED STATES" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. "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 owned by the Guarantor. Accounting Terms and Determinations. (a) 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 Guarantor's independent public accountants) with the most recent audited consolidated financial statements of the Guarantor and its Consolidated Subsidiaries delivered accordance with such timetable. COVENANTS The Guarantor agrees that, until the Commitments (as defined in the Committed Loan Agreement) of the all of the Lenders have been terminated and all of the Secured Obligations (as defined in the Intercreditor Agreement) have been paid or performed in full: SECTION 1. Information. The Guarantor will deliver to each of the Liquidity Providers: (a) 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 Guarantor's Annual Report on Form 10-K) after the end of each fiscal year of the Guarantor, a consolidated balance sheet of the Guarantor 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 in a manner acceptable to the SEC by KPMG Peat Marwick LLP or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 45 days (or (x) in the case of the fiscal quarter most recently ended prior to October 25, 1999, within 65 days or (y) in the case of any subsequent fiscal quarter, within such longer period of time, not greater than 60 days, to which the SEC may extend the filing deadline for the Guarantor's Quarterly Report on Form 10-Q) after the end of each of the first three quarters of each fiscal year of the Guarantor, a consolidated balance sheet of the Guarantor 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 Guarantor's fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Guarantor's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Guarantor; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer of the Guarantor (i) setting forth in reasonable detail the calculations required to establish whether the Guarantor was in compliance with the requirements of Sections 1.08 to 1.15, inclusive, on the date of such financial statements and (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 Guarantor is taking or proposes to take with respect thereto; (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 five days after any officer of the Guarantor obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Guarantor setting forth the details thereof and the action which the Guarantor is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Guarantor generally, copies of all financial statements, reports and proxy statements so mailed; (g) 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 Guarantor shall have filed with the SEC; (h) if and when any member of the ERISA Group (i) gives or 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 knows that the plan administrator of any Plan has given or 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 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 the chief financial officer or the chief accounting officer of the Guarantor setting forth details as to such occurrence and action, if any, which the Guarantor or applicable member of the ERISA Group is required or proposes to take; and (i) from time to time such additional information regarding the financial position or business of the Guarantor and its Subsidiaries as the Liquidity Agent, at the request of any Liquidity Provider, may reasonably request. Information required to be delivered pursuant to Section 1.01 (a), 1.01 (b), 1.01 (f) or 1.01 (g) above shall be deemed to have been delivered on the date on which the Guarantor provides notice to the Liquidity Providers 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 Liquidity Providers without charge; provided that (i) such notice may be included in a certificate delivered pursuant to Section 1.01(c) and (ii) the Guarantor shall deliver paper copies of the information referred to in Section 1.01(a), 1.01(b), 1.01(f) or 1.01(g) to any Liquidity Provider which requests such delivery. SECTION 2. Payment of Obligations. The Guarantor 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 Lien upon any of its property or assets, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except where any of the items in clause (i) or (ii) above may be contested in good faith by appropriate proceedings, and the Guarantor 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 3. Maintenance of Property; Insurance. (a) The Guarantor will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Guarantor will, and will cause each of its Subsidiaries to, maintain (either in the name of the Guarantor 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 Liquidity Providers, upon request from the Liquidity Agent, information presented in reasonable detail as to the insurance so carried. SECTION 4. Conduct of Business and Maintenance of Existence. Except as otherwise permitted in the covenants set forth in this Annex A, the Guarantor will continue, and will cause each Significant Subsidiary to continue, to engage in business of the same general type as now conducted by the Guarantor and its Significant Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Significant Subsidiary (except where such Significant Subsidiary merges into the Guarantor or any other Subsidiary) to preserve, renew and keep in full force and effect their respective legal existences and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business. SECTION 5. Compliance with Laws. The Guarantor 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) 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 on the business, financial position or results of operations of the Guarantor and its Consolidated Subsidiaries, considered as a whole. SECTION 6. Inspection of Property, Books and Records. The Guarantor 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 Liquidity Provider at such Liquidity Provider's expense to visit and inspect any of their respective 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 7. Restriction on Other Agreements. The Guarantor will not, and will not permit any Subsidiary to, enter into any agreement (other than the Loan Documents and the 1999 Loan Documents) which imposes a limitation on incurrence by the Guarantor and its Subsidiaries of Liens that is more restrictive than the limitation on Liens set forth in the Indentures (other than agreements with respect to Debt secured by Liens permitted by Section 1.10(a) containing restrictions on the ability to transfer or grant Liens on the assets securing such Debt and other than customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing and customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business) or which imposes other covenants more restrictive than those set forth in this Annex A. SECTION 8. Restriction on Debt of Subsidiaries. The Guarantor will not permit any Subsidiary to create, issue, incur, assume, or in any other way become liable for any unsecured Debt unless immediately prior thereto the Guarantor would be entitled under Section 1.10(e) to create Secured Debt not specifically permitted under Section 1.10 but for subsection (e) thereof in an amount equal to such Debt; provided that the foregoing restriction shall not prevent (i) any Subsidiary from becoming liable to the Guarantor or to a Wholly-Owned Consolidated Subsidiary for Debt or (ii) the extension, renewal or refunding of any Debt of any Subsidiary so long as Consolidated Debt is not thereby increased. SECTION 9. Restriction on Sales with Leases Back. Except for a sale or transfer by a Subsidiary to the Guarantor or a Wholly-Owned Consolidated Subsidiary, the Guarantor will not, and will not permit any Subsidiary to, sell or transfer any manufacturing plant, warehouse, retail store or equipment now or hereafter owned and operated by the Guarantor or a Subsidiary, with the intention that the Guarantor or any 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 that, notwithstanding the foregoing, the Guarantor or any Subsidiary may enter into a Sale and Leaseback Transaction if the Guarantor or a Subsidiary would be entitled under Section 1.10(e) to create Secured Debt not specifically permitted under Section 1. 10 but for Section 1.10(e) in an amount equal to the Attributable Debt respecting such Sale and Leaseback Transaction; provided further that, notwithstanding the foregoing, the Guarantor or any Subsidiary may enter into a Sale and Leaseback Transaction if entered into in respect of property acquired by the Guarantor or a Subsidiary if such Sale and Leaseback Transaction is entered into within 24 months from the date of such acquisition; and provided still further that, notwithstanding the foregoing, the Guarantor or any Subsidiary may enter into a Sale and Leaseback Transaction so long as the Net Cash Proceeds thereof are applied as contemplated by Section 2.10 of the Credit Agreement. SECTION 10. Restriction on Liens. The Guarantor 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 acquired or constructed by the Guarantor or a 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 Guarantor or a Subsidiary of property subject to any Lien upon such property existing at the time of acquisition thereof, whether or not assumed by the Guarantor or such Subsidiary, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired; provided that the Lien 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; (b) Any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 1.10 or any Lien securing the Debt of the Guarantor or of any Subsidiary on October 25, 1999 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 Secured Debt of a Subsidiary owing to the Guarantor or a Wholly-Owned Consolidated Subsidiary; (d) Any Lien created by the Loan Documents or the 1999 Loan Documents; and (e) Secured Debt of the Guarantor and its Subsidiaries which would otherwise be prohibited by the foregoing restrictions (not including Secured Debt permitted to be secured under subsections (a) through (d) above) so long as the sum of any such Secured Debt hereafter incurred and outstanding at the time plus Attributable Debt of the Guarantor and any Subsidiaries in respect of Sale and Leaseback Transactions hereafter entered into and outstanding at the time (excluding Attributable Debt incurred in respect of any Sale and Leaseback Transaction (i) entered into in respect of property acquired by the Guarantor or a Subsidiary not more than 24 months prior to the date such Sale and Leaseback Transaction is entered into or (ii) if the Guarantor, within 120 days before or after such Sale and Leaseback Transaction is entered into applies an amount equal to the greater of (A) the net proceeds of the sale of the property so sold and leased back or (B) the fair market value of such property at the date such arrangement is entered into to the retirement of Secured Debt (other than at maturity or pursuant to any mandatory payment provision) or to reduction of the Commitments) plus unsecured Debt of any Subsidiary hereafter incurred and outstanding at the time (excluding unsecured Debt incurred through the extension, renewal or refunding of Debt of such Subsidiary where Consolidated Debt was not thereby increased and excluding any Debt owed to the Guarantor or a Wholly-Owned Consolidated Subsidiary) does not at the time exceed 5% of Consolidated Net Tangible Assets. SECTION 11. 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: FISCAL YEAR ENDING ON AMOUNT OR CLOSEST TO February 29, 2000 $620,000,000 February 28, 2001 $295,000,000 SECTION 12. Capitalization Leverage Ratio. At no time during any period set forth below shall the ratio of (i) Consolidated Debt at such time to (ii) Total Capital at such time, exceed the ratio set forth below opposite such period: FISCAL QUARTER ENDING RATIO ON OR CLOSEST TO November 30, 1999 0.635 February 29, 2000 0.635 May 31, 2000 and thereafter 0.62 SECTION 13. Cash Flow Leverage Ratio. At no time during any period set forth below shall the ratio of (i) Consolidated Debt at such time to (ii) Consolidated EBITDA for the four consecutive fiscal quarters then most recently ended at or prior to such time, exceed the ratio set forth below opposite such period: FISCAL QUARTER ENDING RATIO ON OR CLOSEST TO November 30, 1999 6.30 February 29, 2000 6.00 May 31, 2000 5.75 August 31, 2000 4.75 November 30, 2000 4.50 February 28, 2001 and thereafter 4.00 SECTION 14. Fixed Charge Coverage. At no time during any period set forth below shall the Fixed Charge Coverage Ratio be less than the ratio set forth below opposite such period: FISCAL QUARTER ENDING RATIO ON OR CLOSEST TO November 30, 1999 1.35 February 29, 2000 1.35 May 31, 2000 1.35 August 31, 2000 1.45 November 30, 2000 1.55 February 28, 2001 and thereafter 1.60 SECTION 15. Limitation on Investments and Acquisitions. (a) Neither the Guarantor nor any Consolidated Subsidiary will make or acquire any Investment in any Person other than: (i) Investments in Consolidated Subsidiaries; provided, that Investments (exclusive of inter-company payables owing to the Guarantor or a Subsidiary arising from cash management transactions in the ordinary course of business) in PCS, whether existing on the date hereof or hereafter made, may be made only by the Guarantor and only in the form of a contribution to the capital of PCS and without issuance of additional shares of capital stock therefor, and provided further that no such Investment may be made in any Subsidiary of PCS except by PCS or another Subsidiary of PCS; (ii) Temporary Cash Investments; (iii) Investments received as consideration for sale or other disposition of the capital stock of PCS or drugstore.com permitted by Section 1.16; (iv) Investments in drugstore.com existing on the date hereof; and (v) Any Investment 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 (c) does not exceed 10% of Consolidated Net Worth. (b) The Guarantor 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 Guarantor or any Subsidiary in connection with all such Business Acquisitions on or after the Closing Date would exceed $15,000,000. SECTION 16. Consolidations, Mergers and Sales of Assets. The Guarantor will not (i) consolidate or merge with or into any other Person, (ii) sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of the assets of the Guarantor and its Subsidiaries, taken as a whole, to any other Person or (iii) sell, lease or otherwise transfer any Collateral to any other Person; provided that (x) the Guarantor may merge with another Person if (A) the Guarantor is the corporation surviving such merger and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing and (y) the Guarantor may sell or otherwise dispose of the capital stock of PCS or drugstore.com, in whole but not in part, so long as the consideration therefor is not less than the fair market value of such capital stock and shall consist solely of a combination of cash and publicly traded securities payable and deliverable at the closing of such sale. SECTION 17. Use of Proceeds. The proceeds of the Tranche A Loans made under the Credit Agreement will be used by the Guarantor exclusively to repay commercial paper (or to refund borrowings the proceeds of which were used solely to repay commercial paper), which commercial paper provided funds for the payment of the purchase price of the capital stock of PCS. The proceeds of the Tranche B Loans made under the Credit Agreement will be used by the Guarantor for the Guarantor's general corporate purposes; provided that no Tranche B Loans may be borrowed for a purpose for which Tranche A Loans may be borrowed unless the Tranche A Commitments are at the time fully drawn. No such use of the proceeds 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, other than publicly traded securities issued to the Guarantor in connection with the sale of the capital stock of PCS. The Guarantor will ensure that no such use of proceeds violates Regulation T, U or X. SECTION 18. Restricted Payments. After the date hereof, neither the Guarantor nor any Subsidiary will declare or make any Restricted Payment. SECTION 19. Synthetic Leases. Neither the Guarantor nor any Subsidiary will enter into any Synthetic Lease if, after giving effect thereof, the aggregate amount financed under all Synthetic Leases entered into in any period of twelve consecutive calendar months commencing after October 25, 1999 would exceed $35,000,000. SECTION 20. Tranche A Limitations. (a) No Tranche A Loans may be borrowed under the Credit Agreement unless the commitments under the 1999 Facility are fully drawn. (b) The Guarantor will not for so long as the Tranche B Commitments remain in existence use any source of funds other than additional Tranche A Loans to repay or prepay Tranche A Loans prior to the Termination Date, except as expressly contemplated by Section 2.10 of the Credit Agreement. (c) If the capital stock of PCS is sold for consideration consisting in whole or in part of "margin stock" within the meaning of Regulation U, then for so long as such margin stock is held as substitute collateral under the PCS Pledge Agreement, the Guarantor may not make any Tranche A Borrowing other than a from a Refunding Bank unless it shall have delivered to the Liquidity Agent an opinion of Skadden, Arps, Slate, Meagher & Flom, LLP, satisfactory in form and substance to the Liquidity Agent, to the effect that such Borrowing does not result in a violation of Regulation T, U or X. SECTION 21. Mandatory Payments. The Guarantor agrees to use all Net Cash Proceeds, if any, from the sale of the Collateral (or any part thereof) that are remaining after the application of such Net Cash Proceeds in accordance with all mandatory prepayment provisions set forth in each Debt agreement to which the Guarantor is a party on October 25, 1999, and any refinancings, renewals or extensions thereof, and which is in effect at the time of such sale, to reduce the Lease Balance under the Lease. EX-4 20 EXHIBIT 4.19 - AMENDMENT NO. 4 TO MASTER LEASE AND SECURITY AGREEMENT Exhibit 4.19 AMENDMENT NO. 4 Dated as of October 25, 1999 to MASTER LEASE AND SECURITY AGREEMENT between Rite Aid Realty Corp. and Sumitomo Bank Leasing and Finance, Inc. Amendment No. 4, dated as of October 25, 1999 ("Amendment No. 4"), between Sumitomo Bank Leasing and Finance, Inc., a Delaware corporation, as lessor ("Lessor"), and Rite Aid Realty Corp., a Delaware corporation, as lessee ("Lessee"), amending the Lease referred to below. WHEREAS, Lessor and Lessee have heretofore entered into a Master Lease and Security Agreement, dated as of May 30, 1997, as amended by Amendment No. 1, dated as of March 11, 1998, and as further amended by Amendment No. 2, dated as of June 22, 1998, and as further amended by Amendment No. 3, dated as of May 26, 1999 (as so amended, the "Lease"); and WHEREAS, Lessor and Lessee wish to further amend the Lease as hereinafter provided; NOW, THEREFORE, Lessor and Lessee hereby agree as follows: Section 1. Amendments to the Lease. (a) Appendix 2 to the Lease is hereby amended by deleting the reference to 0.10% in Paragraph (i) of Section (A) thereof and inserting in lieu thereof "0.450%". (b) Appendix 2 to the Lease is hereby further amended by deleting the tables set forth under the headings "Determination of Lessor Applicable Margin and Liquidity Applicable Margin" and "Determination of Lessor Commitment Fee and Liquidity Commitment Fee", respectively, and inserting in lieu thereof the following: [TABLES OMITTED] Section 3. Representations and Warranties. The Lessee represents and warrants to the Liquidity Agent that: (a) The execution, delivery and performance of this Amendment No. 4 and any related documents executed in connection with this Amendment No. 4, including, without limitation, Amendment No. 1 to the Guaranty, dated as of the date hereof, from the Guarantor to the Lessor (the "Amendment to Guaranty") and any documents and certificates furnished pursuant hereto (collectively, the "Amendment Documents") and the performance of the Lease, as amended by the Amendment Documents, have been duly authorized by all necessary action of the Lessee. The Amendment Documents have been duly executed and delivered by the Lessee and each Amendment Document and the Lease, as amended by the Amendment Documents, constitutes a legal, valid and binding obligation of the Lessee, enforceable according to its terms, subject, as to enforceability, to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law); (b) The representations and warranties made under Section 6.2 of the Lease are true and correct with the same force and effect as though made on and as of the date hereof and after giving effect to the Amendment Documents, except (i) to the extent that such representations and warranties expressly relate to an earlier date such representations and warranties were true and correct on and as of such earlier date and (ii) with respect to the representation set forth in Section 6.2(d) of the Lease, such representation is true and correct on and as of the date hereof as if made on and as of the date hereof except to the extent set forth in the Guarantor's 1999 Annual Report on Form 10-K for the fiscal year ended February 27, 1999; and (c) No Default or Event of Default has occurred and is continuing, or will result from the execution, delivery or performance of the Amendment Documents, the performance of the Lease, as amended by the Amendment Documents, or the consummation of the transactions contemplated hereby. Section 4. Conditions Precedent. As a condition precedent to the effectiveness of this Amendment No. 4, the Liquidity Agent shall have received the following items in form and substance satisfactory to it: (a) fully executed counterparts of (i) this Amendment No. 4; (ii) Amendment to Guaranty and (iii) the Fee Agreement, dated as of the date hereof, between the Lessee and the Liquidity Agent (the "Fee Agreement"); (b) a fully executed counterpart of the PCS Pledge Agreement and the drugstore.com Pledge Agreement (as such terms are defined in the Credit Agreement) showing a lien for the benefit of the Collateral Agent and the Secured Parties under the Intercreditor Agreement. (c) any and all fees payable to the Lessor, the Liquidity Providers and the Liquidity Agent in connection with this Amendment No. 4, including, without limitation, the fees payable under the Fee Agreement, together with all costs and expenses incurred by the Liquidity Agent in connection with the preparation, execution and delivery of the Amendment Documents; (d) an executed, witnessed and notarized copy of the Mortgage, Security Agreement and Fixture Filing, dated as of October 25, 1999 between the Lessor and the Lessee (the "Maryland Mortgage") together with duly executed UCC-1 Financing Statements; (e) evidence satisfactory to the Liquidity Agent that the Maryland Mortgage has been duly recorded in the real property records of Harford County, Maryland, including, without limitation, evidence of the payment and satisfaction of all Impositions in connection therewith; (f) evidence satisfactory to the Liquidity Agent that the UCC Financing Statement covering the Lessee's Equipment and Systems located in Maryland has been duly filed with the Department of Taxation and Assessment of the State of Maryland and any appropriate counties thereof, including, without limitation, evidence of the payment and satisfaction of all Impositions in connection therewith; (g) a legal opinion addressed to the Liquidity Agent from the Lessee's special Maryland counsel in form and substance satisfactory to the Liquidity Agent and its counsel; (h) certificates from the Secretary of State of the State of Delaware evidencing the good standing each of the Lessee and the Guarantor; (i) a certificate from the Secretary or an Assistant Secretary of the Lessee certifying (i) as to the incumbency and signature of the officer of the Lessee to execute and deliver the Amendment Documents to which it is a party, (ii) that the charter and by-laws of the Lessee are in full force and effect and have not been amended or modified since the date last delivered to the Liquidity Agent, and (iii) that attached thereto is a true and complete copy of the resolutions of the Boards of Directors of the Lessee authorizing the execution, delivery and performance of the Amendment Documents, the performance of the Lease, as amended by the Amendment Documents, and the transactions contemplated thereby, together with a certification by another officer of the Lessee as to the incumbency and signature of such Secretary or Assistant Secretary; (j) a certificate from a Responsible Officer of the Lessee, certifying that, to the best knowledge of such officer, the representations and warranties contained in Section 6.2 of the Lease are true and correct on and as of the date of such certificate and after giving effect to the Amendment Documents and that no Default or Event of Default has occurred or is continuing or would result from the execution, delivery and performance of the Amendment Documents or the performance of the Lease, as amended by the Amendment Documents; (k) a legal opinion addressed to the Liquidity Agent from the outside or General Counsel to the Lessee and the Guarantor as to the due authorization, execution and binding effect of the Amendment Documents, and the Lease and the Guaranty, as amended by the Amendment Documents, in form and substance satisfactory to the Liquidity Agent and its counsel; and (l) such other documents, instruments, certificates and information as the Liquidity Agent on behalf of itself and/or the other Required Participants may request. Section 5. Counterparts. This Amendment No. 4 may be executed in several counterparts, each of which when executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 4. Section 6. Governing Law. THIS AMENDMENT NO. 4 SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 7. Continuing Effect. Except as herein provided, all provisions, terms and conditions of the Lease shall remain in full force and effect. As amended hereby, the Lease is ratified and confirmed in all respects. [Remainder of this page left intentionally blank. Signatures begin on next page] IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 4 to be duly executed as of the date first above written. RITE AID REALTY CORP., as Lessee By:__________________________________ Name: Title: SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor By:__________________________________ Name: Title: EX-4 21 EXHIBIT 4.20 - AMENDMENT NO. 3 TO MASTER LEASE AND SECURITY AGREEMENT Exhibit 4.20 AMENDMENT NO. 3 Dated as of May 26, 1999 to MASTER LEASE AND SECURITY AGREEMENT between Rite Aid Realty Corp. and Sumitomo Bank Leasing and Finance, Inc. Amendment No. 3, dated as of May 26, 1999 ("Amendment No. 3"), between Sumitomo Bank Leasing and Finance, Inc. , a Delaware corporation, as lessor ("Lessor"), and Rite Aid Realty Corp., a Delaware corporation, as lessee ("Lessee"), amending the Lease referred to below. WHEREAS, Lessor and Lessee have heretofore entered into a Master Lease and Security Agreement, dated as of May 30, 1997, (as amended by Amendment No. 1, dated as of March 11, 1998, as further amended by Amendment No. 2, dated as of June 22, 1998, the "Lease"); and WHEREAS, Lessor and Lessee wish to further amend the Lease as hereinafter provided; NOW, THEREFORE, Lessor and Lessee hereby agree as follows: 1. Section 7.4 of the Lease is hereby amended by adding a new subsection (c) thereto as follows: "(c) Surety Fee. The Lessee shall pay to the Lessor for the period (including any portion thereof when the Lessor's obligations pursuant to Section 3.1 are suspended by reason of the Lessee's inability to satisfy any condition of Article IV), commencing on May 26, 1999 and ending on the Final Payment Date, a surety fee (the "Surety Fee") as set forth in Appendix 2 hereof." 2. Section 31.1(b) of the Lease is hereby amended by deleting clause (iv) of subsection (b) thereof and inserting in its place the following: "(iv) all Transaction Expenses incurred by the Lessor, the Receivable Purchaser, the Collateral Agent, the Conduits, the Liquidity Agent, the Liquidity Providers and the Surety Providers in respect of enforcement of any of their rights or remedies against the Lessee or the Guarantor in respect of the Operative Documents." 3. Appendix 1 to the Lease, Definitions and Interpretations is hereby amended as follows: (a) a new defined term "Eligible Assignee" is added in the appropriate alphabetical order as follows: ""Eligible Assignee" means any bank or financial institution that, at the time it becomes a party to the Liquidity Asset Purchase Agreement and the Committed Loan Agreement, has a short-term debt rating of at least A-1 by S&P and at least P-1 by Moody's." (b) the definition of the term "Indemnitee" is hereby deleted in its entirety and the following is inserted in its place: ""Indemnitee" means the Lessor, the Liquidity Agent, each Liquidity Provider, each Conduit, the Receivable Purchaser, each Lender, the Collateral Agent, each Surety Provider and each of their respective successors, assigns, directors, shareholders, partners, members, officers, employees and agents." (c) the definition of the term "Operative Documents" is hereby amended by deleting the word "and" after item (o) thereof, inserting the word "and" after item (p) thereof and inserting a new item (q) thereof that shall read as follows" "(q) each Surety Bond." (d) a new defined term "Surety Bond" is added in the appropriate alphabetical order as follows: ""Surety Bond" means each surety bond and/or policy of financial guaranty insurance issued by a Surety Provider for the benefit of a Conduit." (e) a new defined term "Surety Provider" is added in the appropriate alphabetical order as follows: ""Surety Provider" means each of Ambac Assurance Corporation and any other provider of a Surety Bond for the benefit of a Conduit." (f) the definition of the term "Transaction Expenses" is hereby amended by deleting subsections (b) and (c) thereof in their entirety and inserting in their place the following: "(b) the reasonable fees, out-of-pocket expenses and disbursements of any law firm or other external counsel, and (without duplication) the reasonable allocated cost of internal legal services and all disbursements of internal counsel of the Lessor, the Receivable Purchaser, the Collateral Agent, the Conduits, the Liquidity Agent, the Lenders, the Liquidity Providers and the Surety Providers in connection with (1) any amendment, supplement, waiver or consent with respect to any Operative Documents requested or approved by the Lessee and (2) any enforcement of any rights or remedies against the Lessee or the Guarantor or any Affiliate thereof in respect of the Operative Documents; (c) any other reasonable fees, out-of-pocket expenses, disbursements or cost of the Lessor, the Receivable Purchaser, the Collateral Agent, the Conduits, the Liquidity Agent, the Lenders, the Liquidity Providers and the Surety Providers related to the Operative Documents or any of the other transaction documents;" 5. Appendix 2 to the Lease is hereby amended by adding a new section as follows: "Surety Fee The Lessee shall pay on each Scheduled Payment Date, beginning on July 15, 1999 and ending on the Final Payment Date, the Surety Fee, for the benefit of Ambac Assurance Corporation, at the rate per annum equal to the difference between (i) $175,000 and (ii) the amount payable to Ambac Assurance Corporation as a surety fee in connection with Surety Bond No. AB0175BE dated June 22, 1998 during such period; provided, however, that in no event shall the Surety Fee be in excess of 0.125% per annum of the amount equal to the difference between (x) the aggregate of all Liquidity Commitments (as defined in the Liquidity Asset Purchase Agreement) of all Liquidity Providers and (y) $50,000,000." 6. Lessee hereby represents and warrants that each of the representations and warranties made in Section 6.2 of the Lease is true and correct on the date hereof with the same force and effect as though made on and as of such date, except to the extent that such representations and warranties expressly relate to an earlier date, and that no Default or Event of Default has occurred and is continuing. 7. This Amendment No. 3 may be executed in several counterparts, each of which when executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 3. 9. THIS AMENDMENT NO. 3 SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 10. Except as herein provided, all provisions, terms and conditions of the Lease shall remain in full force and effect. As amended hereby, the Lease is ratified and confirmed in all respects. [signatures begin on next page] IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to be duly executed as of the date first above written. RITE AID REALTY CORP., as Lessee By: _____________________________________ Name: Title: SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor By: ____________________________________ Name: Title: EX-4 22 EXHIBIT 4.21 - AMENDMENT NO. 2 TO MASTER LEASE AND SECURITY AGREEMENT Exhibit 4.21 AMENDMENT NO. 2 Dated as of June 22, 1998 to MASTER LEASE AND SECURITY AGREEMENT between Rite Aid Realty Corp. and Sumitomo Bank Leasing and Finance, Inc. Amendment No. 2, dated as of June 22, 1998 ("Amendment No. 2"), between Sumitomo Bank Leasing and Finance, Inc., a Delaware corporation, as lessor ("Lessor"), and Rite Aid Realty Corp., a Delaware corporation, as lessee ("Lessee"), amending the Lease referred to below. WHEREAS, Lessor and Lessee have heretofore entered into a Master Lease and Security Agreement, dated as of May 30, 1997, as amended by Amendment No. 1 to Master Lease and Security Agreement, dated as of March 11, 1998 (as so amended, the "Lease"); and WHEREAS, Lessor and Lessee wish to amend the Lease as hereinafter provided; NOW, THEREFORE, Lessor and Lessee hereby agree as follows: 1. Article XXXII of the Lease is hereby amended to add a new Section 32.4 reading in its entirety as follows: 32.4. Recordation of Mortgages on Certain Properties and Security Interests in Certain Leased Assets. If a Trigger Event (as defined below) shall occur, and if the Lessor shall thereafter elect to record a mortgage on any Property located in the state of Maryland or file UCC Financing Statements with respect to any fixtures or Equipment and Systems located in the state of Maryland, then the Lessor shall promptly notify the Lessee thereof, whereupon the Lessee shall promptly, and in any event not later than (i) ten (10) Business Days after receipt of such notice or (ii) the date on which such recording or filing is to be made, whichever is later, pay to Lessor all recording taxes and fees payable in connection with such recording or filing, provided, that the Lessee shall not be required to pay such amounts if such Trigger Event is not continuing on the date of such recording or filing. As used herein, "Trigger Event" means (i) the occurrence and continuance of an Event of Default or (ii) neither Standard & Poor's Rating Services nor Moody's Investor's Services, Inc. rates the Guarantor's long-term senior unsecured debt at least BBB- or Baa3, respectively. 2. Appendix 1 to the Lease, consisting of Definitions, is amended by adding the following phrase to the end of subsection (d) of the definition of "Transaction Expenses" after the term "Operative Documents" and before the semicolon immediately following such term: ", except for mortgages recorded, and UCC Financing Statements filed, in the state of Maryland other than pursuant to Section 32.4 of the Lease. 3. Annex 1 to the Lease, consisting of the Description of Initial Leased Assets, is amended to read in its entirety as set forth in Annex 1 to this Amendment No. 2. 4. In connection with the execution and delivery of this Amendment No. 2, the parties hereby acknowledge and agree that (a) the California warehouse currently leased under the Lease pursuant to Lease Supplement No. 4 thereto shall be purchased from the Lessor by RAC Leasing LLC and leased to the Lessee pursuant to a Master Lease and Security Agreement between RAC Leasing LLC, as lessor and Lessee, dated as of March 19, 1998 and (b) Lease Supplement No. 4 is hereby terminated and of no further force or effect. 5. Lessee hereby represents and warrants that each of the representations and warranties made in Section 6.2 of the Lease is true and correct on the date hereof with the same force and effect as though made on and as of such date, except to the extent that such representations and warranties expressly relate to an earlier date, and that no Default or Event of Default has occurred and is continuing. 6. This Amendment No. 2 may be executed in several counterparts, each of which when executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 1. 7. THIS AMENDMENT NO. 2 SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 8. Except as herein provided, all provisions, terms and conditions of the Lease shall remain in full force and effect. As amended hereby, the Lease is ratified and confirmed in all respects. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed as of the date first above written. SUMITOMO BANK LEASING AND FINANCE, INC. By: ______________________________ RITE AID REALTY CORP. By: ______________________________ EX-4 23 EXHIBIT 4.22 - AMENDMENT NO. 1 TO MASTER LEASE AND SECURITY AGREEMENT Exhibit 4.22 AMENDMENT NO. 1 Dated as of March 11, 1998 to MASTER LEASE AND SECURITY AGREEMENT between Rite Aid Realty Corp. and Sumitomo Bank Leasing and Finance, Inc. Amendment No. 1, dated as of March 11, 1998 ("Amendment No. 1"), between Sumitomo Bank Leasing and Finance, Inc., a Delaware corporation, as lessor ("Lessor"), and Rite Aid Realty Corp., a Delaware corporation, as lessee ("Lessee"), amending the Lease referred to below. WHEREAS, Lessor and Lessee have heretofore entered into a Master Lease and Security Agreement, dated as of May 30, 1997 (the "Lease"); and WHEREAS, Lessor and Lessee wish to amend the Lease as hereinafter provided; NOW, THEREFORE, Lessor and Lessee hereby agree as follows: 1. Section 33.2 of the Lease is hereby amended to read in its entirety as follows: Neither this Lease nor any provision hereof may be amended, waived, discharged or terminated except by an instrument in writing signed by the Lessor and the Lessee. 2. Annex 1 to the Lease, consisting of the Description of Initial Leased Assets, is amended to read in its entirety as set forth in Annex 1 to this Amendment No. 1. 3. Appendix 1 to the Lease, consisting of the Definitions and Interpretation, is amended to add the following definition thereto in the appropriate alphabetical order: "Termination Date" means, with respect to each Leased Asset, the last day of the Base Term. 4. In connection with the execution and delivery of this Amendment No. 1, the aircraft currently leased under the Lease shall be purchased by a designee of the Lessee pursuant to the Purchase Notice dated the date hereof. 5. Lessee hereby represents and warrants that each of the representations and warranties made in Section 6.2 of the Lease is true and correct on the date hereof with the same force and effect as though made on and as of such date, except to the extent that such representations and warranties expressly relate to an earlier date, and that no Default or Event of Default has occurred and is continuing. 6. This Amendment No. 1 may be executed in several counterparts, each of which when executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 1. 7. THIS AMENDMENT NO. 1 SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 8. Except as herein provided, all provisions, terms and conditions of the Lease shall remain in full force and effect. As amended hereby, the Lease is ratified and confirmed in all respects. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed as of the date first above written. SUMITOMO BANK LEASING AND FINANCE, INC. By:________________________________ RITE AID REALTY CORP. By:_______________________________ EX-4 24 EXHIBIT 4.23 - GUARANTY Exhibit 4.23 GUARANTY GUARANTY, dated as of May 30, 1997 (the "Guaranty"), from RITE AID CORPORATION, a Delaware corporation (the "Guarantor"), to SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation (the "Lessor"). W I T N E S S E T H: WHEREAS, the Guarantor wishes to induce the Lessor to enter into (i) a certain Master Lease and Security Agreement (the "Master Lease") dated as of the date hereof and with Rite Aid Realty Corp., a Delaware corporation and a wholly-owned subsidiary of the Guarantor (the "Lessee") and (ii) certain other Operative Documents (as defined in the Master Lease) with the Lessee on or after the date hereof (the Master Lease and such Operative Documents, as each of them may be amended, modified, supplemented, or extended from time to time, are collectively referred to hereinafter as the "Guaranteed Agreements"); and WHEREAS, the Lessor is unwilling to enter into the Guaranteed Agreements with the Lessee unless the Guarantor enters into this Guaranty; and WHEREAS, capitalized terms used but not otherwise defined in this guaranty have the respective meanings specified in Appendix 1 to the Master Lease; and the rules of interpretation set forth in Appendix 1 to the Master Lease shall apply to this Guaranty; NOW, THEREFORE, in order to induce the Lessor to enter into the Guaranteed Agreements and to consummate the transactions contemplated thereby, the Guarantor hereby agrees as follows: 1. Guaranty. (a) The Guarantor unconditionally and irrevocably guarantees to the Lessor the due and punctual performance of and compliance by the Lessee with all obligations, covenants, warranties, undertakings and conditions agreed by the Lessee to be performed, observed or complied with by the Lessee and contained in or arising under the Guaranteed Agreements including but not limited to, the full and punctual payment by the Lessee, when due, whether at the stated due date, by acceleration or otherwise, of any and all rent, obligations, liabilities, indebtedness and other amounts of every kind arising out of the Guaranteed Agreements, all amounts in respect to indemnities provided for in the Guaranteed Agreements, and all damages (whether provided for in the Guaranteed Agreements or otherwise permitted by law) in respect of a failure or refusal by the Lessee to make any such payment, howsoever created, arising or evidenced, voluntary or involuntary, whether direct or indirect, absolute or contingent, now or hereafter existing or owing to the Lessor (all the foregoing obligations and undertakings are collectively referred to hereinafter as the "Obligations"). (b) This Guaranty is an absolute and unconditional guaranty of performance and payment when due under the Guaranteed Agreements and not of collection of any indebtedness contained in or arising under the Guaranteed Agreements. This Guaranty is in no way conditioned upon any attempt to collect from the Lessee or upon any other event or contingency, and shall be binding upon and enforceable against the Guarantor without regard to the validity or enforceability of the Guaranteed Agreements, or of any term thereof. If for any reason the Lessee shall fail or be unable duly and punctually to pay any such amount when due under the Guaranteed Agreements, the Guarantor will forthwith pay, if not already paid by the Lessee, the same immediately upon written demand. (c) In case any of the Guaranteed Agreements shall be terminated as a result of the rejection thereof by any trustee, receiver or liquidating agent of the Lessee or any of its properties in any bankruptcy, insolvency, reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar proceeding, the Guarantor's obligations hereunder shall continue to the same extent as if such agreement had not been so rejected. The Guarantor agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment to the Lessor of the Obligations or any part thereof is rescinded or must otherwise be returned by the Lessor upon the insolvency, bankruptcy or reorganization of the Lessee, or otherwise, as though such payment to the Lessor had not been made. (d) The Guarantor shall pay on demand all reasonable costs, expenses and damages incurred (including, without limitation, attorneys' fees and disbursements) in connection with the enforcement of the obligations of the Guarantor under this Guaranty. 2. Guaranty Continuing and Unlimited. The obligations of the Guarantor hereunder shall be continuing and unlimited, shall not be subject to any non- compulsory counterclaim, set-off, deduction or defense (other than payment or performance) based upon any claim the Guarantor may have against the Lessor or the Lessee or any other Person, and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by any circumstance or condition (whether or not the Guarantor shall have any knowledge or notice thereof) whatsoever which might constitute a legal or equitable discharge or defense including, but not limited to, (a) any express or implied amendment or modification of or supplement to the Guaranteed Agreements or any other agreement referred to in either thereof, or any other instrument applicable to the Lessee or to the Obligations, or any part thereof, or any assignment or transfer of any thereof; (b) any failure on the part of the Lessee to perform or comply with the Guaranteed Agreements or any failure of any other Person to perform or comply with any term of the Guaranteed Agreements, or any other agreement as aforesaid; (c) any waiver, consent, change, extension, indulgence or other action or any action or inaction under or in respect of the Guaranteed Agreements, or any other agreement as aforesaid, or this Guaranty, whether or not the Lessor, the Lessee or the Guarantor has notice or knowledge of any of the foregoing; (d) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding with respect to the Guarantor or the Lessee, or their respective properties or their creditors, or any action taken by any trustee or receiver or by any court in any such proceeding; (e) any furnishing or acceptance of additional security or any release of any security (and the Guarantor authorizes the Lessor to obtain, accept or release said security); (f) any limitation on the liability or Obligations of the Lessee under the Guaranteed Agreements (other than any limitation expressly provided for therein) or any termination, cancellation, frustration, invalidity or unenforceability, in whole or in part, of the Guaranteed Agreements, or any term of any thereof; (g) any lien, charge or encumbrance on or affecting the Guarantor's or any of the Lessee's respective assets and properties; (h) any act, omission or breach on the part of the Lessor or any other Person under the Guaranteed Agreements, or any other agreement at any time existing between the Lessor and the Lessee or any other law, governmental regulation or other agreement applicable to the Lessor or any Obligation; (i) any claim as a result of any other dealings among the Lessor, the Guarantor or the Lessee or any of them; (j) the assignment of the Guaranteed Agreements by the Lessor to any other Person, or the assignment of this Guaranty by the Lessor to any Person; or (k) any change in the name or ownership of the Lessor, the Lessee or any other person referred to herein. 3. Waiver. (a) The Guarantor unconditionally waives: (i) notice of any of the matters referred to in Section 2 hereof; (ii) all notices which may be required by statute, rule of law or otherwise to preserve any rights against the Guarantor hereunder, including, without limitation, notice of the acceptance of this Guaranty, or the creation, renewal, extension, modification or accrual of the Obligations or notice of any other matters relating thereto, any presentment, demand, notice of dishonor, protest, nonpayment of any damages or other amounts payable under the Guaranteed Agreements; (iii) any requirement for the enforcement, assertion or exercise of any right, remedy, power or privilege under or in respect of the Guaranteed Agreements, including, without limitation, diligence in collection or protection of or realization upon the Obligations or any part thereof or any collateral therefor; (iv) any requirement of diligence; (v) any requirement to mitigate the damages resulting from a default by the Lessee under the Guaranteed Agreements; (vi) the occurrence of every other condition precedent to which the Guarantor or the Lessee may otherwise be entitled; (vii) the right to require the Lessor to proceed against the Lessee or any other Person liable on the Obligations, to proceed against or exhaust any security held from the Lessee or any other Person, or to pursue any other remedy in the Lessor's power whatsoever; (viii) the right to have the property of the Lessee first applied to the discharge of the Obligations; and any defense arising by reason of any disability or other defense of the Lessee or by reason of the cessation from any cause whatsoever of the liability, either in whole or in part, of the Lessee to the Lessor for the Obligations, provided that nothing contained herein shall be deemed to be a waiver by Guarantor of the benefit to Guarantor of any notice or grace period to which the Lessee is entitled pursuant to the express terms of the Operative Documents. (b) The Lessor may, at its election, exercise any right or remedy it may have against the Lessee or any security held by the Lessor, including, without limitation, the right to foreclose upon any such security by judicial or nonjudicial sale, without affecting or impairing in any way the liability of the Guarantor hereunder, except to the extent the Obligations have been paid, and the Guarantor waives any defense arising out of the absence, impairment or loss of any right of reimbursement, contribution or subrogation or any other right or remedy of the Guarantor against the Lessee or any such security, whether resulting from such election by the Lessor or otherwise. The Guarantor understands that the liability of the Lessee to the Lessor for the Obligations may be secured by real property and that the Guarantor shall be liable for the full amount of its liability hereunder notwithstanding foreclosure on such real property by trustee sale or any other reason impairing the Guarantor's right to proceed against the Lessee. (c) The Guarantor understands that the Lessor's exercise of certain rights and remedies contained in the Guaranteed Agreements may affect or eliminate the Guarantor's rights of subrogation against the Lessee and that the Guarantor may therefore incur partially or totally nonreimbursable liability hereunder; nevertheless, the Guarantor hereby authorizes and empowers the Lessor, its successors, endorsees and/or assignees, to exercise in its or their sole discretion, any rights and remedies, or any combination thereof, which may then be available, it being the purpose and intent of the Guarantor that its obligations hereunder shall be absolute, independent and unconditional under any and all circumstances. (d) The Guarantor assumes the responsibility for being and keeping informed of the financial condition of the Lessee and of all other circumstances bearing upon the risk of nonpayment of the Obligations and agrees that the Lessor shall not have any duty to advise the Guarantor of information regarding any condition or circumstance or any change in such condition or circumstance. The Guarantor acknowledges that the Lessor has not made any representation to the Guarantor concerning the financial condition of the Lessee. 4. Representations and Warranties of the Guarantor. The Guarantor represents and warrants to the Lessor that: (a) Corporate Existence and Power. The Guarantor is a corporation duly incorporated, 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 this Guaranty 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 by-laws 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. (c) Binding Effect. This Guaranty constitutes a valid and binding agreement of the Guarantor enforceable in accordance with its terms. (d) Financial Information. (i) The consolidated balance sheet of the Guarantor and its Consolidated Subsidiaries as of March 1, 1997 and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by KPMG Peat Marwick LLP, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Guarantor and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (ii) Since March 1, 1997, there has been no material adverse change in the business, financial position, results of operations or prospects of the Guarantor and its Consolidated Subsidiaries, considered as a whole. (e) Full Disclosure. All financial statements and other documents furnished by the Guarantor to the Lessor in connection with this Guaranty and the transactions contemplated hereby do not and will not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading. The Guarantor has disclosed to the Lessor in writing any and all facts which materially and adversely affect the business, operations or condition, financial or otherwise, of the Guarantor and its Subsidiaries or the Guarantor's ability to perform its obligations under this Guaranty. (f) Litigation There is no action, suit or proceeding pending against, or to the knowledge of the Guarantor threatened against or affecting, the Guarantor or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Guarantor and its Consolidated Subsidiaries or which in any manner draws into question the validity or enforceability of this Guaranty. (g) Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the 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 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. (h) Taxes. The Guarantor and its Subsidiaries have filed all United States Federal income tax returns, and the Guarantor and its Significant Subsidiaries have filed all other material tax returns, which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Guarantor or any Significant Subsidiary 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 Guarantor and its Consolidated Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Guarantor, adequate. (i) Subsidiaries. Each of the Guarantor's corporate Significant 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. (j) Environmental Matters. In the ordinary course of its business, the Guarantor conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Guarantor 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 Guarantor 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 on the business, financial condition, results of operations or prospects of the Guarantor and its Consolidated Subsidiaries, considered as a whole. (k) Lessee. The Guarantor owns and will continue to own, directly or indirectly, not less than 100% of the issued and outstanding shares of capital stock of the Lessee. All such shares have been validly issued, are fully paid and non-assessable and are free and clear of any liens or encumbrances. (l) Defaults. The Guarantor is not in default under (and no event has occurred which with the giving of notice or lapse of time would result in a default under) any instrument evidencing any debt in excess of $10,000,000 or any agreement relating thereto or any material mortgage, deed of trust, security agreement, lease, franchise or other agreement to which the Guarantor is a party or by which the Guarantor or any of its properties or assets is bound or to which it may be subject. 5. Payments. Each payment by the Guarantor to the Lessor under this Guaranty shall be made by transferring the amount thereof in immediately available funds without set-off or counterclaim; provided that no such payment shall be deemed a waiver of any rights the Guarantor may have. 6. Parties. This Guaranty shall inure to the benefit of the Lessor and its successors, assigns or transferees, and shall be binding upon the Guarantor and its successors and assigns. The Guarantor may not delegate any of its duties under this Guaranty without the prior written consent of the Lessor or any Person to whom the Lessor has assigned this Guaranty. 7. Notices. All notices, demands and other communications between the Lessor and the Guarantor under this Guaranty shall be in writing and shall be delivered or sent to the address or telecopier number shown below, or to such other address or telecopier number as either of us may by written notice to the other have designated for such purpose. Any such notice, demand or other communication shall not be effective until actually received. If to the Lessor: Sumitomo Bank Leasing and Finance, Inc. 277 Park Avenue New York, NY 10172 Attention: Chief Credit Officer Telecopier: 212-224-5222 If to the Guarantor: Rite Aid Corporation 30 Hunter Lane Camp Hill, PA 17011-2404 Attention: Chief Financial Officer Telecopier: 717-731-3878 8. Remedies. The Guarantor stipulates that the remedies at law in respect of any default or threatened default by the Guarantor in the performance of or compliance with any of the terms of this Guaranty are not and will not be adequate, and that any of such terms may be specifically enforced by a decree for specific performance or by an injunction against violation of any such terms or otherwise. 9. Rights to Deal with the Lessee. At any time and from time to time, without terminating, affecting or impairing the validity of this Guaranty or the obligations of the Guarantor hereunder, the Lessor may deal with the Lessee in the same manner and as fully and as if this Guaranty did not exist and shall be entitled, among other things, to grant the Lessee, without notice or demand and without affecting the Guarantor's liability hereunder, such extension or extensions of time to perform, renew, compromise, accelerate or otherwise change the time for payment of or otherwise change the terms of payment or any part thereof contained in or arising under the Guaranteed Agreements, or to waive any Obligation of the Lessee to perform, any act or acts as the Lessor may deem advisable. 10. Subrogation. Until such time as the Obligations (except for any indemnification not then due and payable) shall have been paid or performed in full by the Guarantor, no payment by or for the account of the Guarantor shall entitle the Guarantor by subrogation or otherwise to any payment by the Lessee or from or out of any property of the Lessee, and the Guarantor shall not exercise any right or remedy against the Lessee or any property of the Lessee by reason of any performance by the Guarantor. 11. Guarantor's Covenants. The Guarantor hereby covenants and agrees that until the Obligations and all obligations of the Guarantor under this Guaranty have been paid or discharged in full: (a) The covenants contained in Article V of the Credit Agreement are hereby incorporated herein by reference with the same force and effect as if such covenants were set forth expressly herein. Notwithstanding the foregoing, any amendments or waivers of such covenants approved by the requisite parties under the Credit Agreement shall likewise be effective hereunder provided that the Lessor and the Liquidity Providers shall have received a pro rata share (based on the respective commitments of the Lessor, Liquidity Providers and parties to the Credit Agreement) of any consideration given by the Guarantor or any Affiliate of the Guarantor in connection with such amendment or waiver. In the event the Credit Agreement is no longer in effect, or in the event any Liquidity Provider having a commitment which is equal to or greater than 30% of the Total Commitment is no longer a party to the Credit Agreement, the covenants of the Credit Agreement in effect for the purposes of this Guaranty immediately prior to the termination of the Credit Agreement or the last date on which such Liquidity Provider is a party to the Credit Agreement, as the case may be, shall be deemed part of this Guaranty subject to amendment or waiver at the discretion of the Lessor. (b) The Guarantor will ensure that its obligations under this Guaranty, and the obligations of the Lessee under the Guaranteed Agreements, constitute senior debt for all purposes of all subordinated debt for money borrowed issued, incurred or assumed by the Guarantor or the Lessee, as the case may be, after the date hereof. 12. Survival of Representations, Warranties, etc. All representations, warranties, covenants and agreements made herein and in statements or certificates delivered pursuant hereto shall survive any investigation or inspection made by or on behalf of the Lessor and shall continue in full force and effect until all of the obligations of the Guarantor under this Guaranty shall be fully performed in accordance with the terms hereof, and until the payment in full of all sums payable by the Lessee under the Guaranteed Agreements, and until performance in full of all obligations of the Lessee in accordance with the terms and provisions of such agreements. 13. Third Party Beneficiaries. The Guarantor expressly acknowledges and agrees that each Indemnitee (as such term is defined in the Master Lease) shall be a third party beneficiary of this Guaranty. 14. GOVERNING LAW; WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES HERETO HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE GUARANTOR HEREBY IRREVOCABLY AGREES THAT ANY JUDICIAL PROCEEDINGS BROUGHT AGAINST THE GUARANTOR WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND, BY THE EXECUTION AND DELIVERY OF THIS GUARANTY, THE GUARANTOR ACCEPTS THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. SERVICE OF PROCESS MAY BE MADE BY ANY MEANS AUTHORIZED BY FEDERAL LAW OR THE LAW OF NEW YORK, AS THE CASE MAY BE. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE GUARANTOR AT THE ADDRESS SET FORTH IN SECTION 7 HEREOF, OR AT SUCH OTHER ADDRESS AS MAY BE DESIGNATED BY THE GUARANTOR IN A NOTICE TO THE LESSOR. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE LESSOR OR ITS ASSIGNEE TO BRING PROCEEDINGS AGAINST THE GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION. 15. Miscellaneous. If any term of this Guaranty or any application thereof shall be invalid or unenforceable, the remainder of this Guaranty and any other application of such term shall not be affected thereby. Any term of this Guaranty may be amended, waived, discharged or terminated only by an instrument in writing signed by the Guarantor and the Lessor. The headings in this Guaranty are for purposes of reference only and shall not limit or define the meaning hereof. This Guaranty may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the undersigned have caused this Guaranty to be executed and delivered as of the day and year first above written. RITE AID CORPORATION, as Guarantor By:___________________________________ Name: Title: Acknowledged and Agreed: SUMITOMO BANK LEASING AND FINANCE, INC. By:______________________________ Name: Title: EX-4 25 EXHIBIT 4.24 - MASTER LEASE AND SECURITY AGREEMENT Exhibit 4.24 MASTER LEASE AND SECURITY AGREEMENT THIS MASTER LEASE AND SECURITY AGREEMENT (this "Lease"), dated as of May 30, 1997, is entered into between SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation, as the Lessor, and RITE AID REALTY CORP., a Delaware corporation, as the Lessee. W I T N E S S E T H: WHEREAS, the Lessor wishes to finance (i) the development of certain real property and construction of improvements to be used by the Lessee and (ii) the acquisition of certain equipment and systems related to such real property and improvements and (iii) the acquisition of certain other assets to be used by the Lessee; WHEREAS, the Lessee, as Construction Agent, will construct such improvements which, as constructed, will be the property of the Lessor and will become part of the Leased Assets subject to the terms of this Lease; WHEREAS, the Lessor desires to lease to the Lessee, and the Lessee desires to lease from the Lessor, the Leased Assets from time to time subject to this Lease; and WHEREAS, the Lessee is a wholly-owned direct subsidiary of Rite Aid Corporation, and Rite Aid Corporation is willing to guarantee the payment and performance of all of the Lessee's obligations hereunder and under the other documents entered into by the Lessee in connection herewith; NOW, THEREFORE, in consideration of the foregoing, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1. Definitions; Interpretation. Capitalized terms used but not otherwise defined in this Lease have the respective meanings specified in Appendix 1 to this Lease; and the rules of interpretation set forth in Appendix 1 to this Lease shall apply to this Lease. ARTICLE II PURCHASE AND LEASE 2.1. Acceptance and Lease of Assets. (a) Properties. Subject to the terms and conditions of this Lease, on each Acquisition Date for a parcel of Land (i) the Lessee shall convey a leasehold interest in such parcel of Land to the Lessor pursuant to a Ground Lease, or the Lessor shall purchase a fee interest in such parcel of Land and the applicable Person shall convey a fee simple interest in the Improvements to be constructed thereon to the Lessor, and the Lessor shall accept delivery of, such Land pursuant to the terms hereof and (ii) the Lessor shall demise and lease to the Lessee hereunder for the Base Term applicable thereto the Lessor's interest in such Land together with any Improvements which thereafter may be constructed thereon pursuant to the Construction Agency Agreement or this Lease, and the Lessee hereby agrees, expressly for the direct benefit of the Lessor, to lease from the Lessor for such Base Term, the Lessor's interest in such Land together with the Lessor's interest in any Improvements which thereafter may be constructed thereon pursuant to the Construction Agency Agreement and this Lease. (b) Equipment and Systems. Subject to the terms and conditions of this Lease, from time to time after the Acquisition Date for any Property and on or before the Base Date therefor, (i) the Lessor shall purchase Equipment and Systems relating to such Property pursuant to the terms hereof (and subject to the conditions set forth herein) and (ii) the Lessor shall demise and lease to the Lessee hereunder for the Base Term applicable thereto the Lessor's interest in such Equipment and Systems, and the Lessee hereby agrees, expressly for the direct benefit of the Lessor, to lease from the Lessor for such Base Term, the Lessor's interest in such Equipment and Systems. (c) Additional Assets. Subject to the terms and conditions of this Lease, on each Acquisition Date for any Other Asset not constituting Equipment and Systems (i) the Lessor shall purchase such Other Asset pursuant to the terms hereof (and subject to the conditions set forth herein) and (ii) the Lessor shall demise and lease to the Lessee hereunder for the Base Term applicable thereto the Lessor's interest in such Other Asset, and the Lessee hereby agrees, expressly for the direct benefit of the Lessor, to lease from the Lessor for such Base Term, the Lessor's interest in such Other Asset. 2.2. Acceptance Procedure. The Lessee hereby agrees that the execution and delivery by the Lessee on each Acquisition Date of an appropriately completed Lease Supplement shall, without further act, constitute the unconditional and irrevocable acceptance by the Lessee of all of the Leased Asset which is the subject of such Lease Supplement for all purposes of this Lease and the other Operative Documents on the terms set forth therein and herein, and that all of such Leased Assets shall be deemed to be included in the leasehold estate of this Lease and shall be subject to the terms and conditions of this Lease as of the applicable Acquisition Date (or, in the case of any asset constituting Equipment and Systems, as of such later date on which such asset is acquired by the Lessor). 2.3. Lease Term. This Lease shall be in full force and effect on the Closing Date. The Base Date and the Base Term for each Leased Asset shall be set forth in the applicable Lease Supplement therefor. 2.4. Title. Each Leased Asset is leased to the Lessee without, except as expressly set forth herein, any representation or warranty, express or implied, by the Lessor and subject to the rights of parties in possession, the existing state of title (including, without limitation, Permitted Liens other than Lessor Liens) and all applicable Requirements of Law. The Lessee shall in no event have any recourse against the Lessor for any defect in or exception to title to any Leased Asset other than to the extent resulting from Lessor Liens. ARTICLE III FUNDING OF ADVANCES 3.1. Lessor Commitment. Subject to the conditions and terms hereof, the Lessor shall, upon the written request of the Lessee from time to time, make Advances on Funding Dates for the purpose of (i) in the case of any Property, financing the acquisition, ownership, insurance, renovation and improvement of such Property during the Construction Period applicable thereto, (ii) in the case of any Equipment and Systems, financing the acquisition, ownership and insurance of any asset constituting Equipment and Systems during the Construction Period for the related Property and (iii) in the case of any Other Asset not constituting Equipment and Systems, financing the acquisition of such Other Asset. Notwithstanding any other provision hereof, the Lessor shall not be obligated to make any Advance if, after giving effect thereto, the aggregate original amounts of Advances (x) with respect to the Leased Asset to be funded thereby would exceed the Lessor's Commitment relating thereto or (y) with respect to all Leased Assets would exceed the Lessor's Total Commitment. 3.2. Procedures for Advances. (a) With respect to each funding of an Advance, the Lessee shall give the Lessor and the Paying Agent prior written notice not later than 3:00 p.m., New York City time, five (5) Business Days prior to the date of the proposed funding, pursuant to a Funding Request substantially in the form of Exhibit A (a "Funding Request"), specifying: (i) the proposed Funding Date (the "Funding Date"), (ii) the amount of Advance requested, (iii) whether such proposed Funding Date will also be an Acquisition Date, (iv) the Leased Asset to which such Advance is being allocated and the allocation of such Advance among the various categories of costs and expenses listed in clause (c) below, (v) the allocation of the Debt Contribution between CP Tranches and Eurodollar Tranches and (vi) the requested Interest Periods for such CP Tranches. With respect to any Funding Request related to the acquisition of a Property, in addition to the foregoing, the Lessee shall also specify: (i) the Property to be acquired, (ii) whether the Land Component thereof is to be acquired through a Ground Lease or fee interest, (iii) the seller and/or ground lessor of the Property, and (iv) the Estimated Improvement Costs for such Property. (b) Except as the parties may otherwise agree in writing, and except for the initial Funding Date for any Leased Asset and Funding Dates caused by the maturity of a CP Tranche on a date other than a Scheduled Payment Date, each Funding Date shall occur on a Scheduled Payment Date. (c) Advances shall be made solely to pay or reimburse the Construction Agent or the Lessee for (i) Land Acquisition Costs and Property Improvement Costs (including Capitalized Interest and Capitalized Commitment Fees relating to any Property), (ii) Other Asset Acquisition Costs (including Capitalized Interest and Capitalized Commitment Fees relating to Equipment and Systems) and (iii) Transaction Expenses paid or payable by the Lessee in connection with the preparation, execution and delivery of the Operative Documents and all fees paid or payable by the Lessee to the Paying Agent and the Lessor in connection with the Operative Documents. (d) All remittances made by the Lessor for the funding of any Advance shall be made through the Paying Agent on the applicable Funding Date in immediately available federal funds by wire transfer to the account designated by the Lessee except that a portion of the initial Advance shall be made (in accordance with instructions to be included in the initial Funding Request) by wire transfer directly to the appropriate Persons for Transaction Expenses. (e) Notwithstanding anything in this Lease or any other Operative Document to the contrary, with respect to the Aircraft acquired by the Lessor on the date hereof, the Lessee may, until the Base Date for such Aircraft, request Advances to pay the cost of outfitting such Aircraft to the Lessee's specifications, and to pay Capitalized Interest and Capitalized Commitment Fees relating thereto, as if such Aircraft constituted Equipment and Systems under this Lease. Any such Advance shall constitute an Advance for all purposes of this Lease and the other Operative Documents. ARTICLE IV CONDITIONS PRECEDENT TO CLOSING DATE, ACQUISITION DATES AND ADVANCES 4.1. Closing Date. The closing date (the "Closing Date") shall occur on the earliest date on which the following conditions precedent shall have been satisfied or waived in the reasonable discretion of the parties hereto: (a) Master Lease. This Lease shall have been duly authorized, executed and delivered by the parties hereto. (b) Master Construction Agency Agreement. The Construction Agency Agreement shall have been duly authorized, executed and delivered by the parties hereto. (c) Guaranty. The Guaranty shall have been duly authorized, executed and delivered by the Guarantor. (d) Responsible Employee's Certificate of Lessee. The Lessor shall have received a Responsible Employee's Certificate of the Lessee, in substantially the form of Exhibit E, stating that (i) each and every representation and warranty of the Lessee contained in each Operative Document to which it is a party is true and correct on and as of the Closing Date; (ii) no Default or Event of Default has occurred and is continuing under any Operative Document to which it is a party; (iii) each Operative Document to which the Lessee is a party is in full force and effect with respect to it; and (iv) the Lessee has duly performed and complied with all covenants, agreements and conditions contained herein or in any Operative Document required to be performed or complied with by it. (e) Resolutions and Incumbency Certificate, etc. of Lessee. The Lessee shall have delivered to the Lessor (i) a certificate of its Secretary or an Assistant Secretary attaching and certifying as to (A) the resolutions of its Board of Directors duly authorizing the execution, delivery and performance by it of each Operative Document to which it is or will be a party, (B) its certificate of incorporation and by-laws, and (C) the incumbency and signature of persons authorized to execute and deliver on its behalf the Operative Documents to which it is a party and (ii) a certificate of good standing with respect to it issued by the Secretary of State of the State of its incorporation. (f) Responsible Employee's Certificate of Guarantor. The Lessor shall have received a Responsible Employee's Certificate of the Guarantor, in substantially the form of Exhibit F, stating that (i) each and every representation and warranty of the Guarantor contained in each Operative Document to which it is a party is true and correct on and as of the Closing Date; (ii) each Operative Document to which the Guarantor is a party is in full force and effect with respect to it; and (iii) the Guarantor has duly performed and complied with all covenants, agreements and conditions contained herein or in any Operative Document required to be performed or complied with by it. (g) Resolutions and Incumbency Certificate, etc. of Guarantor. The Guarantor shall have delivered to the Lessor (i) a certificate of its Secretary or an Assistant Secretary attaching and certifying as to (A) the resolutions of its Board of Directors duly authorizing the execution, delivery and performance by it of each Operative Document to which it is or will be a party, (B) its certificate of incorporation and by-laws, and (C) the incumbency and signature of persons authorized to execute and deliver on its behalf the Operative Documents to which it is a party and (ii) a certificate of good standing with respect to it issued by the Secretary of State of the State of its incorporation. (h) Opinions of Counsel. Wolf, Block, Schorr and Solis-Cohen, special counsel to the Lessee, internal counsel for the Company, Wolf, Block, Schorr and Solis-Cohen, special counsel to the Guarantor, and internal counsel for the Guarantor shall each have issued to the Lessor an opinion in form and scope satisfactory to the Lessor. (i) Fee Letter. The Fee Letter shall have been duly authorized, executed and delivered by the Lessor, the Paying Agent and the Lessee. (j) Arrangement Fee. The Lessor shall have received that portion of the fees identified in the Fee Letter as the arrangement fee. 4.2. Acquisition Date Conditions. (a) All Assets. The occurrence of each Acquisition Date with respect to any Leased Asset is subject to the following conditions precedent: (i) Lease Supplement. The Lease Supplement relating to such Leased Asset shall have been duly executed and delivered by the parties hereto. (ii) Appraisal. The Lessor shall have received an Appraisal of such Leased Asset, which Appraisal shall show, in the case of a Leased Asset consisting of Property, that as of Substantial Completion and the Expiration Date the Fair Market Sales Value of such Property shall not be less than 100% of the sum of the Land Acquisition Cost, Estimated Improvements Cost, Capitalized Interest and Transaction Expenses expected to be funded with respect to such Property. (iii) Filings. The Operative Documents (or memoranda thereof), any supplements thereto and any UCC Financing Statements shall have been recorded, registered and filed, if necessary, in such manner as to perfect and protect the Lessor's interest in such Leased Asset. (iv) Taxes. All taxes, assessments, fees and other charges in connection with the execution, delivery, recording, filing and registration of the Operative Documents shall have been paid or provisions for such payment shall have been made to the satisfaction of the Lessor. (v) Governmental Approvals. All necessary (or, in the reasonable opinion of the Lessor, advisable) Governmental Actions, in each case required by any Requirement of Law, shall have been obtained or made and be in full force and effect. (vi) Requirements of Law. In the reasonable opinion of the Lessor and its counsel, the acquisition and ownership of such Leased Assets as contemplated by the Operative Documents do not and will not violate in any material respect any material Requirement of Law and do not and will not subject the Lessor to any material adverse regulatory prohibitions or constraints. (vii) Responsible Employee's Certificates. The Lessor shall have received a Responsible Employee's Certificate of the Lessee, in substantially the form of Exhibit E, and a Responsible Employee's Certificate of the Guarantor, in substantially the form of Exhibit F. (b) Properties. In addition to the conditions specified in (a) above, the occurrence of each Acquisition Date with respect to any Leased Asset consisting of Property is subject to the following conditions precedent: (i) Deed or Ground Lease. The Lessor shall have received a Deed or Ground Lease with respect to the Land constituting a part of such Property. (ii) Mortgage. Except with respect to a Property located in Maryland or such other jurisdiction as the lessor may agree, the Lessor shall have received a Mortgage relating to such Property duly executed and delivered by the Lessee. (iii) Construction Agency Agreement Supplement. The Construction Agency Agreement Supplement relating to such Property shall have been duly executed and delivered by the parties hereto. (iv) Opinion of Counsel. Counsel to the Lessee in the jurisdiction where such Property is located shall have delivered an opinion as to local law matters in form and scope satisfactory to the Lessor. (v) Environmental Audit. The Lessor shall have received an Environmental Audit for such Property in form and substance acceptable to the Lessor. (vi) Survey and Title Insurance. The Lessee shall have delivered to the Lessor an ALTA/1992 (Urban) Survey of the Land included in such Property prepared by an independent, licensed registered public land surveyor and meeting the Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys as adopted by the American Land Title Association/American Society and American Congress on Surveying and Mapping in 1992 certified to the Lessor and the title company and otherwise in form reasonably acceptable to the Lessor and an ALTA owners or leasehold title insurance policy covering such Property in favor of the Lessor, such policy to be dated as of the Acquisition Date and in an amount not less than the aggregate Commitment of the Lessor with respect to such Property and to be reasonably satisfactory to the Lessor with an owner's comprehensive (ALTA 9) endorsement and a 3.0 zoning endorsement and such other endorsements requested by the Lessor to the extent available in the State where such Property is located. (vii) Property Insurance. The Lessor shall have received evidence of insurance with respect to such Property required to be maintained pursuant to this Lease, setting forth the respective coverages, limits of liability, carrier, policy number and period of coverage. (viii) Architect's Certificate. The Lessor shall have received a certificate from the Architect, in form and scope satisfactory to the Lessor, certifying that (i) such Property as improved in accordance with the Plans and Specifications and the contemplated use thereof by the Lessee will comply in all material respects with all Requirements of Law (including, without limitation, all zoning and land use laws) and Insurance Requirements and (ii) the Plans and Specifications have been prepared in accordance with applicable Requirements of Law (including, without limitation, building, planning, zoning and fire codes) and upon completion of the Improvements in accordance with the Plans and Specifications, such Improvements on the Property will not encroach in any manner onto any adjoining land (except as permitted by express written easements or as insured by appropriate title insurance). (c) Aircraft. In addition to the conditions specified in (a) above, the occurrence of each Acquisition Date with respect to any Leased Asset consisting of Aircraft is subject to the following conditions precedent: (i) Bill of Sale. The Lessor shall have received an AC Form 8050-2 Bill of Sale (or such other form of bill of sale as may be approved by the FAA on the Acquisition Date for the Aircraft) covering the Aircraft, executed by the owner thereof in favor of the Lessor. (ii) Registration. The Lessor shall have received evidence satisfactory to it that application for registration of the Aircraft in the name of the Lessee has been duly made with the FAA. (iii) Airworthiness. The Lessor shall have received evidence satisfactory to it that the Aircraft has been certified by the FAA with an appropriate airworthiness certificate and that such certificate is in full force and effect. (iv) Opinion of Counsel. FAA counsel shall have delivered an opinion in form and scope satisfactory to the Lessor. (v) Aircraft Insurance. The Lessor shall have received evidence of insurance with respect to such Aircraft required to be maintained pursuant to this Lease, setting forth the respective coverages, limits of liability, carrier, policy number and period of coverage. 4.3. Conditions Precedent to Each Advance. The obligations of the Lessor to make an Advance on a Funding Date, including the initial Advance occurring on any Acquisition Date, is subject to satisfaction or waiver of the following conditions precedent: (a) Funding Request. The Lessor shall have received a fully executed counterpart of the applicable Funding Request, executed by the Lessee. (b) Accuracy of Representations and Warranties. On the applicable Funding Date the representations and warranties of the Lessee contained herein and in each of the other Operative Documents to which it is a party and of the Guarantor contained in the Guaranty shall each be true and correct in all material respects as though made on and as of such date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct on and as of such earlier date. (c) No Default. There shall not have occurred and be continuing any Default or Event of Default and no Default or Event of Default will have occurred after giving effect to the making of the Advance requested by such Funding Request. (d) Permits. In the case of an Advance relating to a Property, all permits and approvals required by any Governmental Authority in connection with the Construction for which such Advance is being made shall have been issued or obtained and shall be in full force and effect. (e) Title Policy Endorsement. In the case of an Advance relating to a Property, the Lessor shall have received an endorsement to the title policy delivered pursuant to this Lease, dated on or one Business Day before the date of such Advance, (i) indicating that since the date of the preceding Advance relating to such Property there has been no change in the state of title no additional survey exceptions not theretofor approved by the Lessor and (ii) updating the title policy to the date of such endorsement. ARTICLE V CONDITIONS TO SUBSTANTIAL COMPLETION 5.1. Conditions to Substantial Completion of a Property. Substantial Completion with respect to a Property shall be deemed to have occurred for purposes of the Operative Documents at such time as the Construction shall have been substantially completed in accordance with the Plans and Specifications and all Applicable Law and the Lessee shall have delivered to the Lessor a 3.1 zoning endorsement reasonably satisfactory to the Lessor, and such Property shall be ready for occupancy and operation, as evidenced by certificates of the Architect and the Construction Agent, the Prime Contractor's application for the payment to be made upon substantial completion and the issuance by the appropriate Governmental Authority of certificates of occupancy for all of the Improvements contemplated by the Plans and Specifications, all in form and substance reasonably satisfactory to the Lessor. ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1. Representations of the Lessor. The Lessor represents and warrants to the Lessee that: (a) ERISA. The Lessor is not and will not be funding its Advances 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 a "plan" (as defined in Section 4975(e)(1) of the Code). (b) Status. The Lessor is a commercial bank, savings and loan association, savings bank, depository institution, insurance company, branch or agency of a foreign bank or other similar financial institution, or an Affiliate thereof. (c) Corporate Power and Authority. The Lessor has the corporate power and authority to execute, deliver and perform the terms and provisions of the Operative Documents to which it is or will be a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Operative Documents to which it is a party and has duly executed and delivered each Operative Document required to be executed and delivered by it and, assuming the due authorization, execution and delivery thereof on the part of each other party thereto, each such Operative Document constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by insolvency, bankruptcy, reorganization or other similar laws relating to or affecting the enforcement of creditors' rights or by general equitable principles and except as the same may be limited by certain circumstances under law or court decisions in respect of provisions providing for indemnification of a party with respect to liability where such indemnification is contrary to public policy. (d) Investment Company Act. The Lessor is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 6.2. Representations of Lessee. The Lessee represents and warrants to the Lessor that: (a) Corporate Status. The Lessee (i) is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware and (ii) has duly qualified and is authorized to do business and is in good standing in all jurisdictions where the failure to do so might have a material adverse effect on it or its properties. (b) Corporate Power and Authority. The Lessee has the corporate power and authority to execute, deliver and perform the terms and provisions of the Operative Documents to which it is or will be a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Operative Documents to which it is a party and has duly executed and delivered each Operative Document required to be executed and delivered by it and, assuming the due authorization, execution and delivery thereof on the part of each other party thereto, each such Operative Document constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by insolvency, bankruptcy, reorganization or other similar laws relating to or affecting the enforcement of creditors' rights or by general equitable principles and except as the same may be limited by certain circumstances under law or court decisions in respect of provisions providing for indemnification of a party with respect to liability where such indemnification is contrary to public policy. (c) No Violation. Neither the execution, delivery and performance by the Lessee of the Operative Documents to which it is or will be a party nor compliance with the terms and provisions thereof, nor the consummation by the Lessee of the transactions contemplated therein (i) will result in a violation by the Lessee of any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality having jurisdiction over the Lessee or any Leased Asset that would materially adversely affect (x) the validity or enforceability of the Operative Documents to which the Lessee is a party, or the title to, or value or condition of, any Leased Asset, or (y) the business, financial position, or results of operations of the Lessee and its subsidiaries taken as a whole or the ability of the Lessee to perform its obligations under the Operative Documents, (ii) will result in any breach which would constitute a default under, or (other than pursuant to the Operative Documents) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Lessee pursuant to the terms of, any indenture, loan agreement or other agreement for borrowed money to which the Lessee is a party or by which it or any of its property or assets is bound or to which it may be subject (other than Permitted Liens), or (iii) will violate any provision of the certificate of incorporation or by-laws of the Lessee. (d) Litigation. There are no actions, suits or proceedings pending or, to the knowledge of the Lessee, threatened (i) that are reasonably likely to have a material adverse effect on any Leased Asset or on the business, financial position or results of operations of the Lessee and its subsidiaries taken as a whole or (ii) that question the validity of the Operative Documents or the rights or remedies of the Lessor with respect to the Lessee or any Leased Asset under the Operative Documents. (e) Governmental Approvals. No Governmental Action by any Governmental Authority having jurisdiction over the Lessee or any Leased Asset is required to authorize or is required in connection with (i) the execution, delivery and performance by the Lessee of any Operative Document to which it is a party or (ii) the Construction, except for any such Governmental Action which is not yet required to be obtained and will be duly obtained at and when required by Applicable Law. (f) Investment Company Act. The Lessee is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. (g) Public Utility Holding Company Act. The Lessee is not a "holding company" or a "subsidiary company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Company Act of 1935, as amended. (h) Provided Information. The information and materials which have been provided by the Lessee or any Affiliate of the Lessee to the Lessor in writing prior to the Closing Date are true and accurate in all material respects on the date as of which such information and materials are dated or certified and are not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided. (i) Taxes. All United States Federal income tax returns and all other tax returns which are required to have been filed have been or will be filed by or on behalf of the Lessee by the respective due dates, including extensions, and all taxes due with respect to the Lessee shown on such returns or pursuant to any assessment received by the Lessee have been or will be paid or are being contested in good faith by the Lessee by appropriate procedures. The charges, accruals and reserves on the books of the Lessee in respect of taxes or other governmental charges are, in the opinion of the Lessee, adequate. (j) Environmental Laws. The Lessee is in compliance with all Environmental Laws relating to pollution and environmental control in all domestic jurisdictions in which all real property of the Lessee, including all Land, is located, other than those the non-compliance with which would not have a material adverse effect on any Land or the business, financial position or results of operations of the Lessee and its subsidiaries taken as a whole. (k) Offer of Securities, etc. Neither the Lessee nor any Person authorized to act on the Lessee's behalf has, directly or indirectly, offered any interest in any Leased Asset or any other interest similar thereto (the sale or offer of which would be integrated with the sale or offer of such interest in any Leased Asset), for sale to, or solicited any offer to acquire any of the same from, any Person other than the Lessor and other "accredited investors" (as defined in Regulation D of the Securities and Exchange Commission). (l) Properties. Each Prime Construction Contract for a Property will provide for construction of the Improvements thereto for a fixed price or a guaranteed maximum price on or before a date certain, will contain customary retainage provisions and otherwise be in form and substance reasonably satisfactory to the Lessor. Each Property as improved in accordance with the Plans and Specifications for such Property and the contemplated use thereof by the Lessee and its agents, assignees, employees, lessees, licensees and tenants will comply in all material respects with all Requirements of Law (including, without limitation, all zoning and land use laws) and Insurance Requirements, except for such Requirements of Law as the Lessee shall be contesting in good faith by appropriate proceedings. Upon Substantial Completion of the Construction of the Improvements to each Property, all water, sewer, electric, gas, telephone and drainage facilities and all other utilities required to adequately service such Improvements for its intended use will be available pursuant to adequate permits (including any that may be required under applicable Environmental Laws). There is no action, suit or proceeding (including any proceeding in condemnation or eminent domain or under any Environmental Law) pending or, to the best of the Lessee's knowledge, threatened with respect to the Lessee, its Affiliates or such Property which materially adversely affects the title to, or the use, operation or value of, such Property. No fire or other casualty with respect to such Property has occurred which fire or other casualty has had a material adverse effect on the value or condition of such Property. All utilities serving such Property, or proposed to serve such Property in accordance with the related Plans and Specifications, are located in, and vehicular access to the Improvements on such Property is provided by, either public rights-of-way abutting such Property or Appurtenant Rights. All material licenses, approvals, authorizations, consents, permits (including, without limitation, building, demolition and environmental permits, licenses, approvals, authorizations and consents), easements and rights-of-way, including proof and dedication, required for (x) the use, treatment, storage, transport, disposal or disposition of any Hazardous Substance on, at, under or from such Property, and (y) construction of the Improvements in accordance with the Plans and Specification and the Construction Agency Agreement have either been obtained from the appropriate Governmental Authorities having jurisdiction or from private parties, as the case may be, or will be obtained from the appropriate Governmental Authorities having jurisdiction or from private parties, as the case may be, prior to commencing any such construction or use and operation, as applicable. (m) Aircraft. Neither the execution and delivery of a Lease Supplement relating to Aircraft nor any of the transactions relative to Aircraft contemplated by this Lease, require the consent or approval of the FAA, except for notice pursuant to FAA Regulation ss.91.23 (14 C.F.R. ss.91.23). (n) Title; Ground Lease. The Lessor will at all times during the Base Term have good title to all Improvements, subject only to Permitted Liens. Each Ground Lease, if any, is in form and substance sufficient to convey a valid leasehold interest in the applicable Land. Each Deed is in form and substance sufficient to convey to the Lessor good and marketable title to the applicable Property subject only to Permitted Liens. (o) Insurance. The Lessee carries insurance with reputable insurers in respect of its material assets, in such manner, in such amounts and against such risks as is customarily maintained by other Persons of similar size engaged in similar business. (p) Flood Hazard Areas. Except as otherwise identified on the survey delivered pursuant to Section 4.2(b), no portion of any Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency. If any Property is located in such an area, then flood insurance has been obtained for such Property in accordance with Section 17.2 and in accordance with the National Flood Insurance Act of 1968, as amended. (q) Defaults. The Lessee is not in default under (and no event has occurred which with the giving of notice or lapse of time would result in a default under) any instrument evidencing any debt or any agreement relating thereto or any mortgage, deed of trust, security agreement, lease, franchise or other agreement to which the Lessee is a party or by which the Lessee or any of its properties or assets is bound or to which it may be subject. (r) Use of Advances. No part of any Advance will be used directly or indirectly for the purpose of purchasing or carrying, or for payment in full or in part of debt that was incurred for the purposes of purchasing or carrying, any margin security as such term is defined in Section 207.2 of Regulation G of the Board of Governors of the Federal Reserve System (12 C.F.R., Chapter II, Part 207). (s) Solvency. The Lessee is Solvent. 6.3. Representations of the Lessee with Respect to Each Advance. The Lessee represents and warrants to the Lessor as of each Funding Date as follows: (a) Representations. The representations and warranties of the Lessee and of the Guarantor set forth in the Operative Documents (including the representations and warranties set forth in Section 6.2) are true and correct in all material respects on and as of such Funding Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct on and as of such earlier date. There exists no Default or Event of Default, and no Default or Event of Default will occur as a result of, or after giving effect to, the Advance requested by the Funding Request on such date. (b) Improvements. In the case of a Funding Date for any Property, the Construction of the Improvements to such Property to date, if any, has been performed in a good and workmanlike manner, substantially in accordance with the Plans and Specifications for such Property and in compliance with all material Insurance Requirements and Requirements of Law. (c) Liens. The Lessee has not permitted Liens to be placed against any Leased Asset other than Permitted Liens. (d) Advance. The conditions precedent to such Advance set forth in Article IV have been satisfied. The amount of the Advance requested represents amounts owed to third parties in respect of Land Acquisition Costs or to the Lessee or third parties in respect of Other Asset Acquisition Costs or owed or paid by the Construction Agent to third parties in respect of Property Improvements Costs and Transaction Expenses, in each case incurred prior to the date of such Advance and for which neither the Lessee nor the Construction Agent has previously been reimbursed by an Advance, provided that this representation shall not apply to any portion of an Advance made on Substantial Completion which is to be used to pay for open punch list items or other holdbacks. With respect to any portion of an Advance made on Substantial Completion which is to be used to pay for open punch list items or other holdbacks, the Lessee represents that such portion will be used for such purpose to the extent that a contractor is entitled thereto and that neither the Lessee nor the Construction Agent has previously been reimbursed therefor by an Advance. ARTICLE VII PAYMENT OF RENT; FEES 7.1. Rent. The Lessee shall pay Base Rent in arrears on each Leased Asset on each Payment Date during the Base Term for such Leased Asset, on the date required under Section 24.1(i) in connection with the Lessee's exercise of the Remarketing Option and on any date on which this Lease shall terminate. Base Rent shall be calculated as provided in Appendix 2 hereto. 7.2. Payment of Rent. Rent shall be paid absolutely net to the Lessor, so that this Lease shall yield to the Lessor the full amount thereof, without setoff, deduction or reduction. Neither the Lessee's inability or failure to take possession of all or any portion of any Leased Asset when delivered by the Lessor, whether or not attributable to any act or omission of the Lessee or any act or omission of the Lessor, or for any other reason whatsoever, shall delay or otherwise affect the Lessee's obligation to pay Rent for such Leased Asset in accordance with the terms of this Lease. 7.3. Supplemental Rent. The Lessee shall pay to the Lessor any and all Supplemental Rent promptly after receipt of an invoice therefor as the same shall become due and payable, and if the Lessee fails to pay any Supplemental Rent, the Lessor shall have all rights, powers and remedies provided for herein or by law or equity or otherwise in the case of nonpayment of Base Rent. The Lessee shall pay to the Lessor, as Supplemental Rent, among other things, on demand, interest at the applicable Overdue Rate on any installment of Base Rent not paid when due for the period for which the same shall be overdue and on any payment of Supplemental Rent not paid when due or demanded by the Lessor for the period from the due date or the date of any such demand, as the case may be, until the same shall be paid. The expiration or other termination of the Lessee's obligations to pay Base Rent hereunder shall not limit or modify the obligations of the Lessee with respect to Supplemental Rent. Unless expressly provided otherwise in this Lease, in the event of any failure on the part of the Lessee to pay and discharge any Supplemental Rent as and when due, the Lessee shall also promptly pay and discharge any fine, penalty, interest or cost which may be assessed or added under any agreement with a third party for nonpayment or late payment of such Supplemental Rent, all of which shall also constitute Supplemental Rent. 7.4. Fees. The Lessee hereby agrees to pay to the Lessor the fees set forth in this Section 7.4. All such fees shall be non-refundable, except as may otherwise be provided in the Fee Letter. (a) Fee Letter. The Lessee shall pay to the Lessor the fees set forth in the Fee Letter, under which certain amounts shall be payable on the Closing Date and may be capitalized and included in the Lease Balance from the relevant Leased Asset. The Fee Letter may be supplemented from time to time in connection with the acquisition of additional Leased Assets. (b) Commitment Fee. The Lessee shall pay to the Lessor for each Leased Asset, for the period (including any portion thereof when the Lessor's obligations pursuant to Section 3.1 are suspended by reason of the Lessee's inability to satisfy any condition of Article IV) commencing on (and including) the Closing Date and continuing to (but excluding), in the case of the Lessor Commitment Fee, the Base Date for such Leased Asset, and, in the case of the Liquidity Commitment Fee, the Expiration Date for such Leased Asset, a Commitment Fee (the "Commitment Fee") as set forth in Appendix 2. 7.5. Capitalized Interest. If and to the extent that the Lessee does not request an Advance to pay any Capitalized Interest, then the Lessee will pay the amount thereof to the Lessor on the last day of the Interest Period during which such Capitalized Interest has accrued. 7.6. Method of Payment. Each payment of Rent or any other amount due hereunder shall be made by the Lessee to the Lessor prior to 1:00 p.m., New York City time, at the place of payment designated in writing by the Lessor in funds consisting of lawful currency of the United States of America which shall be immediately available on the scheduled date when such payment shall be due, unless such scheduled date shall not be a Business Day, in which case such payment shall be made on the next succeeding Business Day. Payments received after 1:00 p.m., New York City time, on any day shall be deemed received on the next succeeding Business Day. If requested by the Lessee, the Lessor shall make arrangements to permit payments hereunder to be made by the automated clearing house payments system. ARTICLE VIII QUIET ENJOYMENT; RIGHT TO INSPECT 8.1. Quiet Enjoyment. Subject to Sections 2.4 and 8.2, and subject to the rights of the Lessor contained herein and the other terms of the Operative Documents to which the Lessee is a party, the Lessee shall peaceably and quietly have, hold and enjoy each Leased Asset for the Base Term applicable thereto, free of any claim or other action by the Lessor or anyone claiming by, through or under the Lessor (other than the Lessee) with respect to any matters arising from and after the Acquisition Date. Such right of quiet enjoyment is independent of, and shall not affect the Lessor's rights otherwise to initiate legal action to enforce, the obligations of the Lessee under this Lease. 8.2. Right to Inspect. During the Lease Term, the Lessee shall, upon reasonable notice from the Lessor (except that no notice shall be required if an Event of Default under this Lease has occurred and is continuing), permit the Lessor and its authorized representatives to inspect any Leased Asset during normal business hours. Lessor and its authorized representatives shall maintain the confidentiality of any confidential information obtained during the course of any inspection and, at the request and expense of the Lessee, shall execute and deliver non-disclosure agreements to such effect as may be reasonably appropriate. ARTICLE IX NET LEASE, ETC. 9.1. Net Lease. This Lease shall constitute a net lease. Any present or future law to the contrary notwithstanding, this Lease shall not terminate, nor shall the Lessee be entitled to any abatement, suspension, deferment, reduction, setoff, counterclaim, or defense with respect to the Rent, nor shall the obligations of the Lessee hereunder be affected (except as expressly herein permitted and by performance of the obligations in connection therewith) by reason of: (i) any defect in the condition, merchantability, design, construction, quality or fitness for use of any Leased Asset or any part thereof, or the failure of any Leased Asset to comply with all Requirements of Law, including any inability to occupy or use any Leased Asset by reason of such non-compliance; (ii) any damage to, removal, abandonment, salvage, loss, contamination of or Release from, scrapping or destruction of or any requisition or taking of any Leased Asset or any part thereof; (iii) any restriction, prevention or curtailment of or interference with any use of the Leased Asset or any part thereof including eviction; (iv) any defect in title to or rights to any Leased Asset or any Lien on such title or rights or on any Leased Asset (other than Lessor Liens); (v) any change, waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by the Lessor; (vi) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to the Lessee or any other Person, or any action taken with respect to this Lease by any trustee or receiver of the Lessee or any other Person, or by any court, in any such proceeding; (vii) any claim that the Lessee has or might have against any Person, including without limitation the Lessor and any vendor, manufacturer, contractor of or for any portion of any Leased Asset; (viii) any failure on the part of the Lessor to perform or comply with any of the terms of this Lease (other than performance by Lessor of its obligations set forth in Section 2.1 hereof), of any other Operative Document or of any other agreement; (ix) any invalidity or unenforceability or illegality or disaffirmance of this Lease against or by the Lessee or any provision hereof or any of the other Operative Documents or any provision of any thereof; (x) any restriction, prevention or curtailment of or interference with the construction on or any use of any Leased Asset or any part thereof; or (xi) any other cause or circumstances, similar to the foregoing and whether or not the Lessee shall have notice or knowledge of any of the foregoing. The agreement of the Lessee in the preceding sentence shall not affect any claim, action or right that the Lessee may have against the Lessor or any other Person. The parties intend that the obligations of the Lessee hereunder shall be covenants and agreements that are separate and independent from any obligations of the Lessor hereunder or under any other Operative Documents and the obligations of the Lessee shall continue unaffected unless such obligations shall have been modified or terminated in accordance with an express provision of this Lease. 9.2. No Termination or Abatement. The Lessee shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any action for 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 of the Lessor or by any court with respect to the Lessor. The Lessee hereby waives all right (i) to terminate or surrender this Lease (except as provided herein) or (ii) to avail itself of any abatement, suspension, deferment, reduction, setoff, counterclaim or defense with respect to any Rent. The Lessee shall remain obligated under this Lease in accordance with its terms and the Lessee hereby waives any and all rights now or hereafter conferred by statute or otherwise to modify or to avoid strict compliance with its obligations under this Lease. Notwithstanding any such statute or otherwise, the Lessee shall be bound by all of the terms and conditions contained in this Lease. ARTICLE X SUBLEASES 10.1. Subletting. The Lessee may, without the consent of the Lessor, sublease any Leased Asset or any portion thereof to any Person who, to the best of Lessee's knowledge, has not filed, or had filed against it, insolvency proceedings or a petition under the bankruptcy laws of the United States. No sublease or other relinquishment of possession of such Leased Asset 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 Leased Asset, or portion thereof, so sublet. Any sublease of such Leased Asset 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 Leased Asset by the sublessee in a manner materially different than that of the Lessee prior to the sublease. In connection with any sublease, the Lessee may request the Lessor to enter into a customary non-disturbance agreement with the sublessee. The Lessor will act in a commercially reasonable manner in determining whether or not to enter into such non-disturbance agreement. ARTICLE XI LESSEE ACKNOWLEDGMENTS 11.1. Condition of the Properties. THE LESSEE ACKNOWLEDGES AND AGREES THAT ALTHOUGH THE LESSOR WILL OWN AND HOLD TITLE TO THE IMPROVEMENTS, THE CONSTRUCTION AGENT IS SOLELY RESPONSIBLE UNDER THE TERMS OF THE CONSTRUCTION AGENCY AGREEMENT FOR THE DESIGN, DEVELOPMENT, BUDGETING AND CONSTRUCTION OF THE IMPROVEMENTS AND ANY ALTERATIONS OR MODIFICATIONS. THE LESSEE FURTHER ACKNOWLEDGES AND AGREES THAT IT IS LEASING EACH LEASED ASSET "AS IS" WITHOUT, EXCEPT AS EXPRESSLY OTHERWISE PROVIDED HEREIN, REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY THE LESSOR AND SUBJECT TO (A) THE EXISTING STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ANY STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT SHOW, AND (D) VIOLATIONS OF REQUIREMENTS OF LAW WHICH MAY EXIST ON THE DATE HEREOF OR AT ANY TIME HEREAFTER. THE LESSOR HAS NOT MADE, EXCEPT AS EXPRESSLY OTHERWISE PROVIDED HEREIN, AND SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) AND SHALL NOT BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE (OTHER THAN FOR LESSOR LIENS), VALUE, HABITABILITY, USE, CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF ANY LEASED ASSET (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY LEASED ASSET (OR ANY PART THEREOF) AND THE LESSOR SHALL NOT BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN (OTHER THAN FOR LESSOR LIENS) OR THE FAILURE OF ANY LEASED ASSET, OR ANY PART THEREOF, TO COMPLY WITH ANY REQUIREMENT OF LAW. 11.2. Risk of Loss. During the Construction Period and the Base Term for any Leased Asset, the risk of loss of or decrease in the enjoyment and beneficial use of such Leased Asset as a result of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise is assumed by the Lessee, and the Lessor shall in no event be answerable or accountable therefor. ARTICLE XII POSSESSION AND USE, ETC. 12.1. Possession and Use. Each Leased Asset shall be used as described in the applicable Lease Supplement therefor and in a manner consistent with the standards applicable to properties of a similar nature in the geographic area in which such Leased Asset is located or operated and in any event not less than the standards applied by the Lessee and its Affiliates for other comparable properties owned or leased by the Lessee and its Affiliates. 12.2. Charges. The Lessee shall pay, or cause to be paid, all charges and costs required in connection with the use of such Leased Asset as contemplated by this Lease. The Lessee shall not commit or permit any waste of such Leased Asset or any part thereof. The Lessee shall pay or cause to be paid all charges for electricity, power, gas, oil, water, telephone, sanitary sewer service and all other rents and utilities used in or on each Property through the Expiration Date. The Lessee shall be entitled to receive any credit or refund with respect to any utility charge paid by the Lessee and the amount of any credit or refund received by the Lessor on account of any utility charges paid by the Lessee, net of the costs and expenses reasonably incurred by the Lessor in obtaining such credit or refund, shall be promptly paid over to the Lessee. 12.3. Compliance with Requirements of Law and Insurance Requirements. Subject to the terms hereof relating to permitted contests, the Lessee, at its sole cost and expense, shall (i) comply in all material respects with all Requirements of Law and Insurance Requirements relating to each Leased Asset, including the construction, use, operation, maintenance, repair and restoration thereof and the remarketing thereof pursuant to Article XXIV, whether or not compliance therewith shall require structural or extraordinary changes in any Improvements or interfere with the use and enjoyment of such Leased Asset, and (ii) procure, maintain and comply in all material respects with all material licenses, permits, orders, approvals, consents and other authorizations required for the construction, use, operation, maintenance, repair and restoration of the Leased Assets. ARTICLE XIII MAINTENANCE AND REPAIR; RETURN 13.1. Maintenance and Repair. (a) The Lessee, at its sole cost and expense, shall maintain each Leased Asset in good condition (ordinary wear and tear excepted) and make all necessary repairs thereto, of every kind and nature whatsoever, whether interior or exterior, ordinary or extraordinary, structural or nonstructural or foreseen or unforeseen, in each case as required by all Requirements of Law and Insurance Requirements and on a basis consistent with the operation and maintenance of properties comparable in type and location to such Leased Asset and in no event less than the standards applied by the Lessee and its Affiliates in the operation and maintenance of other comparable properties owned or leased by the Lessee and its Affiliates. (b) The Lessor shall under no circumstances be required to build any improvements on any Property, make any replacements, alterations or renewals of any nature or description to any Leased Asset or make any expenditure whatsoever in connection with this Lease (other than for Advances made in accordance with and pursuant to the terms of this Lease and the Construction Agency Agreement). The Lessor shall not be required to maintain, repair or rebuild all or any part of any Leased Asset, and the Lessee waives any right to (i) require the Lessor to maintain, repair, or rebuild all or any part of any Leased Assets, or (ii) make repairs at the expense of the Lessor pursuant to any Requirement of Law, Insurance Requirement, contract, agreement, or covenant, condition or restriction in effect at any time during the Base Term applicable to any Leased Asset. (c) With respect to Aircraft, without limiting the generality of Section 13.1(a), the Lessee, at its sole cost and expense, shall: (i) maintain, service, repair, overhaul and test such Aircraft (A) so as to keep such Aircraft in operating condition as good as when delivered to the Lessee hereunder, ordinary wear and tear excepted, and (B) so as to keep such Aircraft in such operating condition as may be necessary to enable the airworthiness certification of such Aircraft to be maintained in good standing at all times under the Federal Aviation Act of 1958, as amended, except during such period or periods as such Aircraft is being overhauled, maintained, serviced, repaired or tested; (ii) maintain all records, logs and other materials required by the FAA to be maintained in respect of such Aircraft; and (iii) promptly furnish to the Lessor such notification and take such other action on the Lessor's behalf as may be required to be filed by the Lessor with any governmental authority because of the Lessor's interest in such Aircraft. The Lessee shall forthwith upon the Acquisition Date with respect to any Aircraft, cause such Aircraft to be fully registered and at all times thereafter to remain duly registered in the name of the Lessee. The Lessee shall affix or cause to be affixed to each Aircraft in the place designated by the Lessor (or, if no such place shall have been designated, in a prominent place), labels, plates or other markings stating that such Aircraft is owned by the Lessor. The Lessee shall not without the prior permission of the Lessor change or remove (or permit to be changed or removed or otherwise permit a decrease in the visibility of) any insignia or lettering which is on any Aircraft at the time of delivery thereof or which is thereafter placed thereon indicating the Lessor's ownership thereof. 13.2. Return. (a) The Lessee shall, upon the expiration or earlier termination of this Lease, vacate and surrender each Leased Asset to the Lessor in its then-current, "AS IS" condition, subject to the Lessee's obligations under Sections 12.3, 13.1, 14.1, 15.1, 18.1(d), 18.2 and 24.1, unless the Lessee has purchased such Leased Asset from the Lessor as provided herein. (b) Upon termination of the lease of any Aircraft, the Lessee shall have the option of having the aircraft engines installed on such Aircraft be engines of the same model as the original Engines or substitute engines suitable and approved by the FAA for such Aircraft, free and clear of all Liens, encumbrances or rights of others whatsoever and having a value and utility at least equal to, and being in as good operation and condition, ordinary wear and tear excepted, as such original Engines. "Ordinary wear and tear" as used herein is intended to reflect the FAA regulations pertaining to the requirement of a periodic overhauling of aircraft engines. Thus, in returning the Engines, the Lessee, under normal circumstances, shall be required to overhaul them only if the total flying hours of such Engines would require an overhaul under the FAA regulations. Upon the return of any Aircraft, the Lessee shall (i) deliver to the Lessor or its designee, all logs, manuals, inspection data, modification and overhaul records or copies thereof which are applicable to such Aircraft and are of the type that the Lessee customarily retains or is required by law to retain with respect to its own aircraft and (ii) at its own expense, will cause such Aircraft, if not then registered in the name of the Lessor, to be registered in the name of the Lessor or its designee. At the time of such return such Aircraft shall be duly certified as airworthy by the FAA. ARTICLE XIV MODIFICATIONS, ETC. 14.1. Modifications, Substitutions and Replacements. After the date of Substantial Completion for any Leased Asset consisting of Property and after the Acquisition Date for any Other Asset, the Lessee, at its sole cost and expense, may at any time and from time to time make alterations, renovations, improvements and additions to such Leased Asset or any part thereof and substitutions and replacements therefor (collectively, "Modifications"); provided, however, that: (i) except for any Modification required to be made pursuant to a Requirement of Law (a "Required Modification"), no Modification shall impair the value, utility or useful life of such Leased Asset or any part thereof from that which existed immediately prior to such Modification; (ii) the Modification shall be done expeditiously and in a good and workmanlike manner; (iii) the Lessee shall comply with all Requirements of Law and Insurance Requirements applicable to the Modification, including the obtaining of all permits and certificates of occupancy, and the structural integrity of such Leased Asset shall not be adversely affected; (iv) subject to the terms of Article XVI relating to permitted contests, the Lessee shall pay all costs and expenses and shall discharge (or cause to be insured or bonded over) within sixty (60) days after the same shall be filed (or otherwise become effective) any Liens arising with respect to the Modification; (v) such Modifications shall comply with Section 13.1(a); and (vi) the Lessee shall be required to obtain the prior written approval of the Lessor, which approval shall not be unreasonably withheld, with respect to any alterations (other than Required Modifications and/or alterations authorized by the Construction Agency Agreement) that shall (A) materially affect any structural element of the Improvements to any Property or major building system therein, or (B) cost in excess of the Threshold Amount or (C) materially change the nature of the Improvements to any Property or the amount of usable area therein or the utility thereof for the purposes contemplated by the Lessor and the Lessee as of the date hereof and the date of the Lease Supplement therefor. All Modifications shall remain part of such Leased Asset and shall be subject to this Lease and title thereto shall immediately vest in the Lessor; provided, however, that Modifications that meet each of the following conditions shall not be subject to this Lease: (x) such Modifications are not Required Modifications, (y) such Modifications were not financed by the Lessor and (z) such Modifications are readily removable without impairing the value, utility or remaining useful life of the related Leased Asset. So long as no Event of Default has occurred and is continuing, the Lessee may place upon each Leased Asset any trade fixtures, machinery, equipment or other property belonging to the Lessee or third parties and may remove the same at any time during the Lease Term, subject, however, to the terms of Section 13.1; provided that such trade fixtures, machinery, equipment or other property do not materially impair the value, utility or remaining useful life of such Leased Asset; and provided, further, that the Lessee shall keep and maintain at each Property and shall not remove from such Property any Equipment financed or otherwise paid for (directly or indirectly) by the Lessor pursuant to this Lease. Notwithstanding the foregoing proviso, the Lessee may substitute other equipment for such Equipment, which substituted equipment shall have a Fair Market Sales Value and remaining useful life at least equivalent to the Equipment for which it was substituted and, without further act, such substituted equipment shall be Equipment hereunder and be part of the applicable Property. ARTICLE XV WARRANT OF TITLE; EASEMENTS 15.1. Warrant of Title. (a) The Lessee agrees that except as otherwise provided herein and subject to the terms of Article XVI relating to permitted contests, the Lessee shall not directly or indirectly create or allow to remain, and shall promptly discharge at its sole cost and expense, any Lien, defect, attachment, levy, title retention agreement or claim upon any Leased Asset or any Modifications or any Lien, attachment, levy or claim with respect to the Rent, other than Permitted Liens. (b) Nothing contained in this Lease shall be construed as constituting the consent or request of the Lessor, expressed or implied, to or for the performance by any contractor, mechanic, laborer, materialman, supplier or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to any Leased Asset or any part thereof. NOTICE IS HEREBY GIVEN THAT THE LESSOR IS NOT AND SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING ANY LEASED ASSET OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF THE LESSOR, IN AND TO ANY LEASED ASSET. 15.2. Grants and Releases of Easements; Lessor's Waivers. Provided that no Default or Event of Default shall have occurred and be continuing and subject to the provisions of Articles XII, XIII and XIV, the Lessor hereby consents in each instance to the following actions by the Lessee, but at the Lessee's sole cost and expense: (a) 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 any Property as herein provided and to give effect to the state of title in effect for such Property as set forth in the title policy therefor; (b) the release of existing easements or other rights in the nature of easements which are for the benefit of any Property; (c) if required by applicable Governmental Authority in connection with the Construction, the dedication or transfer of unimproved portions of any Land for road, highway or other public purposes; and (d) the execution of amendments to any covenants and restrictions affecting any Property; provided, however, that in each case (i) such grant, release, dedication, transfer or amendment does not materially impair the value, utility or remaining useful life of any Property, (ii) such grant, release, dedication, transfer or amendment is reasonably necessary in connection with the use, maintenance, alteration or improvement of any Property, (iii) such grant, release, dedication, transfer or amendment will not cause any Property or any portion thereof to fail to comply in any material respect with the provisions of this Lease or any other Operative Documents and all Requirements of Law (including, without limitation, all applicable zoning, planning, building and subdivision ordinances, all applicable restrictive covenants and all applicable architectural approval requirements); (iv) all governmental consents or approvals required prior to such grant, release, dedication, transfer or amendment have been obtained, and all filings required prior to such action have been made; (v) such grant, release, dedication, transfer or amendment will not result in any down-zoning of any Property or any portion thereof or a material reduction in the maximum density or development rights available to any Property under all Requirements of Law; (vi) the Lessee shall remain obligated under this Lease and under any Operative Document executed by the Lessee consenting to the assignment of the Lessor's interest in this Lease as security for Advances made by it to the Lessor, in each such case in accordance with their terms, as though such grant, release, dedication, transfer or amendment had not been effected; and (vii) the Lessee shall pay and perform any obligations of the Lessor under such grant, release, dedication, transfer or amendment. The Lessor acknowledges the Lessee's right to finance and to secure under the Uniform Commercial Code, inventory, furnishings, furniture, equipment, machinery, leasehold improvements and other personal property located at any Property other than Equipment, and Lessor agrees to execute Lessor waiver forms 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. Without limiting the effectiveness of the foregoing, provided that no Default or Event of Default shall have occurred and be continuing, the Lessor shall, upon the request of the Lessee, and at the Lessee's sole cost and expense, execute and deliver any instruments necessary or appropriate to confirm any such grant, release, dedication, transfer or amendment to any Person permitted under this Section 15.2, including landlord waivers with respect to any of the foregoing. ARTICLE XVI PERMITTED CONTESTS 16.1. Permitted Contests in Respect of Applicable Law. If, to the extent and for so long as (a) a test, challenge, appeal or proceeding for review of any Applicable Law relating to any Leased Asset shall be prosecuted diligently and in good faith in appropriate proceedings by the Lessee or (b) compliance with such Applicable Law shall have been excused or exempted by a valid nonconforming use, variance permit, waiver, extension or forbearance, the Lessee shall not be required to comply with such Applicable Law but only if and so long as any such test, challenge, appeal, proceeding, waiver, extension, forbearance or noncompliance shall not, in the reasonable opinion of the Lessor, involve (A) any risk of criminal liability being imposed on the Lessor, or (B) any material risk of (1) foreclosure, forfeiture or loss of any Leased Asset or any material part thereof, or (2) the nonpayment of Rent or (C) any substantial danger of (1) the sale of, or the creation of any Lien (other than a Permitted Lien) on, any part of any Leased Asset, (2) civil liability being imposed on the Lessor, or (3) enjoinment of, or interference with, the use, possession or disposition of any Leased Asset in any material respect. The Lessor will not be required to join in any proceedings pursuant to this Section 16.1 unless a provision of any Applicable Law requires that such proceedings be brought by or in the name of the Lessor; and in that event the Lessor will join in the proceedings or permit them or any part thereof to be brought in its name if and so long as (i) no Default or Event of Default has occurred and is continuing, (ii) the Lessee has not elected the Remarketing Option, and (iii) the Lessee pays all related expenses and indemnifies the Lessor to its reasonable satisfaction. ARTICLE XVII INSURANCE 17.1. Public Liability and Workers' Compensation Insurance. (a) Property. With respect to each Property, the Lessee shall procure and carry commercial general liability insurance for claims for bodily injury or death sustained by persons or damage to property while on such Property and such other public liability coverages as are ordinarily procured by the Lessee or its Affiliates who own or operate similar properties. Such insurance shall be on terms and in amounts that are materially no less favorable than insurance maintained by the Lessee or its Affiliates with respect to similar properties that they own and that are in accordance with normal industry practice in the state in which such Property is located. The Lessee shall, in the construction of the Improvements (including in connection with any Modifications thereof) and the operation of any Property, comply with, or cause the applicable contractor to comply with, all applicable workers' compensation laws. The insurance required by this clause (a) may be subject to such deductibles and the Lessee may self-insure with respect to the required coverage to the extent approved in writing by the Lessor. (b) Aircraft. With respect to each Aircraft, the Lessee shall procure or cause to be procured and maintain or cause to be maintained public liability insurance with respect to such Aircraft, covering both bodily personal injury and damage to property (as to all Persons, including employees of the Lessee or the Lessor). Policies covering bodily injury and property damage shall provide for coverage in an amount which is not less than the public liability and property damage insurance usually carried with respect to aircraft similar to such Aircraft by corporations of a similar size engaged in the same or similar business and similarly situated with the Lessee and its Affiliates; provided, that such insurance shall at all times be in an amount not less than $30,000,000 per occurrence. (c) Other Assets. With respect to any Other Asset other than Aircraft, the Lessee will carry public liability insurance and property damage insurance with respect to such Other Asset (i) in amounts which are not less than the public liability and property damage insurance applicable to similar assets owned, leased or held by the Lessee and its Affiliates and (ii) of the types usually carried by corporations engaged in the same or a similar business, similarly situated with the Lessee and its Affiliates, and owning or operating similar assets in the state in which such Other Asset is located and which cover risk of the kind customarily insured against by such corporations. The insurance required by this clause (c) may be subject to such deductibles and the Lessee may self-insure with respect to the required coverage to the extent approved in writing by the Lessor. 17.2. Hazard and Other Insurance. (a) Property. With respect to each Property, the Lessee shall keep, or cause to be kept, such Property insured against loss or damage by fire, earthquake, flood and other risks on terms and in amounts that are no less favorable than insurance covering other similar properties owned by the Lessee or its Affiliates and that are in accordance with normal industry practice, provided that such insurance shall at all times be in an amount not less than the greater of the Lease Balance of such Property or the replacement cost thereof. During the construction of any Improvements the Lessee shall also maintain or cause to be maintained builders' risk insurance or equivalent coverages. The insurance required by this Clause (a) may be subject to such deductibles and the Lessee may self-insure with respect to the required coverage to the extent approved in writing by the Lessor. (b) Aircraft. With respect to each Aircraft, the Lessee shall procure or cause to be procured and maintain or cause to be maintained all risk aircraft hull insurance with respect to such Aircraft, of the type and in substantially the amounts usually carried by corporations engaged in the same or similar business and similarly situated with the Lessee and its Affiliates; provided that such insurance shall at all times be in an amount not less than the Lease Balance of such Aircraft at such time. (c) Other AssetsWith respect to any Other Asset other than Aircraft, the Lessee will maintain in effect physical damage insurance with respect to such Other Asset which is of the type usually carried by corporations engaged in the same or similar business, similarly situated with the Lessee and its Affiliates, and owning or operating similar equipment and which covers risk of the kind customarily insured against by such corporations, and in substantially the amount applicable to similar assets owned, leased or held by the Lessee and its Affiliates; provided that such insurance shall at all times be in an amount not less than the aggregate Lease Balance of all such Other Assets. The insurance required by this clause (c) may be subject to such deductibles and the Lessee may self-insure with respect to the required coverage to the extent approved in writing by the Lessor. 17.3. Insurance Coverage. (a) Upon request the Lessee shall furnish the Lessor with certificates showing the insurance required under Sections 17.1 and 17.2 to be in effect and naming the Lessor, the Receivable Purchaser, the Conduits and the Liquidity Providers as additional insureds with respect to liability coverage (excluding worker's compensation insurance), and naming the Lessor as loss payee with respect to property coverage and showing the mortgagee endorsement required by Section 17.3(c) with respect to such coverage. All such insurance shall be at the sole cost and expense of the Lessee and shall be maintained with respect to each Leased Asset from the Acquisition Date thereof through the Expiration Date therefor. Such certificates shall include a provision for no less than ten (10) days' advance written notice by the insurer to the Lessor in the event of cancellation or reduction of such insurance. In addition, the Lessee shall cause the Lessor, the Receivable Purchaser, the Conduits and the Liquidity Providers to be named as additional insureds under the liability policies maintained with respect to the Construction for each Property. (b) The Lessee agrees that the insurance policy or policies required by Sections 17.1 and 17.2, shall include an appropriate clause pursuant to which such policy shall provide that it will not be invalidated should the Lessee waive, in writing, prior to a loss, any or all rights of recovery against any party for losses covered by such policy, and that the insurance in favor of the Lessor and the other additional insureds and their rights under and interests in said policies shall not be invalidated or reduced by any act or omission or negligence of the Lessee or any other Person having any interest in any Leased Asset. The Lessee and the Lessor each hereby waives any and all rights against the other for loss or damage to or loss of use of its property to the extent of payments made under its property insurance so long as such waiver shall not affect its rights to recover under such insurance. (c) Except as otherwise permitted by clause (d), all such insurance shall be written by reputable insurance companies that are financially sound and solvent and otherwise reasonably appropriate considering the amount and type of insurance being provided by such companies. Any insurance company selected by the Lessee which is rated in Best's Insurance Guide or any successor thereto (or if there be none, an organization having a similar national reputation) shall have a general policyholder rating of "A" and a financial rating of at least "VIII" or be otherwise acceptable to the Lessor. All insurance policies required by Section 17.2 shall include a standard form mortgagee endorsement in favor of the Lessor. (d) The Lessor shall not carry separate insurance concurrent in kind or form or contributing in the event of loss with any insurance required under this Article XVII except that the Lessor may carry separate liability insurance so long as (i) the Lessee's insurance is designated as primary and in no event excess or contributory to any insurance the Lessor may have in force which would apply to a loss covered under the Lessee's policy and (ii) each such insurance policy will not cause the Lessee's insurance required under this Article XVII to be subject to a coinsurance exception of any kind. Each policy maintained by the Lessee shall specifically provide that the policy shall be considered primary insurance which shall apply to any loss or claim before any contribution by any insurance which the Lessor may have in force. (e) The Lessee shall pay as they become due all premiums for the insurance required by Section 17.1 and Section 17.2, and shall renew or replace each policy prior to the expiration date thereof. Throughout the Base Term for any Leased Asset, at the time each of the Lessee's insurance policies is renewed (but in no event less frequently than once each year), the Lessee shall deliver to the Lessor certificates of insurance evidencing that all insurance required by this Article XVII with respect to such Leased Asset is being maintained by the Lessee and is in effect. (f) All insurance proceeds in respect of any property damage loss or occurrence for which the proceeds related thereto are (i) less than or equal to the Threshold Amount, in the absence of the occurrence and continuance of a Default or Event of Default, shall be adjusted by and paid to the Lessee for application toward the reconstruction, repair or refurbishment of the applicable Leased Asset and (ii) greater than the Threshold Amount, shall be adjusted jointly by the Lessee and the Lessor (unless a Default or Event of Default has occurred and is continuing, in which case such proceeds shall be adjusted solely by the Lessor) and held by the Lessor for application in accordance with Article XVIII hereof. ARTICLE XVIII CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS 18.1. Casualty and Condemnation. (a) Subject to the provisions of this Article XVIII, if all or a portion of any Leased Asset is damaged or destroyed in whole or in part by a Casualty or is the subject of a Condemnation, then (i) in the case of a Casualty where the cost of restoration of the affected Leased Asset in the reasonable judgment of the Lessor is (x) less than or equal to the Threshold Amount, any insurance proceeds payable with respect to such Casualty shall be paid directly to the Lessee, or if received by the Lessor, shall be paid over to the Lessee for the reconstruction, refurbishment and repair of such Leased Asset, (y) greater than the Threshold Amount, any insurance proceeds payable with respect to such Casualty shall be paid to the Lessor but may be obtained by the Lessee and used for the purpose of reconstructing, refurbishing and repairing the affected Leased Asset upon submission to the Lessor of a Responsible Employee's Certificate to the effect that such Leased Asset can be fully restored to the condition required under this Lease prior to the end of the Base Term for such Leased Asset (after giving effect to any extensions of such Base Term) and as to the cost of such restoration (accompanied by, in the case of a Leased Asset consisting of Property, an Architect's certificate as to the foregoing matters) plus a statement as to the Lessee's affirmative ability to finance such restoration, and upon receipt of such certificate(s) in form reasonably satisfactory to the Lessor such amounts shall be made available to the Lessee in the manner contemplated by the Construction Agency Agreement with respect to Construction and if the foregoing certificate(s) are not delivered to the Lessor such proceeds shall be applied toward the payment of the Lease Balance for such Leased Asset and (ii) in the case of a Condemnation such award or compensation shall be paid to the Lessor to be applied in its reasonable discretion to the restoration of the affected Leased Asset or toward the payment of the Lease Balance; provided, however, that if a Default or Event of Default shall have occurred and be continuing, such award, compensation or insurance proceeds shall be paid directly to the Lessor or, if received by the Lessee, shall be held in trust for the Lessor, and shall be paid over by the Lessee to the Lessor. If, contrary to such provision, any such award, compensation or insurance proceeds are paid to the Lessee rather than to the Lessor, the Lessee hereby agrees to hold the same in trust for the benefit of the Lessor and to transfer promptly any such payment to the Lessor. All amounts held by the Lessor when a Default or Event of Default exists hereunder on account of any award, compensation or insurance proceeds either paid directly to the Lessor or turned over to the Lessor shall in its sole discretion either be (i) paid to the Lessee for the repair of damage caused by such Casualty or Condemnation in accordance with clause (d) of this Section 18.1, or (ii) (A) if a Default exits, held by the Lessor until such Default is cured or becomes an Event of Default or (B) if an Event of Default exists, applied toward the payment of the Lease Balance of the affected Leased Asset. (b) The Lessee may appear in any proceeding or action to negotiate, prosecute, adjust or appeal any claim for any award, compensation or insurance payment on account of any such Casualty or Condemnation and shall pay all expenses thereof. At the Lessee's reasonable request, and at the Lessee's sole cost and expense, the Lessor shall participate in any such proceeding, action, negotiation, prosecution or adjustment. The Lessor and the Lessee agree that this Lease shall control the rights of the Lessor and the Lessee in and to any such award, compensation or insurance payment. (c) If the Lessor or the Lessee shall receive notice of a Casualty or of an actual, pending or threatened Condemnation of any Leased Asset or any interest therein, the Lessor or the Lessee, as the case may be, shall give notice thereof to the other promptly after the receipt of such notice. (d) If pursuant to this Section 18.1 and Section 19.1 this Lease shall continue in full force and effect following a Casualty or Condemnation with respect to any Leased Asset, the Lessee shall, at its sole cost and expense (and, without limitation, if any award, compensation or insurance payment is not sufficient to restore such Leased Asset in accordance with this paragraph, the Lessee shall pay the shortfall), promptly and diligently repair any damage to such Leased Asset caused by such Casualty or Condemnation in conformity with the requirements of Sections 13.1 and 14.1 using, in the case of any Property, the as-built plans and specifications for such Property (as modified to give effect to any subsequent Modifications, any Condemnation affecting such Property and all applicable Requirements of Law) so as to restore such Leased Asset to at least the same condition, operation, function and value as existed immediately prior to such Casualty or Condemnation with such Modification as the Lessee may elect in accordance with Section 14.1. Upon completion of such restoration, the Lessee shall furnish the Lessor a Responsible Employee's Certificate and, in the case of any Property, an Architect's certificate confirming that such restoration has been completed pursuant to this Lease. (e) In no event shall a Casualty or Condemnation affect the Lessee's obligations to pay Rent pursuant to Section 7.1 or to perform its obligations and pay any amounts due on any Expiration Date or pursuant to Articles XXII and XXV. (f) Any Excess Proceeds received by the Lessor in respect of a Casualty or Condemnation affecting any Leased Asset shall be turned over to the Lessee upon the full payment of the Lease Balance for such Leased Asset and all other amounts then due and payable hereunder. 18.2. Environmental Matters. Promptly upon the Lessee's knowledge or the existence of an Environmental Violation that could materially affect the value of any Property, the Lessee shall notify the Lessor in writing of such Environmental Violation. If the cost of remediation of such Environmental Violation would not exceed the limits set forth in Section 19.1, the Lessee will promptly and diligently undertake any response, cleanup, remedial or other action required by Applicable Law of the Lessor or the Lessee to remove, cleanup or mediate such Environmental Violation of the Lessee's sole cost and expense. If the cost of such remediation would exceed the limits set forth in Section 19.1, the Lessor may elect to terminate the Lease with respect to such Property pursuant to Section 19.1 or, alternatively, the Lessor may request that the Lessee undertake any response, cleanup, remedial or other action required by Applicable Law of the Lessor or Lessee to remove, clean up or remediate the Environmental Violation in accordance with the terms of Section 12.3, at the Lessee's sole cost and expense. If the Lessor does not deliver a Termination Notice with respect to such Property pursuant to Section 19.1, then the Lessee shall undertake such response, cleanup, remedial or other action, and the Lessee shall, upon completion of remedial action by the Lessee, cause to be prepared by an environmental consultant reasonably acceptable to the Lessor a report describing the Environmental Violation and the actions taken by the Lessee (or its agents) in response to such Environmental Violation, along with a statement by the Lessee that the Environmental Violation has been remedied to the satisfaction of the Government Authority exercising jurisdiction, or in compliance in all material respects with applicable Environmental Law. Nothing in this Section shall reduce or limit the Lessee's obligations under the indemnity provisions hereof. 18.3. Notice of Environmental Matters. Promptly, but in any event within thirty (30) days from the date the Lessee has actual knowledge thereof, the Lessee shall provide to the Lessor written notice of any pending or threatened claim, action or proceeding involving any Environmental Law or any Release on or in connection with any Property. All such notices shall describe in reasonable detail the nature of the claim, action or proceeding and the Lessee's proposed response thereto. In addition, the Lessee shall provide to the Lessor, within thirty (30) days of receipt, copies of all written communications with any Governmental Authority relating to any Environmental Violation in connection with any Property. The Lessee shall also promptly provide such detailed reports of any such environmental claims as may reasonably be requested by the Lessor. In the event that the Lessor receives written notice of any pending or threatened claim, action or proceeding involving any Environmental Law or any Release on or in connection with any Property, the Lessor shall promptly give notice thereof to the Lessee. ARTICLE XIX TERMINATION OF LEASE 19.1. Mandatory Termination upon Certain Events. If, with respect to any Property, any of: (i) a Significant Condemnation occurs; or (ii) an Environmental Violation occurs or is discovered the cost of remediation of which for the affected Property would exceed 20% of the then effective Lease Balance for such Property, but in no event less than $5,000,000; and the Lessor shall have given written notice to the Lessee that this Lease as to the affected Property is to be terminated as a consequence of the occurrence of such an event (a "Termination Notice"), then, the Lessee shall be obligated to purchase the Lessor's interest in such Property on or prior to the date occurring one hundred eighty (180) days after the date of the Lessee's receipt of the Termination Notice by paying the Lessor an amount equal to the Lease Balance therefor on such date of payment; provided, however, that the Lessor shall not give such notice with respect to any Environmental Violation if the Lessee (x) promptly submits an approved corrective action plan for the remediation of such Environmental Violation to the Lessor, (y) provides reasonable security to the Lessor for the cost of the such remediation and (z) diligently pursues such remediation in accordance with such plan. 19.2. Termination Procedures. On the date of the payment by the Lessee of the Lease Balance for the affected Property in accordance with the Termination Notice in accordance with Section 19.1 of this Lease, this Lease shall terminate and, the provisions of Section 25.1 shall be applicable. ARTICLE XX EVENTS OF DEFAULT; REMEDIES 20.1. Events of Default. 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 an "Event of Default": (a) the Lessee shall fail to make payment of any Base Rent, Supplemental Rent, Purchase Option Price, Lease Balance or any other amount payable hereunder within three (3) Business Days after the due date therefor, including, without limitation, amounts due pursuant to Section 19.1, 22.1 or 22.2 or Article XXIV; (b) the Lessee shall fail to maintain insurance as required by Article XVII of this Lease; (c) the Lessee shall fail to observe or perform any term, covenant or condition of the Lessee under this Lease or the other Operative Documents to which it is party other than those described in Section 20.1(a) or (b) hereof, and, in each such case, such failure shall have continued for thirty (30) days after the earlier of (i) delivery to the Lessee of written notice thereof from the Lessor or (ii) a Responsible Employee of the Lessee shall have knowledge that such failure, if not cured, will constitute an Event of Default; (d) any representation or warranty made by the Lessee in any of the Operative Documents to which it is a party shall prove to have been inaccurate in any material respect at the time made; (e) any representation or warranty made by the Guarantor in any of the Operative Documents to which it is a party shall prove to have been inaccurate in any material respect at the time made; (f) the Guarantor or any Significant 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; (g) an involuntary case or other proceeding shall be commenced against the Guarantor or any Significant 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 Significant Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (h) an event of default (as defined therein) under the Credit Agreement occurs, unless (i) such event of default has been waived by the requisite parties to the Credit Agreement and (ii) the Lessor and the Liquidity Providers shall have received a pro rata share (based on the respective commitments of the Lessor, Liquidity Providers and parties to the Credit Agreement) of any consideration given by the Guarantor or its Affiliates in connection with obtaining any such waiver; (i) a Construction Agency Agreement Event of Default shall occur, or an Event of Default (as defined therein) shall occur under any other Operative Document; (j) the Lessee or the Guarantor shall directly or indirectly contest the validity of any Operative Document in any manner in any court of competent jurisdiction or any lien granted by any Operative Document, or shall repudiate, or purport to discontinue or terminate, the Construction Agency Agreement, this Lease or the Guaranty or the Construction Agency Agreement, this Lease or the Guaranty shall cease to be a legal, valid and binding obligation or shall cease to be in full force and effect for any reason; or (k) the Guarantor shall fail to observe or perform any term, covenant or condition of, or incorporated by reference in, the Guaranty beyond any grace period applicable thereto (it being agreed that the Guarantor's failure to perform any obligation of the Lessee or any covenant incorporated in the Guaranty shall not constitute an Event of Default until any grace period applicable to the Lessee under the Operative Documents or to the Guarantor under the Credit Agreement, as the case may be, shall have expired). 20.2. Remedies. Upon the occurrence of any Event of Default and at any time thereafter, the Lessor may, so long as such Event of Default is continuing, do one or more of the following as the Lessor in its sole discretion shall determine, without limiting any other right or remedy the Lessor may have on account of such Event of Default (including, without limitation, the obligation of the Lessee to purchase the Leased Assets as set forth in Section 22.3): (a) The Lessor may, by notice to the Lessee terminate this Lease as of the date specified in such notice; provided, however, (i) no reletting, reentry or taking of possession of any Leased Asset or all of the Leased Assets (or any portion thereof) by the Lessor will be construed as an election on the Lessor's part to terminate this Lease unless a written notice of such intention is given to the Lessee, (ii) notwithstanding any reletting, reentry or taking of possession, the Lessor may at any time thereafter elect to terminate this Lease for a continuing Event of Default and (iii) no act or thing done by the Lessor or any of its agents, representatives or employees and no agreement accepting a surrender of the Leased Asset shall be valid unless the same be made in writing and executed by the Lessor; (b) The Lessor may (i) demand that the Lessee, and the Lessee shall upon the written demand of the Lessor, return any Leased Asset promptly to the Lessor in the manner and condition required by, and otherwise in accordance with all of the provisions of Section 13.2 hereof as if the Leased Asset were being returned at the end of the Base Term, and the Lessor shall not be liable for the reimbursement of the Lessee for any costs and expenses incurred by the Lessee in connection therewith and (ii) without prejudice to any other remedy which the Lessor may have for possession of any Leased Asset, and to the extent and in the manner permitted by Applicable Law, enter upon such Leased Asset and take immediate possession of (to the exclusion of the Lessee) such Leased Asset or any part thereof and expel or remove the Lessee and any other Person who may be occupying such Leased Asset, by summary proceedings or otherwise, all without liability to the Lessee for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise and, in addition to the Lessor's other damages, the Lessee shall be responsible for all costs and expenses incurred by the Lessor in connection with any reletting, including, without limitation, reasonable brokers' fees and all reasonable costs of any alterations or repairs made by the Lessor; (c) The Lessor may (i) sell all or any part of one or more Leased Assets at public sale free and clear of any rights of the Lessee and without any duty to account to the Lessee with respect to such action or inaction or any proceeds in which event the Lessee's obligation to pay Capitalized Interest or Base Rent hereunder for periods commencing after the date of such sale shall be terminated or proportionately reduced, as the case may be; and (ii) if the Lessor shall so elect, demand that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (the parties agreeing that the Lessor's actual damages would be difficult to predict, but the aforementioned liquidated damages represent a reasonable approximation of such amount), an amount equal to (A) the excess, if any, of (1) the Lease Balance calculated as of the date of such sale (including all Rent due and unpaid to and including such date), over (2) the net proceeds of such sale (that is, after deducting all costs and expenses incurred by the Lessor incident to such conveyance, including, without limitation, repossession costs, brokerage commissions, prorations, transfer taxes, reasonable fees and expenses for counsel, title insurance fees, survey costs, recording fees, and any repair costs); plus (B) interest at the Overdue Rate on the foregoing amount from such date until the date of payment; (d) The Lessor may, at its option, elect not to terminate this Lease and continue to collect all Base Rent, Supplemental Rent, and all other amounts due the Lessor (together with all costs of collection) and enforce the Lessee's obligations under this Lease as and when the same become due, or are to be performed, and at the option of the Lessor, upon any abandonment of any Leased Asset by the Lessee or re-entry of same by the Lessor, the Lessor may, in its sole and absolute discretion, elect not to terminate this Lease and may make the necessary repairs in order to relet any Leased Asset, and relet any Leased Asset or any part thereof for such term or terms (which may be for a term extending beyond the Base Term of this Lease) and at such rental or rentals and upon such other terms and conditions as the Lessor in its reasonable discretion may deem advisable; and upon each such reletting all rentals actually received by the Lessor from such reletting shall be applied to the Lessee's obligations hereunder and the other Operative Documents in such order, proportion and priority as the Lessor may elect in the Lessor's sole and absolute discretion. If such rentals received from such reletting during any period are less than the Rent with respect to such Leased Asset to be paid during that period by the Lessee hereunder, the Lessee shall pay any deficiency, as calculated by the Lessor, to the Lessor on the next Payment Date; (e) Unless all of the Leased Assets have been sold in their entirety, the Lessor may, whether or not the Lessor shall have exercised or shall thereafter at any time exercise any of its rights under paragraph (b), (c) or (d) of this Section 20.2 with respect to the Leased Assets or portions thereof, demand, by written notice to the Lessee specifying a date not earlier than ten (10) days after the date of such notice, that the Lessee purchase, on such date, all unsold Leased Assets (or the remaining portion thereof) in accordance with the provisions of Article XXII; provided, however, that no such written notice shall be required upon the occurrence of any Event of Default in clause (f) or (g) of Section 20.1; (f) The Lessor may exercise any other right or remedy that may be available to it under Applicable Law, or proceed by appropriate court action (legal or equitable) to enforce the terms hereof or to recover damages for the breach hereof. Separate suits may be brought to collect any such damages for any period(s), and such suits shall not in any manner prejudice the Lessor's right to collect any such damages for any subsequent period(s), or the Lessor may defer any such right to suit until after the expiration of the Base Term, in which event such right to suit shall be deemed not to have accrued until the expiration of the Base Term; (g) To the maximum extent permitted by Applicable Law, the Lessee hereby waives the benefit of any appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale of any Leased Asset or any interest therein; (h) The Lessor shall be entitled to enforce payment of the indebtedness and performance of the obligations secured hereby and to exercise all rights and powers under this instrument or under any of the other Operative Documents or other agreement or any laws now or hereafter in force, notwithstanding some or all of the obligations secured hereby may now or hereafter be otherwise secured, whether by mortgage, security agreement, pledge, lien, assignment or otherwise. Neither the acceptance of this instrument nor its enforcement, shall prejudice or in any manner affect the Lessor's right to realize upon or enforce any other security now or hereafter held by the Lessor, it being agreed that the Lessor shall be entitled to enforce this instrument and any other security now or hereafter held by the Lessor in such order and manner as the Lessor may determine in its absolute discretion. No remedy herein conferred upon or reserved to the Lessor is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Operative Documents to the Lessor or to which it may otherwise be entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by the Lessor. In no event shall the Lessor, in the exercise of the remedies provided in this instrument (including, without limitation, in connection with the assignment of rents to Lessor, or the appointment of a receiver and the entry of such receiver on to all or any part of the Leased Assets), be deemed a "mortgagee in possession," and the Lessor shall not in any way be made liable for any act, either of commission or omission, in connection with the exercise of such remedies; or (i) An action of mortgage foreclosure as now provided or hereafter prescribed by law, may forthwith be commenced and prosecuted to judgment, execution and sale, for the collection of the whole amount of such Lease Balance, together with all fees, costs and expenses of such proceedings, including a reasonable attorney's fees. And all errors in such proceedings, together with any stays of or exemptions from execution, or extensions of time of payment, which may be given by any Applicable Law now in force, or which may be enacted hereafter, are hereby forever waived and released. If, pursuant to the exercise by the Lessor of its remedies pursuant to this Section 20.2, the Lease Balance, all other amounts due and owing from the Lessee under this Lease and the other Operative Documents have been paid in full, the Lessor shall remit to the Lessee any excess amounts received by the Lessor. 20.3. Waiver of Certain Rights. If this Lease shall be terminated pursuant to Section 20.2, the Lessee waives, to the fullest extent permitted by law, (a) any notice of re-entry or the institution of legal proceedings to obtain re-entry or possession; (b) any right of redemption, re-entry or repossession; (c) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt or limiting the Lessor with respect to the election of remedies; and (d) any other rights which might otherwise limit or modify any of the Lessor's rights or remedies under this Article XX. 20.4. Power of Sale and Foreclosure. In addition to any other rights herein, Lessor shall upon the occurrence of any Event of Default have the option to exercise its rights under each Mortgage executed in connection herewith, pursuant to which the trustee thereunder has the POWER OF SALE. ARTICLE XXI ASSIGNMENT 21.1. Assignment by Lessor. The Lessor may not assign, sell or transfer all or any part of its rights and obligations hereunder or under the other Operative Documents or the Leased Assets; provided, however, that (i) the Lessor may sell Purchaser Interests to the Receivable Purchaser and (ii) with the consent of the Lessee, the Conduits and the Liquidity Providers, which consent shall not be unreasonably withheld, the Lessor may assign, sell or transfer all or any part of such rights and obligations or the Leased Assets to any financial institution, provided that the Lessor is not thereby released from its obligations hereunder. 21.2. Assignment by Lessee. The Lessee may not assign this Lease or any of its rights or obligations hereunder in whole or in part to any Person without the consent of the Lessor; provided, however, that the Lessee may assign all (and not less than all) of its rights hereunder without such consent to one or more of its Affiliates so long as the Lessee remains fully liable for all of the obligations of the "Lessee" hereunder and under the other Operative Documents. ARTICLE XXII PURCHASE PROVISIONS 22.1. Purchase Option. Provided that the Lessee shall not have given notice of its intention to exercise the Remarketing Option, the Lessee shall have the option (exercisable by giving the Lessor irrevocable written notice (the "Purchase Notice") of the Lessee's election to exercise such option) to purchase all of the Leased Assets under any Lease Supplement (unless provisions with respect to joinder of purchase options for the Leased Assets under more than one Lease Supplement are set forth in a Lease Supplement, in which case such exercise must comply with such provisions) on any Scheduled Payment Date specified in such Purchase Notice at a price equal to the Lease Balance for such Leased Assets (the "Purchase Option Price"). The Lessee shall deliver the Purchase Notice to the Lessor not less than thirty (30) days prior to such purchase. If the Lessee exercises its option to purchase one or more Leased Assets pursuant to this Section 22.1 (the "Purchase Option"), the Lessor shall transfer to the Lessee or its designee all of the Lessor's right, title and interest in and to the applicable Leased Assets as of the date specified in the Purchase Notice upon receipt of the Purchase Option Price in accordance with Section 25.1(a). The Lessee may designate, in a notice given to the Lessor not less than ten (10) Business Days prior to the closing of such purchases (time being of the essence), the transferee or transferees to whom the conveyance shall be made (if other than to the Lessee), in which case such conveyance shall (subject to the terms and conditions set forth herein) be made to such designee; provided, however, that such designation of a transferee or transferees shall not cause the Lessee to be released, fully or partially, from any of its obligations under this Lease, including, without limitation, the obligation to pay the Lessor the Lease Balance on the applicable Expiration Date. 22.2. Acceleration of Purchase Obligation. (a) The Lessee shall be obligated to purchase for an amount equal to the Lease Balance the Lessor's interest in the Leased Assets (notwithstanding any prior election to exercise its Purchase Option pursuant to Section 22.1) (i) automatically and without notice upon the occurrence of any Event of Default specified in clause (f) or (g) of Section 20.1 and (ii) as provided for at Section 20.2(e) immediately upon written demand of the Lessor upon the occurrence of any other Event of Default. (b) The Lessee shall be obligated to purchase the Lessor's interest in the Leased Assets for an amount equal to the Lease Balance immediately upon written demand of the Lessor at any time during the term when (i) subject to Section 21.1, the Lessor ceases to have title as contemplated by Section 15.1 or (ii) any related Security Document (other than this Lease) to which the Lessee is a party shall cease to be in full force and effect, or shall cease to give the Lessor the Liens, rights, powers and privileges purported to be created thereby. (c) Any purchase under this Section 22.2 shall be in accordance with Section 25.1(a). 22.3. Purchase of Unimproved Land. Provided that no Default or Event of Default has occurred and is continuing, the Lessee shall have the option (exercisable by giving the Lessor irrevocable written notice of the Lessee's exercise of such option) to purchase any unimproved portion of any Land (and any related easements for utilities and access to be specified at such time) not necessary or desirable for operations of the Improvements constructed or to be constructed on such Land on any Scheduled Payment Date specified in such notice at a price equal to the Fair Market Sales Value, as determined by an Appraisal, of such unimproved portion and such easements. The Lessee shall give such notice to the Lessor not less than thirty (30) days prior to such purchase. If the Lessee exercises its option pursuant to this Section 22.3, the Lessor shall transfer to the Lessee or its designee all of the Lessor's right, title and interest in and to the applicable unimproved portion of Land and grant the related easements as of the date specified in the Lessee's notice under procedures analogous to those set forth in Section 25.1(a). The purchase price paid by the Lessee shall be applied to reduce the Lease Balance for the related Property. ARTICLE XXIII RENEWAL TERMS 23.1. Renewal. (a) Subject to the conditions set forth herein, and unless otherwise specified in the Lease Supplement applicable to any Leased Assets, the Lessee shall have the option (the "Renewal Option"), to extend the Base Term for such Leased Assets for up to three (3) additional one-year periods (each, a "Renewal Term"), with each such Renewal Term to commence on the first day following the Expiration Date then in effect. The Renewal Option with respect to each Renewal Term shall automatically be effective upon satisfaction of each of the following conditions: (A) the Lessor and each Liquidity Provider shall have consented to the renewal of the Lease after receipt of Lessee's request therefor delivered to the Lessor and the Liquidity Agent not later than ninety (90) days prior to each of the fourth, fifth and sixth anniversaries of the Closing Date, (B) (i) no Event of Default under this Lease shall have occurred and be continuing, and (ii) by exercise of such Renewal Option, the Lessee shall be deemed to represent to the Lessor as to the matters set forth in clause (i) of this condition (B), and (C) the Lessee shall not have exercised the Remarketing Option or the Purchase Option for such Leased Assets under this Lease. (b) Each extension of this Lease for a Renewal Term shall be subject to this Lease. Each Renewal Term shall cause the remaining Base Term of relevant Leased Assets to be extended by one additional year from the Expiration Date in effect immediately prior to such extension; thus, if this Lease is extended on each of the anniversaries referred to above, the term of this Lease shall be for ten (10) years; provided, however, that in no event shall the Base Term as extended by any Renewal Term extend beyond the date identified in the applicable Lease Supplement. (c) In the event that the Lessor and each Liquidity Provider have not agreed to extend this Lease at least fifteen (15) days prior to each applicable anniversary date, the Lessee's request for extension shall be deemed to have been rejected. ARTICLE XXIV REMARKETING OPTION 24.1. Option to Remarket. Subject to the fulfillment of each of the conditions set forth in this Section 24.1, the Lessee shall have the option (the "Remarketing Option") to market and complete the sale of Lessor's interest in one or more Leased Assets for the Lessor. The Lessee's effective exercise and consummation of the Remarketing Option as to one or more Leased Assets shall be subject to the due and timely fulfillment of each of the following provisions as to such Leased Assets as of the dates set forth below. (a) Not later than six (6) months prior to the Expiration Date, the Lessee shall give to the Lessor written notice of the Lessee's exercise of the Remarketing Option under this Lease, which exercise shall be irrevocable. (b) Not later than one hundred twenty (120) days prior to the Expiration Date, the Lessee shall deliver to the Lessor an Environmental Audit for each Property included in such Leased Assets. Such Environmental Audit shall be prepared by an environmental consultant selected by the Lessee and approved in advance by the Lessor and shall contain conclusions reasonably satisfactory to the Lessor as to the environmental status of such Property. If any such Environmental Audit indicates any exceptions, the Lessee shall have also delivered a Phase Two environmental assessment by such environmental consultant prior to the Expiration Date showing the completion of the remedying of such exceptions in compliance with Applicable Law. (c) On the date of the Lessee's notice to the Lessor of the Lessee's exercise of the Remarketing Option, no Event of Default shall exist, and on the Expiration Date, no Event of Default or Default shall exist. Any Permitted Liens (other than Lessor Liens) on each Leased Asset that were contested by the Lessee shall have been removed on or before the Expiration Date. (d) The Improvements on each Property included in such Leased Assets shall have been constructed in accordance with the Plans and Specifications and shall have achieved Substantial Completion on or before the date of the Lessee's notice to the Lessor of the Lessee's exercise of the Remarketing Option. The Lessee shall have completed in all material respects all Modifications, restoration and rebuilding of such Leased Assets pursuant to Section 14.1 and 18.1 (as the case may be) and shall have fulfilled in all material respects all of the conditions and requirements in connection therewith pursuant to said Sections, in each case by the date of the Lessee's notice to the Lessor of the Lessee's exercise of the Remarketing Option (time being of the essence), regardless of whether the same shall be within the Lessee's control. The Lessee shall have also paid the cost of all Modifications commenced prior to the Expiration Date. The Lessee shall not have been excused pursuant to Section 16.1 from complying with any Applicable Law that involved the extension of the ultimate imposition of such Applicable Law beyond the last day of the Base Term. (e) During the Marketing Period, the Lessee shall use best efforts, in such manner as the Lessee shall reasonably determine, to sell the Lessor's interest in the Leased Assets and will attempt to obtain the highest purchase price therefor and for not less than the Fair Market Sales Value of all of the Leased Assets. The Lessee will be responsible for hiring brokers and making the Leased Assets available for inspection by prospective purchasers. The Lessee shall promptly upon request permit inspection of the Leased Assets and any maintenance records relating to the Leased Assets by the Lessor and any potential purchasers, and shall otherwise do all things necessary to sell and deliver possession of the Leased Assets to any purchaser. All such marketing of the Leased Assets shall be at the Lessee's sole expense. The Lessee's agency under this clause shall, for the first three months of the Marketing Period, be on an exclusive basis. In the event the Lessee is unable to procure during such period a bona fide bid from a non-Affiliated Person with demonstrable financial capacity to consummate such bid for any Leased Asset, from and after such third month, the agency hereunder shall be on a non-exclusive basis. (f) The Lessee shall submit all bids to the Lessor and the Lessor will have the right to review the same and the right to submit any one or more bids. All bids shall be on an all-cash basis unless the Lessor shall otherwise agree in its sole discretion. No such purchaser shall be the Lessee or an Affiliate of the Lessee. The written offer must specify the Expiration Date as the closing date unless the Lessor shall otherwise agree in its sole discretion. (g) In connection with any such sale of Lessor's interest in the Leased Assets, the Lessee will provide to the purchaser all customary "seller's" indemnities, representations and warranties regarding absence of Liens (except Lessor Liens) and the condition of such Leased Assets, including, without limitation, an environmental indemnity for any Property to the extent the same are required by the purchaser. The Lessee shall have obtained, at its cost and expense, all required governmental and regulatory consents and approvals and shall have made all filings as required by Applicable Law in order to carry out and complete the transfer of the Leased Assets. As to the Lessor, any such sale of Lessor's interest in the Leased Assets shall be made on an "as is, with all faults" basis without representation or warranty by the Lessor other than the absence of Lessor Liens. Any agreement as to such sale shall be made subject to the Lessor's rights hereunder. (h) The Lessee shall pay directly, and not from the sale proceeds, all prorations, credits, costs and expenses of the sale of Lessor's interest in the Leased Assets, whether incurred by the Lessor or the Lessee, including without limitation, the cost of all title insurance, surveys, environmental reports, appraisals, transfer taxes, the Lessor's reasonable attorneys' fees, the Lessee's attorneys' fees, commissions, escrow fees, recording fees, and all applicable documentary and other transfer taxes. (i) The Lessee shall pay to the Lessor on or prior to the Expiration Date (or to such other Person as the Lessor shall notify the Lessee in writing) an amount equal to the Contingent Rental Adjustment for such Leased Assets, plus all Base Rent and all other amounts hereunder which have accrued or will accrue with respect thereto prior to or as of the Expiration Date, in the type of funds specified in Section 7.5 hereof. (j) The purchase of Lessor's interest in such Leased Assets shall be consummated on the Expiration Date and the Gross Proceeds of the sale of the Leased Assets shall be paid directly to the Lessor. The Lessor shall remit to the Lessee from Gross Proceeds the documented expenses incurred by the Lessee under clause (h) hereof in connection with such sale. If the remaining Gross Proceeds plus the aggregate Contingent Rental Adjustment received by Lessor, exceeds the Lease Balance for such Leased Assets as of such date, then the excess shall be paid to the Lessee on the Expiration Date. Except as provided in the next sentence hereof or as may be otherwise provided in a Lease Supplement, if one or more of the foregoing provisions shall not be fulfilled as of the date set forth above with respect to the Leased Assets under any Lease Supplement, then the Lessor shall declare by written notice to the Lessee the Remarketing Option to be null and void (whether or not it has been theretofore exercised by the Lessee), in which event all of the Lessee's rights under this Section 24.1 shall immediately terminate and the Lessee shall be obligated to purchase Lessor's interest in such Leased Assets as if it had exercised its option under Section 22.1 on the Expiration Date. Notwithstanding the foregoing, the Lessee shall not be required to purchase Lessor's interest in such Leased Assets pursuant to the preceding sentence if Lessor's interest in such Leased Assets is not sold on or prior to the Expiration Date and the Lessee has otherwise fulfilled all of its obligations under clauses (a) through (i) hereof. Except as expressly set forth herein, the Lessee shall have no right, power or authority to bind the Lessor in connection with any proposed sale of Lessor's interest in the any Leased Asset. In the event that the sale of any Leased Asset is not consummated on the Expiration Date, but such sale is consummated any time thereafter, the Lessor shall remit to the Lessee, promptly after the consummation of the sale of the such Leased Asset, any excess remaining after deducting the then outstanding Lease Balance plus the Imputed Equity Return thereon accruing from and after the Expiration Date from the Gross Proceeds. 24.2. Certain Obligations Continue. During the Marketing Period, the obligation of the Lessee to pay Rent shall continue undiminished until payment in full to the Lessor of the Contingent Rental Adjustment and all other amounts due to the Lessor with respect to the Leased Assets under each Lease Supplement under the Operative Documents to which the Lessee is a party. The Lessor shall have the right, but shall be under no duty, to solicit bids, to inquire into the efforts of the Lessee to obtain bids or otherwise to take action in connection with any such sale of Lessor's interest in the Leased Assets, other than as expressly provided in this Article XXIV. ARTICLE XXV PROCEDURES RELATING TO PURCHASE OR REMARKETING 25.1. Provisions Relating to the Purchase and Conveyance Upon Remarketing. (a) In connection with the Lessee's purchase of the Leased Assets under any Lease Supplement pursuant to Section 22.1 or 22.2, or in connection with a purchase of Lessor's interest in any Leased Asset under Article XIX or the payment of all amounts due under Section 5.1 of the Construction Agency Agreement: (i) the Lessee shall pay the amounts set forth in Section 22.1, Section 22.2, Article XIX, Section 5.1 of the Construction Agency Agreement, as applicable, together with all accrued Rent relating to such Leased Assets and any other amount then due and payable by the Lessee to the Lessor under this Lease or the other Operative Documents; (ii) the Lessor shall execute and deliver to the Lessee (or to the Lessee's designee) at the Lessee's cost and expense a special warranty deed with respect to the Improvements, a special warranty deed or release of Ground Lease with respect to the Land, a bill of sale with respect to the Equipment or any other Leased Asset and an assignment of the Lessor's entire interest in the Leased Assets being sold (which shall include an assignment of all of the Lessor's right, title and interest in and to any Net Proceeds not previously received by the Lessor and, if applicable, a termination notice pursuant to the Ground Lease, in each case in recordable form and otherwise in conformity with local custom and free and clear of the Lien of the Mortgage and any Lessor Liens attributable to the Lessor; (iii) the Leased Assets being sold shall be conveyed to the Lessee "AS IS" and in their then present physical condition; and (iv) the Lessor shall execute and deliver to Lessee and the Lessee's title insurance company an affidavit as to the absence of Lessor Liens. (b) If the Lessee properly exercises the Remarketing Option with respect to the Leased Assets under any Lease Supplement, then the Lessee shall, on the Expiration Date, and at its own cost, transfer possession of the Leased Assets to the Lessor or the independent purchaser(s) thereof, as the case may be, in each case by surrendering the same into the possession of the Lessor or such purchaser(s), as the case may be, free and clear of all Liens other than Lessor Liens, in good condition (as modified by Modifications permitted by this Lease), ordinary wear and tear excepted, and in compliance with Applicable Law. The Lessee shall, on and within a reasonable time before and up to one year after the Expiration Date, cooperate reasonably with the Lessor and the independent purchaser(s) of Lessor's interest in the Leased Assets in order to facilitate the purchase by such purchaser's) of Lessor's interest in the Leased Assets, which cooperation shall include the following, all of which the Lessee shall do on or before the Expiration Date or as soon thereafter as is reasonably practicable: providing copies of all books and records regarding the maintenance and ownership of the Leased Assets and all data and technical and all other information relating thereto, providing a current copy of the Plans and Specifications for the Properties, granting or assigning all licenses (to the extent such licenses are assignable under Applicable Law) necessary for the operation and maintenance of the Leased Assets and cooperating reasonably in seeking and obtaining all necessary Governmental Action. The obligations of the Lessee under this paragraph shall survive the expiration or termination of this Lease. ARTICLE XXVI INDEMNIFICATION 26.1. General Indemnification. The Lessee agrees, whether or not any of the transactions contemplated hereby shall be consummated, to assume liability for, and to indemnify, protect, defend, save and keep harmless each Indemnitee from and against, any and all Claims that may be imposed on, incurred by or asserted against such Indemnitee (whether because of action or omission by such Indemnitee or otherwise), whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to the Closing Date or after the Expiration Date, in any way relating to or arising out of: (a) any of the Operative Documents or any of the transactions contemplated thereby, and any amendment, modification or waiver in respect thereof entered into or acknowledged by the Lessee; (b) the Leased Assets or any part thereof or interest therein; (c) the purchase, design, construction, preparation, installation, inspection, delivery, non-delivery, acceptance, rejection, ownership, management, possession, operation, rental, lease, sublease, repossession, maintenance, repair, alteration, modification, addition or substitution, storage, transfer of title, redelivery, use, financing, refinancing, disposition, operation, condition, sale (including, without limitation, any sale pursuant to any provision hereof), return or other disposition of all or any part or any interest in any Leased Asset or the imposition of any Lien (or incurring of any liability to refund or pay over any amount as a result of any Lien) thereon, including, without limitation: (1) Claims or penalties arising from any violation of law or in tort (strict liability or otherwise), (2) latent or other defects, whether or not discoverable, (3) any Claim based upon a violation or alleged violation of the terms of any restriction, easement, condition or covenant or other matter affecting title to any Leased Asset, (4) the making of any Modifications in violation of any standards imposed by any insurance policies required to be maintained by the Lessee pursuant to this Lease which are in effect at any time with respect to any Leased Asset or any part thereof, (5) any Claim for patent, trademark or copyright infringement, (6) Claims which would otherwise be covered by insurance policies of the Lessee, as required by Article XVII, and (7) Claims arising from any public improvements with respect to any Property resulting in any charge or special assessments being levied against the Property or any plans to widen, modify or realign any street or highway adjacent to any Property, or any Claim for utility "tap-in" fees; (d) the breach by the Lessee of any covenant, representation or warranty made by it or deemed made by it in any Operative Document or any certificate required to be delivered by any Operative Document; (e) the retaining or employment of any broker, finder or financial advisor by the Lessee to act on its behalf in connection with the transactions contemplated hereby; (f) the existence of any Lien on or with respect to any Leased Asset, any Capitalized Interest or Base Rent or Supplemental Rent, title thereto, or any interest therein including any Liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of any Leased Asset or by reason of labor or materials furnished or claimed to have been furnished to the Lessee, or any of its contractors or agents or by reason of the financing of any personalty or equipment purchased or leased by the Lessee or Modifications constructed by the Lessee, except Lessor Liens and Liens in favor of the Lessor; or (g) subject to the accuracy of Lessor's representation set forth in Section 6.1(a), the transactions contemplated by this Lease or by any other Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction described in Section 4975 (c) of the Code; provided, however, the Lessee shall not be required to indemnify any Indemnitee under this Section 26.1 for any of the following: (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee (it being understood that the Lessee shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee caused or contributed to such Claim) or the breach of any representation, warranty or covenant of such Indemnitee set forth in any Operative Document, (2) any Claim resulting from Lessor Liens which the Lessor is responsible for discharging under the Operative Documents, (3) any Claim to the extent attributable to acts or events occurring after the expiration of the Base Term or the return or remarketing of any Leased Asset so long as the Lessor is not exercising remedies against the Lessee in respect of the Operative Documents, (4) any Claim arising from a breach or alleged breach by the Lessor of any agreement entered into in connection with the assignment or participation of Rent and (5) any Claim arising from the Lessor's or any other Indemnitee's violation of any state or federal law or regulation relating to banking or the offer or sale of securities. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under this Lease or any other Operative Document. Without limiting the express rights of any Indemnitee under this Section 26.1, this Section 26.1 shall be construed as an indemnity only and not a guaranty of residual value of any Leased Asset. 26.2. Environmental Indemnity. Without limitation of the other provisions of this Article XXVI, the Lessee hereby agrees to indemnify, hold harmless and defend each Indemnitee from and against any and all claims (including without limitation third party claims for personal injury or real or personal property damage), losses (including but not limited to, to the extent the Lease Balance has not been fully paid, any loss of value of any Property), damages, liabilities, fines, penalties, charges, administrative and judicial proceedings (including informal proceedings) and orders, judgments, remedial action, requirements, enforcement actions of any kind, and all reasonable and documented costs and expenses incurred in connection therewith (including but not limited to reasonable and documented attorneys' and/or paralegals' fees and expenses), including, but not limited to, all costs incurred in connection with any investigation or monitoring of site conditions or any clean-up, remedial, removal or restoration work by any federal, state or local government agency, arising in whole or in part, out of (a) the presence on or under any Property of any Hazardous Materials, or any releases or discharges of any Hazardous Materials on, under, from or onto any Property for which any Indemnitee or Lessee may be legally liable, (b) any activity for which any Indemnitee or Lessee may be legally liable, including, without limitation, construction, carried on or undertaken on or off the Property, and whether by the Lessee or any predecessor in title or any employees, agents, contractors or subcontractors of the Lessee or any predecessor in title, or any other Persons (including such Indemnitee), in connection with the handling, treatment, removal, storage, decontamination, clean-up, transport or disposal of any Hazardous Materials that at any time are located or present on or under or that at any time migrate, flow, percolate, diffuse or in any way move onto or under any Property, (c) loss of or damage to any property or the environment (including, without limitation, clean-up costs, response costs, remediation and removal costs, cost of corrective action, costs of financial assurance, fines and penalties and natural resource damages), or death or injury to any Person, and all expenses associated with the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required by or under Environmental Laws for which any Indemnitee or Lessee may be legally liable, (d) any claim concerning any Indemnitee's or Lessee's lack of compliance with Environmental Laws, or any act or omission by any Indemnitee, the Lessee or any of their agents, employees or contractors causing an environmental condition that requires remediation or would allow any Governmental Authority to record a Lien on the land records, or (e) any residual contamination on or under the Land, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any such Hazardous Materials, and irrespective of whether any of such activities were or will be undertaken in accordance with applicable laws, regulations, codes and ordinances for which any Indemnitee or Lessee may be legally liable; provided, however, the Lessee shall not be required to indemnify any Indemnitee under this Section 26.2 for (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee (it being understood that the Lessee shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee caused or contributed to such Claim) or (2) any Claim to the extent attributable to acts or events occurring after the expiration of the Base Term or the return or remarketing of the Properties so long as the Lessor is not exercising remedies against the Lessee in respect of the Operative Documents. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under this Lease or any other Operative Document. 26.3. Proceedings in Respect of Claims. With respect to any amount that the Lessee is requested by an Indemnitee to pay by reason of Section 26.1 or 26.2, such Indemnitee shall, if so requested by the Lessee and prior to any payment, submit such additional information to the Lessee as the Lessee may reasonably request and which is in the possession of such Indemnitee to substantiate properly the requested payment. In case any action, suit or proceeding shall be brought against any Indemnitee, such Indemnitee shall notify the Lessee of the commencement thereof, and the Lessee shall be entitled, at its expense, to participate in, and, to the extent that the Lessee desires to, assume and control the defense thereof; provided, however, that the Lessee shall have acknowledged in writing its obligation to fully indemnify such Indemnitee in respect of such action, suit or proceeding, and, the Lessee shall keep such Indemnitee fully apprised of the status of such action, suit or proceeding and shall provide such Indemnitee with all information with respect to such action, suit or proceeding as such Indemnitee shall reasonably request, and provided, further, that the Lessee shall not be entitled to assume and control the defense of any such action, suit or proceeding if and to the extent that, (A) in the reasonable opinion of such Indemnitee, (x) such action, suit or proceeding involves any risk of imposition of criminal liability or any risk of imposition of material civil liability on such Indemnitee beyond that for which the Indemnitee is jointly and severally liable with the Lessor or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on any Leased Asset or any part thereof unless, in the case of civil liability, the Lessee shall have posted a bond or other security satisfactory to the relevant Indemnitees in respect to such risk or (y) the control of such action, suit or proceeding would involve a material actual conflict of interest, (B) such proceeding involves Claims not fully indemnified by the Lessee which the Lessee and the Indemnitee have been unable to sever from the indemnified claim(s), or (C) an Event of Default has occurred and is continuing. The Indemnitee may participate in a reasonable manner at its own expense and with its own counsel in any proceeding conducted by the Lessee in accordance with the foregoing. The Lessee shall not enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 26.1 or 26.2 without the prior written consent of the Indemnitee which consent shall not be unreasonably withheld in the case of a money settlement not involving an admission of liability of such Indemnitee; provided, however, that in the event that such Indemnitee withholds consent to any settlement or other compromise, the Lessee shall not be required to indemnify such Indemnitee under Section 26.1 or 26.2 to the extent that the applicable Claim (x) is for legal fees and expenses incurred after the date of the proposed settlement or (y) results in a judgment in excess of such offered money settlement. Each Indemnitee shall at the expense of the Lessee supply the Lessee with such information and documents reasonably requested by the Lessee and in the possession of such Indemnitee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by Section 26.1 or 26.2. Unless an Event of Default shall have occurred and be continuing under Section 20.1(a), (f) or (g) no Indemnitee shall enter into any settlement or other compromise with respect to any Claim for which it is entitled to be indemnified under Section 26.1 or 26.2 without the prior written consent of the Lessee, which consent shall not be unreasonably withheld, unless such Indemnitee waives its right to be indemnified under Section 26.1 or 26.2 with respect to such Claim. Upon payment in full of any Claim by the Lessee pursuant to Section 26.1 or 26.2 to or on behalf of an Indemnitee, the Lessee, without any further action, shall be subrogated to any and all claims that such Indemnitee may have relating thereto (including claims in respect of insurance policies maintained by such Indemnitee at its own expense), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be necessary to preserve any such claims and otherwise cooperate with the Lessee and give such further assurances as are necessary or advisable to enable the Lessee vigorously to pursue such claims. Any amount required to be paid to an Indemnitee pursuant to Section 26.1 or 26.2 shall be paid to such Indemnitee promptly upon receipt of a written demand therefor from such Indemnitee, accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable and, if requested by the Lessee, such determination shall be verified by a nationally recognized independent accounting firm mutually acceptable to the Lessee and the Indemnitee at the expense of the Lessee; provided, however, that if the Lessee has assumed the defense of the related Claim or is paying the costs of the Indemnitee's defense of the related Claim on an ongoing basis, the Lessee shall not be required to pay such amount to the applicable Indemnitee until such time as a judgment is entered with respect to such Claim, the enforcement of which is not stayed or which judgment is not bonded over, or the Claim is otherwise settled or lost. 26.4. General Tax Indemnity. (a) Indemnification. The Lessee agrees to pay and assume liability for, and to indemnify, protect, defend, save and keep harmless each Indemnitee from and against, all Impositions. (b) Contests. If any claim shall be made against any Indemnitee or if any proceeding shall be commenced against any Indemnitee (including a written notice of such proceeding) for any Imposition as to which the Lessee may have an indemnity obligation pursuant to this Section 26.4, or if any Indemnitee shall reasonably determine that any Imposition to which the Lessee may have an indemnity obligation pursuant to this Section 26.4 may be payable, such Indemnitee shall promptly (and in any event, 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 Indemnitee's rights under this Section 26.4 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 Imposition 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 Indemnitee shall be required by law or regulation to take action prior to the end of such 30-day period, such Indemnitee shall in such notice to the Lessee, so inform the Lessee, and such Indemnitee shall not take any action with respect to such claim, proceeding or Imposition 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 Indemnitee shall be required by law or regulation to take action prior to the end of such 10-day period. The Lessee shall be entitled for a period of thirty (30) days from receipt of such notice from the Indemnitee (or such shorter period as the Indemnitee has notified the Lessee is required by law or regulation for the Indemnitee to commence such contest), to request in writing that such Indemnitee contest the imposition of such Tax, at the Lessee's 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 Indemnitee for which the Lessee has not agreed to indemnify such Indemnitee, (y) such contest must be pursued in the name of the Indemnitee, but can be pursued independently from any other proceeding involving a Tax liability of such Indemnitee for which the Lessee has not agreed to indemnify such Indemnitee or (z) the Indemnitee 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 Indemnitee determines in good faith that such contest by the Lessee could have a material adverse impact on the business or operations of the Indemnitee and provides a written explanation to the Lessee of such determination, the Indemnitee 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 Imposition ultimately determined to be due by reason of such claim, and provided, further, that in determining the application of clauses (x) and (y) of the preceding sentence, each Indemnitee shall take any and all reasonable steps to segregate claims for any Taxes for which the Lessee indemnifies hereunder from Taxes for which the Lessee is not obligated to indemnify hereunder, so that the Lessee can control the contest of the former. In all other claims requested to be contested by the Lessee, the Indemnitee shall control the contest of such claim, acting through counsel reasonably acceptable to the Lessee. In no event shall the Lessee be permitted to contest (or the Indemnitee required to contest) any claim, (A) if such Indemnitee 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 will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on any Leased Asset or any part of any thereof unless the Lessee shall have posted and maintained a bond or other security satisfactory to the relevant Indemnitee in respect to such risk, (B) if an Event of Default has occurred and is continuing under Section 20.1(a), (f) or (g) unless the Lessee shall have posted and maintained a bond or other security satisfactory to the relevant Indemnitee 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 Indemnitee on demand all reasonable out-of-pocket costs, losses and expenses that such Indemnitee may incur in connection with contesting such Imposition 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 Indemnitee an interest-free advance in an amount equal to the Imposition that the Indemnitee is required to pay (with no additional net after-tax costs to such Indemnitee). In addition, for Indemnitee controlled contests and claims contested in the name of the Indemnitee 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 Indemnitee for which the Lessee may be liable to pay an indemnity under this Section 26.4(b)) exceeds $50,000 and (B) unless, if requested by the Indemnitee, the Lessee shall have provided to the Indemnitee an opinion of counsel selected by the Lessee (which may be in-house counsel) (except, in the case of income taxes indemnified hereunder which shall be an opinion of independent tax counsel selected by the Indemnitee and reasonably acceptable to the Lessee) that a reasonable basis exists to contest such claim. In no event shall an Indemnitee be required to appeal an adverse judicial determination to the United States Supreme Court. 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 judgement, provided, however, that if the Indemnitee is the controlling party and the Lessee recommends the acceptance of a settlement offer made by the relevant Governmental Authority and such Indemnitee rejects such settlement offer then the amount for which the Lessee will be required to indemnify such Indemnitee 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 Indemnitee shall at the Lessee's 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 26.4(b). No Indemnitee 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 26.4 (and with respect to which contest is required under this Section 26.4(b)) without the prior written consent of the Lessee, unless such Indemnitee waives its right to be indemnified under this Section 26.4 with respect to such claim. Notwithstanding anything contained herein to the contrary, an Indemnitee 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 Indemnitee shall waive its right to indemnification under this Section 26.4 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). (c) Reimbursement for Tax Savings. If (x) an Indemnitee or any Affiliate thereof actually realizes a deduction, offset, credit or refund of any Taxes or any other savings or benefit as a result of any indemnity paid by the Lessee pursuant to this Section 26.4 or (y) by reason of the incurrence or imposition of any Tax (or the circumstances or event giving rise thereto) for which an Indemnitee is indemnified hereunder or any payment made to or for the account of such Indemnitee by the Lessee pursuant to this Section 26.4 or any payment made by an Indemnitee to the Lessee by reason of this Section 26.4(c), such Indemnitee at any time actually realizes a reduction in any Taxes for which the Lessee is not required to indemnify such Indemnitee pursuant to this Section 26.4, then such Indemnitee shall promptly pay to the Lessee (xx) the amount of such deduction, offset, credit, refund, or other savings or benefit together with the amount of any interest received by such Indemnitee on account of such deduction, offset, credit, refund or other savings or benefit or (yy) an amount equal to such reduction in Taxes, as the case may be, in either case together with an amount equal to any reduced Taxes payable by such Indemnitee as a result of such payment. Each Indemnitee agrees to take such actions as the Lessee may reasonably request (provided in the good faith judgment of the Indemnitee, such actions would not result in a material adverse effect on the Indemnitee for which the Indemnitee is not entitled to indemnification from the Lessee) and to otherwise act in good faith to claim such refunds and other available Tax benefits, and take such other actions as may be reasonable to minimize any payment due from the Lessee pursuant to this Section 26.4 and to maximize the amount of any Tax savings available to it. The disallowance or reduction of any credit, refund or other tax savings with respect to which an Indemnitee has made a payment to the Lessee under this Section 26.4(c) shall be treated as a Tax for which the Lessee is obligated to indemnify such Indemnitee hereunder without regard to the exclusions set forth in the definition of Impositions. (d) Payments. Any Imposition identifiable under this Section 26.4 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 Indemnitee pursuant to Section 26.4 shall be paid within thirty (30) days after receipt of a written demand therefor from such Indemnitee 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 26.4 shall be made directly to the Indemnitee entitled thereto or the Lessee, as the case may be, in immediately available funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, by check of the payor payable to the order of the payee by certified mail, postage prepaid at its address. Upon the request of any Indemnitee with respect to a Tax that the Lessee is required to pay, the Lessee shall furnish to such Indemnitee the original or a certified copy of a receipt for the Lessee's payment of such Tax or such other evidence of payment as is reasonably acceptable to such Indemnitee. (e) 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 26.4 and of which the Lessee has knowledge, the Lessee shall promptly notify the Indemnitee of such requirement and, at the Lessee's expense (i) if the Lessee is permitted (unless otherwise requested by the Indemnitee) 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 Indemnitee or the Indemnitee otherwise requests that such report, return or statement for filing by such Indemnitee in such manner as shall be satisfactory to such Indemnitee and send the same to the Indemnitee for filing no later than fifteen (15) days prior to the due date therefor. In any case in which the Indemnitee will file any such report, return or statement, the Lessee shall, upon written request of such Indemnitee, provide such Indemnitee with such information as is reasonably necessary to allow the Indemnitee to file such report, return or statement. (f) Verification. At the Lessee's request, the amount of any indemnity payment by the Lessee or any payment by an Indemnitee to the Lessee pursuant to this Section 26.4 shall be verified and certified by an independent public accounting firm mutually acceptable to the Lessee and the Indemnitee. The Indemnitee shall provide such independent public accounting firm, on a confidential basis, the requisite financial information. The costs of such verification shall be borne by the Lessee unless such verification shall result in an adjustment in the Lessee's favor of the lesser of (i) $10,000, and (ii) five percent of the payment as computed by the Indemnitee, in which case such fee shall be paid by the Indemnitee. In no event shall the Lessee have the right to review the Indemnitee's tax returns or receive any other confidential information from the Indemnitee in connection with such verification. Any information provided to such accountants by any Person shall be and remain the exclusive property of such Person and shall be deemed by the parties to be (and the accountants will confirm in writing that they will treat such information as) the private, proprietary and confidential property of such Person, and no Person other than such Person and the accountants shall be entitled thereto and all such materials shall be returned to such Person. Such accounting firm shall be requested to make its determination within thirty (30) days of the Lessee's request for verifications and the computations of the accounting firm shall be final, binding and conclusive upon the Lessee and the Indemnitee. The parties agree that the sole responsibility of the independent public accounting firm shall be to verify the amount of a payment pursuant to this Lease and that matters of interpretation of this Lease are not within the scope of the independent accounting firm's responsibilities. (g) Tax Ownership. The Lessor represents and warrants that it will not, prior to the termination, claim ownership of (or any tax benefits, including depreciation, with respect to) the Leased Assets for any income tax purposes, it being understood that the Lessee is and will remain the owner of the Leased Assets for such income tax purposes until the termination of this Lease. If, notwithstanding the income tax intentions of the parties as set forth herein, the Lessor actually receives any income tax deductions, reductions in income tax or other income tax benefit as a result of any claim for, or recharacterization requiring such party to take, any tax benefits attributable to ownership of the Leased Assets for income tax purposes, the Lessor shall pay to the Lessee the amount of such income tax savings actually realized by the Lessor (less the amount of any anticipated increase in income tax which the Lessor determines is currently payable as a result of such claim or recharacterization), provided that the Lessee shall agree to reimburse the Lessor for any subsequent increase in the Lessor's income taxes resulting from such claim or recharacterization not taken into account in the payment made to the Lessee, up to the amount paid to the Lessee by the Lessor. The parties agree that this Section 26.4(g) is intended to require a payment to the Lessee if and only if the Lessor shall have actually received an unanticipated tax savings with respect to the Leased Assets that would not have been received if the Lessor had advanced funds to the Lessee in the form of a loan secured by the Leased Assets in an amount equal to the aggregate amount of Advances made with respect to such Leased Assets. Nothing in this Section 26.4(g) shall be construed to require the Lessor to take any affirmative action to realize any tax savings if in its good faith judgment such action may have a material adverse affect on the Lessor. 26.5. Funding Losses. If any payment of Base Rent or any portion of a Lease Balance is made on any day other than the last day of an Interest Period applicable thereto (other than as a result of the failure of the Lessor and each Liquidity Provider to act in accordance with the provisions of the Operative Documents), the Lessee shall reimburse the Lessor, each Conduit and each Liquidity Provider within fifteen (15) days after demand for any resulting loss or expense incurred by it, including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow or prepay, provided that the Lessor, such Conduit and such Liquidity Provider shall have delivered to the Lessee a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error, and provided, further, that such loss shall in no event exceed the then effective Lease Rate which would have been payable for the balance of such Interest Period. In the event that the Lessee pays any portion of the Lease Balance allocated to one or more CP Tranches prior to the maturity date thereof, the Lessee shall pay to the Lessor for the account of each Conduit the interest that would have accrued on its CP Tranches at the applicable CP Rates to such maturity dates. Any amount paid to the Lessor pursuant to the preceding sentence shall be invested in Permitted Investments of the type described in clause (a) of the definition thereof, which investments shall mature as close as possible to, but not later than, the date such CP Tranche(s) mature. All earnings on such Permitted Investments shall be paid over to the Lessee provided that no Event of Default has occurred and is continuing. The Lessor will, at the request of the Lessee, furnish such additional information concerning the determination of such loss as the Lessee may reasonably request. 26.6. Regulation D Compensation. For so long as the Lessor (or an Affiliate thereof) or any Liquidity Provider is required to maintain reserves against "Eurocurrency Liabilities" (or any other category of liabilities which include deposits by reference to which the Base Rent is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Liquidity Provider to United States residents), and, as a result, the cost to the Lessor of making or maintaining its Advances or to any Liquidity Provider of making or maintaining its Loans or Liquidity Purchases which bear interest by reference to the Eurodollar Rate is increased, then the Lessor or such Liquidity Provider, as the case may be, may require the Lessee to pay, contemporaneously with each payment of Base Rent, an additional amount at a rate per annum up to but not exceeding the excess of (i) (A) the applicable Eurodollar Rate divided by (B) one minus the Eurocurrency Reserve Requirements over (ii) the applicable Eurodollar Rate. In the event that the Lessor or a Liquidity Provider wishes to require payment of such additional amount, the Lessor (x) shall so notify the Lessee, in which case such additional Rent shall be payable to the Lessor or such Liquidity Provider, as the case may be, at the place indicated in such notice and (y) shall furnish to the Lessee at least five (5) Business Days prior to each date on which Rent is payable a certificate setting forth the amount to which it is then entitled under this Section (which shall be consistent with its good faith estimate of the level at which the required related reserves are maintained by it). Each such certificate shall be accompanied by such information as the Lessee may reasonably request as to the computation set forth therein. 26.7. Basis for Determining Eurodollar Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period: (a) deposits in dollars (in the applicable amounts) are not being offered to the Lessor (or its Affiliates) or any Liquidity Provider in the relevant market for such Interest Period, or (b) the Lessor advises the Lessee that the Eurodollar Rate as determined by the Lessor will not adequately and fairly reflect the cost to the Lessor and the Liquidity Providers of funding Advances, Loans or Liquidity Purchases, as the case may be, for such Interest Period, the Lessor shall forthwith give notice thereof to the Lessee, whereupon until the Lessor notifies the Lessee that the circumstances giving rise to such suspension no longer exist, (i) the obligation of the Lessor to make Advances based on the Eurodollar Rate shall be suspended and Advances shall be made on the basis of the Alternate Base Rate and (ii) each outstanding Advance shall begin to bear interest at the Alternate Base Rate on the last day of the then current Interest Period applicable thereto. 26.8. Illegality. If, on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, 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 the Lessor (or its Affiliates) or any Liquidity Provider 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 the Lessor (or its Affiliates) or any Liquidity Provider to make, maintain or fund its Advances, Loans or Liquidity Purchases, as the case may be, based on the Eurodollar Rate and the Lessor shall so notify the Lessee, whereupon until the Lessor notifies the Lessee that the circumstances giving rise to such suspension no longer exist, the obligation to make Advances based on the Eurodollar Rate shall be suspended and Advances shall be made on the basis of the Alternate Base Rate. The Lessor, with the consent of the Lessee (which consent shall not unreasonably be withheld), will designate a different Funding Office if such designation will avoid the need for giving such notice and will not, in the judgment of the Lessor, be otherwise disadvantageous to the Lessor. If such notice is given (i) the Lessee shall be entitled, upon its request, to a reasonable explanation of the factors underlying such notice and (ii) each Advance then outstanding shall begin to bear interest at the Alternate Base Rate either (a) on the last day of the then current Interest Period applicable thereto, if the Lessor may lawfully continue to maintain and fund such Advance to such day or (b) immediately, if the Lessor or any Liquidity Provider shall determine that it may not lawfully continue to maintain and fund such Advance, Loan or Liquidity Purchase, as the case may be, to such day. 26.9. Increased Cost and Reduced Return. (a) In the event that the adoption of any applicable law, rule or regulation, or any change therein or in the interpretation or application thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by the Lessor or any Liquidity Provider with any request or directive after the date hereof (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) does or shall subject the Lessor or any Liquidity Provider to any additional tax of any kind whatsoever with respect to the Operative Documents or any Advance, Loan or Liquidity Purchase, as the case may be, made by it, or change the basis or the applicable rate of taxation of payments to the Lessor or any Liquidity Provider of principal, interest or any other amount payable hereunder or under any other Operative Document (except for the imposition of or change in any tax on or measured by the overall net income of the Lessor or any Liquidity Provider (other than any such tax imposed by means of withholding)); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, insurance assessment, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of the Lessor or any Liquidity Provider which are not otherwise included in determination of the rate of interest on Advances hereunder; or (iii) does or shall impose on the Lessor or any Liquidity Provider any other condition; and the result of any of the foregoing is to increase the cost to the Lessor or any Liquidity Provider of making or maintaining Advances, Loans or Liquidity Purchases, as the case may be, or to reduce any amount receivable hereunder, then in any such case, the Lessee shall promptly pay to the Lessor or any Liquidity Provider, upon demand, any additional amounts necessary to compensate the Lessor and each Liquidity Provider for such increased cost or reduced amount receivable. (b) If the Lessor or any Liquidity Provider shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, 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, or if any Liquidity Provider shall have determined that a change in the risk weighting of its Commitment is necessary, and any of the foregoing has or would have the effect of reducing the rate of return on capital of the Lessor or any Liquidity Provider (or any entity directly or indirectly controlling the Lessor or any Liquidity Provider) as a consequence of the Lessor's or any Liquidity Provider's obligations under the Operative Documents to a level below that which the Lessor or any Liquidity Provider (or any entity directly or indirectly controlling the Lessor or any Liquidity Provider) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy), then from time to time, within fifteen (15) days after demand by the Lessor or any Liquidity Provider, the Lessee shall pay to the Lessor such additional amount or amounts as will compensate the Lessor and the Liquidity Providers (or their respective controlling entities) for such reduction. (c) The Lessor will promptly notify the Lessee of any event of which it has knowledge, occurring after the date hereof, which will entitle the Lessor to compensation pursuant to this Section and will, if practicable, with the consent of the Lessee (which consent shall not unreasonably be withheld), designate a different Funding Office or take any other reasonable action if such designation or action will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of the Lessor, be otherwise disadvantageous to the Lessor. A certificate of the Lessor or any Liquidity Provider claiming compensation under this Section and setting forth in reasonable detail its computation of the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, the Lessor and each Liquidity Provider may use any reasonable averaging and attribution methods. ARTICLE XXVII ESTOPPEL CERTIFICATES 27.1. Estoppel Certificates. At any time and from time to time upon not less than twenty (20) days' prior request by the Lessor or the Lessee (the "Requesting Party"), the other party (whichever party shall have received such request, the "Certifying Party") shall furnish to the Requesting Party (but in the case of the Lessor, as Certifying Party, not more than four times per year unless required to satisfy the requirements of any sublessees and only to the extent that the required information has been provided to the Lessor by the Lessee) a certificate signed by an individual having the office of vice president or higher in the Certifying Party certifying that this Lease is in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications); the dates to which the Base Rent and Supplemental Rent have been paid; to the best knowledge of the signer of such certificate, whether or not the Requesting Party is in default under any of its obligations hereunder (and, if so, the nature of such alleged default); and such other matters under this Lease as the Requesting Party may reasonably request. Any such certificate furnished pursuant to this Article XXVII may be relied upon by the Requesting Party, and any existing or prospective mortgagee, purchaser or lender, and any accountant or auditor, of, from or to the Requesting Party (or any Affiliate thereof). ARTICLE XXVIII ACCEPTANCE OF SURRENDER 28.1. Acceptance of Surrender. No surrender to the Lessor of this Lease or of all or any portion of any Leased Asset or of any part of any thereof or of any interest therein shall be valid or effective unless agreed to and accepted in writing by the Lessor, and no act by the Lessor or any representative or agent of the Lessor, other than a written acceptance, shall constitute an acceptance of any such surrender. ARTICLE XXIX NO MERGER OF TITLE 29.1. No Merger of Title. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, in whole or in part, (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate, (b) the fee or ground leasehold estate in any Leased Asset, except as may expressly be stated in a written instrument duly executed and delivered by the appropriate Person or (c) a beneficial interest in the Lessor. ARTICLE XXX INTENT OF THE PARTIES 30.1. Ownership of the Properties. (a) It is the intent of the parties hereto that: (i) this Lease constitutes an operating lease from the Lessor to the Lessee for the purposes of the Lessee's financial reporting, (ii) the Lease and other transactions contemplated hereby preserve ownership in the Leased Assets in the Lessee for Federal and state income tax and bankruptcy purposes, (iii) each Lease Supplement grants to the Lessor a Lien on the Leased Assets covered thereby, and (iv) the obligations of the Lessee to pay Base Rent and any part of the Lease Balance shall be treated as payments of interest and principal, respectively, for Federal and state income tax and bankruptcy purposes. The Lessor shall be deemed to have a valid and binding security interest in and Lien on the Leased Assets, free and clear of all Liens other than Permitted Liens, as security for the obligations of the Lessee under the Operative Documents (it being understood and agreed that the Lessee does hereby grant a security interest in and Lien on, and convey, transfer, assign, mortgage and warrant to the Lessor and its successors, transferees and assigns, the leased Assets and any proceeds or products thereof, to have and hold the same as collateral security for the payment and performance of the obligations of the Lessee under the Operative Documents), and each of the parties hereto agrees that it will not, nor will it permit any Affiliate to at any time, take any action or fail to take any action with respect to the preparation or filing of any income tax return, including an amended income tax return, to the extent that such action or such failure to take action would be inconsistent with the intention of the parties expressed in this Section 30.1. (b) Specifically, without limiting the generality of clause (a) of the Section 30.1, the parties hereto intend and agree that in the event of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any State or Commonwealth thereof affecting the Lessee, the Guarantor, the Lessor, any other Person or any collective actions, the transactions evidenced by the Operative Documents shall be regarded as loans made by the Lessor to the Lessee. ARTICLE XXXI PAYMENT OF CERTAIN EXPENSES 31.1. Transaction Expenses. (a) The Lessee shall pay, or cause to be paid, from time to time all Transaction Expenses in respect of the transactions taking place on the Closing Date and on each Funding Date on such respective date; provided, however, that, if the Lessee has not received written invoices therefor five (5) days prior to such date, such Transaction Expenses shall be paid on the earlier of (i) the next Funding Date and (ii) the date thirty-five (35) days after the Lessee has received written invoices therefor. (b) The Lessee shall pay or cause to be paid (i) the reasonable fees and expenses of the Paying Agent or any successor Paying Agent, (ii) all reasonable Transaction Expenses from time to time incurred by the Lessor in entering into any future amendments or supplements with respect to any of the Operative Documents, whether or not such amendments or supplements are ultimately entered into, or giving or withholding of waivers of consents hereto or thereto, in each case which have been requested by or approved by the Lessee, (iii) all reasonable Transaction Expenses incurred by the Lessor in connection with any purchase of any Leased Asset by the Lessee or other Person pursuant to this Lease and (iv) all Transaction Expenses incurred by the Lessor, the Receivable Purchaser, the Collateral Agent, the Conduits, the Liquidity Agent and the Liquidity Providers in respect of enforcement of any of their rights or remedies against the Lessee or the Guarantor in respect of the Operative Documents. 31.2. Brokers' Fees and Stamp Taxes. The Lessee shall pay or cause to be paid any brokers' fees and any and all stamp, transfer and other similar taxes, fees and excises, if any, including any interest and penalties, which are payable in connection with the transactions contemplated by this Lease and the other Operative Documents. The Lessor and the Lessee each represent to the other that it has not employed any brokers in connection with the transactions contemplated by the Operative Documents. 31.3. State Financing and Grants. Notwithstanding anything to the contrary contained herein, financing and grants, which do not create a Lien on the Leased Assets, from the State of Maryland or any local Governmental Authority thereof to the Lessee or any Affiliate of the Lessee shall not in any way reduce the amount of Advances to be made by the Lessor to the Lessee with respect to any Leased Asset. ARTICLE XXXII OTHER COVENANTS AND AGREEMENTS OF LESSEE 32.1. Information. The Lessee will deliver to the Lessor: (a) within five (5) days after a Responsible Employee of the Lessee or any Affiliate of the Lessee obtains knowledge of the occurrence of each Event of Default or each event that, with the giving of notice or time elapse, or both, would constitute an Event of Default continuing on the date of such statement, a statement of the authorized officer setting forth details of such Event of Default or event and the action that the Lessee proposes to take with respect thereto; (b) within five (5) days of any change of the Guarantor's or the Lessee's independent public accountants, notification thereof; (c) promptly upon becoming aware thereof, written notice of any material adverse change in the business, financial position or results of operations of the Guarantor and its Subsidiaries, considered as a whole; (d) as soon as possible and in any event within five (5) days after knowledge of (or such time as a Responsible Employee of Lessee or any Affiliate of the Lessee reasonably should have had knowledge of) the occurrence of any material violation or alleged violation of an Environmental Law relating to any Property, a statement of an authorized officer setting forth the details of such violation and the action which the Lessee proposes to take with respect thereto; (e) from time to time such additional information regarding the business, properties, condition or operations, financial or otherwise, of the Guarantor and its Significant Subsidiaries, or regarding the Leased Assets or the status of any construction thereon, as the Lessor may reasonably request; (f) not later than five (5) Business Days after request, copies of all amendments to and waivers of the Credit Agreement requested by the Guarantor; and (g) not later than five (5) Business days after delivery, copies of all amendments to and waivers of the Credit Agreement. 32.2. Financial Statements. (a) The Lessee will furnish or cause to be furnished to the Lessor and each Liquidity Provider, as and when required by Section 5.01(a)-(d) of the Credit Agreement, all the reports, schedules, certificates and statements required of the Guarantor and its Subsidiaries to be delivered pursuant to Section 5.01(a)- (d) of the Credit Agreement; provided, however, that the Lessee shall not be required to furnish any such document to any such Person pursuant to this Lease if such Person or its Affiliate is a party to the Credit Agreement and receives such document pursuant to the terms thereof. (b) The Lessee will furnish to the Lessor and each Liquidity Provider, not later than ninety (90) days after the end of each of its fiscal years, unaudited financial statements of the Lessee, together with a Responsible Employee Certificate of the Lessee certifying that, to the best knowledge of such Responsible Employee, no Default has occurred and is continuing or, if a Default or Event of Default has occurred and is continuing, the nature thereof and the action the Lessee is taking with respect thereto. 32.3. Other Covenants. If any covenants are set forth in any Lease Supplement, then the Lessee will observe and perform such covenants according to the terms thereof with the same force and effect as if set forth in full herein. ARTICLE XXXIII MISCELLANEOUS 33.1. Survival; Severability; Etc. If any term or provision of this Lease or any application thereof shall be declared invalid or unenforceable, the remainder of this Lease and any other application of such term or provision shall not be affected thereby. If any right or option of the Lessee provided in this Lease would, in the absence of the limitation imposed by this sentence, be invalid or unenforceable as being in violation of the rule against perpetuities or any other rule of law relating to the vesting of an interest in or the suspension of the power of alienation of property, then such right or option shall be exercisable only during the period which shall end twenty-one (21) years after the date of death of the last survivor of the descendants of Franklin D. Roosevelt, the former President of the United States, and John D. Rockefeller, the founder of the Standard Oil Company, known to be alive on the date of the execution, acknowledgement and delivery of this Lease. 33.2. Amendments and Modifications. Neither this Lease nor any provision hereof may be amended, waived, discharged or terminated except by an instrument in writing in recordable form signed by the Lessor and the Lessee. 33.3. No Waiver. No failure by the Lessor or the Lessee to insist upon the strict performance of any term hereof or to exercise any right, power or remedy upon a default hereunder, and no acceptance of full or partial payment of Rent during the continuance of any such default, shall constitute a waiver of any such default or of any such term. To the fullest extent permitted by law, no waiver of any default shall affect or alter this Lease, and this Lease shall continue in full force and effect with respect to any other then existing or subsequent default. 33.4. Notices. All notices, demands, requests, consents, approvals and other communications hereunder shall be in writing (including by facsimile), and directed to the address of the appropriate party as set forth in Schedule I hereto. 33.5. Successors and Assigns. All the terms and provisions of this Lease shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 33.6. Headings and Table of Contents. The headings and table of contents in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 33.7. Counterparts. This Lease may be executed in any number of counterparts, each of which shall be an original, but all of which shall together constitute one and the same instrument. 33.8. GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT AS TO MATTERS RELATING TO THE CREATION OF THE LEASEHOLD ESTATES HEREUNDER WITH RESPECT TO ANY PROPERTY (AS DEFINED IN THIS LEASE) AND THE EXERCISE OF RIGHTS AND REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE WHERE SUCH PROPERTY IS 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, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, SHALL GOVERN THE CREATION, TERMS AND PROVISIONS OF THE INDEBTEDNESS EVIDENCED HEREBY, BUT THE LIEN CREATED HEREBY AND THE CREATION AND THE ENFORCEMENT OF SAID LIEN WITH RESPECT TO ANY PROPERTY (AS DEFINED IN THIS LEASE) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE WHERE SUCH PROPERTY IS LOCATED. 33.9. Original Lease. The single executed original of this Lease containing the receipt of the Lessor therefor on or following the signature page thereof shall be the Original Executed Counterpart of this Lease (the "Original Executed Counterpart"). To the extent 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 other than the Original Executed Counterpart. 33.10.WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS LEASE AND/OR ANY OF THE OTHER OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF SUCH PARTIES. THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LEASE AND EACH SUCH OTHER OPERATIVE DOCUMENTS. 33.11 TRUTH IN LEASING REQUIREMENT IN COMPLIANCE WITH FEDERAL AVIATION REGULATION ss.91.23. THE LESSEE HEREBY ADVISES THE LESSOR THAT FROM THE DATE OF ITS MANUFACTURE TO THE DATE OF THIS LEASE, THE AIRCRAFT LEASED UNDER THIS LEASE HAS BEEN MAINTAINED AND INSPECTED IN ACCORDANCE WITH ss.91.409(f)(3) OF THE FEDERAL AVIATION REGULATIONS. THE LESSEE CERTIFIES THAT IT IS RESPONSIBLE FOR THE STATUS OF COMPLIANCE OF THE AIRCRAFT WITH APPLICABLE MAINTENANCE AND INSPECTION REQUIREMENTS AS SET FORTH UNDER FAA REGULATIONS APPLICABLE TO THE LESSEE'S USE AND OPERATION OF THE AIRCRAFT. IN ADDITION, UPON THE LESSOR'S REQUEST, THE LESSEE AGREES TO ADVISE THE LESSOR WHICH OF THE REQUIRED FAA MAINTENANCE PROGRAMS THE LESSEE HAS SELECTED AND AGREES TO PROVIDE THE LESSOR WITH WRITTEN INSPECTION REPORTS FOR INSPECTIONS ACCOMPLISHED UNDER SAID PROGRAM. THE LESSEE IS SOLELY RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE AND CERTIFIES AND AGREES TO COMPLY WITH ALL APPLICABLE FAA REGULATIONS ISSUED DURING THE TERM OF THIS LEASE. THE LESSEE IS HEREBY ADVISED THAT AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FAA REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE, GENERAL AVIATION DISTRICT OFFICE OF AIR CARRIER DISTRICT OFFICE. THE LESSEE AGREES TO KEEP A COPY OF THIS LEASE IN THE AIRCRAFT AT ALL TIMES DURING THE TERM OF THIS LEASE. THE LESSEE AGREES TO COMPLY WITH ALL REQUIREMENTS OF FEDERAL AVIATION REGULATION ss. 91.23. IN WITNESS WHEREOF, the parties have caused this Lease be duly executed and delivered as of the date first above written. RITE AID REALTY CORP., as Lessee By: Name: Title: SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor By: Name: Title: Funding Office: 277 Park Avenue New York, New York 10172 THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART. Receipt of this original counterpart of the foregoing Lease is hereby acknowledged as of the date hereof. SUMITOMO BANK LEASING AND FINANCE, INC. By: Name: Title: APPENDIX 1 TO MASTER LEASE AND SECURITY AGREEMENT DEFINITIONS AND INTERPRETATION A. Interpretation. In each Operative Document, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by the Operative Documents, and, unless otherwise provided or the context otherwise requires, reference to a Person in a particular capacity excludes such Person in any other capacity or individually; (iii) reference to any gender includes each other gender; (iv) reference to any agreement (including any Operative Document), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms of the other Operative Documents and reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor; (v) reference to any Applicable Law means such Applicable Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any Applicable Law means that provision of such Applicable Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; (vi) reference in any Operative Document to any Article, Section, Appendix, Schedule or Exhibit means such Article or Section thereof or Appendix, Schedule or Exhibit thereto; (vii) "hereunder", "hereof", "hereto" and words of similar import shall be deemed references to an Operative Document as a whole and not to any particular Article, Section or other provision thereof; (viii) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; (ix) "or" is not exclusive; and (x) relative to the determination of any period of time, "from" means "from and including" and "to" means "to but excluding". B. Accounting Terms. In each Operative Document, unless expressly otherwise provided, accounting terms shall be construed and interpreted, and accounting determinations and computations shall be made, in accordance with GAAP. C. Conflict in Operative Documents. If there is any conflict between any Operative Documents, such Operative Document shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to the extent) of such conflict, the Lease shall prevail and control. D. Legal Representation of the Parties. The Operative Documents were negotiated by the parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring the Operative Document to be construed or interpreted against any party shall not apply to any construction or interpretation hereof or thereof. E. Defined Terms. Unless a clear contrary intention appears, terms defined herein have the respective indicated meanings when used in each Operative Document. All capitalized terms used in the Operative Documents but not otherwise defined in this Appendix 1 shall have the meanings, where applicable, given to such terms in the Credit Agreement (as defined herein). "Acquisition Date" means (i) with respect to any Property, the Funding Date on which the Lessor acquires title to, or a leasehold interest in, the Land constituting a part of such Property, (ii) with respect to any Equipment and Systems, the first Funding Date on which the Lessor acquires any asset constituting such Equipment and Systems and (iii) with respect to any Other Asset not constituting Equipment and Systems, the Funding Date on which the Lessor acquires title to such Other Asset. "Additional Payment Date" means any of the following: each Base Date, the last day of each Interest Period which does not end on a Scheduled Payment Date, and each Expiration Date. "Advance" means an advance of funds by the Lessor pursuant to Article III of the Lease. "Advance Amount" is defined in Article I of each Liquidity Asset Purchase Agreement. "Affiliate" means, when used with respect to any Person, any other Person directly or indirectly Controlling or Controlled by or under direct or indirect common Control with such Person. "Aircraft" means any Other Asset which consists of aircraft, as more particularly described in the Lease Supplement relating thereto, together with the Engines and any and all appliances, parts, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature, from time to time incorporated or installed in or attached to such aircraft. "Alternate Base Rate" means, for any day, an interest rate equal to the sum of the Federal Funds Effective Rate for such day plus 0.50% per annum. "Applicable Law" means all existing and future applicable laws, rules, regulations, statutes, treaties, codes, ordinances, permits, certificates, orders and licenses of and interpretations by, any Governmental Authority, and applicable judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other administrative, judicial or quasi-judicial tribunal or agency of competent jurisdiction (including Environmental Laws) and those pertaining to the construction, use or occupancy of each Leased Asset) and any restrictive covenant or deed restriction or easement of record affecting any Property. "Appraisal" means (i) with respect to any Property or any portion thereof, an appraisal, prepared by a reputable appraiser selected by the Lessor, of such Property or such portion as if improved in accordance with the Plans and Specifications, which in the judgment of counsel to the Lessor, complies with all of the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, the rules and regulations adopted pursuant thereto, and all other applicable Requirements of Law and, in the case of the Appraisal delivered on or prior to the Acquisition Date for such Property, will appraise the Fair Market Sales Value of such Property as built in accordance with the Plans and Specifications as of Substantial Completion for such Property and as of the seventh, eighth, ninth and tenth anniversaries of the date of the Lease, and (ii) with respect to any Other Asset, an appraisal, prepared by a reputable appraiser selected by the Lessor, of such Other Asset and, in the case of the Appraisal delivered on or prior to the Acquisition Date for such Other Asset, will appraise the Fair Market Sales Value of such Other Asset as of the Base Date for such Other Asset and as of the seventh, eighth, ninth and tenth anniversaries of the date of the Lease. "Appurtenant Rights" means (i) all agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits at any time belonging or pertaining to any Land or the related Improvements, including the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to such Land and (ii) all permits, licenses and rights, whether or not of record, appurtenant to such Land. "Architect" means the independent architect employed by Lessee in connection with the transactions contemplated by the Lease. "Assignment Agreement" means an agreement substantially in the form of Exhibit A to each Liquidity Asset Purchase Agreement. "Available Commitment" means, at any time, an amount equal to the excess, if any, of (a) the amount of the Total Commitment of the Lessor over (b) the aggregate original principal amount of all Advances prior to such time. "Base Date" with respect to each Leased Asset is defined in the Lease Supplement for that Leased Asset. "Base Rate Tranche" means a portion of a Lease Balance funded by a Debt Contribution which bears interest at a fluctuating rate equal to the Alternate Base Rate. "Base Rent" means the amount determined under Appendix 2 to the Lease. "Base Term" with respect to each Leased Asset is defined in the Lease Supplement for that Leased Asset and is subject to extension as provided in Section 23.1 of the Lease. "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. "Board" means the Board of Governors of the Federal Reserve System of the United States (or any successor). "Borrower Material Adverse Effect" is defined in Section 4.1(b) of the Committed Loan Agreement and Section 4.1(b) of the Uncommitted Loan Agreement. "Break Costs" means an amount equal to the amount, if any, required to compensate the Lessor, the Lenders and the Liquidity Providers for any additional losses (including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or funds acquired by the Lessor, the Lenders or the Liquidity Providers to fund their respective obligations under the Operative Documents) they may reasonably incur as a result of (x) the Lessee's payment of Rent or all or any portion of the Lease Balance for any Property other than on a Payment Date, (y) any Advance not being made on the date specified therefor in the applicable Funding Request (other than as a result of a breach by the Lessor of its obligation under Section 3.1 of the Lease to make an Advance), or (z) as a result of any conversion of the Eurodollar Rate in accordance with Section 26.7 or 26.8 of the Lease on any day other than a Scheduled Payment Date. A statement as to the amount of such loss, cost or expense, prepared in good faith and in reasonable detail and submitted by the Lessor, a Lender or a Liquidity Provider, as applicable, to the Lessee, shall be conclusive and binding for all purposes absent manifest error. "Business Day" means each day which is not a day on which banks in New York, New York or London are generally authorized or obligated, by law or executive order, to close and is not a day on which The Depository Trust Company is closed. "Capitalized Commitment Fees" means, with respect to any Property or Equipment and Systems prior to the Base Date therefor, an amount equal to the accrued and unpaid Commitment Fees with respect to such Property or Equipment and Systems, respectively. "Capitalized Interest" means, with respect to any Interest Period for any Property or Equipment and Systems prior to the Base Date therefor, an amount equal to the Lease Rate for such Interest Period multiplied by the Lease Balance for such Property or Equipment and Systems, respectively, outstanding during such Interest Period. "Cash Collateral Account" is defined in Section 3.6 of the Intercreditor Agreement. "Casualty" means any damage or destruction of all or any portion of a Leased Asset as a result of a fire or other casualty. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. ss.ss. 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986. "Certifying Party" is defined in Section 27.1 of the Lease. "Claims" means any and all obligations, liabilities, losses, actions, suits, judgments, penalties, fines, claims, demands, settlements, costs and expenses (including, without limitation, reasonable legal fees and expenses) of any nature whatsoever. "Closing Date" is defined in Section 4.1 of the Lease. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. "Collateral" is defined in Section 2.2 of the Intercreditor Agreement. "Collateral Agent" means The Sumitomo Bank, Limited, New York Branch, in its capacity as collateral agent under the Intercreditor Agreement. "Commercial Paper" means the promissory notes of any Conduit in physical or book-entry form issued by such Conduit in connection with the Uncommitted Loan Agreement to which it is a party. "Commitment" means (i) with respect to the Lessor and each Leased Asset, the obligation of the Lessor to make Advances to the Lessee in an aggregate principal amount not to exceed (x) the amount set forth opposite such Leased Asset on Annex I to the Lease or (y) such other amount as is set forth opposite the Lessor's name on its signature page for the Lease Supplement for such Leased Asset and (ii) with respect to a Lender, the obligation of such Lender to make Committed Loans to the Receivable Purchaser pursuant to Section 2 of the Committed Loan Agreement. "Commitment Fee" means the Lessor Commitment Fee and the Liquidity Commitment Fee. "Commitment Percentage" with respect to any Lender means the percentage listed opposite such Lender's signature to the Committed Loan Agreement or to an Assignment Agreement, as the case may be. "Committed Loan Agreement" means the Committed Loan Agreement, dated as of May 30, 1997, among the Receivable Purchaser, the financial institutions parties thereto as lenders and the Liquidity Agent. "Committed Loans" is defined in Section 2.1 of the Committed Loan Agreement. "Condemnation" means any condemnation, requisition, confiscation, seizure or other taking or sale of the use, access, occupancy, easement rights or title to any Leased Asset or any part thereof, wholly or partially (temporarily or permanently), by or on account of any actual or threatened eminent domain proceeding or other taking of action by any Person having the power of eminent domain, including an action by a Governmental Authority to change the grade of, or widen the streets adjacent to, any Property or alter the pedestrian or vehicular traffic flow to such Property so as to result in change in access to such Property, or by or on account of an eviction by paramount title or any transfer made in lieu of any such proceeding or action. A "Condemnation" shall be deemed to have occurred on the earliest of the dates that use, occupancy or title vests in the condemning authority. "Conduit" means each of Madison and the Other Conduit. "Conduit Loans" is defined in Section 2.1 of each Uncommitted Loan Agreement. "Conduit Note" is defined in Section 2.2 of each Uncommitted Loan Agreement. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Guarantor in its consolidated financial statements if such statements were prepared as of such date. "Construction" means, with respect to each Property, the construction and installation of all Improvements on such Property contemplated by the Plans and Specifications for such Property. "Construction Agency Agreement" means the Master Construction Agency Agreement, dated as of May 30, 1997, between the Lessor and the Construction Agent. "Construction Agency Agreement Event of Default" is defined in Section 5.1 of the Construction Agency Agreement. "Construction Agency Agreement Supplement" means, with respect to each Property, a supplement to Construction Agency Agreement substantially in the form of Exhibit A to the Construction Agency Agreement completed as to such Property. "Construction Agent" means Rite Aid Realty Corp., as construction agent under the Construction Agency Agreement. "Construction Documents" is defined in Section 2.4 of the Construction Agency Agreement. "Construction Period" means, with respect to each Property, the period set forth in the Lease Supplement therefor. "Contingent Rental Adjustment" means the guaranteed portion of the Lease Balance determined in accordance with the "90%" test set forth in FASB No. 13 which, with respect to each Leased Asset, is set forth in, or determined pursuant to, the Lease Supplement therefor. "Control" means (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, the possession directly or indirectly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Credit Agreement" means the Credit Agreement dated as of July 19, 1996, as amended, supplemented or restated from time to time, among the Guarantor, the lenders from time to time parties thereto and Morgan Guaranty Trust Company of New York, as agent, and any other agreement succeeding to, superseding or replacing such agreement. "CP Rate" means, with respect to any Interest Period, the rate equivalent to the rate (or if more than one rate, the weighted average of the rates) at which Commercial Paper was sold during the applicable Interest Period (which rate shall include any fees payable to the placement agent or dealer for such Commercial Paper); provided, however, that if the rate (or rates) as agreed between any such agent or dealer and any Conduit is a discount rate (or rates), the "CP Rate" for such Interest Period shall be the rate (or if more than one rate, the weighted average of the rates) resulting from such Conduit's converting such discount rate (or rates) to an interest-bearing equivalent rate per annum. "CP Tranche" means a portion of a Lease Balance funded by a Debt Contribution made by a separate issuance of Commercial Paper, for which there shall be no more than four different Interest Periods at any one time outstanding. "Debt Contribution" means that amount of Advances made by the Lessor funded by the sale of the Purchaser's Interest to the Receivable Purchaser. "Debt Rate" means with respect to each Interest Period (i) with respect to CP Tranches, the CP Rate, (ii) with respect to Eurodollar Tranches, the Eurodollar Rate plus the Liquidity Applicable Margin and (iii) with respect to Base Rate Tranches, the Alternate Base Rate plus the Liquidity Applicable Margin. "Deed" means each special warrant deed with respect to Land, in conformity with Applicable Law and appropriate for recording with the applicable Governmental Authorities, conveying fee simple title to such Land to the Lessor subject only to Permitted Exceptions. "Default" means any event or condition which, with the lapse of time or the giving of notice, or both, would constitute an Event of Default. "Dollars" and "$" mean dollars in lawful currency of the United States of America. "End Date" is defined in Section 5.1 of the Receivable Purchase Agreement. "Engine" means (i) each of the engines installed in any Aircraft on such Aircraft's Acquisition Date and (ii) any aircraft engine leased hereunder, together in either case with any and all appliances, parts, instruments, appurtenances, accessories and other equipment of whatever nature from time to time incorporated or installed in or attached to an Engine. "Environmental Audit" means, with respect to any Property, a Phase One environmental site assessment (the scope and performance of which meets or exceeds ASTM Standard Practice E1527-93 Standard Practice for Environmental Site Assessments: Phase One Environmental Site Assessment Process) of such Property. "Environmental Law" means, whenever enacted or promulgated, any applicable Federal, state, county or local law, statute, ordinance, rule, regulation, license, permit, authorization, approval, covenant, criteria, guideline, administrative or court order, judgment, decree, injunction, code or requirement or any agreement with a Governmental Authority: (x) relating to pollution (or the cleanup, removal, remediation or encapsulation thereof, or any other response thereto), or the regulation or protection of human health, safety or the environment, including air, water, vapor, surface water, groundwater, drinking water, land (including surface or subsurface), plant, aquatic and animal life, or (y) concerning exposure to, or the use, containment, storage, recycling, treatment, generation, discharge, emission, Release or threatened Release, transportation, processing, handling, labeling, containment, production, disposal or remediation of any Hazardous Substance, Hazardous Condition or Hazardous Activity. in each case as amended and as now or hereafter in effect, and any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries (whether personal or property) or damages due to or threatened as a result of the presence of, exposure to, or ingestion of, any Hazardous Substance, whether such common law or equitable doctrine is now or hereafter recognized or developed. Applicable laws include, but are not limited to, CERCLA; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. ss. 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. ss. 1251 et seq.; the Clean Air Act, 42 U.S.C. ss.ss. 7401 et seq.; the National Environmental Policy Act, 42 U.S.C. ss. 4321; the Refuse Act, 33 U.S.C. ss.ss. 401 et seq.; the Hazardous Materials Transportation Act of 1975, 49 U.S.C. ss.ss. 1801-1812; the Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. ss.ss. 136 et seq.; the Safe Drinking Water Act, 42 U.S.C. ss.ss. 300f et seq., each as amended and as now or hereafter in effect, and their state and local counterparts or equivalents, including any regulations promulgated thereunder. "Environmental Violation" means any activity, occurrence or condition that violates or results in non-compliance with any Environmental Law in any material respect. "Equipment" means equipment, apparatus, furnishings, fittings and personal property of every kind and nature whatsoever purchased, leased or otherwise acquired by the Lessee using the proceeds of Advances and now or subsequently attached to, contained in or used or usable in any way in connection with any operation or letting of a Property, including but without limiting the generality of the foregoing, all screens, awnings, shades, blinds, curtains, draperies, carpets, rugs, storm doors and windows, heating, electrical, and mechanical equipment, lighting, switchboards, plumbing, ventilation, air conditioning and air-cooling apparatus, refrigerating, and incinerating equipment, escalators, elevators, cleaning systems (including window cleaning apparatus), sprinkler systems and other fire prevention and extinguishing apparatus and materials, security systems, motors, engines, machinery, pipes, pumps, tanks, conduits, fittings and fixtures of every kind and description, provided that the term "Equipment" shall not include any of the foregoing to the extent the same constitutes Equipment and Systems under any Lease Supplement. "Equipment and Systems" means, with respect to any Property, such furniture, fixtures, equipment and computer hardware and software relating to such Property as the Lessor and the Lessee with the approval of the Lessor, such approval not to be unreasonably withheld, may elect to make subject to the Lease, as evidenced by the execution and delivery of a Lease Supplement relating thereto. The Equipment and Systems listed on any one Lease Supplement shall collectively constitute an Other Asset and a Leased Asset for purposes of the Lease. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor Federal statute. "ERISA Affiliate" means each entity required to be aggregated with the Lessee pursuant to the requirements of Section 414(b) or (c) of the Code. "ERISA Group" means the Lessee 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 Lessee, are treated as a single employer under Section 414 of the Code. "Estimated Improvement Costs" means, with respect to any Property as of the related Acquisition Date, an amount equal to the aggregate amount which the Construction Agent in good faith expects to be expended in order to achieve Substantial Completion with respect to Improvements for such Property (including (i) Capitalized Interest and Capitalized Commitment Fees and (ii) Transactions Expenses in each case allocated with respect to such Property during its Construction Period). "Eurocurrency Reserve Requirements" means, for any day, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Rate" means, with respect to each Interest Period, the rate determined by the Lessor to be the rate at which Dollar deposits are offered to the Liquidity Agent by prime banks in the London interbank market or, if such rate is not available, the average of the rates at which Dollar deposits are offered to the four major commercial banks last listed on the Reuters Screen LIBO Page (or any successor page) (rounded upward, if necessary, to the nearest multiple of one-sixteenth of one percent), in each case at or about 11:00 a.m. (London time) two Business Days prior to the beginning of such Interest Period for delivery on the first day of such Interest Period for the number of days comprised therein. "Eurodollar Tranche" means a portion of a Lease Balance funded by a Debt Contribution made with reference to the Eurodollar Rate. "Event of Bankruptcy" shall be deemed to have occurred with respect to a Person if either: (a) a case or other proceeding shall be commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such Person, the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator or the like for such Person or all or substantially all of its assets, or any similar action with respect to such Person under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and such case or proceeding shall continue undismissed, or unstayed and in effect, for a period of sixty (60) consecutive days; or an order for relief in respect of such Person shall be entered in an involuntary case under the federal bankruptcy laws or other similar laws now or hereafter in effect; or (b) such Person shall commence a voluntary case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other similar law now or hereafter in effect, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) for, such Person or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall be adjudicated insolvent. "Event of Default" is defined in Section 20.1 of the Lease. "Excess Proceeds" means, with respect to any Leased Asset, the excess, if any, of the aggregate of all awards, compensation or insurance proceeds payable in connection with a Casualty or Condemnation over the sum of the Lease Balance paid by the Lessee pursuant to Articles XVIII and XIX of the Lease with respect to such Casualty or Condemnation and all proceeds received by the Lessor in connection with any sale of such Leased Asset pursuant to the Lessor's exercise of remedies under Section 20.2 of the Lease or the Lessee's exercise of the Remarketing Option under Article XXIV of the Lease. "Expiration Date" means, with respect to each Leased Asset, the later of the date (x) set forth in the Lease Supplement for such Leased Asset, or (y) the scheduled expiration of the then current Renewal Term, if any; provided, however, that if such Leased Asset is purchased pursuant to Section 22.2 of the Lease or the Lease Balance therefor is paid pursuant to Section 20.2 of the Lease, then the Expiration Date shall be the date of such purchase or payment, as the case may be. "FAA" means the Federal Aviation Administration. "Fair Market Sales Value" means, with respect to any Leased Asset, the amounts, which in any event shall not be less than zero, that would be paid in cash in an arm's-length transaction between an informed and willing purchaser and an informed and willing seller, neither of whom is under any compulsion to purchase or sell, respectively, for the ownership of such Leased Asset. The Fair Market Sales Value of the Leased Assets shall be determined based on the assumption that, except for purposes of Article XX, the Leased Assets are in the condition and state of repair required under Section 13.1 of the Lease and the Lessee is in compliance with the other requirements of the Operative Documents. "Fee Letter" means the letter agreement between the Lessor and the Lessee dated May 30, 1997. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal 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 quotations for such day on such transaction received by the Lessor from three Federal funds brokers of recognized standing selected by it. "Final Payment Date" is defined in Section 5.1 of the Committed Loan Agreement and Section 5.1 of the Uncommitted Loan Agreements. "Fixtures" means all fixtures relating to any Improvements, including all components thereof, located in or on such Improvements, together with all replacements, modifications, alterations and additions thereto. "Force Majeure Event" means any event (the existence of which was not known and could not have been discovered through the exercise of due diligence by the Construction Agent prior to the relevant Acquisition Date) beyond the control of the Construction Agent, including, but not limited to, strikes, lockouts, adverse soil conditions, acts of God, adverse weather conditions, inability to obtain labor or materials, government activities, civil commotion and enemy action; but excluding any event, cause or condition that results from the Construction Agent's financial condition or failure to pay or any event, cause or condition which could have been avoided or which could be remedied through the exercise of commercially reasonable efforts or the commercially reasonable expenditure of funds. "Funded Amount" means, with respect to any Liquidity Provider, the sum of such Liquidity Provider's outstanding Committed Loans under the Committed Loan Agreement plus such Liquidity Provider's outstanding Advance Amount under each Liquidity Asset Purchase Agreement. "Funding Date" is defined in Section 3.2(a) of the Lease. "Funding Office" means the office of the Lessor identified on its signature page to the Lease as its Funding Office. "Funding Request" is defined in Section 3.2(a) of the Lease. "GAAP" means United States generally accepted accounting principles (including principles of consolidation), in effect from time to time. "Governmental Action" means all permits, authorizations, registrations, consents, approvals, waivers, exceptions, variances, orders, judgments, written interpretations, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Governmental Authority, or required by any Applicable Law, and shall include, without limitation, all environmental and operating permits and licenses that are required for the full use, occupancy, zoning and operation of any Property. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Gross Proceeds" means, with respect to any Leased Asset, all amounts paid in connection with any Casualty or Condemnation or any sale of such Leased Asset pursuant to Lessor's exercise of remedies under Section 20.2 of the Lease or the Lessee's exercise of the Remarketing Option under Article XXIV of the Lease, and all interest earned thereon, less the expense of claiming and collecting such amounts, including all costs and expenses in connection therewith for which the Lessor is entitled to be reimbursed pursuant to the Lease. "Ground Lease" means each Ground Lease pursuant to which the Lessor acquires a leasehold interest in any Land, substantially in the form of Exhibit B to the Lease, or in such other form as Lessor and Lessee may otherwise mutually agree. "Guarantor" means Rite Aid Corporation. "Guaranty" means the Guaranty, dated as of May 30, 1997, from the Guarantor to the Lessor. "Hazardous Activity" means any activity, process, procedure or undertaking that directly or indirectly (i) produces, generates or creates any Hazardous Substance; (ii) causes or results in (or threatens to cause or result in) the Release of any Hazardous Substance into the environment (including air, water vapor, surface water, groundwater, drinking water, land (including surface or subsurface), plant, aquatic and animal life); (iii) involves the containment or storage of any Hazardous Substance; or (iv) would be regulated as hazardous waste treatment, storage or disposal within the meaning of any Environmental Law. "Hazardous Condition" means any condition that materially violates or threatens to materially violate, or that results in or threatens material noncompliance with, any Environmental Law. "Hazardous Substance" means any of the following: (i) any petroleum or petroleum product, explosives, radioactive materials, asbestos, ureaformaldehyde, polychlorinated biphenyls, lead and radon gas; (ii) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste, or pollutant, in each case whether naturally occurring, man-made or the by-product of any process, that is toxic, harmful or hazardous to the environment or human health or safety, as defined under any Environmental Law; or (iii) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste or pollutant that would support the assertion of any claim under any Environmental Law, whether or not defined as hazardous as such under any Environmental Law. "Impositions" means any and all liabilities, losses, expenses and costs of any kind whatsoever for fees, taxes, levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever ("Taxes") (including, without limitation, (i) real and personal property taxes, including personal property taxes on any property covered by the Lease that is classified by Governmental Authorities as personal property, and real estate or ad valorem taxes in the nature of property taxes; (ii) sales taxes, use taxes and other similar taxes (including rent taxes and intangibles taxes); (iii) any excise taxes; (iv) real estate transfer taxes, conveyance taxes, mortgage taxes, intangible taxes, stamp taxes and documentary recording taxes and fees; (v) taxes that are or are in the nature of franchise, income, value added, gross receipts, privilege and doing business taxes, license and registration fees; and (vi) assessments on any Leased Asset, including all assessments for public improvements or benefits, whether or not such improvements are commenced or completed prior to the relevant Expiration Date), and in each case all interest, additions to tax and penalties thereon, which at any time may be levied, assessed or imposed by any foreign or Federal, state or local authority upon or with respect to (a) any Indemnitee by reason of a Leased Asset or any Operative Document, any Leased Asset or any part thereof or interest therein, or the Lessee or any sublessee or user of any Leased Asset by reason of such sublease or use; (b) the financing, refinancing, demolition, construction, substitution, subleasing, assignment, control, condition, occupancy, servicing, maintenance, repair, ownership, possession, purchase, rental, lease, activity conducted on, delivery, insuring, use, operation, improvement, transfer, return or other disposition of such Leased Asset or any part thereof or interest therein; (c) indebtedness with respect to any Leased Asset or any part thereof or interest therein or transfer thereof; (d) the rentals, receipts or earnings arising from any Leased Asset or any part thereof or interest therein; (e) the Operative Documents or any payment made or accrued pursuant thereto; (f) the income or other proceeds received with respect to any Leased Asset or any part thereof or interest therein upon the sale or disposition thereof; (g) any contract (including the Construction Agency Agreement) relating to the construction, acquisition or delivery of the Improvements or any part thereof or interest therein; or (h) otherwise in connection with the transactions contemplated by the Operative Documents. Notwithstanding anything in the first paragraph of this definition (except as provided in the final paragraph of this definition) the term "Imposition" shall not mean or include: (i) Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, rental, transfer or property taxes) that are imposed under the Code, the Maryland income tax on corporations or by any Governmental Authority and that are based upon or measured by net income; (ii) any Tax or imposition to the extent, but only to such extent, it relates to any act, event or omission that occurs, or relates to a period, after the termination of the Lease (but not any Tax or imposition that relates to any period prior to the termination of the Lease with respect to the Leased Asset to which such Imposition relates); (iii) any Tax or imposition for so long as, but only for so long as, it is being contested in accordance with the provisions of Section 26.4(b) of the Lease, provided that the foregoing shall not limit the Lessee's obligation under Section 26.4(b) of the Lease to advance to such Indemnitee amounts with respect to Taxes that are being contested in accordance with Section 26.4(b) of the Lease or any expenses incurred by such Indemnitee in connection with such contest; (iv) any interest or penalties imposed on an Indemnitee as a result of a breach by such Indemnitee of its obligations under Section 26.4(e) of the Lease or otherwise as a result of an Indemnitee's failure to file any return or other documents timely and as prescribed by applicable law; provided that this clause (iv) shall not apply (x) if such interest or penalties arise as a result of a position taken (or requested to be taken) by the Lessee in a contest controlled by the Lessee under Section 26.4(b) of the Lease or (y) if such failure is attributable to a failure by the Lessee to fulfill its obligations under the Lease with respect to any such return; (v) any Taxes or impositions imposed upon an Indemnitee with respect to any voluntary transfer, sale or other voluntary disposition of any interest in any Leased Asset or any part thereof, or from any sale, assignment, transfer or other disposition of any interest in an Indemnitee or any Affiliate thereof, (other than any transfer in connection with (1) the exercise by the Lessee of its Purchase Option or any termination option or other purchase of any Leased Asset by the Lessee, (2) the occurrence of an Event of Default, (3) a Casualty or Condemnation affecting any Leased Asset or (4) any sublease, modification or addition to any Leased Asset by the Lessee); (vi) any Taxes or impositions imposed on an Indemnitee, to the extent such Indemnitee actually receives a credit (or otherwise has a reduction in a liability for Taxes) in respect thereof against Taxes that are not indemnified under the Lease; (vii) any Taxes imposed against or payable by an Indemnitee resulting from, or that would not have been imposed but for, the gross negligence or willful misconduct of such Indemnitee; (viii)Taxes imposed on or payable by an Indemnitee to the extent such Taxes would not have been imposed but for a breach by such Indemnitee 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); (ix) Taxes to the extent resulting from such Indemnitee's failure to comply with the provisions of Section 26.4(b) of the Lease, which failure precludes or materially adversely affects the ability to conduct a contest pursuant to Section 26.4(b) of the Lease (unless such failure is caused by the Lessee's breach of its obligations); (x) Taxes which are included in Property Improvements Cost, Land Acquisition Cost or Other Asset Acquisition Cost if and to the extent actually paid; (xi) Taxes that would have been imposed in the absence of the transactions contemplated by the Operative Documents and Taxes imposed on or with respect to or payable as a result of activities of an Indemnitee or Affiliate thereof unrelated to the transactions contemplated by the Operative Documents; (xii) Taxes imposed on or with respect to or payable by an Indemnitee resulting from, or that would not have been imposed but for the existence of, any Lessor Lien created by or through such Indemnitee 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 Indemnitee 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 Indemnitee (or, if less, that would have been subject to indemnification under Section 26.4 of the Lease) if such Indemnitee were not a direct or indirect successor, transferee or assign of one of the original Indemnitees; provided, however, that this exclusion (xiii) shall not apply if such direct or indirect successor, transferee or assign acquired its interest as a result of a transfer while an Event of Default shall have occurred and is continuing. "Improvements" means, with respect to each Property, all buildings, structures, Fixtures, Equipment, and other improvements of every kind existing at any time and from time to time (including those constructed pursuant to the Construction Agency Agreement and those purchased with amounts advanced by the Lessor pursuant to the Lease) on or under the Land comprising a part of such Property, together with any and all appurtenances to such buildings, structures or improvements, including sidewalks, utility pipes, conduits and lines, parking areas and roadways, and including all Modifications and other additions thereto or changes therein at any time. "Imputed Equity Return" means, with respect to any Leased Asset, the cost to the Lessor of maintaining its investment in such Leased Asset after the Expiration Date applicable thereto determined by multiplying (i) the average daily Lease Balance of such Leased Asset outstanding, (ii) the number of days from and excluding the Expiration Date to and including the date of sale of such Leased Asset, (iii) the Overdue Rate and (iv) 1/360. "Indemnitee" means the Lessor, the Liquidity Agent, each Liquidity Provider, each Conduit, the Receivable Purchaser, each Lender, the Collateral Agent and each of their respective successors, assigns, directors, shareholders, partners, officers, employees and agents. "Insurance Requirements" means all terms and conditions of any insurance policy either required by the Lease to be maintained by the Lessee or required by the Construction Agency Agreement to be maintained by the Construction Agent, and all requirements of the issuer of any such policy. "Intercreditor Agreement" means the Intercreditor and Security Agreement, dated as of May 30, 1997, among the Lessee, the Guarantor, the Lessor, the Receivable Purchaser, the Conduits, the Liquidity Agent, the Paying Agent and the Collateral Agent. "Interest Period" means, with respect to any Advance: (1) With respect to the Lessor Contribution and Eurodollar Tranches of the Debt Contribution, (a) initially, the period commencing on the Funding Date with respect to any Advance and ending on the next following Scheduled Payment Date; and (b) thereafter, each period commencing on one Scheduled Payment Date and ending on the next following Scheduled Payment Date; (2) With respect to each CP Tranche of the Debt Contribution, the period obtained by a Conduit for such CP Tranche; provided that, the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of Eurodollar Tranches, the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; and (ii) any Interest Period that would otherwise extend beyond the Expiration Date for the Leased Asset funded by such Advance shall end on such Expiration Date. "Land" means each parcel of real property described on a Lease Supplement executed and delivered under the Lease and all Appurtenant Rights attached thereto. "Land Acquisition Cost" means, with respect to any Property, the amount of the Advance funded for the purpose of acquiring title to the Land comprising a part of such Property and paying Transaction Expenses relating to such acquisition. "Lease" means the Master Lease and Security Agreement, dated as of May 30, 1997, between the Lessor and the Lessee. "Lease Balance" means, with respect to each Leased Asset, as of any date of determination, the sum of all Advances for such Leased Asset made under the Lease on or before such date less the sum of all Monthly Amortization paid by the Lessee with respect thereto on or before such date. "Lease Rate" means the weighted average of the Lessor Rate plus the Debt Rate. "Lease Receivable" is defined in Section 2.1 of the Receivable Purchase Agreement. "Lease Supplement" means, with respect to each Leased Asset, a lease supplement substantially in the form of Exhibit G-1, G-2 or G-3 to the Lease duly completed as to such Leased Asset. "Leased Asset" means each Property and each Other Asset subject to the Lease. "Lender" is defined in the preamble of the Committed Loan Agreement. "Lender Note" is defined in Section 2.2 of the Committed Loan Agreement. "Lessee" means Rite Aid Realty Corp. "Lessor" means Sumitomo Bank Leasing and Finance, Inc., as lessor under the Lease. "Lessor Applicable Margin" is set forth and determined in accordance with Appendix 2 to the Lease. "Lessor Commitment Fee" is set forth and determined in accordance with Appendix 2 to the Lease. "Lessor Contribution" means that amount of outstanding Advances made by the Lessor and funded by the Lessor otherwise than through the sale of the Purchaser's Interest to the Receivable Purchaser. "Lessor Lien" means any Lien, true lease or sublease or disposition of title arising as a result of (a) any claim against the Lessor not resulting from the transactions contemplated by the Operative Documents, (b) any act or omission of the Lessor which is not required by the Operative Documents or is in violation of any of the terms of the Operative Documents, (c) any claim against the Lessor with respect to Taxes or Transaction Expenses against which Lessee is not required to indemnify Lessor pursuant to the Lease or (d) any claim against the Lessor arising out of any transfer by the Lessor of all or any portion of the interest of the Lessor in any Leased Asset or the Operative Documents other than the transfer of title to or possession of any Property by the Lessor pursuant to and in accordance with the Lease or pursuant to the exercise of the remedies set forth in Article XX of the Lease. "Lessor Rate" means, with respect to each Interest Period, the Eurodollar Rate plus the Lessor Applicable Margin and, to the extent that the Eurodollar Rate is unavailable for any reason during such Interest Period, the Alternate Base Rate plus the Lessor Applicable Margin. "Lien" means any mortgage, deed of trust, pledge, security interest, encumbrance, lien, easement, servitude or charge of any kind, including, without limitation, any irrevocable license, conditional sale or other title retention agreement, any lease in the nature thereof, or any other right of or arrangement with any creditor to have its claim satisfied out of any specified property or asset with the proceeds therefrom prior to the satisfaction of the claims of the general creditors of the owner thereof, whether or not filed or recorded, or the filing of, or agreement to execute as "debtor", any financing or continuation statement under the Uniform Commercial Code of any jurisdiction or any federal, state or local lien imposed pursuant to any Environmental Law. "Liquidity Agent" means The Sumitomo Bank, Limited, New York Branch, in its capacity as agent under the Committed Loan Agreement and the Liquidity Asset Purchase Agreement. "Liquidity Applicable Margin" is set forth and determined in accordance with Appendix 2 to the Lease. "Liquidity Asset Purchase Agreement" means each of (i) the Liquidity Asset Purchase Agreement, dated as of May 30, 1997, among Madison, the Liquidity Providers and the Liquidity Agent and (ii) any other liquidity asset purchase agreement, substantially in the form of such Liquidity Asset Purchase Agreement, entered into among the Other Conduit, the Liquidity Providers and the Liquidity Agent with respect to the transactions contemplated by the Receivable Purchase Agreement. "Liquidity Commitment Fee" is set forth and determined in accordance with Appendix 2 to the Lease. "Liquidity Providers" means each party identified as such in a Liquidity Asset Purchase Agreement and each party that becomes a liquidity provider pursuant to an Assignment Agreement (it being understood that the term "Liquidity Providers" as used in the Lease shall include such Persons in their capacity as Lenders). "Loan" means a Committed Loan or a Conduit Loan. "Loan Commitment Period" means the period from the Closing Date until May 28, 1998, as such period may be extended from time to time pursuant to the Committed Loan Agreement and each Liquidity Asset Purchase Agreement (provided that in no event shall the Loan Commitment Period extend beyond the last expiring Base Term). "Loan Event of Default" is defined in Section 6.1 of the Committed Loan Agreement and Section 6.1 of the Uncommitted Loan Agreement. "Loan Potential Event of Default" is defined in Section 7.5 of the Committed Loan Agreement. "Madison" means Madison Funding Corporation. "Marketing Period" means, with respect to any Leased Asset, the period commencing on the date six months prior to the Expiration Date for such Leased Asset and ending on the Expiration Date for such Leased Asset. "Maximum Amount" is defined in Section 3.6 of the Intercreditor Agreement. "Modifications" is defined in Section 14.1(a) of the Lease. "Monthly Amortization" means, with respect to any month during the Base Term of any Leased Asset, the amount of amortization specified for such month in the Lease Supplement for such Leased Asset. "Mortgage" means, with respect to any Property, a memorandum of Lease and deed of trust, substantially in the form of Exhibit C to the Lease, sufficient to create in the opinion of the lessor a first priority lien on such 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. "Operative Documents" means the following: (a) the Lease; (b) the Construction Agency Agreement; (c) the Guaranty; (d) each Lease Supplement; (e) each Construction Agency Agreement Supplement; (f) each Deed; (g) each Ground Lease, if any; (h) each Mortgage, if any; (i) the Receivable Purchase Agreement; (j) each Uncommitted Loan Agreement; (k) the Conduit Notes; (l) the Committed Loan Agreement; (m) the Lender Note; (n) each Liquidity Asset Purchase Agreement; (o) the Intercreditor Agreement; and (p) each Funding Request. "Other Asset" means any asset, other than Property, which the Lessor and the Lessee mutually agree is to be acquired by the Lessor and leased to the Lessee under the Lease. "Other Asset Acquisition Cost" means (i) with respect to any Equipment and Systems, the aggregate amount of (x) Advances made for the purpose of acquiring title to assets constituting such Equipment and Systems and paying the Transaction Expenses relating to such acquisition and (y) Advances made for Capitalized Interest or for Capitalized Commitment Fees relating to such Equipment and Systems during the Construction Period for the related Property and (ii) with respect to any Other Asset not constituting Equipment and Systems, the amount of the Advance funded for the purpose of acquiring title to such Other Asset and paying Transaction Expenses relating to such acquisition. "Other Conduit" means a commercial paper conduit which (i) is sponsored by The Sumitomo Bank, Limited, (ii) has been approved by the Lessee and (iii) has agreed to be bound by all the terms and provisions of the Intercreditor Agreement. "Outside Completion Date" with respect to each Property is defined in the Lease Supplement therefor. "Overdue Rate" means the Lease Rate plus 2.00%. "Participant" means each Lender, each Conduit and the Lessor. "Paying Agent" means Sumitomo Bank of New York Trust Company, a New York limited purpose trust company. "Payment Date" means each Scheduled Payment Date and each Additional Payment Date. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Investments" means any one or more of the following types of investments: (a) marketable obligations of, or obligations guaranteed as to principal and interest by, the United States or an agency or instrumentality thereof when such obligations are backed by the full faith and credit of the United States, in each case having a maturity of not more than thirty (30) days from the date of acquisition; (b) bankers' acceptances and certificates of deposit and other interest-bearing obligations denominated in Dollars and issued by any bank with capital, surplus and undivided profits aggregating at least $100,000,000, the short-term unsecured senior debt obligations of which are rated by Standard & Poor's and Moody's Investors Service, Inc. (the "Rating Agencies") at least as highly as the Commercial Paper, in each case having a maturity of not more than thirty (30) days from the date of acquisition; (c) repurchase obligations with a term of not more than one year for underlying securities of the types described in clauses (a) and (b) above entered into with any counterparty whose short-term unsecured senior debt obligations are rated by the Rating Agencies at least as highly as the Commercial Paper; (d) commercial paper having a maturity of not more than thirty (30) days rated by the Rating Agencies at least as highly as the Commercial Paper; and (e) freely redeemable shares in money market funds which invest solely in obligations, bankers' acceptances, certificates of deposit, repurchase agreements and commercial paper of the types described in clauses (a) through (d), without regard to the limitations as to the maturity of such obligations, bankers' acceptances, certificates of deposit, repurchase agreements or commercial paper set forth in such clauses, rated by the Rating Agencies at least as highly as the Commercial Paper. "Permitted Liens" means, with respect to any Leased Asset: (i) the respective rights and interests of the parties to the Operative Documents as provided in the Operative Documents; (ii) the rights of any sublessee or assignee under a sublease or an assignment expressly permitted by the terms of the Lease; (iii) Liens for Taxes that either are not yet payable or are being contested in accordance with the provisions of Section 16.1 of the Lease. (iv) Liens arising by operation of law, materialmen's, mechanics', workers', repairmen's, employees', carriers', warehousemen's and other like Liens relating to the construction of the Improvements or in connection with any Modifications or arising in the ordinary course of business for amounts that either are not more than sixty (60) days past due or are being diligently contested in good faith by appropriate proceedings, so long as such proceedings satisfy the conditions for the continuation of proceedings to contest Taxes set forth in Section 16.1 of the Lease; (v) Liens of any of the types referred to in clause (iv) above that have been bonded for not less than the full amount in dispute (or as to which other security arrangements satisfactory to the Lessor have been made), which bonding (or arrangements) shall comply with applicable Requirements of Law, and has effectively stayed any execution or enforcement of such Liens; (vi) Liens arising out of judgments or awards with respect to which appeals or other proceedings for review are being prosecuted in good faith and for the payment of which adequate reserves have been provided as required by GAAP or other appropriate provisions have been made, so long as such proceedings have the effect of staying the execution of such judgments or awards and satisfy the conditions for the continuation of proceedings to contest set forth in Section 16.1 of the Lease; (vii) easements, rights of way and other encumbrances on title to real property pursuant to Section 15.2 of the Lease; (viii) Lessor Liens; (ix) Liens created by the Lessee with the consent of the Lessor; and (x) Liens described on each title insurance policy delivered pursuant to the Lease other than Liens described in clause (iv) or (vi) above that are not removed within sixty (60) days of their origination. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, governmental authority, limited liability company or any other entity. "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 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 (5) 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. "Plans and Specifications" means, with respect to any Property, the plans and specifications for the Construction of the Improvements to such Property, as more particularly described in Schedule 2 to the Construction Agency Agreement Supplement for such Property, as such may be amended from time to time in accordance with the Construction Agency Agreement. "Prime Construction Contract" means, with respect to each Property, each contract between the Construction Agent and the Prime Contractor for such Property, as it may be amended from time to time in accordance with the Construction Agency Agreement. "Prime Contractor" means, with respect to each Property, the contractor designated as such in each Prime Construction Contract for such Property or such other Person who shall, with the prior consent of the Lessor, have been designated by the Lessee to act as the general contractor for purposes of the Construction of the Improvements to such Property. "Pro Rata Basis" means, with respect to any Participant, the ratio, expressed as a percentage, of (i) such Participant's outstanding Committed Loans, in the case of a Lender, outstanding Conduit Loans, in the case of a Conduit, or outstanding Lessor Contribution, in the case of the Lessor, to (ii) the sum of all outstanding Advances. "Property" means (i) the Lessor's interest in any Land subject to the Lease and (ii) all of the Improvements at any time located on or under such Land. "Property Improvement Costs" means, with respect to any Property, the aggregate amount of (i) Advances funded to the Construction Agent for such Property for the purpose of constructing Improvements on such Property and paying the Transaction Expenses relating to such funding and construction and (ii) Advances made for Capitalized Interest or for Capitalized Commitment Fees relating to such Property during the Construction Period for such Property. "Purchase Notice" is defined in Section 22.1 of the Lease. "Purchase Option" is defined in Section 22.1 of the Lease. "Purchase Option Price" is defined in Section 22.1 of the Lease. "Purchase Price" is defined in Section 1.2(b) of the Receivable Purchase Agreement. "Purchaser's Interest" is defined in Section 2.1 of the Receivable Purchase Agreement. "Receivable Purchaser" means RA Funding Corporation, a Delaware corporation; "Receivable Purchase Agreement" means the Lease Receivable Purchase Agreement dated as of May 30, 1997 between the Receivable Purchaser and the Lessor. "Release" means any release, pumping, pouring, emptying, injecting, escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or emission of a Hazardous Substance. "Release Date" is defined in Section 2.3 of the Intercreditor Agreement. "Relevant Percentage" means, with respect to any Advance, the percentage of such Advance to be funded by the sale of the Purchaser's Interest pursuant to the Receivable Purchase Agreement, as designated in the Lease Supplement for the Leased Asset to which such Advance relates. "Remarketing Option" is defined in Section 24.1 of the Lease. "Renewal Option" is defined in Section 23.1 of the Lease. "Renewal Term" has the meaning set forth in Section 23.1 of the Lease. "Rent" means, collectively, Capitalized Interest, the Base Rent and the Supplemental Rent, in each case payable under the Lease. "Requesting Party" is defined in Section 27.1 of the Lease. "Required Lenders" is defined in Section 8.1 of the Committed Loan Agreement. "Required Participants" means Participants with an aggregate Voting Percentage in excess of 66 %. "Required Modification" is defined in Section 14.1 of the Lease. "Requirement of Law" means all Federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting any Leased asset or the demolition, construction, use or alteration thereof, whether now or hereafter enacted and in force, including any that require repairs, modifications or alterations in or to such Leased Asset or in any way limit the use and enjoyment thereof (including all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. ss. 1201 et seq. and any other similar Federal, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including all Environmental Laws), and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments which are either of record or known to the Lessee affecting any Property, the Appurtenant Rights and any easements, licenses or other agreements entered into pursuant to Section 15.2 of the Lease. "Responsible Employee" means, with respect to any Person, the Chairman, the President, any Vice President, the Controller or the Treasurer of such Person. "Responsible Employee's Certificate" means, with respect to any Person, a certificate signed by any Responsible Employee of such Person, which certificate shall certify as true and correct the subject matter being certified to in such certificate. "Scheduled Payment Date" means the fifteenth (15th) day of each calendar month. "Secured Obligations" is defined in Section 2.2 of the Intercreditor Agreement. "Securities Act" means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder. "Security Documents" means the collective reference to the Mortgage and all other security documents now or hereafter delivered to the Lessor granting a Lien on any asset or assets of any Person to secure the obligations and liabilities of the Lessee under the Lease and the other Operative Documents. "Significant Condemnation" means (a) a Condemnation that involves a taking of Lessor's entire leasehold interest in or to any Land or Lessee's entire title to such Land, or (b) a Condemnation that in the reasonable, good faith judgment of the Lessor either (i) renders any Property unsuitable for continued use as property of the type of such Property immediately prior to such Condemnation or (ii) is such that restoration of any Property (other than Land) to substantially its condition as existed immediately prior to such Condemnation would be impracticable or impossible to effect. "Significant Subsidiary" means at any time (i) the Lessee and (ii) any Subsidiary or any group of Subsidiaries having consolidated assets, individually or in the aggregate, equal to or greater than 8% of the consolidated assets of the Borrower and its Consolidated Subsidiaries at such time. "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. "Substantial Completion" means, with respect to any Property, such time as the conditions set forth in Article V of the Lease are satisfied for such Property. "Supplemental Rent" means all amounts, liabilities and obligations (other than Capitalized Interest and Base Rent) which Lessee assumes or agrees to pay to Lessor or any other Person under the Lease or under any of the other Operative Documents, including, without limitation, Break Costs (but without duplication of amounts due under Section 26.5 of the Lease). "Taxes" is defined in the definition of Impositions. "Termination Event" is defined in Section 6.1 of the Receivable Purchase Agreement. "Termination Notice" is defined in Section 19.1 of the Lease. "Title Company" means, with respect to each Property, the Person designated in the Lease Supplement therefor. "Threshold Amount" means, with respect to each Leased Asset, an amount equal to or greater than 10% of the Lease Balance for such Leased Asset, but in no event less than the then effective per occurrence deductible under the lessee's casualty insurance program. "Total Commitment" means the aggregate of the Lessor's Commitments for all Leased Assets. "Transaction Expenses" means all costs and expenses incurred in connection with the preparation, execution and delivery of the Operative Documents and the transactions contemplated by the Operative Documents including without limitation: (a) the reasonable fees, out-of-pocket expenses and disbursements of counsel for each of the Lessor, the Lessee and the Guarantor in negotiating the terms of the Operative Documents and the other transaction documents, preparing for the closing under, and rendering opinions in connection with, such transactions and in rendering other services customary for counsel representing parties to transactions of the types involved in the transactions contemplated by the Operative Documents, in each case subject to any agreed upon cap on such fees; (b) the reasonable fees, out-of-pocket expenses and disbursements of any law firm or other external counsel, and (without duplication) the reasonable allocated cost of internal legal services and all disbursements of internal counsel of the Lessor, the Receivable Purchaser, the Collateral Agent, the Conduits, the Liquidity Agent, the Lenders and the Liquidity Providers in connection with (1) any amendment, supplement, waiver or consent with respect to any Operative Documents requested or approved by the Lessee and (2) any enforcement of any rights or remedies against the Lessee or the Guarantor in respect of the Operative Documents; (c) any other reasonable fees, out-of-pocket expenses, disbursements or cost of the Lessor, the Receivable Purchaser, the Collateral Agent, the Conduits, the Liquidity Agent, the Lenders and the Liquidity Providers related to the Operative Documents or any of the other transaction documents; (d) any and all Taxes and fees incurred in recording, registering or filing any Operative Document or any other transaction document, any deed, declaration, mortgage, security agreement, notice or financing statement with any public office, registry or governmental agency in connection with the transactions contemplated by the Operative Documents; (e) any title fees, premiums and escrow costs and other expenses relating to title insurance and the closings contemplated by the Operative Documents; (f) all expenses relating to all Environmental Audits; and (g) all expenses relating to all Appraisals. "UCC Financing Statements" means UCC financing statements appropriately completed and executed for filing in the applicable jurisdiction in order to perfect the Lessor's interest under the Lease to the extent the Lease is a security agreement. "Uncommitted Loan Agreement" means each of (i) the Uncommitted Loan Agreement, dated as of May 30, 1997, between the Receivable Purchaser and Madison and (ii) any other uncommitted loan agreement, substantially in the form of such Uncommitted Loan Agreement, entered into between the Receivable Purchaser and the Other Conduit. "Uniform Commercial Code" and "UCC" mean the Uniform Commercial Code as in effect in any applicable jurisdiction. "Unused Lessor Commitment" means, with respect to any Leased Asset at any time, (i) the portion of the Lessor's Commitment for such Leased Asset expected to be funded by the Lessor Contribution less (ii) the amount of the Lessor Contribution outstanding at such time. "Unused Liquidity Commitment" is defined in Article I of each Liquidity Asset Purchase Agreement; provided, however, that for purposes of Appendix 2 to the Lease, "Unused Liquidity Commitment" means, with respect to any Leased Asset at any time, (i) the portion of the Lessor's Commitment for such Leased Asset expected to be funded by the Debt Contribution less (ii) the amount of the Debt Contribution outstanding at such time funded by Eurodollar Tranches or Base Rate Tranches. "Voting Percentage" with respect to a Lender or the Lessor means the ratio, expressed as a percentage, of (i) in the case of a Lender, (x) such Lender's Commitment to (y) the Total Commitment and (ii) in the case of the Lessor, (x) the amount by which the Total Commitment exceeds the aggregate Commitments of all of the Lenders to (y) the Total Commitment. EX-4 26 EXHIBIT 4.25 - WAIVER NO. 1 TO GUARANTY AGREEMENT FINCO, INC. SENIOR SECURED NOTES DUE FEBRUARY 28, 2002 WAIVER NO. 1 TO NOTE AGREEMENT RITE AID CORPORATION WAIVER NO. 1 TO GUARANTY AGREEMENT As of January 10, 2000 The Prudential Insurance Company of America 1114 Avenue of the Americas -- 30th Floor New York, New York 10036 Pruco Life Insurance Company One Gateway Center, 11th Floor 7-45 Raymond Boulevard West Newark, New Jersey 07102-5311 Ladies and Gentlemen: FINCO, INC. (hereinafter "FINCO"), a Delaware corporation, and RITE AID CORPORATION (hereinafter "RITE AID", and, together with Finco, collectively, the "COMPANIES") (together with their successors and assigns) agree with you as follows: 1. PRELIMINARY STATEMENTS. 1.1. NOTE ISSUANCE, ETC. Finco issued and sold $79,560,908.91 aggregate principal amount of its Senior Secured Notes due February 28, 2002 (as may be amended, restated or otherwise modified from time to time, the "NOTES") pursuant to a Note Agreement dated September 30, 1996 (as previously amended pursuant to Amendment No. 1 to Note Agreement dated as of October 25, 1999, and Amendment No. 2 to Note Agreement dated as of December 2, 1999, the "NOTE AGREEMENT"). Rite Aid has entered into a Guaranty Agreement, also dated as of September 30, 1996 (as previously amended pursuant to Amendment No. 1 to Guaranty Agreement dated as of October 25, 1999, and Amendment No. 2 to Guaranty Agreement dated as of December 2, 1999, the "RITE AID GUARANTY") with the Noteholders, whereby in consideration of the purchase of the Notes it unconditionally and absolutely guaranteed Finco's performance of its obligations under the Note Agreement. 2. DEFINED TERMS. The following term, as used herein, has the following meaning: "PUBLIC DEBT" means debt securities of Rite Aid issued pursuant to an indenture qualified under (or in form suitable for qualification under) the Trust Indenture Act of 1939, as amended. All other capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Note Agreement. 3. WAIVERS. Subject to Sections 4 and 5 hereof, the Noteholders hereby waive certain provisions of each of the Note Agreement and the Rite Aid Guaranty as provided for by this Waiver No. 1 to Note Agreement and Waiver No. 1 to Guaranty Agreement (collectively, this "WAIVER AGREEMENT") in the manner specified in Exhibit A. The waivers referred to herein are referred to herein, collectively, as the "WAIVERS". 4. CONDITIONS TO WAIVERS. The Waivers granted pursuant to Section 3 hereof are subject to the following conditions: (a) Rite Aid shall deliver to the Noteholders the following items on or prior to the dates specified below: (i) a monthly forecast of cash receipts and disbursements for each month, commencing with February, 2000, no later than the first day of each month in respect of such forecast; (ii) a monthly reconciliation of actual cash receipts and disbursements to the forecast for such month delivered pursuant to clause (i) of this Section 4(a), no later than the 25th day of the next succeeding month; (iii) a weekly sales report for each week, commencing with the week ending January 8, 2000, no later than the 4th day following the last day of the week in respect of which such sales report is to be delivered; (iv) an operating forecast for each month in the fiscal year ending on or closest to February 28, 2001, no later than March 31, 2000; and (v) a monthly reconciliation of actual operating results for each month specified in the operating forecast delivered pursuant to clause (iv) of this Section 4(a) to the budget for such month, no later than the 30th day of the next succeeding month, and (b) Rite Aid shall not directly or indirectly, make or agree to make any payment to or for the account of any holder of Public Debt, or any trustee or other representative of any such holder, on account of principal of, interest on or fees in respect of such Public Debt, except as required by the terms of such Public Debt as in effect on the date hereof. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES. To induce you to enter into this Waiver Agreement and to consent to the Waivers, the Companies, jointly and severally, represent and warrant as follows: 5.1. ORGANIZATION, POWER AND AUTHORITY, ETC. The Companies are corporations duly incorporated and validly existing in good standing under the laws of their respective jurisdictions of incorporation and have all requisite corporate power and authority to enter into and perform their respective obligations under this Waiver Agreement. 5.2. LEGAL VALIDITY. The execution and delivery of this Waiver Agreement by each of the Companies and compliance by them with their obligations hereunder: (a) are within the corporate powers of the respective Companies; and (b) are legal and do not conflict with, result in any breach of, constitute a default under, or result in the creation of any Lien upon any Property of either Company under the provisions of: (i) any charter instrument or bylaw to which either Company is a party or by which either Company or any of its Property may be bound; (ii) any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority applicable to either Company or its Property; or (iii) any agreement or instrument to which either Company is a party or by which either Company or any of its Property may be bound or any statute or other rule or regulation of any Governmental Authority applicable to either Company or its Property, except where such conflict, breach or default could not reasonably be expected to have a Material Adverse Effect. This Waiver Agreement has been duly authorized by all necessary action on the part of the Companies, has been executed and delivered by a duly authorized officer of the Companies, and constitutes a legal, valid and binding obligation of each of the Companies enforceable in accordance with its terms, except that enforceability may be limited by applicable bankruptcy, reorganization, arrangement, insolvency, moratorium, or other similar laws affecting the enforceability of creditors' rights generally and subject to the availability of equitable remedies. 6. EFFECTIVENESS OF WAIVERS. The Waivers shall become effective on such date (the "EFFECTIVE DATE") as (i) the Companies and the Noteholders shall have indicated their written consent to the Waivers by executing and delivering to each other counterparts of this Waiver Agreement, and (ii) the Noteholders shall have received evidence satisfactory to them that substantially identical waivers to any covenant requiring delivery of financial statements or reports set forth in any other agreement obligations under which are secured by the Collateral (as such term is defined in the Amended and Restated Credit Agreement dated as of October 25, 1999 and amended as of December 2, 1999) shall have become or shall simultaneously herewith become effective. 7. EXPENSES. Whether or not the Waivers become effective, the Companies will promptly (and in any event within thirty days of receiving any statement or invoice therefor) pay all fees, expenses and costs relating to this Waiver, including, but not limited to, the reasonable fees of your special counsel, Bingham Dana LLP, incurred in connection with the preparation, negotiation and delivery of the Waiver Agreement and any other documents related thereto. Nothing in this Section shall limit the Companies' obligations pursuant to paragraph 10B of the Note Agreement and Section 6.1 of the Rite Aid Guaranty. 8. MISCELLANEOUS. 8.1. COUNTERPARTS. This Waiver Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 8.2. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN NEW YORK. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; NEXT PAGE IS SIGNATURE PAGE.] If you are in agreement with the foregoing, please so indicate by signing the acceptance below on the accompanying counterpart of this agreement and returning it to the Companies, whereupon it will become a binding agreement among you and the Companies. FINCO, INC. BY:__________________________ NAME: TITLE: RITE AID CORPORATION BY:__________________________ NAME: TITLE: The foregoing Waiver Agreement is hereby accepted as of the date first above written. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA BY:__________________________ NAME: TITLE: PRUCO LIFE INSURANCE COMPANY BY:__________________________ NAME: TITLE: EXHIBIT A WAIVERS 1. LIMITED WAIVERS TO RITE AID GUARANTY. The Noteholders hereby waive, for the limited period provided herein, any default arising under the Rite Aid Guaranty as a result of Rite Aid's failure to comply with the requirements under Section 5.1(a), Section 5.1(b), Section 5.1(c) or Section 5.1(d) of the Rite Aid Guaranty that Rite Aid deliver to the Noteholders the financial statements referred to in Section 5.1(a) or Section 5.1(b) of the Rite Aid Guaranty and the related officer's certificate and statement of Rite Aid's independent accountants referred to in Sections 5.1(c) and 5.1(d) of the Rite Aid Guaranty, such Waivers to be effective solely for the period commencing on January 11, 2000 and ending on July 11, 2000. This Waiver shall be limited precisely as written, and shall not extend to any delivery requirement under Section 5.1(a), Section 5.1(b), Section 5.1(c) or Section 5.1(d) of the Rite Aid Guaranty during any other period. 2. WAIVERS TO NOTE AGREEMENT. The Noteholders hereby waive any Default that would arise under (a) Section 6(iv) due solely to Rite Aid's failure to deliver to the Noteholders the financial statements referred to in Section 5.1(a) or Section 5.1(b) of the Rite Aid Guaranty and the related officer's certificate and statement of Rite Aid's independent accountants referred to in Sections 5.1(c) and 5.1(d) of the Rite Aid Guaranty and (b) Section 6(vi) of the Note Agreement solely by reason of a default under any Public Debt as a result of the failure of Rite Aid to file or deliver financial statements or reports substantially the same as those described in Section 5.1(a), Section 5.1(b), Section 5.1(c) or Section 5.1(d) of the Rite Aid Guaranty, such waivers to be effective solely for the period commencing on January 11, 2000 and ending on July 11, 2000; provided, however, that the Waiver in clause (b) of this paragraph shall terminate on the earlier of (i) July 11, 2000 or (ii) the date that is 10 days prior to the earliest date on which any holder of Public Debt or any trustee or other representative of any such holder shall have a present right to accelerate the maturity thereof by reason of any such default waived hereunder. This Waiver shall be limited precisely as written, and shall not extend to any Default under any other provision of the Note Agreement during any other period. EX-4 27 EXHIBIT 4.26 - AMENDMENT NO. 2 TO GUARANTY AGREEMENT Exhibit 4.26 FINCO, INC. 7.30% SENIOR SECURED NOTES DUE FEBRUARY 28, 2002 AMENDMENT NO. 2 TO NOTE AGREEMENT RITE AID CORPORATION AMENDMENT NO. 2 TO GUARANTY AGREEMENT As of December 2, 1999 TO EACH OF THE CURRENT NOTEHOLDERS NAMED IN ANNEX 1 HERETO: Ladies and Gentlemen: FINCO, INC. (hereinafter "FINCO"), a Delaware corporation and RITE AID CORPORATION (hereinafter "RITE AID", and, together with Finco, collectively, the "COMPANIES") (together with their successors and assigns) agree with you as follows: 1. PRELIMINARY STATEMENTS. 1.1 Note Issuance, etc. Finco issued and sold $79,560,908.91 aggregate principal amount of its 7.30% Senior Secured Notes due February 28, 2002 (as may be amended, restated or otherwise modified from time to time, the "NOTES") pursuant to a Note Agreement dated September 30, 1996 (as previously amended pursuant to Amendment No. 1 to Note Agreement dated as of October 25, 1999, and as in effect immediately prior to giving effect to the Amendments provided for by this Amendment Agreement, the "EXISTING NOTE AGREEMENT"). Rite Aid has entered into a Guaranty Agreement, also dated as of September 30, 1996 (as previously amended pursuant to Amendment No. 1 to Guaranty Agreement dated as of October 25, 1999, and as in effect immediately prior to giving effect to the Amendments provided for by this Amendment Agreement, the "EXISTING RITE AID GUARANTY") with the Noteholders, whereby in consideration of the purchase of the Notes it unconditionally and absolutely guaranteed Finco's performance of its obligations under the Existing Note Agreement. The register for the registration and transfer of the Notes indicates that the Persons named in Annex 1 hereto (collectively, the "CURRENT NOTEHOLDERS") are currently the holders of the entire outstanding principal amount of the Notes. 2. DEFINED TERMS. Capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Existing Note Agreement. 3. AMENDMENTS. Subject to Section 5, the Existing Note Agreement and the Existing Rite Aid Guaranty are amended as provided for by this Amendment No. 2 to Note Agreement and Amendment No. 2 to Guaranty Agreement (collectively, this "AMENDMENT AGREEMENT") in the manner specified in Exhibit A. The amendments referred to herein are referred to herein, collectively, as the "AMENDMENTS". 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. To induce you to enter into this Amendment Agreement and to consent to the Amendments, the Companies, jointly and severally, represent and warrant as follows: 4.1 Organization, Power and Authority, etc. The Companies are corporations duly incorporated and validly existing in good standing under the laws of their respective jurisdictions of incorporation and have all requisite corporate power and authority to enter into and perform their respective obligations under this Amendment Agreement. 4.2 Legal Validity. The execution and delivery of this Amendment Agreement by each of the Companies and compliance by them with their obligations hereunder: (a) are within the corporate powers of the respective Companies; and (b) are legal and do not conflict with, result in any breach of, constitute a default under, or result in the creation of any Lien upon any Property of either Company under the provisions of: (i) any charter instrument or bylaw to which either Company is a party or by which either Company or any of its Property may be bound; (ii) any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority applicable to either Company or its Property; or (iii) any agreement or instrument to which either Company is a party or by which either Company or any of its Property may be bound or any statute or other rule or regulation of any Governmental Authority applicable to either Company or its Property, except where such conflict, breach or default could not reasonably be expected to have a Material Adverse Effect. This Amendment Agreement has been duly authorized by all necessary action on the part of the Companies, has been executed and delivered by a duly authorized officer of the Companies, and constitutes a legal, valid and binding obligation of each of the Companies enforceable in accordance with its terms, except that enforceability may be limited by applicable bankruptcy, reorganization, arrangement, insolvency, moratorium, or other similar laws affecting the enforceability of creditors' rights generally and subject to the availability of equitable remedies. 4.3 No Defaults. No event has occurred and no condition exists that, upon the execution and delivery of this Amendment Agreement, would constitute a Default or an Event of Default. The Current Noteholders understand that the Morgan Credit Agreement Amendment (as hereinafter defined) is amending the Amended and Restated Credit Agreement, dated as of October 25, 1999, among the Guarantor, the banks from time to time parties thereto, and Morgan Guaranty Trust Company of New York, as agent (the "EXISTING CREDIT AGREEMENT"). Pursuant to Section 6.2 of the Rite Aid Guaranty, the provisions of Sections 5.7 to 5.13, inclusive (the "GUARANTY COVENANTS") of the Rite Aid Guaranty, and the definitions of defined terms used therein, are automatically amended to be identical to the equivalent covenants and definitions in the Existing Credit Agreement upon the effectiveness of any amendment to the Existing Credit Agreement. The Current Noteholders acknowledge and agree that all of the Guaranty Covenants, and the definitions of defined terms used therein, are being so automatically amended by the Morgan Credit Agreement Amendment. The Current Noteholders and the Companies acknowledge and agree that, pursuant to Section 5.16 of the Existing Guaranty Agreement, all covenants in Section 5 of the Amended Morgan Credit Agreement (as hereinafter defined) are incorporated into the Existing Rite Aid Guaranty, as amended hereby. 5. EFFECTIVENESS OF AMENDMENTS. The Amendments shall become effective on such date (the "EFFECTIVE DATE") as (i) the Companies and the Current Noteholders shall have indicated their written consent to the Amendments by executing and delivering to each other counterparts of this Amendment Agreement, (ii) Amendment No. 1 to Amended and Restated Credit Agreement, dated as of December 2, 1999, among Rite Aid, the banks from time to time parties thereto, and Morgan Guaranty Trust Company of New York, as Agent shall have been executed and delivered by the parties thereto in the form attached hereto as Exhibit B (the "MORGAN CREDIT AGREEMENT AMENDMENT") (such Amended and Restated Credit Agreement, as so amended, being referred to herein as the "AMENDED MORGAN CREDIT AGREEMENT"), and (iii)the Companies shall have made payment of the fee payable to the Noteholders pursuant to Section 6 of this Amendment Agreement and the expenses to be paid on behalf of the Noteholders pursuant to Section 7 of this Amendment Agreement (to the extent a statement therefor has been presented to the Companies on or prior to the Effective Date). 6. FEE. In consideration of the consent by the Noteholders to the Amendments, the Companies shall pay a combined fee to the Noteholders on the Effective Date in an amount equal to .25% of the aggregate principal amount of the Notes outstanding on such date. Such combined fee shall be paid to the Noteholders ratably in accordance with the respective principal amounts of Notes held by them and in the manner and to the accounts specified in the Existing Note Agreement for payments of principal and interest on the Notes. 7. EXPENSES. Whether or not the Amendments become effective, the Companies will promptly (and in any event within thirty days of receiving any statement or invoice therefor) pay all fees, expenses and costs relating to this Amendment, including, but not limited to, the reasonable fees of your special counsel, Bingham Dana LLP, incurred in connection with the preparation, negotiation and delivery of the Amendment Agreement and any other documents related thereto. Nothing in this Section shall limit the Companies' obligations pursuant to paragraph 10B of the Existing Note Agreement and Section 6.1 of the Rite Aid Guaranty. 8. MISCELLANEOUS. 8.1 Part of Existing Note Agreement, Future References, etc. This Amendment Agreement shall be construed in connection with and as a part of the Existing Note Agreement, the Notes and the Existing Rite Aid Guaranty and, except as expressly amended by this Amendment Agreement, all terms, conditions and covenants contained in the Existing Note Agreement, the Notes and the Existing Rite Aid Guaranty are hereby ratified and shall be and remain in full force and effect. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment Agreement may refer to the Existing Note Agreement, the Notes and the Existing Rite Aid Guaranty without making specific reference to this Amendment Agreement, but nevertheless all such references shall include this Amendment Agreement unless the context otherwise requires. 8.2 Counterparts. This Amendment Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 8.3 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN NEW YORK. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; NEXT PAGE IS SIGNATURE PAGE.] If you are in agreement with the foregoing, please so indicate by signing the acceptance below on the accompanying counterpart of this agreement and returning it to the Companies, whereupon it will become a binding agreement among you and the Companies. FINCO, INC. BY:________________________________________ Name: Title: RITE AID CORPORATION BY:________________________________________ Name: Title: The foregoing Amendment Agreement is hereby accepted as of the date first above written. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA BY:______________________________________ Name: Title: PRUCO LIFE INSURANCE COMPANY BY:______________________________________ Name: Title: EXHIBIT A AMENDMENTS 1. Amendments to Existing Note Agreement. (a) The definition of "Morgan Credit Agreement" in paragraph 9B is hereby amended and restated in its entirety as follows: "MORGAN CREDIT AGREEMENT" the Amended and Restated Credit Agreement, dated as of October 25, 1999, as amended by Amendment No. 1 to Amended and Restated Credit Agreement, dated as of December 2, 1999, among the Guarantor, the banks from time to time parties thereto, and Morgan Guaranty Trust Company of New York, as Agent, as in effect on the Effective Date of the Note/Guaranty Agreement. (b) The definition of "Note/Guaranty Agreement" in paragraph 9B is hereby amended and restated in its entirety as follows: "NOTE/GUARANTY AGREEMENT" means Amendment No. 2 to Note Agreement and Amendment No. 2 to Guaranty Agreement, dated as of December [__], 1999, among the Company, the Guarantor and the holders of the Notes. 2. Amendments to Existing Rite Aid Guaranty Agreement. (a) The definition of "Morgan Credit Agreement" in Section 3.1 of the Existing Rite Aid Guaranty is hereby amended and restated in its entirety as follows: "MORGAN CREDIT AGREEMENT" means the Amended and Restated Credit Agreement, dated as of October 25, 1999, as amended by Amendment No. 1 to Amended and Restated Credit Agreement, dated as of December 2, 1999, among the Guarantor, the banks from time to time parties thereto, and Morgan Guaranty Trust Company of New York, as Agent, as in effect on the Effective Date of the Note/Guaranty Agreement (as defined in the Note Agreement). EXHIBIT B EX-4 28 EXHIBIT 4.27 - AMENDMENT NO. 1 TO GUARANTY AGREEMENT Exhibit 4.27 FINCO, INC. 7.30% SENIOR SECURED NOTES DUE FEBRUARY 28, 2002 AMENDMENT NO. 1 TO NOTE AGREEMENT RITE AID CORPORATION AMENDMENT NO. 1 TO GUARANTY AGREEMENT As of October 25, 1999 TO EACH OF THE CURRENT NOTEHOLDERS NAMED IN ANNEX 1 HERETO: Ladies and Gentlemen: FINCO, INC. (hereinafter "FINCO"), a Delaware corporation and RITE AID CORPORATION (hereinafter "RITE AID") (together with their successors and assigns) agree with you as follows: 1. PRELIMINARY STATEMENTS. 1.1. NOTE ISSUANCE, ETC. Finco issued and sold $79,560,908.91 aggregate principal amount of its 7.30% Senior Secured Notes due February 28, 2002 (as may be amended, restated or otherwise modified from time to time, the "NOTES") pursuant to a Note Agreement dated September 30, 1996 (the "NOTE AGREEMENT"). Rite Aid has entered into a Guaranty Agreement (the "Guaranty") with the Noteholders, also dated September 30, 1996, whereby in consideration of the purchase of the Notes it unconditionally and absolutely guaranteed Finco's performance of its obligations under the Note Agreement. The aggregate principal amount of the Notes currently outstanding is $49,189,662. The register for the registration and transfer of the Notes indicates that each of the Persons in named Annex 1 hereto (collectively, the "CURRENT NOTEHOLDERS") is currently a holder of the aggregate principal amount of Notes indicated in such Annex. 2. DEFINED TERMS. Capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Note Agreement. 3. REQUEST FOR CONSENT TO AMENDMENTS. Finco and Rite Aid (collectively the "COMPANIES") request that each of you consent to the amendments to the Note Agreement (the "AMENDMENTS") provided for by this Amendment No. 1 to Note Agreement and Amendment No. 1 to Guaranty Agreement (collectively, this "AMENDMENT AGREEMENT"). 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. To induce you to enter into this Amendment Agreement and to consent to the Amendments, the Companies, jointly and severally, represent and warrant as follows: 4.1. ORGANIZATION, POWER AND AUTHORITY, ETC. The Companies are corporations duly incorporated and validly existing in good standing under the laws of their respective jurisdictions of incorporation. 4.2. LEGAL VALIDITY. The execution and delivery of this Amendment Agreement by each of the Companies and compliance by them with their obligations hereunder: (a) are within the corporate powers of the respective Companies; and (b) are legal and do not conflict with, result in any breach of, constitute a default under, or result in the creation of any Lien upon any Property of either Company under the provisions of: (i) any charter instrument or bylaw to which either Company is a party or by which either Company or any of its Property may be bound; (ii) any order, judgement, decree or ruling of any court, arbitrator or Governmental Authority applicable to either Company or its Property; or (iii) any agreement or instrument to which either Company is a party or by which either Company or any of its Property may be bound or any statute or other rule or regulation of any Governmental Authority applicable to either Company or its Property, except where such conflict, breach or default could not reasonably be expected to have a Material Adverse Effect. This Amendment Agreement has been duly authorized by all necessary action on the part of the Companies, has been executed and delivered by a duly authorized officer of the Companies, and constitutes a legal, valid and binding obligation on each of the Companies enforceable in accordance with its terms, except that enforceability may be limited by applicable bankruptcy, reorganization, arrangement, insolvency, moratorium, or other similar laws affecting the enforceability of creditors' rights generally and subject to the availability of equitable remedies. 4.3. NO DEFAULTS. No event has occurred and no condition exists that, upon the execution and delivery of this Amendment Agreement, would constitute a Default or Event of Default. 5. AMENDMENTS. The Note Agreement, each of the Notes outstanding on the Effective Date and the Rite Aid Guaranty are hereby amended in the manner specified in Exhibit A. 5.1. EFFECTIVENESS OF AMENDMENTS. The Amendments shall become effective on such date (the "EFFECTIVE DATE") as (i) the Companies and the Current Noteholders shall have indicated their written consent to the Amendments by executing and delivering to each other counterparts of this Agreement, (ii) the Amended and Restated Credit Agreement, dated as of October 25, 1999, among Rite Aid, the banks from time to time parties thereto, and Morgan Guaranty Trust Company of New York, as Agent (the "MORGAN CREDIT AGREEMENT") shall have been executed and delivered by the parties thereto, (iii) the Loan Documents (as defined in the Morgan Credit Agreement) shall have been executed and delivered by the parties thereto, and (iv) the Companies shall have made payment of the fee payable to the Noteholders pursuant to Section 6 of this Amendment Agreement and the expenses to be paid on behalf of the Noteholders pursuant to Section 7 of this Amendment Agreement (to the extent a statement therefor has been presented to the Companies on or prior to the Effective Date). 6. FEE. In consideration of the consent by the Noteholders to the Amendments, the Companies shall pay a combined fee to the Noteholders on the Effective Date in the aggregate amount of $555,586. Such combined fee shall be paid to the Noteholders ratably in accordance with the respective principal amounts of Notes held by them and in the manner and to the accounts specified in the Note Agreement for payments of principal and interest on the Notes. 7. EXPENSES. Whether or not the Amendments become effective, the Companies will promptly (and in any event within thirty days of receiving any statement or invoice therefor) pay all fees, expenses and costs relating to this Amendment, including, but not limited to, the reasonable fees of your special counsel, Bingham Dana LLP, incurred in connection with the preparation, negotiation and delivery of the Amendment Agreement and any other documents related thereto. Nothing in this Section shall limit the Companies' obligations pursuant to paragraph 10B of the Note Agreement. 8. MISCELLANEOUS. 8.1. PART OF NOTE AGREEMENT, FUTURE REFERENCES, ETC. This Amendment Agreement shall be construed in connection with and as a part of the Note Agreement and, except as expressly amended by this Amendment Agreement, all terms, conditions and covenants contained in the Note Agreement and Notes are hereby ratified and shall be and remain in full force and effect. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment Agreement may refer to the Note Agreements and the Notes without making specific reference to this Amendment Agreement, but nevertheless all such references shall include this Amendment Agreement unless the context otherwise requires. 8.2. COUNTERPARTS. This Amendment Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 8.3. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN NEW YORK. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; NEXT PAGE IS SIGNATURE PAGE.] If you are in agreement with the foregoing, please so indicate by signing the acceptance below on the accompanying counterpart of this agreement and return it to the Companies, whereupon it will become a binding agreement among you and the Companies. FINCO, INC. BY: NAME: TITLE: RITE AID CORPORATION BY: NAME: TITLE: The foregoing Agreement is hereby accepted as of the date first above written. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA BY: NAME: TITLE: PRUCO LIFE INSURANCE COMPANY BY: NAME: TITLE: EXHIBIT A AMENDMENTS 1. CHANGE IN INTEREST RATE. (a) Paragraph 1 of the Note Agreement is hereby amended and restated in its entirety as follows: 1. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the issue and sale of its senior promissory ntoes (the "NOTES") in the aggregate principal amount of Seventy-Nine Million, Five Hundred Sixty Thousand Nine Hundred Eight and 91/100 Dollars ($79,560,908.91) to be dated the date of issue thereof, to mature on February 28, 2002, to bear interest on the unpaid balance thereof from February 28, 1997 (or such later day as any Note shall be dated upon an exchange of Notes) until the principal thereof shall have become due and payable at the rate specified below in this Section 1, payable monthly on the last day of each month commencing on March 31, 1997 and at maturity, and on overdue principal, Yield-Maintenance Amount and accrued interest at the rate specified therein, and to be substantially in the form of Exhibit A attached hereto with such changes therefrom, if any, as may be approved by the Purchasers and the Company. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. The term "Notes" as used herein shall include each Note delivered pursuant to any provision hereof and each Note delivered in substitution or exchange for any such Note pursuant to any such provision. The interest rate applicable to the Notes shall be nine and two-tenths percent (9.20%) per annum from and including the Effective Date of the First Amendment to, but not including, the same date of the sixth month thereafter (the "SIX MONTH ANNIVERSARY DATE"). Subject to the last sentence of this Section 1, commencing on the Six Month Anniversary Date, the interest rate applicable to the Notes at any time shall be the rate set forth below opposite the lowest Credit Rating of either Rating Agency in effect for any Senior Public Obligations of the Guarantor at such time: [TABLE OMITTED] (b) The first paragraph of the form of Note attached to the Note Agreement as Exhibit A is hereby amended and restated in its entirety as set forth below in this paragraph (b), and a portion of the first paragraph of each Note that is outstanding on the Effective Date of the First Amendment, commencing with clause (a) thereof and continuing through the end of such paragraph, shall also be deemed to have been amended and restated in its entirety as set forth below in this paragraph (b), without any surrender and exchange of any such Note, any notation of such amendment thereon, or any other action whatsoever. References to the "Note Agreement" in the form of Note and such outstanding Notes shall be deemed to mean the Note Agreement as amended by this Amendment Agreement. - ------------- 1/ The interest rate is stated to be 9.20% for six months. SHOULD THE RATE GO UP BY 50 BASIS POINTS IF THE ASSET SALE TARGET IS NOT REACHED BY THE TARGET DATE (WHICH IS LESS THAN 6 MONTHS FROM THE EFFECTIVE DATE OF THE FIRST AMENDMENT). FOR VALUE RECEIVED, the undersigned, FINCO, INC. (herein called the "COMPANY"), a corporation organized and existing under the State of Delaware, hereby promises to pay to _____________ or registered assigns, the principal sum of ___________ DOLLARS ($___) on February 28, 2002 with interest (computed on the basis of a 360-day year of twelve 30- day months) (a) on the unpaid balance thereof at the rate of seven and three tenths percent (7.30%) per annum until the Effective Date of the First Amendment (as defined in the Note Agreement referred to below) and thereafter at the rate specified in the first paragraph of the Note Agreement referred to below, such rate to be effective from the later of (i) the date hereof or (ii) February 28, 1997, payable monthly on the last day of each month commencing on March 31, 1997, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of Yield-Maintenance Amount (as defined in the Note Agreement referred to below) and, to the extent permitted by applicable law, any overdue payment of interest, payable on demand, at a rate per annum from time to time equal to the lesser of (A) the highest rate allowed by applicable law, or (B) the greater of (1) two percent (2.00%) over the rate of interest then applicable to this Note and (2) two percent (2.00%) over the rate of interest publicly announced by Morgan Guaranty Trust Company of New York from time to time in New York City as its Prime Rate. 2. PUT OPTION FOLLOWING A RATING DECLINE. (a) Clause (i) of paragraph 4B of the Note Agreement is hereby amended and restated in its entirety as follows: (I) RATING DECLINE. In the event that any Senior Obligations of the Guarantor shall not be rated Investment Grade by at least two (2) Rating Agencies at any time on or after November 1, 2000, each Noteholder will have the right to elect, prior to the Restoration Date, to require the Company to redeem such Note in whole (but not in part) on the Redemption Date at a price equal to the Redemption Price. 3. Asset Sale Prepayments. A new paragraph 4H is hereby added to the Note Agreement to read as follows: 4H SALE OF ASSETS. The Company shall prepay a principal amount of the Notes equal to the Prudential Pro Rata Exposure in the amounts and at the times specified in Section 2.10 of the Morgan Credit Agreement, together with interest on such principal amount accrued to the date of prepayment and the Yield- Maintenance Amount, if any.2/ 4. DEFINED TERMS. The following defined terms are hereby added to paragraph 9B of the Note Agreement: "CREDIT RATING" means the rating accorded to Senior Public Obligations of the Guarantor by a Rating Agency. "EFFECTIVE DATE" has the meaning set forth in the First Amendment. "FIRST AMENDMENT" means Amendment No. 1 to Note Agreement and Amendment No. 1 to Guaranty Agreement, dated as of October 25, 1999, among the Company, the Guarantor and the holders of the Notes. "MORGAN CREDIT AGREEMENT" means the Amended and Restated Credit Agreement, dated as of October 25, 1999, among the Guarantor, the banks from time to time parties thereto, and Morgan Guaranty Trust Company of New York, as Agent, as in effect on the Effective Date of the First Amendment. "NET CASH PROCEEDS" has the meaning set forth in the Morgan Credit Agreement. "PRUDENTIAL PRO RATA EXPOSURE" has the meaning set forth in the Morgan Credit Agreement. - -------- 2 /Paragraph 4H requires the Company to apply the entire amount of the asset sale proceeds allocable to the Notes to prepay the principal amount of the Notes. Funds for payment of interest and Yield-Maintenance Amount must be found elsewhere. IS THIS THE DEAL, OR SHOULD PRINCIPAL, INTEREST AND YIELD-MAINTENANCE AMOUNT ALL BE PAYABLE OUT OF ASSET SALE PROCEEDS ALLOCABLE TO THE NOTES? "REDUCTION EVENT" has the meaning set forth in the Morgan Credit Agreement. "SENIOR PUBLIC OBLIGATIONS" means, with respect to the Guarantor, Senior Obligations of the Guarantor that have been registered with the Securities and Exchange Commission pursuant to an effective registration statement under the Securities Act. 5. AMENDMENTS TO GUARANTY AGREEMENT. (a) Section 6.2 of the Rite Aid Guaranty is hereby amended and restated in its entirety as follows: 6.2 AMENDMENT. (a) This Guarantee may be amended only in a writing executed by the Guarantor and the Required Holders. Subject to the next succeeding sentence, the covenants set forth in Sections 5.7 through 5.13, inclusive, hereof, and the definitions of defined terms used therein, shall be deemed to be automatically amended to be identical to the equivalent covenants and definitions in the Morgan Credit Agreement effective upon the effectiveness of any amendment thereto in the Morgan Credit Agreement. Any such deemed amendment shall automatically cease to be effective upon the termination of the Morgan Credit Agreement or any repayment of all or substantially all of the indebtedness outstanding thereunder, if such termination or repayment shall occur within one hundred eighty (180) days after the effectiveness of such deemed amendment. In addition, any such deemed amendment shall not annul or otherwise have any effect on any acceleration of the Notes pursuant to paragraph 6 of the Note Agreement if such amendment shall become effective after such acceleration shall have occurred. (b) The Guarantor shall provide to each holder of Notes a copy of each draft of any amendment to the Morgan Credit Agreement, and the final executed copy thereof, if any portion of such proposed amendment would result in an automatic amendment hereof pursuant to Section 6.2(a). Such drafts and final executed copy will be furnished to the holders of the Notes either within one Business Day after the Guarantor's receipt thereof (if another party shall have prepared the draft or final executed copy) or simultaneously with the delivery thereof to any party to the Morgan Credit Agreement (if the Guarantor, the Issuer or any of their respective affiliates shall have prepared such draft or final executed copy). (c) Neither the Guarantor nor the Issuer, nor any of their respective affiliates, will directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security , to any party to the Morgan Credit Agreement as consideration for or as an inducement to the entering into by any such party of any waiver or amendment of any of the terms and provisions of the Morgan Credit Agreement which would result in an automatic amendment of the provisions hereof pursuant to Section 6.2(a) hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms ratably to each holder of Notes then outstanding.3/ (b) The definition of "Credit Agreement" is deleted from Section 3.1 of the Guaranty and the following definition is hereby added to such Section: "MORGAN CREDIT AGREEMENT" means the Amended and Restated Credit Agreement, dated as of October 25, 1999, among the Guarantor, the banks from time to time parties thereto, and Morgan Guaranty Trust Company of New York, as Agent, as in effect on the Effective Date of the First Amendment. - -------- 3/ The draft does not provide for the Noteholders to receive any fee or security if there is an amendment to the Morgan Credit Agreement which does not result in an automatic amendment to the Guaranty (e.g., a change in an interest rate). EX-4 29 EXHIBIT 4.28 - GUARANTY AGREEMENT RITE AID CORPORATION GUARANTY AGREEMENT -------------------------------------------- -------------------------------------------- DATED AS OF SEPTEMBER 30, 1996 RE: $79,560,908.91 7.30% SENIOR SECURED NOTES DUE FEBRUARY 28, 2002 ISSUED BY: FINCO, INC. TABLE OF CONTENTS (Not a Part of the Agreement)
PAGE 1. PRELIMINARY STATEMENT..........................................................................1 2. GUARANTY AND OTHER RIGHTS AND UNDERTAKINGS.....................................................2 2.1 Guaranteed Obligations..............................................................2 2.2 Performance Under the Guaranteed Agreements.........................................2 2.3 Releases............................................................................3 2.4 Waivers.............................................................................3 2.5 Certain Waivers of Subrogation, Reimbursement and Indemnity.........................6 2.6 Invalid Payments................................................................... 6 2.7 Marshaling..........................................................................6 2.8 Subordination...................................................................... 6 2.9 Setoff, Counterclaim or Other Deductions............................................7 2.10 Election by Guarantor to Perform Obligations........................................7 2.11 No Election of Remedies by Noteholders..............................................7 2.12 Separate Action, Other Enforcement Rights ..........................................7 2.13 Noteholder Setoff...................................................................8 2.14 Delay or Omission; No Waiver........................................................8 2.15 Restoration of Rights and Remedies..................................................8 2.16 Cumulative Remedies................................................................ 8 2.17 Maintenance of Office...............................................................8 2.18 Further Assurances..................................................................8 3. INTERPRETATION OF THIS GUARANTY................................................................9 3.1 Terms Defined...................................................................... 9 3.2 Section Headings and Construction..................................................15 4. WARRANTIES AND REPRESENTATION.................................................................15 4.1 Condition of the Issuer............................................................15 4.2 Organization.......................................................................15 4.3 Financial Statements...............................................................16 4.4 Actions Pending....................................................................16 4.5 Outstanding Debt...................................................................16 4.6 Title to Properties................................................................16 4.7 Taxes..............................................................................16 4.8 Conflicting Agreements and Other Matters...........................................16 4.9 Regulation G, etc..................................................................17 4.10 ERISA..............................................................................17 4.11 Compliance With Law................................................................17 4.12 Governmental Consent...............................................................18 4.13 Disclosure.........................................................................18 4.14 Certain Laws.......................................................................18 5. COVENANTS.....................................................................................19 5.1 Information........................................................................19 5.2 Payment of Obligations.............................................................21 5.3 Maintenance of Property; Insurance.................................................21 5.4 Conduct of Business and Maintenance of Existence...................................21 5.5 Compliance with Laws...............................................................22 5.6 Inspection of Property, Books and Records..........................................22 5.7 Restriction on Debt of Subsidiaries................................................22 5.8 Restriction on Sales with Leases Back..............................................22 5.9 Restriction on Liens...............................................................23 5.10 Leverage Ratio.....................................................................25 5.11 Fixed Charge Coverage..............................................................25 5.12 Limitation on Minority Investments.................................................25 5.13 Consolidations, Mergers and Sales of Assets........................................25 5.14 Master Lease.......................................................................25 5.15 Retirement of Notes................................................................25 6. MISCELLANEOUS.................................................................................26 6.1 Expenses...........................................................................26 6.2 Amendment..........................................................................26 6.3 Survival of Representations and Warranties.........................................26 6.4 Successors and Assigns.............................................................27 6.5 Communications.....................................................................27 6.6 Descriptive Headings, etc..........................................................28 6.7 Satisfaction Requirement...........................................................28 6.8 Partial Invalidity.................................................................28 6.9 Governing Law......................................................................28 6.10 Effective Date.....................................................................28 6.11 Benefits of Guaranty Restricted to Noteholders.....................................28 6.12 Consent to Jurisdiction: Appointment of Agent......................................28 6.13 Survival...........................................................................29 6.14 Entire Agreement...................................................................29 6.15 Duplicate Originals, Execution in Counterpart......................................29 Annex 1 - Address of Guarantor
GUARANTY THIS GUARANTY, dated as of September 30,1996 (as amended or restated from time to time, this "Guaranty"), by RITE AID CORPORATION, a Delaware corporation (together with its successors and assigns, the "Guarantor"), in favor of each of the Noteholders (as such term is hereinafter defined). 1. PRELIMINARY STATEMENT. 1.1 Certain operating subsidiaries of the Guarantor (the "Operating Subsidiaries') entered into certain Bills of Sale and Purchase and Sale Agreements, all dated February 29, 1996 (such Bills of Sale and Purchase and Sale Agreement being collectively referred to here-in as the "Sales Agreements"), with Realty Leasing Consultants, Inc., a Delaware corporation ("RLC"), pursuant to which the Operating Subsidiaries transferred, assigned and sold to RLC all of their right, title and interest in and to various improvements located in approximately two thousand one hundred (2, 100) retail stores operated by the Operating Subsidiaries (the "Improvements'), and, in payment therefor, RLC delivered certain promissory notes (the "RLC Notes") to an agent for the Operating Subsidiaries. 1.2 RLC entered into the RLC/RA Master Lease Agreement, dated February 29, 1996 (as amended from time to time, the "Master Lease"), with Rite Aid of Florida, Inc., a Subsidiary of the Guarantor and a Florida corporation ('Rite Aid Florida"), pursuant to which RLC leased the Improvements to Rite Aid Florida. T:Zite Aid Florida has entered into subleases (the "Subleases') with the Operating Subsidiaries pursuant to which Rite Aid Florida subleases the Improvements to the Operating Subsidiaries. 1.3 In connection with the foregoing, the Guarantor issued the RLC/RA Guarantee Agreement, dated as of February 29, 1996, in favor of RLC and its successors and assigns, pursuant to which the Guarantor, among other things, guaranteed the obligations of the Operating Subsidiaries under the Sales Agreements and the Subleases and the obligations of Rite Aid Florida under the Master Lease. 1.4 RLC is entering into the Rent Purchase Agreement, dated as of September 30, 1996 (the "Rent Purchase Agreement), with Finco, Inc., a Delaware corporation (together with its successors and assigns, the "Issuer"), pursuant to which RLC is transferring, assigning and selling to the Issuer all of its right, We and interest -in and to rental payments (the "Rental Payments') owed by Rite Aid Florida under, together with certain related rights under, the Master Lease in respect of the period commencing on March 1, 1997 and concluding on (and including) February 28, 2002. RLC will use the proceeds of such transaction to pay, in part, its obligations under the RLC Notes. 1.5 To finance such purchase of Rental Payments under the Rent Purchase Agreement, the Issuer has authorized the issuance of its 7.30% Senior Secured Notes due February 28, 2002 (as may be amended or restated from time to time, the "Notes"), in the aggregate principal amount of Seventy-Nine Million Five Hundred Sixty Thousand Nine Hundred Eight and 91/100 Dollars ($79,560,908.91), pursuant to the Note Agreement (as may be amended or restated from time to time, the "Note Agreement'), dated as of September 30, 1996, entered into among the Issuer and each of the purchasers named on Annex 1 thereto (the "Purchasers"). 1.6 The Guarantor is issuing this Guaranty to induce the Purchasers to purchase the Notes so that the Issuer will have funds available to pay RLC for the Rental Payments and RLC, in turn, will have funds available to pay:, in part, its obligations under the RLC Notes. 1.7 All acts and proceedings required by law and by the certificate of incorporation and bylaws of the Guarantor necessary to constitute this Guaranty a valid and binding agreement for the uses and purposes set forth herein in accordance with its terms have been done and taken, and the execution and delivery hereof has been in all respects duly authorized. 2. GUARANTY AND OTHER RIGHTS AND UNDERTAKINGS 2.1 Guaranteed Obligations. The Guarantor, in consideration of the execution and delivery of the Note Agreement and the purchase of the Notes by the Purchasers, hereby irrevocably, unconditionally, and absolutely guarantees, on a continuing basis, to each Noteholder, as and for the Guarantor's own debt, until final and indefeasible payment has been made: (a) the due and punctual payment by the Issuer of the principal of, and accrued interest and the Yield-Maintenance Amount (if any) on, the Notes at any time outstanding and the due and punctual payment of all other amounts payable, and all other indebtedness owing, by the Issuer under the Notes and the Note Agreement (the "Guaranteed Agreements"), in each case when and -as the same shall become due and payable, whether at maturity, pursuant to mandatory or optional prepayment (by means of a put to the Issuer or otherwise), by acceleration or otherwise, all in accordance with the terms and provisions hereof and thereof, it being the intent of the Guarantor that the guaranty set forth herein shall be a continuing guaranty of payment and not a guaranty of collection; and (b) the punctual and faithful performance, keeping, observance, and fulfillment by the Issuer of all duties. agreements, covenants and obligations of the Issuer contained' in the Guaranteed Agreements. All of the obligations set forth in subsection (a) and subsection (b) of this Section 0 are referred to herein as the "Guaranteed Obligations" and the guaranty thereof contained herein is referred to herein as the "Unconditional Guaranty". This Unconditional Guaranty is a primary, original and immediate obligation of the Guarantor and is an absolute, unconditional, continuing and irrevocable guaranty of payment and performance and shall remain in full force and effect until the full, final and indefeasible payment of the Guaranteed Obligations. 2.2 Performance Under the Guaranteed Agreements. In the event the Issuer fails to pay, perform, keep, observe, or fulfill any Guaranteed Obligation in the manner provided in the Guaranteed Agreements, the Guarantor shall cause forthwith to be paid the moneys, or to be performed, kept, observed, or fulfilled each of such obligations, in respect of which such failure has occurred in accordance with the terms and provisions of the Guaranteed Agreements- In furtherance of the foregoing, if an Event of Default shall exist, all of the Guaranteed Obligations shall, in the manner and subject to the limitations provided in the Note Agreement for the acceleration of the Notes, forthwith become due and payable without notice, regardless of whether the acceleration of the Notes shall be stayed, enjoined, delayed or otherwise prevented. 2.3 Releases. The Guarantor consents and agrees that, without any notice whatsoever to or by the Guarantor and without impairing, releasing, abating, deferring, suspending, reducing, terminating or otherwise affecting the obligations of the Guarantor hereunder, each Noteholder, by action or inaction, may: (a) compromise or settle, renew or extend the period of duration or the time for the payment of the obligations under, or discharge the performance of, or may refuse to, or otherwise not, enforce, or may, by action or inaction, release all or any one or more parties to. any one or more of the Financing Documents, or any other guaranty, agreement or instrument related thereto; (b) assign, sell or transfer, or otherwise dispose of, any one or more of the Notes; (c) grant waivers, extensions, consents and other indulgences of any kind whatsoever to the Issuer or any other guarantor in respect of any one or more of the Financing Documents, or any other guaranty, agreement or instrument related thereto; (d) amend, modify or supplement in any manner whatsoever and at any time (or from time to time) any one or more of the Financing Documents, or any other guaranty. agreement or instrument related thereto; (e) release or substitute any one or more of the endorsers or guarantors of the Guaranteed Obligations whether parties hereto or not; and (f) sell, exchange, release, surrender or enforce, by action or inaction, any Property at any time pledged or granted as security in respect of the Guaranteed Obligations, whether so pledged or granted by the Issuer, the Guarantor or another guarantor of the Issuer's obligations under the Financing Documents, or any other guaranty, agreement or instrument related thereto. 2.4 Waivers. To the fullest extent permitted by law, the Guarantor does hereby waive: (a) any notice of (i) acceptance of this Unconditional Guaranty; (ii) the issuance and any purchase of the Notes under the Note Agreement or the creation, existence or acquisition of any of the Guaranteed Obligations, or the amount of the Guaranteed Obligations, subject to the Guarantor's right to make inquiry of each Noteholder to ascertain the amount of the Guaranteed Obligations owing to such Noteholder at any reasonable time, provided that the Guarantor will took solely to the Security Agent for the determination of the identities of the Noteholders; (iii) any transfer of Notes from one holder to another; (iv) any adverse change in the financial condition of the Issuer and the Subsidiaries or any other fact that might increase, expand or affect the Guarantor's risk hereunder; (v) presentment for payment, demand, protest, and notice thereof as to the Notes or any other instrument; (vi) any Default or Event of Default; and (vii) any kind or nature whatsoever to which the Guarantor might otherwise be entitled (other than those specifically required to be given to the Guarantor pursuant to the terms of this Guaranty); (b) the right by statute or otherwise to require any Noteholder to institute suit against the Issuer or any other guarantor or to exhaust the rights and remedies of any Noteholder against the Issuer or any other guarantor; (c) the benefit of any stay (except in connection with a pending appeal), valuation, appraisal, redemption or extension law now or at any time hereafter in force which, but for this waiver, might be applicable to any sale of Property of the Guarantor made under any judgment, order or decree based on this Guaranty, and the Guarantor covenants that it will not at any time insist upon or plead, or in any manner claim or take the benefit or advantage of, such law; (d) any defense or objection to the absolute, primary. continuing nature, or the validity, enforceability or amount, of this Unconditional Guaranty, including, without limitation, any defense based on (and the primary, continuing nature. and the validity, enforceability and amount, of this Unconditional Guaranty shall be unaffected by) any of the following: (i) any change in future conditions; (ii) any change of law; (iii) any invalidity or irregularity with respect to the issuance or assumption of any obligations (including, without limitation, the Financing Documents, or any agreement or instrument related thereto) by the Issuer or any other Person; (iv) the execution and delivery of any agreement at any time hereafter (including, without limitation, the Financing Documents, or any agreement or instrument related thereto) by the Issuer or any other Person; (v) the genuineness, validity, regularly or enforceability of any of the Guaranteed Obligations; (vi) any default, failure or delay, willful or otherwise, in the performance of any obligations by the Issuer or the Guarantor; (vii) any creditors' rights, bankruptcy, receivership or other insolvency proceeding of the Issuer, the Guarantor or any Subsidiary of the Guarantor, or sequestration or seizure of any Property of the Issuer, the Guarantor or any Subsidiary of the Guarantor, or any merger, consolidation, reorganization, dissolution, liquidation or winding up or change in corporate constitution or corporate identity or loss of corporate identity of the Issuer, the Guarantor or any Subsidiary of the Guarantor; (viii) any disability or other defense of the Issuer or the Guarantor to payment and performance of all Guaranteed Obligations (including, without limitation, any defense based on or otherwise relating to Rite Aid Florida having made or continuing to make payments under the Master Lease) other than the defenses that the Guaranteed Obligations shall have been fully and finally performed and indefeasibly paid to the Noteholders or that the Notes have been indefeasibly acquired by the Guarantor in compliance with the provisions of the Put Agreement; (ix) the cessation from any cause whatsoever of the liability of the Issuer or the Guarantor in respect of the Guaranteed Obligations; (x) impossibility or illegality of performance on the part of the Issuer or the Guarantor under the Financing Documents; (xi) any change of the circumstances of the Issuer, the Guarantor or any other Person, whether or not foreseen or foreseeable, whether or not imputable to the Issuer or the Guarantor, including, without limitation, impossibility of performance through fire, explosion, accident labor disturbance, floods, droughts, embargoes, wars (whether or not declared), civil commotions, acts of God or the public enemy, delays or failure of suppliers or carriers, inability to obtain materials, economic or political conditions, or any other causes affecting performance, or any other force majeure, whether or not beyond the control of the Issuer or the Guarantor and whether or not of the kind hereinbefore specified; (xii) any attachment, claim, demand, charge, Lien, order, process, encumbrance or any other happening or event or reason, similar or dissimilar to the foregoing, or any withholding or diminution at the source, by reason of any taxes, assessments, expenses, indebtedness, obligations or liabilities of any character, foreseen or unforeseen, and whether or not valid, incurred by or against any Person, or any claims, demands, charges, Liens or encumbrances of any nature, foreseen or unforeseen, incurred by any Person, or against any sums payable under the Financing Documents, or any agreement or instrument related thereto so that such sums would be rendered inadequate or would be unavailable to make the payment as herein provided; (xiii) any change in the ownership of the equity securities of the Issuer, the Guarantor or any other Person liable in respect of the Notes; or (xiv) any other action, happening, event or reason whatsoever that shall delay, interfere with, hinder or prevent, or in any way adversely affect, the performance by the Issuer or the Guarantor of any of its obligations under the Financing Documents. 2.5 Certain Waivers of Subrogation, Reimbursement and Indemnity. The Guarantor shall not assert any claim for subrogation, reimbursement, or indemnity whatsoever in respect of the Guaranteed Obligations, and no right of recourse to or with respect to any assets or Property of the Issuer until such time as the Guaranteed Obligations shall have been indefeasibly paid in full to the Noteholders. Until such time as such payment shall have been made, all such rights to subrogation, reimbursement and indemnity shall be subordinated to the rights of the Noteholders hereunder and under the Guaranteed Agreements. 2.6 Invalid Payments. To the extent the Issuer makes a payment or payments to any Noteholder, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required. for any of the foregoing reasons or for any other reason, to be repaid or paid over to a custodian, trustee, receiver or any other party or officer under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, state or federal law, or any common law or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof intended to be satisfied shall be revived and continued in full force and effect as if said payment had not been made and the Guarantor shall be primarily liable for such obligation. 2.7 Marshaling. Neither any Noteholder nor any Person acting for the benefit of any Noteholder shall be under any obligation to marshal any assets in favor of the Guarantor or against or in payment of any or all of the Guaranteed Obligations. 2.8 Subordination. In the event that, for any reason whatsoever, the issuer or a Person obligated in respect of the Guaranteed Obligations pursuant to another Guaranty, is now or hereafter becomes indebted to the Guarantor in any manner (such -indebtedness referred to as an "Affiliate Obligation"), the amount of such Affiliate Obligation. interest thereon, and all other amounts due with respect thereto, shall, at all times during the existence of a Default or an Event of Default, be subordinate as to time of payment and in all other respects to all the Guaranteed Obligations, and the Guarantor shall not be entitled to enforce or receive payment thereof until all sums then due and owing to the Noteholders in respect of the Guaranteed Obligations shall have been paid in full, except that the Guarantor may enforce (and shall enforce, at the request of the Required Holders, and at the Guarantor's expense) any obligations in respect of any such Affiliate Obligation owing to the Guarantor from the Issuer or such indebted Person so long as all proceeds in respect of any recovery from such enforcement shall be held by the Guarantor in trust for the benefit of the Noteholders, to be paid thereto as promptly as reasonably possible. If any other payment, other than pursuant to the immediately preceding sentence, shall have been made to the Guarantor by the Issuer or such indebted Person on any such Affiliate Obligation during any time that a Default or an Event of Default exists and there are Guaranteed Obligations outstanding, the Guarantor shall hold in trust all such payments for the benefit of the Noteholders, to be paid thereto as promptly as reasonably possible. 2.9 Setoff, Counterclaim or Other Deductions. Except as otherwise required by law, each payment by the Guarantor shall be made without setoff, counterclaim or other deduction. 2.10 Election by Guarantor to Perform Obligations. Any election by the Guarantor to pay or otherwise perform any of the obligations of the Issuer under the Guaranteed Agreements, or any agreement or instrument related thereto, shall not release the Issuer, the Guarantor or any other guarantor from such obligations or any of such Person's other obligations under the Guaranteed Agreements, or any agreement or instrument related thereto, except to the extent actually performed by the Guarantor. 2.11 No Election of Remedies by Noteholders. Each Noteholder shall, individually or collectively, have the right to seek recourse a0inst the Guarantor to the fullest extent provided for herein for the Guarantors obligations under this Guaranty in respect of the Guaranteed Obligations. No election to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of such Noteholders right to proceed in any other form of action or proceeding or against other parties unless such Noteholder has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing, no action or proceeding by any Noteholder against the Issuer or the Guarantor under any document or instrument evidencing obligations of the Issuer or the Guarantor to such Noteholder shall serve to diminish the liability of the Guarantor under this Guaranty. except to the extent that such Noteholder finally and unconditionally shall have realized payment of the Guaranteed Obligations. 2.12 Separate Action; Other Enforcement Rights. Each of the rights and remedies granted under this Guaranty to each Noteholder in respect of the Notes held by such Noteholder may be exercised by such Noteholder without notice by such Noteholder to, or the consent of or any other action by, any other Noteholder. Each Noteholder may proceed to protect and enforce this Unconditional Guaranty by suit or suits or proceedings in equity, at law or in bankruptcy, and whether for the specific performance of any covenant or agreement contained herein or in execution or aid of any power herein granted or for the recovery of judgment for the obligations hereby guarantied or for the enforcement of any other proper, legal or equitable remedy available under applicable law. 2.13 Noteholder Setoff. Each Noteholder shall have, to the fullest extent permitted by law and this Guaranty, a right of set-off against any and all credits and any and all other Property of the Guarantor, now or at any time whatsoever, with or in the possession of, such Noteholder, or anyone acting for such Noteholder, to ensure the full performance of any and all obligations of the Guarantor hereunder. 2.14 Delay or Omission; No Waiver. No course of dealing an the part of any Noteholder and no delay or failure on the part of any such Person to exercise any right hereunder shall impair such right or operate as a waiver of such right or otherwise prejudice such Person's rights, powers and remedies hereunder. Every right and remedy given by this Unconditional Guaranty or by law to any Noteholder may be exercised from time to time as often as may be deemed expedient by such Person. 2.15 Restoration of Rights and Remedies. If any Noteholder shall have instituted any proceeding to enforce any right or remedy under this Unconditional Guaranty or under any Note held by such Noteholder, and such proceeding shall have been dismissed, discontinued or abandoned for any reason, or shall have been determined adversely to such Noteholder, then and in every such case each such Noteholder, the Issuer and the Guarantor shall, except as may be limited or affected by the doctrine of res judicata, as applied to any such proceeding, be restored severally and respectively to its respective former positions hereunder and thereunder, and thereafter, subject as aforesaid, the rights and remedies of such Noteholders shall continue as though no such proceeding had been instituted. 2.16 Cumulative Remedies, No remedy under this Guaranty or any of the Guaranteed Agreements is intended to be exclusive of any other remedy, but each and every remedy shall be cumulative and in addition to any and every other remedy given pursuant to this Guaranty or the Guaranteed Agreements. 2.17 Maintenance of Offices. The Guarantor will maintain an office at its address referred to in Section 6.5 where notices, presentations and demands in respect of this Guaranty may be made upon it, Such office will be maintained at such address until such time as the Guarantor shall notify the Noteholders of any change of location of such office. 2.18 Further Assurances. The Guarantor will cooperate with the Noteholders and execute such further instruments and documents as the Required Holders shall reasonably request to carry out, to the reasonable satisfaction of the Required Holders, the transactions contemplated by this Guaranty and the Guaranteed Agreements and the documents and instruments related thereto. 3. INTERPRETATION OF THIS GUARANTY 3.1 Terns Defined. As used in this Guaranty, the capitalized terms have the meaning specified below, set forth in the document or set forth in the section of this Guaranty referred to immediately following such term (such definitions, unless otherwise expressly provided, to be equally applicable to both the singular and plural forms of the terms defined): Affiliate Obligation - has the meaning assigned to such term in Section 2.8 hereof. Attributable Debt - means, as to any particular Sale and Leaseback Transaction under which the Guarantor or any Subsidiary is at the time liable, at any date as of which the amount thereof is to be determined (a) in the case of any such transaction involving a Capital Lease, the amount on such date of the Capital Lease Obligation thereunder, or (b) in the case of any other Sale and Leaseback Transaction, the then present value of the minimum rental obligations under such Sale and Leaseback 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 payments or, if such interest factor cannot be readily determined, at the rate of fourteen percent (14%) per annum. 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. 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. Capital Lease - means any lease of Property which, in accordance with generally accepted accounting principles, should be capitalized on the lessees balance sheet; and "Capital Lease Obligation" means the amount of the liability so capitalized in respect of a Capital Lease. Commitments - has the meaning assigned to such term in the Credit Agreement as in effect on the date hereof. Consolidated Debt - means at any date the Debt of the Guarantor and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. Consolidated EBIT - means, for any period, Consolidated Net Income for such period plus, to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (a) Consolidated Interest Charges and (b) provision for income taxes. Consolidated Interest Charges - means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Guarantor and Its Consolidated Subsidiaries during such period. Consolidated Net Income - means, for any period, the net income (or loss) of the Guarantor and its Consolidated Subsidiaries, determined on a consolidated basis for such period. Consolidated Net Tangible Assets - means 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 Guarantor and its Consolidated Subsidiaries after deducting therefrom (a) 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 (b) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, which - in each case under generally accepted accounting principles would be included on such consolidated balance sheet. Consolidated Net Worth -- means at any date the consolidated stockholders' equity of the Guarantor and -its Consolidated Subsidiaries determined as of such date. Consolidated Rent - means, for any period, the consolidated rental expense of the Guarantor and its Consolidated Subsidiaries for such period. Consolidated Subsidiary - means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Guarantor in its consolidated financial statements if such statements were prepared as of such date. Credit Agreement - means the Credit Agreement, dated as of July 19, 1996 and as may be amended from time to time, among the Guarantor, the banks from time to time party thereto, and Morgan Guaranty Trust Company of New York, as Agent. Debt - of any Person means at any date, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) 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, (d) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (e) 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 (f) all Debt of others Guaranteed by such Person. Default - has the meaning assigned to such term in the Note Agreement. 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. ERISA Group - means the Guarantor, 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 Guarantor or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. Event of Default - has the meaning assigned to such term in the Note Agreement. Financing Documents - has the meaning assigned to such term in the Note Agreement. Fixed Charge Coverage Ratio - means at any date, the ratio of (a) Consolidated EBIT plus Consolidated Rent to (b) Consolidated interest Charges plus Consolidated Rent, in each case for the period of four (4) consecutive fiscal quarters most recently ended on or prior to such date. Funded Debt - means any Debt maturing more than one year after the date of determination thereof and any Debt 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 such Debt, which would, in accordance with generally accepted accounting practice, be classified as funded debt but shall not include (a) any Debt 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 a trustee or proper depository either at or before the maturity or redemption date thereof, or (b) 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 instalment 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. Guarantee - by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. Guaranteed Agreements - has the meaning assigned to such term in Section 2.1 hereof. Guaranteed Obligations - has the meaning assigned to such term in Section 0 hereof. Guarantor- has the meaning assigned to such term in the first paragraph hereof. Guaranty, this - has the meaning assigned to such term in the first paragraph hereof- Improvements - has the meaning assigned to such term in Section 1.1 hereof. Internal Revenue Code - means the Internal Revenue Code of 1986, as amended, or any successor statute. Issuer - has the meaning assigned to such term in Section 1 -4 hereof- Investment - means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. Any repurchase by the Guarantor of its own capital stock shall not constitute an Investment for purposes of this Guaranty. 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 Guaranty, the Guarantor 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. Master Lease - has the meaning assigned to such term in Section 11 hereof. Material Adverse Effect - means a material adverse effect on (a) the business, profits, Properties or condition (financial or otherwise) of the Guarantor and the Subsidiaries taken as a whole, or (b) the ability of the Guarantor to perform its obligations under this Guaranty or any Guaranteed Agreement to which it is a party. 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 (5) plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five (5) year period. Note Agreement - has the meaning assigned to such term in Section 1-5 hereof. Noteholder - means, at any time, each Person that is the holder of any Note at such time. Notes - has the meaning assigned to such term in Section 1.5 hereof. Operating Subsidiaries - has the meaning assigned to such term in Section 1.1 hereof. Payment Assurance Agreement - means the Payment Assurance Agreement, dated as of February 29, 1996, made by the Guarantor and Rite Kid Florida in favor of Deutsche Bank AG, New York Branch. PBGC - means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of 'its functions under ERISA. Person - means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or any agency or instrumentality thereof. Plan - means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Tale TV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (a) is maintained, or contributed to, by any member of the ERISA Group or (b) has at any time within the preceding five (5) 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. Property - means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. Purchasers - has the meaning assigned to such term in Section 1.5 hereof. Put Agreement - means the Put Agreement, dated as of September 30, 1996, between the Guarantor and the Purchasers. Rent Purchase Agreement - has the meaning assigned to such term in Section 1-4 hereof. Rental Payments - has the meaning assigned to such term in Section 1.4 hereof. Required Holders - has the meaning assigned to such term in the Note Agreement. Rite Aid Florida - has the meaning assigned to such term in Section 1.2 hereof. RLC - has the meaning assigned to such term in Section 1.1 hereof. RLC Notes - has the meaning assigned to such term in Section 1.1 hereof Sale and Leaseback Transaction - has the meaning assigned to such term in Section 5.8 hereof. Sales Agreements - has the meaning assigned to such term in Section 1. 1 hereof. Secured Debt - means indebtedness for borrowed money which is secured by a Lien on Property of the Guarantor 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. Security Agent - has the meaning assigned to such term in the Note Agreement. Significant Subsidiary - means at any time any Subsidiary or any group of Subsidiaries having consolidated assets, individually or in the aggregate, equal to or greater than eight percent (8%) of the consolidated assets of the Guarantor and its Consolidated Subsidiaries at such time. Subleases - has the meaning assigned to such term in Section 1.2 hereof 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. Temporary Cash Investment - means any Investment in (a) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (b) commercial paper rated at least A-1 by Standard & Poor's Ratings Group, a division of McGraw-Hill, inc., and P-1 by Moody's Investors Service, Inc., (c) 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 under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least Five Hundred Million Dollars ($500,000,000) or (d) repurchase agreements with respect to securities described in clause (a) above entered into with an office of a bank or trust company meeting the criteria specified in clause (c) above, provided in each case that such Investment matures within one (1) year from the date of acquisition thereof by the Guarantor or a Subsidiary. Total Capital - means, at any date, the sum of Consolidated Debt and Consolidated Not Worth, each determined as of such date. Unconditional Guaranty - has the meaning assigned to such term in Section 2.1 hereof. United States - means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. 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 owned by the Guarantor. Yield-Maintenance Amount - has the meaning assigned to such term in the Note Agreement. 3.2 Section Headings and Construction. (a) Section Headings, etc. The titles of the Sections appear as a matter of convenience only, do not constitute a part hereof and shall not affect the construction hereof. The words "herein," "hereof," "hereunder" and "hereto" refer to this Guaranty as a whole and not to any particular Section or other subdivision. (b) Construction. Each covenant contained herein shall be construed (absent an express contrary provision herein) as being independent of each other covenant contained herein, and compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with one or more other covenants. 4. WARRANTIES AND REPRESENTATIONS The Guarantor represents and warrants to each Purchaser, as of the date of effectiveness hereof, as follows" 4.1 Condition of the Issuer. The Guarantor delivers this Guaranty based solely upon its own independent investigation of the financial condition of the Issuer and 'in no part upon any representation or statement of any one or more of the Noteholders with respect thereto. The Guarantor is in a position to obtain, and hereby assumes full responsibility for obtaining, any additional information concerning the financial condition of the Issuer as the Guarantor may deem material to 'its obligations hereunder, and the Guarantor is not relying upon, nor expecting, any Noteholder to furnish it any information concerning the financial condition of the Issuer. 4.2 Organization. The Guarantor is a corporation duly organized and existing in good standing under the laws of the State of Delaware, each Subsidiary is duly organized and existing in good -standing under the laws of the jurisdiction in which it is incorporated, and the Guarantor has and each Subsidiary has the corporate power to own its respective Property and to carry on its respective,business as now being conducted. 4.3 Financial Statements. The Guarantor has furnished each Purchaser with a copy of its annual report to shareholders, and its form 10-K, in each case, for its fiscal year ended March 2, 1996, and a copy of its form 10-Q for its fiscal quarter ended June 1, 1996. such financial statements (including any related schedules and notes) are true and correct in all material respects (subject, as to interim statements, to changes resulting from audits and yearend adjustments), have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved -and show all liabilities, direct and contingent, of the Guarantor and the Consolidated Subsidiaries required to be shown in accordance with such principles. The balance sheets tirly present the condition of the Guarantor and the Consolidated Subsidiaries as at the dates thereof, and the consolidated statements Of operations, changes in shareholders' equity, income and cash flows fairly present the results of the operations of the Guarantor and the Consolidated Subsidiaries for the periods indicated. There has been no material adverse change in the business, condition or operatons (financial or otherwise) of the Guarantor and the Subsidiaries taken as a whole since March 1, 1996- 4.4 Actions Pending. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Guarantor, threatened against the Guarantor or any of the Subsidiaries, or, any properties or rights of the Guarantor or any of the Subsidiaries, by or before any court, arbitrator or administrative or governmental body that could reasonably be expected to have a Material Adverse Effect. 4.5 Outstanding Debt. Neither the Guarantor nor any of the Subsidiaries has outstanding any Debt except as set forth in its form 10-Q for its fiscal quarter ended June 1, 1996 and except for Debt outstanding under the Credit Agreement. 4.6 Title to Properties. Each of the Guarantor and the Subsidiaries has good and indefeasible title to its respective real properties (other than properties that it leases) and good title to all of its other respective Properties, including the Properties reflected in the most recent balance sheet referred to in Section 4-3 hereof (other than Properties disposed of in the ordinary course of business), subject to no Lion of any kind except Liens permitted by Section 5.9 hereof. All leases necessary In any material respect for the conduct of the respecfive businesses of the Guarantor and the Subsidiaries are valid and subsisting and are in full force and effect. 4.7 Taxes. Each of the Guarantor and the Subsidia(les has filed all Federal, State and other income tax returns that, to the best knowledge of the officers of the Guarantor, are required to be filed, and each has paid all taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such taxes as are being cor-dested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting pdnciples. 4.8 Conflicting Agreements and Other Maffers. (a) Restrictive Agreements. Neither the Guarantor nor any of the Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. (b) Conffictfng Agreements. Neither the execution nor delivery hereof or any of the Financing Documents to which the Guarantor or any Subsidiary is a party, nor fulfillment of nor compliance with the terms and provisions hereof and of any such Financing Document, will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the Properties of the Guarantor or any of the Subsidiades pursuant to, the charter or bylaws of the Guarantor or any of the Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Guarantor or any of the Subsidiaries is subject. (c) Limitations on Debt. Except as set forth in the Credit Agreement, the Payment Assurance Agreement, and the Indenture, dated May, 1993, pursuant to which the Guarantor issued its 6.78% senior debentures due 2013, neither the Guarantor nor any of the Subsidiaries is a party to, or otherwise subject to any pirovision contained in, any instniment evidencing indebtedness of the Guarantor or such Subsidiary, any agreement" relating hereto or any other contract or agreement (including its charter) that limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Guanantor. 4.9 Regulation G, etc. Neither the Guarantor nor any Subsidiary owns or has any present intention of acquiring any "margin stock"as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve System C'Margin Stock")- Neither the Guarantor nor any agent acting on its behalf has taken any action that might cause this Guaranty, the Notes or any other IFinancing Document to Violate Regulation G, Regulation T or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Securities Exchange Act of 1934, as amended, in each case as in effect now or as the same may hereafter be in affect. 4.10 ERISA. No accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Intemal Revenue Code), whether or not waived, exists with respect to any Plan- No liability to the PBGG has been or is expected by the Guarantor to be incurred with respect to any Plan by the Guarantor or any of the Subsidiaries that could reasonably be expected to have a Material Adverse Effect. Neither the Guarantor nor any of the Subsidiades has incurred or presently expects to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan that could reasonably be expected to have Material Adverse Effect. The execution and delivery hereof and of the Financing Documents will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975 of the internal Revenue. Code. The representation by the Guarantor in the next preceding sentence is made in reliance upon and subject to the accuracy of the representation of each Purchaser in paragraph 8 of the Note Agreement as to the source of the funds to be used to pay the purchase price of the Notes to be purchased each such Purchaser. 4.11 Compliance with Law. (a) Compliance. Each of the Guarantor and the Subsidiaries is in compliance with all applicable laws (including, without limitation, all Environmental Laws) in effect in each jurisdiction where it is presently doing business and in which the failure so to comply could reasonably be expected to have a Material Adverse Effect. (b) Liability. Neither the Guarantor nor any of the Subsidiaries is subject to any liability under any Environmental Laws that, in the aggregate, could reasonably be expected to have a Material Adverse Effect. 4.12 Governmental Consent. Neither the nature of the Guarantor or of any Subsidiary, nor any of their respective businesses or properties, nor any relationship between the Guarantor or any Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes, is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any court or administrative or governmental body in connection with the execution and delivery hereof or fulfillment of or compliance with the terms and provisions hereof. 4.13 Disclosure. Neither this Guaranty nor any other document, certificate or statement furnished to you by or an behalf of the Guarantor in connection herewith or any Financing Document contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and in such documents, certificates and statements not misleading. There is no fact peculiar to the Guarantor or any of the Subsidiaries that could reasonably be expected to have a Material Adverse Effect or in the future may (so far as the Guarantor can now foresee) have a Material Adverse Effect and that has not been set forth herein or in the other documents, certificates and statements furnished to you by or on behalf of the Guarantor prior to the date hereof in connection with the transaofiom contemplated hereby or by the Financing Documents. 4.14 Certain Laws. (a) Investment Company Act. The Guarantor is not, and is not directly or indirectly controlled by, or acting on behalf of any Person which is, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (b) Absence of Foreign or Enemy Status. The Guarantor is not (i) an "enemy" or an "ally of enemy' within the meaning of Section 2 of the Trading with the Enemy Act, as amended, or any executive orders or regulations issued or promulgated pursuant thereto, or (ii) a "national" of any "designated enemy country" as such terms are defined in Executive Order No. 9095, as amended, of the President of the United States of America. (c) Holding Company Status. The Guarantor is not a "holding company" or an "affiliata" of a "holding company," or a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5. COVENANTS 5.1 Information. So long as any of the Guaranteed Obligations remain outstanding, the Guarantor will deliver to each Noteholder- (a) as soon as available and in any event within ninety (90) days after the end of each fiscal year of the Guarantor, a consolidated balance sheet of the Guarantor 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 in a manner acceptable to the Securities and Exchange Commission by KPMG Peat Marwick LLP or other independent public accountants of nationally recognized standing-, (b) as soon as available and in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Guarantor, a consolidated balance sheet of the Guarantor 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 Guarantor's fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Guarantors previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer of the Guarantor (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above. a certificate of the chief financial officer or the chief accounting officer of the Guarantor (i) setting forth in reasonable detail the calculations required to establish whether the Guarantor was in compliance with the requirements of Sections 5.7 to 5.12, inclusive, on the date of such financial statements and (ii) stating whether any Default exists on the date of Such certificate and, if any Default then e)Cists, setting forth the details thereof and the action which the Guarantor is taking or proposes to take with respect thereto, (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) as to 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 officees certificate delivered simultaneously therewith pursuant to clause (G) above, (e) within five (5) days after any officer of the Guarantor obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Guarantor setting forth the details thereof and the action which the Guarantor is taking or proposes to take wfth respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Guarantor generally, copies of statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form " or its equivalent) and reports on Forms 10- K. 10-Q and 8-K (or their equivalents) which the Guarantor shall have filed with the Securities and Exchange Commission; (h) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable evenf' (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 knows that the plan administrator of any Plan has given or 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 standard under Section 412 of the Internal Revenue Code, a copy ofsuch 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 any 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 the chief financial officer or the chief accounting officer of the Guarantor setting forth details as to such occurrence and the action, if any, which the Guarantor or applicable member of the ERISA Group is required or proposes to take; and (i) from time to time such additional information regarding the financial position or business of the Guarantor and its Subsidiaries as any Noteholder may reasonably request. 5.2 Payment of Obligations. The Guarantor will, and will cause each of its Subsidiaries to, pay and discharge, as the same shall become due and payable, (a) 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 Lien upon any of its Property or assets, and (b) all material taxes, assessments and governmental charges or levies upon it or its Property or assets, except where any of the items in clause (a) or (b) above may be contested in good faith by appropriate proceedings, and the Guarantor or such Subsidiary, as the case may be, shall have set aside on its books. in 00oordance with generally accepted accounting principles, appropriate reserves, if any, for the accrual of any such items. 5.3 Maintenance of Property; Insurance, (a) The Guarantor will keep, and will cause each Subsidiary to keep, all Property usefiA and necessary in its business in, good working order and condition, ordinary wear and tear excepted. (b) The Guarantor will, and VAII cause each of its Subsidiaries to, maintain (either in the name of the Guarantor or in such Subsidlary's own name) with financially sound and responsible in;surance 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 Noteholders, upon request of any Noteholder, information presented in reasonable detail as to the insurance so carried. 5.4 Conduct of Business and Maintenance of Existence. Except as otherwise permitted in this Guaranty, the Guarantor will continue, and will cause each Significant Subsidiary to continue, to engage in business of the same general type as now conducted by the Guarantor and its Significant Subsidiaries, and will preserve, renew and keep in full fome and effect, and will cause each Significant Subsidiary (except where such Significant Subsidiary merges into the Guarantor or any other Subsidiary) to preserve, renew and keep in full force and affect. their respective legal existences and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business. 5.5 Compliance with Laws. The Guarantor 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) except where the necessfty of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply would not have a Material Adverse Effect. 5.6 Inspection of Property, Books and Records. The Guarantor 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 Noteholder, at such Noteholder's expense, to visit and inspect any of their respective 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. 5.7 Restriction on Debt of Subsidiaries. The Guarantor will not permit any Subsidiary to create, issue, incur, assume, or in any other way become liable for any unsecured Debt unless immediately prior thereto the Guarantor would be entitled under subsection (d) of Section 5.9 to create Secured Debt not specifically permitted under Section 5.9 but for subsection (d) thereof in an amount equal to such Debt; provided that the foregoing restriction shall not prevent (a) any Subsidiary from becoming liable to the Guarantor or to a Wholly-Owned Consolidated Subsidiary for Debt or (b) the extension, renewal or refunding of any Debt of any Subsidiary so long as Consolidated Debt is not thereby increased. 5.8 Restriction on Sales with Leases Back. Except for a sale or transfer by a Subsidiary to the Guarantor or a Wholly-Owned Consolidated Subsidiary, the Guarantor will not, and will not permit any Subsidiary to, sell or transfer any manufacturing plant, warehouse, retail store or equipment now or hereafter owned and operated by the Guarantor or a Subsidiary, with the intention that the Guarantor or any Subsidiary take back a lease thereof, except a lease for a period, including renewals, not exceeding twenty-four (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 that, notwithstanding the foregoing, the Guarantor or any Subsidiary may enter into a Sale and Leaseback Transaction N the Guarantor or a Subsidiary would be entitled under subsection (d) of Section 5.9 to create Secured Debt not spedfically permitted under Section 5.9 but for subsection (d) thereof in an amount equal to the Attributable Debt respecting such Sale and Leaseback Transaction; provided further that, notwithstanding the foregoing, the Guarantor or any Subsidiary may enter into a Sale and Leaseback Transaction if entered into in respect of Property acquired by the Guarantor or a Subsidiary if such Sale and Leaseback Transaction is entered into within twenty-four (24) months from the date of such acquisition; and provided stfil further that, noWthstanding the foregoing, the Guarantor or any Subsidiary may enter into a Sale and Leaseback Transaction if the Guarantor, within one hundred twenty (120) days before or after the sale or transfer shall have been made by the Guarantor or by any Subsidiary, applied or applies an amount equal to the greater of (a) the net proceeds of the sale of the Property sold and leased back pursuant to such arrangement or (b) the fair market value of the Property so sold and leased back at the time of entering into such arrangement (as detennined by any two of the followng: the Chairman of the Board of the Guarantor, its Chief Executive Officer, 'its President, any Vice President of the Guarantor, its Treasurer and its Controller) to (i) the retirement of Secured Debt of the Guarantor other than at maturity or pursuant to any mandatory sinking fund payment or any mandatory prepayment provision or (ii) reduction of the Commitments. 5.9 Restriction on Liens. The Guarantor will not, and will not permit any Subsidiary to, create, issue, incur, assume or guar-antee any Secured Debt without making effective provision (and the Guarantor covenants that in such case R will make or cause to be made effecrive provision) whereby the Notes (and any other Debt of the Guarantor or such Subsidiary then entitled thereto) shall be secured by the same Uen equally and ratably with (or prior to) any and all other obligations and Debt thereby secured for so long as any such other obligations and Debt shall be so secured; provided that the foregoing covenant shall not apply to the following: (a) (i) Any Lien on any Property acquired or constructed by the Guarantor or a Subsidiary and created contemporaneously with, or within twenty-four (24) months after, such acquisition or the completion of such construction and commencement of full operation off 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 Guarantor or a Subsidiary of Property subject to any Lien upon such Property existing at the time of acquisition thereof, whether or not assumed by the Guarantor or such Subsidiary, or (iii) any conditional sales agreement or other title retention agreement with respect to any Property hereafter acquired; provided that the Lien 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; (b) Any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 5-9 or any Lien securing the Debt of the Guarantor or of any Subsidiary on the date of this Guaranty or of a corporation at the time such corporation becomes a Subsidiary, or any extension% renewals or refunding$ of any such Uen; 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 Secured Debt of a Subsidiary owing to the Guarantor or a WhollyOwned Consolidated Subsidiary; and (d) Secured Debt of the Guarantor and its Subsidiaries which would otherwise be prohibited by the foregoing restrictions (not including Secured Debt permitted to be secured under subsections (a) through (c) above) so long as the sum of any such Secured Debt hereafter incurred and outstanding at the time plus Attributable Debt of the Guarantor and any Subsidiaries in respect of Sale and Leaseback Transaofionr, hereafter entered into and outstanding at the time (excluding Attributable Debt incurred in respect of any Sale and Leaseback Transaction (i) entered into in respect of Property acquired by the Guarantor or a Subsidiary not more than twenty-four (24) months prior to the date such Sale and Leaseback Transaction is entered into or (ii) if the Guarantor, within one hundred twenty (120) days before or after such Sale and Leaseback Transaction is entered into, applies an amount equal to the greater of (A) the net proceeds of the sale of the Property so sold and leased back or (B) the fair market value of such Property at the date such arrangement is entered into, the retirement of Secured Debt (other than at maturitY or pursuant to any mandatory payment provision) or to reduction of the Commitments) Plus unsecured Debt of any Subsidiary hereafter incurred and outstanding at the time (excluding unsecured Debt incurred through the extension, renewal or refunding of Debt of such Subsidiary where Consolidated Debt was not thereby increased and excluding any Debt owed to the Guarantor or a Wholly-Owned Consolidated Subsidiary) does not at the time exceed five percent (5%) of Consolidated Net Tangible Assets. 5.10 Leverage Ratio. Consolidated Debt will at no time exceed sixty-five percent (65%) of Total Capital. 5.11 Fixed Charge Coverage. The Fixed Charge Coverage Ratio will at no time be less than one hundred eight-five percent (185%). 5.12 Limitation on Minority Investments. Neither the Guarantor nor any Consolidated Subsidiary will make or acquire any Investment in any Person other than: (a) Investments in Consolidated Subsidiaries; (b) Temporary Cash Investments; and (c) Any Investment 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 (c) does not exceed fifteen percent (15%) of Consolidated Net Worth. 5.13 Consolidations, Mergers and Sales of Assets. The Guarantor will not (a) consolidate or merge with or into any other Person or (b) sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of the assets of the Guarantor and its Subsidiaries, taken as a Whole, to any other Person; provided that the Guarantor may merge with another Person if (i) the Guarantor is the corporation surviving such merger and (ii) immediately after giving effect to such merger, no Default shall have occurred and be continuing; provided further that the Guarantor may sell, lease or otherwise transfer any retail store located within the state of North Carolina- 5.14 Master Lease. The Guarantor agrees that it shall cause the Master Lease to be accounted for as a finance lease for financial reporting purposes. 5.15 Retirement of Notes. Neither the Guarantor nor any of its Subsidiaries will prepay, retire, purchase or otherwise acquire in whole or in part any Notes, or any interest therein (whether by pledge, participating interest or otherwise), pdor to their stated final maturity except by prepayment pursuant hereto or pursuant to the Put Agreement- 6. MISCELLANEOUS 6.1 Expenses. (a) The Guarantor shall pay when billed the reasonable costs and expenses (including reasonable attorneys' fees) incurred by the Noteholders in connection with the consideration, negotiation, preparation or execution of any amendments, waivers, consents, standstill agreements and other similar agreements with respect hereto or with respect to any of the Guaranteed Agreements (whether or not any such amendments, waivers, consents, standstill agreements or other similar agreements are executed). (b) At any time when the Noteholders and either one or both of the Issuer and the Guarantor are conducting restructuring or workout negotiations in respect hereof, or a Default or Event of Default exists, the Guarantor shall pay when billed the reasonable costs and expenses (including reasonable attorneys' fees and the reasonable fees of professional advisors) incurred by the Noteholders in connection with the assessment analysis or enforcement of any rights or remedies that are or may be available to the Noteholders. (c) If the Guarantor shall fail to pay when due any principal of, or YieldMaintenance Amount or accrued interest on, any Note, the Guarantor shall pay to each holder of Notes, to the extent permitted by law, such amounts as shall be sufficient to cover the costs and expenses, including but not limited to reasonable attorneys! fees, incurred by such holder in collecting any sums due on such Notes- 6.2 Amendment This Guaranty may be amended only in a writing executed by the Guarantor and the Required Holders. Subject to the next succeeding sentence, the covenants set forth in Section 5.7 through 5.13, inclusive, hereof, and the definitions in defined terms used therein, shall be deemed to be automatically amended to be identical to the equivalent covenants and definitions in the Credit Agreement effective upon the effectiveness of any amendment thereto 'in the Credit Agreement. Any such deemed amendment shall automatically cease to be eftetive upon the termination of the Credit Agreement or any repayment of all or substantially all of the indebtedness outstanding thereunder, if such termination or repayment shall occur within one hundred eighty (180) days after the effectiveness of such deemed amendment. In addlition. any such deemed amendment shall not annul or othervAse have any effect on any acceleration of the Notes pursuant to paragraph 6 of the Note Agreement if such amendment shall become effective after such acceleration shall have occurred. 6.3 Survival of Representations and Warranties. All representations and warranties contained herein or made in writing by the Guarantor in connection herewith shall survive the execution and delivery hereof. 6.4 Successors and Assigns. (a) Whenever the Guarantor or any of the parties to the Financing Documents is referred to, such reference shall be deemed to include the successors and assigns of such party, and all the covenants. promises and agreements contained in this Guaranty by or on behalf of the Guarantor shall bind the successors and assigns of the Guarantor and shall inure to the benefit of each of the Noteholders from time to time whether so expressed or not and whether or not an assignment of the rights hereunder shall have been delivered in connection with any assignment or other transfer of Notes, (b) The Guarantor agrees to provide an executed copy of this Guaranty to any transferee of the Note by any Noteholder, provided that no additional obligations of the Guarantor shall thereby be created but rather that the existing obligations of the Guarantor shall be more particularly stated in respect of one or more future Noteholders that are the subject of this Guaranty, 6.5 Communications. (a) Method; Address. All written communications provided for under this Guaranty shall be sent by registered or certified mail with return receipt requested or nationwide overnight delivery service (with charges prepaid) and (i) if to any Purchaser, addressed to such Purchaser at the address specified for such commurfications in the Purchasers' Schedule attached to the Note Agreement as Annex 1, or at such other address as any Purchaser shall have specified to the Guarantor in writing, (ii) if to any other Noteholder, addressed to such other Noteholder at such address as such other Noteho(der shall have specified to the Guarantor in writing or, if any such other Noteholder shall not have so specified an address to the Guarantor, then addressed to such other Noteholder in care of the last holder of such Note that shall have so specified an address to the Guarantor, and (iii) if to the Guarantor, addressed to it at the address set forth on Annex 1 hereto, or at such other address as the Guarantor shall have specified to each Noteholder in writing: provided that any such communication to the Guarantor may also, at the option of any Noteholder, be delivered by any other means either to the Guarantor at Its address specified In such Annex 1 or to any executive officer of the Guarantor. (b) When Given. Any communication addressed and delivered as herein provided shall be deemed to be received when actually delivered to the address of the addressee (whether or not delivery is accepted) or received by the teleropy machine of the recipient. Any communication not so addressed and delivered shall be ineffective. 6.6 Descriptive Headings, etc. The descriptive headings of'the several Sections hereof are inserted for convenience only and do not constitute a part hereof. The words "herein," "hereof," "hereunder" and "heretd' refer to this Guaranty as a whole and not to any particular section or other subdivision. 6.7 Satisfaction Requirement. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms hereof required to be satisfactory to each Noteholder, the Noteholders or to the Required Holders, the determination of such satisfaction shall be made by each such Noteholder, the Noteholders or the Required Holders, as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination. 6.8 Partial Invalidity. The unenforceability or invalidity of any provision or provisions hereof shall not render any other provision or provisions contained herein unenforceable or invalid. 6.9 Governing Low. THIS GUARANTY SKALL BE CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK. 6.10 Effective Date. This Guaranty shall be effective as of the date hereof. 6.11 Benefits of Guaranty Restricted to Noteholders. Nothing express or implied in this Guaranty ir, intended or shall be construed to give to any Person other then the Guarantor and the Noteholders any legal or equitable right, remedy or claim under or in respect hereof or any covenant, condition or provision therein or herein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Guarantor and the Noteholders. 6.12 Consent to Jurisdiction; Appointment of Agent. (a) Consent to Jurisdiction. THE GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY, THE NOTES, OR ANY OTHER FINANCING DOCUMENT, OR ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER, OR UNDER ANY GUARANTEED AGREEMENT, BROUGHT BY ANY HOLDER OF A NOTE AGAINST THE GUARANTOR OR ANY OF ITS PROPERTY, MAY BE BROUGHT BY SUCH HOLDER OF A NOTE IN ANY FEDERAL DISTRICT COURT LOCATED IN NEW YORK CITY, NEW YORK OR ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY, NEW YORK, AS SUCH HOLDER OF A NOTE MAY IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND DELIVERY OF THIS GUARANTY. THE GUARANTOR IRREVOCABLY AND UNCONDITIONALLY SU13MITS TO THE NOWEXCLUSIVE IN PERSONAM JURISDICTION OF EACH SUCH COURT, AND THE GUARANTOR IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT IN ANY PROCEEDING BEFORE ANY TRIBUNAL, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT TO THE [IV PERSONAM JURISDICTION OF ANY SUCH COURT. IN ADDITION, THE GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION T14AT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY GUARANTEED AGREEMENT, BROUGHT IN ANY SUCH COURT, AND HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILJTY OR RIGHT OF ANY HOLDER OF A NOTE TO OBTAIN JURISDICTION OVER THE GUARANTOR IN SUCH OTHER JURISDICTION AS MAY BE PERMITTED BY APPLICABLE LAW. (b) Agent for Service of Process. THE GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT PROCESS SERVED EITHER PERSONALLY OR BY REGISTERED MAIL SHALL CONSTITUTE, TO THE EXTENT PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY GUARANTEED AGREEMENT, OR ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER OR UNDER THE GUARANTEED AGREEMENTS, BROUGHT BY ANY HOLDER OF A NOTE AGAINST THE GUARANTOR OR ANY OF ITS PROPERTY. RECEIPT OF PROCESS SO SERVED SHALL BE CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED BY THE UNITED STATES POSTAL SERVICE. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OR RIGHT OF A14Y HOLDER OF A NOTE TO SERVE ANY WRITS, PROCESS OR SUMMONSES IN ANY MANNER PERMITTED BY APPLICABLE LAW. 6.13 Survival. So long as the Guaranteed Obligations and all payment obligations of the Guarantor hereunder shall not have been fully and finally performed and indefeasibly paid, the obligations of the Guarantor hereunder shall survive the transfer and payment of any Note and the payment in full of - -all the Notes. 6.14 Entire Agreement This Guaranty constitutes the trial written expression of all of the terms hereof and is a complete and exclusive statement of those terms. 6.15 Duplicate Originals, Execution in Counterpait Two or more duplicate originals hereof may be signed by the parties, each of which shall be ari original but all of which together shall constitute one and the same instrument. This Guaranty may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts that, collectively, show execution by each party hereto shall constitute one duplicate original. [Remainder of page intentionally blank. Next page is signature page.] IN WITNESS WHEREOF, the Guarantor has caused thi8 Guaranty to be executed on its behalf by a duly authorized officer of the Guarantor. RITE AID CORPORATION By: _________________________________________ Name: Title: Accepted and Agreed, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: _______________________________________ Name: Title: PRUCO LIFE INSURANCE COMPANY By: _____________________________________ Name: Title: EX-4 30 EXHIBIT 4.29 - NOTE AGREEMENT FINCO, INC. NOTE AGREEMENT ------------------------------------ ------------------------------------ DATED AS OF SEPTEMBER 30, 1996 $79,560,908.91 7.30% SENIOR SECURED NOTES DUE FEBRUARY 28, 2002 TABLE OF CONTENTS (Not Part of Agreement) PAGE 1. AUTHORIZATION OF ISSUE OF NOTES.................................. 1 2. PURCHASE AND SALE OF NOTES....................................... 1 3. CONDITIONS OF CLOSING............................................ 2 3A. Opinion of Purchasers' Special Counsel.................... 2 3B. Opinion of Counsel to the Company......................... 2 3C. Opinions of Counsel to the Guarantor...................... 2 3D. Representations -and Warranties; No Default............... 2 3E. Purchase Permitted by Applicable Laws..................... 2 3F. Guaranty.................................................. 3 3G. Put Agreement............................................. 3 3H. Amendment to Master Lease................................. 3 3I. Purchase of Rent Obligations.............................. 3 3J. Security Agreement........................................ 3 3K. Acknowledgment, Subordination and Consent Agreement....... 3 3L. Financing Statements and Other Filings.................... 3 3M. RLC Secretary's Certificate............................... 4 3N. Rite Aid Florida Secretary's Certificate.................. 4 3O. Payment of RLC Notes..................................... 4 3P. Private Placement Number.................................. 4 3Q. Transaction Fee.......................................... 4 3R. Closing Expenses.......................................... 4 3S. Proceedings............................................... 4 4. PAYMENTS........................................................ 5 4A. Schedule of Payments...................................... 5 4B. Put Option Following a Rating Decline..................... 5 4C. Required Prepayment upon Certain Payments under the Master Lease..................................................... 6 4D. Optional Prepayment With Yield-Maintenance Amount......... 7 4E. Notice of Optional Prepayment ............................ 7 4F Application of Prepayments; Partial Payments Pro Rata .... 7 4G. Retirement of Notes ...................................... 8 5. COVENANTS AND AGREEMENTS......................................... 8 5A. Maintenance of Existence................................. 8 5B. Payment of Notes and Maintenance of Office................ 8 5C. Maintenance of Books and Records, Inspection............. 8 5D. Payment of Taxes.......................................... 8 5E. Compliance with Applicable Law........................... 9 5F Disposition of Assets .................................... 9 5G. Change in Name............................................ 9 5H. Nature of Business ....................................... 9 5I. Liabilities.............................................. 9 5J. Liens.................................................... 9 5K. Loans: Investments ...................................... 9 5L. Additional Agreements; Amendments to Existing Agreements and Certificate of Incorporation ........................ 9 5M. Payment of Monies ....................................... 9 5N. Collateral Trust Indenture............................... 9 5O. Further Assurances....................................... 10 6. EVENTS OF DEFAULT............................................... 10 7. REPRESENTATIONS, COVENANTS AND WARRANTIES....................... 13 7A. Organization and Existence............................... 13 7B. Due Authorization; No Conflict........................... 13 7C. Enforceability........................................... 13 7D. Actions Pending.......................................... 13 7E. Governmental Consent..................................... 13 7F. Tax Returns.............................................. 13 7G. Compliance with Law...................................... 13 7H. Liens ................................................... 13 7I. No Events of Default..................................... 14 7J. Disclosure............................................... 14 7K. Security Documents....................................... 14 7L. ERISA.................................................... 14 7M. Governmental Consent..................................... 14 7N. Certain Laws............................................. 14 7O. Margin Regulations ...................................... 15 7P. Offering of Notes ....................................... 15 70Q Other Business .......................................... 15 8. REPRESENTATIONS OF THE PURCHASER................................ 15 8A. Purchase for Investment.................................. 15 8B. ERISA.................................................... 15 9. DEFINITIONS..................................................... 17 9A. Yield-Maintenance Terms.................................. 17 9B. Other Terms.............................................. 18 10.MISCELLANEOUS................................................... 24 10A. Note Payments ......................................... 24 10B. Expenses............................................... 24 10C. Consent to Amendments.................................. 25 10D. Form, Registration, Transfer and Exchange of Notes, Lost Notes............................................. 25 10E. Persons Deemed Owners; Participations.................. 26 10F. Survival of Representations and Warranties; Entire Agreement.............................................. 26 10G. Successors and Assigns................................ 26 10H. Disclosure to Other Persons ........................... 26 10I. Notices................................................ 28 10J. Descriptive Headings, etc.............................. 28 10K. Satisfaction Requirement............................... 28 10L. Severalty of Obligations............................... 28 10M. Binding Agreement...................................... 29 10N. Governing Law.......................................... 29 10O. Counterparts........................................... 29 Annex 1 - Purchasers' Schedule Annex 2 - Payment Instructions at Closing Annex 3 - Prepayment Schedule Exhibit A- Form of Note Exhibit B- Form of Special Counsel's Opinion Exhibit B- Form of Company Counsel's Opinion Exhibit B- Form of Guarantor Assistant Chief Counsel's Opinion Exhibit C- Form of Company Officers' Certificate Exhibit D- Form of Company Secretary's Certificate Exhibit E- Form of Guaranty Exhibit F- Form of Guarantor Officers' Certificate Exhibit G- Form of Guarantor Secretary's Certificate Exhibit H- Form of Put Agreement Exhibit I- Form of First Amendment to Master Lease Exhibit J- Form of Rent Purchase Agreement (No. 2) Exhibit K- Form of Security Agreement Exhibit L- Form of Acknowledgement, Subordination and Consent Agreement Exhibit M- Form of RLC Secretary's Certificate Exhibit N- Form of Rite Aid Florida Secretary's Certificate FINCO, INC. ------------------------- NOTE AGREEMENT $79,560,908.91 7.30% SENIOR SECURED NOTES DUE FEBRUARY 28, 2002 Dated as of September 30, 1996 To Each of the Purchasers Named in the Purchasers' Schedule Attached Hereto Ladies and Gentlemen: The undersigned, FINCO, INC., a Delaware corporation (together with its successors and assigns, the "COMPANY"), hereby agrees with the purchasers named in the Purchasers' Schedule attached hereto as Annex I (herein called the "PURCHASERS") as follows: 1. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the issue and sale of its senior promissory notes (the "NOTES") in the aggregate principal amount of Seventy-Nine Million, Five Hundred Sixty Thousand Nine Hundred Eight and 91/100 Dollars ($79,560,908.91) to be dated the date of issue thereof, to mature on February 28, 2002, to bear interest on the unpaid balance thereof from February 28, 1997 (or such later date as any Note shall be dated upon an exchange of Notes) until the principal thereof shall have become due and payable at the rate of seven and three-tenths percent (7.30%) per annum, payable monthly on the last day of each month commencing on March 31, 1997 and at maturity, and on overdue principal, Yield-Maintenance Amount and accrued interest at the rate specified therein, and to be substantially in the form of Exhibit A attached hereto with such changes therefrom, if any, as may be approved by the Purchasers and the Company. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. The term "Notes" as used herein shall include! each Note delivered pursuant to any provision hereof and each Note delivered in substitution or exchange for any such Note pursuant to any such provision. 2. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to each Purchaser and, subject to the terms and conditions set forth herein, each Purchaser agrees to purchase from the Company the aggregate principal amount of Notes set forth below such Purchaser's name in the Purchasers' Schedule attached hereto as Annex 1, for the amount set forth opposite such Purchasers name as the purchase price thereof. The Company will deliver to each such Purchaser, at the offices of Hebb & Gitlin, a Professional Corporation, One State Street Hartford, Connecticut, 06103, one or more Notes registered in the name specified on the Purchasers' Schedule with respect to such Purchaser, evidencing the aggregate principal amount of Notes to be purchased by such Purchaser and in the denomination or denominations specified with respect to such Purchaser in the Purchasers' Schedule attached hereto, against payment of the purchase price thereof by transfer of immediately available funds as directed by the Company on Annex 2 hereto, on the date of closing, which shall be September 30, 1996 (the "CLOSING DATE"). 3. CONDITIONS OF CLOSING. Each Purchasers obligation to purchase and pay for the Notes to be purchased hereunder is subject to the satisfaction, on or before the Closing Date, of the following conditions: 3A. OPINION OF PURCHASERS' SPECIAL COUNSEL. The Purchasers shall have received from Hebb & Gitlin, a Professional Corporation, which is acting as special counsel for the Purchasers in connection with this transaction, a favorable opinion, dated the Closing Date and substantially in the form of Exhibit B1 hereto. 3B. OPINION OF COUNSEL TO THE COMPANY. The Purchasers shall have received from Haight, Tramonte, Siciliano, Flask & Yeonas, P.C., counsel for the Company, a favorable opinion dated the Closing Date and substantially in the form of Exhibit B2 hereto. 3C. OPINIONS OF COUNSEL TO THE GUARANTOR. The Purchasers shall have received from (i) Morgan, Lewis & Bockius LLP, special counsel for the Guarantor, Rite Aid Florida and the Operating Subsidiaries, a favorable opinion dated the Closing Date and in form and substance satisfactory to the Purchasers and (ii) Elliot S. Gerson, Assistant Chief Counsel for the Guarantor, Rite Aid Florida and the Operating Subsidiaries, a favorable opinion dated the Closing Date and substantially in the form of Exhibit B3 hereto. 3D. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and warranties contained in paragraph 7 hereof shall be true on and as of the Closing Date, except to the extent of changes caused by the transactions provided for herein; on the Closing Date no Event of Default or Default shall have occurred and be continuing; and the Purchasers shall have received a certificate dated the Closing Date and signed by the Chairman and Chief Executive Officer, the President, the Executive Vice President or any Senior Vice President and the Treasurer or an Assistant Treasurer of the Company, substantially in the form of Exhibit C hereto, certifying to both such effects and that the preceding conditions specified in this paragraph OD have been fulfilled, and a certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of the Company, substantially in the form of Exhibit D hereto, with respect to the matters therein set forth. 3E. PURCHASE PERMITTED BY APPLICABLE LAWS. The offer, purchase, and sale of, and payment for, the Notes to be purchased by the Purchasers on the Closing Date on the terms and conditions provided herein (including the use of the proceeds of such Notes by the Company) shall riot violate any applicable law or governmental regulation (including, without limitation, section 5 of the Securities Act or Regulation G, T or X of the Board of Governors of the Federal Reserve System) and shall not subject any Purchaser to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and each Purchaser shall have received such certificates or other evidence as such Purchaser may request to establish compliance with this condition. 3F. GUARANTY. Each Purchaser shall have received a guaranty from the Guarantor, in the form of Exhibit E hereto (the "RITE AID GUARANTY"), executed and delivered by the Guarantor, together with (a) a certificate dated the Closing Date and signed by the Chairman and Chief Executive Officer, the President, the Executive Vice President or any Senior Vice President and the Treasurer or an Assistant Treasurer of the Guarantor, substantially in the form of Exhibit F hereto and (b) a certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of the Guarantor, substantially in the form of Exhibit G hereto. 3G. PUT AGREEMENT. The Guarantor and the Purchasers shall have executed and delivered an agreement, in the form of Exhibit H hereto (the "PUT AGREEMENT"), pursuant to which the Purchasers shall have the right to sell the Notes to the Guarantor upon the occurrence of an Event of Default. 3H. AMENDMENT TO MASTER LEASE. RLC and Rite Aid Florida shall have executed and delivered an amendment, substantially in the form of Exhibit I hereto (the "FIRST AMENDMENT"), to that certain Master Lease, dated February 29, 1996 (as amended by the First Amendment, the "MASTER LEASE"). 3I. PURCHASE OF RENT OBLIGATIONS. The Company and RLC shall have executed and delivered that certain Rent Purchase Agreement (No. 2), substantially in the form of Exhibit J hereto ("RENT PURCHASE AGREEMENT (NO.2)"), with RLC, pursuant to which the Company shall have purchased from RLC certain rent obligations owing under the Master Lease, and certain related rights, for a total purchase price of Seventy-Seven Million One Hundred Eighty-Four Thousand Four Hundred Seventy-Six and 50/100 Dollars ($77,184,476.50). 3J. SECURITY AGREEMENT. The Company shall have executed and delivered a security agreement in favor of the Purchasers, substantially in the form of Exhibit K hereto (the "SECURITY AGREEMENT"), pursuant to which the Company shall have granted to the Purchasers a security interest in the Company's rights under Rent Purchase Agreement (No. 2) and the Acknowledgment, Subordination and Consent Agreement. 31K. ACKNOWLEDGMENT, SUBORDINATION AND CONSENT AGREEMENT. The Guarantor, Rite Aid Florida and the Operating Subsidiaries shall have executed and delivered an agreement, in the form of Exhibit L hereto (the "ACKNOWLEDGEMENT, SUBORDINATION AND CONSENT AGREEMENT"), pursuant to which each such Person shall have consented, inter alia, to the transactions effected by Rent Purchase Agreement (No. 2) and the Security Agreement. 3L. FINANCING STATEMENTS AND OTHER FILINGS. UCC-1 financing statements shall have been filed with (i) the State Corporation Commission of the Commonwealth of Virginia and the office of the court clerk of Fairfax County, naming RLC as debtor, the Company as secured party and the Security Agent as assignee of the secured party, and (ii) the Secretary of State of Connecticut, naming the Company as debtor and the Security Agent as secured party. All recording, subscription and other similar fees, and all taxes and other expenses related to such filings, registrations and recordings shall have been paid, or caused to be paid, in full by the Company and the Purchasers shall have received evidence satisfactory to the Purchasers of the proper recording of such financing statements and the first priority perfected status of such security interests and Liens. 3M. RLC SECRETARY'S CERTIFICATE. Each Purchaser shall have received a certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of RLC, substantially in the form of Exhibit M hereto, with respect to the matters therein set forth. 3N. RITE AID FLORIDA SECRETARY'S CERTIFICATE. Each Purchaser shall have received a certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of Rite Aid Florida, substantially in the form of Exhibit N hereto, with respect to the matters therein set forth. 3O. PAYMENT OF RLC NOTES. Each Purchaser shall have received evidence of the application of the proceeds of the Notes to the prepayment of the RLC Notes, dated February 20, 1996, in the principal amount of Seventy-Six Million Five Hundred Thousand Dollars ($76,500,000) payable to the order of Rite Investments, Inc. 3P. PRIVATE PLACEMENT NUMBER. The Company shall have obtained a private placement number for the Notes from the CUSIP Service Bureau of S&P. 3Q. TRANSACTION FEE. The Purchasers shall have received a transaction fee as follows: (i) prior to the Closing Date, a fee in the amount of One Hundred Thousand Dollars ($100,000), and (ii) on or prior to the Closing Date, a fee in the amount of Two Hundred Thousand Dollars ($200,000), which amount shall be deducted on a pro rata basis from the amount of funds advanced to the Company by each such Purchaser for such Purchaser's purchase of Notes. 3R. CLOSING EXPENSES. The Company shall have paid at the closing the statement for fees and disbursements of the special counsel to the Purchasers presented on the Closing Date. 3S. PROCEEDINGS. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident hereto shall be satisfactory in substance and form to each Purchaser, and each Purchaser shall have received all such counterpart originals or certified or other copies of such documents as it may reasonably request. 4. PAYMENTS. The Notes shall be subject to required prepayment as set forth in paragraphs 4A, 4B and 4C hereof and shall be subject to prepayment, at the option of the Company, as set forth in paragraph 4D hereof. 4A. SCHEDULE OF PAYMENTS. Until the Notes shall be paid in full, the Company shall apply to the payment of the Notes, without Yield-Maintenance Amount, the respective amounts specified in Annex 3 hereto on the respective dates specified in such Annex, together with accrued interest thereon in the amounts specified in such Annex. 4B. PUT OPTION FOLLOWING A RATING DECLINE. (I) RATING DECLINE. In the event that any Senior Obligations of the Guarantor shall not be rated Investment Grade by at least two (2) Rating Agencies, each Noteholder will have the right to elect, at any time prior to the Restoration Date, to require the ~Company to redeem such Note in whole (but not in part) on the Redemption Date at a price equal to the Redemption Price. (II) NOTICE. Within five (5) days after the first. date on which any Senior Obligations of the Guarantor are not rated Investment Grade by at least two (2) Rating Agencies (such first date being referred to herein as the "TRIGGER Date"), the Company will cause a notice to be mailed to each Noteholder, which notice shall (a) state that Senior Obligations of the Guarantor are not rated Investment Grade by at least two (2) Rating Agencies, (b) describe the event or the action taken that resulted in such Senior Obligations not being rated Investment Grade, including the date of the occurrence thereof, (c) set forth the Company's offer to redeem all of the Notes as provided in subparagraph (iii) of this paragraph 4B, (d) set forth in reasonable detail the Company's calculation of the Redemption Price payable upon any such redemption, determined as if the Redemption Date were the date of such notice, and (e) state the party to whom the Noteholder electing redemption shall surrender such Note on or before the Redemption Date. (III) ELECTION OF REDEMPTION. At any time afterthe Trigger Date and prior to the Restoration Date, any Noteholder may, by written notice to the Company (the "REDEMPTION NOTICE"), elect to have the Company redeem the Note or Notes specified in the Redemption Notice. Upon its receipt of a Redemption Notice, the Company will promptly, and in any event within three (3) Business Days of its receipt thereof, send a copy of such Redemption Notice to each Noteholder (other than the Noteholder which shall have originally delivered such Redemption Notice). Election of redemption by a Noteholder pursuant to this paragraph 4B shall be irrevocable and the occurrence of the Restoration Date prior to the Redemption Date shall not affect the Companys obligation to redeem the Note or Notes spedfied in any Noteholders Redemption Notice. On the Redemption Date, the Company shall pay such Noteholder the Redemption Price in respect of the Notes held by such Noteholder and shall deliver to such Noteholder a notice setting forth in reasonable detail the Company's calculation of the Redemption Price. (IV) CERTAIN DEFINED TERMS. For purposes of this Agreement the following terms shall have the following meanings: "INVESTMENT GRADE" means a rating of Baa3 or higher, in the case of a rating by Moody's, and a rating of BBB- or higher, in the case of a rating by S&P, or the equivalent of such rating by Moody's or S&P or, to the extent applicable, by another Rating Agency. "MOODY'S" means Moody's Investors Service, Inc. or any successor thereto. "RATING AGENCY" means each of Moody's and S&P and, if either Moody's or S&P (but not both) ceases to rate Senior Obligations of corporations generally or Senior Obligations of the Guarantor in particular, then another comparable rating agency of recognized national standing in the United States selected reasonably by the Required Holders. If both Moody's and S&P cease to rate Senior Obligations of corporations generally or Senior Obligations of the Guarantor in particular, then, for purposes of this paragraph 4B, Senior Obligations of the Guarantor shall be deemed not to have been rated Investment Grade by any Rating Agency. "REDEMPTION DATE" means, in respect of the Notes held by any Noteholder that has delivered a Redemption Notice, the fifteenth (15th) day (or, if such day is not a Business Day, the first Business Day thereafter) after delivery of such Redemption Notice to the Company. "REDEMPTION PRICE" means, with respect to any Note as of the Redemption Date therefor, an amount equal to one hundred percent (100%) of the principal amount of such Notes plus interest thereon accrued to the Redemption Date and the Yield-Maintenance Amount, if any, with respect thereto. "RESTORATION DATE" means the date on which Senior Obligations of the Guarantor are rated Investment Grade by at least two (2) Rating Agencies. "SENIOR OBLIGATIONS" means unsubordinated, senior, unsecured indebtedness. "S&P" means Standard & Poor's, a division of McGraw-Hill, Inc-, or any successor -thereto. 4C. REQUIRED PREPAYMENT UPON CERTAIN PAYMENTS UNDER THE MASTER LEASE. At any time when (i) Stipulated Loss Value is paid by Rite Aid Florida under the Master Lease, or (ii) Rite Aid Florida shall prepay all or any portion of Basic Rent pursuant to Section 4.2 of the Master Lease. the Company shall prepay the Notes in a principal amount determined pursuant to the next succeeding sentence, together with interest on such principal amount accrued to the prepayment date arid the Yield-Maintenance Amount if any, in respect of the principal amount of the Notes being so prepaid. In determining the amount of principal of the Notes to be prepaid upon such payment or prepayment, it shall be assumed that the amount of the reduction in each payment of Basic Rent arising therefrom is allocable to principal and interest in the same proportions that the entire amount of such payment was so allocated immediately prior to such reduction; the aggregate amount of the reductions in Basic Rent so allocated to principal shall be the aggregate principal amount of the Notes to be prepaid pursuant to this paragraph 4C. Prepayments of the Notes pursuant to this paragraph 4C shall be made at the time such Stipulated Loss Value or prepayment shall be paid by Rite Aid Florida and, simultaneously with any such prepayment, the Company shall deliver to each Noteholder a notice setting forth in reasonable detail the Company's calculation of the Yield-Maintenance Amount, payable in connection with such prepayment. 4D. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Notes shall be subject to prepayment, in whole at any time or from time to time in part (in multiples of One Million Dollars ($1,000,000), or, if the aggregate outstanding principal amount of the Notes is less than One Million Dollars ($1,000,000) at such time, in such principal amount), at the option of the Company, at one hundred percent (100%) of the principal amount so prepaid plus interest thereon accrued to the prepayment date and the Yield-MaIntenance Amount, if any, with respect to each Note. 4E. NOTICE OF OPTIONAL PREPAYMENT. The Company will give each Noteholder irrevocable written notice of any prepayment to be made pursuant to paragraph 4D hereof not less than ten (10) Business Days prior to the prepayment date, specifying such prepayment date and the principal amount of the Notes held by such Noteholder to be prepaid on such date, and stating that such prepayment is to be made pursuant to paragraph 4D. The notice of prepayment shall also set forth in reasonable detail the Company's calculation of the Yield-Maintenance Amount payable to each Noteholder in connection with such prepayment determined as if the date of such notice were the date of prepayment. Notice of prepayment having been given as aforesaid, the principal amount of the Notes specified in such notice, together with interest thereon accrued to the prepayment date and together with the Yield-Maintenance Amount, if any, shall become due and payable an such prepayment date. On such prepayment date, the Company will deliver to each Noteholder a notice setting forth in reasonable detail the Company's calculalion of the Yield-Maintenance Amount due on such date. 4F. APPLICATION OF PREPAYMENTS, PARTIAL PAYMENTS PRO RATA. (I) APPLICATION OF OTHER PREPAYMENTS. Any prepayment of Notes pursuant to paragraph 4D hereof shall be applied first, to the amount due on the maturity date of the Notes and second, to the mandatory payments applicable to the Notes, as set forth in paragraph 4A, in the inverse order of the maturity thereof. Any prepayment of Notes pursuant to paragraph 4B or paragraph 4C shall be applied ratably to the amount due on the maturity date of the Notes and the mandatory payments of the Notes as set forth in paragraph 4A. (II) PARTIAL PREPAYMENTS PRO RATA. Upon any partial payment or prepayment of Notes pursuant to paragraph 4A, paragraph 4C or paragraph 4D hereof, the principal amount so prepaid shall be allocated to all Notes at the time outstanding in proportion to the respective aggregate principal amounts of the Notes then outstanding. 4G. RETIREMENT OF NOTES. The Company will not prepay, retire, purchase or otherwise acquire in whole or in part any Notes, or any interest therein (whether by pledge, participating interest or otherwise), prior to their stated final maturity except by, prepayment pursuant to this paragraph 4 or upon acceleration of such final maturity pursuant to paragraph 0 hereof. 5. COVENANTS AND AGREEMENTS. The Company covenants and agrees that on and after the Closing Date and so long as any of the Notes shall be outstanding: 5A. MAINTENANCE OF EXISTENCE. The Company shall at all times maintain its existence as a corporation organirzed under the laws of the state of Delaware, and shall not take or permit to be taken any action which would have the effect of terminating its existence. 5B. PAYMENT OF NOTES AND MAINTENANCE OF OFFICE. (I) PAYMENT OF NOTES. The Company will punctually pay, or cause to be paid, the p(incipall of and accrued interest (and Yield-Maintenance Amount if any) on, the Notes, as and when the same shall become due according to the terms hereof and of the Notes. (II) MAINTENANCE OF CHIEF EXECUTIVE OFFICE. The Company will maintain its chief executive office at the address of the Company set forth in paragraph 101 hereof where notices, presentations and demands in respect hereof or the Notes may be made upon ft. The Company shall not have any other office and, without providing at least thirty (30) days prior written notice to each Noteholder, shall not dhange the location of its chief executive office. 5C. MAINTENANCE OF BOOKS AND RECORDS; INSPECTION. The Company shall maintain true and correct books of records and accounts in which full and correct entries will be made of all its material business transactions in accordance with sound business practices-, and will permit representatives of any Noteholder, at such Noteholders expense or in any event without expense to the Company, to visit its chief executive office and examine and make abstracts from any of its books and records, and to discuss its affairs, finances and accounts wirth its officers, employees and independent public accountants, all at such reasonable times, upon reasonable notice, and as often as may reasonably be desired. 5D. PAYMENT OF TAXES. The Company shall file or cause to be filed all Federal, state and local tax returns which are required to be filed by it, and shall pay or discharge or cause to be paid or discharged before any penalty shall accrue fmm the failure to so pay or discharge, all taxes, assessments and governmental charges, imposts, duties and levies charged, levied or imposed upon it or upon its income, profits or Property (including withholding and any penalties, interest and additions to taxes), provided that no such penalty need be paid if it is being contested ingood faith by appropriate proceedings promptly initiated and diligently conducted if appropriate reserves therefor have been established and if the failure to pay such penalty will not have a Material Adverse Effect. 5E. COMPLIANCE WITH APPLICABLE LAW. The Company shall comply in all material respects with all requirements of applicable law. 5F. DISPOSITION OF ASSETS. The Company shall not convey, sell, lease, sublease or otherwise dispose of, in one transaction or a series of transactions (or agree in writing to do any of the foregoing at any future time), any of its Property or any part thereof. The Company shall at all times own (i) the right to receive the Rental Payments and (ii) the Related Rights, free and clear of any Lien other than Liens created by the Financing Documents in favor of the Security Agent. 5G. CHANGE IN NAME. The Company shall not change its name or adopt an assumed, business or trade name. 5H. NATURE OF BUSINESS. The Company shall not engage in any business other than as set forth in its certificate of incorporation as in effect on the Closing Date. 5I. LIABILITIES. The Company shall not directly or indirectly create, incur, assume, issue ar otherwise have any liabilities other than the Notes, amounts owing to the Noteholders under the Financing Documents and liabilities not in excess of Ten Thousand Dollars ($10,000) on account of incidentals or services supplied to the Company- 5J. LIENS. The Company shall not directly or indirectly create, incur, assume or suffer to exist any Lien on or with respect to its Properties other than the Liens created by the Security Agreement. 5K. LOANS; INVESTMENTS. The Company shall not make any loans, advances or extensions of credit to any Person, or make any investment in any Person or Property other than the acquisition of the Rental Payments and the Related Rights pursuant to Rent Purchase Agreement (No. 2). 5L. ADDITIONAL AGREEMENTS; AMENDMENTS TO EXISTING AGREEMENTS AND CERTIFICATE OF INCORPORATION. After the Closing Date, the Company shall not enter into any agreement, any amendment or waiver of any agreement to which it is a party at the close of business on the Closing Date, or any amendment to its certificate of incorporation. 5M. PAYMENT OF MONIES. The Company shall (i) instruct Rite Aid Florida to pay all Rental Payments directly to the Security Agent and (ii) pay over to the Security Agent, promptly upon receipt, all monies received by it in respect of the Rental Payments and the Related Rights for application to principal of, and interest and Yield-Maintenance Amount on, the Notes and other amounts owing hereunder. 5N. COLLATERAL TRUST INDENTURE. The Company shall, upon the request of the Required Holders, enter into a collateral trust indenture containing customary terms and conditions pursuant to which a collateral trustee (which shall be a bank or trust company selected by the Required Holders) shall be the secured party with respect to the collateral encumbered by the Security Agreement and shall act for the benefit of the Noteholders. The Company shall pay all costs and expenses incurred by the Noteholders in connection with the preparation, negotiation and execution of any such collateral trust indenture including, without limitation, fees and disbursements of counsel for the Noteholders and the collateral trustee and the fees and disbumements of the collateral trustee. 5O. FURTHER ASSURANCES. The Company shall at its sole cost and expense cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts, documents, assurances and information (financial or otherwise) relating to this Agreement or the other Financing Documents as the Required Holders may reasonably request in order to carry out more effectively the intent and purposes of this Agreement and the other Financing Documents, and the transactions contemplated hereby and thereby. The Company shall cause the financing statements (and continuation statements with respect thereto) identified in paragraph 3L, and all other documents necessary in that connection, to be recorded or filed at such places and times, and in such manner, and shall take, or shall cause to be taken, all such other action as may from time to time be necessary or reasonably requested by the Required Holders in order to (i) establish, preserve, protect and perfect the Company's right, title and interest in and to the Rental Payments and the Related Rights, and (ii) establish, preserve, protect and perfect the Lien of the Required Holders in and to the Collateral. 6. EVENTS OF DEFAULT. If any of the following events shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come abott or be effected by operation of law or otherwise): (i) the Company defaults in the payment of any principal of or YieldMaintenance Amount on any Note when the same shall become due: or (ii) the Company defaults in the payment of any interest on any Note for more than five (5) Business Days after the date due; or (iii) any representation or warranty made by the Company herein or in any writing furnished in connection with or pursuant hereto, or by the Guarantor in any Financing Document or in any writing furnished in connection with or pursuant thereto, shall be false in any material respect on the date as of which made; or (iv) the Company fails to perform or observe any agreement contained in paragraph 5 hereof, or the Guarantor fails to perform or observe any agreement contained in Section 5 of the Rite Aid Guaranty: or (v) the Company, the Guarantor, Rite Aid Florida or any Operating Subsidiary fails to perform or observe any other agreement, term or condition contained herein or in any other Financing Document and such failure shall not be remedied within thirty (30) days after any officer of any such corporation obtains actual knowledge thereof (whether as the result of notice from any Noteholder or otherwise); or (vi) the Guarantor or any Significant Subsidiary defaults in any payment of principal of or interest on any other obligation for money borrowed (or any Capitalized Lease Obligation, any obligation under a conditional sale or other title retention agreement, any obligation issued or assumed as full or partial payment for Property whether or not secured by a purchase money mortgage or any obligation under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto, or the Guarantor or any Significant Subsidiary fails to perform or observe any other agreement term or condition contained in any agreement under which any such obligation is created (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is to cause, or to permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due prior to any originally stated maturity, or to be repurchased by the Guarantor or any Significant Subsidiary, provided that the aggregate amount of all obligations as to which such a payment default shall occur and be continuing or such a failure or other event causing or permitting acceleration or repurchase. shall occur and be continuing exceeds Twenty-Five Million Dollars ($25,000,000); or (vii) the Company, the Guarantor or any Significant Subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or (viii)any decree or order for relief in respect of the Company, the Guarantor or any Significant Subsidiary is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (the "BANKRUPTCY LAW"), of any jurisdiction; or (ix) the Company, the Guarantor or any Significant Subsidiary petitions or applies to any tribunal for, or consents to, the appointment of, or the taking of possession by, a trustee, receiver, custodian, liquidator or similar official of the Company, the Guarantor or any Significant Subsidiary, or of any substantial part of the Property of the Company, the Guarantor or any Significant Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United States or any proceedings relating to the Company, the Guarantor or any Significant Subsidiary under the Bankruptcy Law of any other jurisdiction; or (x) any petition or application referred to in subparagraph (ix) of this paragraph 0 is filed, or any such proceedings are commenced, against the Company, the Guarantor or any Significant Subsidiary and the Company, the Guarantor or such Significant Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than thirty (30) days; or (xi) any order, judgment or decree is entered in any proceedings against the Company, the Guarantor or any Significant Subsidiary decreeing the dissolution of the Company or the Guarantor and such order, judgment or decree remains unstayed and in effect for more than sixty (60) days; or (xii) any order, judgment or decree is entered in any proceedings against the Guarantor or any Significant Subsidiary decreeing a split-up of the Guarantor or such Significant Subsidiary that requires the divestiture of assets representing a Substantial Part, or the divestiture of the stock of any such Significant Subsidiary whose assets represent a Substantial Part, of the consolidated assets of the Guarantor and its Subsidiaries (determined in accordance with generally accepted accounting principles) or that requires the divestiture of assets, or stock of a Subsidiary of the Guarantor, that shall have contributed a Substantial Part of the consolidated net income of the Guarantor and its Subsidiaries (determined in accordance with generally accepted accounting principles) for any of the three fiscal years then most recently ended, and such order, judgment or decree remains unstayed and in effect for more than sixty (60) days; or (xiii) the Rite Aid Guaranty shall cease to be in full force and effect or shall be declared by a court or Govemmental Authority of competent jurisdiction to be void, voidable or unenforceable against the Guarantor, or the Guarantor shall contest the validity or enforceability of the Rite Aid Guaranty, or the Guarantor shall otherwise deny that it has any further liability under the Rite Aid Guaranty: or (xiv) a final judgment in an amount in excess of Twenty-Five Million Dollars ($25,000,000) is rendered against the Guarantor or any of its Subsidiaries and, within sixty (60) days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within sixty (60) days after the expiration of any such stay, such judgment is not discharged; or (xv) any Lien or Liens shall exist at any time on any Property of the Guarantor or any of its Subsidiaries securing tax, pension-related or litigation obligations and the aggregate amount so secured at such time shall be in excess of Twenty-Five Million Dollars ($25,000,000); then (a) if such event is an Event of Default specified in subparagraph (vii) through (xi), inclusive, of this paragraph 0 with respect to the Company, all of the Notes at the time outstanding shall automatically become immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, and (b) if such event is any other Event of Default, the Required Holders may at its or their option, by notice in writing to the Company, declare all of the Notes to be, and all of the Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note, without presentment, demand, protest or other notice of any kind. all of which are hereby waived by the Company. 7. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents, covenants and warrants, as of the Closing Date, as follows: 7A. ORGANIZATION AND EXISTENCE. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the state of Delaware, and has all requisite corporate power and authority to enter into and perform its obligations under this Agreement, to own its Property, and to conduct its business in the manner and in the places in which it is presently proposed to be conducted and in which failure to have such authority would have a Material Adverse Effect. 7B. DUE AUTHORIZATION; NO CONFLICT. Each of this Agreement and the other Financing Documents to which the Company is a party has been duly authorized by all necessary action on the part of the Company, has been duly executed and delivered by the Company, and the execution, delivery and performance by the Company thereof do not (i) violate the certificate of incorporation or bylaws of the Company, or (ii) result in, or require. the creation or imposition of any Lien (other than Liens created by the Security Agreement) upon or with respect to any of the Property now owned by it. The Company is not a party to any agreement or instrument other than its constitutive documents and the Financing Documents to which it is a party. 7C. ENFORCEABILITY. Each of this Agreement and the other Financing Documents to which the Company is a party coristitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 7D. ACTIONS PENDING. There is no action, suit investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company, or any properties or rights of the Company, by or before any court, arbitrator or administrative or governmental body. 7E. GOVERNMENTAL CONSENT. Neither the nature of the Company, nor any of its businesses or properties, nor any relationship between the Company and any other Person, nor any circumstance in connection with the offering. issuance. sale or delivery of the Notes 'is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any court or administrative or governmental body in connection with the execution and delivery hereof, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions hereof or of the Notes. 7F. TAX RETURNS. The Company has not been required to file, on or prior to the date hereof, any Federal, state or local income, or franchise or other tax returns. 7G. COMPLIANCE WITH LAW. The Company is in compliance in all material respects with all applicable laws (including, without limitation, all Environmental Protection Laws). The Company is not subject to any liability under any Environmental Protection Laws, 7H. LIENS. The Collateral is not subject to any Lien, except for Liens contemplated by the Financing Documents. 7I. NO EVENTS OF DEFAULT. The Company is not in default with respect to any of its obligations hereunder or under any other Financing Document. No condition exists that would, upon consummation of the transactions contemplated hereby and by the other Financing Documents, constitute a Default or an Event of Default. 7J. DISCLOSURE. Neither this Agreement any other Financing Document, nor any other document, certificate or statement furnished to the Purchasers by or on behalf of the Company, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the Statements contained herein and in such documents, certificates and slatements not misleading. There is no fact peculiar to the Company that could reasonably be expected to have a Material Adverse Effect or in the future may (so far as the Company can now foresee) have a Material Adverse Effect and that has not been set forth herein, in any of the other Financing Documents, or in the other documents, certificates and statements funnished to the Purchasers in writing by or on behalf of the Company prior to the date hereof in connection with the transactions contemplated hereby or by the other Financing Documents. 7K. SECURITY DOCUMENTS. To the extent that the Collateral is comprised of general intangibles, (i) the Security Agreement is effective to create a legal, valid and enforceable Lien upon the Collateral in favor of the Security Agent, (ii) upon proper recording or filing in the locations referred to in paragraph 3L, the Noteholders will have a first-priority perfected Lien in the Collateral, and (iii) no further action is required to establish a valid and enforceable, first-priority Lien in and to the Collateral in favor of the Security Agent. 7L. ERISA. The Company does not maintain any Pension Plans and does not participate in any Multiemployer Plans. The execution and delivery hereof and of the other Financing Documents will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975 of the IRC, The representation by the Company in the next preceding sentence is made in reliance upon and subject to the accuracy of the representation of each Purchaser in paragraph 8B hereof as to the source of the funds to be used to pay the purchase price of the Notes to be purchased by each such Purchaser. 7M. GOVERNMENTAL CONSENT. Neither the nature of the Company, nor any of its businesses or properties, nor any relationship between the Company and any other Person, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes, is such as to require any authorization, consent approval, exemption or other action by or notice to or filing with any court or administrative or governmental body in connection with the execution and delivery hereof or fulfillment of or compliance with the terms and provisions hereof. 7N. CERTAIN LAWS. (I) INVESTMENT COMPANY ACT. The Company is not, and is not directly or indirectly controlled by, or acting on behalf of any Person which is, an "'investment company" within the meaning of the Investment Company Act of 1940, as amended. (II) ABSENCE OF FOREIGN OR ENEMY STATUS. The Company is not (a) an "enemy" or an "ally of enemy" within the meaning of section 2 of the Trading with the Enemy Act, as amended, or any executive orders or regulations issued or promulgated pursuant thereto, or (b) a "national" of any "designated enemy country" as such terms are defined in Executive Order No. 9095, as amended, of the President of the United States of America. (III) HOLDING COMPANY STATUS. The Company is not a "holding company" or an "affiliate" of a "holding company," or a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7O. MARGIN REGULATIONS. The Company is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock as defined in Regulation G of the Board of Governors of the Federal Reserve System. 11 C.F.R., Chapter 11, as amended. The Company does not own any margin stock and will not use the proceeds from the sale of Notes to acquire any margin stock. 7P. OFFERING OF NOTES. Neither the Company nor any agent acting on its behalf has ever, directly or indirectly, offered the Notes or any similar Security of the Company for sale to, or solicited any offers to buy the Notes or any similar Security of the Company from, or otherwise approached or negotiated with respect hereto with, any Person other than institutional investors. 7Q. OTHER BUSINESS. The Company has not engaged in any business transaction unrelated to this Agreement, the Notes and the other Financing Documents to which it is a party. 8. REPRESENTATIONS OF THE PURCHASER. 8A. PURCHASE FOR INVESTMENT. Each Purchaser represents as of the Closing Date, and in making the sale of Notes to each such Purchaser it is specifically understood and agreed, that such Purchaser is not acquiring the Notes to be purchased by it under this Agreement with a present intention to sell or a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, provided that the disposition of each Purchasers Property shall at all times be and remain within its control. 8B. ERISA. Each Purchaser represents as of the Closing Date: (i) if it is acquiring the Notes for its own account with funds from or attributable to its general account, and in reliance upon the Company's representations set forth in paragraph 7L and the representations of the Guarantor set forth in Section 4.10 of the Rite Aid Guaranty, that the amount of the reserves and liabilities for the general account contracts (as defined by the annual statement for life insurance companies as in effect on the date hereof and approved by the National Association of Insurance Commissioners (the "NAIC ANNUAL STATEMENT")) held by or on behalf of any Pension Plan together with the amount of the reserves and liabilities for the general account contracts held by or on behalf of any other Pension Plans maintained by the same employer (or affiliate thereof, as such term is defined in section V of Department of Labor Prohibited Transaction Exemption 95-60 (60 FR 35925, July 12, 1995)) or by the same employee organization (as defined in ERISA) in the general account do not exceed ten percent (10%) of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with the state of domicile of the insurance company; for purposes of the percentage limitation in this clause (i), the amount of reserves and liabilities for the general account contracts held by or on behalf of a Pension Plan shall be determined before reduction for credits on account of any reinsurance ceded on a coinsurance basis; or (ii) if any part of the funds being used by it to purchase the Notes shall come from assets of an employee benefit plan (as defined in section 3 of ERISA) or a plan (as defined in section 4975(e)(1) of the IRC): (a) if such funds are attributable to a "separate account" (as defined in sedion 3 of ERISA), then (1) all requirements for an exemption under Department of Labor Prohibited Transaction Exemption 90-1 (issued January 29, 1990) are met with respect to the use of such funds to purchase the Notes, or (2) the employee benefit plans with an interest in such separate account have been identified in a writing delivered by such Purchaser to the Company; (b) if such funds are attributable to a "separate account" (as defined in section 3 of ERISA) that is maintained solely in connection with fixed contracted obligations of an insurance company, any amounts payable, or credited, to any employee benefit plan having an interest in such account and to any participant or beneficiary of such plan (including an annuitant) are not affected in any manner by the investment performance of the separate account; (c) if such funds are attributable to an "investment fund" managed by a "qualified plan asset manager" (as such terms are defined in Part V of Department of Labor Prohibited Transaction Exemption 84-14, issued March 13, 1984), all requirements for an exemption under such Exemption are met wfth respect to the use of such funds to purchase the Notes; or (d) such employee benefit plan is excluded from the provisions of section 406 of ERISA by virtue of section 4(b) of ERISA. 9. DEFINITIONS. The following terms shall have the meanings specified with respect thereto below: 9A. YIELD-MAINTENANCE TERMS. "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed. "CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of such Note that is to be paid or prepaid pursuant to paragraph 4 hereof (any partial prepayment being applied in satisfaction of required payments of principal as provided in paragraph 4F) or is declared to be immediately due and payable pursuant to paragraph 0 hereof, as the context requires. "DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with rftpect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on a semiannual basis) equal to the Reinvestment Yield With respect to such Called Principal. "REINVESTMENT YIELD" shall mean, with respect to the Called Principal of any Note, one half of one percent (.5%) per annum plus the yield to maturity implied by either, (i) the yields reported, as of 10:00 A.M. (New York City time) on the Business Day next preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Service (or such other display as may replace Page 678 on the Telerate Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, then (ii) the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield shall be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice, and (b) interpolating linearly between reported yields. "REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal of any Note as of the Settlement Date with respect to such Called Principal, the number of years (calculated to the nearest one-twelfth (1/12) year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) each Remaining Scheduled Payment of such Called Principal (but not of interest thereon) by (b) the number of years (calculated to the nearest one-twelfth (1/12) year) that will elapse between such Settlement Date and the scheduled due date of such Remaining Scheduled Payment. "REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due on or after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date. "SETTLEMENT DATE" shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to paragraph 4 hereof or is declared to be immediately due and payable pursuant to paragraph 6 hereof, as the context requires. "YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Called Principal of such Note over the sum of (i) such Called Principal plus (ii) interest accrued thereon as of (including interest due on) the Settlement Date with respect to such Called Principal. The Yield-Maintenance Amount shall in no event be less than zero. 9B. OTHER TERMS. "ACKNOWLEDGMENT, SUBORDINATION AND CONSENT AGREEMENT" has the meaning assigned to it in paragraph 3K of this Agreement. "AFFILIATE" means any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company, RLC or the Guarantor, and shall include, without limitation, Subsidiaries of any such Person (including, without limitation, Rite Aid Florida and the Operating Subsidiaries). A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "AGREEMENT" has the meaning assigned to it in paragraph 10C hereof. "BANKRUPTCY LAW" has the meaning assigned to it in clause (viii) of paragraph 0 of this Agreement. "BASIC RENT" has the meaning assigned to it in the Master Lease as in effect on the Closing Date. "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed. "CAPITALIZED LEASE OBLIGATION" means any rental obligation of any Person which, under generally accepted accounting prindiples, is or will be required to be capitalized on the books of such Person, taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with such principles. "CLOSING DATE" has the meaning assigned to it in paragraph 0 of this Agreement. "COLLATERAL" has the meaning assigned to it in the Security Agreement. "COMPANY" has the meaning assigned to it in the introductory sentence of this Agreement. "CONFIDENTIAL INFORMATION" has the meaning assigned to it in paragraph I OH of this agreement. "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "ENVIRONMENTAL PROTECTION LAW" means any federal, state, county, regional or local law, statute, or regulation (including, without limitation, CERCLA, RCRA and SARA) enacted in connection with or relating to the protection or regulation of the environment, including, without limitation, those laws, statutes, and regulations regulating the disposal, removal, production, storing, refining, handling, transferring, processing, or transporting of Hazardous Substances, and any regulations, issued or promulgated in connection with such statutes by any Governmental Authority and any orders, decrees or judgments issued by any court of competent jurisdiction in connection with any of the foregoing. As used in this definition, "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended from time to time (by SARA or otherwise), and all rules and regulations promulgated in connection therewith; "Hazardous Substances" has the mearfing assigned to such term in 42 U.S.C. section 9601(14), as amended from time to time. "RCRA" means the Resource Conservabon and Recovery Act of 1976, as amended, and any rules and regulations issued in connection therewith: and "SARA" means the Superfund Amendments and Reauthorization Act of 1986, as amended from time to time, and all rules and regulations promulgated in connection therewith. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" means any corporation or trade or business that (i) is a member of the same controlled group of corporations (within the meaning of section 414(b) of the IRC) as the Company or (ii) is under common control (within the meaning of section 414(c) of the IRC) with the Company. "EVENT OF DEFAULT" means any of the events specified in paragraph 0 of this Agreement, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act. "FINANCING DOCUMENT" means (i) the Notes, (ii) this Agreement, (iii) the Rite Aid Guaranty, (iv) the Put Agreement, (v) the Master Lease, (vi) Rent Purchase Agreement (No. 2), (vii) the Security Agreement, and (viii) the Acknowledgment, Subordination and Consent Agreement. "FIRST AMENDMENT" has the meaning assigned to it in paragraph 3H of this Agreement. "GOVERNMENTAL AUTHORITY" means (i) the government of the United States of America or any State or other political subdivision thereof, or (ii) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "GUARANTOR" means Rite Aid Corporation, a Delaware corporation. "INSTITUTIONAL INVESTOR" means any "accredited investor" as defined in section (a)(1) through section (a)(3), inclusive, of Rule 501 to the Securities Act, as in effect on the date hereof. "INVESTMENT GRADE" has the meaning assigned to it in paragraph 4B of this Agreement. "IRC" means the Internal Revenue Code of 1986, as amended from time to time, and all rules and regulations promulgated thereunder. "LIEN" means any mortgage, pledge, security interest encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any condiflonal sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction). "MASTER LEASE" has the meaning assigned to it in paragraph 3H of this Agreement. "MATERIAL ADVERSE EFFECT" means a material adverse! effect on (i) the business, profits, Properties or condition (financial or otherwise) of the Company, or (ii) the ability of the Company to perform its respective obligations under any Financing Document to which it is a party. "MOODY'S" has the meaning assigned to it in paragraph 4B of this Agreement. "MULTIEMPLOYER PLAN" means any "multiemployer plan" (as such term is defined in ERISA) in respect of which the Company or any ERISA Affiliate is an "employee" (as such term is defined in ERISA), "NAIC ANNUAL STATEMENT" has the meaning assigned to it in paragraph 8B of this Agreement. "NOTEHOLDER" means any holder, from time to time, of the Notes. "NOTES" has the meaning assigned to such term in paragraph 0 of this Agreement. "OPERATING SUBSIDIARY" means each operating subsidiary of the Guarantor that has entered into subleases with Rite Aid Florida pursuant to a sublease under the Master Lease. "PENSION PLAN" means any "employee pension benefit plan" (as such term is defined in ERISA) maintained by the Company or any ERISA Affiliate for employees of the Company or such ERISA Affiliate, excluding any Multiemployer Plan, but including, without limitation, any Multiple Employer Pension Plan. As used in this definition, "Multiple Employer Pension Ran" means any employee benefit plan within the meaning of section 3(3) of ERISA (other than a Multiemployer Plan), subject to Title IV of ERISA. to which the Company or any ERISA Affiliate, and an employer (as such term is defined in section 3 of ERISA) other than an ERISA Affiliate or the Company, contribute. "PERSON" means an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization and a government or any department or agency thereof. "PROPERTY" means any interest in any kind af property or asset, whether real, personal or mixed, and whether tangible or intangible. "PURCHASERS" has the meaning assigned to it in the introductory sentence of this Agreement. "PUT AGREEMENT" has the meaning assigned to it in paragraph 3G of this Agreement. "RATING AGENCY" has the meaning assigned to it in paragraph 4B of this Agreement. "REDEMPTION DATE" has the meaning assigned to it in paragraph 4B of this Agreement. "REDEMPTION NOTICE" has the meaning assigned to it in paragraph 4B of this Agreement. "REDEMPTION PRICE" has the meaning assigned to it in paragraph 4B of this Agreement. "RELATED RIGHTS" means the fight, title, interest, benefits, powers, pdvileges and remedies conveyed to the Company pursuant to Section 2.6 of Rent Purchase Agreement (No. 2). "RENT PURCHASE AGREEMENT (NO. 2)" has the meaning assigned to it in paragraph 31 of this Agreement. "RENTAL PAYMENTS" has the meaning assigned to it in Rent Purchase Agreement (No. 2). "REQUIRED HOLDERS" means the holder or holders of at least sixty-six and two-thirds percent (660%) of the aggregate principal amount of the Notes from time to time outstanding, exclusive of Notes which, notwithstanding paragraph 4G, may be owned by the Company or any Affiliate. "RESTORATION DATE" has the meaning assigned to it in paragraph 4B of this Agreement. "RITE AID FLORIDA" means Rite Aid of Florida, Inc., a Florida corporation. "RITE AID GUARANTY" has the meaning assigned to it in paragraph 3F of this Agreement. "RLC" means Realty Leasing Consultants, Inc., a Delaware corporation. "RLC NOTES" means those certain promissory notes issued by RLC to the Operating Subsidiaries in payment of RLC's purchase of various improvements located in approximately two thousand one hundred (2,100) retallstores operated by the Operating Subsidiaries. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SECURITY" means "security" as defined in section 2(1) of the Securities Act. "SECURITY AGENT" means The Prudential Insurance Company of America in its capacity as Security Agent under the Security Agreement or its successor in such capacity. "SECURITY AGREEMENT" has the meaning assigned to it in paragraph 3J of this Agreement. "SENIOR OBLIGATIONS" has the meaning assigned to it in paragraph 4B of this Agreement. "SIGNIFICANT SUBSIDIARY" means, at any time, any Subsidiary of the Guarantor or any group of Subsidiaries of the Guarantor having corisolidated assets, individually or in the aggregate, equal to or greater than eight percent (8%) of the consolidated assets of the Guarantor, its consolidated Subsidiaries and Rite Aid Florida. "S&P" has the meaning assigned to it in paragraph 4B of this Agreement. "STIPULATED LOSS VALUE" has the meaning assigned to it in the Master Lease as in effect on the Closing Date. "SUBSIDIARY" means, with respect to any Person, any corporation at least a majority of the total combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned by such Person either directly or through Subsidiaries. As used in this definition. "Voting Stock" means, with respect to any corporation, any shares of stock of such corporation whose holders are entitled under ordinary circumstances to vote for the election of directors of such corporation (irrespective of whether at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "SUBSTANTIAL PART" means, when used with respect to assets at any time, more than ten percent (10%) of consolidated assets of the Guarantor and its Subsidiaries at such time, and, when used with respect to consolidated net income in respect of any period, more than ten percent (10%) of consolidated net income of the Guarantor and its Subsidiaries for such period. "TRANSFEREE" means any direct or indirect transferee of all or any part of any Note purchased by any Purchaser under this Agreement. "TRIGGER DATE" has the meaning assigned to it in paragraph 48 of this Agreement. "UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code as in effect in the State of New York, 10. MISCELLANEOUS. 10A. NOTE PAYMENTS. The Company agrees that, so long as any Purchaser shall hold any Note, it will make payments of principal thereof and Yield Maintenance Amount if any, and accrued interest thereon, that comply with the terms hereof, by, wire transfer of immediately available funds for credit to such Purchasers account or accounts as specified in the Purchasers' Schedule attached hereto, or such other account or accounts in the United States as such Purchaser may designate in writing, notwithstanding any contrary provision herein or in any Note with respect to the place of payment. Each Purchaser agrees that, before disposing of any Note, it will make a notation thereon (or on a schedule attached hereto) of all principal payments previously made thereon and of the date to which interest thereon has been paid. The Company agrees to afford the benefits of this paragraph 10A to any Transferee. The Company shall be entitled to rely upon any affidavit, certificate, letter, notice, telegram, facsimile transmission or other document believed by it to be genuine, and to be protected and saved harmless in all payments required to be made hereunder, if made in good fafth and without actual notice or knowledge of the changed conditions or status of any Person or entity who or which has previously been receiving such payments. 10B. EXPENSES. (i) At any time when the Noteholders and either one or both of the Company and the Guarantor are conducting restructuring or workout negotiations in respect hereof, or a Default or Event of Default exists, the Company shall pay when billed the costs and expenses Cincluding attorneys! fees and the fees of professional advisors) incurred by the Noteholders in connection with the assessment, analysis or enforcement of any rights or remedies that are or may be available to the Noteholders, (ii) If the Company shall fail to pay when due gny principal of, or YieldMaintenance Amount or interest on, any Note, the Company shall pay to each Noteholder, to the extent permitted by law, such amounts as shall be sufficient to cover the costs and expenses, including but not limited to attorneys' fees, incurred by such Noteholder in collecting any sum due on such Notes. The obligations of the Company under this paragraph 10B shall survive the transfer of any Note or portion thereof or interest therein by any Purchaser or any Transferee and the payment of any Note. 10C. CONSENT TO AMENDMENTS. This Agreement and the Notes may be amended, and the Company may take any action prohibited herein or in the Notes, or omit to perform any act required herein or therein to be performed by it, if the Company shall obtain the written consent to such amendment, action or omission to act, of the Required Holders and the Guarantor except that, without the written consent of all Noteholders, no amendment or waiver hereof shall (i) change the maturity of any Note, (ii) change the principal of, or the rate or time of payment of interest or any Yield-Maintenance Amount payable With respect to, any Note, (iii) affect the time, amount or allocation of any required prepayments, (iv) reduce the proportion of the principal amount of the Notes required with respect to any consent, or (v) waive or amend either of paragraph 6(i) or paragraph 6(ii) hereof. Each Noteholder shall be bound by any consent authorized by this paragraph 10C, whether or not such Note shall have been marked to indicate such consent, but any Notes issued thereafter may bear a notation referring to any such consent. No course of dealing between the Company and any Noteholder nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any, rights of any Noteholder. As used herein and in the Notes, the term "THIS AGREEMENT" and references hereto mean this Agreement as it may from time to time be amended or supplemented. The Company will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any Noteholder as consideration for or as an inducement to the entering into by any Noteholder of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to the holders of all Notes then outstanding. 10D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. (I) FORM, REGISTRATION, TRANSFER AND EXCHANGE OF Notes. The Notes are issuable as registered notes without coupons in denominations of at least One Hundred Thousand Dollars ($100,000), except as may be necessary to reflect any principal amount not evenly divisible by One Hundred Thousand Dollars ($100,000). The Company shall keep at its principal office a register in which the Company shall provide for the registration of Notes and of transfers of Notes. Upon surrender for registration of transfer of any Note at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount registered in the name of such transferee or transferees. At the option of any Noteholder, Notes may be exchanged for other Notes of like tenor and of any authorized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Company. Whenever any Notes are so surrendered for exchange, the Company shall, at its expense, execute and deliver the Notes that the Noteholder making the exchange is entitled to receive. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by such Noteholder or such Noteholder's attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue that were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. (II) LOST NOTES. Upon receipt of written notice from any Noteholder of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such Noteholders indemnity agreement (which, in the case of an Institutional Investor, shall be unsecured), or in the case of any such mutilation upon surrender and cancellation of such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note. 10E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of and Yield-Maintenance Amount, if any, and interest on such Note! and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. Subject to the preceding sentence, any Noteholder may from time to time grant participations in all or any part of such Note held by it to any Person on such terms and conditions as may be determined by such Noteholder in its sole and absolute discretion. 10F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ENTIRE AGREEMENT. All representations and Warranties contained herein or made in writing by or on behalf of the Company in connection herewith shall survive the execution and delivery of this Agreement and the Notes, the transfer by any Purchaser of any Note or portion theTeof or interest therein and the payment of any Note, and may be relied upon by any Transferee, regardless of any investigation made at any time by or on behalf of any Purchaser or any Transferee. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings relating to the subject matter hereof. 10G. SUCCESSORS AND ASSIGNS. All covenants and other agreements herein contained by or on behalf of either of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limitation, any Transferee) whether so expressed or not. Upon its acquisition of any Note, each Transferee shall be deemed to have made the representations set forth in paragraph 8B or shall be deemed to have represented that its acquisition and holding of such Notes will not constitute a "prohibited transaction" (as such term is defined in section 406 of ERISA). 10H. DISCLOSURE TO OTHER PERSONS. For purposes of this paragraph 10H. "CONFIDENTIAL INFORMATION" means information delivered to each Purchaser or other Noteholder, if any, by or on behalf of the Company, the Guarantor or any Subsidiary of the Guarantor in connection with the transactions contemplated by or otherwise pursuant to this Agreement or any other Financing Document that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when reoeived by any such Purchaser or other Noteholder as being confidential information of the Company, the Guarantor or such Subsidiary of the Guarantor, provided that such term does not include information that (a) was publicly known or otherwise known to such Purchaser or other Noteholder prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by such Purchaser or other Noteholder or any Person acting on behalf of such Purchaser or other Noteholder. (c) otherwise becomes known to such Purchaser or other Noteholder other than through disclosure by the Company, the Guarantor or any Subsidiary of the Guarantor or (d) constitutes financial statements delivered to the Noteholders under Section 5.1 of the Rite Aid Guaranty that are otherwise publicly available. Each Noteholder will use its best efforts to maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Noteholder in good faith to protect confidential information of third parties delivered to such Noteholder. The Company acknowledges that any Noteholder may deliver copies of any such Confidential Information delivered to such Noteholder, and disclose any other information disclosed to such Noteholder, in connection herewith or any other Financing Document to (i) such Noteholder's directors, officers, employees, agents and professional consultants, (ii) any other Noteholder, (iii) any Person to which such Noteholder offers to sell any Note held by it or any part thereof, (iv) any Person to which such Noteholder sells or offers to sell a participation in all or any part of any Note held by it, (v) any federal or state regulatory authority having jurisdiction over such Noteholder, (vi) the National Association of Insurance Commissioners or any similar organization. or (vii) any other Person to which such delivery or disclosure may be necessary or appropriate (a) in compliance with any law, rule, regulation or order applicable to such Noteholder, (b) in response to any subpoena or other legal process, (c) in connection wfth any litigation to which such Noteholder is a party, or (d) in connection Wth the enforcement or protection of such Noteholder's rights and remedies under the Notes, this Agreement or any other Financing Document; provided, however, any such Noteholder shall, to the extent not prohibited by law, give the Company written notice of the disclosure of such information pursuant to this clause (vii) and the identity of such Person receiving it. 10I. NOTICES. All written communications provided for under this Agreement shall be sent by registered or certified mail with return receipt requested or nationwide overnight delivery service (with charges prepaid) and (i) if to any Purchaser, addressed to such Purchaser at the address specified for such communications in the Purchasers' Schedule attached hereto as Annex 1, or at such other address as any Purchaser shall havespecified to the Company in writing, (ii) if to any other Noteholder, addressed to such other Noteholder at such address as such other Noteholder shall have specified to the Company in writing or, if any such other Noteholder shall not have so specified an address to the Company, then addressed to such other Noteholder in care of the last holder of such Note that shall have so specified an address to the Company, and (iii) if to the Company, addressed to it at 54 Sasco Hill Road, Fairfield, Connecticut, Attention: John Costello, or at such other address as the Company shall have specified to each Noteholder in writing; provided that any, such communication to the Company may also, at the option of any Noteholder, be delivered by any other means either to the Company at its address specified above or to any executive officer of the Company. 10J. DESCRIPTIVE HEADINGS, ETC. The descriptive headings of the several paragraphs hereof are inserted for convenience only and do not constitute a part hereof. The words "herein," "hereof," "hereunder" and "hereto" refer to this Agreement as a whole and not to any particular section or other subdivision. 10K. SATISFACTION REQUIREMENT. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms hereof required to be satisfactory to each Purchaser, the Purchasers or to the Required Holders, the determination of such satisfaction shall be made by each such Purchaser, the Purchasers or the Required Holders, as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons makinp such determination. 10L. SEVERALTY OF OBLIGATIONS. The sales of the Notes to the Purchasers are to be several sales, and the obligations of the Purchasers under this Agreement are several obligations. No failure by any Purchaser to perform its obligations under this Agreement shall relieve any other Purchaser or the Company of any, of its obligations hereunder, and no Purchaser shall be responsible for the representations or obligations of, or any action taken or ornitted by, any other such Person hereunder. 10M. BINDING AGREEMENT. When this Agreement is executed and delivered by the Company and each of the Purchasers, it shall become a binding agreement among the Company and each of the Purchasers. 10N. GOVERNING LAW. THIS AGREEMENT SHALL HE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE INTERNAL LAW OF THE STATE OF NEW YORK. 10O. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof hereof to produce or account for more than one such counterpart. [REMAINDER OF PAGE INTENTIONALLY BLANK. NEXT PAGE IS SIGNATURE PAGE.] If each Purchaser is in agreement with the foregoing, please sign the form of acceptance ori the enclosed counterpart of this letter and return the same to the Company, whereupon this letter shall become a binding agreement among the Purchasers and the Company. Very truly yours, FINCO, INC. By:______________________________________ Name: Title: The foregoing Agreement is hereby accepted as of the date first above written. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By ____________________________ Name: Title: PRUCO LIFE INSURANCE COMPANY By _____________________________ Name: Title: EX-4 31 EXHIBIT 4.30 - AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT Exhibit 4.30 AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT Dated as of January 11, 2000 among RITE AID FUNDING LLC as the Seller and CORPORATE ASSET FUNDING COMPANY, INC. and CORPORATE RECEIVABLES CORPORATION as the Investors and CITIBANK, N.A. and CITICORP NORTH AMERICA, INC. as the Agent and RITE AID CORPORATION as Collection Agent TABLE OF CONTENTS Page PRELIMINARY STATEMENTS....................................................1 ARTICLE I DEFINITIONS.........................................................2 SECTION 1.01. Certain Defined Terms................................2 SECTION 1.02. Other Terms.........................................28 ARTICLE II AMOUNTS AND TERMS OF THE PURCHASES.................................28 SECTION 2.01.Purchase Facility.....................................28 SECTION 2.02.Making Purchases......................................29 SECTION 2.03.Receivable Interest Computation.......................30 SECTION 2.04.Settlement Procedures.................................31 SECTION 2.05.Fees..................................................33 SECTION 2.06.Payments and Computations, Etc........................34 SECTION 2.07.Dividing or Combining Receivable Interests............34 SECTION 2.08.Increased Costs.......................................34 SECTION 2.09.Additional Yield on Receivable Interests Bearing a Eurodollar Rate..............................................35 SECTION 2.10.Security Interest.....................................36 ARTICLE III CONDITIONS OF PURCHASES............................................37 SECTION 3.01.Conditions Precedent to Initial Purchase on Original Closing Date......................37 SECTION 3.02.Conditions Precedent to Initial Purchase on New Closing Date...........................37 SECTION 3.03.Conditions Precedent to the Amendment Closing Date....38 SECTION 3.04.Conditions Precedent to All Purchases and Reinvestments..........................40 ARTICLE IV REPRESENTATIONS AND WARRANTIES.....................................41 SECTION 4.01.Representations and Warranties of the Seller..........41 ARTICLE V COVENANTS..........................................................45 SECTION 5.01.Covenants of the Seller...............................45 SECTION 5.02.Covenant of the Parent, the Seller and each Originator52 ARTICLE VI ADMINISTRATION AND COLLECTION OF POOL RECEIVABLES ...............................................53 SECTION 6.01.Designation of Collection Agent.......................53 SECTION 6.02.Duties of Collection Agent............................53 SECTION 6.03.Certain Rights of the Agent...........................54 SECTION 6.04.Rights and Remedies...................................55 SECTION 6.05.Further Actions Evidencing Purchases..................56 SECTION 6.06.Covenants of the Collection Agent and the Originator..56 SECTION 6.06A. Representations of the Collection Agent..........58 SECTION 6.07.Indemnities by the Collection Agent...................58 SECTION 6.08.Establishment of Deposit Accounts.....................60 ARTICLE VII EVENTS OF TERMINATION..............................................62 SECTION 7.01.Events of Termination.................................62 ARTICLE VIII THE AGENT .........................................................66 SECTION 8.01.Authorization and Action..............................66 SECTION 8.02.Agent's Reliance, Etc.................................66 SECTION 8.03.CNAI and Affiliates...................................67 SECTION 8.04.Bank's Purchase Decision..............................67 ARTICLE IX INDEMNIFICATION....................................................67 SECTION 9.01.Indemnities by the Seller.............................67 ARTICLE X MISCELLANEOUS......................................................69 SECTION 10.01. Amendments, Etc..................................69 SECTION 10.02. Notices, Etc.....................................70 SECTION 10.03. Assignability....................................70 SECTION 10.04. Costs, Expenses and Taxes........................71 SECTION 10.05. No Proceedings...................................71 SECTION 10.06. Confidentiality..................................72 SECTION 10.07. Patient Confidentiality..........................72 SECTION 10.08. GOVERNING LAW....................................73 SECTION 10.09. No Novation......................................73 SECTION 10.10. Execution in Counterparts........................73 SECTION 10.11. Survival of Termination..........................73 SCHEDULES SCHEDULE I - Deposit Account Banks; Lock-Boxes; Deposit Accounts SCHEDULE II - Special Concentration Limits ANNEXES ANNEX A - Form of Seller Report ANNEX B-1 - Form of Originator Deposit Account Agreement ANNEX B-2 - Form of Purchaser Deposit Account Agreement ANNEX C - Form of Opinion of Counsel to the Seller ANNEX D - [Intentionally Omitted] ANNEX E - Form of Confirmation of Parent Guaranty ANNEX F - Form of Weekly Report AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT Dated as of January 11, 2000 RITE AID FUNDING LLC, a California limited liability company (the "Seller"), CORPORATE ASSET FUNDING COMPANY, INC., a Delaware corporation, CORPORATE RECEIVABLES CORPORATION, a California corporation, CITIBANK, N.A., and CITICORP NORTH AMERICA, INC., a Delaware corporation ("CNAI"), as agent (the "Agent") for the Investors and the Banks, and RITE AID CORPORATION, a Delaware corporation, as Collection Agent, agree as follows: PRELIMINARY STATEMENTS. The Collection Agent, the Investors, certain of the Banks, the Seller and the Agent entered into a Receivables Purchase Agreement, dated as of November 26, 1997, as amended, and as further amended and restated by the Amended and Restated Receivables Agreement, dated as of November 24, 1999, as amended by Amendment Agreement No. 1, dated as of December 3, 1999 (the "Original Receivables Purchase Agreement"), pursuant to which the Seller has sold Receivable Interests to the Investors and the Banks upon the terms and subject to the conditions set forth in the Original Receivables Purchase Agreement. The Collection Agent, the Investors, the Banks, the Seller and the Agent desire to amend and restate the Original Receivables Purchase Agreement in its entirety in order to reflect prior amendments to certain financial covenants, modify eligibility criteria related to PBM's and the Special Concentration Limits relating thereto (each, as defined below) and modify certain reserve calculations and requirements. The Seller has acquired, and may continue to acquire Receivables from the Originators, either by purchase or by contribution to the capital of the Seller, as determined from time to time by the Seller and the Originators. The Seller is prepared to sell undivided fractional ownership interests (referred to herein as "Receivable Interests") in the Receivables. CAFCO or CRC (as such terms are hereinafter defined) may, in their sole discretion, purchase such Receivable Interests, and the Banks are prepared to purchase such Receivable Interests, in each case on the terms set forth herein. Accordingly, the parties agree to amend and restate the Original Receivables Purchase Agreement as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Adverse Claim" means a lien, security interest or other charge or encumbrance, or any other type of preferential arrangement. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person. "Affiliated Obligor" means any Obligor that is an Affiliate of another Obligor. "Agent PBM" means each PBM designated by the Agent in a writing delivered to the Seller in its sole discretion from time to time (including, as of the Amendment Closing Date, PCS and Diversified Pharmaceutical Services, Inc.), the payments from whom relate to specified Originator Receivables and are intended as payments made by such Person in its capacity as an agent of an Insurer and not as payments made by such Person based on its assumption of payment obligations relating to such Originator Receivables in substitution of the payment obligations of an Insurer. "Agent's Account" means the special account of the Agent, account number 40636695 maintained at the office of Citibank at 399 Park Avenue, New York, New York. "Agreement" means this Amended and Restated Receivables Agreement, dated as of January 11, 2000, as the same may be amended, modified or restated from time to time. "Alternate Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to one-half of 1% per annum above the highest of: (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time as Citibank's base rate; (b) 1/2 of one percent above the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average being determined weekly on each Monday (or, if such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank, in either case adjusted to the nearest 1/4 of one percent or, if there is no nearest 1/4 of one percent, to the next higher 1/4 of one percent; and (c) the Federal Funds Rate. "Amended Credit Agreement" means that certain Amended and Restated Credit Agreement dated as of October 25, 1999, as amended, among the Parent, as the borrower, the banks party thereto and Morgan Guaranty Trust Company of New York, as agent or under the Term Loan Agreement, as amended, dated as of October 25, 1999 among the Parent, as the borrower, the banks party thereto and Morgan Guaranty Trust Company of New York, as agent. "Amendment Closing Date" means the date and time of the fulfillment of the conditions set forth in Section 3.03 hereof, anticipated to occur on January 11, 2000. "Applicable Spread" means, for any day, the percentage set forth below in the applicable row under the column corresponding to the Status that exists on such day: STATUS LEVEL I LEVEL II LEVEL III ------ ------- -------- --------- Alternative Base Rate 1.00% 1.50% 2.00% Eurodollar Rate 2.00% 2.50% 3.00% "Asset Purchase Agreement" means, in the case of any Bank other than Citibank, the asset purchase agreement entered into by such Bank concurrently with the Assignment and Acceptance pursuant to which it became party to this Agreement. "Assignee Rate" for any Settlement Period for any Receivable Interest means an interest rate per annum equal to the Applicable Spread plus the Eurodollar Rate for such Settlement Period; provided, however, that in case of: (i) any Settlement Period on or prior to the first day of which an Investor or Bank shall have notified the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Investor or Bank to fund such Receivable Interest at the Assignee Rate set forth above (and such Investor or Bank shall not have subsequently notified the Agent that such circumstances no longer exist), (ii) any Settlement Period of one to (and including) 29 days (other than a Settlement Period which corresponds to the month of February or which begins on a day in the month of February and runs to the numerically corresponding day of the following month), (iii) any Settlement Period as to which the Agent does not receive notice, by no later than 12:00 noon (New York City time) on the third Business Day preceding the first day of such Settlement Period, that the related Receivable Interest will not be funded by issuance of commercial paper, or (iv) any Settlement Period for a Receivable Interest the Capital of which allocated to the Investors or the Banks is less than $500,000, then, the "Assignee Rate" for such Settlement Period shall be an interest rate per annum equal to the Alternate Base Rate plus the Applicable Spread, in each case, in effect on the first day of such Settlement Period; provided, further, that the Agent and the Seller may agree in writing from time to time upon a different "Assignee Rate". "Assignment and Acceptance" means an assignment and acceptance agreement entered into by a Bank, an Eligible Assignee and the Agent, pursuant to which such Eligible Assignee may become a party to this Agreement, in form and substance satisfactory to the Agent. "Average Dilution Ratio" means for any Month the average of the Dilution Ratios for the 12 most recently ended Months of the Seller. "Average Maturity" means at any time that period of days equal to the average maturity of the Pool Receivables calculated by the Collection Agent in the then most recent Seller Report; provided, however, if the Agent shall reasonably disagree with any such calculation, the Agent may recalculate such Average Maturity. "Bank Commitment" of any Bank means, (a) with respect to Citibank, $300,000,000 or such amount as reduced by any Assignment and Acceptance entered into between Citibank and other Banks; or (b) with respect to a Bank that has entered into an Assignment and Acceptance, the amount set forth therein as such Bank's Bank Commitment, in each case as such amount may be reduced by an Assignment and Acceptance entered into between such Bank and an Eligible Assignee, and, with respect to each of (a) and (b) above, as the same may be further reduced (or terminated) pursuant to the next sentence or, with the consent of such Bank, increased in connection with an increase in the Purchase Limit pursuant to Section 2.01(b) . Any reduction (or termination) of the Purchase Limit pursuant to the terms of this Agreement shall reduce ratably (or terminate) each Bank's Bank Commitment. "Banks" means Citibank and each Eligible Assignee that shall become a party to this Agreement pursuant to Section 10.03. "Beneficiary" means, as of any date of determination, any of the Investors, the Banks and the Agent. "Business Day" means any day on which (i) banks are not authorized or required to close in New York City, and (ii) if this definition of "Business Day" is utilized in connection with the Eurodollar Rate, dealings are carried out in the London interbank market. "CAFCO" means Corporate Asset Funding Company, Inc. and any successor or assign of CAFCO that is a receivables investment company which in the ordinary course of its business issues commercial paper or other securities to fund its acquisition and maintenance of receivables. "Capital" of any Receivable Interest means the original amount paid to the Seller for such Receivable Interest at the time of its purchase by an Investor or a Bank pursuant to this Agreement, or such amount divided or combined in accordance with Section 2.07, in each case reduced from time to time by Collections distributed on account of such Capital pursuant to Section 2.04(d); provided, that if such Capital shall have been reduced by any distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Capital shall be increased by the amount of such rescinded or returned distribution, as though it had not been made. "CHAMPUS" means the Civilian Health and Medical Program of the Uniformed Service, a program of medical benefits covering former and active members of the uniformed services and certain of their dependents, financed and administered by the Unites States Departments of Defense, Health and Human Services and Transportation and established pursuant to 10 U.S.C. ss.ss. 1071-1106, and all regulations promulgated thereunder including without limitation (a) all federal statutes (whether set forth in 10 U.S.C. ss.ss. 1071-1106 or elsewhere) affecting CHAMPUS and (b) all rules, regulations (including 32 CFR 199), manuals, orders and administrative, reimbursement and other guidelines of all Governmental Entities (including, without limitation, the Department of Health and Human Services, the Department of Defense, the Department of Transportation, the Assistant Secretary of Defense (Health Affairs) and the Office of CHAMPUS, or any Person or entity succeeding to the functions of any of the foregoing) promulgated pursuant to or in connection with any of the foregoing (whether or not having the force of law) in each case, as amended, supplemented or otherwise modified from time to time. "Citibank" means Citibank, N.A., a national banking association. "Collection Agent" means at any time the Person then authorized pursuant to Section 6.01 to administer and collect Pool Receivables. "Collection Agent Fee" has the meaning specified in Section 2.05(a). "Collection Agent Fee Reserve" for any Receivable Interest at any time means the sum of (i) the unpaid Collection Agent Fee relating to such Receivable Interest accrued to such time plus (ii) an amount equal to (a) the Capital of such Receivable Interest on such date multiplied by (b) the product of (x) the sum of (A) the percentage per annum at which the Collection Agent Fee is accruing on such date and (B) the percentage per annum at which the Program Fee (as such term is defined in the Fee Agreement) is accruing on such date and (y) a fraction having the sum of the Average Maturity plus the Collection Delay Period (each as in effect at such date) as its numerator and 360 as its denominator. "Collection Delay Period" means 10 days or such other number of days as the Agent may select upon three Business Days' notice to the Seller. "Collections" means, with respect to any Receivable, all cash collections and other cash proceeds of such Receivable, including, without limitation, all cash proceeds of Related Security with respect to such Receivable, and any Collection of such Receivable deemed to have been received pursuant to Section 2.04. "Commitment Termination Date" means the earliest of (a) November 1, 2000, unless, prior to such date (or the date so extended pursuant to this clause), upon the Seller's request, made not less than 45 days prior to the then Commitment Termination Date, one or more Banks having 100% of the Purchase Limit shall in their sole discretion consent, which consent shall be given not more than 30 days prior to the then Commitment Termination Date, to the extension of the Commitment Termination Date to the date occurring 360 days after the then Commitment Termination Date; provided, however, that any failure of any Bank to respond to the Seller's request for such extension shall be deemed a denial of such request by such Bank, (b) the Facility Termination Date, (c) the date determined pursuant to Section 7.01, and (d) the date (not earlier than November 1, 2002) the Purchase Limit reduces to zero. "Concentration Limit" for any Obligor (including each Non-Agent PBM but excluding each Agent PBM) means at any time, 4% and for each Agent PBM at any time, means 25%, or, in each case, such other percentage ("Special Concentration Limit") for such Obligor designated by the Agent in a writing delivered to the Seller (initially, the Special Concentration Limits shall be as specified on Schedule II hereto) ; provided, that in the case of an Obligor with any Affiliated Obligor, the Concentration Limit shall be calculated as if such Obligor and such Affiliated Obligor are one Obligor; provided, further, that the Agent may cancel any Special Concentration Limit upon three Business Days' notice to the Seller. "Confirmation of Parent Guaranty" means the Confirmation of Parent Guarantee, dated as of the New Closing Date, substantially in the form of Annex E attached hereto, made by the Parent in favor of the Agent, for the benefit of the Investors and the Banks, whereby the Parent confirms its obligations under the Parent Guaranty. "Consolidated Capital Expenditures" means, for any period, the aggregate amount of expenditures by the Parent and its Consolidated Subsidiaries for plant, property and equipment 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 any such expenditures made (i) for the replacement or restoration of assets to the extent financed by condemnation awards or proceeds of insurance received with respect to the loss or taking of or damage to the asset or assets being replaced or restored and (ii) for assets acquired to the extent financed by a Sale and Leaseback Transaction. "Consolidated Debt" means at any date the Debt of the Parent and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated EBITDA" means, for any period, 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 Charges, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments, (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, less (b), to the extent not deducted in determining 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 in any prior period and (ii) LIFO Adjustments. "Consolidated Interest Charges" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Parent and its Consolidated Subsidiaries during such period. "Consolidated Net Income" means, for any period, the net income (or loss) of the Parent and its Consolidated Subsidiaries (exclusive of (a) extraordinary items of gain or loss, (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 Parent'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 Parent and its Consolidated Subsidiaries determined as of such date; provided that such consolidated stockholders' equity shall be adjusted to exclude the effects of items which have been excluded from Consolidated Net Income for any period commencing after August 28, 1999 by reason of the parenthetical phrase contained in the definition of such term. Consolidated Net Worth includes the Parent's 8% Convertible Pay- In-Kind Preferred Stock. "Consolidated Rent" means, for any period, the consolidated rental expense of the Parent 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. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Parent in its consolidated financial statements if such statements were prepared as of such date. "Contract" means the agreement, insurance policy or other instrument obligating an Obligor to pay for merchandise, insurance or services from time to time. "Cure Period" means the period beginning on and including a Pool Noncompliance Date and ending on but excluding the earlier of (a) the first date thereafter on which the Net Receivables Pool Balance equals or exceeds the Required Weekly Net Receivables Pool Balance and (b) the second consecutive Business Day following the occurrence of such Pool Non-compliance Date. "CRC" means Corporate Receivables Corporation and any successor or assign of CRC that is a receivables investment company which in the ordinary course of its business issues commercial paper or other securities to fund its acquisition and maintenance of receivables. "Credit and Collection Policy" means those receivables credit and collection policies and practices of PCS (with respect to PCS-originated Receivables), the Parent or the Collection Agent (if the Parent is not the Collection Agent) in effect on the New Closing Date, as modified in compliance with this Agreement. "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 noncontingent 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. "Default Ratio" means, for any Month, the ratio (expressed as a percentage) computed as of the last day of such Month by dividing (i) the aggregate Outstanding Balance of all Originator Receivables that became Defaulted Receivables during such Month, by (ii) the aggregate Outstanding Balance of all Originator Receivables generated in the fifth Month immediately preceding such Month. "Defaulted Receivable" means an Originator Receivable: (i) as to which any payment, or part thereof, remains unpaid for 121 days from the date of service relating to such Receivable; (ii) as to which the Obligor thereof or any other Person obligated thereon or owning any Related Security in respect thereof has taken any action, or suffered any event to occur, of the type described in Section 7.01(g); or (iii) which, consistent with the Credit and Collection Policy, has been written off the Parent, the Seller's or the applicable Originator's books as uncollectible. "Deposit Account" means the Originator Deposit Account and the Purchaser Deposit Account. "Deposit Account Agreement" means, collectively, the Originator Deposit Account Agreement and the Purchaser Deposit Account Agreement. "Deposit Account Bank" initially means Mellon Bank, N.A. and shall means any bank holding a Deposit Account, from time to time. "Deposit Date" means each Business Day on which any Collections are deposited in the Purchaser Deposit Account. "Designated Obligor" means, at any time, each Obligor; provided, however, that any Obligor shall cease to be a Designated Obligor upon three Business Days' notice by the Agent to the Seller. "Designated Percentage" means, with respect to aggregate Outstanding Balance of Rejected Accounts, the percentage designated by the Agent in a writing delivered to the Seller in its sole discretion from time to time, reflecting historical actual final Collections received by the Originators with respect to Rejected Accounts. "Diluted Receivable" means an Originator Receivable as to which Dilution has occurred. "Dilution" means any reduction in the Outstanding Balance of any Receivable, except for reductions resulting from payments or writeoffs with respect to such Receivable. "Dilution Discount Amount" means (i) prior to the occurrence and continuance of a Special Event, an amount determined from time to time by the Agent based on its continuing review of the Receivables Pool, and initially established at $7,000,000, and (ii) following the occurrence and continuance of a Special Event, zero. "Dilution Horizon Factor" means the ratio (expressed as percentage) computed by dividing (i) the aggregate Outstanding Balance of all Originator Receivables created during the most recently ended Month by (ii) the Eligible Receivables Pool Balance as of the last day of the most recently ended Month. "Dilution Percentage" means for any Month, the sum of (A) the product of (i) the Average Dilution Ratio for the most recently ended Month, (ii) 1.5, and (iii) the Dilution Horizon Factor as of the most recently ended Month plus (B) the product of (i) the Dilution Volatility Factor as of the last day of the most recently ended Month and (ii) the Dilution Horizon Factor as of the last day of the most recently ended Month. "Dilution Ratio" means, for any Month, the ratio (expressed as a percentage) computed as of the last day of such Month by dividing (i) the aggregate amount of Dilution with respect to the Receivables during such Month by (ii) the aggregate Outstanding Balance of all Receivables created during the Month immediately preceding the most recently ended Month. "Dilution Reserve" means, for any Receivable Interest on any date (in each case as of the close of business of the Collection Agent as of such date), (i) if on such date a Special Event shall have occurred and be continuing, the sum of (A) the sum of Capital, the Yield Reserve and the Collection Agent Fee Reserve for Receivable Interests on such date multiplied by the greater of (x) an amount equal to the Dilution Percentage and (y) the product of (1) the Dilution Horizon Factor on such date and (2) the Average Dilution Ratio on such date, plus (B) Receivable Interests with respect to Receivables attributable to PCS's obligors on such date multiplied by 0.133 and (ii) on any other date, zero. "Dilution Volatility Factor" means, as of the last day of each Month, the product (expressed as a percentage) of (i) the amount by which (A) the highest Dilution Ratio for any of the twelve most recently ended Month exceeds (B) the Average Dilution Ratio for the most recently ended Month and (ii) a fraction equal to (A) the highest Dilution Ratio for any of the twelve most recently ended Months divided by (B) the Average Dilution Ratio for the most recently ended Month. "E-Mail Report" has the meaning specified in Section 6.02 hereof. "Eligible Assignee" means CNAI, any of its Affiliates, any Person managed by Citibank, CNAI or any of their Affiliates, or any financial or other institution acceptable to the Agent. "Eligible Receivable" means, at any time, a Receivable: (i) the Obligor of which is a United States resident and is not an Affiliate of any of the parties hereto; (ii) the Obligor of which, at the time of the initial creation of an interest therein under this Agreement, is a Designated Obligor and is not the Obligor of any Defaulted Receivables which in the aggregate constitute 10% or more of the aggregate Outstanding Balance of all Receivables of such Obligor; (iii) which at the time of the initial creation of an interest therein under this Agreement is not a Defaulted Receivable or subject to Dilution (provided, however, that, that portion of such Receivable which is not subject to Dilution may, in the Agent's sole discretion, be deemed an 'Eligible Receivable'); (iv) which is a Rejected Account, but only to the extent that when the Outstanding Balance of such Rejected Account is combined with the Outstanding Balance of all other Rejected Accounts then included in the Receivables Pool, such amount does not exceed the Designated Percentage for outstanding Rejected Accounts as of such date; (v) which is not past, or within 60 days of, the statutory limit for collection applicable to the Obligor; (vi) which is an obligation representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended, and the nature of which is such that its purchase with the proceeds of notes would constitute a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended; (vii) which is an "account" or a "general intangible" within the meaning of Section 9-106 of the UCC of the applicable jurisdictions governing the perfection of the interest created by a Receivable Interest; (viii)which is denominated and payable only in United States dollars in the United States; (ix) which arises under a Contract which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable and is not subject to any dispute, (and other than PCS-originated Receivables) offset (including, without limitation, any offset arising by virtue of such Obligor providing health insurance to the employees of any Originator), counterclaim or defense whatsoever (except the potential discharge in bankruptcy of such Obligor); (x) which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which none of the Parent, the Seller, the applicable Originator or the Obligor is in violation of any such law, rule or regulation in any material respect; (xi) which arises under a Contract which (A) does not require the Obligor thereunder to consent to the transfer, sale or assignment of the rights and duties of the Parent, the Seller or the applicable Originator thereunder, (B) except to the extent addressed in the opinion of counsel delivered pursuant to Section 3.02(g), does not contain a confidentiality provision that purports to restrict the ability of the Investors or the Banks to exercise their rights under this Agreement, including, without limitation, their right to review the Contract and (C) except to the extent addressed in the opinion of counsel delivered pursuant to Section 3.02(g), does not contain any provision prohibiting the transfer, sale or assignment of the Obligor's payment obligation to the applicable Originator; (xii) which (A) satisfies all applicable requirements of the Credit and Collection Policy and (B) complies with such other criteria and requirements (other than those relating to the collectibility of such Receivable) as the Agent may from time to time specify to the Seller upon 30 days' notice; (xiii)as to which, at or prior to the time of the initial creation of an interest therein under this Agreement, the Agent has not notified the Seller that such Receivable (or class of Receivables) is no longer acceptable for purchase by an Investor and the Banks hereunder; (xiv) as to which, at or prior to the time of the initial creation of an interest therein under this Agreement, the information provided by the Seller with respect thereto is complete and correct, and the applicable Originator has billed the applicable Obligor and has delivered to such Obligor all requested supporting claim documents with respect to such Receivable; (xv) as to which, the applicable Originator has, or has the right to use, valid provider identification numbers and licenses to generate valid Receivables. All information set forth in the bill and supporting claim documents with respect to such Receivable is true, complete and correct; if additional information is requested by the Obligor, the applicable Originator or the Parent has or will promptly provide the same, and if any error has been made with respect to such information, the applicable Originator or the Parent will promptly correct the same and, if necessary, rebill such Receivable; (xvi) as to which, the applicable Originator has, or has the right to use, valid provider identification numbers and licenses to generate valid Medicare and Medicaid cost reports with respect to such Receivable for all cost reporting periods ending on or before the date of the last audited cost report have been examined and audited by (i), as to Medicaid, the applicable state agency or other HCFA-designated agents or agents of such state agency, charged with such responsibility or (ii), as to Medicare, the Medicare intermediary or other HCFA-designated agents charged with such responsibility; and there is no basis for any Governmental Entity to assert an offset against any Originator; (xvii)which, according to the Contract related thereto, is required to be paid in full not more than 90 days from the date the Originator of such Receivable performed the service related thereto; and (xviiiwhich, in the case of PCS-originated Receivables, has been approved by the Agent, in its sole discretion, as "Eligible Receivables" based on the Agent's due diligence regarding such Receivables. "Eligible Receivables Pool Balance" means as of any date the Outstanding Balance of Eligible Receivables then in the Receivables Pool reduced by the sum of (without duplication) (i) the Outstanding Balance of Eligible Receivables that are then Defaulted Receivables, (ii) the Dilution Discount Amount, (iii) Unapplied Cash, (iv) Unbilled Accounts, (v) 1.00 minus the Designated Percentage (expressed as a decimal) of Rejected Accounts and (vi) any offset risk attributable to PCS-originated Receivables, as determined by the Agent. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Rate" means, for any Settlement Period, an interest rate per annum equal to the rate per annum at which deposits in U.S. dollars are offered by the principal office of Citibank in London, England to prime banks in the London interbank market at 11:00 A.M. (London Time) two Business Days before the first day of such Settlement Period in an amount substantially equal to the Capital associated with such Settlement Period on such first day and for a period equal to such Settlement Period. "Eurodollar Rate Reserve Percentage" of any Investor or Bank for any Settlement Period in respect of which Yield is computed by reference to the Eurodollar Rate means the reserve percentage applicable two Business Days before the first day of such Settlement Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) (or if more than one such percentage shall be applicable, the daily average of such percentages for those days in such Settlement Period during which any such percentage shall be so applicable) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Investor or Bank with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurocurrency Liabilities is determined) having a term equal to such Settlement Period. "Event of Termination" has the meaning specified in Section 7.01. "Expected Net Value" means, with respect to any Receivable Interest, the gross unpaid amount of such Receivable Interest on the purchase date thereof multiplied by the Net Value Factor. "Facility Termination Date" means the earliest of (a) November 1, 2002, (b) the date determined pursuant to Section 7.01, (c) the date the Purchase Limit reduces to zero pursuant to Section 2.01(b) or (d) the Commitment Termination Date. "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. "Fee Agreement" means the agreement of even date between the Seller and the Agent, as the same may be amended or restated from time to time, with respect to the fees to be paid by or on behalf of the Seller in connection with this Agreement. "Fees" means all fees payable to the Agent pursuant to the Fee Agreement. "Fixed Charge Coverage Ratio" means at any date, the ratio of (i) Consolidated EBITDA plus Consolidated Rent to (ii) Consolidated Interest Charges plus Consolidated Rent, in each case for the period of four consecutive fiscal quarters most recently ended on or prior to such date. "Funds Transfer Letter" means the letter executed and delivered by the Seller to the Agent on the Original Closing Date. "Governmental Entity" means the United States of America, any state, any political subdivision of a state and any agency or instrumentality of the United States of America or any state or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. Payments from Governmental Entities shall be deemed to include payments governed under the Social Security Act (42 U.S.C. ss.1395, et seq.), including payments under Medicare, Medicaid and CHAMPUS, and payments administered or regulated by HCFA. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "HCFA" means the Health Care Financing Administration of the United States Department of Health and Human Services. "Incipient Event of Termination" means an event that but for notice or lapse of time or both would constitute an Event of Termination. "Information" has the meaning specified in Section 10.06(b). "Insurer" means any Person which in the ordinary course of its business or activities agrees to pay for healthcare goods and services received by individuals, including commercial insurance companies, nonprofit insurance companies (such as Blue Cross, Blue Shield entities), employers or unions which self-insure for employee or member health insurance, prepaid health care organizations, preferred provider organizations and health maintenance organizations. "Insurer" includes insurance companies issuing health, personal injury, workers' compensation or other types of insurance but does not include any individual guarantors. "Investment Grade" means, a rating of at least BBB- by S&P and at least Baa3 by Moody's; provided, that if the Parent does not have rated long-term public senior unsecured debt securities outstanding, "Investment Grade" shall mean the rating determined by the Agent, in its sole discretion, that would be assigned to the Parent's long-term public senior unsecured debt securities if the Parent did have such rated securities. "Investor" means CAFCO or CRC and all other owners by assignment or otherwise of a Receivable Interest originally purchased by CAFCO or CRC, as the case may be, and, to the extent of the undivided interests so purchased, shall include any participants. "Investor Rate" means, to the extent CAFCO or CRC funds such Receivable Interest by issuing commercial paper, the weighted average per annum rate equivalent to daily rates paid or payable by CAFCO or CRC, as the case may be, from time to time as interest on or otherwise (by means of interest rate hedges or otherwise) in respect of those promissory notes issued by CAFCO or CRC, as the case may be, that are allocated, in whole or in part, by the Agent (on behalf of CAFCO or CRC, as the case may be) to fund the purchase or maintenance of such Receivable Interest during such Settlement Period as determined by the Agent (on behalf of CAFCO or CRC, as the case may be) and reported to the Seller from time to time on a weighted average basis for such Settlement Period, which rates shall reflect and give effect to the commissions of placement agents and dealers in respect of such commercial paper notes, to the extent such commissions are allocated, in whole or in part, to such commercial paper notes by the Agent (on behalf of CAFCO or CRC, as the case may be); provided, however, that if any component of such rate is a discount rate, in calculating the 'Investor Rate' for such Settlement Period the Agent shall for such component use the rate resulting from converting such discount rate to an interest bearing equivalent rate per annum. "Level I Status" exists at any date if (i) such date is on or after May 1, 2000, and (ii) Parent's long-term unsecured debt (without third party credit enhancement) is rated BBB- or higher by S&P and Baa3 or higher by Moody's. "Level II Status" exists at any date if (a) Parent's long-term unsecured debt (without third party credit enhancement) is rated BB+ or higher by S&P and Ba1 or higher by Moody's and (b) Level I Status does not exist. "Level III Status" exists at any date if, at such date, no other Status exists. "LIFO Adjustments" means, for any period, the net adjustment to costs of goods sold for such period required by the Parent's LIFO inventory method, determined in accordance with generally accepted accounting principles. "Liquidation Day" means, for any Receivable Interest, (i) each day during a Settlement Period for such Receivable Interest on which the conditions set forth in Section 3.02 are not satisfied, and (ii) each day which occurs on or after the Termination Date for such Receivable Interest. "Liquidation Fee" means, for any Settlement Period during which a Liquidation Day occurs, the amount, if any, by which (i) the additional Yield (calculated without taking into account any Liquidation Fee or any shortened duration of such Settlement Period pursuant to clause (iv) of the definition thereof) which would have accrued during such Settlement Period on the reductions of Capital of the Receivable Interest relating to such Settlement Period had such reductions remained as Capital, exceeds (ii) the income, if any, received by the Investors' investing the proceeds of such reductions of Capital. "Lock-Box" means the Originator Lock-Box and the Purchaser Lock-Box. "Loss Horizon Factor" means, for any date, the ratio (expressed as a percentage) computed as of the last day of the most recently ended Month by dividing (i) the aggregate Outstanding Balance of all Originator Receivables created during the five (5) Month period ending on such date by (ii) the Eligible Receivables Pool Balance as of such date. "Loss-to-Liquidation Ratio" means the ratio (expressed as a percentage) computed as of the last day of each Month by dividing (i) the aggregate Outstanding Balance of all Originator Receivables written off by the Parent, applicable Originator or the Seller, or which should have been written off by the Parent, the Seller or the applicable Originator in accordance with the Credit and Collection Policy, during the one Month period ending on such last day by (ii) the aggregate amount of Collections of Originator Receivables actually received during such period. "Loss Percentage" means, for any Month, the product of (w) the highest Default Ratio for any Month for the twelve most recently ended Months, (x) the difference between (a) one and (b) the Recovery Rate then in effect, (y) the Loss Horizon Factor as of the last day of the most recently ended Month and (z) 1.5. "Loss Reserve" means, for any Receivable Interest on any date, the greatest of (i) 10%, (ii) three (3) times the Concentration Limit, and (iii) an amount equal to the Loss Percentage on such date multiplied by the sum of Capital, the Yield Reserve and the Collection Agent Fee Reserve for such Receivable Interest, in each case, as of the close of business of the Collection Agent on such date. "Month" means the fiscal month maintained on the books and records of the Seller and the Parent in accordance with generally accepted accounting practices, consistently applied. "Moody's" means Moody's Investors Service, Inc. "Net Receivables Pool Balance" means, at any date, the Eligible Receivables Pool Balance reduced by the aggregate amount by which the Outstanding Balance of Eligible Receivables (other than Defaulted Receivables) of each Obligor then in the Receivables Pool then exceeds the product of (A) the Concentration Limit for such Obligor multiplied by (B) the Capital of all Receivable Interests. "Net Value Factor" with respect to any Receivable Interest, means the historical actual final Collections received from the applicable Obligor within the past 121 days of the purchase date of such Receivable Interest, divided by the gross face value of such Receivable Interest. "New Closing Date" means November 24, 1999. "Non-Agent PBM" means each PBM, the payments from whom relate to specified Originator Receivables and are intended to constitute payments of direct obligations of such Person and in full substitution of any payment obligation of an Insurer with respect to such Originator Receivables, and not merely as payments in a capacity as an agent of such Insurers. "Notice to Insurer" means a notice, in substantially the form of Annex F hereto, from the Seller to each Insurer and PBM, relating to the payment of Collections from such Insurer or PBM, as the case may be. "Obligor" means an Insurer, PBM or Governmental Entity, as applicable, obligated to make payments pursuant to a Contract. "Obligor Notification Date" means the earliest of (i) April 1, 2000, (ii) such time that the Purchaser Deposit Account has a data automation system which permits the tracking of Collections and (iii) such time as the Agent shall decide to send a Notice to Insurers to each Obligor who is not a Governmental Entity instructing all such Obligors to send all Collections to the Purchaser Lock-Box or the Purchaser Deposit Account. "Original Closing Date" means November 26, 1997. "Original Receivables Purchase Agreement" has the meaning assigned to such term in the preliminary statement of this Agreement. "Original Originator Purchase Agreement" means the Purchase and Contribution Agreement dated the Original Closing Date between the Originators, as sellers, and the Seller, as purchaser, as the same may have be amended, modified or restated from time to time. "Originator Deposit Account" has the meaning specified in Section 6.08(b). "Originator Deposit Account Bank" shall initially be Mellon Bank, N.A. and has the meaning specified in Section 6.08(b). "Originator Deposit Account Agreement" means an agreement, in substantially the form of Annex B-1, among Seller, Originator Deposit Account Bank, the Agent and the Originators. "Originator Lock-Box" shall have the meaning specified in 6.08(b). "Originator Purchase Agreement" means the Amended and Restated Purchase and Contribution Agreement dated the New Closing Date between the Originators, as sellers, and the Seller, as purchaser, as the same may be amended, modified or restated from time to time. "Originator Receivable" means the accounts and general intangibles (within the meaning of Section 9-106 of the UCC) relating to the indebtedness of any Obligor resulting from the provision or sale of merchandise, insurance or services by an Originator, and, if pursuant to a Contract, such related Contract, and including the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto. "Originators" means the Persons designated as "Originators" from time to time in the Originator Purchase Agreement. "Other Corporations" means the Parent, the Originator and all of their respective Subsidiaries except the Seller. "Outstanding Balance" of any Receivable at any time means the then outstanding principal balance thereof. "Parent" means Rite Aid Corporation, a Delaware corporation. "Parent Guaranty" means the Guarantee, dated as of the Original Closing Date, made by the Parent in favor of the Agent, for the benefit of the Investors and the Banks, as confirmed pursuant to the Confirmation of Parent Guaranty and as amended, modified or supplemented from time to time in accordance with its terms. "PCS" means PCS Health Systems, Inc. "PCS-originated Receivables" means any Receivables the Originator of which is a PCS Pharmacy Entity. "PCS Pharmacy Entity" means PCS Mail Services of Ft. Worth, Inc., a Delaware corporation and PCS Mail Services of Birmingham, Inc., a Delaware corporation, together with their respective successors and assigns, and any other subsidiary of PCS approved by the Agent whose principal business is the sale of pharmaceutical products by mail order. "Percentage" of any Bank means, (a) with respect to Citibank, the percentage set forth on the signature page to this Agreement, or such amount as reduced by any Assignment and Acceptance entered into with an Eligible Assignee, or (b) with respect to a Bank that has entered into an Assignment and Acceptance, the amount set forth therein as such Bank's Percentage, or such amount as reduced by an Assignment and Acceptance entered into between such Bank and an Eligible Assignee. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, limited liability company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "PBM" means a Person conducting business as pharmacy benefit manager (including, as of the Amendment Closing Date, PCS) that processes coverage information, applies payment and reimbursement criteria and makes payment on behalf of certain Insurers to Originators for amounts due and payment under Originator Receivables. "Pool Non-compliance Date" means any day on which the Weekly Report due on such date discloses that the Net Receivables Pool Balance as of the end of the previous week was below the Required Daily Net Receivables Pool Balance. "Pool Receivable" means a Receivable in the Receivables Pool. "Public Debt" means debt securities of the Parent issued pursuant to an indenture qualified under (or in form suitable for qualification under) the Trust Indenture Act of 1939, as amended. "Purchase Limit" means $300,000,000, as such amount may be increased or reduced pursuant to Section 2.01(b). References to the unused portion of the Purchase Limit shall mean, at any time, the Purchase Limit, as then reduced pursuant to Section 2.01(b), minus the then outstanding Capital of Receivable Interests under this Agreement. "Purchaser Deposit Account" has the meaning specified in Section 6.08(a). "Purchaser Deposit Account Agreement" means an agreement, in substantially the form of Annex B-2, among the Seller, the Purchaser Deposit Account Bank, the Agent and the Orignators. "Purchaser Deposit Account Bank" shall initially be Mellon Bank, N.A. and has the meaning specified in Section 6.08(a). "Purchaser Lock-Box" has the meaning specified in Section 6.08(a). "Receivable" means any Originator Receivable which has been acquired by the Seller from an Originator by purchase or by capital contribution pursuant to the Originator Purchase Agreement. "Receivable Interest" means, at any time, an undivided percentage ownership interest in (i) all then outstanding Pool Receivables arising prior to the time of the most recent computation or recomputation of such undivided percentage interest pursuant to Section 2.03, (ii) all Related Security with respect to such Pool Receivables, and (iii) all Collections with respect to, and other proceeds of, such Pool Receivables. Such undivided percentage interest shall be computed as C + R ----- NRPB where: C = the Capital of such Receivable Interest at the time of computation. R = the Reserves of such Receivable Interest at the time of computation. NRPB = the Net Receivables Pool Balance at the time of computation. Each Receivable Interest shall be determined from time to time pursuant to the provisions of Section 2.03. "Receivables Pool" means at any time the aggregation of each then outstanding Receivable in respect of which the Obligor is a Designated Obligor at such time or was a Designated Obligor on the date of the initial creation of an interest in such Receivable under this Agreement. "Recovery Rate" means, an amount from time to time determined by the Agent and initially, 10%. "Rejected Accounts" means any Eligible Account which either (i) has been rejected by the Obligor of such Receivable for the failure of the Originator of such Receivable to (A) comply with the terms and provisions of the relevant Contract or (B) successfully transmit any claim or other information regarding such Receivable to such Obligor or (ii) has been rejected by such Originator as a result of its inability to bill the Obligor of such Receivable electronically. "Related Security" means with respect to any Receivable: (i) all of the Seller's interest in any merchandise (including returned merchandise) relating to any sale giving rise to such Receivable; (ii) all security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; (iii) all guaranties, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise; and (iv) the Contract and all other books, records and other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) relating to such Receivable and the related Obligor. "Reporting Extension Period" means the period commencing on the Amendment Closing Date and terminating on the earlier of (x) July 11, 2000 or (y) the date that is 10 days prior to the earliest date on which any holder of Public Debt or any trustee or other representative of any such holder had a right, on the Amendment Closing Date, to accelerate the maturity thereof by reason of any default waived under the Amended Credit Agreement pursuant to Waiver No. 1 thereto, dated as of January 11, 2000. "Required Weekly Net Receivables Pool Balance" means, as of any day of determination, the sum of (i) the aggregate of the Reserves for all Receivable Interests, plus (ii) the aggregate of all Capital for all Receivable Interests. "Reserves" means, with respect to any Receivable Interest as of any day, the sum of the Yield Reserve, Collection Agent Fee Reserve, Loss Reserve and Dilution Reserve for such Receivable Interest as of such day. "Revolving Period" means the period beginning on the New Closing Date and terminating on the close of business on the Business Day immediately preceding the Termination Date for any Receivable Interest. "S&P" means Standard & Poor's Rating Services, a division of McGraw-Hill Companies, Inc. "Sale and Leaseback Transaction" shall mean the sale or transfer of any manufacturing plant, warehouse, retail store or equipment now or hereafter owned and operated by the Parent or any of its Subsidiaries, with the intention that the Parent or any Subsidiary of the Parent 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. "Sale and Leaseback Transactions" shall not include the sale or transfer by a Subsidiary to the Parent or a Wholly-Owned Consolidated Subsidiary. "SEC" means the Securities and Exchange Commission. "Seller Report" means a report in substantially the form of Annex A (as the same may be modified from time to time upon the request and with the consent of the Agent) hereto and containing such additional information as the Agent may reasonably request from time to time, furnished by the Collection Agent to the Agent pursuant to Section 6.02(g). "Seller's Account" means account number 9102750222 at The Chase Manhattan Bank, New York, ABA # 021000021. "Settlement Date" means the first Business Day after the end of each Month during the term of this Agreement; provided that with respect to any Settlement Period for which Yield is computed by reference to the Assignee Rate, the Settlement Date shall be the last day of the Settlement Period. "Settlement Period" means: (a) initially the period commencing on the date of purchase of such Receivable Interest and ending such number of days as the Seller shall select and the Agent shall approve pursuant to Section 2.02, up to 270 days from such date; and (b) thereafter each period commencing on the last day of the immediately preceding Settlement Period for such Receivable Interest and ending such number of days (not to exceed 270 days) as the Seller shall select and the Agent shall approve on notice by the Seller received by the Agent (including notice by telephone, confirmed in writing) not later than 11:00 A.M. (New York City time) on such last day, except that if the Agent shall not have received such notice or approved such period on or before 11:00 A.M. (New York City time) on such last day, such period shall be one day; provided, that (i) any Settlement Period in respect of which Yield is computed by reference to the Assignee Rate based on the Eurodollar Rate shall be of such duration (and may include two tranches of durations) as shall be selected by the Seller (including one week and one, two or three months) as the Agent may approve on two Business Days' prior notice by the Seller received by the Agent (including notice by telephone, confirmed in writing) not later than 11:00 A.M. (New York City time) and notified to the Seller; (ii) any Settlement Period (other than of one day) which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day (provided, however, if Yield in respect of such Settlement Period is computed by reference to the Eurodollar Rate, and such Settlement Period would otherwise end on a day which is not a Business Day, and there is no subsequent Business Day in the same calendar month as such day, such Settlement Period shall end on the next preceding Business Day); (iii) in the case of any Settlement Period of one day, (A) if such Settlement Period is the initial Settlement Period for a Receivable Interest, such Settlement Period shall be the day of purchase of such Receivable Interest; (B) any subsequently occurring Settlement Period which is one day shall, if the immediately preceding Settlement Period is more than one day, be the last day of such immediately preceding Settlement Period, and, if the immediately preceding Settlement Period is one day, be the day next following such immediately preceding Settlement Period; and (C) if such Settlement Period occurs on a day immediately preceding a day which is not a Business Day, such Settlement Period shall be extended to the next succeeding Business Day; and (iv) in the case of any Settlement Period for any Receivable Interest which commences before the Termination Date for such Receivable Interest and would otherwise end on a date occurring after such Termination Date, such Settlement Period shall end on such Termination Date and the duration of each Settlement Period which commences on or after the Termination Date for such Receivable Interest shall be of such duration as shall be selected by the Agent. (c) in the case of any Settlement Period in respect of which Yield is computed by reference to the Alternate Base Rate, such Settlement Period shall be of such duration as shall be selected by the Agent and notified to the Seller. "Special Event" means (i) the occurrence of an Event of Termination or (ii) the date on which the Parent's long-term public unsecured senior debt securities shall have been withdrawn or downgraded below Investment Grade. "Status" refers to the determination of whether Level I Status, Level II Status or Level III Status exists at any time. "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 Parent, the Seller or an Originator, as the case may be, or one or more Subsidiaries. "Tangible Net Worth" means at any time the excess of (i) the Outstanding Balance of all Receivables plus cash and cash equivalents of the Seller, minus (ii) the sum of (a) the product of (x) one minus the Recovery Rate and (y) the Outstanding Balance of such Receivables which have become Defaulted Receivables (other than Receivables which, consistent with the Credit and Collection Policy, has been written off the Parent, the Seller's or the applicable Originator's books as uncollectible), plus (b) Capital of such Receivables, plus (c) aggregate Reserves, plus (d) the Outstanding Balance of such Receivables which, consistent with the Credit and Collection Policy, has been written off the Parent, the Seller's or the applicable Originator's books as uncollectible. "Termination Date" for any Receivable Interest means (i) in the case of a Receivable Interest owned by an Investor, the earlier of (a) the Business Day which the Seller or the Agent so designates by notice to the other at least one Business Day in advance for such Receivable Interest and (b) the Facility Termination Date and (ii) in the case of a Receivable Interest owned by a Bank, the earlier of (a) the Business Day which the Seller so designates by notice to the Agent at least one Business Day in advance for such Receivable Interest and (b) the Commitment Termination Date. "Total Capital" means, at any date, the sum of Consolidated Debt and Consolidated Net Worth, each determined as of such date. "Transaction Document" means any of this Agreement, the Originator Purchase Agreement, the Parent Guaranty, and all other agreements and documents delivered or related hereto or thereto. "UCC" means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction. "Unapplied Cash" means (i) as of any day prior to the occurrence and continuance of a Special Event, zero and (ii) on any other day, the actual amount of unapplied Collections held by the Seller as of such day. "Unbilled Accounts" means Eligible Receivables the Obligor of which is not billed on a daily basis by the relevant Originator. "Weekly Report" means an Officer's Certificate of the Collection Agent substantially in the form of Annex F hereto. "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 owned by the Parent. "Yield" means: (i) for each Receivable Interest for any Settlement Period to the extent CAFCO or CRC will be funding such Receivable Interest during such Settlement Period through the issuance of commercial paper, IR x C x ED + LF -- 360 (ii) for each Receivable Interest for any Settlement Period to the extent (x) the Investors will not be funding such Receivable Interest during such Settlement Period through the issuance of commercial paper or (y) the Banks will be funding such Receivable Interest, AR x C x ED + LF -- 360 where: AR = the Assignee Rate for such Receivable Interest for such Settlement Period C = the Capital of such Receivable Interest during such Settlement Period IR = the Investor Rate for such Receivable Interest for such Settlement Period ED = the actual number of days elapsed during such Settlement Period LF = the Liquidation Fee, if any, for such Receivable Interest for such Settlement Period provided, that no provision of this Agreement shall require the payment or permit the collection of Yield in excess of the maximum permitted by applicable law; and provided, further that Yield for any Receivable Interest shall not be considered paid by any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason. "Yield Reserve" for any Receivable Interest at any time means the sum of (i) the Liquidation Yield at such time for such Receivable Interest, and (ii) the then accrued and unpaid Yield for such Receivable Interest. For purposes of this definition, (a) "Liquidation Yield" means, for any Receivable Interest on any date, an amount equal to the Rate Variance Factor on such date multiplied by the product of (i) the Capital of such Receivable Interest on such date and (ii) the product of (a) the Alternate Base Rate for such Receivable Interest for a 30-day period deemed to commence on such date and (b) a fraction having the sum of the Average Maturity plus the Collection Delay Period (each as in effect at such date) as its numerator and 360 as its denominator; and (b) "Rate Variance Factor" means 1.2 or such other factor determined by the Agent from time to time greater than one that reflects the potential variance in selected interest rates over a period of time designated by the Agent, as computed by the Collection Agent each month and set forth in the Seller Report in accordance with the provisions thereof; provided, that the factors used in computing the "Rate Variance Factor" may be changed from time to time upon at least five days' prior notice to the Collection Agent. SECTION 1.02. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. ARTICLE II AMOUNTS AND TERMS OF THE PURCHASES SECTION 2.01. Purchase Facility. (a) On the terms and conditions hereinafter set forth, CAFCO or CRC may, in their sole discretion, and the Banks shall, ratably in accordance with their respective Bank Commitments, purchase Receivable Interests from the Seller from time to time during the period from the Original Closing Date to the Facility Termination Date (in the case of CAFCO and CRC) and to the Commitment Termination Date (in the case of the Banks). Under no circumstances shall CAFCO or CRC make any such purchase, or the Banks be obligated to make any such purchase, if after giving effect to such purchase the aggregate outstanding Capital of Receivable Interests would exceed the Purchase Limit. (b) The Seller may, upon at least thirty Business Days' notice to the Agent, terminate the facility provided for in this Agreement in whole or, from time to time, reduce in part the unused portion of the Purchase Limit; provided, that each partial reduction shall be in the amount of at least $1,000,000 or an integral multiple thereof. The Seller may, upon 30 days written notice to the Agent, request that the Purchase Limit be increased. The Agent shall notify the Seller within 15 days of the receipt of such request whether one or more of the Investors have agreed to the increase in the Purchase Limit; provided, however, that, no such increase shall become effective unless one or more Banks shall agree to increase their respective Bank Commitments such that the aggregate amount of all Bank Commitments equals the increased Purchase Limit. (c) Until the Agent gives the Seller the notice provided in Section 3.02(c)(iii), the Agent, on behalf of the Investors which own Receivable Interests, may have the Collections attributable to such Receivable Interests automatically reinvested pursuant to Section 2.04 in additional undivided percentage interests in the Pool Receivables by making an appropriate readjustment of such Receivable Interests. The Agent, on behalf of the Banks which own Receivable Interests, shall have the Collections attributable to such Receivable Interests automatically reinvested pursuant to Section 2.04 in additional undivided percentage interests in the Pool Receivables by making an appropriate readjustment of such Receivable Interests. SECTION 2.02. Making Purchases. (a) Each purchase by CAFCO, CRC or the Banks shall be made on at least three Business Days' notice from the Seller to the Agent. Each such notice of a purchase shall specify (i) the amount requested to be paid to the Seller (such amount, which shall not be less than $5,000,000, being referred to herein as the initial "Capital" of the Receivable Interest then being purchased) and (ii) the date of such purchase (which shall be a Business Day). The Agent shall promptly thereafter notify the Seller that CAFCO or CRC has determined to make a purchase and, if so, whether all of the terms specified by the Seller are acceptable to CAFCO or CRC, as the case may be. If CAFCO or CRC has determined not to make a proposed purchase, the Agent shall promptly send notice of the proposed purchase to all of the Banks concurrently by telecopier, telex or cable specifying the date of such purchase, each Bank's Percentage multiplied by the aggregate amount of Capital of Receivable Interest being purchased and whether the Yield for such Receivable Interest is calculated based on the Eurodollar Rate (which may be selected only if such notice is given at least two Business Days prior to the purchase date) or the Alternate Base Rate. (b) On the date of each such purchase of a Receivable Interest, CAFCO, CRC or the Banks, as the case may be, shall, upon satisfaction of the applicable conditions set forth in Article III, make available to the Seller in same day funds an amount equal to the initial Capital of such Receivable Interest, at the account set forth in the Funds Transfer Letter. Calculation of Capital shall take into account the Expected Net Value with respect to each Receivable Interest. (c) Effective on the date of each purchase pursuant to this Section 2.02 and each reinvestment pursuant to Section 2.04, the Seller hereby sells and assigns to the Agent, for the benefit of the parties making such purchase, an undivided percentage ownership interest, to the extent of the Receivable Interest then being purchased, in each Pool Receivable then existing and in the Related Security and Collections with respect thereto. (d) Notwithstanding the foregoing, a Bank shall not be obligated to make purchases under this Section 2.02 at any time in an amount which would exceed such Bank's Bank Commitment less (in the case of any Bank other than Citibank) the outstanding and unpaid amount of any purchases made by such Bank under the Asset Purchase Agreement. Each Bank's obligation shall be several, such that the failure of any Bank to make available to the Seller any funds in connection with any purchase shall not relieve any other Bank of its obligation, if any, hereunder to make funds available on the date of such purchase, but no Bank shall be responsible for the failure of any other Bank to make funds available in connection with any purchase. SECTION 2.03. Receivable Interest Computation. (a) Each Receivable Interest shall be initially computed on its date of purchase. Thereafter until the Termination Date for such Receivable Interest, such Receivable Interest shall be automatically recomputed (or deemed to be recomputed) on each day other than a Liquidation Day. Any Receivable Interest, as computed (or deemed recomputed) as of the day immediately preceding the Termination Date for such Receivable Interest, shall thereafter remain constant. Such Receivable Interest shall become zero when Capital thereof and Yield thereon shall have been paid in full, and all other amounts owed by the Seller hereunder to the Investors, the Banks or the Agent are paid and the Collection Agent shall have received the accrued Collection Agent Fee thereon. (b) If any Receivable Interest would otherwise be reduced on any day on account of newly arising Pool Receivables, the parties who hold such Receivable Interest may prevent such reduction by notifying the Collection Agent on such day that the Receivables Pool and the Net Receivables Pool Balance for such Receivable Interest will include, with respect to Receivables arising as Pool Receivables on such day, only such number or portion of such Receivables as shall cause such Receivable Interest to remain constant. The remainder of such Receivables or portion thereof shall be treated as Receivables arising on the next succeeding Business Day (subject to reapplication of this subsection (b)). SECTION 2.04. Settlement Procedures. (a) Collection of Pool Receivables shall be administered by a Collection Agent, in accordance with the terms of Article VI of this Agreement. On and after the New Closing Date on each Deposit Date during each Settlement Period during the Revolving Period the Collection Agent shall, by no later than 11:00 a.m. New York time, and in the following order: (i) deposit in the Agent's Account an amount equal to the sum of (x) Reserves plus (y) Yield for each Settlement Period commencing on or before such Deposit Date to the extent such amount has not been previously so deposited; (ii) if such Deposit Day is a Tuesday (or if such day is not a Business Day, the next Business Day), deliver to the Agent the Weekly Report and remit to the Agent's Account the amount, if any, necessary to make the Net Receivables Pool Balance equal the Required Weekly Net Receivables Pool Balance; and (iii) deposit the remainder of such Collections to the Seller's Account to be reinvested by the Seller in Receivables; provided that, if immediately following any such deposit such Deposit Date would be a Pool Non-compliance Date, the Collection Agent shall retain all such remaining Collections in the Purchaser Deposit Account to be applied pursuant to Section 2.04(b)(ii). (b) On each Deposit Date if and so long as a Cure Period shall have occurred and be continuing, the Collection Agent shall, by no later than 11:00 a.m. New York time, and in the following order: (i) deposit in the Agent's Account an amount equal to the sum of (x) Reserves plus (y) Yield for each Settlement Period commencing on or before such Deposit Date to the extent such amount has not been previously so allocated; (ii) deposit, out of the remainder of such Collections, to the Agent's Account an amount sufficient to make the Net Receivables Pool Balance equal the Required Weekly Net Receivables Pool Balance; provided, however, if such Deposit Date is second Business Day after a Cure Period has commenced and is continuing and Collections are insufficient to make the Net Receivables Pool Balance equal the Required Weekly Net Receivables Pool Balance, the Seller shall, from its own funds, deposit into the Agent's Account an amount sufficient to make the Net Receivables Pool Balance equal the Required Weekly Net Receivables Pool Balance; and (iii) deposit the remainder of such Collections to the Seller's Account to be reinvested by the Seller in Receivables; provided that, if immediately following any such deposit such Deposit Date would be a Pool Non-compliance Date, the Collection Agent shall retain all such remaining Collections in the Purchaser Deposit Account to be applied pursuant to Section 2.04(b)(ii). (c) Upon receipt of funds deposited into the Agent's Account, the Agent shall distribute them as follows: (i) if such distribution occurs on a day that is not a Liquidation Day, first to the Investors or the Banks that hold the relevant Receivable Interest in payment in full of all accrued Yield and then to the Collection Agent in payment in full of all accrued Collection Agent Fee. (ii) if such distribution occurs on a Liquidation Day, first to the Investors or the Banks that hold the relevant Receivable Interest in payment in full of all accrued Yield, second to such Investors or Banks in reduction to zero of all Capital, third to such Investors, Banks or the Agent in payment of any other amounts owed by the Seller hereunder, and fourth to the Collection Agent in payment in full of all accrued Collection Agent Fee. After the Capital and Yield and Collection Agent Fee with respect to a Receivable Interest, and any other amounts payable by the Seller to the Investors, the Banks or the Agent hereunder, have been paid in full, all additional Collections with respect to such Receivable Interest shall be paid to the Seller for its own account. (d) For the purposes of this Section 2.04: (i) if on any day the Outstanding Balance of any Pool Receivable is reduced or adjusted as a result of any defective, rejected, returned, repossessed, cancelled or foreclosed merchandise or services, or any cash discount or other adjustment made by the Parent, the Seller or the Originator, or any setoff, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in the amount of such reduction or adjustment; (ii) if on any day any of the representations or warranties contained in Section 4.01(g) is no longer true with respect to any Pool Receivable, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in full; (iii) except as provided in subsection (i) or (ii) of this Section 2.04(d), or as otherwise required by applicable law or the relevant Contract, all Collections received from an Obligor of any Receivables shall be applied to the Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates its payment for application to specific Receivables; and (iv) if and to the extent the Agent, the Investors or the Banks shall be required for any reason to pay over to an Obligor any amount received on its behalf hereunder, such amount shall be deemed not to have been so received but rather to have been retained by the Seller and, accordingly, the Agent, the Investors or the Banks, as the case may be, shall have a claim against the Seller for such amount, payable when and to the extent that any distribution from or on behalf of such Obligor is made in respect thereof. (e) To the extent that the amounts deposited to the Agent's Account with respect to any Settlement Period are insufficient to pay all then accrued but unpaid Yield, Fees and (if payable to a Collection Agent other than Rite Aid Corporation), Collection Agent Fee, the Seller shall be obligated to pay to the Agent, on the last day of such Settlement Period, for the account of the Investors, the Banks and the Agent (and the Collection Agent, if applicable), an amount sufficient to pay fully all such amounts, by depositing such amount to the Agent's Account. The Agent shall distribute such funds as set forth 2.04(c) above. SECTION 2.05. Fees. (a) Each Investor and Bank shall pay to the Collection Agent a fee (the "Collection Agent Fee") of 1/4 of 1% per annum on the average daily Capital of each Receivable Interest owned by such Investor or Bank, from the date of purchase of such Receivable Interest until the later of the Termination Date for such Receivable Interest or the date on which such Capital is reduced to zero, payable on the Settlement Date. Upon three Business Days' notice to the Agent, the Collection Agent (if not the Parent, the Seller or an Originator, or any of their respective designees) may elect to be paid, as such fee, another percentage per annum on the average daily Capital of such Receivable Interest, but in no event in excess for all Receivable Interests relating to a single Receivables Pool of 110% of the reasonable costs and expenses of the Collection Agent in administering and collecting the Receivables in such Receivables Pool. The Collection Agent Fee shall be payable only from Collections pursuant to, and subject to the priority of payment set forth in, Section 2.04. So long as the Parent (or any Originator) is acting as the Collection Agent hereunder, amounts paid as the Collection Agent Fee pursuant to this Section 2.05(a) shall reduce, on a dollar-for-dollar basis, the obligation of the Seller to pay the "Collection Agent Fee" pursuant to Section 6.03 of the Originator Purchase Agreement, provided, that such obligation of the Seller shall in no event be reduced below zero. (b) The Seller shall pay to the Agent certain fees in the amounts and on the dates set forth in the Fee Agreement. SECTION 2.06. Payments and Computations, Etc. (a) All amounts to be paid or deposited by the Seller or the Collection Agent hereunder shall be paid or deposited no later than 11:00 A.M. (New York City time) on the day when due in same day funds to the Agent's Account. (b) The Seller shall, to the extent permitted by law, pay interest on any amount not paid or deposited by the Seller (whether as Collection Agent or otherwise) when due hereunder, at an interest rate per annum equal to 2% per annum above the Alternate Base Rate, payable on demand. (c) All computations of interest under subsection (b) above and all computations of Yield, fees, and other amounts hereunder shall be made on the basis of a year of 360 days for the actual number of days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. SECTION 2.07. Dividing or Combining Receivable Interests. Either the Seller or the Agent may, upon notice to the other party received at least three Business Days prior to the last day of any Settlement Period in the case of the Seller giving notice, or up to the last day of such Settlement Period in the case of the Agent giving notice, either (i) divide any Receivable Interest into two or more Receivable Interests having aggregate Capital equal to the Capital of such divided Receivable Interest, or (ii) combine any two or more Receivable Interests originating on such last day or having Settlement Periods ending on such last day into a single Receivable Interest having Capital equal to the aggregate of the Capital of such Receivable Interests; provided, however, that no Receivable Interest owned by CAFCO or CRC may be combined with a Receivable Interest owned by any Bank. SECTION 2.08. Increased Costs. (a) If CNAI, any Investor, any Bank, any entity which enters into a commitment to purchase Receivable Interests or interests therein, or any of their respective Affiliates (each an "Affected Person") determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of the capital required or expected to be maintained by such Affected Person and such Affected Person determines that the amount of such capital is increased by or based upon the existence of any commitment to make purchases of or otherwise to maintain the investment in Pool Receivables or interests therein related to this Agreement or to the funding thereof and other commitments of the same type, then, upon demand by such Affected Person (with a copy to the Agent), the Seller shall immediately pay to the Agent for the account of such Affected Person (as a third-party beneficiary), from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person in the light of such circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of any of such commitments. A certificate as to such amounts submitted to the Seller and the Agent by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements referred to in Section 2.09) in or in the interpretation of any law or regulation or (ii) compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase (other than an increase in income or franchise taxes) in the cost to any Investor or Bank of agreeing to purchase or purchasing, or maintaining the ownership of Receivable Interests in respect of which Yield is computed by reference to the Eurodollar Rate, then, upon demand by such Investor or Bank (with a copy to the Agent), the Seller shall immediately pay to the Agent, for the account of such Investor or Bank (as a third-party beneficiary), from time to time as specified by such Investor or Bank, additional amounts sufficient to compensate such Investor or Bank for such increased costs. A certificate as to such amounts submitted to the Seller and the Agent by such Investor or Bank shall be conclusive and binding for all purposes, absent manifest error. (c) Notwithstanding the generality of the foregoing provisions and not in derogation of the obligation of the Seller to pay to any Affected Person compensation which is duly requested and payable to such Person pursuant to the provisions of this Section 2.08, if any Affected Person shall request compensation pursuant to this Section 2.08, the Seller shall be entitled to request that reasonable efforts be taken to assign such Affected Person's interest hereunder to another Person that does not require similar compensation and is otherwise acceptable to the Agent and the Seller. In order to exercise the foregoing option, the Seller shall direct the applicable Affected Person in writing to take all necessary actions to give effect to the foregoing provision. SECTION 2.09. Additional Yield on Receivable Interests Bearing a Eurodollar Rate.(a) The Seller shall pay to any Investor or Bank, so long as such Investor or Bank shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional Yield on the unpaid Capital of each Receivable Interest of such Investor or Bank during each Settlement Period in respect of which Yield is computed by reference to the Eurodollar Rate, for such Settlement Period, at a rate per annum equal at all times during such Settlement Period to the remainder obtained by subtracting (i) the Eurodollar Rate for such Settlement Period from (ii) the rate obtained by dividing such Eurodollar Rate referred to in clause (i) above by that percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Investor or Bank for such Settlement Period. Such additional Yield shall be determined by such Investor or Bank and notice thereof given to the Seller through the Agent within 30 days after any Yield payment is made with respect to which such additional Yield is requested and shall be paid on the next Settlement Date. A certificate as to such additional Yield submitted to the Seller and the Agent by such Investor or Bank shall be conclusive and binding for all purposes, absent manifest error. (b) Notwithstanding the generality of the foregoing provision and not in derogation of the obligation of the Seller to pay to any Investor or any Bank compensation which is duly requested and payable to such Person pursuant to the provisions of this Section 2.09, if any Investor or any Bank shall request compensation pursuant to this Section 2.09, the Seller shall be entitled to request that such Investor or such Bank utilize reasonable efforts to assign its interest hereunder to another Person that does not require similar compensation and is otherwise acceptable to the Agent and the Seller. In order to exercise the foregoing option, the Seller shall direct the relevant Person in writing to take all necessary actions to give effect to the foregoing provision. SECTION 2.10. Security Interest. As collateral security for the performance by the Seller of all the terms, covenants and agreements on the part of the Seller (whether as Seller or otherwise) to be performed under this Agreement or any document delivered in connection with this Agreement in accordance with the terms thereof, including the punctual payment when due of all obligations of the Seller hereunder or thereunder, whether for indemnification payments, fees, expenses or otherwise, the Seller hereby assigns to the Agent for its benefit and the ratable benefit of the Investors and the Banks, and hereby grants to the Agent for its benefit and the ratable benefit of the Investors and the Banks, a security interest in, all of the Seller's right, title and interest in and to (A) the Originator Purchase Agreement, including, without limitation, (i) all rights of the Seller to receive moneys due or to become due under or pursuant to the Originator Purchase Agreement, (ii) all security interests and property subject thereto from time to time purporting to secure payment of monies due or to become due under or pursuant to the Originator Purchase Agreement, (iii) all rights of the Seller to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Originator Purchase Agreement, (iv) claims of the Seller for damages arising out of or for breach of or default under the Originator Purchase Agreement, and (v) the right of the Seller to compel performance and otherwise exercise all remedies thereunder, and (B) all Receivables, the Related Security with respect thereto and the Collections and all other assets, including, without limitation, accounts, instruments and general intangibles (as those terms are defined in the UCC) owned by the Seller and not otherwise purchased or scheduled to be purchased under this Agreement, and (C) to the extent not included in the foregoing, all proceeds of any and all of the foregoing. ARTICLE III CONDITIONS OF PURCHASES SECTION 3.01. Conditions Precedent to Initial Purchase on Original Closing Date. Intentionally omitted. SECTION 3.02. Conditions Precedent to Initial Purchase on New Closing Date. The initial purchase of a Receivable Interest under this Agreement is subject to the conditions precedent that the Agent shall have received on or before the date of such purchase the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Agent: (a) Certified copies of the resolutions of the Board of Directors of the Parent, the Seller and each Originator approving each of the Transaction Documents to which it is a party and certified copies of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement and the Originator Purchase Agreement. (b) A certificate of the Secretary or Assistant Secretary of the Parent, the Seller and each Originator certifying the names and true signatures of the officers of the Parent, the Seller and each Originator authorized to sign the Originator Purchase Agreement and this Agreement and the other documents to be delivered by it hereunder and thereunder. (c) Intentionally omitted. (d) Intentionally omitted. (e) Intentionally omitted. (f) The Lock-Boxes and the Deposit Accounts shall have been established and any Obligors who have previously delivered Collections (other than Collections arising from PCS-originated Receivables) to any Originator, the Seller or the Collection Agent to any location other than into an Originator Lock-Box or an Originator Deposit Account shall have received a Notice to Insurers instructing all such Obligors to remit all Collections to either an Originator Lock-Box or an Originator Deposit Account and the Agent shall be satisfied with the foregoing in all respects. (g) A favorable opinion of Morgan, Lewis & Bockius, LLP, counsel for the Parent, the Seller and the Originators, substantially in the form of Annex C hereto and as to such other matters as the Agent may reasonably request. (h) The Fee Agreement referred to in Section 2.05(b). (i) An executed copy of the Originator Purchase Agreement. (j) Intentionally omitted. (k) A copy of the articles of organization of the Seller, certified as of a recent date by the Secretary of State or other appropriate official of the state of its organization, and a certificate as to the good standing of the Seller from such Secretary of State or other official, dated as of a recent date. (l) A favorable opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel for the Agent, as to such matters as the Agent may reasonably request. (m) A favorable opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel for the Agent, addressed to CAFCO and the dealer for the commercial paper of CAFCO, as to the correctness of the representation and warranty of the Seller set forth in Section 4.01(l), substantially in the form previously delivered by such counsel to the Agent. (n) The Agent shall have had the opportunity, if it so chooses, to review the Collection Agent's billing, collection and reporting systems, and the results of such review shall have been satisfactory to the Agent in all respects. (o) The Confirmation of Parent Guaranty, duly executed by the Parent. (p) The Agent shall have received the Agreed Upon Procedures Report from KPMG Peat Marwick LLP. SECTION 3.03. Conditions Precedent to the Amendment Closing Date. The effectiveness of the restatement and amendment of the Original Receivables Purchase Agreement as contemplated by this Agreement is subject to the conditions precedent that the Agent shall have received on or before the date of such purchase the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Agent: (a) counterparts of this Agreement executed by each of the parties hereto; (b) evidence that all representations and warranties contained in this Agreement or otherwise made in writing to the Agent in connection herewith are true and correct in all material respects; (c) evidence that no Incipient Event of Termination or Event of Termination has occurred and is continuing; (d) a certificate of an officer of the Seller, stating and certifying that: (i) the execution, delivery and performance by the Seller of this Agreement, as amended and restated on the Amendment Closing Date, is within the Seller's corporate powers and has been duly authorized by all necessary corporate action, based on certificates and evidence attached to such officer's certificate; (ii) all representations and warranties contained in this Agreement or otherwise made in writing to the Agent in connection herewith are true and correct in all material respects; and (iii) no Incipient Event of Termination or Event of Termination has occurred and is continuing; (e) payment of the amendment fee, in immediately available funds, in the amount set forth in the fee letter dated January 11, 2000; (f) [Intentionally Omitted] (g) evidence that (i) the Lock-Boxes and the Deposit Accounts previously established with Mellon Bank are operating in accordance with the terms and procedures established in the Deposit Account Agreement, and (ii) the Collection Agent has established a data automation system which permits the tracking and segregation of Collections in the manner described in Section 6.06(f) hereof; (h) a fully executed copy, dated the Amendment Closing Date, of (i) the amendment to Originator Purchase Agreement, and (ii) the amendments to the Deposit Account Agreement to include each PCS Pharmacy Entity as an "Originator" thereunder, and evidence that the conditions precedent to the effectiveness of such agreements have been fulfilled in full; and (i) such other approvals, opinions or documents as the Agent may reasonably request. SECTION 3.04. Conditions Precedent to All Purchases and Reinvestments. Each purchase (including the initial purchase) and each reinvestment shall be subject to the further conditions precedent that (a) in the case of each purchase, the Collection Agent shall have delivered to the Agent at least one Business Day prior to such purchase, in form and substance satisfactory to the Agent, a completed Seller Report containing information covering the most recently ended reporting period for which information is required pursuant to Section 6.02(g) and demonstrating that after giving effect to such purchase no Event of Termination or Incipient Event of Termination under Section 7.01(j) would occur, (b) in the case of each reinvestment, the Collection Agent shall have delivered to the Agent on or prior to the date of such reinvestment, in form and substance satisfactory to the Agent, a completed Seller Report containing information covering the most recently ended reporting period for which information is required pursuant to Section 6.02(g), (c) on the date of such purchase or reinvestment the following statements shall be true, except that the statement in clause (iii) below is required to be true only if such purchase or reinvestment is by an Investor (and acceptance of the proceeds of such purchase or reinvestment shall be deemed a representation and warranty by the Seller that such statements are then true): (i) The representations and warranties contained in Section 4.01 are correct on and as of the date of such purchase or reinvestment as though made on and as of such date, (ii) No event has occurred and is continuing, or would result from such purchase or reinvestment, that constitutes an Event of Termination or an Incipient Event of Termination, and (iii) The Agent shall not have given the Seller at least one Business Day's notice that the Investors have terminated the reinvestment of Collections in Receivable Interests, and (iv) The applicable Originator shall have sold or contributed to the Seller, pursuant to the Originator Purchase Agreement, all Originator Receivables arising on or prior to such date, and (v) The Lock-Boxes and the Deposit Accounts shall be operating as set forth herein to the satisfaction of the Agent; and (d) the Agent shall have received a favorable opinion of counsel for the Seller, substantially in the form of Annex C hereto; provided, that such opinion shall not be required under this Section 3.02(d) if (x) the opinions most recently delivered pursuant to Section 3.02(g) or this Section 3.02(d) are dated a date no more than 12 months before the applicable purchase date and such opinions shall not have been revoked, withdrawn or suspended by the Person delivering it, or (y) counsel delivering the opinions most recently delivered pursuant to Section 3.02(g) or this Section 3.02(d) shall have delivered to the Agent a letter, in form and substance satisfactory to the Agent and dated a date not more than 12 months before the applicable purchase date, confirming such opinions as of the date of such letter, and such opinions shall not have been revoked, withdrawn or suspended by the Person delivering it, and (e) the Agent shall have received such other approvals, opinions or documents as it may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Seller. The Seller hereby represents and warrants as follows: (a) The Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of California, and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified. (b) The execution, delivery and performance by the Seller of the Transaction Documents (including, without limitation, this Agreement as amended and restated and the Originator Purchase Agreement as amended and restated) and the other documents to be delivered by it hereunder, including the Seller's use of the proceeds of purchases and reinvestments, (i) are within the Seller's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene (1) the Seller's articles of organization or operating agreement, (2) any law, rule or regulation applicable to the Seller, (3) any contractual restriction binding on or affecting the Seller or its property or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Seller or its property, and (iv) do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties (except for the interest created pursuant to this Agreement). Each of the Transaction Documents has been duly executed and delivered by the Seller. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Seller of the Transaction Documents or any other document to be delivered thereunder, except for the filing of UCC financing statements which are referred to therein. (d) Each of the Transaction Documents (including, without limitation, this Agreement as amended and restated and the Originator Purchase Agreement as amended and restated) constitutes the legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms. (e) The financial statements of the Parent and its consolidated Subsidiaries as set forth in the Form 10-Q of the Parent filed with the SEC on November 2, 1999, fairly present the financial condition and the results of the operations of the Parent and its consolidated Subsidiaries as at such dates as set forth therein, all in accordance with generally accepted accounting principles consistently applied, and since August 28, 1999 there has been no material adverse change in the business, operations, property or financial or other condition of the Parent or any Originator. The balance sheet of the Seller dated as of October 23, 1999, a copy of which has been furnished to the Agent, fairly presents the financial condition of the Seller as at such date, in accordance with generally accepted accounting principles, and since August 28, 1999 there has been no material adverse change in the business, operations, property or financial or other condition of the Seller. (f) Other than as set forth in the Form 10-Q of the Parent filed with the SEC on November 2, 1999 there is no pending or threatened action or proceeding affecting the Parent, any Originator or any of their respective Subsidiaries before any court, governmental agency or arbitrator which may materially adversely affect the financial condition or operations of the Parent, any Originator or any of their respective Subsidiaries or the ability of the Parent, the Seller or any Originator to perform their respective obligations under the Transaction Documents, or which purports to affect the legality, validity or enforceability of the Transaction Documents; none of the Parent, any Originator nor any of their respective Subsidiaries is in default with respect to any order of any court, arbitration or governmental body except for defaults with respect to orders of governmental agencies which defaults are not material to the business or operations of the Parent or any Originator. (g) No proceeds of any purchase or reinvestment will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended. (h) The Seller is the legal and beneficial owner of the Pool Receivables and Related Security free and clear of any Adverse Claim; upon each purchase or reinvestment, the Investors or the Banks, as the case may be, shall acquire a valid and perfected first priority undivided percentage ownership interest to the extent of the pertinent Receivable Interest in each Pool Receivable then existing or thereafter arising and in the Related Security and Collections with respect thereto. No notices to Obligors are required to be delivered in order to create or perfect a valid and perfected first priority undivided percentage ownership interest to the extent of the pertinent Receivable Interest in each Pool Receivable. No effective financing statement or other instrument similar in effect covering any Contract or any Pool Receivable or the Related Security or Collections with respect thereto is on file in any recording office, except those filed in favor of the Agent relating to this Agreement and those filed by the Seller pursuant to the Originator Purchase Agreement. (i) Each Seller Report (if prepared by the Seller or one of its Affiliates, or to the extent that information contained therein is supplied by the Seller or an Affiliate), information, exhibit, financial statement, document, book, record or report (including each Weekly Report and E-Mail Report) furnished or to be furnished at any time by or on behalf of the Seller to the Agent, the Investors or the Banks in connection with this Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Agent, Investors or the Banks, as the case may be, at such time) as of the date so furnished, and no such document contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. (j) The principal place of business and chief executive office of the Seller and the office where the Seller keeps its records concerning the Pool Receivables are located at the address or addresses referred to in Section 5.01(b). (k) The Deposit Account Banks are the only institutions holding Deposit Accounts for the receipt of payments from Lock-Boxes in respect of Receivables and (i) as of the Obligor Notification Date all Obligors who are not Governmental Entities, and only such Obligors, shall have been instructed or, upon the creation of Receivables owed by them after the Obligor Notification Date, will be instructed to make all payments directly to the Purchaser Deposit Account and the corresponding Lock-Box and (ii) all Governmental Entity Obligors, and only such Obligors, have been instructed or, upon the creation of Receivables owed by them, will be instructed to make all payments directly to the Originator Deposit Account and Governmental Entity Lock-Boxes, and all such instructions have not been modified or revoked by the Seller and all such instructions that have been given are in full force and effect. (l) Each purchase of a Receivable Interest and each reinvestment of Collections in Pool Receivables will constitute (i) a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended, and (ii) a purchase or other acquisition of notes, drafts, acceptances, open accounts receivable or other obligations representing part or all of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended. (m) The Seller is not known by and does not use any tradename or doing- business-as name. (n) The Seller was organized on November 14, 1997, and the Seller did not engage in any business activities prior to the Original Closing Date and has not engaged in any business activities other than performing under the Original Originator Purchase Agreement and the Original Receivables Purchase Agreement. The Seller has no Subsidiaries. (o) (i) The fair value of the property of the Seller is greater than the total amount of liabilities, including contingent liabilities, of the Seller, (ii) the present fair salable value of the assets of the Seller is not less than the amount that will be required to pay all probable liabilities of the Seller on its debts as they become absolute and matured, (iii) the Seller does not intend to, and does not believe that it will, incur debts or liabilities beyond the Seller's abilities to pay such debts and liabilities as they mature and (iv) the Seller is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which the Seller's property would constitute unreasonably small capital. (p) With respect to each Pool Receivable, the Seller (i) shall have received such Pool Receivable as a contribution to the capital of the Seller by the applicable Originator or (ii) shall have purchased such Pool Receivable from the applicable Originator in exchange for payment (made by the Seller to the applicable Originator in accordance with the provisions of the Originator Purchase Agreement) of cash in an amount which constitutes fair consideration and reasonably equivalent value. Each such sale referred to in clause (ii) of the preceding sentence shall not have been made for or on account of an antecedent debt owed by the applicable Originator to the Seller and no such sale is or may be voidable or subject to avoidance under any section of the Federal Bankruptcy Code. (q) The Seller is implementing a comprehensive, detailed program to address on a timely basis the "Year 2000 Problem" (i.e., the risk that computer applications used by the Seller may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999); the Seller reasonably anticipates that it will on a timely basis successfully resolve the "Year 2000 Problem" for all material computer applications used by it; and such program shall be in full operation by no later than June 30, 1999. ARTICLE V COVENANTS SECTION 5.01. Covenants of the Seller. Until the latest of the Facility Termination Date or the date on which no Capital of or Yield on any Receivable Interest shall be outstanding or the date all other amounts owed by the Seller hereunder to the Investors, the Banks or the Agent are paid in full: (a) Compliance with Laws, Etc. The Seller will comply in all material respects with all applicable laws, rules, regulations and orders and preserve and maintain its corporate existence, rights, franchises, qualifications, and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications, and privileges would not materially adversely affect the collectibility of the Pool Receivables or the ability of the Seller to perform its obligations under the Transaction Documents. (b) Offices, Records and Books of Account. The Seller will keep its principal place of business and chief executive office and the office where it keeps its records concerning the Pool Receivables at the address of the Seller set forth under its name on the signature pages to this Agreement or, upon 30 days' prior written notice to the Agent, at any other locations in jurisdictions where all actions reasonably requested by the Agent to protect and perfect the interest in the Pool Receivables have been taken and completed. The Seller also will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables and related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Pool Receivables (including, without limitation, records adequate to permit the daily identification of each Pool Receivable and all Collections of and adjustments to each existing Pool Receivable). (c) Performance and Compliance with Contracts and Credit and Collection Policy. The Seller will, at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables, and timely and fully comply in all material respects with the Credit and Collection Policy in regard to each Pool Receivable and the related Contract. The Seller shall immediately inform the Agent of any changes in the payment procedures under a Contract relating to an Agent PBM. (d) Sales, Liens, Etc. The Seller will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, the Seller's undivided interest in any Pool Receivable, Related Security, related Contract or Collections, or upon or with respect to any account to which any Collections of any Pool Receivable are sent, or assign any right to receive income in respect thereof. (e) Extension or Amendment of Receivables. Except as provided in Section 6.02(c), the Seller will not extend, amend or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any term or condition of any Contract related thereto, without the prior written consent of the Agent. (f) Change in Business or Credit and Collection Policy. The Seller will not, without the prior written consent of the Agent, make any change in the character of its business or in the Credit and Collection Policy that would, in either case, materially adversely affect the collectibility of the Pool Receivables or the ability of the Seller to perform its obligations under this Agreement. (g) Change in Payment Instructions to Obligors. The Seller will not add or terminate any bank as a Deposit Account Bank from those listed in Schedule I to this Agreement, or make any change in its instructions to Obligors regarding payments to be made to the Seller or payments to be made to any Deposit Account Bank without the prior written consent of the Agent. (h) Deposits to Deposit Accounts. The Seller will deposit, or cause to be deposited, all Collections of Pool Receivables into Deposit Accounts. The Seller will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any LockBox Account cash or cash proceeds other than Collections of Pool Receivables. If and to the extent that funds that are not Collections are deposited into a Deposit Account, the Collection Agent shall withdraw such funds from such Deposit Account and deposit them in the Seller's Account. (i) Marking of Records. At its expense, the Seller will mark its master data processing records evidencing Pool Receivables and related Contracts with a legend evidencing that Receivable Interests related to such Pool Receivables and related Contracts have been sold in accordance with this Agreement. (j) Further Assurances. (i) The Seller agrees from time to time, at its expense, promptly to execute and deliver all further instruments and documents, and to take all further actions, that may be necessary or desirable, or that the Agent may reasonably request, to perfect, protect or more fully evidence the Receivable Interests purchased under this Agreement, or to enable the Investors, the Banks or the Agent to exercise and enforce their respective rights and remedies under this Agreement. Without limiting the foregoing, the Seller will, upon the request of the Agent, execute and file such financing or continuation statements, or amendments thereto, and such other instruments and documents, that may be necessary or desirable, or that the Agent may reasonably request, to perfect, protect or evidence such Receivable Interests. (ii) The Seller authorizes the Agent to file financing or continuation statements, and amendments thereto and assignments thereof, relating to the Pool Receivables and the Related Security, the related Contracts and the Collections with respect thereto without the signature of the Seller where permitted by law. A photocopy or other reproduction of this Agreement shall be sufficient as a financing statement where permitted by law. (iii) The Seller and the Parent shall utilize their respective best efforts to cause the delivery of the final Agreed Upon Procedures Report from KPMG Peat Marwick LLP in form and substance acceptable to the Agent within 10 Business Days of the Amendment Closing Date. (iv) The Seller shall deliver UCC search reports in form and substance satisfactory to the Agent with respect to each PCS Pharmacy Entity by no later than January 14, 2000. (v) The Seller shall cause each PCS Pharmacy Entity to deliver to the Agent fully executed UCC-1 financing statements prepared by the Agent with respect to such PCS Pharmacy Entities by no later than January 14, 2000. (k) Reporting Requirements. The Seller will provide to the Agent (in multiple copies, if requested by the Agent) the following; provided, the Seller shall not have to provide copies of the following to the Agent to the extent that the same is available in a filing made through EDGAR and Seller has promptly notified the Agent of such filing: (i) as soon as available and in any event within 45 days after the end of the first three quarters of each fiscal year of the Parent and each Originator (except during the Reporting Extension Period), balance sheets of the Parent and its consolidated Subsidiaries as of the end of such quarter and statements of income and retained earnings of the Parent and its consolidated Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the chief financial officer of the Parent; (ii) as soon as available and in any event within 90 days after the end of each fiscal year of the Parent and each Originator (except during the Reporting Extension Period), a copy of the annual report for such year for the Parent and its consolidated Subsidiaries, containing financial statements for such year audited by Deloitte & Touche LLP or other independent public accountants reasonably acceptable to the Agent; (iii) during the Reporting Extension Period, as soon as available and in any event no later than the first day of each Month in respect of such forecast (or, in the reasonable discretion of the Agent, no later than 5 days thereafter), a monthly forecast of cash receipts and disbursements, commencing with February, 2000; (iv) during the Reporting Extension Period, as soon as available and in any event no later than the 25th day of the next succeeding Month (or, in the reasonable discretion of the Agent, no later than 5 days thereafter), a monthly reconciliation of actual cash receipts and disbursements to the forecast for such month delivered pursuant to clause (iii) above; (v) during the Reporting Extension Period, as soon as available and in any event no later than the 4th day following the last day of the week in respect of which such sales report is to be delivered (or, in the reasonable discretion of the Agent, no later than 5 days thereafter), a weekly sales report for each week; (vi) during the Reporting Extension Period, as soon as available and in any event no later than March 31, 2000 (or, in the reasonable discretion of the Agent, no later than 5 days thereafter), an operating forecast for each month in the fiscal year ending on or closest to February 28, 2001; (vii) during the Reporting Extension Period, as soon as available and in any event no later than the 30th day of the next succeeding Month (or, in the reasonable discretion of the Agent, no later than 5 days thereafter), a monthly reconciliation of actual operating results for each month specified in the operating forecast delivered pursuant to clause (vi) above to the budget for such Month; (viii)as soon as possible and in any event within five days after the occurrence of each Event of Termination or Incipient Event of Termination, a statement of the chief financial officer of the Seller setting forth details of such Event of Termination or event and the action that the Seller has taken and proposes to take with respect thereto; (ix) promptly after the sending or filing thereof, copies of all reports and registration statements that the Parent or any of its Subsidiaries files with the SEC or any national securities exchange; (x) promptly after the filing or receiving thereof, copies of all reports and notices that the Seller or any Affiliate files under ERISA with the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or that the Seller or any Affiliate receives from any of the foregoing or from any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which the Seller or any Affiliate is or was, within the preceding five years, a contributing employer, in each case in respect of the assessment of withdrawal liability or an event or condition which could, in the aggregate, result in the imposition of liability on the Seller and/or any such Affiliate in excess of $5,000,000; (xi) at least ten Business Days prior to any change in the name of the Parent, any Originator or the Seller, a notice setting forth the new name and the effective date thereof; (xii) promptly after the Seller obtains knowledge thereof, notice of any "Event of Termination" or "Facility Termination Date" under the Originator Purchase Agreement; (xiii)so long as any Capital shall be outstanding, as soon as possible and in any event no later than the day of occurrence thereof, notice that any Originator has stopped selling or contributing to the Seller, pursuant to the Originator Purchase Agreement, all newly arising Originator Receivables; (xiv) at the time of the delivery of the financial statements provided for in clauses (i) and (ii) of this paragraph (except during the Reporting Extension Period), a certificate of the chief financial officer or the treasurer of the Seller to the effect that, to the best of such officer's knowledge, no Event of Termination has occurred and is continuing or, if any Event of Termination has occurred and is continuing, specifying the nature and extent thereof; (xv) promptly after receipt thereof, copies of all notices received by the Seller from the Parent or any Originator under the Originator Purchase Agreement; (xvi) upon the request of the Agent, an aging of Pool Receivables in which the Investors and/or the Banks have purchased Receivables Interests hereunder; and (xvii)such other information respecting the Receivables or the condition or operations, financial or otherwise, of the Seller as the Agent may from time to time reasonably request. (l) Corporate Separateness. (i) The Seller shall at all times maintain at least two independent members each of whom (x) is not currently and has not been during the five years preceding the Original Closing Date an officer, director or employee of an Affiliate of the Seller or any Other Corporation, (y) is not a current or former officer or employee of the Seller and (z) is not a stockholder of any Other Corporation or any of their respective Affiliates. (ii) The Seller shall not direct or participate in the management of any of the Other Corporations' operations. (iii) The Seller shall conduct its business from an office separate from that of the Other Corporations (but which may be located in the same facility as one or more of the Other Corporations). The Seller shall have stationery and other business forms and a mailing address and a telephone number separate from that of the Other Corporations. (iv) The Seller shall at all times be adequately capitalized in light of its contemplated business. (v) The Seller shall at all times provide for its own operating expenses and liabilities from its own funds. (vi) The Seller shall maintain its assets and transactions separately from those of the Other Corporations and reflect such assets and transactions in financial statements separate and distinct from those of the Other Corporations and evidence such assets and transactions by appropriate entries in books and records separate and distinct from those of the Other Corporations. The Seller shall hold itself out to the public under the Seller's own name as a legal entity separate and distinct from the Other Corporations. The Seller shall not hold itself out as having agreed to pay, or as being liable, primarily or secondarily, for, any obligations of the Other Corporations. (vii) The Seller shall not maintain any joint account with any Other Corporation or become liable as a guarantor or otherwise with respect to any Debt or contractual obligation of any Other Corporation. (viii)The Seller shall not make any payment or distribution of assets with respect to any obligation of any Other Corporation or grant an Adverse Claim on any of its assets to secure any obligation of any Other Corporation. (ix) The Seller shall not make loans, advances or otherwise extend credit to any of the Other Corporations. (x) The Seller shall hold regular duly noticed meetings of its Board of Directors and make and retain minutes of such meetings. (xi) The Seller shall have bills of sale (or similar instruments of assignment) and, if appropriate, UCC-1 financing statements, with respect to all assets purchased from any of the Other Corporations. (xii) The Seller shall not engage in any transaction with any of the Other Corporations, except as permitted by this Agreement and as contemplated by the Originator Purchase Agreement. (xiii)The Seller shall comply with (and cause to be true and correct) each of the facts and assumptions listed on pages 3 through 7 of the opinion of Morgan, Lewis & Bockius LLP delivered pursuant to Section 3.02(g) and designated as Annex C to this Agreement. (m) Originator Purchase Agreement. The Seller will not amend, waive or modify any provision of the Originator Purchase Agreement or waive the occurrence of any "Event of Termination" under the Originator Purchase Agreement, without in each case the prior written consent of the Agent. The Seller will perform all of its obligations under the Originator Purchase Agreement in all material respects and will enforce the Originator Purchase Agreement in accordance with its terms in all material respects. (n) Nature of Business. The Seller will not engage in any business other than the purchase of Receivables, Related Security and Collections from the Originators and the transactions contemplated by this Agreement. The Seller will not create or form any Subsidiary. (o) Mergers, Etc. The Seller will not merge with or into or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions), all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets or capital stock or other ownership interest of, or enter into any joint venture or partnership agreement with, any Person, other than as contemplated by this Agreement and the Originator Purchase Agreement. (p) Distributions, Etc. The Seller will not declare or make any dividend payment or other distribution of assets, properties, cash, rights or obligations to its members, or return any capital to its members as such, or purchase, retire, defease, redeem or otherwise acquire for value or make any payment in respect of any membership interest of the Seller or any warrants, rights or options to acquire any such interests, now or hereafter outstanding; provided, however, that the Seller may declare and pay dividends to its members so long as (i) no Event of Termination shall then exist or would occur as a result thereof, (ii) such dividends are in compliance with all applicable law including the law of the State of California, and (iii) such dividends have been approved by all necessary and appropriate corporate action of the Seller. (q) Debt. The Seller will not incur any Debt, other than any Debt incurred pursuant to this Agreement. (r) Operating Agreement. The Seller will not amend or delete Sections 1.05, 2.06, 4.03, 7.01, 8.08 and 8.11 of its Operating Agreement. (s) Tangible Net Worth. The Seller will maintain Tangible Net Worth at all times equal to at least 5% of the Outstanding Balance of the Receivables at such time. (t) Notices to Insurer Within 30 days of the New Closing Date with respect to non-Governmental Entity Obligors the Collections from whom comprise 70% of Collections from all non-Governmental Entity Obligors at such time, and within 60 days of the New Closing Date with respect to all other non-Governmental Entity Obligors, the Seller shall deliver, or cause to be delivered, to the Agent completed Notices to Insurers (including addressed stamped envelopes) for each such non-Governmental Entity Obligor, to be delivered by the Agent to each such Obligor on the Obligor Notification Date, in a manner satisfactory to the Agent in all respects. SECTION 5.02. Covenant of the Parent, the Seller and each Originator. Until the latest of the Facility Termination Date or the date on which no Capital of or Yield on any Receivable Interest shall be outstanding or the date all other amounts owed by the Seller hereunder to the Investors, the Banks or the Agent are paid in full, each of the Parent, the Seller and each Originator will, at their respective expense, from time to time during regular business hours as requested by the Agent, permit the Agent or its agents or representatives (including independent public accountants, which may be the Parent, the Seller's or any Originator's independent public accountants), (i) to conduct periodic audits of the Receivables, the Related Security and the related books and records and collections systems of the Parent, the Seller or any Originator, as the case may be (provided, that, the Agent may, in lieu of performing such audit, accept the special procedures report of the Seller's independent public accountants to the extent (i) the Agent and such accountants agree upon the scope of such special procedures report and (ii) the results of such special procedures report are reasonably satisfactory to the Agent, otherwise the Agent shall have the right to audit not more often than twice during any 12- month period (unless an Incipient Event of Termination or Event of Termination has occurred and is continuing, in which case the foregoing limitation shall not apply)), (ii) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of the Parent, the Seller or any Originator, as the case may be, relating to Pool Receivables and the Related Security, including, without limitation, the Contracts, and (iii) to visit the offices and properties of the Parent, the Seller or any Originator, as the case may be, for the purpose of examining such materials described in clause (ii) above, and to discuss matters relating to Pool Receivables and the Related Security or the Parent's the Seller's or any Originator's performance under the Transaction Documents or under the Contracts with any of the officers or employees of the Parent, the Seller or any Originator, as the case may be, having knowledge of such matters. In addition, upon the Agent's request at least once per year, the Seller will, at its expense, appoint independent public accountants (which may, with the consent of the Agent, be the Seller's regular independent public accountants), or utilize the Agent's representatives or auditors, to prepare and deliver to the Agent a written report with respect to the Receivables and the Credit and Collection Policy (including, in each case, the systems, procedures and records relating thereto) on a scope and in a form reasonably requested by the Agent. ARTICLE VI ADMINISTRATION AND COLLECTION OF POOL RECEIVABLES SECTION 6.01. Designation of Collection Agent. The servicing, administration and collection of the Pool Receivables shall be conducted by the Collection Agent so designated hereunder from time to time. Until the Agent gives notice to the Seller of the designation of a new Collection Agent in accordance with the next sentence, the Parent is hereby designated as, and hereby agrees to perform the duties and obligations of, the Collection Agent pursuant to the terms hereof. The Agent at any time after the occurrence of a Special Event may designate as Collection Agent any Person (including itself) to succeed the Parent or any successor Collection Agent, if such Person shall consent and agree to the terms hereof. If the Agent designates itself as Collection Agent, the Agent shall implement such procedures as it deems necessary and appropriate to maximize collection of the Receivables, subject to reasonable industry standards for the collection of healthcare receivables. The Collection Agent may subcontract with Rite Aid HDQTRS Corp or may, with the prior consent of the Agent, subcontract with any other Person, for the servicing, administration or collection of the Pool Receivables. Any such subcontract shall not affect the Collection Agent's liability for performance of its duties and obligations pursuant to the terms hereof. SECTION 6.02. Duties of Collection Agent. (a) The Collection Agent shall take or cause to be taken all such actions as may be necessary or advisable to collect each Pool Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. The Seller and the Agent hereby appoint the Collection Agent, from time to time designated pursuant to Section 6.01, as agent for themselves and for the Investors and the Banks to enforce their respective rights and interests in the Pool Receivables, the Related Security and the related Contracts. In performing its duties as Collection Agent, the Collection Agent shall exercise the same care and apply the same policies as it would exercise and apply if it owned such Receivables and shall act in the best interests of the Seller, the Investors and the Banks. (b) The Collection Agent shall administer the Collections in accordance with the procedures described in Section 2.04. (c) If no Event of Termination or Incipient Event of Termination shall have occurred and be continuing, the Parent, while it is the Collection Agent, may, in accordance with the Credit and Collection Policy, extend the maturity or adjust the Outstanding Balance of any Receivable as the Parent deems appropriate to maximize Collections thereof. (d) The Collection Agent shall hold in trust for the Seller and each Investor and Bank, in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) which evidence or relate to Pool Receivables. At the request of the Agent, the Collection Agent shall mark the Seller's master data processing records evidencing such Pool Receivables and related Contracts with such a legend. (e) The Collection Agent shall, as soon as practicable following receipt, turn over to the Seller any cash collections or other cash proceeds received with respect to Receivables not constituting Pool Receivables. (f) On each Tuesday (or if such day is not a Business Day the next Business Day), by no later than 5:00 p.m. (New York City time), the Collection Agent shall provide by telecopy to the Agent, the Weekly Report for the weekly period ending the previous Saturday. (g) Prior to the 10th Business Day of each month, the Collection Agent shall prepare and forward to the Agent a Seller Report relating to the Receivable Interests outstanding on the last day of the immediately preceding Month. The Collection Agent may elect (by written notice to the Agent) to transmit Weekly Reports and Seller Reports to the Agent by electronic mail (each an "E-Mail Report") provided, that (i) the Collection Agent shall (A) make arrangements with VeriSign, Inc. (or another authenticating organization acceptable to the Agent) to enable the Collection Agent to generate digital signatures and (B) safeguard the keys, access codes or other means of generating its digital signature, (ii) each E-Mail Report shall be (A) formatted as the Agent may designate from time to time and shall be digitally signed and (B) sent to the Agent at an electronic mail address designated by the Agent, and (iii) the Agent (A) shall be authorized to rely upon such E-Mail Report for purposes of this Agreement to the same extent as if the contents thereof had been otherwise delivered to the Agent in accordance with the terms of this Agreement and (B) may, upon notice in writing to the Collection Agent and the Seller, terminate the right of the Collection Agent to transmit E-Mail Reports. SECTION 6.03. Certain Rights of the Agent. (a) The Agent may notify the Obligors of Pool Receivables, at any time and at the Seller's expense, of the ownership of Receivable Interests under this Agreement. On or after the Obligor Notification Date, the Agent may deliver the Notice to Insurers to be delivered to the Agent pursuant to Section 5.01(t) hereof. (b) At any time following the designation of a Collection Agent other than the Parent or any Originator pursuant to Section 6.01 or following an Event of Termination or an Incipient Event of Termination: (i) The Agent may direct, to the extent permitted under applicable law, the Obligors of Pool Receivables that all payments thereunder be made directly to the Agent or its designee. (ii) At the Agent's request and at the Seller's expense, the Seller shall notify each Obligor of Pool Receivables of the ownership of Receivable Interests under this Agreement and direct, to the extent permitted under applicable law, that payments be made directly to the Agent or its designee. (iii) At the Agent's request and at the Seller's expense, the Seller and the Collection Agent shall (A) assemble all of the documents, instruments and other records (including, without limitation, computer tapes and disks) that evidence or relate to the Pool Receivables and the related Contracts and Related Security, or that are otherwise necessary or desirable to collect the Pool Receivables and, to the extent permitted under applicable law, shall make the same available to the Agent at a place selected by the Agent or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Pool Receivables in a manner acceptable to the Agent and, promptly upon receipt, remit all such cash, checks and instruments, duly indorsed or with duly executed instruments of transfer, to the Agent or its designee. (iv) The Seller authorizes the Agent to take any and all steps in the Seller's name and on behalf of the Seller that are necessary or desirable, in the determination of the Agent and otherwise permitted under applicable law, to collect amounts due under the Pool Receivables, including, without limitation, endorsing the Seller's name on checks and other instruments representing Collections of Pool Receivables and enforcing the Pool Receivables and the Related Security and related Contracts. SECTION 6.04. Rights and Remedies. (a) If the Collection Agent fails to perform any of its obligations under this Agreement, the Agent may (but shall not be required to) itself perform, or cause performance of, such obligation; and the Agent's costs and expenses incurred in connection therewith shall be payable by the Seller (if the Collection Agent that fails to so perform is the Seller or its designee). (b) The Parent, the Seller and the applicable Originator shall perform their respective obligations under the Contracts related to the Pool Receivables to the same extent as if Receivable Interests had not been sold and the exercise by the Agent on behalf of the Investors and the Banks of their rights under this Agreement shall not release the Collection Agent or the Seller from any of their duties or obligations with respect to any Pool Receivables or related Contracts. Neither the Agent, the Investors nor the Banks shall have any obligation or liability with respect to any Pool Receivables or related Contracts, nor shall any of them be obligated to perform the obligations of the Seller thereunder. (c) In the event of any conflict between the provisions of Article VI of this Agreement and Article VI of the Originator Purchase Agreement, the provisions of this Agreement shall control. SECTION 6.05. Further Actions Evidencing Purchases. The Parent, the Seller and each Originator agrees from time to time, at its expense, to promptly execute and deliver all further instruments and documents, and to take all further actions, that may be reasonably necessary or desirable, or that the Agent may reasonably request, to perfect, protect or more fully evidence the Receivable Interests purchased hereunder, or to enable the Investors, the Banks or the Agent to exercise and enforce their respective rights and remedies hereunder. Without limiting the foregoing, the Parent and each Originator will upon the request of the Agent (i) execute and file such financing or continuation statements, or amendments thereto, and such other instruments and documents, that may be reasonably necessary or desirable, or that the Agent may reasonably request, to perfect, protect or evidence such Receivable Interests; and (ii) mark its master data processing records evidencing such Pool Receivables with such a legend. SECTION 6.06. Covenants of the Collection Agent and the Originator. (a) Audits. The Collection Agent will, from time to time during regular business hours as requested by the Agent, permit the Agent, or its agents or representatives (including independent public accountants, which may be the Collection Agent's independent public accountants), (i) to conduct periodic audits of the Receivables, the Related Security and the related books and records and collections systems of the Collection Agent (provided, that, the Agent may, in lieu of performing such audit, accept the special procedures report of the Seller's independent public accountants to the extent (i) the Agent and such accountants agree upon the scope of such special procedures report and (ii) the results of such special procedures report are reasonably satisfactory to the Agent, otherwise the Agent shall have the right to audit not more often than twice during any 12-month period (unless an Incipient Event of Termination or Event of Termination has occurred and is continuing, in which case the foregoing limitation shall not apply)), (ii) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of the Collection Agent relating to Pool Receivables and the Related Security, including, without limitation, the Contracts, and (iii) to visit the offices and properties of the Collection Agent for the purpose of examining such materials described in clause (ii) above, and to discuss matters relating to Pool Receivables and the Related Security or the Collection Agent's performance hereunder with any of the officers or employees of the Collection Agent having knowledge of such matters. (b) Change in Credit and Collection Policy. No Originator (nor the Parent) will, without the prior written consent of the Agent, make any change in the Credit and Collection Policy that would impair the collectibility of any Pool Receivable or the ability of the Parent or any Originator (if it is acting as Collection Agent) to perform its obligations under this Agreement. (c) Change in Accounts. Neither the Collection Agent nor the Originator will (i) make any changes to Schedule I hereto or (ii) amend any instruction to any Obligor (other than to provide a Notice to Insurers, in form and substance acceptable to the Agent, to all Obligors who are not Governmental Entities on or before the Obligor Notification Date) or any Deposit Account Bank with respect to any Deposit Account without the prior written consent of the Agent. (d) Collections. (i) In the event that the Collection Agent or any Originator receives any Collections, the Collection Agent or the Originator, as the case may be, agrees to hold all such Collections in trust and to deliver (via overnight courier or wire transfer, as the case may be) such Collections to the Purchaser Lock-Box or deposit such Collections to the Purchaser Deposit Account as soon as practicable, but in no event later than one Business Day after receipt thereof. (ii) In the event that any Affiliate of the Originator receives any Collections, the Originator agrees to cause such Affiliate to hold all such Collections in trust and to cause such Affiliate to deliver (via overnight courier or wire transfer, as the case may be) such Collections the to Purchaser Lock-Box or deposit such Collections to the Purchaser Deposit Account as soon as practicable, but in no event later than one Business Day after receipt thereof. (e) Deposits to Lock-Boxes or Deposit Accounts. Neither the Collection Agent nor the Originator will deposit or otherwise credit, or cause to be so deposited or credited, or consent or fail to object to any such deposit or credit known to it, cash or cash proceeds other than Collections to any Lock-Box or Deposit Account. (f) Collections from PCS-originated Receivables. The Collection Agent and the Originator shall segregate, or cause to be segregated, within two Business Days of receipt thereof by PCS, all Collections from PCS-originated Receivables which have been purchased by the Seller pursuant to the Originator Purchase Agreement, from any other funds collected or held by PCS, and shall deposit, or cause to be deposited, all such Collections in the Purchaser Deposit Account on the day such Collections are so segregated, all in a manner approved by the Agent in its sole discretion. SECTION 6.06A. Representations of the Collection Agent. The Collection Agent hereby represents and warrants as follows: (a) Lock Boxes, Deposit Accounts. Specified on Schedule I hereto (as amended by the Collection Agent from time to time upon the prior written consent of the Agent) are (i) the Lock Box numbers and (ii) the names, addresses and ABA numbers of all the Deposit Account Banks, together with the account numbers of the Deposit Accounts and the name of a contact person at each Deposit Account Bank. (b) Payment Instructions. The Collection Agent or the Seller has instructed (i) on or before the New Closing Date, all Obligors to make all payments to the Originator Deposit Account and the Originator Lock-Box and (ii) on or before the Obligor Notification Date, all Obligors who are not Governmental Entities, and only such Obligors to make all payments to the Purchaser Deposit Account and the Purchaser Lock-Box, and all such instructions have not been modified or revoked by the Seller (other than the modification described in clause (ii) of this paragraph) and all such instructions that have been given are in full force and effect. (c) Weekly Reports and Seller Reports. Each Weekly Report, Seller Report and E-Mail Report delivered by the Collection Agent pursuant to this Agreement shall be true and correct in all material respects as of the date such report or certificate is delivered. SECTION 6.07. Indemnities by the Collection Agent. Without limiting any other rights that the Agent, any Investor, any Bank or any of their respective Affiliates (each, a "Special Indemnified Party") may have hereunder or under applicable law, and in consideration of its appointment as Collection Agent, the Collection Agent hereby agrees to indemnify each Special Indemnified Party from and against any and all claims, losses and liabilities (including reasonable attorneys' fees) (all of the foregoing being collectively referred to as "Special Indemnified Amounts") arising out of or resulting from any of the following (excluding, however, (a) Special Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Special Indemnified Party, (b) recourse for uncollectible Receivables or (c) any income or franchise taxes or any other tax or fee measured by income incurred by such Special Indemnified Party arising out of or as a result of this Agreement or the ownership of Receivable Interests or in respect of any Receivable or any Contract): (i) any representation or warranty or statement made or deemed made by the Collection Agent under or in connection with this Agreement which shall have been incorrect in any material respect when made; (ii) the failure by the Collection Agent to comply with any applicable law, rule or regulation with respect to any Pool Receivable or Contract; or the failure of any Pool Receivable or Contract to conform to any such applicable law, rule or regulation; (iii) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool, the Contracts and the Related Security and Collections in respect thereof, whether at the time of any purchase or reinvestment or at any subsequent time; (iv) any failure of the Collection Agent to perform its duties or obligations in accordance with the provisions of this Agreement; (v) the commingling of Collections of Pool Receivables at any time by the Collection Agent with other funds; (vi) any action or omission by the Collection Agent reducing or impairing the rights of the Investors or the Banks with respect to any Pool Receivable or the value of any Pool Receivable; (vii) any Collection Agent Fees or other costs and expenses payable to any replacement Collection Agent, to the extent in excess of the Collection Agent Fees payable to the Collection Agent hereunder; or (viii)any claim brought by any Person other than a Special Indemnified Party arising from any activity by the Collection Agent or its Affiliates in servicing, administering or collecting any Receivable. SECTION 6.08. Establishment of Deposit Accounts. (a) Purchaser Deposit Account. On or prior to the New Closing Date, the Collection Agent, for the benefit of the Beneficiaries, shall establish and maintain or cause to be established and maintained in the name of the Seller, for the benefit, and under the sole dominion and control of the Agent, with a financial institution acceptable to the Agent a segregated non-interest bearing deposit account and a corresponding lock-box (such lock-box being the "Purchaser Lock-Box", such account being the "Purchaser Deposit Account" and such institution holding such account being the "Purchaser Deposit Account Bank"), such account bearing a designation clearly indicating that the funds deposited therein are held by the Agent for the benefit of the Beneficiaries and entitled "Citicorp North America, Inc., as Agent - Purchaser Deposit Account for the Rite Aid Receivables Purchase Agreement". All Collections received in the Purchaser Lock-Box shall immediately be deposited into the Purchaser Deposit Account. The Agent shall possess all right, title and interest in and to all funds from time to time on deposit in the Purchaser Deposit Account and in all proceeds thereof. The Purchaser Deposit Account shall be under the sole dominion and control of the Agent for the benefit of the Beneficiaries, and neither the Seller, nor any Person claiming by, through or under the Seller, shall have any right, title or interest in, or any right to withdraw any amount from, the Purchaser Deposit Account. Except as expressly provided in this Agreement, the Collection Agent agrees that it shall have no right of set-off or banker's lien against, and no right to otherwise deduct from, any funds held in the Purchaser Deposit Account for any amount owed to it by any Beneficiary. After the Obligor Notification Date, the Collection Agent shall cause Collections from Persons other than Governmental Entities to be deposited directly into the Purchaser Deposit Account on each Business Day. The Collection Agent shall cause all Collections in the Originator Deposit Account to be deposited to the Purchaser Deposit Account as promptly as possible and in any event no later than the day on which such Collections become available funds in the Originator Deposit Account. The Seller will require each Originator to deliver (via overnight courier or wire transfer, as the case may be) any Collections received by it to the Purchaser Lock-Box or deposit any Collections received by it into the Purchaser Deposit Account, within one Business Day following the Business Day on which such Collections are so received. Notwithstanding the foregoing, if and to the extent that funds that are not Collections are deposited into the Purchaser Deposit Account, the Collection Agent shall direct in writing the Agent to withdraw such funds from the Purchaser Deposit Account and deposit them in the Seller's Account. If, at any time, the institution holding the Purchaser Deposit Account ceases to be acceptable to the Agent, the Collection Agent, upon receiving such notice from the Agent, for the benefit of the Beneficiaries shall within 15 Business Days (i) establish a new Purchaser Deposit Account meeting the conditions specified above with a financial institution acceptable to the Agent, (ii) transfer any cash and/or any investments held therein or with respect thereto to such new Purchaser Deposit Account and (iii) in the case of any new Purchaser Deposit Account, deliver to all Deposit Account Banks instructions directing such Deposit Account Banks to deposit all Collections into such new Purchaser Deposit Account, and from the date such new Purchaser Deposit Account is established, it shall be the "Purchaser Deposit Account". (b) Collection Accounts for Collections from Governmental Entities. On or prior to the New Closing Date, the Collection Agent shall establish and maintain or cause to be established and maintained (i) a lock-box to which (A) from the New Closing Date through the Obligor Notification Date, all Obligors (other than Obligors of PCS- originated Receivables ) and (B) from and after the Obligor Notification Date, Obligors who are Governmental Entities, and only such Obligors, shall remit payments with respect to any Receivable (such lock-box being a "Originator Lock-Box") and (ii) in the name of the Seller, with an financial institution acceptable to the Agent, an account ("Originator Deposit Account") into which all Collections from received in such Originator Lock-Box shall be deposited. From the New Closing Date through the Obligor Notification Date all Obligors and from and after the Obligor Notification Date Obligors who are Governmental Entities, shall be directed to remit payments with respect to their Receivables to the Originator LockBox or deposited into the Originator Deposit Account. The Originator Deposit Account shall be under the sole dominion and control of the Seller. The Seller shall give each Originator Deposit Account Bank a revocable instruction to remit all Collections received in such account to the Purchaser Deposit Account. The Collection Agent shall transfer Collections received in the Originator Deposit Account to the Purchaser Deposit Account in the manner set forth in Section 6.08(a). The Originator Deposit Account shall be maintained with documentation and instructions in form and substance satisfactory to the Agent. Such documentation shall provide, among other things, that available amounts shall be immediately transferred to the Purchaser Deposit Account. (c) Changes to Deposit Accounts or Lock-Boxes. The Collection Agent will neither (i) make any change in any Lock-Box numbers, the name, address or ABA number of any Deposit Account Bank or the account number of any Deposit Account from that set forth in Schedule I hereto nor (ii) amend any instruction to any Obligor (other than the modification described in clause (ii) of paragraph (b) of Section 6.06A) or any instruction to or agreement with any Deposit Account Bank with respect to any Lock-Box or Deposit Account unless the Agent shall have given its prior written consent to such change or amendment. ARTICLE VII EVENTS OF TERMINATION SECTION 7.01. Events of Termination. If any of the following events ("Events of Termination") shall occur and be continuing: (a) The Collection Agent (if the Parent, any Originator or any of their respective Affiliates) (i) shall fail to perform or observe any term, covenant or agreement under this Agreement (other than as referred to in clause (ii) of this subsection (a)) and such failure shall remain unremedied for twenty Business Days or (ii) shall fail to make when due any payment or deposit to be made by it under this Agreement; or (b) The Parent, the Seller or any Originator shall fail (i) to transfer to the Agent when requested any rights, pursuant to this Agreement, which the Parent, the Seller or any Originator then has as Collection Agent, or (ii) to make any payment required under Section 2.04; or (c) Any representation or warranty made or deemed made by the Seller, the Parent or the Collection Agent (or any of their respective officers) under or in connection with this Agreement or any other Transaction Document or any information or report (including, without limitation, the Weekly Report, the Seller Report and the E-Mail Report) delivered by the Seller or the Collection Agent pursuant to this Agreement or any other Transaction Document shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered and, if capable of remedy, shall remain unremedied for 10 days after the date on which any officer of the Seller, the Parent or the Collection Agent, as applicable, shall have knowledge thereof; or (d) (1) The Parent, the Seller or any Originator shall fail to perform or observe any other term, covenant (other than Section 5.01(s)) or agreement contained in this Agreement or any other Transaction Document on its part to be performed or observed and such failure shall remain unremedied for a period of twenty Business Days; provided, however, that, the failure of the Seller to comply with Sections 5.01(d), (e), (f), (g), (l), (m), (n), (o), (p), (q) and (r) hereof shall not be subject to the foregoing cure period; or (2) The Seller shall fail to observe the covenant contained in Section 5.01(s) and such failure to comply shall remain unremedied by the earlier to occur of (x) the Business Day immediately following the delivery of the Seller Report in accordance with the provisions of this Agreement and (y) twenty Business Days; or (e) The Seller or the Originator shall fail to pay any principal of or premium or interest on any of its Debt which is outstanding in a principal amount of at least $25,000,000 in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument (except, during the Reporting Extension Period, if such event occurs or condition exists under any Public Debt as a result of the failure of the Parent to file or deliver financial statements or reports substantially the same as those described in Sections 5.01(k)(i), 5.01(k)(ii) and 5.01(k)(xiv) above), if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to repay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) Any purchase or any reinvestment pursuant to this Agreement shall for any reason (other than pursuant to the terms hereof) cease to create, or any Receivable Interest shall for any reason cease to be, a valid and perfected first priority undivided percentage ownership interest to the extent of the pertinent Receivable Interest in each applicable Pool Receivable and the Related Security and Collections with respect thereto; or the security interest created pursuant to Section 2.10 shall for any reason cease to be a valid and perfected first priority security interest in the collateral security referred to in that section; or (g) The Parent, Seller or any Originator shall generally not pay its respective debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Seller or the Originator seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 45 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Parent, Seller or any Originator shall take any corporate action to authorize any of the actions set forth above in this subsection (g); or (h) The Parent shall directly or indirectly, make or agree to make any payment to or for the account of any holder of Public Debt, or any trustee or other representative of any such holder, on account of principal of, interest on or fees in respect of such Public Debt, except as required by the terms of such Public Debt as in effect on the Amendment Closing Date; or (i) Either (x) the average of the Default Ratio for any consecutive three Month period shall exceed 6%, (y) the average of the Dilution Ratio for any consecutive three Month period shall exceed 5% or (z) the average of the Loss-to-Liquidation Ratio for any consecutive three Month period shall exceed 1.5%; or (j) The Net Receivables Pool Balance shall be less than the Required Weekly Net Receivables Pool Balance upon the termination of a Cure Period; or (k) There shall have occurred any material adverse change in the financial condition or operations of the Parent, the Seller or any Originator since August 28, 1999; or there shall have occurred any event which may materially adversely affect the collectibility of the Receivables Pool or the ability of the Seller or the Collection Agent to collect Pool Receivables or otherwise perform its obligations under this Agreement; or (l) An "Event of Termination" or "Facility Termination Date" shall occur under the Originator Purchase Agreement, or the Originator Purchase Agreement shall cease to be in full force and effect; or (m) All of the outstanding equity interests of the Seller shall cease to be owned, directly or indirectly, by the Originators; or (n) The Parent shall (i) allow aggregate amount of Consolidated Capital Expenditures for any period set forth below to exceed the amount set forth below opposite such period: FISCAL YEAR ENDING ON OR CLOSEST TO AMOUNT February 29, 2000 $620,000,000 February 28, 2001 $295,000,000 (ii) at no time shall the ratio of (a) Consolidated Debt at such time to (b) Total Capital at such time, exceed 0.695; provided that upon any sale of the capital stock of PCS, such maximum ratio shall be reset at the level which produces the result that the amount of additional Debt that the Parent may incur within the limits of this ratio immediately after giving effect to such sale and the repayment of any Debt required in connection therewith is equal to the amount of additional Debt that the Parent could incur within the limits of this ratio immediately before giving effect to such sale and the repayment of any Debt required in connection therewith; (iii) the Parent will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any Debt except: (A) Debt under the Amended Credit Agreement; (B) Debt outstanding on December 2, 1999; (C) Debt incurred to refinance Debt referred to in clause (A) or clause (B) above, provided that the amount thereof that is at the time outstanding or committed is not increased and the maturity thereof is not shortened; and (D) Debt not permitted by clauses (A), (B) or (C) above in an aggregate principal amount at any time outstanding not to exceed $25,000,000; (iv) at no time during any period set forth below shall the Fixed Charge Coverage Ratio be less than the ratio set forth below opposite such period: FISCAL QUARTER ENDING ON OR CLOSEST TO RATIO November 30, 1999 1.35 February 29, 2000 1.30 May 31, 2000 and thereafter 1.25 ; or (o) The Parent Guaranty shall cease to be in full force and effect; then, and in any such event, any or all of the following actions may be taken by notice to the Seller: (x) the Investors holding a majority of the outstanding Receivable Interests at such time or the Agent may declare the Facility Termination Date to have occurred (in which case the Facility Termination Date shall be deemed to have occurred), (y) the Agent may declare the Commitment Termination Date to have occurred (in which case the Commitment Termination Date shall be deemed to have occurred), and (z) without limiting any right under this Agreement to replace the Collection Agent, the Agent may designate another Person to succeed the Parent as the Collection Agent; provided, that, automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in paragraph (g) of this Section 7.01, the Facility Termination Date and the Commitment Termination Date shall occur, the Parent (if it is then serving as the Collection Agent) shall cease to be the Collection Agent, and the Agent or its designee shall become the Collection Agent. Upon any such declaration or designation or upon such automatic termination, the Investors, the Banks and the Agent shall have, in addition to the rights and remedies which they may have under this Agreement, all other rights and remedies provided after default under the UCC and under other applicable law, which rights and remedies shall be cumulative. ARTICLE VIII THE AGENT SECTION 8.01. Authorization and Action. Each Investor and each Bank hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. SECTION 8.02. Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as Agent under or in connection with this Agreement (including, without limitation, the Agent's servicing, administering or collecting Pool Receivables as Collection Agent), except for its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, the Agent: (a) may consult with legal counsel (including counsel for the Seller and the Collection Agent), independent certified 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; (b) makes no warranty or representation to any Investor or Bank (whether written or oral) and shall not be responsible to any Investor or Bank for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (c) 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 on the part of the Seller or the Collection Agent or to inspect the property (including the books and records) of the Seller or the Collection Agent; (d) shall not be responsible to any Investor or Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (e) shall incur no liability under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telecopier or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.03. CNAI and Affiliates. The obligation of Citibank to purchase Receivable Interests under this Agreement may be satisfied by CNAI or any of its Affiliates. With respect to any Receivable Interest or interest therein owned by it, CNAI shall have the same rights and powers under this agreement as any Bank and may exercise the same as though it were not the Agent. CNAI and any of its Affiliates may generally engage in any kind of business with the Seller, the Collection Agent or any Obligor, any of their respective Affiliates and any Person who may do business with or own securities of the Seller, the Collection Agent or any Obligor or any of their respective Affiliates, all as if CNAI were not the Agent and without any duty to account therefor to the Investors or the Banks. SECTION 8.04. Bank's Purchase Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent, any of its Affiliates or any other Bank and based on such documents and information as it has deemed appropriate, made its own evaluation and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent, any of its Affiliates or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under this Agreement. ARTICLE IX INDEMNIFICATION SECTION 9.01. Indemnities by the Seller. Without limiting any other rights that the Agent, the Investors, the Banks or any of their respective Affiliates (each, an "Indemnified Party") may have hereunder or under applicable law, the Seller hereby agrees to indemnify each Indemnified Party from and against any and all claims, losses and liabilities (including reasonable attorneys' fees) (all of the foregoing being collectively referred to as "Indemnified Amounts") arising out of or resulting from this Agreement or the use of proceeds of purchases or reinvestments or the ownership of Receivable Interests or in respect of any Receivable or any Contract, excluding, however, (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party, (b) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Receivables or (c) any income or franchise taxes incurred by such Indemnified Party arising out of or as a result of this Agreement or the ownership of Receivable Interests or in respect of any Receivable or any Contract. Without limiting or being limited by the foregoing, the Seller shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following: (i) the creation of an undivided percentage ownership interest in any Receivable which purports to be part of the Net Receivables Pool Balance but which is not at the date of the creation of such interest an Eligible Receivable or which thereafter ceases to be an Eligible Receivable; (ii) any representation or warranty or statement made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement and the other Transaction Documents which shall have been incorrect in any material respect when made; (iii) the failure by the Parent, the Seller or any Originator to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract; or the failure of any Pool Receivable or the related Contract to conform to any such applicable law, rule or regulation; (iv) the failure to vest in the Investors or the Banks, as the case may be, (a) a perfected undivided percentage ownership interest, to the extent of each Receivable Interest, in the Receivables in, or purporting to be in, the Receivables Pool and the Related Security and Collections in respect thereof, or (b) a perfected security interest as provided in Section 2.10, in each case free and clear of any Adverse Claim; (v) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool and the Related Security and Collections in respect thereof, whether at the time of any purchase or reinvestment or at any subsequent time; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by the Seller or any of its Affiliates acting as Collection Agent); (vii) any failure of the Seller to perform its duties or obligations in accordance with the provisions hereof or to perform its duties or obligations under the Contracts; (viii)any products liability or other claim arising out of or in connection with merchandise, insurance or services which are the subject of any Contract; (ix) the commingling of Collections of Pool Receivables at any time with other funds; (x) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of purchases or reinvestments or the ownership of Receivable Interests or in respect of any Receivable or Related Security or Contract; (xi) any failure of the Seller to comply with its covenants contained in Section 5.01; or (xii) any claim brought by any Person other than an Indemnified Party arising from any activity by the Seller or any Affiliate of the Seller in servicing, administering or collecting any Receivable. ARTICLE X MISCELLANEOUS SECTION 10.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or consent to any departure by the Seller therefrom shall be effective unless in a writing signed by the Agent, as agent for the Investors and the Banks (and, in the case of any amendment, also signed by the Seller), and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by the Collection Agent in addition to the Agent, affect the rights or duties of the Collection Agent under this Agreement. No failure on the part of the Investors, the Banks 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 right hereunder preclude any other or further exercise thereof or the exercise of any other right. SECTION 10.02. Notices, Etc. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and faxed or delivered, to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by regular mail), and notices and communications sent by other means shall be effective when received. SECTION 10.03. Assignability. (a) This Agreement and the Investors' rights and obligations herein (including ownership of each Receivable Interest) shall be assignable by the Investors and their successors and assigns. Each assignor of a Receivable Interest or any interest therein shall notify the Agent and the Seller of any such assignment. Each assignor of a Receivable Interest or any interest therein may, in connection with the assignment or participation, disclose to the assignee or participant any information relating to the Seller, including the Receivables, furnished to such assignor by or on behalf of the Seller or by the Agent; provided, that, prior to any such disclosure, the assignee or participant agrees to preserve the confidentiality of any confidential information relating to the Seller received by it from any of the foregoing entities. (b) Each Bank may assign to any Eligible Assignee or to any other Bank all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Bank Commitment and any Receivable Interests or interests therein owned by it); provided, however, a Bank shall not make an assignment hereunder prior to the occurrence of an Event of Termination if, solely as a result of such assignment, the assignee would be entitled to request compensation pursuant to Section 2.08 or 2.09 hereof immediately following such assignment in an amount greater than that to which the assignor Bank was entitled immediately prior to such assignment (unless such potential assignee waived any right with respect to any greater amount available to such Person). The parties to each such assignment shall execute and deliver to the Agent an Assignment and Acceptance. In addition, Citibank or any of its Affiliates may assign any of its rights (including, without limitation, rights to payment of Capital and Yield) under this Agreement to any Federal Reserve Bank without notice to or consent of the Seller or the Agent. (c) This Agreement and the rights and obligations of the Agent herein shall be assignable by the Agent and its successors and assigns. (d) The Seller may not assign its rights or obligations hereunder or any interest herein without the prior written consent of the Agent. SECTION 10.04. Costs, Expenses and Taxes. (a) In addition to the rights of indemnification granted under Section 9.01 hereof, the Seller agrees to pay on demand all costs and expenses in connection with the preparation, execution, delivery and administration (including periodic auditing and the other activities contemplated in Section 5.02 of this Agreement, any Asset Purchase Agreement and the other documents and agreements to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent, CNAI, CAFCO, CRC, Citibank and their respective Affiliates with respect thereto and with respect to advising the Agent, CNAI, CAFCO, CRC, Citibank and their respective Affiliates as to their rights and remedies under this Agreement, and all costs and expenses, if any (including reasonable counsel fees and expenses), of the Agent, CNAI, the Investors, the Banks and their respective Affiliates, in connection with the enforcement of this Agreement and the other documents and agreements to be delivered hereunder. (b) In addition, the Seller shall pay (i) any and all commissions of placement agents and dealers in respect of commercial paper notes issued to fund the purchase or maintenance of any Receivable Interest, (ii) any and all costs and expenses of any issuing and paying agent or other Person responsible for the administration of CAFCO's and CRC's commercial paper program in connection with the preparation, completion, issuance, delivery or payment of commercial paper notes issued to fund the purchase or maintenance of any Receivable Interest, and (iii) any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 10.05. No Proceedings. Each of the Seller, the Agent, the Collection Agent, each Investor, each Bank, each assignee of a Receivable Interest or any interest therein and each entity which enters into a commitment to purchase Receivable Interests or interests therein hereby agrees that it will not institute against CAFCO or CRC any proceeding of the type referred to in Section 7.01(g) so long as any commercial paper or other senior indebtedness issued by CAFCO or CRC, as applicable, shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such commercial paper or other senior indebtedness shall have been outstanding. SECTION 10.06. Confidentiality. (a) Unless otherwise required by applicable law, the Parent, the Seller and each Originator agrees to maintain the confidentiality (and to cause their respective officers, directors, employees, agents and representatives to maintain the confidentiality) of this Agreement in communications with third parties and otherwise; provided, however, this Agreement may be disclosed to (i) to such of the Parent's, Seller's and Originators' officers, directors, employees, agents and representatives as need to know such Information in connection with its participation in any of the transactions contemplated by this Agreement or the administration of this Agreement or the other Transaction Documents (subject to confidentiality obligations equivalent to those set forth herein), (ii) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the Agent, and (iii) the Seller's legal counsel and auditors if they agree to hold it confidential. (b) Unless otherwise required by applicable law, the Agent, the Investors and the Banks agree to keep confidential (and to cause their respective officers, directors, employees, agents and representatives to keep confidential) all non-public information, materials and documents furnished to the Agent or any Lender (the "Information"). Notwithstanding the foregoing, the Agent, each Investor and each Bank shall be permitted to disclose Information (i) to such of its officers, directors, employees, agents and representatives as need to know such Information in connection with its participation in any of the transactions contemplated by this Agreement or the administration of this Agreement or the other Transaction Documents (subject to confidentiality obligations equivalent to those set forth herein); (ii) to the extent required by applicable laws and regulations or by any subpoena or similar legal process, or requested by any governmental agency or authority; (iii) to the extent such Information (A) becomes publicly available other than as a result of a breach of this Agreement, (B) becomes available to the Agent, such Investor or such Bank on a non-confidential basis from a source other than the Seller, the Parent, any Originator or any of their respective subsidiaries or (C) was available to the Agent, such Investor or such Bank on a non-confidential basis prior to its disclosure to the Agent, such Investor or such Bank by the Seller, the Parent, any Originator or any of their respective subsidiaries; or (iv) to the extent that any of the Seller, the Parent, any Originator or any of their respective subsidiaries shall have consented to such disclosure in writing. SECTION 10.07. Patient Confidentiality. The Agent hereby agrees on behalf of itself, the Investors and the Banks and any of their designees or 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 10.08. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF THE INVESTORS AND THE BANKS IN THE RECEIVABLES, THE ORIGINATOR PURCHASE AGREEMENT, OR REMEDIES HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 10.09. No Novation. The parties hereto acknowledge and agree that the grant of the security interest hereunder shall not affect the validity of the security interest granted under the Original Receivables Purchase Agreement, which security interest shall, at all times, continue to be attached, perfected and enforceable pursuant to the terms of the Original Receivables Purchase Agreement as amended and restated herein. The parties hereto further acknowledge and agree that the execution, delivery or effectiveness of this Agreement shall not extinguish the obligations of the Seller under the Original Receivables Purchase Agreement or discharge or release the lien or priority of any security therefor. Nothing herein contained shall be construed as a substitution or novation of the obligations outstanding under the Original Receivables Purchase Agreement, which shall remain in full force and effect, except as modified hereby. SECTION 10.10. Execution in Counterparts. This Agreement may be executed in any number of 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. SECTION 10.11. Survival of Termination. The provisions of Sections 2.08, 2.09, 6.07, 9.01, 10.04, 10.05 and 10.06 shall survive any termination of this Agreement. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] IN WITNESS WHEREOF, the parties have caused this Amended and Restated Receivables Purchase Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SELLER: RITE AID FUNDING LLC By:________________________________ Name: Title: 30 Hunter Lane Camp Hill, PA 17011 Attention: Facsimile No: INVESTOR: CORPORATE ASSET FUNDING COMPANY, INC. By: Citicorp North America, Inc., as Attorney-in-Fact By:____________________________ Name: Vice President 450 Mamaroneck Avenue Harrison, NY 10528 Attention: U.S. Securitization Facsimile No. 914-899-7890 INVESTOR: CORPORATE RECEIVABLES CORPORATION By: Citicorp North America, Inc., as Attorney-in-Fact By:________________________ Name: Vice President 450 Mamaroneck Avenue Harrison, NY 10528 Attention: U.S. Securitization Facsimile No. 914-899-7890 AGENT: CITICORP NORTH AMERICA, INC., as Agent By:___________________________ Name: Vice President 450 Mamaroneck Avenue Harrison, N.Y. 10528 Attention: U.S. Securitization Facsimile No. 914-899-7890 BANK: CITIBANK, N.A. By:___________________________ Name: Title: Vice President Percentage Interest: 100% 450 Mamaroneck Avenue Harrison, N.Y. 10528 Facsimile No. 914-899-7890 PARENT AND RITE AID CORPORATION COLLECTION AGENT: By:___________________________ Name: Title: 30 Hunter Lane Camp Hill, PA 17011 Attn: Facsimile No: EX-4 32 EXHIBIT 4.31 - STOCK AND STOCK OPTION AWARD AGREEMENT RITE AID CORPORATION RESTRICTED STOCK AND STOCK OPTION AWARD AGREEMENT THIS AGREEMENT, made as of the 5th day of December, 1999 (the "Effective Date"), by and between (the "Company") and Robert G. Miller (the "Executive"). W I T N E S S E T H: WHEREAS, the Company and the Executive have entered into an employment agreement, dated as of the Effective Date (the "Employment Agreement"), pursuant to which the Executive will serve as Chairman and Chief Executive Officer of the Company; and WHEREAS, the Employment Agreement provides that, effective as of the Effective Date, the Company shall grant to the Executive the Option and the Restricted Stock (as hereinafter defined), subject to the terms and conditions of this Agreement and the Employment Agreement. NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto agree as follows: 1. Grant of Option and Restricted Stock . (a) The Company hereby grants to the Executive the right and option (the "Option") to purchase, on the terms and conditions set forth herein, subject however to the acceleration and exercise provisions of Section 5 of the Employment Agreement and all other applicable provisions of the Employment Agreement, all or any part of an aggregate of 3,000,000 shares of the Company's common stock, par value $1.00 per share ("Common Stock") (such Common Stock, as adjusted hereunder, being referred to as the "Option Shares"). The purchase price per share of the Option Shares shall be equal to the lesser of (A) the average of the closing prices of the Common Stock on the New York Stock Exchange ("NYSE") over the 20 consecutive trading days immediately preceding the Effective Date and (B) the closing price of the Common Stock on the NYSE on the Effective Date (or, if the Effective Date is not a trading day, the trading day immediately preceding the Effective Date) (such price, as adjusted hereunder, being referred to as the "Option Price"). The number of Option Shares and the Option Price shall be subject to adjustment as provided in Section 8 hereof. Subject to earlier termination as provided in the Employment Agreement, the term of the Option (the "Term") shall commence on the Effective Date and terminate on the tenth anniversary of the Effective Date. The Company shall at all times during the Term of the Option reserve for issuance a sufficient number of shares of Common Stock to permit exercise of the Option in full. (b) The Company hereby grants to the Executive, on the terms and conditions set forth herein, subject however to the acceleration and forfeiture provisions of the Employment Agreement and all other applicable provisions of the Employment Agreement, an aggregate of 600,000 shares of restricted Common Stock (the "Restricted Stock"). The Restricted Stock and any interest therein, may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, prior to the lapse of restrictions provided for in Section 3 hereof. Except as otherwise provided herein, the Executive shall possess all incidents of ownership of the Restricted Stock granted hereunder, including the right to receive dividends with respect to such Restricted Stock and the right to vote such Restricted Stock. (c) The Company represents and warrants to Executive that on or prior to the Effective Date all actions necessary to exempt the grant of the Option and the Restricted Stock under Rule 16b-3(d) under the Securities Exchange Act of 1934, as amended, have been taken by the Company. (d) The Company represents and warrants to Executive that the issuance of the Option and the Restricted Stock will be made pursuant to an available exemption from registration and qualification under all applicable federal and state securities or Blue Sky laws. 2. Registration of Option Shares and Restricted Stock; Listing Obligations. (a) As soon as practicable after the Effective Date, the Company shall, at its sole expense, cause the Common Stock subject to the Option and the resale of the Restricted Stock to be registered under the Securities Act of 1933, as amended (the "Securities Act") and registered or qualified under applicable state securities laws, so that the Common Stock issuable upon exercise of the Option and the Restricted Stock shall be freely tradeable. The Company shall thereafter use its best efforts to maintain the continuing effectiveness of such registration and qualification for so long as the Executive or any Permitted Transferee (as hereinafter defined) holds (i) the Option (or any portion thereof), (ii) any of the Option Shares acquired upon exercise thereof or (iii) any of the Restricted Stock (whether or not the restrictions thereon have lapsed), or until such earlier date as counsel to the Company, reasonably acceptable to Executive, provides the Company a written opinion (a copy of which shall promptly be provided to Executive) satisfactory to Executive to the effect that all Option Shares theretofore issued and subsequently issuable upon exercise of the Option and all shares of Restricted Stock may otherwise be freely sold under United States federal and other applicable law without regard to volume limitations or other conditions. (b) As soon as practicable after the Effective Date, the Company shall, at its sole expense, cause the Common Stock subject to the Option and the Restricted Stock to be listed on all exchanges on which the Common Stock is from time to time listed. The Company shall thereafter use its best efforts to maintain the continued listing of such Common Stock and Restricted Stock for so long as the Executive or any Permitted Transferee holds (i) the Option (or any portion thereof), (ii) any of the Option Shares acquired upon exercise thereof or (iii) any of the Restricted Stock (whether or not the restrictions thereon have lapsed). 3. Vesting and Exercisability. (a) Regular Vesting Schedule. Subject to the provisions of this Agreement and except as provided in Section 5 of the Employment Agreement, the Option shall become vested and exercisable, and all restrictions shall lapse with respect to the Restricted Stock, in each case, in thirty-six (36) equal monthly installments commencing on the date which is one month following the Effective Date. (b) Acceleration of Vesting and Lapse of Restriction. Upon the occurrence of a Change in Control of the Company (as defined in Appendix A hereto), the Option shall become immediately vested and fully exercisable and all restrictions on the transfer of the Restricted Stock shall immediately lapse in full. (c) Except as provided in Section 5 of the Employment Agreement, any portion of the Option that has become vested and exercisable shall remain vested and exercisable until the end of the full ten-year Term of the Option. (d) Certain Definitions. For purposes of this Agreement, all capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms under the Employment Agreement. 4. Method of Exercising Option; Gross-Up; Section 83(b) Election. (a) The Option may be exercised from time to time, in whole or in part, as to that portion of the Option that has from time to time become vested and exercisable. Full payment for the Option Shares purchased shall be made at the time of any exercise under this Agreement. The option price shall be payable to the Company either (i) in United States dollars in cash or by check, bank draft, or postal or express money order, or (ii) through the delivery of shares of Common Stock owned by the Executive for at least six months prior to the date of exercise having a Fair Market Value equal to the full Option Price, or (iii) by a combination of (i) and (ii) above. For purposes of this Agreement "Fair Market Value" shall mean the closing price of the Common Stock on the NYSE on the trading day immediately prior to the date of exercise or if the Common Stock is not then listed on the NYSE, Fair Market Value shall be as determined pursuant to good faith negotiations between the Executive and the Company. At the Option holder's discretion, subject to reasonable procedures adopted by the Company, the Option may also be exercised on a cashless basis through a broker, whereby irrevocable instructions are delivered to the broker to sell that number of shares equal in value to the aggregate Option Price of the Option Shares with respect to which the Option is then being exercised and pay the proceeds to the Company. Subject to the terms and conditions hereof, the Option shall be exercisable by notice to the Company on the form provided by the Company upon request of the Executive. In the event the Option is being exercised by any person or persons other than the Executive, the notice shall be accompanied by proof, satisfactory to the Company, of the right of such person or persons to exercise such right under this Agreement. (b) At the time of exercise of the Option, the Executive shall pay to the Company such amount as may be necessary to satisfy the Company's obligation to withhold Federal, state or local income or other taxes incurred by reason of such exercise (i) by tendering to the Company a check in the amount of such withholding, (ii) by electing to have withheld upon exercise shares of Common Stock having an aggregate Fair Market Value equal to the amount of such tax withholding or (iii) by a combination of (i) and (ii). (c) The Executive hereby agrees to make an election pursuant to Section 83(b) of the Code (the "Election") within the thirty (30) day period commencing on the Effective Date to include the value of the Restricted Stock as of the Effective Date in the Executive's gross income for federal income tax purposes. In connection with the Election, the Company shall, within the time period prescribed by law for withholding and/or payment of estimated or other taxes by reason of such inclusion, make an additional payment (the "Restricted Stock Gross-Up Payment") to the Executive in an amount such that, after giving effect to the imposition of all applicable federal, state and local income, employment and any other taxes or impositions on such payment (the "Aggregate Tax"), the Executive retains a net amount equal to the aggregate amount of all federal, state and local income, employment and any other taxes or impositions incurred by Executive by reason of such inclusion. For purposes of determining the amount of the Restricted Stock Gross-Up Payment, Executive shall be deemed to pay federal income, employment and any other tax for his taxable year in which such inclusion occurs and his taxable year in which such Restricted Stock Gross-Up Payment is made at the highest applicable marginal rate of federal, state and local income, employment or other applicable taxation in such year. The amount of the Restricted Stock Gross-Up Payment shall be determined by the Company's outside auditor, who will timely furnish the Company and Executive with a written statement (together with full supporting and other relevant material) setting forth the amount of the required Restricted Stock Gross-Up Payment. The Executive shall promptly notify the Company of his filing of the Election. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Aggregate Tax is more or less than was initially taken into account hereunder, then each of the Company and the Executive agree to pay to the other party, as applicable, an amount (the "Make Up Amount") such that the amount of the Restricted Stock Gross-Up Payment finally retained by the Executive after giving effect to the Make Up Amount is equal to the amount contemplated by the second sentence of this paragraph (c). 5. Issuance of Option Shares. As promptly as practicable after receipt of such written notification of exercise and full payment of the Option Price and any required tax withholding, the Company shall issue or transfer to the Executive the number of Option Shares with respect to which the Option has been exercised (less shares withheld in satisfaction of tax withholding obligations, if any), and shall deliver to the Executive a certificate or certificates therefor, registered in the Executive's name. 6. Non-Transferability of Option. The Option is not transferable by the Executive otherwise than (i) to or from a Permitted Transferee, (ii) to a designated beneficiary upon death or (iii) by will or the laws of descent and distribution, and is exercisable during the Executive's lifetime only by the Executive or a Permitted Transferee (or, in the event of the Executive's or a Permitted Transferee's adjudicated incapacity, the Executive's or Permitted Transferee's personal representative). No other assignment or transfer of all or any part of the Option, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the assignee or transferee any interest or right herein whatsoever and no assignment or transfer of all or any part of the Option to a Permitted Transferee shall be given effect unless such Permitted Transferee acknowledges in a writing satisfactory to the Company that the Option (and any Option Shares acquired pursuant thereto) remains subject to the provisions of this Agreement and the Employment Agreement. For purposes of this Agreement, "Permitted Transferee" shall mean (i) any member of Executive's immediate family and (ii) any living trust or other entity established by Executive or any Permitted Transferee for estate planning purposes. By way of clarification, transfers of the Option shall be permitted from any Permitted Transferee to Executive or between Permitted Transferees. 7. No Rights as Shareholder with Respect to Option. Neither the Executive nor any transferee of the Option shall have any of the rights of a shareholder with respect to any Option Shares until such time as the Option shall have been duly exercised as provided herein, and no adjustment shall be made for cash distributions in respect of such Option Shares for which the record date is prior to such date. 8. Adjustments. In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend or split, recapitalization, merger, consolidation, spinoff, combination or exchange of shares or other corporate change, or any distributions to common shareholders other than regular cash dividends, the compensation committee (the "Compensation Committee") of the Board of Directors of the Company shall make such substitutions in or adjustments to the number and/or kind of shares of Common Stock or other property subject to, and the Option Price of, the Option as shall be equitable under the circumstances of such change. 9. Compliance with Law. Notwithstanding any of the provisions hereof, the Executive hereby agrees that Executive shall not exercise the Option, and that the Company shall not be obligated to issue or transfer any shares to the Executive hereunder, if the exercise thereof or the issuance or transfer of such shares shall constitute a violation of any provisions of any applicable law or regulation of any governmental authority; provided that nothing in this Section 9 shall be deemed to limit the Company's liability hereunder for any act or omission which would cause the issuance or transfer of such shares to give rise to such a violation. 10. Acquisition for Purpose of Investment. The Executive hereby represents and warrants that the Restricted Stock and any Option Shares acquired pursuant to the exercise of the Option are or will be acquired for his own account solely for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act of 1933, as amended (the "Securities Act"). The Executive hereby acknowledges that to the extent that from time to time the Restricted Stock and Option Shares have not been registered under the Securities Act, such Restricted Stock and Option Shares may be sold or disposed of by the Executive in the absence of such registration only pursuant to an exemption from the registration requirements of the Securities Act, provided that nothing in this Section 10 shall be deemed to limit the Company's obligations under Section 2. 11. Legend; Lapse of Restrictions; Forfeiture. (a) The Executive acknowledges that the sale, transfer and other disposition of the Restricted Stock are subject to the restrictions set forth in Section 1(b) hereof. The Executive agrees to the placement on certificates representing the Restricted Stock of a legend (the "Legend"), substantially as set forth below: This certificate and the shares of stock represented hereby are subject to the terms and conditions, including forfeiture provisions and restrictions against transfer (the "Restrictions"), contained in a Restricted Stock and Stock Option Award Agreement and an Employment Agreement, each dated as of December 4, 1999, between the registered owner and Rite Aid Corporation. Any attempt to dispose of these shares in contravention of the Restrictions, including by way of sale, assignment, transfer, pledge, hypothecation or otherwise, shall be null and void and without effect. (b) Upon each lapse of restrictions relating to the shares of Restricted Stock granted hereunder, the Company shall promptly issue to the Executive or the Executive's personal representative a stock certificate representing a number of shares of Common Stock, free of the restrictive legend described in Section 11(a), equal to the number of shares of Restricted Stock with respect to which such restrictions have lapsed. If certificates representing such Restricted Stock shall have theretofore been delivered to the Executive, such certificates shall be returned to the Company, complete with any necessary signatures or instruments of transfer prior to the issuance by the Company of such unlegended shares of Common Stock. (c) Until such time as the Company has caused the Option Shares and Restricted Stock to be registered under the Securities Act, each share of Restricted Stock delivered to the Executive and each Option Share acquired pursuant to the exercise of the Option shall bear an additional legend, substantially as set forth below: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"). These securities have been acquired for investment and not with a view toward distribution or resale, and may not be sold, offered for sale, transferred, assigned or pledged in the absence of an effective registration statement for such shares under the Securities Act and all applicable state securities laws or an exemption from such registration requirements. (d) Upon the registration of the Option Shares and Restricted Stock, as the case may be, the Company shall promptly issue to the Executive or the Executive's personal representative a stock certificate representing a number of shares of Common Stock, free of the restrictive legend described in Section 11(c), equal to the number of shares of Restricted Stock with respect to which such restrictions have lapsed or Option Shares acquired pursuant to the exercise of the Option. If certificates representing such Restricted Stock or Option Shares shall have theretofore been delivered to the Executive, such certificates shall be returned to the Company, complete with any necessary signatures or instruments of transfer prior to the issuance by the Company of such unlegended shares of Common Stock. 12. Notices. All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier addressed as follows: If to the Executive: Robert G. Miller 0305 SW Montgomery #F508 Portland, OR 07201 If to the Company: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel or to such other address as either party furnishes to the other in writing in accordance with this Section 12. Notices and communications shall be effective when actually received by the addressee. 13. Successors. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto. No rights or obligations of the Company under this Agreement may be assigned or transferred except that the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, the "Company" shall mean both the Company as defined above and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise. 14. No Right to Employment. The granting of the Option and the Restricted Stock shall not be construed as granting Executive any right to continued employment by the Company or its subsidiaries. Subject to the terms of the Employment Agreement, the right of the Company and its subsidiaries to terminate Executive's employment at any time and for any reason, is specifically reserved. 15. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, without regard to its rules relating to conflicts of laws. 16. Entire Agreement. This Agreement and the relevant provisions of the Employment Agreement comprise the entire agreement between the parties hereto with respect to the subject matter hereof, and may be modified or terminated only by the written consent of the parties hereto. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to due authorization, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. RITE AID CORPORATION _____________________________ Name: Leonard Green Title: Chairman of the Board _____________________________ Robert G. Miller APPENDIX A A "Change in Control of the Company" shall be deemed to have occurred if, as the result of a single transaction or a series of transactions, the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (2) Incumbent Directors cease at any time and for any reason to constitute a majority of the number of directors then serving on the Board. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the Effective Date or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors to the Board); or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation as appropriate, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (4) the stockholders of the Company approve a plan of liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act. "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities which are properly filed on a Form 13G. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. EX-4 33 EXHIBIT 4.32 - STOCK AND STOCK OPTION AWARD AGREEMENT RITE AID CORPORATION RESTRICTED STOCK AND STOCK OPTION AWARD AGREEMENT THIS AGREEMENT, made as of the 5th day of December, 1999 (the "Effective Date"), by and between (the "Company") and Mary F. Sammons (the "Executive"). W I T N E S S E T H: WHEREAS, the Company and the Executive have entered into an employment agreement, dated as of the Effective Date (the "Employment Agreement"), pursuant to which the Executive will serve as President and Chief Operating Officer of the Company; and WHEREAS, the Employment Agreement provides that, effective as of the Effective Date, the Company shall grant to the Executive the Option and the Restricted Stock (as hereinafter defined), subject to the terms and conditions of this Agreement and the Employment Agreement. NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto agree as follows: 1. Grant of Option and Restricted Stock . (a) The Company hereby grants to the Executive the right and option (the "Option") to purchase, on the terms and conditions set forth herein, subject however to the acceleration and exercise provisions of Section 5 of the Employment Agreement and all other applicable provisions of the Employment Agreement, all or any part of an aggregate of 2,000,000 shares of the Company's common stock, par value $1.00 per share ("Common Stock") (such Common Stock, as adjusted hereunder, being referred to as the "Option Shares"). The purchase price per share of the Option Shares shall be equal to the lesser of (A) the average of the closing prices of the Common Stock on the New York Stock Exchange ("NYSE") over the 20 consecutive trading days immediately preceding the Effective Date and (B) the closing price of the Common Stock on the NYSE on the Effective Date (or, if the Effective Date is not a trading day, the trading day immediately preceding the Effective Date) (such price, as adjusted hereunder, being referred to as the "Option Price"). The number of Option Shares and the Option Price shall be subject to adjustment as provided in Section 8 hereof. Subject to earlier termination as provided in the Employment Agreement, the term of the Option (the "Term") shall commence on the Effective Date and terminate on the tenth anniversary of the Effective Date. The Company shall at all times during the Term of the Option reserve for issuance a sufficient number of shares of Common Stock to permit exercise of the Option in full. (b) The Company hereby grants to the Executive, on the terms and conditions set forth herein, subject however to the acceleration and forfeiture provisions of the Employment Agreement and all other applicable provisions of the Employment Agreement, an aggregate of 200,000 shares of restricted Common Stock (the "Restricted Stock"). The Restricted Stock and any interest therein, may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, prior to the lapse of restrictions provided for in Section 3 hereof. Except as otherwise provided herein, the Executive shall possess all incidents of ownership of the Restricted Stock granted hereunder, including the right to receive dividends with respect to such Restricted Stock and the right to vote such Restricted Stock. (c) The Company represents and warrants to Executive that on or prior to the Effective Date all actions necessary to exempt the grant of the Option and the Restricted Stock under Rule 16b-3(d) under the Securities Exchange Act of 1934, as amended, have been taken by the Company. (d) The Company represents and warrants to Executive that the issuance of the Option and the Restricted Stock will be made pursuant to an available exemption from registration and qualification under all applicable federal and state securities or Blue Sky laws. 2. Registration of Option Shares and Restricted Stock; Listing Obligations. (a) As soon as practicable after the Effective Date, the Company shall, at its sole expense, cause the Common Stock subject to the Option and the resale of the Restricted Stock to be registered under the Securities Act of 1933, as amended (the "Securities Act") and registered or qualified under applicable state securities laws, so that the Common Stock issuable upon exercise of the Option and the Restricted Stock shall be freely tradeable. The Company shall thereafter use its best efforts to maintain the continuing effectiveness of such registration and qualification for so long as the Executive or any Permitted Transferee (as hereinafter defined) holds (i) the Option (or any portion thereof), (ii) any of the Option Shares acquired upon exercise thereof or (iii) any of the Restricted Stock (whether or not the restrictions thereon have lapsed), or until such earlier date as counsel to the Company, reasonably acceptable to Executive, provides the Company a written opinion (a copy of which shall promptly be provided to Executive) satisfactory to Executive to the effect that all Option Shares theretofore issued and subsequently issuable upon exercise of the Option and all shares of Restricted Stock may otherwise be freely sold under United States federal and other applicable law without regard to volume limitations or other conditions. (b) As soon as practicable after the Effective Date, the Company shall, at its sole expense, cause the Common Stock subject to the Option and the Restricted Stock to be listed on all exchanges on which the Common Stock is from time to time listed. The Company shall thereafter use its best efforts to maintain the continued listing of such Common Stock and Restricted Stock for so long as the Executive or any Permitted Transferee holds (i) the Option (or any portion thereof), (ii) any of the Option Shares acquired upon exercise thereof or (iii) any of the Restricted Stock (whether or not the restrictions thereon have lapsed). 3. Vesting and Exercisability. (a) Regular Vesting Schedule. Subject to the provisions of this Agreement and except as provided in Section 5 of the Employment Agreement, the Option shall become vested and exercisable, and all restrictions shall lapse with respect to the Restricted Stock, in each case, in thirty-six (36) equal monthly installments commencing on the date which is one month following the Effective Date. (b) Acceleration of Vesting and Lapse of Restriction. Upon the occurrence of a Change in Control of the Company (as defined in Appendix A hereto), the Option shall become immediately vested and fully exercisable and all restrictions on the transfer of the Restricted Stock shall immediately lapse in full. (c) Except as provided in Section 5 of the Employment Agreement, any portion of the Option that has become vested and exercisable shall remain vested and exercisable until the end of the full ten-year Term of the Option. (d) Certain Definitions. For purposes of this Agreement, all capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms under the Employment Agreement. 4. Method of Exercising Option; Gross-Up; Section 83(b) Election. (a) The Option may be exercised from time to time, in whole or in part, as to that portion of the Option that has from time to time become vested and exercisable. Full payment for the Option Shares purchased shall be made at the time of any exercise under this Agreement. The option price shall be payable to the Company either (i) in United States dollars in cash or by check, bank draft, or postal or express money order, or (ii) through the delivery of shares of Common Stock owned by the Executive for at least six months prior to the date of exercise having a Fair Market Value equal to the full Option Price, or (iii) by a combination of (i) and (ii) above. For purposes of this Agreement "Fair Market Value" shall mean the closing price of the Common Stock on the NYSE on the trading day immediately prior to the date of exercise or if the Common Stock is not then listed on the NYSE, Fair Market Value shall be as determined pursuant to good faith negotiations between the Executive and the Company. At the Option holder's discretion, subject to reasonable procedures adopted by the Company, the Option may also be exercised on a cashless basis through a broker, whereby irrevocable instructions are delivered to the broker to sell that number of shares equal in value to the aggregate Option Price of the Option Shares with respect to which the Option is then being exercised and pay the proceeds to the Company. Subject to the terms and conditions hereof, the Option shall be exercisable by notice to the Company on the form provided by the Company upon request of the Executive. In the event the Option is being exercised by any person or persons other than the Executive, the notice shall be accompanied by proof, satisfactory to the Company, of the right of such person or persons to exercise such right under this Agreement. (b) At the time of exercise of the Option, the Executive shall pay to the Company such amount as may be necessary to satisfy the Company's obligation to withhold Federal, state or local income or other taxes incurred by reason of such exercise (i) by tendering to the Company a check in the amount of such withholding, (ii) by electing to have withheld upon exercise shares of Common Stock having an aggregate Fair Market Value equal to the amount of such tax withholding or (iii) by a combination of (i) and (ii). (c) The Executive hereby agrees to make an election pursuant to Section 83(b) of the Code (the "Election") within the thirty (30) day period commencing on the Effective Date to include the value of the Restricted Stock as of the Effective Date in the Executive's gross income for federal income tax purposes. In connection with the Election, the Company shall, within the time period prescribed by law for withholding and/or payment of estimated or other taxes by reason of such inclusion, make an additional payment (the "Restricted Stock Gross-Up Payment") to the Executive in an amount such that, after giving effect to the imposition of all applicable federal, state and local income, employment and any other taxes or impositions on such payment (the "Aggregate Tax"), the Executive retains a net amount equal to the aggregate amount of all federal, state and local income, employment and any other taxes or impositions incurred by Executive by reason of such inclusion. For purposes of determining the amount of the Restricted Stock Gross-Up Payment, Executive shall be deemed to pay federal income, employment and any other tax for his taxable year in which such inclusion occurs and his taxable year in which such Restricted Stock Gross-Up Payment is made at the highest applicable marginal rate of federal, state and local income, employment or other applicable taxation in such year. The amount of the Restricted Stock Gross-Up Payment shall be determined by the Company's outside auditor, who will timely furnish the Company and Executive with a written statement (together with full supporting and other relevant material) setting forth the amount of the required Restricted Stock Gross-Up Payment. The Executive shall promptly notify the Company of his filing of the Election. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Aggregate Tax is more or less than was initially taken into account hereunder, then each of the Company and the Executive agree to pay to the other party, as applicable, an amount (the "Make Up Amount") such that the amount of the Restricted Stock Gross-Up Payment finally retained by the Executive after giving effect to the Make Up Amount is equal to the amount contemplated by the second sentence of this paragraph (c). 5. Issuance of Option Shares. As promptly as practicable after receipt of such written notification of exercise and full payment of the Option Price and any required tax withholding, the Company shall issue or transfer to the Executive the number of Option Shares with respect to which the Option has been exercised (less shares withheld in satisfaction of tax withholding obligations, if any), and shall deliver to the Executive a certificate or certificates therefor, registered in the Executive's name. 6. Non-Transferability of Option. The Option is not transferable by the Executive otherwise than (i) to or from a Permitted Transferee, (ii) to a designated beneficiary upon death or (iii) by will or the laws of descent and distribution, and is exercisable during the Executive's lifetime only by the Executive or a Permitted Transferee (or, in the event of the Executive's or a Permitted Transferee's adjudicated incapacity, the Executive's or Permitted Transferee's personal representative). No other assignment or transfer of all or any part of the Option, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the assignee or transferee any interest or right herein whatsoever and no assignment or transfer of all or any part of the Option to a Permitted Transferee shall be given effect unless such Permitted Transferee acknowledges in a writing satisfactory to the Company that the Option (and any Option Shares acquired pursuant thereto) remains subject to the provisions of this Agreement and the Employment Agreement. For purposes of this Agreement, "Permitted Transferee" shall mean (i) any member of Executive's immediate family and (ii) any living trust or other entity established by Executive or any Permitted Transferee for estate planning purposes. By way of clarification, transfers of the Option shall be permitted from any Permitted Transferee to Executive or between Permitted Transferees. 7. No Rights as Shareholder with Respect to Option. Neither the Executive nor any transferee of the Option shall have any of the rights of a shareholder with respect to any Option Shares until such time as the Option shall have been duly exercised as provided herein, and no adjustment shall be made for cash distributions in respect of such Option Shares for which the record date is prior to such date. 8. Adjustments. In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend or split, recapitalization, merger, consolidation, spinoff, combination or exchange of shares or other corporate change, or any distributions to common shareholders other than regular cash dividends, the compensation committee (the "Compensation Committee") of the Board of Directors of the Company shall make such substitutions in or adjustments to the number and/or kind of shares of Common Stock or other property subject to, and the Option Price of, the Option as shall be equitable under the circumstances of such change. 9. Compliance with Law. Notwithstanding any of the provisions hereof, the Executive hereby agrees that Executive shall not exercise the Option, and that the Company shall not be obligated to issue or transfer any shares to the Executive hereunder, if the exercise thereof or the issuance or transfer of such shares shall constitute a violation of any provisions of any applicable law or regulation of any governmental authority; provided that nothing in this Section 9 shall be deemed to limit the Company's liability hereunder for any act or omission which would cause the issuance or transfer of such shares to give rise to such a violation. 10. Acquisition for Purpose of Investment. The Executive hereby represents and warrants that the Restricted Stock and any Option Shares acquired pursuant to the exercise of the Option are or will be acquired for his own account solely for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act of 1933, as amended (the "Securities Act"). The Executive hereby acknowledges that to the extent that from time to time the Restricted Stock and Option Shares have not been registered under the Securities Act, such Restricted Stock and Option Shares may be sold or disposed of by the Executive in the absence of such registration only pursuant to an exemption from the registration requirements of the Securities Act, provided that nothing in this Section 10 shall be deemed to limit the Company's obligations under Section 2. 11. Legend; Lapse of Restrictions; Forfeiture. (a) The Executive acknowledges that the sale, transfer and other disposition of the Restricted Stock are subject to the restrictions set forth in Section 1(b) hereof. The Executive agrees to the placement on certificates representing the Restricted Stock of a legend (the "Legend"), substantially as set forth below: This certificate and the shares of stock represented hereby are subject to the terms and conditions, including forfeiture provisions and restrictions against transfer (the "Restrictions"), contained in a Restricted Stock and Stock Option Award Agreement and an Employment Agreement, each dated as of December 4, 1999, between the registered owner and Rite Aid Corporation. Any attempt to dispose of these shares in contravention of the Restrictions, including by way of sale, assignment, transfer, pledge, hypothecation or otherwise, shall be null and void and without effect. (b) Upon each lapse of restrictions relating to the shares of Restricted Stock granted hereunder, the Company shall promptly issue to the Executive or the Executive's personal representative a stock certificate representing a number of shares of Common Stock, free of the restrictive legend described in Section 11(a), equal to the number of shares of Restricted Stock with respect to which such restrictions have lapsed. If certificates representing such Restricted Stock shall have theretofore been delivered to the Executive, such certificates shall be returned to the Company, complete with any necessary signatures or instruments of transfer prior to the issuance by the Company of such unlegended shares of Common Stock. (c) Until such time as the Company has caused the Option Shares and Restricted Stock to be registered under the Securities Act, each share of Restricted Stock delivered to the Executive and each Option Share acquired pursuant to the exercise of the Option shall bear an additional legend, substantially as set forth below: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"). These securities have been acquired for investment and not with a view toward distribution or resale, and may not be sold, offered for sale, transferred, assigned or pledged in the absence of an effective registration statement for such shares under the Securities Act and all applicable state securities laws or an exemption from such registration requirements. (d) Upon the registration of the Option Shares and Restricted Stock, as the case may be, the Company shall promptly issue to the Executive or the Executive's personal representative a stock certificate representing a number of shares of Common Stock, free of the restrictive legend described in Section 11(c), equal to the number of shares of Restricted Stock with respect to which such restrictions have lapsed or Option Shares acquired pursuant to the exercise of the Option. If certificates representing such Restricted Stock or Option Shares shall have theretofore been delivered to the Executive, such certificates shall be returned to the Company, complete with any necessary signatures or instruments of transfer prior to the issuance by the Company of such unlegended shares of Common Stock. 12. Notices. All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier addressed as follows: If to the Executive: Mary Sammons Mary F. Sammons 3508 S.W. Gale Avenue Portland, Oregon 97201 If to the Company: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel or to such other address as either party furnishes to the other in writing in accordance with this Section 12. Notices and communications shall be effective when actually received by the addressee. 13. Successors. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto. No rights or obligations of the Company under this Agreement may be assigned or transferred except that the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, the "Company" shall mean both the Company as defined above and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise. 14. No Right to Employment. The granting of the Option and the Restricted Stock shall not be construed as granting Executive any right to continued employment by the Company or its subsidiaries. Subject to the terms of the Employment Agreement, the right of the Company and its subsidiaries to terminate Executive's employment at any time and for any reason, is specifically reserved. 15. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, without regard to its rules relating to conflicts of laws. 16. Entire Agreement. This Agreement and the relevant provisions of the Employment Agreement comprise the entire agreement between the parties hereto with respect to the subject matter hereof, and may be modified or terminated only by the written consent of the parties hereto. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to due authorization, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. RITE AID CORPORATION _____________________________ Name: Leonard Green Title: Chairman of the Board _____________________________ Mary Sammons APPENDIX A A "Change in Control of the Company" shall be deemed to have occurred if, as the result of a single transaction or a series of transactions, the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (2) Incumbent Directors cease at any time and for any reason to constitute a majority of the number of directors then serving on the Board. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the Effective Date or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors to the Board); or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation as appropriate, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (4) the stockholders of the Company approve a plan of liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act. "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities which are properly filed on a Form 13G. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. EX-4 34 EXHIBIT 4.33 - STOCK AND STOCK OPTION AWARD AGREEMENT RITE AID CORPORATION RESTRICTED STOCK AND STOCK OPTION AWARD AGREEMENT THIS AGREEMENT, made as of the 5th day of December, 1999 (the "Effective Date"), by and between (the "Company") and David R. Jessick (the "Executive"). W I T N E S S E T H: WHEREAS, the Company and the Executive have entered into an employment agreement, dated as of the Effective Date (the "Employment Agreement"), pursuant to which the Executive will serve as Senior Executive Vice President and Chief Administrative Officer of the Company; and WHEREAS, the Employment Agreement provides that, effective as of the Effective Date, the Company shall grant to the Executive the Option and the Restricted Stock (as hereinafter defined), subject to the terms and conditions of this Agreement and the Employment Agreement. NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto agree as follows: 1. Grant of Option and Restricted Stock . (a) The Company hereby grants to the Executive the right and option (the "Option") to purchase, on the terms and conditions set forth herein, subject however to the acceleration and exercise provisions of Section 5 of the Employment Agreement and all other applicable provisions of the Employment Agreement, all or any part of an aggregate of 1,000,000 shares of the Company's common stock, par value $1.00 per share ("Common Stock") (such Common Stock, as adjusted hereunder, being referred to as the "Option Shares"). The purchase price per share of the Option Shares shall be equal to the lesser of (A) the average of the closing prices of the Common Stock on the New York Stock Exchange ("NYSE") over the 20 consecutive trading days immediately preceding the Effective Date and (B) the closing price of the Common Stock on the NYSE on the Effective Date (or, if the Effective Date is not a trading day, the trading day immediately preceding the Effective Date) (such price, as adjusted hereunder, being referred to as the "Option Price"). The number of Option Shares and the Option Price shall be subject to adjustment as provided in Section 8 hereof. Subject to earlier termination as provided in the Employment Agreement, the term of the Option (the "Term") shall commence on the Effective Date and terminate on the tenth anniversary of the Effective Date. The Company shall at all times during the Term of the Option reserve for issuance a sufficient number of shares of Common Stock to permit exercise of the Option in full. (b) The Company hereby grants to the Executive, on the terms and conditions set forth herein, subject however to the acceleration and forfeiture provisions of the Employment Agreement and all other applicable provisions of the Employment Agreement, an aggregate of 100,000 shares of restricted Common Stock (the "Restricted Stock"). The Restricted Stock and any interest therein, may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, prior to the lapse of restrictions provided for in Section 3 hereof. Except as otherwise provided herein, the Executive shall possess all incidents of ownership of the Restricted Stock granted hereunder, including the right to receive dividends with respect to such Restricted Stock and the right to vote such Restricted Stock. (c) The Company represents and warrants to Executive that on or prior to the Effective Date all actions necessary to exempt the grant of the Option and the Restricted Stock under Rule 16b-3(d) under the Securities Exchange Act of 1934, as amended, have been taken by the Company. (d) The Company represents and warrants to Executive that the issuance of the Option and the Restricted Stock will be made pursuant to an available exemption from registration and qualification under all applicable federal and state securities or Blue Sky laws. 2. Registration of Option Shares and Restricted Stock; Listing Obligations. (a) As soon as practicable after the Effective Date, the Company shall, at its sole expense, cause the Common Stock subject to the Option and the resale of the Restricted Stock to be registered under the Securities Act of 1933, as amended (the "Securities Act") and registered or qualified under applicable state securities laws, so that the Common Stock issuable upon exercise of the Option and the Restricted Stock shall be freely tradeable. The Company shall thereafter use its best efforts to maintain the continuing effectiveness of such registration and qualification for so long as the Executive or any Permitted Transferee (as hereinafter defined) holds (i) the Option (or any portion thereof), (ii) any of the Option Shares acquired upon exercise thereof or (iii) any of the Restricted Stock (whether or not the restrictions thereon have lapsed), or until such earlier date as counsel to the Company, reasonably acceptable to Executive, provides the Company a written opinion (a copy of which shall promptly be provided to Executive) satisfactory to Executive to the effect that all Option Shares theretofore issued and subsequently issuable upon exercise of the Option and all shares of Restricted Stock may otherwise be freely sold under United States federal and other applicable law without regard to volume limitations or other conditions. (b) As soon as practicable after the Effective Date, the Company shall, at its sole expense, cause the Common Stock subject to the Option and the Restricted Stock to be listed on all exchanges on which the Common Stock is from time to time listed. The Company shall thereafter use its best efforts to maintain the continued listing of such Common Stock and Restricted Stock for so long as the Executive or any Permitted Transferee holds (i) the Option (or any portion thereof), (ii) any of the Option Shares acquired upon exercise thereof or (iii) any of the Restricted Stock (whether or not the restrictions thereon have lapsed). 3. Vesting and Exercisability. (a) Regular Vesting Schedule. Subject to the provisions of this Agreement and except as provided in Section 5 of the Employment Agreement, the Option shall become vested and exercisable, and all restrictions shall lapse with respect to the Restricted Stock, in each case, in thirty-six (36) equal monthly installments commencing on the date which is one month following the Effective Date. (b) Acceleration of Vesting and Lapse of Restriction. Upon the occurrence of a Change in Control of the Company (as defined in Appendix A hereto), the Option shall become immediately vested and fully exercisable and all restrictions on the transfer of the Restricted Stock shall immediately lapse in full. (c) Except as provided in Section 5 of the Employment Agreement, any portion of the Option that has become vested and exercisable shall remain vested and exercisable until the end of the full ten-year Term of the Option. (d) Certain Definitions. For purposes of this Agreement, all capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms under the Employment Agreement. 4. Method of Exercising Option; Gross-Up; Section 83(b) Election. (a) The Option may be exercised from time to time, in whole or in part, as to that portion of the Option that has from time to time become vested and exercisable. Full payment for the Option Shares purchased shall be made at the time of any exercise under this Agreement. The option price shall be payable to the Company either (i) in United States dollars in cash or by check, bank draft, or postal or express money order, or (ii) through the delivery of shares of Common Stock owned by the Executive for at least six months prior to the date of exercise having a Fair Market Value equal to the full Option Price, or (iii) by a combination of (i) and (ii) above. For purposes of this Agreement "Fair Market Value" shall mean the closing price of the Common Stock on the NYSE on the trading day immediately prior to the date of exercise or if the Common Stock is not then listed on the NYSE, Fair Market Value shall be as determined pursuant to good faith negotiations between the Executive and the Company. At the Option holder's discretion, subject to reasonable procedures adopted by the Company, the Option may also be exercised on a cashless basis through a broker, whereby irrevocable instructions are delivered to the broker to sell that number of shares equal in value to the aggregate Option Price of the Option Shares with respect to which the Option is then being exercised and pay the proceeds to the Company. Subject to the terms and conditions hereof, the Option shall be exercisable by notice to the Company on the form provided by the Company upon request of the Executive. In the event the Option is being exercised by any person or persons other than the Executive, the notice shall be accompanied by proof, satisfactory to the Company, of the right of such person or persons to exercise such right under this Agreement. (b) At the time of exercise of the Option, the Executive shall pay to the Company such amount as may be necessary to satisfy the Company's obligation to withhold Federal, state or local income or other taxes incurred by reason of such exercise (i) by tendering to the Company a check in the amount of such withholding, (ii) by electing to have withheld upon exercise shares of Common Stock having an aggregate Fair Market Value equal to the amount of such tax withholding or (iii) by a combination of (i) and (ii). (c) The Executive hereby agrees to make an election pursuant to Section 83(b) of the Code (the "Election") within the thirty (30) day period commencing on the Effective Date to include the value of the Restricted Stock as of the Effective Date in the Executive's gross income for federal income tax purposes. In connection with the Election, the Company shall, within the time period prescribed by law for withholding and/or payment of estimated or other taxes by reason of such inclusion, make an additional payment (the "Restricted Stock Gross-Up Payment") to the Executive in an amount such that, after giving effect to the imposition of all applicable federal, state and local income, employment and any other taxes or impositions on such payment (the "Aggregate Tax"), the Executive retains a net amount equal to the aggregate amount of all federal, state and local income, employment and any other taxes or impositions incurred by Executive by reason of such inclusion. For purposes of determining the amount of the Restricted Stock Gross-Up Payment, Executive shall be deemed to pay federal income, employment and any other tax for his taxable year in which such inclusion occurs and his taxable year in which such Restricted Stock Gross-Up Payment is made at the highest applicable marginal rate of federal, state and local income, employment or other applicable taxation in such year. The amount of the Restricted Stock Gross-Up Payment shall be determined by the Company's outside auditor, who will timely furnish the Company and Executive with a written statement (together with full supporting and other relevant material) setting forth the amount of the required Restricted Stock Gross-Up Payment. The Executive shall promptly notify the Company of his filing of the Election. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Aggregate Tax is more or less than was initially taken into account hereunder, then each of the Company and the Executive agree to pay to the other party, as applicable, an amount (the "Make Up Amount") such that the amount of the Restricted Stock Gross-Up Payment finally retained by the Executive after giving effect to the Make Up Amount is equal to the amount contemplated by the second sentence of this paragraph (c). 5. Issuance of Option Shares. As promptly as practicable after receipt of such written notification of exercise and full payment of the Option Price and any required tax withholding, the Company shall issue or transfer to the Executive the number of Option Shares with respect to which the Option has been exercised (less shares withheld in satisfaction of tax withholding obligations, if any), and shall deliver to the Executive a certificate or certificates therefor, registered in the Executive's name. 6. Non-Transferability of Option. The Option is not transferable by the Executive otherwise than (i) to or from a Permitted Transferee, (ii) to a designated beneficiary upon death or (iii) by will or the laws of descent and distribution, and is exercisable during the Executive's lifetime only by the Executive or a Permitted Transferee (or, in the event of the Executive's or a Permitted Transferee's adjudicated incapacity, the Executive's or Permitted Transferee's personal representative). No other assignment or transfer of all or any part of the Option, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the assignee or transferee any interest or right herein whatsoever and no assignment or transfer of all or any part of the Option to a Permitted Transferee shall be given effect unless such Permitted Transferee acknowledges in a writing satisfactory to the Company that the Option (and any Option Shares acquired pursuant thereto) remains subject to the provisions of this Agreement and the Employment Agreement. For purposes of this Agreement, "Permitted Transferee" shall mean (i) any member of Executive's immediate family and (ii) any living trust or other entity established by Executive or any Permitted Transferee for estate planning purposes. By way of clarification, transfers of the Option shall be permitted from any Permitted Transferee to Executive or between Permitted Transferees. 7. No Rights as Shareholder with Respect to Option. Neither the Executive nor any transferee of the Option shall have any of the rights of a shareholder with respect to any Option Shares until such time as the Option shall have been duly exercised as provided herein, and no adjustment shall be made for cash distributions in respect of such Option Shares for which the record date is prior to such date. 8. Adjustments. In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend or split, recapitalization, merger, consolidation, spinoff, combination or exchange of shares or other corporate change, or any distributions to common shareholders other than regular cash dividends, the compensation committee (the "Compensation Committee") of the Board of Directors of the Company shall make such substitutions in or adjustments to the number and/or kind of shares of Common Stock or other property subject to, and the Option Price of, the Option as shall be equitable under the circumstances of such change. 9. Compliance with Law. Notwithstanding any of the provisions hereof, the Executive hereby agrees that Executive shall not exercise the Option, and that the Company shall not be obligated to issue or transfer any shares to the Executive hereunder, if the exercise thereof or the issuance or transfer of such shares shall constitute a violation of any provisions of any applicable law or regulation of any governmental authority; provided that nothing in this Section 9 shall be deemed to limit the Company's liability hereunder for any act or omission which would cause the issuance or transfer of such shares to give rise to such a violation. 10. Acquisition for Purpose of Investment. The Executive hereby represents and warrants that the Restricted Stock and any Option Shares acquired pursuant to the exercise of the Option are or will be acquired for his own account solely for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act of 1933, as amended (the "Securities Act"). The Executive hereby acknowledges that to the extent that from time to time the Restricted Stock and Option Shares have not been registered under the Securities Act, such Restricted Stock and Option Shares may be sold or disposed of by the Executive in the absence of such registration only pursuant to an exemption from the registration requirements of the Securities Act, provided that nothing in this Section 10 shall be deemed to limit the Company's obligations under Section 2. 11. Legend; Lapse of Restrictions; Forfeiture. (a) The Executive acknowledges that the sale, transfer and other disposition of the Restricted Stock are subject to the restrictions set forth in Section 1(b) hereof. The Executive agrees to the placement on certificates representing the Restricted Stock of a legend (the "Legend"), substantially as set forth below: This certificate and the shares of stock represented hereby are subject to the terms and conditions, including forfeiture provisions and restrictions against transfer (the "Restrictions"), contained in a Restricted Stock and Stock Option Award Agreement and an Employment Agreement, each dated as of December 4, 1999, between the registered owner and Rite Aid Corporation. Any attempt to dispose of these shares in contravention of the Restrictions, including by way of sale, assignment, transfer, pledge, hypothecation or otherwise, shall be null and void and without effect. (b) Upon each lapse of restrictions relating to the shares of Restricted Stock granted hereunder, the Company shall promptly issue to the Executive or the Executive's personal representative a stock certificate representing a number of shares of Common Stock, free of the restrictive legend described in Section 11(a), equal to the number of shares of Restricted Stock with respect to which such restrictions have lapsed. If certificates representing such Restricted Stock shall have theretofore been delivered to the Executive, such certificates shall be returned to the Company, complete with any necessary signatures or instruments of transfer prior to the issuance by the Company of such unlegended shares of Common Stock. (c) Until such time as the Company has caused the Option Shares and Restricted Stock to be registered under the Securities Act, each share of Restricted Stock delivered to the Executive and each Option Share acquired pursuant to the exercise of the Option shall bear an additional legend, substantially as set forth below: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"). These securities have been acquired for investment and not with a view toward distribution or resale, and may not be sold, offered for sale, transferred, assigned or pledged in the absence of an effective registration statement for such shares under the Securities Act and all applicable state securities laws or an exemption from such registration requirements. (d) Upon the registration of the Option Shares and Restricted Stock, as the case may be, the Company shall promptly issue to the Executive or the Executive's personal representative a stock certificate representing a number of shares of Common Stock, free of the restrictive legend described in Section 11(c), equal to the number of shares of Restricted Stock with respect to which such restrictions have lapsed or Option Shares acquired pursuant to the exercise of the Option. If certificates representing such Restricted Stock or Option Shares shall have theretofore been delivered to the Executive, such certificates shall be returned to the Company, complete with any necessary signatures or instruments of transfer prior to the issuance by the Company of such unlegended shares of Common Stock. 12. Notices. All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier addressed as follows: If to the Executive: David R. Jessick 16025 N.E. Eilers Road Aurora OR 97002 If to the Company: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel or to such other address as either party furnishes to the other in writing in accordance with this Section 12. Notices and communications shall be effective when actually received by the addressee. 13. Successors. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto. No rights or obligations of the Company under this Agreement may be assigned or transferred except that the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, the "Company" shall mean both the Company as defined above and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise. 14. No Right to Employment. The granting of the Option and the Restricted Stock shall not be construed as granting Executive any right to continued employment by the Company or its subsidiaries. Subject to the terms of the Employment Agreement, the right of the Company and its subsidiaries to terminate Executive's employment at any time and for any reason, is specifically reserved. 15. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, without regard to its rules relating to conflicts of laws. 16. Entire Agreement. This Agreement and the relevant provisions of the Employment Agreement comprise the entire agreement between the parties hereto with respect to the subject matter hereof, and may be modified or terminated only by the written consent of the parties hereto. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to due authorization, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. RITE AID CORPORATION ___________________________________ Name: Leonard Green Title: Chairman of the Board ___________________________________ David R. Jessick APPENDIX A A "Change in Control of the Company" shall be deemed to have occurred if, as the result of a single transaction or a series of transactions, the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (2) Incumbent Directors cease at any time and for any reason to constitute a majority of the number of directors then serving on the Board. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the Effective Date or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors to the Board); or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation as appropriate, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (4) the stockholders of the Company approve a plan of liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act. "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities which are properly filed on a Form 13G. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. EX-4 35 EXHIBIT 4.34 - STOCK AND STOCK OPTION AWARD AGREEMENT RITE AID CORPORATION RESTRICTED STOCK AND STOCK OPTION AWARD AGREEMENT THIS AGREEMENT, made as of the 5th day of December, 1999 (the "Effective Date"), by and between (the "Company") and John T. Standley (the "Executive"). W I T N E S S E T H: WHEREAS, the Company and the Executive have entered into an employment agreement, dated as of the Effective Date (the "Employment Agreement"), pursuant to which the Executive will serve as Executive Vice President and Chief Financial Officer of the Company; and WHEREAS, the Employment Agreement provides that, effective as of the Effective Date, the Company shall grant to the Executive the Option and the Restricted Stock (as hereinafter defined), subject to the terms and conditions of this Agreement and the Employment Agreement. NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto agree as follows: 1. Grant of Option and Restricted Stock . (a) The Company hereby grants to the Executive the right and option (the "Option") to purchase, on the terms and conditions set forth herein, subject however to the acceleration and exercise provisions of Section 5 of the Employment Agreement and all other applicable provisions of the Employment Agreement, all or any part of an aggregate of 1,000,000 shares of the Company's common stock, par value $1.00 per share ("Common Stock") (such Common Stock, as adjusted hereunder, being referred to as the "Option Shares"). The purchase price per share of the Option Shares shall be equal to the lesser of (A) the average of the closing prices of the Common Stock on the New York Stock Exchange ("NYSE") over the 20 consecutive trading days immediately preceding the Effective Date and (B) the closing price of the Common Stock on the NYSE on the Effective Date (or, if the Effective Date is not a trading day, the trading day immediately preceding the Effective Date) (such price, as adjusted hereunder, being referred to as the "Option Price"). The number of Option Shares and the Option Price shall be subject to adjustment as provided in Section 8 hereof. Subject to earlier termination as provided in the Employment Agreement, the term of the Option (the "Term") shall commence on the Effective Date and terminate on the tenth anniversary of the Effective Date. The Company shall at all times during the Term of the Option reserve for issuance a sufficient number of shares of Common Stock to permit exercise of the Option in full. (b) The Company hereby grants to the Executive, on the terms and conditions set forth herein, subject however to the acceleration and forfeiture provisions of the Employment Agreement and all other applicable provisions of the Employment Agreement, an aggregate of 100,000 shares of restricted Common Stock (the "Restricted Stock"). The Restricted Stock and any interest therein, may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, prior to the lapse of restrictions provided for in Section 3 hereof. Except as otherwise provided herein, the Executive shall possess all incidents of ownership of the Restricted Stock granted hereunder, including the right to receive dividends with respect to such Restricted Stock and the right to vote such Restricted Stock. (c) The Company represents and warrants to Executive that on or prior to the Effective Date all actions necessary to exempt the grant of the Option and the Restricted Stock under Rule 16b-3(d) under the Securities Exchange Act of 1934, as amended, have been taken by the Company. (d) The Company represents and warrants to Executive that the issuance of the Option and the Restricted Stock will be made pursuant to an available exemption from registration and qualification under all applicable federal and state securities or Blue Sky laws. 2. Registration of Option Shares and Restricted Stock; Listing Obligations. (a) As soon as practicable after the Effective Date, the Company shall, at its sole expense, cause the Common Stock subject to the Option and the resale of the Restricted Stock to be registered under the Securities Act of 1933, as amended (the "Securities Act") and registered or qualified under applicable state securities laws, so that the Common Stock issuable upon exercise of the Option and the Restricted Stock shall be freely tradeable. The Company shall thereafter use its best efforts to maintain the continuing effectiveness of such registration and qualification for so long as the Executive or any Permitted Transferee (as hereinafter defined) holds (i) the Option (or any portion thereof), (ii) any of the Option Shares acquired upon exercise thereof or (iii) any of the Restricted Stock (whether or not the restrictions thereon have lapsed), or until such earlier date as counsel to the Company, reasonably acceptable to Executive, provides the Company a written opinion (a copy of which shall promptly be provided to Executive) satisfactory to Executive to the effect that all Option Shares theretofore issued and subsequently issuable upon exercise of the Option and all shares of Restricted Stock may otherwise be freely sold under United States federal and other applicable law without regard to volume limitations or other conditions. (b) As soon as practicable after the Effective Date, the Company shall, at its sole expense, cause the Common Stock subject to the Option and the Restricted Stock to be listed on all exchanges on which the Common Stock is from time to time listed. The Company shall thereafter use its best efforts to maintain the continued listing of such Common Stock and Restricted Stock for so long as the Executive or any Permitted Transferee holds (i) the Option (or any portion thereof), (ii) any of the Option Shares acquired upon exercise thereof or (iii) any of the Restricted Stock (whether or not the restrictions thereon have lapsed). 3. Vesting and Exercisability. (a) Regular Vesting Schedule. Subject to the provisions of this Agreement and except as provided in Section 5 of the Employment Agreement, the Option shall become vested and exercisable, and all restrictions shall lapse with respect to the Restricted Stock, in each case, in thirty-six (36) equal monthly installments commencing on the date which is one month following the Effective Date. (b) Acceleration of Vesting and Lapse of Restriction. Upon the occurrence of a Change in Control of the Company (as defined in Appendix A hereto), the Option shall become immediately vested and fully exercisable and all restrictions on the transfer of the Restricted Stock shall immediately lapse in full. (c) Except as provided in Section 5 of the Employment Agreement, any portion of the Option that has become vested and exercisable shall remain vested and exercisable until the end of the full ten-year Term of the Option. (d) Certain Definitions. For purposes of this Agreement, all capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms under the Employment Agreement. 4. Method of Exercising Option; Gross-Up; Section 83(b) Election. (a) The Option may be exercised from time to time, in whole or in part, as to that portion of the Option that has from time to time become vested and exercisable. Full payment for the Option Shares purchased shall be made at the time of any exercise under this Agreement. The option price shall be payable to the Company either (i) in United States dollars in cash or by check, bank draft, or postal or express money order, or (ii) through the delivery of shares of Common Stock owned by the Executive for at least six months prior to the date of exercise having a Fair Market Value equal to the full Option Price, or (iii) by a combination of (i) and (ii) above. For purposes of this Agreement "Fair Market Value" shall mean the closing price of the Common Stock on the NYSE on the trading day immediately prior to the date of exercise or if the Common Stock is not then listed on the NYSE, Fair Market Value shall be as determined pursuant to good faith negotiations between the Executive and the Company. At the Option holder's discretion, subject to reasonable procedures adopted by the Company, the Option may also be exercised on a cashless basis through a broker, whereby irrevocable instructions are delivered to the broker to sell that number of shares equal in value to the aggregate Option Price of the Option Shares with respect to which the Option is then being exercised and pay the proceeds to the Company. Subject to the terms and conditions hereof, the Option shall be exercisable by notice to the Company on the form provided by the Company upon request of the Executive. In the event the Option is being exercised by any person or persons other than the Executive, the notice shall be accompanied by proof, satisfactory to the Company, of the right of such person or persons to exercise such right under this Agreement. (b) At the time of exercise of the Option, the Executive shall pay to the Company such amount as may be necessary to satisfy the Company's obligation to withhold Federal, state or local income or other taxes incurred by reason of such exercise (i) by tendering to the Company a check in the amount of such withholding, (ii) by electing to have withheld upon exercise shares of Common Stock having an aggregate Fair Market Value equal to the amount of such tax withholding or (iii) by a combination of (i) and (ii). (c) The Executive hereby agrees to make an election pursuant to Section 83(b) of the Code (the "Election") within the thirty (30) day period commencing on the Effective Date to include the value of the Restricted Stock as of the Effective Date in the Executive's gross income for federal income tax purposes. In connection with the Election, the Company shall, within the time period prescribed by law for withholding and/or payment of estimated or other taxes by reason of such inclusion, make an additional payment (the "Restricted Stock Gross-Up Payment") to the Executive in an amount such that, after giving effect to the imposition of all applicable federal, state and local income, employment and any other taxes or impositions on such payment (the "Aggregate Tax"), the Executive retains a net amount equal to the aggregate amount of all federal, state and local income, employment and any other taxes or impositions incurred by Executive by reason of such inclusion. For purposes of determining the amount of the Restricted Stock Gross-Up Payment, Executive shall be deemed to pay federal income, employment and any other tax for his taxable year in which such inclusion occurs and his taxable year in which such Restricted Stock Gross-Up Payment is made at the highest applicable marginal rate of federal, state and local income, employment or other applicable taxation in such year. The amount of the Restricted Stock Gross-Up Payment shall be determined by the Company's outside auditor, who will timely furnish the Company and Executive with a written statement (together with full supporting and other relevant material) setting forth the amount of the required Restricted Stock Gross-Up Payment. The Executive shall promptly notify the Company of his filing of the Election. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Aggregate Tax is more or less than was initially taken into account hereunder, then each of the Company and the Executive agree to pay to the other party, as applicable, an amount (the "Make Up Amount") such that the amount of the Restricted Stock Gross-Up Payment finally retained by the Executive after giving effect to the Make Up Amount is equal to the amount contemplated by the second sentence of this paragraph (c). 5. Issuance of Option Shares. As promptly as practicable after receipt of such written notification of exercise and full payment of the Option Price and any required tax withholding, the Company shall issue or transfer to the Executive the number of Option Shares with respect to which the Option has been exercised (less shares withheld in satisfaction of tax withholding obligations, if any), and shall deliver to the Executive a certificate or certificates therefor, registered in the Executive's name. 6. Non-Transferability of Option. The Option is not transferable by the Executive otherwise than (i) to or from a Permitted Transferee, (ii) to a designated beneficiary upon death or (iii) by will or the laws of descent and distribution, and is exercisable during the Executive's lifetime only by the Executive or a Permitted Transferee (or, in the event of the Executive's or a Permitted Transferee's adjudicated incapacity, the Executive's or Permitted Transferee's personal representative). No other assignment or transfer of all or any part of the Option, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the assignee or transferee any interest or right herein whatsoever and no assignment or transfer of all or any part of the Option to a Permitted Transferee shall be given effect unless such Permitted Transferee acknowledges in a writing satisfactory to the Company that the Option (and any Option Shares acquired pursuant thereto) remains subject to the provisions of this Agreement and the Employment Agreement. For purposes of this Agreement, "Permitted Transferee" shall mean (i) any member of Executive's immediate family and (ii) any living trust or other entity established by Executive or any Permitted Transferee for estate planning purposes. By way of clarification, transfers of the Option shall be permitted from any Permitted Transferee to Executive or between Permitted Transferees. 7. No Rights as Shareholder with Respect to Option. Neither the Executive nor any transferee of the Option shall have any of the rights of a shareholder with respect to any Option Shares until such time as the Option shall have been duly exercised as provided herein, and no adjustment shall be made for cash distributions in respect of such Option Shares for which the record date is prior to such date. 8. Adjustments. In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend or split, recapitalization, merger, consolidation, spinoff, combination or exchange of shares or other corporate change, or any distributions to common shareholders other than regular cash dividends, the compensation committee (the "Compensation Committee") of the Board of Directors of the Company shall make such substitutions in or adjustments to the number and/or kind of shares of Common Stock or other property subject to, and the Option Price of, the Option as shall be equitable under the circumstances of such change. 9. Compliance with Law. Notwithstanding any of the provisions hereof, the Executive hereby agrees that Executive shall not exercise the Option, and that the Company shall not be obligated to issue or transfer any shares to the Executive hereunder, if the exercise thereof or the issuance or transfer of such shares shall constitute a violation of any provisions of any applicable law or regulation of any governmental authority; provided that nothing in this Section 9 shall be deemed to limit the Company's liability hereunder for any act or omission which would cause the issuance or transfer of such shares to give rise to such a violation. 10. Acquisition for Purpose of Investment. The Executive hereby represents and warrants that the Restricted Stock and any Option Shares acquired pursuant to the exercise of the Option are or will be acquired for his own account solely for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act of 1933, as amended (the "Securities Act"). The Executive hereby acknowledges that to the extent that from time to time the Restricted Stock and Option Shares have not been registered under the Securities Act, such Restricted Stock and Option Shares may be sold or disposed of by the Executive in the absence of such registration only pursuant to an exemption from the registration requirements of the Securities Act, provided that nothing in this Section 10 shall be deemed to limit the Company's obligations under Section 2. 11. Legend; Lapse of Restrictions; Forfeiture. (a) The Executive acknowledges that the sale, transfer and other disposition of the Restricted Stock are subject to the restrictions set forth in Section 1(b) hereof. The Executive agrees to the placement on certificates representing the Restricted Stock of a legend (the "Legend"), substantially as set forth below: This certificate and the shares of stock represented hereby are subject to the terms and conditions, including forfeiture provisions and restrictions against transfer (the "Restrictions"), contained in a Restricted Stock and Stock Option Award Agreement and an Employment Agreement, each dated as of December 4, 1999, between the registered owner and Rite Aid Corporation. Any attempt to dispose of these shares in contravention of the Restrictions, including by way of sale, assignment, transfer, pledge, hypothecation or otherwise, shall be null and void and without effect. (b) Upon each lapse of restrictions relating to the shares of Restricted Stock granted hereunder, the Company shall promptly issue to the Executive or the Executive's personal representative a stock certificate representing a number of shares of Common Stock, free of the restrictive legend described in Section 11(a), equal to the number of shares of Restricted Stock with respect to which such restrictions have lapsed. If certificates representing such Restricted Stock shall have theretofore been delivered to the Executive, such certificates shall be returned to the Company, complete with any necessary signatures or instruments of transfer prior to the issuance by the Company of such unlegended shares of Common Stock. (c) Until such time as the Company has caused the Option Shares and Restricted Stock to be registered under the Securities Act, each share of Restricted Stock delivered to the Executive and each Option Share acquired pursuant to the exercise of the Option shall bear an additional legend, substantially as set forth below: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"). These securities have been acquired for investment and not with a view toward distribution or resale, and may not be sold, offered for sale, transferred, assigned or pledged in the absence of an effective registration statement for such shares under the Securities Act and all applicable state securities laws or an exemption from such registration requirements. (d) Upon the registration of the Option Shares and Restricted Stock, as the case may be, the Company shall promptly issue to the Executive or the Executive's personal representative a stock certificate representing a number of shares of Common Stock, free of the restrictive legend described in Section 11(c), equal to the number of shares of Restricted Stock with respect to which such restrictions have lapsed or Option Shares acquired pursuant to the exercise of the Option. If certificates representing such Restricted Stock or Option Shares shall have theretofore been delivered to the Executive, such certificates shall be returned to the Company, complete with any necessary signatures or instruments of transfer prior to the issuance by the Company of such unlegended shares of Common Stock. 12. Notices. All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier addressed as follows: If to the Executive: John T. Standley at the most recent address on file at the Company's payroll office If to the Company: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel or to such other address as either party furnishes to the other in writing in accordance with this Section 12. Notices and communications shall be effective when actually received by the addressee. 13. Successors. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto. No rights or obligations of the Company under this Agreement may be assigned or transferred except that the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, the "Company" shall mean both the Company as defined above and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise. 14. No Right to Employment. The granting of the Option and the Restricted Stock shall not be construed as granting Executive any right to continued employment by the Company or its subsidiaries. Subject to the terms of the Employment Agreement, the right of the Company and its subsidiaries to terminate Executive's employment at any time and for any reason, is specifically reserved. 15. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, without regard to its rules relating to conflicts of laws. 16. Entire Agreement. This Agreement and the relevant provisions of the Employment Agreement comprise the entire agreement between the parties hereto with respect to the subject matter hereof, and may be modified or terminated only by the written consent of the parties hereto. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to due authorization, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. RITE AID CORPORATION _____________________________ Name: Leonard Green Title: Chairman of the Board _____________________________ John T. Standley APPENDIX A A "Change in Control of the Company" shall be deemed to have occurred if, as the result of a single transaction or a series of transactions, the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (2) Incumbent Directors cease at any time and for any reason to constitute a majority of the number of directors then serving on the Board. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the Effective Date or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors to the Board); or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation as appropriate, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (4) the stockholders of the Company approve a plan of liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act. "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities which are properly filed on a Form 13G. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. EX-10 36 EXHIBIT 10.1 - EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS AGREEMENT by and between Rite Aid Corporation, a Delaware corporation (the "Company"), and Robert G. Miller (the "Executive"), is dated as of the 5th day of December, 1999 (the "Effective Date"). W I T N E S S E T H WHEREAS, the Company and the Executive have agreed that the employment of the Executive is essential to the successful implementation of the Company's long term business strategy; and WHEREAS, the Company wishes to provide for the employment by the Company of the Executive, and the Executive wishes to serve the Company, in the capacities and on the terms and conditions set forth in this Agreement; NOW, THEREFORE, it is hereby agreed as follows: 1. TERM. Subject to earlier termination in accordance with the provisions of Section 4, the term of Executive's employment under this Agreement (the "Employment Period") shall commence as of the Effective Date and end on the third anniversary thereof, provided, however, that on each anniversary of the Effective Date (each such date, a "Renewal Date"), an additional year shall be added to the Employment Period, unless notice of non-renewal has been delivered by one party to the other party at least 180 days prior to such Renewal Date. 2. POSITION AND DUTIES. (a) During the Employment Period, the Executive shall serve as the Chairman (the "Chairman") of the Board of Directors of the Company (the "Board") and as Chief Executive Officer of the Company, with such duties and responsibilities as are customarily assigned to such position, and such other duties and responsibilities appropriate to such office as may from time to time be assigned to him by the Board. Executive shall report solely to the Board and subject to the Board's consent, which consent shall not unreasonably be withheld, shall have the sole right to appoint and terminate the appointment of the Company's executive officers. On the Effective Date, Executive shall be (i) appointed as a member of the Board, to serve as a member of the class of directors with the longest remaining term as of the Effective Date, and (ii) elected Chairman. Subsequently, during the Employment Period, the Company shall cause the Executive to be included in the slate of persons nominated to serve as directors on the Board upon each expiration of Executive's term as a director of the Company and shall use its best efforts to have the Executive reelected to the Board and as Chairman. In addition, following the Effective Date, the Executive shall be entitled to submit to the Board (or an appropriate Board committee) the names of two individuals (which individuals shall not be employees of the Company and shall have no affiliation with the Executive) for consideration for appointment to the Board. The Board (or such committee) shall, in due course, consider such individuals in good faith. In the event that the Board (or a committee thereof) does not approve either or both of such individuals, the Executive shall be entitled to submit the names of one or more alternative individuals (who shall also not be employees of the Company or have any affiliation with the Executive) for consideration until the Board (or a committee thereof) shall have approved two such individuals for appointment to the Board (each such individual together with each successor thereto who is appointed or elected in accordance with the provisions of this section, being referred to herein as a "New Independent Director"). In addition, during the Employment Period, upon each expiration of the term (or other termination of service) of a New Independent Director as a director of the Company, the Company shall cause such New Independent Director (or any successor nominated in accordance with the provisions hereof) to be included in the slate of persons nominated to serve as directors on the Board and shall use its best efforts to have such New Independent Director (or such successor) elected or reelected to the Board, as applicable. Following termination of the Executive's employment for any reason, the Executive shall immediately resign from the Board and from all other offices and positions he holds with the Company. (b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote substantially his full attention and time during business hours to the business and affairs of the Company and shall carry out such responsibilities faithfully and efficiently. Notwithstanding the foregoing, to the extent consistent with the performance of his duties and responsibilities hereunder, the Executive may serve on corporate, industry, civic or charitable boards and committees and shall be permitted to make and manage his personal investments. (c) Other than for necessary travel in connection with the performance of his duties hereunder, the Executive shall be based in Portland, Oregon, and shall not at any time be required to relocate his primary residence from the Portland metropolitan area, regardless of the location from time to time of the Company's principal headquarters. The Company shall provide suitable office space, staff and equipment to enable the Executive to discharge his duties from such location. 3. COMPENSATION. (a) BASE SALARY. During the Employment Period, the Company shall pay Executive an annual base salary ("Annual Base Salary") of not less than $1,250,000. The Annual Base Salary shall be payable in accordance with the Company's regular payroll practice for its senior executives, as in effect from time to time (but in no event less frequently than monthly). During the Employment Period, the Annual Base Salary shall be reviewed periodically by the Compensation Committee of the Board (the "Compensation Committee") for possible increase. Any increase in the Annual Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any such increase, and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as from time to time so increased. (b) INCENTIVE COMPENSATION. To compensate Executive for lost bonus opportunities with his prior employer for 1999, the Company shall pay to the Executive, on or about April 1, 2000, a guaranteed bonus in respect of calendar year 1999 in the amount of $600,000 (the "1999 Guaranteed Bonus"). Commencing with the Company's 2000 fiscal year, the Executive shall participate during the Employment Period in annual cash incentive compensation plans (each, an "Annual Bonus Plan"), as adopted and approved by the Board or the Compensation Committee from time to time, with targets based upon the Company's business plan developed by the Executive and the Board. The Executive's annual target bonus opportunity pursuant to such plans (the "Annual Target Bonus") shall equal at least 100% of the Annual Base Salary in effect for the Executive at the beginning of such fiscal year. (c) OTHER BENEFITS. During the Employment Period, except as and to the extent otherwise provided herein, (1) the Executive shall be entitled to participate in all applicable fringe benefit and perquisite programs and savings and retirement plans (including non-qualified supplemental executive retirement plans), practices, policies and programs of the Company on the same basis as all other senior executives of the Company; and (2) the Executive and/or the Executive's eligible dependents, as the case may be, shall be eligible for participation in, and shall receive benefits under, all applicable welfare benefit plans, practices, policies and programs provided by the Company on the same basis and subject to the same terms and conditions, as all other senior executives of the Company. Without limiting the generality of the foregoing, during the Employment Period the Company shall provide Executive with (i) an annual financial and tax planning allowance of $10,000; (ii) a car allowance of $1500 per month; (iii) use of Company-owned aircraft for business and personal travel; (iv) reimbursement for the annual dues at a country club of Executive's choice; and (v) subject to the immediately succeeding sentence, term life insurance covering the Executive's life and long term disability insurance, in each case in a face amount equal to $3,000,000. The Executive agrees to cooperate with the Company in obtaining such life and disability insurance, including submitting to a physical examination if required to do so by the insurance carrier. The beneficiary of each of the aforementioned policies shall be designated by the Executive and if not so designated shall be his estate. The Company shall promptly reimburse Executive for (x) all necessary and reasonable business expenses, including first-class travel and hotel accommodations, incurred by the Executive in connection with the discharge of his duties hereunder, and (y) all reasonable costs and expenses incurred by Executive in the course of meeting with Company directors and officers, performing due diligence and with respect to all other matters undertaken in connection with the Company and/or its business prior to the Effective Date. The Executive shall be entitled to five weeks' vacation per year in accordance with the Company's vacation policy for senior executives. During the Employment Period, the Company shall provide the Executive with a suitable apartment in the vicinity of the Company's principal headquarters in Harrisburg, Pennsylvania. Following any termination of the Executive's employment with the Company, other than (a) a termination for Cause (as hereinafter defined) or (b) a termination by the Executive other than for Good Reason (as hereinafter defined) prior to the first anniversary of the Effective Date, the Company shall make an annual payment to the Executive for his life (and thereafter to his surviving spouse for her life) equal to the cost to the Executive of purchasing medical coverage substantially comparable in all material respects to the coverage provided by the Company to its senior executives (and their spouses and dependents) immediately prior to such termination. Notwithstanding the foregoing, the payment described in the preceding sentence shall not be made to the Executive with respect to any period during which the Company provides such medical coverage to the Executive and his spouse and dependents pursuant to Section 5(a) or 5(b) hereof. (d) DEFERRED COMPENSATION; SERVICE CREDIT. As of the Effective Date, the Company shall establish a non-qualified deferred compensation plan (the "New Deferred Compensation Plan") for the benefit of the Executive. As of the first day of each month during the Employment Period, the Company shall credit Executive's account under the New Deferred Compensation Plan with an amount equal to $20,000. The Executive shall be fully vested at all times in his account balance under the New Deferred Compensation Plan. Promptly following the Effective Date, the Company and Executive shall negotiate in good faith and agree upon the specific terms of the New Deferred Compensation Plan, including the applicable investment vehicle and terms and schedule of payments. In addition, as of the Effective Date, the Executive and the Company shall enter into the customary deferred compensation agreement provided to senior executives by the Company and the Executive shall be deemed to have, as of the Effective Date, fifteen years of service with the Company for purposes of such agreement. Such deferred compensation agreement shall provide benefits which are commensurate with Executive's position and consistent with the Company's past practice. (e) EQUITY AWARDS. As of the Effective Date, the Company shall grant to the Executive (i) an option (the "Option") to purchase 3,000,000 shares of the Company's common stock, par value $1.00 per share ("Company Stock") and (ii) 600,000 shares of restricted Company Stock (the "Restricted Stock"), on the terms and conditions set forth in that certain Restricted Stock and Stock Option Award Agreement (the "Stock Agreement") attached hereto as Exhibit A and incorporated herein by this reference, subject in each case however to the acceleration and exercise provisions of Section 5 hereof and all other applicable provisions of this Agreement. In the case of any conflict between the terms and conditions of this Agreement and the terms and conditions of the Stock Agreement, the terms and conditions of this Agreement shall govern. (f) INDEMNIFICATION. The Company shall (a) indemnify and hold Executive harmless, to the full extent permitted under applicable law, for, from and against any and all losses, claims, costs, expenses, damages, liabilities or actions (including security holder actions, in respect thereof) (i) related to or arising out of the Executive's employment with and service as a director and an officer of the Company (including with respect to the appointment of officers and other employees) and (ii) related to or arising out of the termination of Executive's employment with his prior employer and any subsidiary or affiliate thereof, including without limitation claims in respect of amounts payable under any applicable agreement upon or otherwise in connection with such termination of employment and Executive's commencement of and continuing employment with the Company and the employment by the Company of any Covered Executive (as hereinafter defined); and (b) pay all reasonable costs, expenses and attorney's fees incurred by Executive in connection with or relating to the defense of any such loss, claim, cost, expense, damage, liability or action. Following any termination of the Executive's employment or service with the Company, the Company shall cause any director and officer liability insurance policies applicable to the Executive prior to such termination to remain in effect for six (6) years following the Termination Date. 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. The Company shall be entitled to terminate the Executive's employment because of the Executive's Disability during the Employment Period. "Disability" means that Executive has been unable, for six consecutive months, to perform the Executive's duties under this Agreement, as a result of physical or mental illness or injury. The effective date of any termination of Executive's employment for Disability is referred to herein as the "Disability Effective Date." A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice, and shall be effective on the 30th day after receipt of such notice by the Executive, unless the Executive returns to full-time performance of the Executive's duties before the Disability Effective Date. During any period prior to the Disability Effective Date during which Executive is absent from the full-time performance of his duties with the Company due to such physical or mental illness or injury, the Company shall continue to pay Executive his Annual Base Salary and Executive shall be entitled to receive any bonus payable under the terms of the applicable Annual Bonus Plan(s) in the ordinary course pursuant to the terms of such Annual Bonus Plan. (b) TERMINATION BY THE COMPANY. The Company may terminate the Executive's employment at any time during the Employment Period for Cause or without Cause. "Cause" shall mean only an act of fraud, embezzlement or misappropriation by the Executive, in any such case intended by the Executive to result in substantial personal enrichment at the expense of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the non-employee members of the Board at a meeting of the Board called and held for such purpose (after reasonable written notice to Executive setting forth in reasonable detail the specific conduct of the Executive upon which the Board relies in reaching its determination and an opportunity for Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of the conduct set forth in the second sentence of this Section 4(b), and Executive shall be entitled to receive all compensation and benefits hereunder pending the delivery of such resolution. The effective date of any termination for Cause shall be the date such resolution is delivered to the Executive. (c) GOOD REASON. (i) The Executive may terminate employment for Good Reason or without Good Reason. "Good Reason" shall mean the occurrence of any one of the following: A. any (i) adverse alteration in Executive's titles, positions, status, duties, authorities, reporting relationships or responsibilities with the Company or its subsidiaries from those specified in this Agreement, as the same may be augmented from time to time (it being understood that, if the Company is no longer a public company, the failure of Executive to hold the position and duties under Section 2 with any ultimate corporate or other parent of the Company or any successor shall be deemed to constitute such Good Reason), (ii) assignment to Executive of any duties or responsibilities inconsistent with Executive's status as Chairman and Chief Executive Officer of the Company, (iii) failure of Executive during the Employment Period to be nominated or re-elected to the offices of Chairman and Chief Executive Officer or the removal of Executive from either such office under any circumstances (other than in connection with the termination of Executive's employment hereunder) or (iv) failure of the Company to comply with the provisions of Section 2(a) hereof with respect to New Independent Directors; B. any failure by the Company to comply with any provision of Section 3 of this Agreement; C. any failure by the Company to comply with Section 2(c) of this Agreement; D. any failure by the Company to comply with paragraph (b) of Section 11 of this Agreement; E. delivery by the Company to the Executive of a notice of non-renewal of the Employment Period pursuant to Section 1 hereof; or F. any other material breach of this Agreement by the Company; provided, however, that the Company shall have the right, within ten (10) days after receipt of notice from Executive of the Company's violation of any one of subparagraphs A, B or F, to cure in full the event or circumstances giving rise to such Good Reason, in the event of which cure such event or circumstances shall be deemed not to constitute Good Reason hereunder. In addition, any termination of employment by the Executive within the six month period commencing on the date of a Change in Control of the Company (as defined in the Stock Agreement) shall be treated as a termination of employment by the Executive for Good Reason. A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies, provided, that Executive's continued employment shall not be deemed to constitute consent to, or a waiver of rights with respect to, any act, omission or other grounds constituting Good Reason hereunder. For clarity, it is understood that the requirement of setting forth such specific conduct and specific provisions(s) is intended (i) to permit the Company to make a reasonable evaluation of Executive's claim of termination for Good Reason and (ii) to permit the Company, where applicable, to cure such conduct, but not to require Executive to specify each act, omission or other grounds constituting Good Reason, there being no intention of the parties that failure to so specify will function as an estoppel with respect to any claim by Executive. A termination of employment by the Executive for Good Reason shall be effective on the latest of (i) the fifth business day following the expiration of the Company's cure period described above, if applicable, (ii) the date specified by Executive in the Notice of Termination for Good Reason or (iii) 45 days following the date the Notice of Termination for Good Reason is delivered to the Company. (ii) A termination of the Executive's employment by the Executive without Good Reason shall be effected by giving the Company at least 90 days' written notice of such termination, and shall be effective on the date specified by Executive in such notice, provided, however, that no such notice period shall be required with respect to any such termination as to which such written notice of termination is delivered to the Company following a Change in Control of the Company. (d) DATE OF TERMINATION. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, or the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason or without Good Reason becomes effective, as the case may be. On the Date of Termination, the Employment Period shall terminate. 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) OTHER THAN FOR CAUSE OR DISABILITY, OR FOR GOOD REASON. If, during the Employment Period, the Company terminates the Executive's employment for any reason other than Cause or Disability, or the Executive terminates his employment for Good Reason; (1) the Company shall pay to the Executive, not later than ten (10) days following the Date of Termination, (i) an amount equal to three times the sum of (x) the Executive's then current Annual Base Salary (without giving effect to any reductions thereof) plus (y) the Executive's then current Annual Target Bonus; (ii) (A) any accrued but unpaid amounts of the Executive's Annual Base Salary through the Date of Termination, (B) any bonus under any Annual Bonus Plan accrued but unpaid through the Date of Termination (including without limitation any such bonus payable on a date following the Date of Termination with respect to a fiscal year or other applicable measuring period completed prior to the Date of Termination), (C) any other compensation and benefits accrued (and, where applicable, vested) through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements (including without limitation vacation benefits and the deferred compensation arrangements referenced in Section 3(d) hereof) as in effect immediately prior to the Date of Termination (or, if in any case providing a greater benefit to Executive, as in effect immediately prior to an event constituting Good Reason) and (D) any amounts of reimbursable business expenses incurred through the Date of Termination (all of the items in this clause (ii) are hereinafter referred to collectively as the "Accrued Benefits"); (iii) an amount equal to the product of (A) the maximum annual bonus that the Executive would have been eligible to earn under the Annual Bonus Plan for the bonus measurement period during which the Date of Termination occurs, and (B) a fraction, the numerator of which is the number of days from the first day of such period through the Date of Termination and the denominator of which is the total number of days in such measurement period, together with a similarly pro rated bonus with respect to any applicable long term incentive plan then in effect; (iv) an amount equal to the sum of the deferred compensation amounts which would otherwise have been credited to the Executive pursuant to the New Deferred Compensation Plan had Executive continued employment with the Company through the end of the then remaining Employment Period (measured as of the Date of Termination without regard to any subsequent renewals thereof), without reduction in any such case to a net or other present value; and (v) if not theretofore paid, the 1999 Guaranteed Bonus; (2) medical coverage provided to the Executive immediately prior to the Date of Termination (or, at Executive's sole discretion, medical coverage provided to the Executive immediately prior to the occurrence of any event constituting Good Reason) shall continue to be provided by the Company to the Executive (and, if applicable, his spouse and dependents) for three years following the Date of Termination; (3) all of the Executive's then outstanding stock options shall vest and become fully exercisable as of the Date of Termination and (i) the Option shall remain fully vested and exercisable throughout the remainder of its ten-year term and (ii) any other outstanding options to acquire Company securities shall similarly remain exercisable for the remainder of their stated term, without regard to any early termination provisions or other terms and conditions otherwise applicable to such options; and (4) all remaining restrictions applicable to the Restricted Stock and any other restricted stock awards shall immediately lapse and any performance goals or other conditions applicable to any other equity incentive awards shall immediately be deemed to have been satisfied in full (with performance goals being deemed to have been satisfied at targeted levels). (b) DEATH AND DISABILITY. If the Executive's employment is terminated by reason of the Executive's death or Disability during the Employment Period; (1) the Company shall pay to the Executive or, in the case of the Executive's death, to the Executive's designated beneficiaries (or, if there is no such beneficiary, to the Executive's estate or legal representative), in a lump sum in cash within ten (10) days after the Date of Termination, the sum of the following amounts: (i) the Accrued Benefits; (ii) an amount equal to the product of (A) the maximum annual bonus that the Executive would have been eligible to earn under the Annual Bonus Plan for the bonus measurement period during which the Date of Termination occurs, and (B) a fraction, the numerator of which is the number of days from the first day of such period through the Date of Termination and the denominator of which is the total number of days in such measurement period, together with a similarly pro rated bonus with respect to any applicable long term incentive plan then in effect; and (iii) if not theretofore paid, the 1999 Guaranteed Bonus; (2) medical coverage provided to the Executive immediately prior to the Date of Termination shall continue to be provided by the Company (i) in the event of Disability, to the Executive (and, if applicable, his spouse and dependents) or (ii) in the event of Executive's death, to his surviving spouse (and, if applicable, his dependents), for three years following the Date of Termination; (3) all of the Executive's then outstanding stock options shall vest and become fully exercisable as of the Date of Termination and (i) the Option shall remain fully vested and exercisable throughout the remainder of its ten-year term and (ii) any other outstanding options to acquire Company securities shall similarly remain exercisable for the remainder of their stated term, without regard to any early termination provisions or other terms and conditions otherwise applicable to such options; and (4) all remaining restrictions applicable to the Restricted Stock and any other restricted stock awards shall immediately lapse and any performance goals or other conditions applicable to any other equity incentive awards shall immediately be deemed to have been satisfied in full (with performance goals being deemed to have been satisfied at targeted levels). (c) BY THE COMPANY FOR CAUSE. If the Executive's employment is terminated by the Company for Cause during the Employment Period, (1) the Company shall pay to the Executive the Accrued Benefits within ten (10) days after the Date of Termination; (2) any portion of the Option or any other then outstanding stock option that has not been exercised prior to the Date of Termination shall immediately terminate; and (3) any portion of the Restricted Stock or any other restricted stock or other equity incentive awards as to which the restrictions have not lapsed or as to which any other conditions shall not have been satisfied prior to the Date of Termination shall be forfeited as of the Date of Termination. (d) BY THE EXECUTIVE OTHER THAN FOR GOOD REASON. If the Executive's employment is terminated by Executive (other than for Good Reason) during the Employment Period; (1) the Company shall pay to the Executive the Accrued Benefits, within ten (10) days after the Date of Termination; (2) any portion of the Option or any other then outstanding stock option that has not vested and become exercisable prior to the Date of Termination shall immediately terminate and any portion of the Option or any other then outstanding stock option that has vested and become exercisable prior to the Date of Termination shall remain vested and exercisable for a period of ninety (90) days following the Date of Termination, at the end of which period such portion of the option shall terminate, provided, however, that if the Date of Termination shall be on or after the third anniversary of the Effective Date, the entire Option shall remain vested and exercisable throughout the remainder of its ten-year term; and (3) the restrictions on the Restricted Stock shall continue to lapse in accordance with the terms of the Stock Agreement as if Executive's employment with the Company had continued uninterrupted until such restrictions had lapsed in full; provided, however, that in the event Executive's employment is terminated by Executive (other than for Good Reason) prior to the first anniversary of the Effective Date any portion of the Restricted Stock as to which the restrictions have not lapsed pursuant to the terms of the Stock Agreement prior to the Date of Termination shall be forfeited as of the Date of Termination. (e) (i) In the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this agreement or of any other plan, arrangement or agreement of the Company (or any affiliate) (collectively, the "Payments") would be subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), as determined as provided below, the Company shall pay to the Executive, at the time specified in Section 5(e)(ii) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of the Excise Tax on Payments and any federal, state and local income and employment or other tax and the Excise Tax upon the Gross-Up Payment, and any interest, penalties or additions to tax payable by the Executive with respect thereto, shall be equal to the total Payments. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amounts of such Excise Tax, (1) the total amount of the Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to Executive and selected by the accounting firm which was, immediately prior to the event giving rise to the Payment, the Company's independent auditor (the "Auditor"), a Payment (in whole or in part) does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in part) are not subject to the Excise Tax, (2) the amount of the Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Payments or (B) the amount of "excess parachute payments" within the meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof), and (3) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rates of federal income taxation applicable to the individuals in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of the Executive's residence in the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account any limitations applicable to individuals subject to federal income tax at the highest marginal rates. (ii) The Gross-Up Payments provided for in Section 5(e)(i) hereof shall be made upon the earlier of (i) ten days following the Date of Termination or (ii) the imposition upon the Executive or payment by the Executive of any Excise Tax. (iii) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax is less than the amount taken into account under Section 5(e)(i) hereof, the Executive shall repay to the Company within thirty (30) days of the Executive's receipt of notice of such final determination the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the portion of the Gross-Up Payment being repaid by the Executive if and to the extent that such repayment results in a reduction in Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for the purpose of federal, state and local income taxes) plus any interest received by the Executive on the amount of such repayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax exceeds the amount taken into account hereunder (including without limitation by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment pursuant to Section 5(e)(i) in respect of such excess within thirty (30) days of the Company's receipt of notice of such final determination or opinion. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. (iv) In the event of any change in, or further interpretation of, sections 280G or 4999 of the Code and the regulations promulgated thereunder, the Executive shall be entitled, by written notice to the Company, to request an opinion of Tax Counsel regarding the application of such change to any of the foregoing, and the Company shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of the Auditor and Tax Counsel incurred in connection with this Agreement shall be borne by the Company. 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies for which the Executive may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. 7. FULL SETTLEMENT. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others whether in respect of claims made under this Agreement or otherwise. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts, benefits and other compensation payable or otherwise provided to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced, regardless of whether the Executive obtains other employment. In no event shall any amounts, benefits or other compensation payable or otherwise provided to Executive hereunder be reduced in respect of, or the Company's obligations to Executive hereunder be affected by, or any other form of "clawback" provision apply to, the payment to Executive at any time of any amounts, benefits or other compensation in respect of his employment with any prior employer. 8. CONFIDENTIAL INFORMATION; COMPETITION; SOLICITATION. During the Employment Period and for a period of three years following the applicable Date of Termination, the Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies and their respective businesses that the Executive obtains during the Executive's employment by the Company or any of its affiliated companies and that is not public knowledge (other than as a result of the Executive's violation of this Section 8) ("Confidential Information") and the Executive shall not communicate, divulge or disseminate Confidential Information at any time during such period to anyone other than the Company, appropriate Company personnel and those other persons designated by the Company, except (i) with the prior written consent of the Company, (ii) as otherwise required by law or legal process, (iii) on behalf of the Company in the furtherance of its business or in the course of performing Executive's duties to the Company or (iv) in the course of any adversarial proceeding against the Company. During the Employment Period (and if during the Employment Period (A) the Executive terminates his employment with the Company without Good Reason or (B) the Executive is terminated by the Company for Cause, then for one year after the Date of Termination), (i) the Executive shall not, without the written consent of the Board, directly or indirectly, knowingly engage or be interested in (as owner, partner, stockholder, employee, director, officer, agent, consultant or otherwise), with or without compensation, any Competitor of the Company, (ii) the Executive shall not, without the written consent of the Board, directly or indirectly solicit or recruit any person (other than persons employed in a clerical or other nonprofessional position) who is then employed by the Company or who was employed by the Company or any of its subsidiaries or affiliates at any time during the six-month period preceding the Date of Termination for the purpose of being employed by the Executive, by any entity or person on whose behalf the Executive is acting as an agent, representative or employee or by any Competitor of the Company and (iii) the Executive shall not, without the written consent of the Board, directly or indirectly, solicit, entice, persuade or induce any person or entity doing business with the Company and its subsidiaries and affiliates, to terminate such relationship or to refrain from extending or renewing the same. For purposes of this Section 8, the term "Competitor of the Company" shall mean any entity a majority of whose business involves the ownership and operation of retail drug stores, provided, however, that such term shall not include any entity a majority of whose business involves the business of the retail sale or wholesale distribution of food and related products (including, without limitation, health and beauty care and general merchandise products and all other products sold to the supermarket industry), regardless of whether such entity sells certain products of a type found in retail drug stores and regardless of whether one or more divisions or subsidiaries of such entity, standing alone, would otherwise be a Competitor of the Company. Nothing herein, however, shall prohibit the Executive from acquiring or holding not more than five percent of any class of publicly traded securities of any such business; provided that such securities entitle the Executive to no more than five percent of the total outstanding votes entitled to be cast by security holders of such business in matters on which such security holders are entitled to vote. In the event of a breach or any threatened breach of the Section 8, Executive agrees that, in addition to any other remedy available to the Company at law or in equity, the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any breach or prevent any threatened breach. Executive further acknowledges that damages would be inadequate and insufficient to compensate the Company for any breach of this Section 8. 9. GROUP TERMINATION BY SENIOR EXECUTIVES. As a material inducement to the Company's willingness to enter into this Agreement and the Stock Agreement, the Executive agrees that he will not deliver to the Company a notice of termination pursuant to Section 5(c)(ii) hereof within thirty days of the delivery of a similar notice by any of the persons listed on Exhibit B hereto (individually each a "Covered Executive" and collectively, the "Covered Executives") pursuant to the terms of such Covered Executive's employment agreement with the Company; provided, however, that the preceding clause shall be void and of no force and effect from and after the occurrence of a Change in Control of the Company. 10. DISPUTE RESOLUTION; ATTORNEYS' FEES. All disputes arising under or related to the employment of the Executive by the Company or the provisions of this agreement shall be settled by arbitration under the rules of the American Arbitration Association then in effect, such arbitration to be held in Portland, Oregon, as the sole and exclusive remedy of either party and judgment on any arbitration award may be entered in any court of competent jurisdiction. The Company agrees to reimburse all reasonable legal fees and other expenses incurred by the Executive in any such dispute if the Executive prevails as to one or more of the material issues in the dispute. Promptly following the Effective Date, the Company shall reimburse the Executive for legal fees and expenses incurred by the Executive in negotiating and entering into this Agreement and the New Deferred Compensation Agreement (and incidental matters contemplated hereby) up to a maximum of $37,500. The Company shall also promptly reimburse the Executive for legal fees, costs and expenses incurred in any dispute, arbitration or other litigation relating to or arising out of the termination of Executive's employment with his prior employer and any subsidiary or affiliate thereof, including without limitation claims in respect of amounts payable under any applicable agreement upon or otherwise in connection with such termination of employment and Executive's commencement of and continuing employment with the Company (including with respect to the appointment of officers and other employees) and the employment by the Company of any Covered Executive. 11. SUCCESSORS. (a) No rights or obligations of Executive under this Agreement may be assigned or transferred by Executive other than his rights to payments, benefits or other compensation hereunder, which (without the prior written consent of the Company) may be transferred only by will or the laws of descent and distribution or as otherwise provided in the Stock Agreement. Upon Executive's death, this Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to Executive's interests under this Agreement. Executive shall be entitled to select and change a beneficiary or beneficiaries to receive any payment, benefit or other compensation payable hereunder following Executive's death by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary or beneficiaries, estate or other legal representative(s). (b) No rights or obligations of the Company under this Agreement may be assigned or transferred except that the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, the "Company" shall mean both the Company as defined above and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 11(b) or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise. 12. COMPANY REPRESENTATION. The Company represents and warrants to the Executive that (i) it has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder in full, (ii) the execution and delivery of this Agreement by the Company and the performance of its obligations hereunder have been duly and validly authorized by all necessary corporate action and (iii) no other corporate proceedings on the part of the Company (including on the part of the shareholders of the Company) are necessary to authorize this Agreement or perform such obligations. This Agreement has been duly and validly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 13. MISCELLANEOUS. (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Oregon, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier addressed as follows: If to the Executive: Robert G. Miller 0305 SW Montgomery #F508 Portland, OR 47201 If to the Company: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel or to such other address as either party furnishes to the other in writing in accordance with this paragraph (b) of Section 13. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. (d) Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. (e) The Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert, any right under, this Agreement (including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to paragraph (c) of Section 4 of this Agreement) shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) Except as provided in the Stock Agreement, the rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Except as provided in the Stock Agreement, any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. (g) This Agreement (together with the exhibits hereto) sets forth the entire agreement of the parties hereto in respect of the subject matter construed herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written by any party or any officer or other representative of such party in respect of such subject matter. (h) This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. (i) This Agreement shall survive the termination of the Employment Period and the termination of Executive's employment hereunder under any circumstances to the extent necessary to give effect to its provisions. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to due authorization, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. RITE AID CORPORATION ----------------------------------------- By: Leonard Green Title: Chairman of the Board ----------------------------------------- Robert G. Miller EX-10 37 EXHIBIT 10.2 - EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS AGREEMENT by and between Rite Aid Corporation, a Delaware corporation (the "Company"), and Mary F. Sammons (the "Executive"), is dated as of the 5th day of December, 1999 (the "Effective Date"). W I T N E S S E T H WHEREAS, the Company and the Executive have agreed that the employment of the Executive is essential to the successful implementation of the Company's long term business strategy; and WHEREAS, the Company wishes to provide for the employment by the Company of the Executive, and the Executive wishes to serve the Company, in the capacities and on the terms and conditions set forth in this Agreement; NOW, THEREFORE, it is hereby agreed as follows: 1. TERM. Subject to earlier termination in accordance with the provisions of Section 4, the term of Executive's employment under this Agreement (the "Employment Period") shall commence as of the Effective Date and end on the third anniversary thereof, provided, however, that on each anniversary of the Effective Date (each such date, a "Renewal Date"), an additional year shall be added to the Employment Period, unless notice of non-renewal has been delivered by one party to the other party at least 180 days prior to such Renewal Date. 2. POSITION AND DUTIES. (a) During the Employment Period, the Executive shall serve as the President and Chief Operating Officer of the Company, with such duties and responsibilities as are customarily assigned to such position, and such other duties and responsibilities appropriate to such office as may from time to time be assigned to her by the Company's Chief Executive Officer or the Board of Directors of the Company (the "Board"). Executive shall report solely to the Chief Executive Officer and the Board. On the Effective Date, Executive shall be appointed as a member of the Board, to serve as a member of the class of directors with the second longest remaining term as of the Effective Date. Subsequently, during the Employment Period, the Company shall cause the Executive to be included in the slate of persons nominated to serve as directors on the Board upon each expiration of Executive's term as a director of the Company and shall use its best efforts to have the Executive reelected to the Board. Following termination of the Executive's employment for any reason, the Executive shall immediately resign from the Board and from all other offices and positions she holds with the Company. (b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote substantially her full attention and time during business hours to the business and affairs of the Company and shall carry out such responsibilities faithfully and efficiently. Notwithstanding the foregoing, to the extent consistent with the performance of her duties and responsibilities hereunder, the Executive may serve on corporate, industry, civic or charitable boards and committees and shall be permitted to make and manage her personal investments. (c) Other than for necessary travel in connection with the performance of her duties hereunder, the Executive shall be based at the Company's headquarters in the Harrisburg, Pennsylvania area. The Company shall reimburse the Executive for the following relocation expenses: (i) the reasonable costs associated with the selling of the Executive's current primary residence; (ii) reasonable living expenses for a residence for Executive and her family in the Harrisburg, Pennsylvania area for a temporary period; (iii) a reasonable number of round trip visits between Harrisburg and the city in which the Executive's current residence is located, including reasonable costs for meals, lodging and transportation for the Executive and her family during such trips; and (iv) reasonable costs for moving Executive's household goods and cars to the Harrisburg, Pennsylvania area. In addition, the Executive may participate in a relocation service program, and the Company shall share in the expenses of such program on terms which the parties shall mutually agree upon. The reimbursement amount described herein shall be "grossed-up" to offset in full any net increase in Executive's federal, state and local income, employment and other taxes resulting therefrom (and from such gross-up). 3. COMPENSATION. (a) BASE SALARY. During the Employment Period, the Company shall pay Executive an annual base salary ("Annual Base Salary") of not less than $750,000. The Annual Base Salary shall be payable in accordance with the Company's regular payroll practice for its senior executives, as in effect from time to time (but in no event less frequently than monthly). During the Employment Period, the Annual Base Salary shall be reviewed periodically by the Compensation Committee of the Board (the "Compensation Committee") for possible increase. Any increase in the Annual Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any such increase, and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as from time to time so increased. (b) INCENTIVE COMPENSATION. To compensate Executive for lost bonus opportunities with her prior employer for 1999, the Company shall pay to the Executive, on or about April 1, 2000, a guaranteed bonus in respect of calendar year 1999 in the amount of $200,000 (the "1999 Guaranteed Bonus"). Commencing with the Company's 2000 fiscal year, the Executive shall participate during the Employment Period in annual cash incentive compensation plans (each, an "Annual Bonus Plan"), as adopted and approved by the Board or the Compensation Committee from time to time, with targets based upon the Company's business plan developed by the Executive and the Board. The Executive's annual target bonus opportunity pursuant to such plans (the "Annual Target Bonus") shall equal at least 75% of the Annual Base Salary in effect for the Executive at the beginning of such fiscal year. (c) OTHER BENEFITS. During the Employment Period, except as and to the extent otherwise provided herein, (1) the Executive shall be entitled to participate in all applicable fringe benefit and perquisite programs and savings and retirement plans (including non-qualified supplemental executive retirement plans), practices, policies and programs of the Company on the same basis as all other senior executives of the Company; and (2) the Executive and/or the Executive's eligible dependents, as the case may be, shall be eligible for participation in, and shall receive benefits under, all applicable welfare benefit plans, practices, policies and programs provided by the Company on the same basis and subject to the same terms and conditions, as all other senior executives of the Company. Without limiting the generality of the foregoing, during the Employment Period the Company shall provide Executive with (i) an annual financial and tax planning allowance of $10,000; (ii) a car allowance of $1,000 per month; (iii) use of Company-owned aircraft for business travel; (iv) reimbursement for the annual dues at a country club of Executive's choice; and (v) subject to the immediately succeeding sentence, term life insurance covering the Executive's life and long term disability insurance, in each case in a face amount equal to $2,000,000. The Executive agrees to cooperate with the Company in obtaining such life and disability insurance, including submitting to a physical examination if required to do so by the insurance carrier. The beneficiary of each of the aforementioned policies shall be designated by the Executive and if not so designated shall be her estate. The Company shall promptly reimburse Executive for (x) all necessary and reasonable business expenses, including first-class travel and hotel accommodations, incurred by the Executive in connection with the discharge of her duties hereunder, and (y) all reasonable costs and expenses incurred by Executive in the course of meeting with Company directors and officers, performing due diligence and with respect to all other matters undertaken in connection with the Company and/or its business prior to the Effective Date. The Executive shall be entitled to five weeks' vacation per year in accordance with the Company's vacation policy for senior executives. (d) DEFERRED COMPENSATION; SERVICE CREDIT. As of the Effective Date, the Company shall establish a non-qualified deferred compensation plan (the "New Deferred Compensation Plan") for the benefit of the Executive. As of the first day of each month during the Employment Period, the Company shall credit Executive's account under the New Deferred Compensation Plan with an amount equal to $15,000. The Executive shall be fully vested at all times in her account balance under the New Deferred Compensation Plan. Promptly following the Effective Date, the Company and Executive shall negotiate in good faith and agree upon the specific terms of the New Deferred Compensation Plan, including the applicable investment vehicle and terms and schedule of payments. In addition, as of the Effective Date, the Executive and the Company shall enter into the customary deferred compensation agreement provided to senior executives by the Company and the Executive shall be deemed to have, as of the Effective Date, fifteen years of service with the Company for purposes of such agreement. Such deferred compensation agreement shall provide benefits which are commensurate with Executive's position and consistent with the Company's past practice. (e) EQUITY AWARDS. As of the Effective Date, the Company shall grant to the Executive (i) an option (the "Option") to purchase 2,000,000 shares of the Company's common stock, par value $1.00 per share ("Company Stock") and (ii) 200,000 shares of restricted Company Stock (the "Restricted Stock"), on the terms and conditions set forth in that certain Restricted Stock and Stock Option Award Agreement (the "Stock Agreement") attached hereto as Exhibit A and incorporated herein by this reference, subject in each case however to the acceleration and exercise provisions of Section 5 hereof and all other applicable provisions of this Agreement. In the case of any conflict between the terms and conditions of this Agreement and the terms and conditions of the Stock Agreement, the terms and conditions of this Agreement shall govern. (f) INDEMNIFICATION. The Company shall (a) indemnify and hold Executive harmless, to the full extent permitted under applicable law, for, from and against any and all losses, claims, costs, expenses, damages, liabilities or actions (including security holder actions, in respect thereof) (i) related to or arising out of the Executive's employment with and service as a director and an officer of the Company (including with respect to the appointment of officers and other employees) and (ii) related to or arising out of the termination of Executive's employment with her prior employer and any subsidiary or affiliate thereof, including without limitation claims in respect of amounts payable under any applicable agreement upon or otherwise in connection with such termination of employment and Executive's commencement of and continuing employment with the Company and the employment by the Company of any Covered Executive (as hereinafter defined); and (b) pay all reasonable costs, expenses and attorney's fees incurred by Executive in connection with or relating to the defense of any such loss, claim, cost, expense, damage, liability or action. Following any termination of the Executive's employment or service with the Company, the Company shall cause any director and officer liability insurance policies applicable to the Executive prior to such termination to remain in effect for six (6) years following the Termination Date. 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. The Company shall be entitled to terminate the Executive's employment because of the Executive's Disability during the Employment Period. "Disability" means that Executive has been unable, for six consecutive months, to perform the Executive's duties under this Agreement, as a result of physical or mental illness or injury. The effective date of any termination of Executive's employment for Disability is referred to herein as the "Disability Effective Date." A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice, and shall be effective on the 30th day after receipt of such notice by the Executive, unless the Executive returns to full-time performance of the Executive's duties before the Disability Effective Date. During any period prior to the Disability Effective Date during which Executive is absent from the full-time performance of her duties with the Company due to such physical or mental illness or injury, the Company shall continue to pay Executive her Annual Base Salary and Executive shall be entitled to receive any bonus payable under the terms of the applicable Annual Bonus Plan(s) in the ordinary course pursuant to the terms of such Annual Bonus Plan. (b) TERMINATION BY THE COMPANY. The Company may terminate the Executive's employment at any time during the Employment Period for Cause or without Cause. "Cause" shall mean only an act of fraud, embezzlement or misappropriation by the Executive, in any such case intended by the Executive to result in substantial personal enrichment at the expense of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the non-employee members of the Board at a meeting of the Board called and held for such purpose (after reasonable written notice to Executive setting forth in reasonable detail the specific conduct of the Executive upon which the Board relies in reaching its determination, and an opportunity for Executive, together with her counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of the conduct set forth in the second sentence of this Section 4(b), and Executive shall be entitled to receive all compensation and benefits hereunder pending the delivery of such resolution. The effective date of any termination for Cause shall be the date such resolution is delivered to Executive. (c) GOOD REASON. (i) The Executive may terminate employment for Good Reason or without Good Reason. "Good Reason" shall mean the occurrence of any one of the following: A. any (i) adverse alteration in Executive's titles, positions, status, duties, authorities, reporting relationships or responsibilities with the Company or its subsidiaries from those specified in this Agreement, as the same may be augmented from time to time (it being understood that, if the Company is no longer a public company, the failure of Executive to hold the position and duties under Section 2 with any ultimate corporate or other parent of the Company or any successor shall be deemed to constitute such Good Reason), (ii) assignment to Executive of any duties or responsibilities inconsistent with Executive's status as President and Chief Operating Officer of the Company or (iii) failure of Executive during the Employment Period to be nominated or re-elected to the Board or the removal of Executive from the office of President or Chief Operating Officer or the Board (other than in connection with the termination of Executive's employment hereunder); B. any failure by the Company to comply with any provision of Section 3 of this Agreement; C. any failure by the Company to comply with Section 2(c) of this Agreement; D. any failure by the Company to comply with paragraph (b) of Section 11 of this Agreement; E. delivery by the Company to the Executive of a notice of non-renewal of the Employment Period pursuant to Section 1 hereof; or F. any other material breach of this Agreement by the Company; provided, however, that the Company shall have the right, within ten (10) days after receipt of notice from Executive of the Company's violation of any one of subparagraphs A, B or F, to cure in full the event or circumstances giving rise to such Good Reason, in the event of which cure such event or circumstances shall be deemed not to constitute Good Reason hereunder. In addition, any termination of employment by the Executive within the six month period commencing on the date of a Change in Control of the Company (as defined in the Stock Agreement) shall be treated as a termination of employment by the Executive for Good Reason. A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies, provided, that Executive's continued employment shall not be deemed to constitute consent to, or a waiver of rights with respect to, any act, omission or other grounds constituting Good Reason hereunder. For clarity, it is understood that the requirement of setting forth such specific conduct and specific provisions(s) is intended (i) to permit the Company to make a reasonable evaluation of Executive's claim of termination for Good Reason and (ii) to permit the Company, where applicable, to cure such conduct, but not to require Executive to specify each act, omission or other grounds constituting Good Reason, there being no intention of the parties that failure to so specify will function as an estoppel with respect to any claim by Executive. A termination of employment by the Executive for Good Reason shall be effective on the latest of (i) the fifth business day following the expiration of the Company's cure period described above, if applicable, (ii) the date specified by Executive in the Notice of Termination for Good Reason or (iii) 45 days following the date the Notice of Termination for Good Reason is delivered to the Company. (ii) A termination of the Executive's employment by the Executive without Good Reason shall be effected by giving the Company at least 90 days' written notice of such termination, and shall be effective on the date specified by Executive in such notice, provided, however, that no such notice period shall be required with respect to any such termination as to which such written notice of termination is delivered to the Company following a Change in Control of the Company. (d) DATE OF TERMINATION. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, or the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason or without Good Reason becomes effective, as the case may be. On the Date of Termination, the Employment Period shall terminate. 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) OTHER THAN FOR CAUSE OR DISABILITY, OR FOR GOOD REASON. If, during the Employment Period, the Company terminates the Executive's employment for any reason other than Cause or Disability, or the Executive terminates her employment for Good Reason; (1) the Company shall pay to the Executive, not later than ten (10) days following the Date of Termination, (i) an amount equal to three times the sum of (x) the Executive's then current Annual Base Salary (without giving effect to any reductions thereof) plus (y) the Executive's then current Annual Target Bonus; (ii) (A) any accrued but unpaid amounts of the Executive's Annual Base Salary through the Date of Termination, (B) any bonus under any Annual Bonus Plan accrued but unpaid through the Date of Termination (including without limitation any such bonus payable on a date following the Date of Termination with respect to a fiscal year or other applicable measuring period completed prior to the Date of Termination), (C) any other compensation and benefits accrued (and, where applicable, vested) through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements (including without limitation vacation benefits and the deferred compensation arrangements referenced in Section 3(d) hereof) as in effect immediately prior to the Date of Termination (or, if in any case providing a greater benefit to Executive, as in effect immediately prior to an event constituting Good Reason) and (D) any amounts of reimbursable business expenses incurred through the Date of Termination (all of the items in this clause (ii) are hereinafter referred to collectively as the "Accrued Benefits"); (iii) an amount equal to the product of (A) the maximum annual bonus that the Executive would have been eligible to earn under the Annual Bonus Plan for the bonus measurement period during which the Date of Termination occurs, and (B) a fraction, the numerator of which is the number of days from the first day of such period through the Date of Termination and the denominator of which is the total number of days in such measurement period, together with a similarly pro rated bonus with respect to any applicable long term incentive plan then in effect; (iv) an amount equal to the sum of the deferred compensation amounts which would otherwise have been credited to the Executive pursuant to the New Deferred Compensation Plan had Executive continued employment with the Company through the end of the then remaining Employment Period (measured as of the Date of Termination without regard to any subsequent renewals thereof), without reduction in any such case to a net or other present value; and (v) if not theretofore paid, the 1999 Guaranteed Bonus; (2) medical coverage provided to the Executive immediately prior to the Date of Termination (or, at Executive's sole discretion, medical coverage provided to the Executive immediately prior to the occurrence of any event constituting Good Reason) shall continue to be provided by the Company to the Executive (and, if applicable, her spouse and dependents) for three years following the Date of Termination; (3) all of the Executive's then outstanding stock options shall vest and become fully exercisable as of the Date of Termination and (i) the Option shall remain fully vested and exercisable throughout the remainder of its ten-year term and (ii) any other outstanding options to acquire Company securities shall similarly remain exercisable for the remainder of their stated term, without regard to any early termination provisions or other terms and conditions otherwise applicable to such options; and (4) all remaining restrictions applicable to the Restricted Stock and any other restricted stock awards shall immediately lapse and any performance goals or other conditions applicable to any other equity incentive awards shall immediately be deemed to have been satisfied in full (with performance goals being deemed to have been satisfied at targeted levels). (b) DEATH AND DISABILITY. If the Executive's employment is terminated by reason of the Executive's death or Disability during the Employment Period; (1) the Company shall pay to the Executive or, in the case of the Executive's death, to the Executive's designated beneficiaries (or, if there is no such beneficiary, to the Executive's estate or legal representative), in a lump sum in cash within ten (10) days after the Date of Termination, the sum of the following amounts: (i) the Accrued Benefits; (ii) an amount equal to the product of (A) the maximum annual bonus that the Executive would have been eligible to earn under the Annual Bonus Plan for the bonus measurement period during which the Date of Termination occurs, and (B) a fraction, the numerator of which is the number of days from the first day of such period through the Date of Termination and the denominator of which is the total number of days in such measurement period, together with a similarly pro rated bonus with respect to any applicable long term incentive plan then in effect; and (iii) if not theretofore paid, the 1999 Guaranteed Bonus; (2) medical coverage provided to the Executive immediately prior to the Date of Termination shall continue to be provided by the Company (i) in the event of Disability, to the Executive (and, if applicable, her spouse and dependents) or (ii) in the event of Executive's death, to her surviving spouse (and, if applicable, her dependents), for three years following the Date of Termination; (3) all of the Executive's then outstanding stock options shall vest and become fully exercisable as of the Date of Termination and (i) the Option shall remain fully vested and exercisable throughout the remainder of its ten-year term and (ii) any other outstanding options to acquire Company securities shall similarly remain exercisable for the remainder of their stated term, without regard to any early termination provisions or other terms and conditions otherwise applicable to such options; and (4) all remaining restrictions applicable to the Restricted Stock and any other restricted stock awards shall immediately lapse and any performance goals or other conditions applicable to any other equity incentive awards shall immediately be deemed to have been satisfied in full (with performance goals being deemed to have been satisfied at targeted levels). (c) BY THE COMPANY FOR CAUSE. If the Executive's employment is terminated by the Company for Cause during the Employment Period, (1) the Company shall pay to the Executive the Accrued Benefits within ten (10) days after the Date of Termination; (2) any portion of the Option or any other then outstanding stock option that has not been exercised prior to the Date of Termination shall immediately terminate; and (3) any portion of the Restricted Stock or any other restricted stock or other equity incentive awards as to which the restrictions have not lapsed or as to which any other conditions shall not have been satisfied prior to the Date of Termination shall be forfeited as of the Date of Termination. (d) BY THE EXECUTIVE OTHER THAN FOR GOOD REASON. If the Executive's employment is terminated by Executive (other than for Good Reason) during the Employment Period; (1) the Company shall pay to the Executive the Accrued Benefits, within ten (10) days after the Date of Termination; (2) any portion of the Option or any other then outstanding stock option that has not vested and become exercisable prior to the Date of Termination shall immediately terminate and any portion of the Option or any other then outstanding stock option that has vested and become exercisable prior to the Date of Termination shall remain vested and exercisable for a period of ninety (90) days following the Date of Termination, at the end of which period such portion of the option shall terminate, provided, however, that if the Date of Termination shall be on or after the third anniversary of the Effective Date, the entire Option shall remain vested and exercisable throughout the remainder of its ten-year term; and (3) the restrictions on the Restricted Stock shall continue to lapse in accordance with the terms of the Stock Agreement as if Executive's employment with the Company had continued uninterrupted until such restrictions had lapsed in full; provided, however, that in the event Executive's employment is terminated by Executive (other than for Good Reason) prior to the first anniversary of the Effective Date any portion of the Restricted Stock as to which the restrictions have not lapsed pursuant to the terms of the Stock Agreement prior to the Date of Termination shall be forfeited as of the Date of Termination. (e) (i) In the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this agreement or of any other plan, arrangement or agreement of the Company (or any affiliate) (collectively, the "Payments") would be subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), as determined as provided below, the Company shall pay to the Executive, at the time specified in Section 5(e)(ii) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of the Excise Tax on Payments and any federal, state and local income and employment or other tax and the Excise Tax upon the Gross-Up Payment, and any interest, penalties or additions to tax payable by the Executive with respect thereto, shall be equal to the total Payments. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amounts of such Excise Tax, (1) the total amount of the Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to Executive and selected by the accounting firm which was, immediately prior to the event giving rise to the Payment, the Company's independent auditor (the "Auditor"), a Payment (in whole or in part) does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in part) are not subject to the Excise Tax, (2) the amount of the Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Payments or (B) the amount of "excess parachute payments" within the meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof), and (3) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rates of federal income taxation applicable to the individuals in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of the Executive's residence in the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account any limitations applicable to individuals subject to federal income tax at the highest marginal rates. (ii) The Gross-Up Payments provided for in Section 5(e)(i) hereof shall be made upon the earlier of (i) ten days following the Date of Termination or (ii) the imposition upon the Executive or payment by the Executive of any Excise Tax. (iii) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax is less than the amount taken into account under Section 5(e)(i) hereof, the Executive shall repay to the Company within thirty (30) days of the Executive's receipt of notice of such final determination the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the portion of the Gross-Up Payment being repaid by the Executive if and to the extent that such repayment results in a reduction in Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for the purpose of federal, state and local income taxes) plus any interest received by the Executive on the amount of such repayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax exceeds the amount taken into account hereunder (including without limitation by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment pursuant to Section 5(e)(i) in respect of such excess within thirty (30) days of the Company's receipt of notice of such final determination or opinion. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. (iv) In the event of any change in, or further interpretation of, sections 280G or 4999 of the Code and the regulations promulgated thereunder, the Executive shall be entitled, by written notice to the Company, to request an opinion of Tax Counsel regarding the application of such change to any of the foregoing, and the Company shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of the Auditor and Tax Counsel incurred in connection with this Agreement shall be borne by the Company. 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies for which the Executive may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. 7. FULL SETTLEMENT. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others whether in respect of claims made under this Agreement or otherwise. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts, benefits and other compensation payable or otherwise provided to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced, regardless of whether the Executive obtains other employment. In no event shall any amounts, benefits or other compensation payable or otherwise provided to Executive hereunder be reduced in respect of, or the Company's obligations to Executive hereunder be affected by, or any other form of "clawback" provision apply to, the payment to Executive at any time of any amounts, benefits or other compensation in respect of her employment with any prior employer. 8. CONFIDENTIAL INFORMATION; COMPETITION; SOLICITATION. During the Employment Period and for a period of three years following the applicable Date of Termination, the Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies and their respective businesses that the Executive obtains during the Executive's employment by the Company or any of its affiliated companies and that is not public knowledge (other than as a result of the Executive's violation of this Section 8) ("Confidential Information") and the Executive shall not communicate, divulge or disseminate Confidential Information at any time during such period to anyone other than the Company, appropriate Company personnel and those other persons designated by the Company, except (i) with the prior written consent of the Company, (ii) as otherwise required by law or legal process, (iii) on behalf of the Company in the furtherance of its business or in the course of performing Executive's duties to the Company or (iv) in the course of any adversarial proceeding against the Company. During the Employment Period (and if during the Employment Period (A) the Executive terminates her employment with the Company without Good Reason or (B) the Executive is terminated by the Company for Cause, then for one year after the Date of Termination), (i) the Executive shall not, without the written consent of the Board, directly or indirectly, knowingly engage or be interested in (as owner, partner, stockholder, employee, director, officer, agent, consultant or otherwise), with or without compensation, any Competitor of the Company, (ii) the Executive shall not, without the written consent of the Board, directly or indirectly solicit or recruit any person (other than persons employed in a clerical or other non-professional position) who is then employed by the Company or who was employed by the Company or any of its subsidiaries or affiliates at any time during the six-month period preceding the Date of Termination for the purpose of being employed by the Executive, by any entity or person on whose behalf the Executive is acting as an agent, representative or employee or by any Competitor of the Company and (iii) the Executive shall not, without the written consent of the Board, directly or indirectly, solicit, entice, persuade or induce any person or entity doing business with the Company and its subsidiaries and affiliates, to terminate such relationship or to refrain from extending or renewing the same. For purposes of this Section 8, the term "Competitor of the Company" shall mean any entity a majority of whose business involves the ownership and operation of retail drug stores, provided, however, that such term shall not include any entity a majority of whose business involves the business of the retail sale or wholesale distribution of food and related products (including, without limitation, health and beauty care and general merchandise products and all other products sold to the supermarket industry), regardless of whether such entity sells certain products of a type found in retail drug stores and regardless of whether one or more divisions or subsidiaries of such entity, standing alone, would otherwise be a Competitor of the Company. Nothing herein, however, shall prohibit the Executive from acquiring or holding not more than five percent of any class of publicly traded securities of any such business; provided that such securities entitle the Executive to no more than five percent of the total outstanding votes entitled to be cast by security holders of such business in matters on which such security holders are entitled to vote. In the event of a breach or any threatened breach of the Section 8, Executive agrees that, in addition to any other remedy available to the Company at law or in equity, the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any breach or prevent any threatened breach. Executive further acknowledges that damages would be inadequate and insufficient to compensate the Company for any breach of this Section 8. 9. GROUP TERMINATION BY SENIOR EXECUTIVES. As a material inducement to the Company's willingness to enter into this Agreement and the Stock Agreement, the Executive agrees that she will not deliver to the Company a notice of termination pursuant to Section 5(c)(ii) hereof within thirty days of the delivery of a similar notice by any of the persons listed on Exhibit B hereto (individually each a "Covered Executive" and collectively, the "Covered Executives") pursuant to the terms of such Covered Executive's employment agreement with the Company; provided, however, that the preceding clause shall be void and of no force and effect from and after the occurrence of a Change in Control of the Company. 10. DISPUTE RESOLUTION; ATTORNEYS' FEES. All disputes arising under or related to the employment of the Executive by the Company or the provisions of this agreement shall be settled by arbitration under the rules of the American Arbitration Association then in effect, such arbitration to be held in Portland, Oregon, as the sole and exclusive remedy of either party and judgment on any arbitration award may be entered in any court of competent jurisdiction. The Company agrees to reimburse all reasonable legal fees and other expenses incurred by the Executive in any such dispute if the Executive prevails as to one or more of the material issues in the dispute. Promptly following the Effective Date, the Company shall reimburse the Executive for legal fees and expenses incurred by the Executive in negotiating and entering into this Agreement and the New Deferred Compensation Agreement and incidental matters contemplated hereby, up to a maximum of $17,500. The Company shall also promptly reimburse the Executive for legal fees, costs and expenses incurred in any dispute, arbitration or other litigation relating to or arising out of the termination of Executive's employment with her prior employer and any subsidiary or affiliate thereof, including without limitation claims in respect of amounts payable under any applicable agreement upon or otherwise in connection with such termination of employment and Executive's commencement of and continuing employment with the Company (including with respect to the appointment of officers and other employees) and the employment by the Company of any Covered Executive. 11. SUCCESSORS. (a) No rights or obligations of Executive under this Agreement may be assigned or transferred by Executive other than her rights to payments, benefits or other compensation hereunder, which (without the prior written consent of the Company) may be transferred only by will or the laws of descent and distribution or as otherwise provided in the Stock Agreement. Upon Executive's death, this Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to Executive's interests under this Agreement. Executive shall be entitled to select and change a beneficiary or beneficiaries to receive any payment, benefit or other compensation payable hereunder following Executive's death by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of her incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to her beneficiary or beneficiaries, estate or other legal representative(s). (b) No rights or obligations of the Company under this Agreement may be assigned or transferred except that the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, the "Company" shall mean both the Company as defined above and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 11(b) or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise. 12. COMPANY REPRESENTATION. The Company represents and warrants to the Executive that (i) it has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder in full, (ii) the execution and delivery of this Agreement by the Company and the performance of its obligations hereunder have been duly and validly authorized by all necessary corporate action and (iii) no other corporate proceedings on the part of the Company (including on the part of the shareholders of the Company) are necessary to authorize this Agreement or perform such obligations. This Agreement has been duly and validly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 13. MISCELLANEOUS. (a) This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier addressed as follows: If to the Executive: Mary F. Sammons 3508 S.W. Gale Avenue Portland, Oregon 97201 If to the Company: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel or to such other address as either party furnishes to the other in writing in accordance with this paragraph (b) of Section 13. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. (d) Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. (e) The Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert, any right under, this Agreement (including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to paragraph (c) of Section 4 of this Agreement) shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) Except as provided in the Stock Agreement, the rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Except as provided in the Stock Agreement, any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. (g) This Agreement (together with the exhibits hereto) sets forth the entire agreement of the parties hereto in respect of the subject matter construed herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written by any party or any officer or other representative of such party in respect of such subject matter. (h) This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. (i) This Agreement shall survive the termination of the Employment Period and the termination of Executive's employment hereunder under any circumstances to the extent necessary to give effect to its provisions. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to due authorization, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. RITE AID CORPORATION ----------------------------------- By: Leonard Green Title: Chairman of the Board ----------------------------------- Mary F. Sammons EX-10 38 EXHIBIT 10.3 - EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS AGREEMENT by and between Rite Aid Corporation, a Delaware corporation (the "Company"), and David R. Jessick (the "Executive"), is dated as of the 5th day of December, 1999 (the "Effective Date"). W I T N E S S E T H WHEREAS, the Company and the Executive have agreed that the employment of the Executive is essential to the successful implementation of the Company's long term business strategy; and WHEREAS, the Company wishes to provide for the employment by the Company of the Executive, and the Executive wishes to serve the Company, in the capacities and on the terms and conditions set forth in this Agreement; NOW, THEREFORE, it is hereby agreed as follows: 1. TERM. Subject to earlier termination in accordance with the provisions of Section 4, the term of Executive's employment under this Agreement (the "Employment Period") shall commence as of the Effective Date and end on the third anniversary thereof, provided, however, that on each anniversary of the Effective Date (each such date, a "Renewal Date"), an additional year shall be added to the Employment Period, unless notice of non-renewal has been delivered by one party to the other party at least 180 days prior to such Renewal Date. 2. POSITION AND DUTIES. (a) During the Employment Period, the Executive shall serve as the Senior Executive Vice President and Chief Administrative Officer of the Company, with such duties and responsibilities as are customarily assigned to such position, and such other duties and responsibilities appropriate to such office as may from time to time be assigned to him by the Company's Chief Executive Officer or the Board of Directors of the Company (the "Board"). Executive shall report solely to the Chief Executive Officer of the Company and the Board. Following termination of the Executive's employment for any reason, the Executive shall immediately resign from all offices and positions he holds with the Company. (b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote substantially his full attention and time during business hours to the business and affairs of the Company and shall carry out such responsibilities faithfully and efficiently. Notwithstanding the foregoing, to the extent consistent with the performance of his duties and responsibilities hereunder, the Executive may serve on corporate, industry, civic or charitable boards and committees and shall be permitted to make and manage his personal investments. (c) Other than for necessary travel in connection with the performance of his duties hereunder, the Executive shall be based in Portland, Oregon, and shall not at any time be required to relocate his primary residence from the Portland metropolitan area, regardless of the location from time to time of the Company's principal headquarters. The Company shall provide suitable office space, staff and equipment to enable the Executive to discharge his duties from such location. 3. COMPENSATION. (a) BASE SALARY. During the Employment Period, the Company shall pay Executive an annual base salary ("Annual Base Salary") of not less than $600,000. The Annual Base Salary shall be payable in accordance with the Company's regular payroll practice for its senior executives, as in effect from time to time (but in no event less frequently than monthly). During the Employment Period, the Annual Base Salary shall be reviewed periodically by the Compensation Committee of the Board (the "Compensation Committee") for possible increase. Any increase in the Annual Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any such increase, and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as from time to time so increased. (b) INCENTIVE COMPENSATION. The Company shall pay to the Executive, on or about April 1, 2000, a guaranteed bonus in respect of calendar year 1999 in the amount of $150,000 (the "1999 Guaranteed Bonus"). Commencing with the Company's 2000 fiscal year, the Executive shall participate during the Employment Period in annual cash incentive compensation plans (each, an "Annual Bonus Plan"), as adopted and approved by the Board or the Compensation Committee from time to time, with targets based upon the Company's business plan developed by the Executive and the Board. The Executive's annual target bonus opportunity pursuant to such plans (the "Annual Target Bonus") shall equal at least 60% of the Annual Base Salary in effect for the Executive at the beginning of such fiscal year. (c) OTHER BENEFITS. During the Employment Period, except as and to the extent otherwise provided herein, (1) the Executive shall be entitled to participate in all applicable fringe benefit and perquisite programs and savings and retirement plans (including non-qualified supplemental executive retirement plans), practices, policies and programs of the Company on the same basis as all other senior executives of the Company; and (2) the Executive and/or the Executive's eligible dependents, as the case may be, shall be eligible for participation in, and shall receive benefits under, all applicable welfare benefit plans, practices, policies and programs provided by the Company on the same basis and subject to the same terms and conditions, as all other senior executives of the Company. Without limiting the generality of the foregoing, during the Employment Period the Company shall provide Executive with (i) an annual financial and tax planning allowance of $10,000; (ii) a car allowance of $1,000 per month; (iii) use of Company-owned aircraft for business travel; (iv) reimbursement for the annual dues at a country club of Executive's choice; and (v) subject to the immediately succeeding sentence, term life insurance covering the Executive's life and long term disability insurance, in each case in a face amount equal to $1,500,000. The Executive agrees to cooperate with the Company in obtaining such life and disability insurance, including submitting to a physical examination if required to do so by the insurance carrier. The beneficiary of each of the aforementioned policies shall be designated by the Executive and if not so designated shall be his estate. The Company shall promptly reimburse Executive for (x) all necessary and reasonable business expenses, including first-class travel and hotel accommodations, incurred by the Executive in connection with the discharge of his duties hereunder, and (y) all reasonable costs and expenses incurred by Executive in the course of meeting with Company directors and officers, performing due diligence and with respect to all other matters undertaken in connection with the Company and/or its business prior to the Effective Date. The Executive shall be entitled to five weeks' vacation per year in accordance with the Company's vacation policy for senior executives. During the Employment Period, the Company shall provide the Executive with a suitable apartment in the vicinity of the Company's principal headquarters in Harrisburg, Pennsylvania. (d) DEFERRED COMPENSATION; SERVICE CREDIT. As of the Effective Date, the Company shall establish a non-qualified deferred compensation plan (the "New Deferred Compensation Plan") for the benefit of the Executive. As of the first day of each month during the Employment Period, the Company shall credit Executive's account under the New Deferred Compensation Plan with an amount equal to $10,000. The Executive shall be fully vested at all times in his account balance under the New Deferred Compensation Plan. Promptly following the Effective Date, the Company and Executive shall negotiate in good faith and agree upon the specific terms of the New Deferred Compensation Plan, including the applicable investment vehicle and terms and schedule of payments. In addition, as of the Effective Date, the Executive and the Company shall enter into the customary deferred compensation agreement provided to senior executives by the Company and the Executive shall be deemed to have, as of the Effective Date, fifteen years of service with the Company for purposes of such agreement. Such deferred compensation agreement shall provide benefits which are commensurate with Executive's position and consistent with the Company's past practice (e) EQUITY AWARDS. As of the Effective Date, the Company shall grant to the Executive (i) an option (the "Option") to purchase 1,000,000 shares of the Company's common stock, par value $1.00 per share ("Company Stock") and (ii) 100,000 shares of restricted Company Stock (the "Restricted Stock"), on the terms and conditions set forth in that certain Restricted Stock and Stock Option Award Agreement (the "Stock Agreement") attached hereto as Exhibit A and incorporated herein by this reference, subject in each case however to the acceleration and exercise provisions of Section 5 hereof and all other applicable provisions of this Agreement. In the case of any conflict between the terms and conditions of this Agreement and the terms and conditions of the Stock Agreement, the terms and conditions of this Agreement shall govern. (f) INDEMNIFICATION. The Company shall (a) indemnify and hold Executive harmless, to the full extent permitted under applicable law, for, from and against any and all losses, claims, costs, expenses, damages, liabilities or actions (including security holder actions, in respect thereof) (i) related to or arising out of the Executive's employment with and service as an officer of the Company (including with respect to the appointment of officers and other employees) and (ii) related to or arising out of the termination of Executive's employment with his prior employer and any subsidiary or affiliate thereof, including without limitation claims in respect of amounts payable under any applicable agreement upon or otherwise in connection with such termination of employment and Executive's commencement of and continuing employment with the Company and the employment by the Company of any Covered Executive (as hereinafter defined); and (b) pay all reasonable costs, expenses and attorney's fees incurred by Executive in connection with or relating to the defense of any such loss, claim, cost, expense, damage, liability or action. Following any termination of the Executive's employment or service with the Company, the Company shall cause any director and officer liability insurance policies applicable to the Executive prior to such termination to remain in effect for six (6) years following the Termination Date. 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. The Company shall be entitled to terminate the Executive's employment because of the Executive's Disability during the Employment Period. "Disability" means that Executive has been unable, for six consecutive months, to perform the Executive's duties under this Agreement, as a result of physical or mental illness or injury. The effective date of any termination of Executive's employment for Disability is referred to herein as the "Disability Effective Date." A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice, and shall be effective on the 30th day after receipt of such notice by the Executive, unless the Executive returns to full-time performance of the Executive's duties before the Disability Effective Date. During any period prior to the Disability Effective Date during which Executive is absent from the full-time performance of his duties with the Company due to such physical or mental illness or injury, the Company shall continue to pay Executive his Annual Base Salary and Executive shall be entitled to receive any bonus payable under the terms of the applicable Annual Bonus Plan(s) in the ordinary course pursuant to the terms of such Annual Bonus Plan. (b) TERMINATION BY THE COMPANY. The Company may terminate the Executive's employment at any time during the Employment Period for Cause or without Cause. "Cause" shall mean only an act of fraud, embezzlement or misappropriation by the Executive, in any such case intended by the Executive to result in substantial personal enrichment at the expense of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the non-employee members of the Board at a meeting of the Board called and held for such purpose (after reasonable written notice to Executive setting forth in reasonable detail the specific conduct of the Executive upon which the Board relies in reaching its determination, and an opportunity for Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of the conduct set forth in the second sentence of this Section 4(b), and Executive shall be entitled to receive all compensation and benefits hereunder pending the delivery of such resolution. The effective date of any termination for Cause shall be the date such resolution is delivered to Executive. (c) GOOD REASON. (i) The Executive may terminate employment for Good Reason or without Good Reason. "Good Reason" shall mean the occurrence of any one of the following: A. any (i) adverse alteration in Executive's titles, positions, status, duties, authorities, reporting relationships or responsibilities with the Company or its subsidiaries from those specified in this Agreement, as the same may be augmented from time to time (it being understood that, if the Company is no longer a public company, the failure of Executive to hold the position and duties under Section 2 with any ultimate corporate or other parent of the Company or any successor shall be deemed to constitute such Good Reason), (ii) assignment to Executive of any duties or responsibilities inconsistent with Executive's status as Senior Executive Vice President and Chief Administrative Officer of the Company or (iii) removal of Executive from either such office under any circumstances (other than in connection with the termination of Executive's employment hereunder); B. any failure by the Company to comply with any provision of Section 3 of this Agreement; C. any failure by the Company to comply with Section 2(c) of this Agreement; D. any failure by the Company to comply with paragraph (b) of Section 11 of this Agreement; E. delivery by the Company to the Executive of a notice of non-renewal of the Employment Period pursuant to Section 1 hereof; or F. any other material breach of this Agreement by the Company; provided, however, that the Company shall have the right, within ten (10) days after receipt of notice from Executive of the Company's violation of any one of subparagraphs A, B or F, to cure in full the event or circumstances giving rise to such Good Reason, in the event of which cure such event or circumstances shall be deemed not to constitute Good Reason hereunder. In addition, any termination of employment by the Executive within the six month period commencing on the date of a Change in Control of the Company (as defined in the Stock Agreement) shall be treated as a termination of employment by the Executive for Good Reason. A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies, provided, that Executive's continued employment shall not be deemed to constitute consent to, or a waiver of rights with respect to, any act, omission or other grounds constituting Good Reason hereunder. For clarity, it is understood that the requirement of setting forth such specific conduct and specific provisions(s) is intended (i) to permit the Company to make a reasonable evaluation of Executive's claim of termination for Good Reason and (ii) to permit the Company, where applicable, to cure such conduct, but not to require Executive to specify each act, omission or other grounds constituting Good Reason, there being no intention of the parties that failure to so specify will function as an estoppel with respect to any claim by Executive. A termination of employment by the Executive for Good Reason shall be effective on the latest of (i) the fifth business day following the expiration of the Company's cure period described above, if applicable, (ii) the date specified by Executive in the Notice of Termination for Good Reason or (iii) 45 days following the date the Notice of Termination for Good Reason is delivered to the Company. (ii) A termination of the Executive's employment by the Executive without Good Reason shall be effected by giving the Company at least 90 days' written notice of such termination, and shall be effective on the date specified by Executive in such notice, provided, however, that no such notice period shall be required with respect to any such termination as to which such written notice of termination is delivered to the Company following a Change in Control of the Company. (d) DATE OF TERMINATION. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, or the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason or without Good Reason becomes effective, as the case may be. On the Date of Termination, the Employment Period shall terminate. 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) OTHER THAN FOR CAUSE OR DISABILITY, OR FOR GOOD REASON. If, during the Employment Period, the Company terminates the Executive's employment for any reason other than Cause or Disability, or the Executive terminates his employment for Good Reason; (1) the Company shall pay to the Executive, not later than ten (10) days following the Date of Termination, (i) an amount equal to three times the sum of (x) the Executive's then current Annual Base Salary (without giving effect to any reductions thereof) plus (y) the Executive's then current Annual Target Bonus; (ii) (A) any accrued but unpaid amounts of the Executive's Annual Base Salary through the Date of Termination, (B) any bonus under any Annual Bonus Plan accrued but unpaid through the Date of Termination (including without limitation any such bonus payable on a date following the Date of Termination with respect to a fiscal year or other applicable measuring period completed prior to the Date of Termination), (C) any other compensation and benefits accrued (and, where applicable, vested) through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements (including without limitation vacation benefits and the deferred compensation arrangements referenced in Section 3(d) hereof) as in effect immediately prior to the Date of Termination (or, if in any case providing a greater benefit to Executive, as in effect immediately prior to an event constituting Good Reason) and (D) any amounts of reimbursable business expenses incurred through the Date of Termination (all of the items in this clause (ii) are hereinafter referred to collectively as the "Accrued Benefits"); (iii) an amount equal to the product of (A) the maximum annual bonus that the Executive would have been eligible to earn under the Annual Bonus Plan for the bonus measurement period during which the Date of Termination occurs, and (B) a fraction, the numerator of which is the number of days from the first day of such period through the Date of Termination and the denominator of which is the total number of days in such measurement period, together with a similarly pro rated bonus with respect to any applicable long term incentive plan then in effect; (iv) an amount equal to the sum of the deferred compensation amounts which would otherwise have been credited to the Executive pursuant to the New Deferred Compensation Plan had Executive continued employment with the Company through the end of the then remaining Employment Period (measured as of the Date of Termination without regard to any subsequent renewals thereof), without reduction in any such case to a net or other present value; and (v) if not theretofore paid, the 1999 Guaranteed Bonus; (2) medical coverage provided to the Executive immediately prior to the Date of Termination (or, at Executive's sole discretion, medical coverage provided to the Executive immediately prior to the occurrence of any event constituting Good Reason) shall continue to be provided by the Company to the Executive (and, if applicable, his spouse and dependents) for three years following the Date of Termination; (3) all of the Executive's then outstanding stock options shall vest and become fully exercisable as of the Date of Termination and (i) the Option shall remain fully vested and exercisable throughout the remainder of its ten-year term and (ii) any other outstanding options to acquire Company securities shall similarly remain exercisable for the remainder of their stated term, without regard to any early termination provisions or other terms and conditions otherwise applicable to such options; and (4) all remaining restrictions applicable to the Restricted Stock and any other restricted stock awards shall immediately lapse and any performance goals or other conditions applicable to any other equity incentive awards shall immediately be deemed to have been satisfied in full (with performance goals being deemed to have been satisfied at targeted levels). (b) DEATH AND DISABILITY. If the Executive's employment is terminated by reason of the Executive's death or Disability during the Employment Period; (1) the Company shall pay to the Executive or, in the case of the Executive's death, to the Executive's designated beneficiaries (or, if there is no such beneficiary, to the Executive's estate or legal representative), in a lump sum in cash within ten (10) days after the Date of Termination, the sum of the following amounts: (i) the Accrued Benefits; (ii) an amount equal to the product of (A) the maximum annual bonus that the Executive would have been eligible to earn under the Annual Bonus Plan for the bonus measurement period during which the Date of Termination occurs, and (B) a fraction, the numerator of which is the number of days from the first day of such period through the Date of Termination and the denominator of which is the total number of days in such measurement period, together with a similarly pro rated bonus with respect to any applicable long term incentive plan then in effect; and (iii) if not theretofore paid, the 1999 Guaranteed Bonus; (2) medical coverage provided to the Executive immediately prior to the Date of Termination shall continue to be provided by the Company (i) in the event of Disability, to the Executive (and, if applicable, his spouse and dependents) or (ii) in the event of Executive's death, to his surviving spouse (and, if applicable, his dependents), for three years following the Date of Termination; (3) all of the Executive's then outstanding stock options shall vest and become fully exercisable as of the Date of Termination and (i) the Option shall remain fully vested and exercisable throughout the remainder of its ten-year term and (ii) any other outstanding options to acquire Company securities shall similarly remain exercisable for the remainder of their stated term, without regard to any early termination provisions or other terms and conditions otherwise applicable to such options; and (4) all remaining restrictions applicable to the Restricted Stock and any other restricted stock awards shall immediately lapse and any performance goals or other conditions applicable to any other equity incentive awards shall immediately be deemed to have been satisfied in full (with performance goals being deemed to have been satisfied at targeted levels). (c) BY THE COMPANY FOR CAUSE. If the Executive's employment is terminated by the Company for Cause during the Employment Period, (1) the Company shall pay to the Executive the Accrued Benefits within ten (10) days after the Date of Termination; (2) any portion of the Option or any other then outstanding stock option that has not been exercised prior to the Date of Termination shall immediately terminate; and (3) any portion of the Restricted Stock or any other restricted stock or other equity incentive awards as to which the restrictions have not lapsed or as to which any other conditions shall not have been satisfied prior to the Date of Termination shall be forfeited as of the Date of Termination. (d) BY THE EXECUTIVE OTHER THAN FOR GOOD REASON. If the Executive's employment is terminated by Executive (other than for Good Reason) during the Employment Period; (1) the Company shall pay to the Executive the Accrued Benefits, within ten (10) days after the Date of Termination; (2) any portion of the Option or any other then outstanding stock option that has not vested and become exercisable prior to the Date of Termination shall immediately terminate and any portion of the Option or any other then outstanding stock option that has vested and become exercisable prior to the Date of Termination shall remain vested and exercisable for a period of ninety (90) days following the Date of Termination, at the end of which period such portion of the option shall terminate, provided, however, that if the Date of Termination shall be on or after the third anniversary of the Effective Date, the entire Option shall remain vested and exercisable throughout the remainder of its ten-year term; and (3) the restrictions on the Restricted Stock shall continue to lapse in accordance with the terms of the Stock Agreement as if Executive's employment with the Company had continued uninterrupted until such restrictions had lapsed in full; provided, however, that in the event Executive's employment is terminated by Executive (other than for Good Reason) prior to the first anniversary of the Effective Date any portion of the Restricted Stock as to which the restrictions have not lapsed pursuant to the terms of the Stock Agreement prior to the Date of Termination shall be forfeited as of the Date of Termination. (e) (i) In the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this agreement or of any other plan, arrangement or agreement of the Company (or any affiliate) (collectively, the "Payments") would be subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), as determined as provided below, the Company shall pay to the Executive, at the time specified in Section 5(e)(ii) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of the Excise Tax on Payments and any federal, state and local income and employment or other tax and the Excise Tax upon the Gross-Up Payment, and any interest, penalties or additions to tax payable by the Executive with respect thereto, shall be equal to the total Payments. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amounts of such Excise Tax, (1) the total amount of the Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to Executive and selected by the accounting firm which was, immediately prior to the event giving rise to the Payment, the Company's independent auditor (the "Auditor"), a Payment (in whole or in part) does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in part) are not subject to the Excise Tax, (2) the amount of the Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Payments or (B) the amount of "excess parachute payments" within the meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof), and (3) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rates of federal income taxation applicable to the individuals in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of the Executive's residence in the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account any limitations applicable to individuals subject to federal income tax at the highest marginal rates. (ii) The Gross-Up Payments provided for in Section 5(e)(i) hereof shall be made upon the earlier of (i) ten days following the Date of Termination or (ii) the imposition upon the Executive or payment by the Executive of any Excise Tax. (iii) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax is less than the amount taken into account under Section 5(e)(i) hereof, the Executive shall repay to the Company within thirty (30) days of the Executive's receipt of notice of such final determination the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the portion of the Gross-Up Payment being repaid by the Executive if and to the extent that such repayment results in a reduction in Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for the purpose of federal, state and local income taxes) plus any interest received by the Executive on the amount of such repayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax exceeds the amount taken into account hereunder (including without limitation by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment pursuant to Section 5(e)(i) in respect of such excess within thirty (30) days of the Company's receipt of notice of such final determination or opinion. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. (iv) In the event of any change in, or further interpretation of, sections 280G or 4999 of the Code and the regulations promulgated thereunder, the Executive shall be entitled, by written notice to the Company, to request an opinion of Tax Counsel regarding the application of such change to any of the foregoing, and the Company shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of the Auditor and Tax Counsel incurred in connection with this Agreement shall be borne by the Company. 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies for which the Executive may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. 7. FULL SETTLEMENT. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others whether in respect of claims made under this Agreement or otherwise. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts, benefits and other compensation payable or otherwise provided to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced, regardless of whether the Executive obtains other employment. In no event shall any amounts, benefits or other compensation payable or otherwise provided to Executive hereunder be reduced in respect of, or the Company's obligations to Executive hereunder be affected by, or any other form of "clawback" provision apply to, the payment to Executive at any time of any amounts, benefits or other compensation in respect of his employment with any prior employer. 8. CONFIDENTIAL INFORMATION; COMPETITION; SOLICITATION. During the Employment Period and for a period of three years following the applicable Date of Termination, the Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies and their respective businesses that the Executive obtains during the Executive's employment by the Company or any of its affiliated companies and that is not public knowledge (other than as a result of the Executive's violation of this Section 8) ("Confidential Information") and the Executive shall not communicate, divulge or disseminate Confidential Information at any time during such period to anyone other than the Company, appropriate Company personnel and those other persons designated by the Company, except (i) with the prior written consent of the Company, (ii) as otherwise required by law or legal process, (iii) on behalf of the Company in the furtherance of its business or in the course of performing Executive's duties to the Company or (iv) in the course of any adversarial proceeding against the Company. During the Employment Period (and if during the Employment Period (A) the Executive terminates his employment with the Company without Good Reason or (B) the Executive is terminated by the Company for Cause, then for one year after the Date of Termination), (i) the Executive shall not, without the written consent of the Board, directly or indirectly, knowingly engage or be interested in (as owner, partner, stockholder, employee, director, officer, agent, consultant or otherwise), with or without compensation, any Competitor of the Company, (ii) the Executive shall not, without the written consent of the Board, directly or indirectly solicit or recruit any person (other than persons employed in a clerical or other non-professional position) who is then employed by the Company or who was employed by the Company or any of its subsidiaries or affiliates at any time during the six-month period preceding the Date of Termination for the purpose of being employed by the Executive, by any entity or person on whose behalf the Executive is acting as an agent, representative or employee or by any Competitor of the Company and (iii) the Executive shall not, without the written consent of the Board, directly or indirectly, solicit, entice, persuade or induce any person or entity doing business with the Company and its subsidiaries and affiliates, to terminate such relationship or to refrain from extending or renewing the same. For purposes of this Section 8, the term "Competitor of the Company" shall mean any entity a majority of whose business involves the ownership and operation of retail drug stores, provided, however, that such term shall not include any entity a majority of whose business involves the business of the retail sale or wholesale distribution of food and related products (including, without limitation, health and beauty care and general merchandise products and all other products sold to the supermarket industry), regardless of whether such entity sells certain products of a type found in retail drug stores and regardless of whether one or more divisions or subsidiaries of such entity, standing alone, would otherwise be a Competitor of the Company. Nothing herein, however, shall prohibit the Executive from acquiring or holding not more than five percent of any class of publicly traded securities of any such business; provided that such securities entitle the Executive to no more than five percent of the total outstanding votes entitled to be cast by security holders of such business in matters on which such security holders are entitled to vote. In the event of a breach or any threatened breach of the Section 8, Executive agrees that, in addition to any other remedy available to the Company at law or in equity, the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any breach or prevent any threatened breach. Executive further acknowledges that damages would be inadequate and insufficient to compensate the Company for any breach of this Section 8. 9. GROUP TERMINATION BY SENIOR EXECUTIVES. As a material inducement to the Company's willingness to enter into this Agreement and the Stock Agreement, the Executive agrees that he will not deliver to the Company a notice of termination pursuant to Section 5(c)(ii) hereof within thirty days of the delivery of a similar notice by any of the persons listed on Exhibit B hereto (individually each a "Covered Executive" and collectively, the "Covered Executives") pursuant to the terms of such Covered Executive's employment agreement with the Company; provided, however, that the preceding clause shall be void and of no force and effect from and after the occurrence of a Change in Control of the Company. 10. DISPUTE RESOLUTION; ATTORNEYS' FEES. All disputes arising under or related to the employment of the Executive by the Company or the provisions of this agreement shall be settled by arbitration under the rules of the American Arbitration Association then in effect, such arbitration to be held in Portland, Oregon, as the sole and exclusive remedy of either party and judgment on any arbitration award may be entered in any court of competent jurisdiction. The Company agrees to reimburse all reasonable legal fees and other expenses incurred by the Executive in any such dispute if the Executive prevails as to one or more of the material issues in the dispute. Promptly following the Effective Date, the Company shall reimburse the Executive for legal fees and expenses incurred by the Executive in negotiating and entering into this Agreement and the New Deferred Compensation Agreement and incidental matters contemplated hereby, up to a maximum of $17,500. The Company shall also promptly reimburse the Executive for legal fees, costs and expenses incurred in any dispute, arbitration or other litigation relating to or arising out of the termination of Executive's employment with his prior employer and any subsidiary or affiliate thereof, including without limitation claims in respect of amounts payable under any applicable agreement upon or otherwise in connection with such termination of employment and Executive's commencement of and continuing employment with the Company (including with respect to the appointment of officers and other employees) and the employment by the Company of any Covered Executive. 11. SUCCESSORS. (a) No rights or obligations of Executive under this Agreement may be assigned or transferred by Executive other than his rights to payments, benefits or other compensation hereunder, which (without the prior written consent of the Company) may be transferred only by will or the laws of descent and distribution or as otherwise provided in the Stock Agreement. Upon Executive's death, this Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to Executive's interests under this Agreement. Executive shall be entitled to select and change a beneficiary or beneficiaries to receive any payment, benefit or other compensation payable hereunder following Executive's death by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary or beneficiaries, estate or other legal representative(s). (b) No rights or obligations of the Company under this Agreement may be assigned or transferred except that the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, the "Company" shall mean both the Company as defined above and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 11(b) or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise. 12. COMPANY REPRESENTATION. The Company represents and warrants to the Executive that (i) it has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder in full, (ii) the execution and delivery of this Agreement by the Company and the performance of its obligations hereunder have been duly and validly authorized by all necessary corporate action and (iii) no other corporate proceedings on the part of the Company (including on the part of the shareholders of the Company) are necessary to authorize this Agreement or perform such obligations. This Agreement has been duly and validly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 13. MISCELLANEOUS. (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Oregon, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier addressed as follows: If to the Executive: David R. Jessick 16025 N.E. Eilers Road Aurora, OR 97002 If to the Company: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel or to such other address as either party furnishes to the other in writing in accordance with this paragraph (b) of Section 13. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. (d) Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. (e) The Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert, any right under, this Agreement (including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to paragraph (c) of Section 4 of this Agreement) shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) Except as provided in the Stock Agreement, the rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Except as provided in the Stock Agreement, any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. (g) This Agreement (together with the exhibits hereto) sets forth the entire agreement of the parties hereto in respect of the subject matter construed herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written by any party or any officer or other representative of such party in respect of such subject matter. (h) This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. (i) This Agreement shall survive the termination of the Employment Period and the termination of Executive's employment hereunder under any circumstances to the extent necessary to give effect to its provisions. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to due authorization, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. RITE AID CORPORATION ---------------------------------- By: Leonard Green Title: Chairman of the Board ---------------------------------- David R. Jessick EX-10 39 EXHIBIT 10.4 - EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS AGREEMENT by and between Rite Aid Corporation, a Delaware corporation (the "Company"), and John T. Standley (the "Executive"), is dated as of the 5th day of December, 1999 (the "Effective Date"). W I T N E S S E T H WHEREAS, the Company and the Executive have agreed that the employment of the Executive is essential to the successful implementation of the Company's long term business strategy; and WHEREAS, the Company wishes to provide for the employment by the Company of the Executive, and the Executive wishes to serve the Company, in the capacities and on the terms and conditions set forth in this Agreement; NOW, THEREFORE, it is hereby agreed as follows: 1. TERM. Subject to earlier termination in accordance with the provisions of Section 4, the term of Executive's employment under this Agreement (the "Employment Period") shall commence as of the Effective Date and end on the third anniversary thereof, provided, however, that on each anniversary of the Effective Date (each such date, a "Renewal Date"), an additional year shall be added to the Employment Period, unless notice of non-renewal has been delivered by one party to the other party at least 180 days prior to such Renewal Date. 2. POSITION AND DUTIES. (a) During the Employment Period, the Executive shall serve as the Executive Vice President and Chief Financial Officer of the Company, with such duties and responsibilities as are customarily assigned to such position, and such other duties and responsibilities appropriate to such office as may from time to time be assigned to him by the Company's Chief Executive Officer or the Board of Directors of the Company (the "Board"). Executive shall report solely to the Company's Senior Executive Vice President and Chief Administrative Officer, Chairman and Chief Executive Officer and the Board. Following termination of the Executive's employment for any reason, the Executive shall immediately resign from all offices and positions he holds with the Company. (b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote substantially his full attention and time during business hours to the business and affairs of the Company and shall carry out such responsibilities faithfully and efficiently. Notwithstanding the foregoing, to the extent consistent with the performance of his duties and responsibilities hereunder, the Executive may serve on corporate, industry, civic or charitable boards and committees and shall be permitted to make and manage his personal investments. (c) Other than for necessary travel in connection with the performance of his duties hereunder, the Executive shall be based at the Company's headquarters in the Harrisburg, Pennsylvania area. The Company shall reimburse the Executive for the following relocation expenses: (i) the reasonable costs associated with the selling of the Executive's current primary residence; (ii) reasonable living expenses for a residence for the Executive and his family in the Harrisburg, Pennsylvania area for a temporary period; (iii) a reasonable number of round trip visits between Harrisburg and the city in which the Executive's current residence is located, including reasonable costs for meals, lodging and transportation for the Executive and his family during such trips; and (iv) reasonable costs for moving Executive's household goods and cars to the Harrisburg, Pennsylvania area. In addition, the Executive may participate in a relocation service program, and the Company shall share in the expenses of such program on terms which the parties shall mutually agree upon. The reimbursement amount described herein shall be "grossed-up" to offset in full any net increase in Executive's federal, state and local income, employment and other taxes resulting therefrom (and from such gross-up). 3. COMPENSATION. (a) BASE SALARY. During the Employment Period, the Company shall pay Executive an annual base salary ("Annual Base Salary") of not less than $500,000. The Annual Base Salary shall be payable in accordance with the Company's regular payroll practice for its senior executives, as in effect from time to time (but in no event less frequently than monthly). During the Employment Period, the Annual Base Salary shall be reviewed periodically by the Compensation Committee of the Board (the "Compensation Committee") for possible increase. Any increase in the Annual Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any such increase, and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as from time to time so increased. (b) INCENTIVE COMPENSATION. To compensate Executive for lost bonus opportunities with his prior employer for 1999, the Company shall pay to the Executive, on or about April 1, 2000, a guaranteed bonus in respect of calendar year 1999 in the amount of $150,000 (the "1999 Guaranteed Bonus"). Commencing with the Company's 2000 fiscal year, the Executive shall participate during the Employment Period in annual cash incentive compensation plans (each, an "Annual Bonus Plan"), as adopted and approved by the Board or the Compensation Committee from time to time, with targets based upon the Company's business plan developed by the Executive and the Board. The Executive's annual target bonus opportunity pursuant to such plans (the "Annual Target Bonus") shall equal at least 50% of the Annual Base Salary in effect for the Executive at the beginning of such fiscal year. (c) OTHER BENEFITS. During the Employment Period, except as and to the extent otherwise provided herein, (1) the Executive shall be entitled to participate in all applicable fringe benefit and perquisite programs and savings and retirement plans (including non-qualified supplemental executive retirement plans), practices, policies and programs of the Company on the same basis as all other senior executives of the Company; and (2) the Executive and/or the Executive's eligible dependents, as the case may be, shall be eligible for participation in, and shall receive benefits under, all applicable welfare benefit plans, practices, policies and programs provided by the Company on the same basis and subject to the same terms and conditions, as all other senior executives of the Company. Without limiting the generality of the foregoing, during the Employment Period the Company shall provide Executive with (i) an annual financial and tax planning allowance of $10,000; (ii) a car allowance of $1,000 per month; (iii) use of Company-owned aircraft for business travel; (iv) reimbursement for the annual dues at a country club of Executive's choice; and (v) subject to the immediately succeeding sentence, term life insurance covering the Executive's life and long term disability insurance, in each case in a face amount equal to $1,500,000. The Executive agrees to cooperate with the Company in obtaining such life and disability insurance, including submitting to a physical examination if required to do so by the insurance carrier. The beneficiary of each of the aforementioned policies shall be designated by the Executive and if not so designated shall be his estate. The Company shall promptly reimburse Executive for (x) all necessary and reasonable business expenses, including first-class travel and hotel accommodations, incurred by the Executive in connection with the discharge of his duties hereunder, and (y) all reasonable costs and expenses incurred by Executive in the course of meeting with Company directors and officers, performing due diligence and with respect to all other matters undertaken in connection with the Company and/or its business prior to the Effective Date. The Executive shall be entitled to five weeks' vacation per year in accordance with the Company's vacation policy for senior executives. (d) DEFERRED COMPENSATION; SERVICE CREDIT. As of the Effective Date, the Company shall establish a non-qualified deferred compensation plan (the "New Deferred Compensation Plan") for the benefit of the Executive. As of the first day of each month during the Employment Period, the Company shall credit Executive's account under the New Deferred Compensation Plan with an amount equal to $10,000. The Executive shall be fully vested at all times in his account balance under the New Deferred Compensation Plan. Promptly following the Effective Date, the Company and Executive shall negotiate in good faith and agree upon the specific terms of the New Deferred Compensation Plan, including the applicable investment vehicle and terms and schedule of payments. In addition, as of the Effective Date, the Executive and the Company shall enter into the customary deferred compensation agreement provided to senior executives by the Company and the Executive shall be deemed to have, as of the Effective Date, fifteen years of service with the Company for purposes of such agreement. Such deferred compensation agreement shall provide benefits which are commensurate with Executive's position and consistent with the Company's past practice (e) EQUITY AWARDS. As of the Effective Date, the Company shall grant to the Executive (i) an option (the "Option") to purchase 1,000,000 shares of the Company's common stock, par value $1.00 per share ("Company Stock") and (ii) 100,000 shares of restricted Company Stock (the "Restricted Stock"), on the terms and conditions set forth in that certain Restricted Stock and Stock Option Award Agreement (the "Stock Agreement") attached hereto as Exhibit A and incorporated herein by this reference, subject in each case however to the acceleration and exercise provisions of Section 5 hereof and all other applicable provisions of this Agreement. In the case of any conflict between the terms and conditions of this Agreement and the terms and conditions of the Stock Agreement, the terms and conditions of this Agreement shall govern. (f) INDEMNIFICATION. The Company shall (a) indemnify and hold Executive harmless, to the full extent permitted under applicable law, for, from and against any and all losses, claims, costs, expenses, damages, liabilities or actions (including security holder actions, in respect thereof) (i) related to or arising out of the Executive's employment with and service as a director and an officer of the Company (including with respect to the appointment of officers and other employees) and (ii) related to or arising out of the termination of Executive's employment with his prior employer and any subsidiary or affiliate thereof, including without limitation claims in respect of amounts payable under any applicable agreement upon or otherwise in connection with such termination of employment and Executive's commencement of and continuing employment with the Company and the employment by the Company of any Covered Executive (as hereinafter defined); and (b) pay all reasonable costs, expenses and attorney's fees incurred by Executive in connection with or relating to the defense of any such loss, claim, cost, expense, damage, liability or action. Following any termination of the Executive's employment or service with the Company, the Company shall cause any director and officer liability insurance policies applicable to the Executive prior to such termination to remain in effect for six (6) years following the Termination Date. 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. The Company shall be entitled to terminate the Executive's employment because of the Executive's Disability during the Employment Period. "Disability" means that Executive has been unable, for six consecutive months, to perform the Executive's duties under this Agreement, as a result of physical or mental illness or injury. The effective date of any termination of Executive's employment for Disability is referred to herein as the "Disability Effective Date." A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice, and shall be effective on the 30th day after receipt of such notice by the Executive, unless the Executive returns to full-time performance of the Executive's duties before the Disability Effective Date. During any period prior to the Disability Effective Date during which Executive is absent from the full-time performance of his duties with the Company due to such physical or mental illness or injury, the Company shall continue to pay Executive his Annual Base Salary and Executive shall be entitled to receive any bonus payable under the terms of the applicable Annual Bonus Plan(s) in the ordinary course pursuant to the terms of such Annual Bonus Plan. (b) TERMINATION BY THE COMPANY. The Company may terminate the Executive's employment at any time during the Employment Period for Cause or without Cause. "Cause" shall mean only an act of fraud, embezzlement or misappropriation by the Executive, in any such case intended by the Executive to result in substantial personal enrichment at the expense of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the non-employee members of the Board at a meeting of the Board called and held for such purpose (after reasonable written notice to Executive setting forth in reasonable detail the specific conduct of the Executive upon which the Board relies in reaching its determination, and an opportunity for Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of the conduct set forth in the second sentence of this Section 4(b), and Executive shall be entitled to receive all compensation and benefits hereunder pending the delivery of such resolution. The effective date of any termination for Cause shall be the date such resolution is delivered to Executive. (c) GOOD REASON. (i) The Executive may terminate employment for Good Reason or without Good Reason. "Good Reason" shall mean the occurrence of any one of the following: A. any (i) adverse alteration in Executive's titles, positions, status, duties, authorities, reporting relationships or responsibilities with the Company or its subsidiaries from those specified in this Agreement, as the same may be augmented from time to time (it being understood that, if the Company is no longer a public company, the failure of Executive to hold the position and duties under Section 2 with any ultimate corporate or other parent of the Company or any successor shall be deemed to constitute such Good Reason), (ii) assignment to Executive of any duties or responsibilities inconsistent with Executive's status as Executive Vice President and Chief Financial Officer of the Company or (iii) removal of Executive from either such office under any circumstances (other than in connection with the termination of Executive's employment hereunder); B. any failure by the Company to comply with any provision of Section 3 of this Agreement; C. any failure by the Company to comply with Section 2(c) of this Agreement; D. any failure by the Company to comply with paragraph (b) of Section 11 of this Agreement; E. delivery by the Company to the Executive of a notice of non-renewal of the Employment Period pursuant to Section 1 hereof; or F. any other material breach of this Agreement by the Company; provided, however, that the Company shall have the right, within ten (10) days after receipt of notice from Executive of the Company's violation of any one of subparagraphs A, B or F, to cure in full the event or circumstances giving rise to such Good Reason, in the event of which cure such event or circumstances shall be deemed not to constitute Good Reason hereunder. In addition, any termination of employment by the Executive within the six month period commencing on the date of a Change in Control of the Company (as defined in the Stock Agreement) shall be treated as a termination of employment by the Executive for Good Reason. A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies, provided, that Executive's continued employment shall not be deemed to constitute consent to, or a waiver of rights with respect to, any act, omission or other grounds constituting Good Reason hereunder. For clarity, it is understood that the requirement of setting forth such specific conduct and specific provisions(s) is intended (i) to permit the Company to make a reasonable evaluation of Executive's claim of termination for Good Reason and (ii) to permit the Company, where applicable, to cure such conduct, but not to require Executive to specify each act, omission or other grounds constituting Good Reason, there being no intention of the parties that failure to so specify will function as an estoppel with respect to any claim by Executive. A termination of employment by the Executive for Good Reason shall be effective on the latest of (i) the fifth business day following the expiration of the Company's cure period described above, if applicable, (ii) the date specified by Executive in the Notice of Termination for Good Reason or (iii) 45 days following the date the Notice of Termination for Good Reason is delivered to the Company. (ii) A termination of the Executive's employment by the Executive without Good Reason shall be effected by giving the Company at least 90 days' written notice of such termination, and shall be effective on the date specified by Executive in such notice, provided, however, that no such notice period shall be required with respect to any such termination as to which such written notice of termination is delivered to the Company following a Change in Control of the Company. (d) DATE OF TERMINATION. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, or the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason or without Good Reason becomes effective, as the case may be. On the Date of Termination, the Employment Period shall terminate. 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) OTHER THAN FOR CAUSE OR DISABILITY, OR FOR GOOD REASON. If, during the Employment Period, the Company terminates the Executive's employment for any reason other than Cause or Disability, or the Executive terminates his employment for Good Reason; (1) the Company shall pay to the Executive, not later than ten (10) days following the Date of Termination, (i) an amount equal to three times the sum of (x) the Executive's then current Annual Base Salary (without giving effect to any reductions thereof) plus (y) the Executive's then current Annual Target Bonus; (ii) (A) any accrued but unpaid amounts of the Executive's Annual Base Salary through the Date of Termination, (B) any bonus under any Annual Bonus Plan accrued but unpaid through the Date of Termination (including without limitation any such bonus payable on a date following the Date of Termination with respect to a fiscal year or other applicable measuring period completed prior to the Date of Termination), (C) any other compensation and benefits accrued (and, where applicable, vested) through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements (including without limitation vacation benefits and the deferred compensation arrangements referenced in Section 3(d) hereof) as in effect immediately prior to the Date of Termination (or, if in any case providing a greater benefit to Executive, as in effect immediately prior to an event constituting Good Reason) and (D) any amounts of reimbursable business expenses incurred through the Date of Termination (all of the items in this clause (ii) are hereinafter referred to collectively as the "Accrued Benefits"); (iii) an amount equal to the product of (A) the maximum annual bonus that the Executive would have been eligible to earn under the Annual Bonus Plan for the bonus measurement period during which the Date of Termination occurs, and (B) a fraction, the numerator of which is the number of days from the first day of such period through the Date of Termination and the denominator of which is the total number of days in such measurement period, together with a similarly pro rated bonus with respect to any applicable long term incentive plan then in effect; (iv) an amount equal to the sum of the deferred compensation amounts which would otherwise have been credited to the Executive pursuant to the New Deferred Compensation Plan had Executive continued employment with the Company through the end of the then remaining Employment Period (measured as of the Date of Termination without regard to any subsequent renewals thereof), without reduction in any such case to a net or other present value; and (v) if not theretofore paid, the 1999 Guaranteed Bonus; (2) medical coverage provided to the Executive immediately prior to the Date of Termination (or, at Executive's sole discretion, medical coverage provided to the Executive immediately prior to the occurrence of any event constituting Good Reason) shall continue to be provided by the Company to the Executive (and, if applicable, his spouse and dependents) for three years following the Date of Termination; (3) all of the Executive's then outstanding stock options shall vest and become fully exercisable as of the Date of Termination and (i) the Option shall remain fully vested and exercisable throughout the remainder of its ten-year term and (ii) any other outstanding options to acquire Company securities shall similarly remain exercisable for the remainder of their stated term, without regard to any early termination provisions or other terms and conditions otherwise applicable to such options; and (4) all remaining restrictions applicable to the Restricted Stock and any other restricted stock awards shall immediately lapse and any performance goals or other conditions applicable to any other equity incentive awards shall immediately be deemed to have been satisfied in full (with performance goals being deemed to have been satisfied at targeted levels). (b) DEATH AND DISABILITY. If the Executive's employment is terminated by reason of the Executive's death or Disability during the Employment Period; (1) the Company shall pay to the Executive or, in the case of the Executive's death, to the Executive's designated beneficiaries (or, if there is no such beneficiary, to the Executive's estate or legal representative), in a lump sum in cash within ten (10) days after the Date of Termination, the sum of the following amounts: (i) the Accrued Benefits; (ii) an amount equal to the product of (A) the maximum annual bonus that the Executive would have been eligible to earn under the Annual Bonus Plan for the bonus measurement period during which the Date of Termination occurs, and (B) a fraction, the numerator of which is the number of days from the first day of such period through the Date of Termination and the denominator of which is the total number of days in such measurement period, together with a similarly pro rated bonus with respect to any applicable long term incentive plan then in effect; and (iii) if not theretofore paid, the 1999 Guaranteed Bonus; (2) medical coverage provided to the Executive immediately prior to the Date of Termination shall continue to be provided by the Company (i) in the event of Disability, to the Executive (and, if applicable, his spouse and dependents) or (ii) in the event of Executive's death, to his surviving spouse (and, if applicable, his dependents), for three years following the Date of Termination; (3) all of the Executive's then outstanding stock options shall vest and become fully exercisable as of the Date of Termination and (i) the Option shall remain fully vested and exercisable throughout the remainder of its ten-year term and (ii) any other outstanding options to acquire Company securities shall similarly remain exercisable for the remainder of their stated term, without regard to any early termination provisions or other terms and conditions otherwise applicable to such options; and (4) all remaining restrictions applicable to the Restricted Stock and any other restricted stock awards shall immediately lapse and any performance goals or other conditions applicable to any other equity incentive awards shall immediately be deemed to have been satisfied in full (with performance goals being deemed to have been satisfied at targeted levels). (c) BY THE COMPANY FOR CAUSE. If the Executive's employment is terminated by the Company for Cause during the Employment Period, (1) the Company shall pay to the Executive the Accrued Benefits within ten (10) days after the Date of Termination; (2) any portion of the Option or any other then outstanding stock option that has not been exercised prior to the Date of Termination shall immediately terminate; and (3) any portion of the Restricted Stock or any other restricted stock or other equity incentive awards as to which the restrictions have not lapsed or as to which any other conditions shall not have been satisfied prior to the Date of Termination shall be forfeited as of the Date of Termination. (d) BY THE EXECUTIVE OTHER THAN FOR GOOD REASON. If the Executive's employment is terminated by Executive (other than for Good Reason) during the Employment Period; (1) the Company shall pay to the Executive the Accrued Benefits, within ten (10) days after the Date of Termination; (2) any portion of the Option or any other then outstanding stock option that has not vested and become exercisable prior to the Date of Termination shall immediately terminate and any portion of the Option or any other then outstanding stock option that has vested and become exercisable prior to the Date of Termination shall remain vested and exercisable for a period of ninety (90) days following the Date of Termination, at the end of which period such portion of the option shall terminate, provided, however, that if the Date of Termination shall be on or after the third anniversary of the Effective Date, the entire Option shall remain vested and exercisable throughout the remainder of its ten-year term; and (3) the restrictions on the Restricted Stock shall continue to lapse in accordance with the terms of the Stock Agreement as if Executive's employment with the Company had continued uninterrupted until such restrictions had lapsed in full; provided, however, that in the event Executive's employment is terminated by Executive (other than for Good Reason) prior to the first anniversary of the Effective Date any portion of the Restricted Stock as to which the restrictions have not lapsed pursuant to the terms of the Stock Agreement prior to the Date of Termination shall be forfeited as of the Date of Termination. (e) (i) In the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this agreement or of any other plan, arrangement or agreement of the Company (or any affiliate) (collectively, the "Payments") would be subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), as determined as provided below, the Company shall pay to the Executive, at the time specified in Section 5(e)(ii) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of the Excise Tax on Payments and any federal, state and local income and employment or other tax and the Excise Tax upon the Gross-Up Payment, and any interest, penalties or additions to tax payable by the Executive with respect thereto, shall be equal to the total Payments. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amounts of such Excise Tax, (1) the total amount of the Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to Executive and selected by the accounting firm which was, immediately prior to the event giving rise to the Payment, the Company's independent auditor (the "Auditor"), a Payment (in whole or in part) does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in part) are not subject to the Excise Tax, (2) the amount of the Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Payments or (B) the amount of "excess parachute payments" within the meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof), and (3) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rates of federal income taxation applicable to the individuals in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of the Executive's residence in the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account any limitations applicable to individuals subject to federal income tax at the highest marginal rates. (ii) The Gross-Up Payments provided for in Section 5(e)(i) hereof shall be made upon the earlier of (i) ten days following the Date of Termination or (ii) the imposition upon the Executive or payment by the Executive of any Excise Tax. (iii) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax is less than the amount taken into account under Section 5(e)(i) hereof, the Executive shall repay to the Company within thirty (30) days of the Executive's receipt of notice of such final determination the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the portion of the Gross-Up Payment being repaid by the Executive if and to the extent that such repayment results in a reduction in Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for the purpose of federal, state and local income taxes) plus any interest received by the Executive on the amount of such repayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax exceeds the amount taken into account hereunder (including without limitation by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment pursuant to Section 5(e)(i) in respect of such excess within thirty (30) days of the Company's receipt of notice of such final determination or opinion. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. (iv) In the event of any change in, or further interpretation of, sections 280G or 4999 of the Code and the regulations promulgated thereunder, the Executive shall be entitled, by written notice to the Company, to request an opinion of Tax Counsel regarding the application of such change to any of the foregoing, and the Company shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of the Auditor and Tax Counsel incurred in connection with this Agreement shall be borne by the Company. 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies for which the Executive may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. 7. FULL SETTLEMENT. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others whether in respect of claims made under this Agreement or otherwise. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts, benefits and other compensation payable or otherwise provided to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced, regardless of whether the Executive obtains other employment. In no event shall any amounts, benefits or other compensation payable or otherwise provided to Executive hereunder be reduced in respect of, or the Company's obligations to Executive hereunder be affected by, or any other form of "clawback" provision apply to, the payment to Executive at any time of any amounts, benefits or other compensation in respect of his employment with any prior employer. 8. CONFIDENTIAL INFORMATION; COMPETITION; SOLICITATION. During the Employment Period and for a period of three years following the applicable Date of Termination, the Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies and their respective businesses that the Executive obtains during the Executive's employment by the Company or any of its affiliated companies and that is not public knowledge (other than as a result of the Executive's violation of this Section 8) ("Confidential Information") and the Executive shall not communicate, divulge or disseminate Confidential Information at any time during such period to anyone other than the Company, appropriate Company personnel and those other persons designated by the Company, except (i) with the prior written consent of the Company, (ii) as otherwise required by law or legal process, (iii) on behalf of the Company in the furtherance of its business or in the course of performing Executive's duties to the Company or (iv) in the course of any adversarial proceeding against the Company. During the Employment Period (and if during the Employment Period (A) the Executive terminates his employment with the Company without Good Reason or (B) the Executive is terminated by the Company for Cause, then for one year after the Date of Termination), (i) the Executive shall not, without the written consent of the Board, directly or indirectly, knowingly engage or be interested in (as owner, partner, stockholder, employee, director, officer, agent, consultant or otherwise), with or without compensation, any Competitor of the Company, (ii) the Executive shall not, without the written consent of the Board, directly or indirectly solicit or recruit any person (other than persons employed in a clerical or other non-professional position) who is then employed by the Company or who was employed by the Company or any of its subsidiaries or affiliates at any time during the six-month period preceding the Date of Termination for the purpose of being employed by the Executive, by any entity or person on whose behalf the Executive is acting as an agent, representative or employee or by any Competitor of the Company and (iii) the Executive shall not, without the written consent of the Board, directly or indirectly, solicit, entice, persuade or induce any person or entity doing business with the Company and its subsidiaries and affiliates, to terminate such relationship or to refrain from extending or renewing the same. For purposes of this Section 8, the term "Competitor of the Company" shall mean any entity a majority of whose business involves the ownership and operation of retail drug stores, provided, however, that such term shall not include any entity a majority of whose business involves the business of the retail sale or wholesale distribution of food and related products (including, without limitation, health and beauty care and general merchandise products and all other products sold to the supermarket industry), regardless of whether such entity sells certain products of a type found in retail drug stores and regardless of whether one or more divisions or subsidiaries of such entity, standing alone, would otherwise be a Competitor of the Company. Nothing herein, however, shall prohibit the Executive from acquiring or holding not more than five percent of any class of publicly traded securities of any such business; provided that such securities entitle the Executive to no more than five percent of the total outstanding votes entitled to be cast by security holders of such business in matters on which such security holders are entitled to vote. In the event of a breach or any threatened breach of the Section 8, Executive agrees that, in addition to any other remedy available to the Company at law or in equity, the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any breach or prevent any threatened breach. Executive further acknowledges that damages would be inadequate and insufficient to compensate the Company for any breach of this Section 8. 9. GROUP TERMINATION BY SENIOR EXECUTIVES. As a material inducement to the Company's willingness to enter into this Agreement and the Stock Agreement, the Executive agrees that he will not deliver to the Company a notice of termination pursuant to Section 5(c)(ii) hereof within thirty days of the delivery of a similar notice by any of the persons listed on Exhibit B hereto (individually each a "Covered Executive" and collectively, the "Covered Executives") pursuant to the terms of such Covered Executive's employment agreement with the Company; provided, however, that the preceding clause shall be void and of no force and effect from and after the occurrence of a Change in Control of the Company. 10. DISPUTE RESOLUTION; ATTORNEYS' FEES. All disputes arising under or related to the employment of the Executive by the Company or the provisions of this agreement shall be settled by arbitration under the rules of the American Arbitration Association then in effect, such arbitration to be held in Portland, Oregon, as the sole and exclusive remedy of either party and judgment on any arbitration award may be entered in any court of competent jurisdiction. The Company agrees to reimburse all reasonable legal fees and other expenses incurred by the Executive in any such dispute if the Executive prevails as to one or more of the material issues in the dispute. Promptly following the Effective Date, the Company shall reimburse the Executive for legal fees and expenses incurred by the Executive in negotiating and entering into this Agreement and the New Deferred Compensation Agreement and incidental matters contemplated hereby, up to a maximum of $17,500. The Company shall also promptly reimburse the Executive for legal fees, costs and expenses incurred in any dispute, arbitration or other litigation relating to or arising out of the termination of Executive's employment with his prior employer and any subsidiary or affiliate thereof, including without limitation claims in respect of amounts payable under any applicable agreement upon or otherwise in connection with such termination of employment and Executive's commencement of and continuing employment with the Company (including with respect to the appointment of officers and other employees) and the employment by the Company of any Covered Executive. 11. SUCCESSORS. (a) No rights or obligations of Executive under this Agreement may be assigned or transferred by Executive other than his rights to payments, benefits or other compensation hereunder, which (without the prior written consent of the Company) may be transferred only by will or the laws of descent and distribution or as otherwise provided in the Stock Agreement. Upon Executive's death, this Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to Executive's interests under this Agreement. Executive shall be entitled to select and change a beneficiary or beneficiaries to receive any payment, benefit or other compensation payable hereunder following Executive's death by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary or beneficiaries, estate or other legal representative(s). (b) No rights or obligations of the Company under this Agreement may be assigned or transferred except that the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, the "Company" shall mean both the Company as defined above and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 11(b) or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise. 12. COMPANY REPRESENTATION. The Company represents and warrants to the Executive that (i) it has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder in full, (ii) the execution and delivery of this Agreement by the Company and the performance of its obligations hereunder have been duly and validly authorized by all necessary corporate action and (iii) no other corporate proceedings on the part of the Company (including on the part of the shareholders of the Company) are necessary to authorize this Agreement or perform such obligations. This Agreement has been duly and validly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 13. MISCELLANEOUS. (a) This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier addressed as follows: If to the Executive: John T. Standley at the most recent address on file at the Company's payroll office If to the Company: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel or to such other address as either party furnishes to the other in writing in accordance with this paragraph (b) of Section 13. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. (d) Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. (e) The Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert, any right under, this Agreement (including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to paragraph (c) of Section 4 of this Agreement) shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) Except as provided in the Stock Agreement, the rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Except as provided in the Stock Agreement, any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. (g) This Agreement (together with the exhibits hereto) sets forth the entire agreement of the parties hereto in respect of the subject matter construed herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written by any party or any officer or other representative of such party in respect of such subject matter. (h) This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. (i) This Agreement shall survive the termination of the Employment Period and the termination of Executive's employment hereunder under any circumstances to the extent necessary to give effect to its provisions. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to due authorization, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. RITE AID CORPORATION ---------------------------------- By: Leonard Green Title: Chairman of the Board ---------------------------------- John T. Standley EX-99 40 EXHIBIT 99.1 - PRESS RELEASE CONFIDENTIAL -- FINAL RELEASE -- JANUARY 11, 2000 (2:00 P.M. EST) TARGET RELEASE DATE JANUARY 11, 2000 AT 4:30 P.M. EST INVESTORS: MEDIA: Doug Wilburne Karen Rugen (717) 975-3710 (717) 730-7766 FOR IMMEDIATE RELEASE RITE AID ANNOUNCES AGREEMENT WITH LENDERS REGARDING DEFERRED FINANCIAL REPORTING PENDING COMPLETION OF REVIEW BY NEW MANAGEMENT TEAM AND NEW AUDITORS Camp Hill, PA, January 11, 2000 -- Rite Aid Corporation (NYSF, PSE: RAD) today announced that it has reached agreements with its lenders under its credit facilities and other financing arrangements, representing approximately $3 billion of debt, to implement a deferred financial reporting program through July 11, 2000. The agreements give the Company's new management team and its new auditors, Deloitte & Touche LLP, time to fully review the Company's historical financial information, conclude the previously announced reaudits for the Company's 1997-99 fiscal years, and complete audited financial statements for the Company's 2000 fiscal year ending on February 26, 2000. The Company continues to borrow, as needed, under its lending agreements for general working capital and to fund the refinancing of commercial paper issues as they become due. Rite Aid also announced that it intends to commence a consent solicitation this week to amend various public debt indentures similarly to extend the time to make SEC filings through July 11, 2000. Rite Aid said that it has retained the investment banking firm of Salomon Smith Barney, Inc. and J.P. Morgan Securities Incorporated to manage the consent solicitations. Regular quarterly earnings announcements and the filing of the Company's remaining quarterly and annual reports for fiscal year 2000, including the filing of the third quarter report for the quarter ending November 27, 1999, will be made at the completion of the review. The Company agreed with its lenders that these filings would be completed no later than July 11, 2000, which is the regular filing date for the Form 10-Q for the first quarter the Company's fiscal year and which will be the first full fiscal quarter under the Company's new management team appointed in December, 1999. Bob Miller, Chairman and Chief Executive Officer, said, "Given our short time here at Rite Aid and the required audits now underway by Deloitte & Touche LLP, we have concluded that the work necessary to file the Company's fiscal year 2000 third quarter results will not be completed in time to meet today's SEC filing date and that it is appropriate for the Company to adopt this deferred financial reporting program. This is the responsible course of action for Rite Aid to take. We appreciate the strong support by our lenders of Rite Aid's now management team and today's actions." Mr. Miller continued, "We are confident and enthusiastic about the Company's prospects and its ability to achieve levels of operating profitability in line with the industry in the future. Since our arrival one month ago, Rite Aid has taken constructive steps in its efforts to restore profitability mid capitalize on the very real core competencies and competitive strengths of our business, including putting into place rigorous financial controls and accounting procedures. We are currently developing our business plan to take advantage of Rite Aid's core strengths including its market position, brand name awareness, modern store base and relevant store format, strong pharmacy business, experienced field management, efficient infrastructure and strong growth opportunities. These new agreements with our lenders give us adequate time to review historical financial matters, including making changes if required, and will allow us to focus on managing our business successfully. We look forward to doing so in partnership with and strengthened by the continued support of our lenders, employees and vendors." The Company told its lenders that the financial review underway does not provide any basis for the Company to conclude either that it is not in compliance with any of the financial or other covenants in its lending agreements or that the Company cannot satisfy any of the other conditions to borrowing under the agreements. The Company said that the amendments approved by its lenders last month to the covenants in its credit facilities and other financing arrangements give the new management team appropriate levels of flexibility to pursue an operating strategy aimed at building revenues and increasing earnings at Rite Aid; those amendments will be filed with the SEC, along with the agreements with Rite Aid's lenders announced today and the compensation agreements for the new management team. The Company said that the new agreements with its lenders also waive any technical defaults to its credit facilities and other financing arrangements that may arise from the deferred financial reporting program on account of covenants in the Company's public debt documents. All the waivers remain in effect until ten days prior to the expiration of any applicable grace period under the terms of the Company's agreements with its public bondholders but not late than the July 11, 2000 deferred filing date. The Company said that no grace period is triggered under any of the Company's public debt documents unless affirmative action is taken by bondholders or indenture trustees and that if such action were taken, the Company would then have at least sixty days to resolve any issues raised. Rite Aid is one of the nation's leading drugstore chains with annual revenues of approximately $14 billion and approximately 3,800 stores in 30 states and the District of Columbia. Rite Aid owns PCS Health Systems, Inc., which provides pharmacy benefit management programs and services that can help improve patient health and reduce health care costs. Rite Aid also owns approximately 22 percent of drugstore.com, a leading online source for health, beauty and pharmacy products. Information about Rite Aid, including corporate background and press releases, can be found at the Company's Web site at http://www.riteaid.com. This press release may contain forward-looking statements, which are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied n the forward-looking statements. Factors that could cause actual results to differ materially form those expressed or implied in such forward-looking statements include the preparation of restated historic financial statements, final audit adjustments, completion of the SEC's review of the Company's financial reporting and the impact of possible asset sales or other corporate transactions which the Company is currently considering but the consummation of which is not assured. Additional factors could include competitive pricing pressures, third party prescription reimbursement levels, continued consolidation of the drugstore industry, consumer preferences, regulatory changes governing pharmacy practices, general economic conditions, inflation, merchandise supply constraints, interest rate movements, access to capital, the development of the Internet markets for pharmaceuticals, availability of real estate, construction and start-up of drugstore and distribution center facilities, and the effects of technological difficulties. Consequently, all of the forward-looking statements made in this press release are qualified by these and other factors, risks and uncertainties. Readers are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission. # # # -----END PRIVACY-ENHANCED MESSAGE-----