-----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, RMdgSCnHbT7bMN8+NAgttDUeejABRBNmDWk5XDBWVJNAS/zSCH+9TIbMZn+BP/EW /c97kKz6bBlRMFSaM5zhuw== /in/edgar/work/20000621/0000950172-00-001127/0000950172-00-001127.txt : 20000920 0000950172-00-001127.hdr.sgml : 20000920 ACCESSION NUMBER: 0000950172-00-001127 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 25 CONFORMED PERIOD OF REPORT: 20000612 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000621 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RITE AID CORP CENTRAL INDEX KEY: 0000084129 STANDARD INDUSTRIAL CLASSIFICATION: [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: 658692 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 0001.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) June 12, 2000 ------------- RITE AID CORPORATION - ------------------------------------------------------------------------------ (Exact Name of Registrant as Specified in Charter) Delaware 1-5742 23-1614034 - ------------------------------------------------------------------------------ (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 30 Hunter Lane, Camp Hill, Pennsylvania 17011 - ------------------------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (717) 761-2633 ----------------------- None - ------------------------------------------------------------------------------ (Former Name or Former Address, if Changed Since Last Report) ITEM 5. OTHER EVENTS. On June 14, 2000, Rite Aid Corporation issued a press release announcing the completion of its refinancing transactions. The press release and related materials are attached hereto as exhibits and incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) Exhibits. 4.1 Indenture, dated as of June 14, 2000, among Rite Aid Corporation, as Issuer, each of the Subsidiary Guarantors named therein and State Street Bank and Trust Company, as Trustee. 4.2 Exchange and Registration Rights Agreement, dated as of June 14, 2000, by and among Rite Aid Corporation, State Street Bank and Trust Company and the Holders of the 10.50% Senior Secured Notes due 2002. 4.3 Registration Rights Agreement, dated as of June 14, 2000, by and among Rite Aid Corporation and the Lenders listed therein. 10.1 Senior Credit Agreement, dated as of June 12, 2000, among Rite Aid Corporation, the Banks party thereto, Citicorp USA, Inc., as Senior Administrative Agent, Citicorp USA, Inc., as Senior Collateral Agent, and Heller Financial, Inc. and Fleet Retail Finance Inc., as Syndication Agents. 10.2 Collateral Trust and Intercreditor Agreement, dated as of June 12, 2000, among Rite Aid Corporation, each Subsidiary Guarantor of Rite Aid Corporation listed therein, Wilmington Trust Company, Citcorp USA, Inc., Morgan Guaranty Trust Company of New York, The Prudential Insurance Company of America, State Street Bank and Trust Company and The Sumitomo Bank, Limited, New York Branch. 10.3 Senior Subsidiary Security Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors identified therein and any other person that becomes a Subsidiary Guarantor pursuant to the Senior Credit Facility, in favor of Citicorp USA, Inc., as Senior Collateral Agent. 10.4 Senior Subsidiary Guarantee Agreement, dated as of June 12, 2000, among each of the Subsidiary Guarantors of Rite Aid Corporation listed therein and Citicorp USA, Inc., as Senior Collateral Agent. 10.5 Senior Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000, among Rite Aid Corporation, each of the Subsidiary Guarantors listed therein and Citicorp USA, Inc., as Senior Collateral Agent. 10.6 RCF Facility, dated as of June 12, 2000, among Rite Aid Corporation, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, with JP Morgan Securities Inc., as Lead Arranger and Book Runner. 10.7 PCS Facility, dated as of June 12, 2000, among Rite Aid Corporation, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, with JP Morgan Securities Inc., as Lead Arranger and Book Runner. 10.8 Exchange Debt Facility, dated as of June 12, 2000, among Rite Aid Corporation, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, with JP Morgan Securities Inc., as Lead Arranger and Book Runner. 10.9 Second Priority Subsidiary Guarantee Agreement, dated as of June 12, 2000, among each of the Subsidiary Guarantors of Rite Aid Corporation listed therein and Wilmington Trust Company, as Second Priority Collateral Trustee. 10.10 Second Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors identified therein and any other person that becomes a Subsidiary Guarantor pursuant to the Second Priority Debt Documents, in favor of Wilmington Trust Company, as Second Priority Collateral Trustee. 10.11 Second Priority Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000, among Rite Aid Corporation, each Subsidiary Guarantor listed therein and Wilmington Trust Company, as Second Priority Collateral Trustee. 10.12 First Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by the Domestic Subsidiaries identified therein and any other person that becomes a Domestic Subsidiary pursuant to the Exchange Debt Facility Documents, in favor of Morgan Guaranty Trust Company of New York, as Agent. 10.13 Amended and Restated Drugstore.com Pledge Agreement, dated as of June 12, 2000, between Rite Aid Corporation and Morgan Guaranty Trust Company of New York, as Agent. 10.14 Amended and Restated PCS Pledge Agreement, dated as of June 12, 2000, between Rite Aid Corporation and Morgan Guaranty Trust Company of New York, as Agent. 10.15 Form of Second Priority Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement, by the Subsidiary Guarantor listed therein, to Wilmington Trust Company, as Second Priority Collateral Trustee. 10.16 Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, and Amendment No. 1 to Put Agreement, for Adjustable Rate Senior Secured Notes due August 15, 2002, among Finco, Inc., Rite Aid Corporation, The Prudential Insurance Company of America, and Pruco Life Insurance Company, as of June 12, 2000. 10.17 Amendment No. 5 to Guaranty, dated as of June 12, 2000, from Rite Aid Corporation, as Guarantor, to RAC Leasing LLC, as Lessor. 10.18 Amendment No. 4 to Master Lease and Security Agreement, dated as of June 12, 2000, between RAC Leasing LLC, as Lessor, and Rite Aid Realty Corp., as Lessee. 10.19 Amendment No. 4 to Guaranty, dated as of June 12, 2000, from Rite Aid Corporation, as Guarantor, to Sumitomo Bank Leasing and Finance, Inc., as Lessor. 10.20 Amendment No. 5 to Master Lease and Security Agreement, dated as of June 12, 2000, between Sumitomo Bank Leasing and Finance, Inc., as Lessor, and Rite Aid Realty Corp., as Lessee. 99.1 Press Release, dated June 14, 2000. SIGNATURES 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: June 21, 2000 By: /s/ Elliot S. Gerson ------------------------------------------ Name: Elliot S. Gerson Title: Senior Executive Vice President and General Counsel EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 4.1 Indenture, dated as of June 14, 2000, among Rite Aid Corporation, as Issuer, each of the Subsidiary Guarantors named therein and State Street Bank and Trust Company, as Trustee. 4.2 Exchange and Registration Rights Agreement, dated as of June 14, 2000, by and among Rite Aid Corporation, State Street Bank and Trust Company and the Holders of the 10.50% Senior Secured Notes due 2002. 4.3 Registration Rights Agreement, dated as of June 14, 2000, by and among Rite Aid Corporation and the Lenders listed therein. 10.1 Senior Credit Agreement, dated as of June 12, 2000, among Rite Aid Corporation, the Banks party thereto, Citicorp USA, Inc., as Senior Administrative Agent, Citicorp USA, Inc., as Senior Collateral Agent, and Heller Financial, Inc. and Fleet Retail Finance Inc., as Syndication Agents. 10.2 Collateral Trust and Intercreditor Agreement, dated as of June 12, 2000, among Rite Aid Corporation, each Subsidiary Guarantor of Rite Aid Corporation listed therein, Wilmington Trust Company, Citcorp USA, Inc., Morgan Guaranty Trust Company of New York, The Prudential Insurance Company of America, State Street Bank and Trust Company and The Sumitomo Bank, Limited, New York Branch. 10.3 Senior Subsidiary Security Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors identified therein and any other person that becomes a Subsidiary Guarantor pursuant to the Senior Credit Facility, in favor of Citicorp USA, Inc., as Senior Collateral Agent. 10.4 Senior Subsidiary Guarantee Agreement, dated as of June 12, 2000, among each of the Subsidiary Guarantors of Rite Aid Corporation listed therein and Citicorp USA, Inc., as Senior Collateral Agent. 10.5 Senior Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000, among Rite Aid Corporation, each of the Subsidiary Guarantors listed therein and Citicorp USA, Inc., as Senior Collateral Agent. 10.6 RCF Facility, dated as of June 12, 2000, among Rite Aid Corporation, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, with JP Morgan Securities Inc., as Lead Arranger and Book Runner. 10.7 PCS Facility, dated as of June 12, 2000, among Rite Aid Corporation, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, with JP Morgan Securities Inc., as Lead Arranger and Book Runner. 10.8 Exchange Debt Facility, dated as of June 12, 2000, among Rite Aid Corporation, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, with JP Morgan Securities Inc., as Lead Arranger and Book Runner. 10.9 Second Priority Subsidiary Guarantee Agreement, dated as of June 12, 2000, among each of the Subsidiary Guarantors of Rite Aid Corporation listed therein and Wilmington Trust Company, as Second Priority Collateral Trustee. 10.10 Second Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors identified therein and any other person that becomes a Subsidiary Guarantor pursuant to the Second Priority Debt Documents, in favor of Wilmington Trust Company, as Second Priority Collateral Trustee. 10.11 Second Priority Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000, among Rite Aid Corporation, each Subsidiary Guarantor listed therein and Wilmington Trust Company, as Second Priority Collateral Trustee. 10.12 First Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by the Domestic Subsidiaries identified therein and any other person that becomes a Domestic Subsidiary pursuant to the Exchange Debt Facility Documents, in favor of Morgan Guaranty Trust Company of New York, as Agent. 10.13 Amended and Restated Drugstore.com Pledge Agreement, dated as of June 12, 2000, between Rite Aid Corporation and Morgan Guaranty Trust Company of New York, as Agent. 10.14 Amended and Restated PCS Pledge Agreement, dated as of June 12, 2000, between Rite Aid Corporation and Morgan Guaranty Trust Company of New York, as Agent. 10.15 Form of Second Priority Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement, by the Subsidiary Guarantor listed therein, to Wilmington Trust Company, as Second Priority Collateral Trustee. 10.16 Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, and Amendment No. 1 to Put Agreement, for Adjustable Rate Senior Secured Notes due August 15, 2002, among Finco, Inc., Rite Aid Corporation, The Prudential Insurance Company of America, and Pruco Life Insurance Company, as of June 12, 2000. 10.17 Amendment No. 5 to Guaranty, dated as of June 12, 2000, from Rite Aid Corporation, as Guarantor, to RAC Leasing LLC, as Lessor. 10.18 Amendment No. 4 to Master Lease and Security Agreement, dated as of June 12, 2000, between RAC Leasing LLC, as Lessor, and Rite Aid Realty Corp., as Lessee. 10.19 Amendment No. 4 to Guaranty, dated as of June 12, 2000, from Rite Aid Corporation, as Guarantor, to Sumitomo Bank Leasing and Finance, Inc., as Lessor. 10.20 Amendment No. 5 to Master Lease and Security Agreement, dated as of June 12, 2000, between Sumitomo Bank Leasing and Finance, Inc., as Lessor, and Rite Aid Realty Corp., as Lessee. 99.1 Press Release, dated June 14, 2000. EX-4 2 0002.txt EXHIBIT 4.1 - INDENTURE Exhibit 4.1 RITE AID CORPORATION as Issuer TO STATE STREET BANK AND TRUST COMPANY as Trustee -------------------------- Indenture Dated as of June 14, 2000 -------------------------- $467,500,000 10.50% Senior Secured Notes due 2002 Reconciliation and tie between Trust Indenture Act of 1939 and Indenture dated as of June 14, 2000 Trust Indenture Indenture Act Section Section ----------- ------- 310 (a)(1) 6.09 (a)(2) 6.09 (a)(3) Not Applicable (a)(4) Not Applicable (b) 6.08 6.10 311 (a) 6.13 (b) 6.13 (b)(2) 7.03 312 (a) 7.01 7.02(a) (b) 7.02(b) (c) 7.02(c) 313 (a) 7.03(a) (b) 7.03(a) (c) 7.03(a) (d) 7.03(b) 314 (a) 7.04 (b) Not Applicable (c)(1) 1.02 (c)(2) 1.02 (c)(3) Not Applicable (d) Not Applicable (e) 1.02 315 (a) 6.01 (b) 6.02 7.03(a) (c) 6.01 (d) 6.01 (d)(1) 6.03 (d)(2) 6.03 (d)(3) 6.03 (e) 5.14 316 (a)(1)(A) 5.12 (a)(1)(B) 5.13 (a)(2) Not Applicable (b) 5.08 317 (a)(1) 5.03 (a)(2) 5.04 (b) 10.03 318 (a) 1.07 Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. TABLE OF CONTENTS ----------------- Page ---- ARTICLE I Definitions and Other Provisions of General Application SECTION 1.01. Definitions.............................................1 SECTION 1.02. Compliance Certification and Opinions..................21 SECTION 1.03. Form of Documents Delivered To Trustee.................22 SECTION 1.04. Acts of Holders; Record Date...........................23 SECTION 1.05. Notices, Etc., To Trustee and the Company..............24 SECTION 1.06. Notice To Holders; Waiver..............................24 SECTION 1.07. Conflict with Trust Indenture Act......................25 SECTION 1.08. Effect of Headings and Table of Contents...............25 SECTION 1.09. Successors and Assigns.................................25 SECTION 1.10. Separability Clause....................................25 SECTION 1.11. Benefits of Indenture..................................25 SECTION 1.12. Governing Law..........................................25 SECTION 1.13. Legal Holidays.........................................25 ARTICLE II Security Forms SECTION 2.01. Forms Generally; Initial Forms of Exempt Securities.................................26 SECTION 2.02. Form of Face of Security...............................26 ARTICLE III The Securities SECTION 3.01. Title and Terms........................................36 SECTION 3.02. Denominations..........................................36 SECTION 3.03. Execution, Authentication, Delivery and Dating............................................36 SECTION 3.04. Temporary Securities...................................37 SECTION 3.05. Global Securities......................................38 SECTION 3.06. Registration, Registration of Transfer and Exchange; Restricted Securities Legends...........39 SECTION 3.07. Mutilated, Destroyed, Lost and Stolen Securities........................................42 SECTION 3.08. Payment of Interest; Interest Rights Preserved.........................................43 SECTION 3.09. Persons Deemed Owners..................................44 SECTION 3.10. Cancellation...........................................44 SECTION 3.11. Computation of Interest................................45 SECTION 3.12. Cusip Numbers..........................................45 ARTICLE IV Satisfaction and Discharge SECTION 4.01. Satisfaction and Discharge of Indenture................45 SECTION 4.02. Application of Trust Money.............................46 ARTICLE V Remedies SECTION 5.01. Events of Default......................................47 SECTION 5.02. Acceleration of Maturity; Rescission and Annulment.........................................49 SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee............................50 SECTION 5.04. Trustee May File Proofs of Claim.......................51 SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities.....................................52 SECTION 5.06. Application of Money Collected.........................52 SECTION 5.07. Limitation on Suits....................................52 SECTION 5.08. Unconditional Right of Holders To Receive Principal, Premium and Interest...................53 SECTION 5.09. Restoration of Rights and Remedies.....................53 SECTION 5.10. Rights and Remedies Cumulative.........................53 SECTION 5.11. Delay or Omission Not Waiver...........................54 SECTION 5.12. Control by Holders.....................................54 SECTION 5.13. Waiver of Past Defaults................................54 SECTION 5.14. Undertaking for Costs..................................55 SECTION 5.15. Waiver of Stay or Extension Laws.......................55 SECTION 5.16. Enforcement of Remedies................................55 ARTICLE VI The Trustee SECTION 6.01. Certain Duties and Responsibilities....................55 SECTION 6.02. Notice of Defaults.....................................56 SECTION 6.03. Certain Rights of Trustee..............................56 SECTION 6.04. Not Responsible for Recitals or Issuance of Securities........................................58 SECTION 6.05. May Hold Securities....................................58 SECTION 6.06. Money Held in Trust....................................58 SECTION 6.07. Compensation and Reimbursement.........................58 SECTION 6.08. Disqualification; Conflicting Interest.................59 SECTION 6.09. Corporate Trustee Required; Eligibility................59 SECTION 6.10. Resignation and Removal; Appointment of Successor.........................................59 SECTION 6.11. Acceptance of Appointment by Successor.................61 SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business............................61 SECTION 6.13. Preferential Collection of Claims Against Company...........................................62 ARTICLE VII Holders' Lists and Reports by Trustee and Company SECTION 7.01. Company To Furnish Trustee Names and Addresses of Holders........................................62 SECTION 7.02. Preservation of Information; Communications to Holders........................................62 SECTION 7.03. Reports by Trustee.....................................63 SECTION 7.04. Reports by Company.....................................63 ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease SECTION 8.01. Company and the Subsidiary Guarantors May Consolidate, Etc., Only on Certain Terms..........63 SECTION 8.02. Successor Substituted..................................66 ARTICLE IX Supplemental Indentures SECTION 9.01. Supplemental Indentures Without Consent of Holders...........................................67 SECTION 9.02. Supplemental Indentures with Consent of Holders...........................................67 SECTION 9.03. Execution of Supplemental Indentures...................69 SECTION 9.04. Effect of Supplemental Indentures......................69 SECTION 9.05. Conformity with Trust Indenture Act....................69 SECTION 9.06. Reference in Securities to Supplemental Indentures.......................................69 ARTICLE X Covenants SECTION 10.01. Payment of Principal, Premium and Interest............70 SECTION 10.02. Maintenance of Office or Agency.......................70 SECTION 10.03. Money for Security Payments To Be Held in Trust............................................70 SECTION 10.04. Corporate Existence...................................72 SECTION 10.05. Maintenance of Properties.............................72 SECTION 10.06. Payment of Taxes and Other Claims.....................72 SECTION 10.07. Insurance.............................................72 SECTION 10.08. Restrictions on Funded Debt of Restricted Subsidiaries....................................73 SECTION 10.09. Restriction on Sales with Leases Back.................73 SECTION 10.10. Restrictions on Secured Debt..........................74 SECTION 10.11. Restrictions on Impairment of Security Interest........................................75 SECTION 10.12. Restrictions on Amendments to Collateral Documents.......................................76 SECTION 10.14. Application of Collateral Proceeds....................76 SECTION 10.15. Restrictions on Permitting Unrestricted Subsidiaries To Become Restricted Subsidiaries....................................78 SECTION 10.16. Statement by Officers as to Default...................79 SECTION 10.17. Waiver of Certain Covenants...........................79 ARTICLE XI Redemption of Securities SECTION 11.01. Right of Redemption...................................79 SECTION 11.02. Election To Redeem; Notice To Trustee.................79 SECTION 11.03. Selection by Trustee of Securities To Be Redeemed........................................80 SECTION 11.04. Notice of Redemption..................................80 SECTION 11.05. Deposit of Redemption Price...........................81 SECTION 11.06. Securities Payable on Redemption Date.................81 SECTION 11.07. Securities Redeemed in Part...........................81 ARTICLE XII Defeasance and Covenant Defeasance SECTION 12.01. Company's Option To Effect Defeasance or Covenant Defeasance.............................82 SECTION 12.02. Defeasance and Discharge..............................82 SECTION 12.03. Covenant Defeasance...................................82 SECTION 12.04. Conditions to Defeasance or Covenant Defeasance......................................83 SECTION 12.05. Deposited Money and U.S. Government Obligations To Be Held in Trust; Other Miscellaneous Provisions..................84 SECTION 12.06. Reinstatement.........................................85 SCHEDULE A Subsidiary Guarantors INDENTURE, dated as of June 14, 2000, among Rite Aid Corporation, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at 30 Hunter Lane, Camp Hill, Pennsylvania, 17011, each of the Subsidiary Guarantors named herein and State Street Bank and Trust Company, a Massachusetts trust company, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of $467,500,000 aggregate principal amount of its 10.50% Senior Secured Notes due 2002 (including those notes issued to the SPV pursuant to the terms of the Forward Commitment Agreement, the "Securities") in substantially the tenor and amount hereinafter set forth, and to provide therefor, the Company has duly authorized the execution and delivery of this Indenture. All things necessary (i) to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company and (ii) to make this Indenture a valid agreement of the Company and the Subsidiary Guarantors, all in accordance with their respective terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE I Definitions and Other Provisions of General Application SECTION 1.01. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles (whether or not such is indicated herein), and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted as consistently applied by the Company at the date of such computation; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder, has the meaning specified in Section 1.04. "Affiliate" of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent Member" means any member of, or participant in, the Depositary. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Security to the extent applicable to such transaction and as in effect at the time of such transfer or transaction. "Attributable Debt" means, as to any particular Sale and Leaseback Transaction under which the Company or any Restricted Subsidiary is at the time liable, at any date as of which the amount thereof is to be determined (i) in the case of any such transaction involving a Capital Lease, the amount on such date of the Capital Lease Obligation thereunder, or (ii) in the case of any other such Sale and Leaseback Transaction, the then present value of the minimum rental obligation under such transaction during the remaining term thereof (after giving effect to any extensions at the option of the lessor) computed by discounting the respective rental payments at the actual interest factor included in such payment, or, if such interest factor included in such payment, or, if such interest factor cannot be readily determined, at the rate per annum equal to the rate of interest on the Securities. The amount of any rental payment required to be made under any such Sale and Leaseback Transaction not involving a Capital Lease may exclude amounts required to be paid by the lessee on account of maintenance and repairs, insurance, taxes, assessments, utilities, operating and labor costs and similar charges. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "Bankruptcy Proceeding" means any proceeding under Title 11 of the U.S. Code or any other Federal, state or foreign bankruptcy, insolvency, reorganization, receivership or similar law. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York, New York, Hartford, Connecticut or Boston, Massachusetts are authorized or obligated by law, regulation, executive order or governmental decree to close. "Capital Lease" means any lease of property which, in accordance with generally accepted accounting principles, should be capitalized on the lessee's balance sheet or for which the amount of asset and liability thereunder as if so capitalized should be disclosed in a note to such balance sheet; and "Capital Lease Obligation" means the amount of the liability so capitalized or disclosed (or which should be so disclosed) in a note in respect of a Capital Lease. "Capital Stock" means, with respect to any Person, any shares or other equivalents (however designated) of any class of corporate stock or partnership interests or any other participations, rights, warrants, options or other interests in the nature of an equity interest in such Person, including preferred stock, but excluding any debt security convertible or exchangeable into such equity interest. "Casualty/Condemnation" means any action or proceeding for the taking of any assets of the Company or its Subsidiaries, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any similar public improvement or condemnation proceeding. "Closing Date" means June 14, 2000. "Collateral" means the Senior Collateral and the Second Priority Collateral. "Collateral Documents" means (a) the Senior Collateral Documents and (b) the Second Priority Collateral Documents. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee. "Consolidated Funded Debt" means the total of all outstanding Funded Debt of the Company and its Restricted Subsidiaries, determined on a consolidated basis in accordance with generally accepted accounting principles. "Consolidated Net Tangible Assets" means (a) the total amount of assets (less applicable reserves and other properly deductible items) which under generally accepted accounting principles would be included on a consolidated balance sheet of the Company and its Restricted Subsidiaries after deducting therefrom (i) all liabilities and liability items, including amounts in respect of obligations or guarantees of obligations under leases, which under generally accepted accounting principles would be included on such balance sheet, except Funded Debt, capital stock and surplus, surplus reserves and provisions for deferred income taxes, and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, which in each case under generally accepted accounting principles would be included on such consolidated balance sheet, less (b) the amount which would be so included on such consolidated balance sheet for Investments (less applicable reserves) (i) made in Unrestricted Subsidiaries or (ii) made in corporations while they were Unrestricted Subsidiaries but which at the time of computation are not Subsidiaries of the Company. "Corporate Trust Office" means the principal corporate trust office of the Trustee in the City of Hartford, State of Connecticut, at which at any particular time its corporate trust business shall be administered. "corporation" means a corporation, association, company, limited liability company, joint-stock company, partnership or business trust. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 3.08. "Depositary" means, with respect to any Securities, a clearing agency that is registered as such under the Exchange Act and is designated by the Company to act as Depositary for such Securities (or any successor securities clearing agency so registered). "DTC" means The Depository Trust Company, a New York corporation. "Event of Default" has the meaning specified in Section 5.01. "Exchange Act" refers to the Securities Exchange Act of 1934 as it may be amended and any successor act thereto. "Exchange Debt Facility" means the Exchange Debt Facility, dated as of June 14, 2000 (as amended, modified, supplemented or Refinanced from time to time), among the Company, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "Exchange Debt Facility Documents" means the collective reference to the "Loan Documents" as defined in the Exchange Debt Facility. "Exchange Debt Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on any loans made under the Exchange Debt Facility, (ii) all other amounts payable by the Company to the Exchange Debt Parties under the Exchange Debt Facility Documents, and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the Exchange Debt Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Intercreditor Agreement as in effect on the Closing Date. "Exchange Debt Parties" means all parties to the Exchange Debt Documents other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the administrative agent under the Exchange Debt Facility and the beneficiaries of each indemnification obligation undertaken by the Company or any other Obligor under any Exchange Debt Facility Document. "Exchange Note Documents" means the Securities, this Indenture, the Exchange and Registration Rights Agreement and the Forward Commitment Agreement. "Exchange Note Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on the Securities (including Securities issued to the SPV and transferred to Salomon Smith Barney Inc. and J.P. Morgan Securities Inc. and their respective assignees and transferees in accordance with the Forward Commitment Agreement), (ii) all other amounts payable by the Company to the Exchange Note Parties under the Exchange Note Documents, and (iii) any renewals or extensions of any of the foregoing. "Exchange Note Parties" means all parties to the Exchange Note Documents and the Holders, in each case other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the Trustee and the beneficiaries of each indemnification obligation undertaken by the Company or any other Obligor under any Exchange Note Document. "Exchange and Registration Rights Agreement" means the Exchange and Registration Rights Agreement, dated as of June 14, 2000, among the Company, each of the Subsidiary Guarantors and the Holders from time to time as provided therein, as such agreement may be amended from time to time. "Exchange Offer" means an offer made by the Company pursuant to the Exchange and Registration Rights Agreement under an effective registration statement under the Securities Act to exchange securities substantially identical to Outstanding Securities (except for the differences provided for herein) for Outstanding Securities. "Exchange Registration Statement" means a registration statement of the Company under the Securities Act registering Exchange Securities for distribution pursuant to the Exchange Offer. "Exchange Securities" means the Securities issued pursuant to the Exchange Offer and their Successor Securities. "Exempt Securities" means the Securities acquired by Holders from the Company pursuant to either the Section 4(2) Exchange Offer or the Forward Commitment Agreement. "Existing Facilities" means (a) the PCS Facility; (b) the RCF Facility; (c) the Finco Facility; and (d) the Exchange Debt Facility. "Existing Facilities Documents" means the collective reference to (i) the PCS Facility Documents, (ii) the RCF Facility Documents, (iii) the Finco Facility Documents and (iv) the Exchange Debt Facility Documents. "Existing Facility Obligations" means the PCS Facility Obligations, the RCF Facility Obligations, the Finco Facility Obligations and the Exchange Debt Obligations. "Existing Facility Parties" means the PCS Facility Parties, the RCF Facility Parties, the Finco Facility Parties and the Exchange Debt Parties. "Finco Facility" means the Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, Amendment No. 1 to Put Agreement (the "Omnibus Agreement") dated as of June 14, 2000, relating to the Adjustable Rate Senior Secured Notes due August 15, 2002 originally issued by Finco, Inc. and guaranteed by the Company pursuant to separate Note Agreements dated as of September 30, 1996. "Finco Facility Documents" means the (i) Guaranty Agreement dated as of September 30, 1996 pursuant to which the Company guaranteed the obligations of Finco, Inc. under the Finco Facility; (ii) Put Agreement dated as of September 30, 1996 entered into by the Company, and (iii) Security Agreement dated as of September 30, 1996 entered into by Finco, Inc. and The Prudential Insurance Company of America as the Security Agent on behalf of the Finco Facility Parties, in each case as amended through the Closing Date. "Finco Facility Obligations" means (i) all outstanding principal amounts under the Finco Facility Documents, (ii) all interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on the principal amounts pursuant to clause (i) of this definition, (iii) any "Yield-Maintenance Amount" payable in respect of the portion of the Finco Facility secured pursuant to clauses (i) and (ii) of this definition, (iv) any renewals or extensions of any of the foregoing and (v) any and all other amounts payable by the Company in respect of the Finco Facility; provided, however, that the principal amount of indebtedness included in the Finco Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Intercreditor Agreement as in effect on the Closing Date. "Finco Facility Parties" means The Prudential Insurance Company of America and Pruco Life Insurance Company and their successors and assigns as noteholders and purchasers under the Finco Facility Documents and The Prudential Insurance Company of America, as Security Agent under the Finco Facility Documents and its successor or assignee. "Forward Commitment Agreement" means the Forward Commitment Agreement dated June 14, 2000, among the Company, the SPV, Salomon Smith Barney Inc. and J.P. Morgan Securities Inc. "Funded Debt" means any indebtedness for money borrowed, created, issued, incurred, assumed or guaranteed, whether secured or unsecured, maturing more than one year after the date of determination thereof and any indebtedness, regardless of its term, renewable pursuant to the terms thereof or of a revolving credit or similar agreement effective for more than one year after the date of the creation of the indebtedness, which would, in accordance with generally accepted accounting practice, be classified as funded debt but shall not include: (a) any indebtedness for the payment, redemption or satisfaction of which money (or evidences of indebtedness, if permitted under the instrument creating such indebtedness) in the necessary amount shall have been deposited in trust with the Trustee or proper depository either at or before maturity or redemption date thereof; or (b) guarantees arising in connection with the sale, discount, guarantee or pledge of Securities, chattel mortgages, leases, accounts receivable, trade acceptances and other paper arising, in the ordinary course of business, out of installment or conditional sales to or by, or transactions involving title retention with, distributors, dealers or other customers of merchandise, equipment or services or guarantees other than guarantees of indebtedness for borrowed money; or (c) any liability resulting from the capitalization of lease rentals. "Global Security" means a Security that is registered in the Security Register in the name of a Depositary or a nominee thereof. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indebtedness" means (i) all items of indebtedness or liability (except capital and surplus) which in accordance with generally accepted accounting principles would be included in determining total liabilities as shown on the liability side of a balance sheet as at the date as of which indebtedness is to be determined, (ii) indebtedness secured by any Mortgage existing on property owned subject to such Mortgage, whether or not the indebtedness secured thereby shall have been assumed, and (iii) guarantees, endorsements (other than for purposes of collection) and other contingent obligations in respect of, or to purchase or otherwise acquire, indebtedness of others, unless the amount thereof is included in indebtedness under the preceding clauses (i) or (ii); provided, however, that any obligations or guarantees of such obligations or guarantees of obligations in respect of lease rentals, whether or not such obligations or guarantees of obligations would be included as liabilities on a consolidated balance sheet of the Company and its Restricted Subsidiaries, shall not be included in indebtedness. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Intercreditor Agreement" means the Collateral Trust and Intercreditor Agreement, dated as of June 14, 2000, among the Company, the Subsidiary Guarantors, the Second Priority Collateral Trustee, the Senior Collateral Agent and each Second Priority Representative. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Investments" mean and include all investments, whether by acquisition of stock or indebtedness, or by loan, advance, transfer of property, capital contribution or otherwise, made by the Company or by any Restricted Subsidiary, and shall include all guarantees, direct or indirect, by the Company or any Restricted Subsidiary of any indebtedness of an Unrestricted Subsidiary which by its term matures 12 months or less from the time of computation of the amount thereof to the extent not included as a liability or liability item on the consolidated balance sheet of the Company and its Restricted Subsidiaries, but shall not include accounts receivable of the Company or of any Restricted Subsidiary arising from the sale of merchandise in the ordinary course of business. "Maturity", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Mortgage" means and includes any mortgage, pledge, lien, security interest, conditional sale or other title retention agreement or other similar encumbrance. "Notice of Default" shall have the meaning specified in Section 5.01(4). "Obligors" means the Company, the Subsidiary Guarantors and any other Person who is liable for any of the Secured Obligations. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company and delivered to the Trustee. "Opinion of Counsel" means a written opinion in form and substance reasonably satisfactory to the Trustee, of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. "Original Securities" means all Securities other than Exchange Securities. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Securities which have been transferred pursuant to Section 3.06 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (iv) Securities paid pursuant to Section 3.07; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "PCS" means PCS Holding Corporation, a Delaware corporation, and its successors. "PCS Excluded Assets" means any (i) Collateral consisting of assets of PCS or a Subsidiary of PCS, other than PCS Linked Accounts, (ii) PCS Land and (iii) any proceeds of clauses (i) and (ii). "PCS Facility" means the PCS Facility, dated as of June 14, 2000 (as amended, modified, supplemented or Refinanced from time to time), among the Company, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "PCS Facility Documents" means the "Loan Documents" as defined in the PCS Facility. "PCS Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the PCS Facility, (ii) all other amounts payable by the Company under the PCS Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the PCS Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Intercreditor Agreement as in effect on the Closing Date. "PCS Facility Parties" means the parties to the PCS Facility Documents other than the Obligors, the Senior Bank Parties and the Representatives, but including the administrative agent under the PCS Facility and the beneficiaries of each indemnification obligation by the Company or any other Obligor under any PCS Facility Documents. "PCS Land" means the real property described as N.W. 96th Street and Mountainview Road, Scottsdale, Arizona together with any improvements thereon. "PCS Linked Accounts" means any accounts receivable owned to PCS by third party insurers in respect of claims generated by other Subsidiaries of the Company and giving rise to related accounts payable owed by PCS to such other Subsidiaries of the Company. "Person" means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.07 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "RCF Facility" means the Restated Credit Agreement, dated as of June 14, 2000 (as amended, modified, supplemented or Refinanced from time to time), among the Company, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "RCF Facility Documents" means the "Loan Documents" as defined in the RCF Facility. "RCF Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the RCF Facility, (ii) all other amounts payable by the Company to the RCF Facility Parties under the RCF Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the RCF Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Intercreditor Agreement as in effect on the Closing Date. "RCF Facility Parties" means the parties to the RCF Facility Documents other than the Obligors. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Refinance" means, in respect of any indebtedness, to refinance, extend, renew, refund, repay, prepay, repurchase, redeem, defease or retire, or to issue other indebtedness, in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Registration Default" means the occurrence of any of the following events: (i) the Company has not filed the Exchange Registration Statement or Shelf Registration Statement on or before the date on which such registration statement is required to be filed pursuant to the Exchange and Registration Rights Agreement, (ii) the Exchange Registration Statement or Shelf Registration Statement has not become effective or been declared effective by the Commission on or before the date on which such registration statement is required to become or be declared effective under the requirements of the Exchange and Registration Rights Agreement, (iii) the Exchange Offer has not been completed on or before the date required by the Exchange and Registration Rights Agreement or (iv) any Exchange Registration Statement or Shelf Registration Statement required to be filed pursuant the Exchange and Registration Rights Agreement is filed and declared effective but shall thereafter cease to be effective without being again effective within 30 days or being succeeded within 30 days by an additional Exchange Registration Statement or Shelf Registration Statement filed and declared effective. "Registration Default Period" means any period during which a Registration Default has occurred and is continuing. "Regular Record Date" means the date that is the fifteenth calendar day (whether or not a Business Day) immediately preceding the related Interest Payment Date. "Representatives" means each of the Senior Collateral Agent and the Second Priority Representatives. "Responsible Officer", when used with respect to the Trustee, means any vice president, any assistant vice president, any assistant secretary, any assistant treasurer, any trust officer or assistant trust officer, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Global Securities" means all Global Securities required pursuant to Section 3.06(c) to bear a Restricted Securities Legend. "Restricted Securities" means all Securities required pursuant to Section 3.06(c) to bear a Restricted Securities Legend. Such term includes the Restricted Global Securities. "Restricted Securities Legend" means a legend substantially in the form of the legend required in the form of Security set forth in Section 2.02 to be placed upon a Restricted Security. "Restricted Subsidiary" means any Subsidiary, whether existing on or after the date of this Indenture, unless such Subsidiary is an Unrestricted Subsidiary. "Sale and Leaseback Transaction" has the meaning specified in Section 10.09. "Second Priority Collateral" means all the "Second Priority Collateral" as defined in any Second Priority Collateral Document and shall also include the mortgaged properties described in the Senior Credit Facility and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral or the Exchange Debt First Priority Collateral (as each term is defined in the Collateral Documents). "Second Priority Collateral Documents" means the Second Priority Mortgages, the Second Priority Subsidiary Security Agreement, the Second Priority Subsidiary Guarantee Agreement, the Second Priority Indemnity, Subrogation and Contribution Agreement, the Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing for purposes of providing collateral security or credit support for any Second Priority Debt Obligation or obligation under the Second Priority Subsidiary Guarantee Agreement but specifically excluding the Drugstore.com Pledge Agreement, the Exchange Debt First Priority Collateral Documents and the PCS Pledge Agreement (as each term is defined in the Collateral Documents). "Second Priority Collateral Trustee" means Wilmington Trust Company, in its capacity as collateral trustee under the Intercreditor Agreement and the Second Priority Collateral Documents, and its successors. "Second Priority Debt Documents" means the Existing Facility Documents, the Exchange Note Documents, the Synthetic Lease Documents and the Second Priority Collateral Documents. "Second Priority Debt Obligations" means the collective reference to the Exchange Debt Obligations, the Exchange Note Obligations, the Synthetic Lease Obligations, the PCS Facility Obligations, the RCF Facility Obligations and the Finco Facility Obligations. "Second Priority Debt Parties" means Existing Facility Parties, the Exchange Note Parties, the Synthetic Lease Parties and the Second Priority Collateral Trustee. "Second Priority Facilities" means the Exchange Debt Facility, this Indenture, the Synthetic Lease Facilities, the PCS Facility, the RCF Facility and the Finco Facility. "Second Priority Indemnity, Subrogation and Contribution Agreement" means the Second Priority Indemnity, Subrogation and Contribution Agreement, dated as of June 14, 2000, among the Company, the Subsidiary Guarantors and the Second Priority Collateral Trustee. "Second Priority Lien" means the liens on the Second Priority Collateral in favor of the Second Priority Debt Parties under the Second Priority Collateral Documents. "Second Priority Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents which create a lien in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties, delivered pursuant to the Second Priority Debt Documents. "Second Priority Representative" means, in respect of each Second Priority Facility, the Trustee and the administrative agent or agent under each other Second Priority Facility and each of their successors in such capacities. "Second Priority Subsidiary Guarantee Agreement" means the Second Priority Subsidiary Guarantee Agreement, dated as of June 14, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Second Priority Subsidiary Security Agreement" means the Second Priority Subsidiary Security Agreement, dated as of June 14, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Section 4(2) Exchange Offer" means the offer made by the Company pursuant to the Exchange Offer Circular dated April 24, 2000, as supplemented or amended from time to time, in reliance upon an exemption from registration under Section 4(2) of the Securities Act to issue the Securities in exchange for the Company's (a) 5.50% Notes due 2000 and (b) 6.70% Notes due 2001. "Secured Debt" means indebtedness for money borrowed which is secured by a mortgage, pledge, lien, security interest or encumbrance on property of the Company or any Restricted Subsidiary, but shall not include guarantees arising in connection with the sale, discount, guarantee or pledge of notes, chattel mortgages, leases, accounts receivable, trade acceptances and other paper arising, in the ordinary course of business, out of installment or conditional sales to or by, or transactions involving title retention with, distributors, dealers or other customers, of merchandise, equipment or services. "Secured Obligations" means the Senior Obligations and the Second Priority Debt Obligations. "Securities" means Securities designated in the first paragraph of the RECITALS OF THE COMPANY and includes the Original Securities and the Exchange Securities. "Securities Act" means the Securities Act of 1933, as it may be amended and any successor act thereto. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.06(a). "Senior Bank" means a "Bank" as defined in the Senior Credit Facility. "Senior Bank Obligations" means (i) the principal of each loan made under the Senior Credit Facility, (ii) all reimbursement and cash collateralization obligations in respect of letters of credit issued under the Senior Credit Facility, (iii) all monetary obligations of the Company or any Subsidiary under each Senior Interest Rate Agreement (as defined in the Senior Credit Facility) entered into with any counterparty that was a Senior Bank (or an Affiliate thereof) at the time such Senior Interest Rate Agreement was entered into, (iv) all interest on the loans, letter of credit reimbursement and other obligations under the Senior Credit Facility or such Senior Interest Rate Agreements (including, without limitation) any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company or any Subsidiary Guarantor, whether or not allowed or allowable as a claim in such proceeding), (v) all other amounts payable by the Company under the Senior Loan Documents and (vi) all increases, renewals, extensions and refinancings of the foregoing; provided, however, that the principal amount of the indebtedness under the Senior Credit Facility included in the Senior Bank Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Intercreditor Agreement as in effect on the Closing Date. "Senior Bank Parties" means each party to the Senior Credit Facility other than any Obligor, each counterparty to a Senior Interest Rate Agreement, the beneficiaries of each indemnification obligation undertaken by the Company or any other Obligor under any Senior Loan Document, and the successors and permitted assigns of each of the foregoing. "Senior Collateral" means all the "Senior Collateral" as defined in any Senior Collateral Document and shall also include the mortgaged properties described in the Senior Credit Facility and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral and the Exchange Debt First Priority Collateral (as each term is defined in the Collateral Documents). "Senior Collateral Agent" means Citicorp USA, Inc., in its capacity as Senior Collateral Agent under the Senior Collateral Documents, and its successors. "Senior Collateral Disposition" means (i) any sale, transfer or other disposition of Senior Collateral (including any property or assets that would constitute Senior Collateral but for the release of the Senior Lien and the Second Priority Lien with respect thereto in connection with such sale, transfer or other disposition), other than a disposition of PCS Excluded Assets or a Permitted Disposition (as defined in the Collateral Documents), or (ii) a Casualty/Condemnation with respect to Senior Collateral (other than PCS Excluded Assets). "Senior Collateral Documents" means the Senior Mortgages, the Senior Subsidiary Security Agreement, the Senior Subsidiary Guarantee Agreement, the Senior Indemnity, Subrogation and Contribution Agreement, the Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing or pursuant to the Senior Credit Facility or for purposes of providing collateral security or credit support for any Senior Obligation or obligation under the Senior Subsidiary Guarantee Agreement. "Senior Credit Facility" means the Senior Credit Agreement, dated as of June 14, 2000 (as amended, modified, supplemented or Refinanced from time to time), among the Company, the Senior Banks, the swingline banks named therein, the issuing banks named therein, the senior administrative agent named therein, the Senior Collateral Agent, and the syndication agents named therein. "Senior Indemnity, Subrogation and Contribution Agreement" means the Senior Indemnity, Subrogation and Contribution Agreement, dated as of June 14, 2000 among the Company, the Subsidiary Guarantors (including Subsidiary Guarantors becoming party thereto after the Closing Date) and the Senior Collateral Agent. "Senior Lien" means the liens on the Senior Collateral in favor of the Senior Secured Parties under the Senior Collateral Documents. "Senior Loan Documents" means the Senior Credit Facility, the Notes referred to in the Senior Credit Facility, each Senior Interest Rate Agreement, and the Senior Collateral Documents. "Senior Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents delivered pursuant to the Senior Credit Agreement. "Senior Obligations" means (a) the Senior Bank Obligations and (b) the Independent Standby L/C Obligations (as defined in the Senior Credit Facility). "Senior Secured Parties" means (a) the Senior Bank Parties and (b) the Independent Standby L/C Parties (as defined in the Senior Credit Facility). "Senior Subsidiary Guarantee Agreement" means the Senior Subsidiary Guarantee Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Bank Parties. "Senior Subsidiary Security Agreement" means the Senior Subsidiary Security Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "Shelf Registration Statement" means a shelf registration statement under the Securities Act filed by the Company, if required by, and meeting the requirements of, the Exchange and Registration Rights Agreement, registering Original Securities for resale. "SPV" means Fiona One Corp., a Delaware corporation and a wholly-owned Subsidiary of the Company which is organized for the sole purpose of acquiring Securities on the Closing Date from the Company and selling such Securities to Salomon Smith Barney Inc. and J. P. Morgan Securities Inc. in accordance with the Forward Commitment Agreement. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by Trustee pursuant to Section 3.08. "Stated Maturity" means, with respect to any Security, the date specified in such Security as the fixed date on which the final payment of principal of such Security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subsidiary" of any Person means (i) a corporation more than 50% of the combined voting power of the outstanding Voting Stock of which is owned, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person or by such Person and one or more Subsidiaries thereof or (ii) any other Person (other than a corporation) in which such Person, or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, has at least a majority ownership and power to direct the policies, management and affairs thereof. "Subsidiary Guarantor" means each Subsidiary that is party to the Senior Subsidiary Guarantee Agreement, the Second Priority Subsidiary Guarantee Agreement or any other Senior Collateral Document or Second Priority Collateral Document. "Successor Security" of any particular Security means every Security issued after, and evidencing all or a portion of the same debt as that evidenced by, such particular Security; and, for the purpose of this definition, any Security authenticated and delivered under Section 3.07 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Synthetic Lease Documents" means [the documents governing the Synthetic Leases]. "Synthetic Lease Facilities" means certain synthetic leases entered into by Subsidiary Guarantors and guaranteed by the Company having an aggregate discounted present value of approximately $214,000,000 as amended and restated as of the Closing Date (as amended, modified, supplemented or Refinanced from time to time). "Synthetic Lease Obligations" means all rent and supplemental rent, all fees and all other expenses or amounts payable by any Obligors to any Synthetic Lease Parties under any Synthetic Lease Document; provided, however, that the aggregate amount of the Synthetic Lease Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Intercreditor Agreement. "Synthetic Lease Parties" means all parties to the Synthetic Lease Documents other than the Obligors. "Triggering Event" means (x) the occurrence of any Event of Default and, as a result thereof, (A) the acceleration (including any automatic acceleration in connection with any Bankruptcy Proceeding) of the principal amount of any Senior Obligations or Second Priority Debt Obligations under the terms of any Senior Loan Document or any Second Priority Debt Document or (B) the commencement of the exercise of remedies in respect of Collateral, and (y) in either case, receipt by the Second Priority Collateral Trustee of written notice thereof from the Senior Collateral Agent (in the case of any such Event of Default arising under the Senior Loan Documents) or receipt by the Senior Collateral Agent and the Second Priority Collateral Trustee of written notice thereof from any Second Priority Representative (in the case of any such Event of Default arising under any Second Priority Debt Document). "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed, except as provided in Section 9.05; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Unrestricted Subsidiary" means (a) any Subsidiary which, in accordance with the provisions of this Indenture, has been designated by a Board Resolution as an Unrestricted Subsidiary, in each case unless and until such Subsidiary shall, in accordance with the provisions of this Indenture, be designated by Board Resolution as a Restricted Subsidiary; and (b) any Subsidiary a majority of the Voting Stock of which shall at the time be owned directly or indirectly by one or more Unrestricted Subsidiaries. "U.S. Government Obligations" means securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such obligation evidenced by such depository receipt or a specific payment of interest on or principal of any such obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the obligation set forth in (i) or (ii) above or the specific payment of interest on or principal of such obligation evidenced by such depository receipt. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Voting Stock" of any Person means Capital Stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Wholly-owned Restricted Subsidiary" means a Restricted Subsidiary of which at least 99% of the outstanding Voting Stock (other than directors' qualifying shares) is at the time, directly or indirectly, owned by the Company, or by one or more Wholly-owned Restricted Subsidiaries, or by the Company and one or more Wholly-owned Restricted Subsidiaries. SECTION 1.02. Compliance Certification and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required by the Trustee under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.03. Form of Documents Delivered To Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04. Acts of Holders; Record Date. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are received by the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 7.01) prior to such first solicitation or vote, as the case may be. With regard to any record date, only the Holders on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action. (d) The ownership of Securities shall be proved by the Security Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 1.05. Notices, Etc., To Trustee and the Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration, or (2) the Company or any Subsidiary Guarantor by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.06. Notice To Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 1.07. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act, that is required under such Act to be part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Until such time as this Indenture shall be qualified under the Trust Indenture Act, this Indenture, the Company and the Trustee shall be deemed for all purposes hereof to be subject to and governed by the Trust Indenture Act to the same extent as would be the case if this Indenture were so qualified on the date hereof. SECTION 1.08. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.09. Successors and Assigns. All covenants and agreements in this Indenture by the Company or any Subsidiary Guarantor shall bind its successors and assigns, whether so expressed or not. SECTION 1.10. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12. Governing Law. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of laws principles thereof. SECTION 1.13. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, or Redemption Date, or at the Stated Maturity, as the case may be, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. ARTICLE II Security Forms SECTION 2.01. Forms Generally; Initial Forms of Exempt Securities. The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Upon their original issuance, the Exempt Securities shall be issued in the form of one or more Global Securities without interest coupons registered in the name of DTC, as Depositary, or its nominee and deposited with the Trustee, as custodian for DTC, in New York, New York, for credit by DTC to the respective accounts of beneficial owners of the Securities represented thereby (or such other accounts as they may direct). Such Global Securities, together with their Successor Securities which are Global Securities, are collectively herein called the "Restricted Global Securities". SECTION 2.02. Form of Face of Security. [If the Security is a Restricted Security, then insert -- THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER (I) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THIS SECURITY OR THE LAST DATE ON WHICH THIS SECURITY WAS HELD BY THE COMPANY OR ANY AFFILIATE OF THE COMPANY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE UNDER RULE 144A, TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANY OTHER EXEMPTION FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT (IF AVAILABLE); AND (II) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS CERTIFICATE (UNLESS THIS CERTIFICATE IS HELD IN GLOBAL FORM) WITHIN TWO YEARS (OR SUCH SHORTER PERIOD AS MAY BE PRESCRIBED BY RULE 144(k) (OR ANY SUCCESSOR PROVISION) UNDER THE SECURITIES ACT) AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THIS SECURITY OR THE LAST DATE ON WHICH THIS SECURITY WAS HELD BY THE COMPANY OR ANY AFFILIATE OF THE COMPANY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS SECURITY TO THE TRUSTEE. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS; AND THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUER THAT THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN THE ABOVE PARAGRAPH. THIS SECURITY WILL NOT BE ACCEPTED FOR REGISTRATION OF TRANSFER UNLESS THE REGISTRAR OR TRANSFER AGENT IS SATISFIED THAT THE RESTRICTIONS ON TRANSFER SET FORTH ABOVE HAVE BEEN COMPLIED WITH, ALL AS PROVIDED IN THE INDENTURE.] [If the Security is not a Global Security, then insert -- FOR PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), THIS SECURITY HAS ORIGINAL ISSUE DISCOUNT. FOR PURPOSES OF SECTION 1273 OF THE CODE, THE ISSUE PRICE IS $________ AND THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $__________, IN EACH CASE PER $1000 PRINCIPAL AMOUNT OF THIS SECURITY. FOR PURPOSES OF SECTION 1275 OF THE CODE, THE ISSUE DATE OF THIS SECURITY IS [GIVE DATE]. FOR PURPOSES OF SECTION 1272 OF THE CODE, THE YIELD TO MATURITY (COMPOUNDED SEMI-ANNUALLY) IS ____%.] [If the Security is a Global Security, then insert -- THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.] [If the Security is a Global Security and The Depository Trust Company is to be the Depositary therefor, then insert -- UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] RITE AID CORPORATION $___,000,000 10.50% Senior Secured Notes due 2002 No. CUSIP:_________ Rite Aid Corporation, a Delaware corporation (hereinafter called the "Company"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum set forth on Schedule A hereof on September 15, 2002, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on March 15 and September 15 of each year (each, an "Interest Payment Date"), on said principal sum at a rate of 10.50% per annum, at such office or agency, in like coin or currency, from the March 15 or September 15, as the case may be, to which interest on the Securities has been paid preceding the date hereof (unless the date hereof is a March 15 or a September 15 to which interest has been paid, in which case from the date hereof, or unless the date hereof is prior to any interest having been paid, in which case from June 14, 2000) until payment of said principal sum has been made or duly provided for. If the Company shall default in the payment of interest when due on such March 15 or September 15, then this Security shall bear interest from the next preceding date to which interest has been paid, or, if no interest has been paid, from June 14, 2000. The interest so payable on any March 15 or September 15 shall be paid to the person in whose name this Security shall be registered at the close of business on the fifteenth calendar day (whether or not a Business Day) immediately preceding the related Interest Payment Date (each, a "Regular Record Date"). For purposes of this Security, "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York, New York, Hartford, Connecticut or Boston, Massachusetts are authorized or obligated by law, regulation, executive order or governmental decree to be closed. If and to the extent the Company shall default in the payment of the interest due on any interest payment date, such defaulted interest shall be paid to the person in whose name this Security is registered at the close of business on a record date established for such payment by notice by or on behalf of the Company to the holders of the Securities mailed by first-class mail not less than fifteen days prior to such record date to their last address as they shall appear upon the Security register, such record date to be not less than five days preceding the date of payment of such defaulted interest. The Company may pay interest by check mailed to the holder's address as it appears on the Security register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Security shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been executed by the Trustee under the Indenture referred to on the reverse hereof. IN WITNESS WHEREOF, the Company has caused this Security to be signed by its duly authorized officers and has caused its corporate seal to be affixed hereunto. RITE AID CORPORATION, By: -------------------------------- Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee, Authorized Officer Form of Reverse of Security RITE AID CORPORATION 10.50% Senior Secured Notes due 2002 1. Indenture. (a) This Security is the duly authorized issue of debt securities of the Company (herein referred to as the "Securities"), all issued or to be issued under and pursuant to an indenture, dated as of June 14, 2000 (as amended, modified and supplemented from time to time, the "Indenture"), among the Company, certain Subsidiaries of the Company party thereto (the "Subsidiary Guarantors") and State Street Bank and Trust Company, as Trustee (herein referred to as the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company, the Subsidiary Guarantors and the holders (the words "holders", "holder", "Securityholders" or "Securityholder" mean the registered holder(s)) of the Securities. (b) This Security is the 10.50% Senior Secured Notes due 2002 of the Company and is limited in aggregate principal amount to $467,500,000. (c) All capitalized terms used in this Security which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. 2. Optional Redemption. The Securities will be redeemable at the option of the Company, in whole at any time or in part from time to time, on at least 30 days but not more than 90 days prior written notice mailed to the registered holders thereof. Any redemption prior to June 30, 2002 shall be at a redemption price equal to the greater of (i) 100% of the principal amount of the Securities to be redeemed and (ii) the sum, as determined by the Quotation Agent (as defined herein), of the present values of principal amount of the Securities to be redeemed and the remaining scheduled payments of interest thereon from the redemption date to the stated maturity date of such Securities (the "Remaining Life"), in each case, discounted from their respective scheduled payment dates to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined herein) plus 75 basis points, plus, in either case, accrued interest thereon to the date of redemption (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). Any redemption on or after June 30, 2002 shall be at a redemption price equal to 100% of the principal amount of the Securities to be redeemed, plus accrued interest thereon to the date of redemption (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). If money sufficient to pay the redemption price of and accrued interest on all of the Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Trustee or a paying agent on or before the redemption date and certain other conditions are satisfied, then on and after such date, interest will cease to accrue on such Securities (or such portion thereof) called for redemption. "Comparable Treasury Issue" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the Remaining Life that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity with the Remaining Life of the Securities to be redeemed. "Comparable Treasury Price" means, with respect to any redemption date, the average of five Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or if the Trustee obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such quotations. "Quotation Agent" means the Reference Treasury Dealer appointed by the Company. "Reference Treasury Dealer" means each of Salomon Smith Barney Inc. and J.P. Morgan Securities Inc., and their respective successors; provided, however, that if any of the foregoing shall cease to be primary U.S. Government securities dealers in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer by 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. "Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semi-annual yield to maturity of the Comparable Treasury Issue, calculated on the third Business Day preceding such redemption date using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. 3. Certain Covenants. The Indenture restricts the Company's and each of the Subsidiary Guarantor's ability to merge, consolidate or sell substantially all of its assets. In addition, the Company is obliged to abide by certain covenants, including covenants limiting the amount of debt it may incur, as well as its ability to enter into sale and leaseback transactions, a covenant requiring it to maintain its material properties, and a covenant requiring it to pay or discharge all taxes, all as more fully described in the Indenture. All of such covenants are subject to the covenant defeasance procedures outlined in the Indenture. In the event of certain sales, transfers, or other dispositions of, or casualties or other insured damages to, or any takings under power of eminent domain or by condemnation or similar proceedings of, certain assets that constitute Collateral, under certain circumstances, a portion of the proceeds of such sales, transfers, dispositions, casualties or condemnations shall be deposited into an account held by the Trustee in accordance with the terms of the Indenture. When the proceeds in such account exceed $10,000,000, the Company shall make an offer to purchase the Securities in accordance with the terms of the Indenture. 4. Guarantees; Security. To guarantee the due and punctual payment of the principal and interest on the Securities and all other amounts payable by the Company under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the Subsidiary Guarantors have, subject to certain limitations, jointly and severally guaranteed such payment obligations pursuant to the terms of the Second Priority Subsidiary Guarantee Agreement. The guarantees under the Second Priority Subsidiary Guarantee Agreement are secured by Second Priority Liens on the Collateral pursuant to the terms of the Second Priority Collateral Documents. The Second Priority Liens are shared equally and ratably with the lenders under the Existing Facilities and the Synthetic Lease Facilities as and to the extent provided in the Second Priority Subsidiary Guarantee Agreement, the Second Priority Collateral Documents and the Intercreditor Agreement. The actions of the holders of any debt (including, but not limited to, the Securities) secured by such Second Priority Liens and the application of proceeds from the enforcement of any remedies with respect to such Collateral are limited pursuant to the terms of the Collateral Documents and the Intercreditor Agreement. 5. Effect of Event of Default. If an Event of Default shall have occurred and be continuing under the Indenture, the principal hereof may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. 6. Amendments and Waivers. Modifications and amendments of the Indenture will be permitted to be made only with the consent of the holders of not less than a majority in principal amount of all outstanding Securities issued under the Indenture that are affected by such modification or amendment; provided that no such modification or amendment may, without the consent of the holder of each such Security affected thereby, (a) change the stated maturity of the principal of, or any installment of interest or principal on, any such Security; (b) reduce the principal of, or the rate or amount of interest on, or any amount payable upon redemption of, any such Security, or adversely affect any right of repayment of the holder of any such Security; (c) change the place of payment, or the coin or currency, for payment of principal of or interest on any such Security; (d) impair the right to institute suit for the enforcement of any payment on or with respect to any such Security; (e) reduce the above-stated percentage of outstanding Securities necessary to modify or amend the Indenture, or to waive compliance with certain provisions thereof or certain defaults and consequences thereunder; (f) release any security interest that may have been granted in favor of the Holders, other than in accordance with the terms of the applicable Second Priority Collateral Document governing the grant of such security interest or the Intercreditor Agreement that are in effect on the Closing Date; provided, however, that to the extent (i) the applicable terms of such agreements cross-reference the terms of the Second Priority Debt Documents and (ii) all of the Second Priority Debt Obligations, other than the Exchange Note Obligations, have been paid in full, such cross-references shall refer to the terms of the Second Priority Debt Documents, other than the Exchange Note Documents, that were in effect as of the Closing Date; (g) make any change in any Second Priority Collateral Document or any change in this Indenture with respect to the Collateral that would adversely affect the Holders, except for any such change made in accordance with the terms of the Intercreditor Agreement or the applicable Collateral Documents, as the case may be, that are in effect on the Closing Date; provided, however, that to the extent (i) the applicable terms of such agreements cross-reference the terms of the Second Priority Debt Documents and (ii) all of the Second Priority Debt Obligations, other than the Exchange Note Obligations, have been paid in full, such cross-references shall refer to the terms of the Second Priority Debt Documents, other than the Exchange Note Documents, that were in effect as of the Closing Date; (h) reduce the Redemption Price payable upon the redemption of any Securities or change the time at which any Securities may be redeemed; or (i) modify any of the foregoing provisions or any of the provisions relating to the waiver of certain past defaults or certain covenants, except to increase the required percentage to effect such action or to provide that certain other provisions may not be modified or waived without the consent of the holder of such Security. Modifications and amendments of the Indenture will be permitted to be made by the Company and the Trustee without the consent of any holder of Securities for any of the following purposes: (a) to evidence the succession of another person to the Company as obligor under the Indenture; (b) to add to the covenants, agreements and obligations of the Company for the benefit of the holders of all Securities or to surrender any right or power conferred upon the Company in the Indenture; (c) to provide for the acceptance of appointment by a successor Trustee or facilitate the administration of the trusts under the Indenture by more than one Trustee; (d) to cure any ambiguity, defect or inconsistency in the Indenture; (e) to add guarantees with respect to the Securities or to secure the Securities; or (f) to make any other change that does not adversely affect the rights of any Holder of Securities. 7. Denominations; Transfer. (a) The Securities are issuable in registered form without coupons in denominations of $1,000 and any integral multiple thereof. (b) A certificate in global form representing all or a portion of the Securities may not be transferred except as a whole by the Depositary to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary for such Securities or a nominee of such successor Depositary. 8. No Liability of Certain Persons. No past, present or future stockholder, employee, officer or director of the Company or any successor thereof shall have any liability for any obligation, covenant or agreement of the Company contained under this Security or the Indenture. Each holder by accepting this Security waives and releases all such liability. This waiver and release are part of the consideration for the issue of this Security. 9. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK GOVERN THE INDENTURE AND THIS SECURITY. SCHEDULE A SCHEDULE OF CHANGES IN OUTSTANDING PRINCIPAL AMOUNT The following notations in respect of changes in the outstanding principal amount of this Security have been made: Change in Initial Outstanding Outstanding Principal Principal Principal Date Amount Amount Amount Notation ---- -------- ------- ------- -------- ARTICLE III The Securities SECTION 3.01. Title and Terms. The Securities shall be known and designated as the "10.50% Senior Secured Notes due 2002". The aggregate amount of Securities which may be authenticated and delivered hereunder is limited to $467,500,000, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 3.04, 3.05 or 9.06. Unless the context otherwise requires, the Original Securities and the Exchange Securities shall constitute Securities for all purposes under the Indenture, including with respect to any amendment, waiver, acceleration or other Act of Holders or redemption. SECTION 3.02. Denominations. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and integral multiples thereof. SECTION 3.03. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman, its President, one of its Vice Presidents or its Secretary. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and make available for delivery such Securities as provided in this Indenture and not otherwise. At any time and from time to time after the execution and delivery of this Indenture and after the effectiveness of a registration statement under the Securities Act with respect thereto, the Company may deliver Exchange Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Exchange Securities and a like principal amount of Original Securities for cancellation in accordance with this Indenture, and the Trustee in accordance with the Company Order shall authenticate and make available for delivery such Securities. Prior to authenticating such Exchange Securities, and accepting any additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, if requested, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating in substance: (a) that all conditions hereunder precedent to the authentication and delivery of such Exchange Securities have been complied with and that such Exchange Securities, when such Securities have been duly authenticated and delivered by the Trustee (and subject to any other conditions specified in such Opinion of Counsel), have been duly issued and delivered and will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; and (b) that the issuance of the Exchange Securities in exchange for Original Securities has been effected in compliance with the Securities Act. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. SECTION 3.04. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall, as soon as practicable thereafter, authenticate and deliver, temporary Securities, which Securities are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution thereof. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 10.02, without charge to the Holder. Upon receipt of notice of surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall, as soon as practicable thereafter, authenticate and make available for delivery in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 3.05. Global Securities. (a) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated by the Company for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (b) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (i) such Depositary (A) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (B) has ceased to be a clearing agency registered as such under the Exchange Act, and in either case the Company fails to appoint a successor Depositary, (ii) the Company executes and delivers to the Trustee a Company Order stating that it elects to cause the issuance of the Securities in certificated form and that all Global Securities shall be exchanged in whole for Securities that are not Global Securities (in which case such exchange shall be effected by the Trustee) or (iii) there shall have occurred and be continuing an Event of Default with respect to the Securities. (c) If any Global Security is to be exchanged for other Securities or canceled in whole, it shall be surrendered by or on behalf of the Depositary or its nominee to the Trustee, as Security Registrar, for exchange or cancellation as provided in this Article III. If any Global Security is to be exchanged for other Securities or canceled in part, or if another Security is to be exchanged in whole or in part for a beneficial interest in any Global Security, then either (i) such Global Security shall be so surrendered for exchange or cancellation as provided in this Article III or (ii) the principal amount thereof shall be reduced or increased by an amount equal to the portion thereof to be so exchanged or canceled, or equal to the principal amount of such other Security to be so exchanged for a beneficial interest therein, as the case may be, by means of an appropriate adjustment made on the records of the Trustee, as Security Registrar, whereupon the Trustee, in accordance with the Applicable Procedures, shall instruct the Depositary or its authorized representative to make a corresponding adjustment to its records. Upon receipt of notice of any such surrender or adjustment of a Global Security, the Trustee shall, subject to Section 3.06(c) and as otherwise provided in this Article III, as soon as practicable thereafter, authenticate and deliver any Securities issuable in exchange for such Global Security (or any portion thereof) to or upon the order of, and registered in such names as may be directed by, the Depositary or its authorized representative. Upon the request of the Trustee in connection with the occurrence of any of the events specified in the preceding paragraph, the Company shall promptly make available to the Trustee a reasonable supply of Securities that are not in the form of Global Securities. The Trustee shall be entitled to rely upon any order, direction or request of the Depositary or its authorized representative which is given or made pursuant to this Article III if such order, direction or request is given or made in accordance with the Applicable Procedures. (d) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Article III or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. (e) The Depositary or its nominee, as registered owner of a Global Security, shall be the Holder of such Global Security for all purposes under the Indenture and the Securities and owners of beneficial interests in a Global Security shall hold such interests pursuant to the Applicable Procedures. Accordingly, any such owner's beneficial interest in a Global Security will be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its Agent Members. SECTION 3.06. Registration, Registration of Transfer and Exchange; Restricted Securities Legends. (a) Registration, Registration of Transfer and Exchange Generally. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company designated pursuant to Section 10.02 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers and exchanges of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers and exchanges of Securities as herein provided. Such Security Register shall distinguish between Original Securities and Exchange Securities. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 10.02 for such purpose, the Company shall execute, and the Trustee shall, as soon as practicable thereafter, authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations, of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture. At the option of the Holder, and subject to the other provisions of this Section 3.06, Securities may be exchanged for other Securities of any authorized denominations, of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture upon surrender of the Securities to be exchanged at any such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall, as soon as practicable thereafter, authenticate and make available for delivery, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and (except for the differences between Original Securities and Exchange Securities provided for herein) entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Sections 3.03, 3.04, 3.05, 3.06, or 9.06 not involving any transfer. (b) Certain Transfers and Exchanges. Notwithstanding any other provision of this Indenture or the Securities, transfers and exchanges of Securities and beneficial interests in a Global Security of the kinds specified in this Section 3.06(b) shall be made only in accordance with this Section 3.06(b). (i) Exchanges between Global Security and Non-Global Security. A beneficial interest in a Global Security may be exchanged for a Security that is not a Global Security as provided in Section 3.05; provided that, if such interest is a beneficial interest in a Restricted Global Security, then such interest shall be exchanged for a Restricted Security (subject in each case to Section 3.06(c)). (c) Restricted Securities Legends. Exempt Securities and their respective Successor Securities shall bear a Restricted Securities Legend, subject to the following: (i) subject to the following clauses of this Section 3.06(c), a Security or any portion thereof which is exchanged, upon transfer or otherwise, for a Global Security or any portion thereof shall bear the Restricted Securities Legend borne by such Global Security while represented thereby; (ii) subject to the following clauses of this Section 3.06(c), a new Security which is not a Global Security and is issued in exchange for another Security (including a Global Security) or any portion thereof, upon transfer or otherwise, shall bear the Restricted Securities Legend borne by such other Security; (iii) Exchange Securities shall not bear a Restricted Securities Legend; (iv) at any time after the Securities may be freely transferred without registration under the Securities Act or without being subject to transfer restrictions pursuant to the Securities Act, a new Security which does not bear a Restricted Securities Legend may be issued in exchange for or in lieu of a Security (other than a Global Security) or any portion thereof which bears such a legend if the Trustee has received an unlegended Security, duly executed by the Holder of such legended Security or his attorney duly authorized in writing, and after such date and receipt of such certificate, the Trustee shall, as soon as practicable thereafter, authenticate and deliver such a new Security in exchange for or in lieu of such other Security as provided in this Article III; (v) a new Security which does not bear a Restricted Securities Legend may be issued in exchange for or in lieu of a Security (other than a Global Security) or any portion thereof which bears such a legend if, in the Company's judgment, placing such a legend upon such new Security is not necessary to ensure compliance with the registration requirements of the Securities Act, and the Trustee, at the direction of the Company, shall authenticate and deliver such a new Security as provided in this Article III; and (vi) notwithstanding the foregoing provisions of this Section 3.06(c), a Successor Security of a Security that does not bear a particular form of Restricted Securities Legend shall not bear such form of legend unless the Company has reasonable cause to believe that such Successor Security is a "restricted security" within the meaning of Rule 144, in which case the Trustee, at the direction of the Company, shall authenticate and deliver a new Security bearing a Restricted Securities Legend in exchange for such Successor Security as provided in this Article III. SECTION 3.07. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall, as soon as practicable thereafter, authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by either of them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall, as soon as practicable thereafter, authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.08. Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.09. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.08) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. None of the Company, the Trustee or any agent of the Company or the Trustee shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Security in global form, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Notwithstanding the foregoing, with respect to any Security in global form, nothing herein shall prevent the Company or the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by any Depositary (or its nominee), as a Holder, with respect to such Security in global form or impair, as between such Depositary and owners of beneficial interests in such Security in global form, the operation of customary practices governing the exercise of the rights of such Depositary (or its nominee) as Holder of such Security in global form. SECTION 3.10. Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by the Trustee. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures. SECTION 3.11. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360 day year of twelve 30-day months. SECTION 3.12. Cusip Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. ARTICLE IV Satisfaction and Discharge SECTION 4.01. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to (i) rights of registration of transfer and exchange and the Company's right of optional redemption, (ii) substitution of apparently mutilated, defaced, destroyed, lost or stolen Securities, (iii) rights of Holders to receive payment of principal and interest on the Securities, (iv) rights, obligations and immunities of the Trustee under the Indenture and (v) rights of the Holders of the Securities as beneficiaries of the Indenture with respect to any property deposited with the Trustee payable to all or any of them), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.07 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.03) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture pursuant to this Section 4.01, the obligations of the Company to the Trustee under Section 6.07 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 4.02 and the last paragraph of Section 10.03 shall survive. SECTION 4.02. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee but such money need not be separated from other funds except to the extent required by law. ARTICLE V Remedies SECTION 5.01. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) failure to pay the principal of (or premium, if any, on) any Security at its Maturity; or (2) failure to pay any interest upon any Security when it becomes due and payable, and continuance of such default for a period of 30 days; or (3) failure of the Company or any of the Subsidiary Guarantors to perform or comply with the provisions of Section 8.01; or (4) failure to perform any other covenant or agreement of the Company or any of the Subsidiary Guarantors in this Indenture or the Securities (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company or such Subsidiary Guarantor, as the case may be, by the Trustee or to the Company or such Subsidiary Guarantor, as the case may be, and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) a default under any bond, debenture, note or other evidence of indebtedness of the Company or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness of the Company, whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay an aggregate principal amount exceeding $10,000,000 of such indebtedness when due and payable after the expiration of any applicable grace period with respect thereto and shall have resulted in such indebtedness in an aggregate principal amount exceeding $10,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 10 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Securities a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; provided, however, that if such default under such bond, debenture, note, mortgage, indenture or other instrument or evidence of indebtedness shall be remedied or cured by the Company or waived pursuant to such agreement or instrument, then, unless the maturity of the Securities shall have been accelerated as provided herein, the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of either the Trustee or the Holders; or (6) any event of default or condition shall occur under the Existing Facilities (excluding the Finco Facility) which results in the acceleration of the maturity of any of the Existing Facilities (excluding the Finco Facility) or permits the lenders under any of the Existing Facilities (excluding the Finco Facility), or any Person acting on such Person's behalf, to accelerate the maturity thereof, and such event or condition has continued for a period of 25 days after the occurrence thereof; provided, however, that if such event of default or condition under such Existing Facility shall be remedied or cured by the Company or waived pursuant to such agreement or instrument, then, unless the maturity of the Securities shall have been accelerated as provided herein, the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of either the Trustee or the Holders; or (7) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (8) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to have a case commenced against it or to seek an order for relief under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law or the taking of corporate action by the Company in furtherance of any such action; or (9) any guarantee under the Second Priority Subsidiary Guarantee Agreement ceases to be in full force and effect (other than in accordance with the terms of this Indenture and the Second Priority Subsidiary Guarantee Agreement) or any Subsidiary Guarantor denies or disaffirms its obligations under the Second Priority Subsidiary Guarantee Agreement; or (10) the material impairment of the security interests under the Second Priority Collateral Documents for any reason other than the satisfaction in full of all obligations thereunder and under this Indenture and discharge of the Second Priority Collateral Documents and this Indenture, or any security interest created hereunder or thereunder being declared invalid or unenforceable, or the Company or any of its Subsidiaries asserting, in any pleading in any court of competent jurisdiction, that any such security interest is invalid or unenforceable. SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 5.01(7) or (8)) occurs and is continuing, then and in every such case the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities may direct the Trustee to declare all of the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee), and upon any such declaration such principal and any accrued interest, if any, shall become immediately due and payable. If an Event of Default specified in Section 5.01(7) or (8) occurs, the principal and any accrued interest on the Securities then Outstanding shall ipso facto become immediately due and payable without any declaration or other Act on the part of the Trustee or any Holder. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in aggregate principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (i) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Securities, (B) the principal of (and premium, if any, on) any Securities which have become due otherwise than by such declaration of acceleration and, to the extent that payment of such interest is lawful, interest thereon at the rate provided by the Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate provided by the Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (ii) all Events of Default, other than the non-payment of the principal of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate provided by the Securities, if any, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.04. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company or any other obligor upon the Securities, or upon the property of the Company or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 5.06. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.07; and SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively. SECTION 5.07. Limitation on Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have agreed to indemnify the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in aggregate principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 5.08. Unconditional Right of Holders To Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.08) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.07, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 5.12. Control by Holders. The Holders of a majority in aggregate principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 5.13. Waiver of Past Defaults. The Holders of not less than a majority in aggregate principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of (or premium, if any) or interest on any Security, or (2) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.14. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, including attorney's fees and expenses in the manner and to the extent provided in the Trust Indenture Act; provided, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Trustee or the Company. SECTION 5.15. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 5.16. Enforcement of Remedies. Notwithstanding any of the foregoing, any enforcement of the guarantees under the Second Priority Guarantee Agreement or any remedies with respect to the Second Priority Collateral under the Second Priority Collateral Documents is subject to the provisions of the Intercreditor Agreement. ARTICLE VI The Trustee SECTION 6.01. Certain Duties and Responsibilities. Except during the continuance of an Event of Default, the duties and responsibilities of the Trustee shall be as provided by the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 6.02. Notice of Defaults. The Trustee shall give the Holders notice of any default hereunder as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 5.01(4), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 6.03. Certain Rights of Trustee. Subject to the provisions of Section 6.01: (a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate or opinion; (d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by the Trustee in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for, and shall be fully protected from, any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (i) the Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture; (j) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder; and (k) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Intercreditor Agreement or any of the Second Priority Collateral Documents with respect to voting or approving any amendments, consents or waivers in connection with such agreements unless the approval of such amendment, consent or waiver would not otherwise be so determined without the vote of the Trustee. SECTION 6.04. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture, the Second Priority Subsidiary Guarantee Agreement or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.05. May Hold Securities. The Trustee, any Paying Agent, any Security Registrar or any other agent of the Company, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other agent. SECTION 6.06. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 6.07. Compensation and Reimbursement. The Company and each Subsidiary Guarantor, jointly and severally, agrees (1) to pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture, including, but not limited to the costs incurred in connection with collection (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee and its agents, employees, officers, directors and shareholders for, and to hold the same harmless against, any and all loss, liability damage, claim or expense, including, without limitation, reasonable attorney's fees and expenses, and taxes (other than taxes based on the income of the Trustee) incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against or investigating any claim (including any claim by the Company) or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall have a lien prior to the Securities as to all property and funds held by it hereunder for any amount owing it or any predecessor Trustee pursuant to this Section 6.07, except with respect to funds held in trust for the benefit of the Holders of particular Securities. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.01(7) or Section 5.01(8), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or State bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the resignation or removal of the Trustee and/or the satisfaction and discharge or termination of this Indenture. SECTION 6.08. Disqualification; Conflicting Interest. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 6.09. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 6.10. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11. (b) The Trustee may resign at any time with respect to the Securities by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in aggregate principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to such Securities. (d) If at any time: (i) the Trustee shall fail to comply with Section 6.08 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (ii) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee with respect to such Securities. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in aggregate principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders of Securities in the manner provided in Section 1.06. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 6.11. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee and the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 6.13. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). ARTICLE VII Holders' Lists and Reports by Trustee and Company SECTION 7.01. Company To Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee (a) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities as of such Regular Record Date, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar. SECTION 7.02. Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders of Securities contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders of Securities received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished. (b) The rights of Holders of Securities to communicate with other Holders of Securities with respect to their rights under this Indenture or under the Securities and the corresponding rights and duties of the Trustee, shall be provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to the names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 7.03. Reports by Trustee. (a) The Trustee shall transmit to Holders of Securities such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within sixty days after each May 15, following the date of this Indenture deliver to Holders of Securities a brief report, dated as of such May 15, which complies with the provisions of such Section 313(a). (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will promptly notify the Trustee when the Securities are listed on any stock exchange or of any delisting thereof. SECTION 7.04. Reports by Company. On and after July 11, 2000, the Company shall file with the Trustee and the Commission, and transmit to Holders of Securities, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 30 days after the same is so required to be filed with the Commission. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease SECTION 8.01. Company and the Subsidiary Guarantors May Consolidate, Etc., Only on Certain Terms. (a) The Company shall not consolidate with or merge into any other corporation or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (1) in case the Company shall consolidate with or merge into another corporation or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee by the Person (if other than the Company) formed by such consolidation or into which the Company shall have been merged or by the corporation which shall have acquired the Company's assets; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing with respect to any Securities; (3) if, as a result of any such consolidation or merger or such conveyance, transfer or lease, properties or assets of the Company would become subject to a mortgage, pledge, lien, security interest or other encumbrance which would not be permitted by this Indenture, the Company or such successor corporation or Person, as the case may be, shall take such steps as shall be necessary effectively to secure the Securities of each sites equally and ratably with (or prior to) all indebtedness secured thereby; and (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. (b) Except as otherwise provided in the Second Priority Subsidiary Guarantee Agreement, the Company shall not permit any Subsidiary Guarantor to consolidate with or merge into any other corporation or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into any Subsidiary Guarantor or convey, transfer or lease its properties and assets substantially as an entirety to any Subsidiary Guarantor, unless: (1) in case such Subsidiary Guarantor shall consolidate with or merge into another corporation or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the corporation formed by such consolidation or into which such Subsidiary Guarantor is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of such Subsidiary Guarantor substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by a supplement to the Second Priority Subsidiary Guarantee Agreement and an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual performance and observance of all obligations of such Subsidiary Guarantor under the Second Priority Subsidiary Guarantee Agreement and the performance of every covenant of this Indenture on the part of such Subsidiary Guarantor to be performed or observed by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee by the Person (if other than such Subsidiary Guarantor) formed by such consolidation or into which such Subsidiary Guarantor shall have been merged or by the corporation which shall have acquired such Subsidiary Guarantor's assets; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of such Subsidiary Guarantor as a result of such transaction as having been incurred by such Subsidiary Guarantor at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing with respect to any Securities; (3) if, as a result of any such consolidation or merger or such conveyance, transfer or lease, properties or assets of such Subsidiary Guarantor would become subject to a mortgage, pledge, lien, security interest or other encumbrance which would not be permitted by this Indenture, such Subsidiary Guarantor or such successor corporation or Person, as the case may be, shall take such steps as shall be necessary effectively to secure the Securities of each sites equally and ratably with (or prior to) all indebtedness secured thereby; and (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 8.02. Successor Substituted. Upon any consolidation of the Company or any Subsidiary Guarantor with, or merger of the Company or any Subsidiary Guarantor into, any other Person or any transfer, conveyance, sale, lease or other disposition of all or substantially all of the properties and assets of the Company or any Subsidiary Guarantor as an entirety in accordance with Section 8.01, the successor Person shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Subsidiary Guarantor, as the case may be, under this Indenture and the Second Priority Subsidiary Guarantee Agreement with the same effect as if such successor Person had been named as the Company or such Subsidiary Guarantor, as the case may be, herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture, the Securities and the Second Priority Subsidiary Guarantee Agreement. Such successor Person may cause to be signed, and may issue either in its own name or in the name of the Company prior to such succession, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication pursuant to such provisions and any Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee on its behalf for that purpose pursuant to such provisions. All Securities so issued in all respects have the same legal rank and benefit under this Indenture as Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all such Securities had been issued prior to the date of such succession. In case of any such consolidation, merger, sale or conveyance, such changes in phraseology and form may be made in the Securities thereafter to be issued as may be appropriate. ARTICLE IX Supplemental Indentures SECTION 9.01. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution of the Company, any of the Subsidiary Guarantors and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company or to any Subsidiary Guarantor and the assumption by any such successor of the covenants of the Company or such Subsidiary Guarantor, as the case may be, herein and in the Securities; or (2) to add to the covenants of the Company or any of the Subsidiary Guarantors for the benefit of the Holders of Securities, or to surrender any right or power herein conferred upon the Company or any of the Subsidiary Guarantors; or (3) to add Subsidiary Guarantors with respect to the Securities or to secure the Securities; or (4) to comply with any requirements of the Commission in order to effect and maintain the qualification of this Indenture under the Trust Indenture Act; or (5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided such action pursuant to this clause (5) shall not adversely affect the interests of the Holders of Securities in any material respect. SECTION 9.02. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities affected by such supplemental indenture (voting as one class), by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution of the Company, the Subsidiary Guarantors and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable thereon, or change the place of payment where, or the coin or currency in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof, or (2) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) release any security interest that may have been granted in favor of the Holders, other than in accordance with the terms of the Collateral Documents or the Intercreditor Agreement that are in effect on the Closing Date; provided, however, that to the extent (i) the applicable terms of such agreements cross-reference the terms of the Second Priority Debt Documents and (ii) all of the Second Priority Debt Obligations, other than the Exchange Note Obligations, have been paid in full, such cross-references shall refer to the terms of the Second Priority Debt Documents, other than the Exchange Note Documents, that were in effect as of the Closing Date, or (4) make any change in any Second Priority Collateral Document or any change in this Indenture with respect to the Collateral that would adversely affect the Holders, except for any such change made in accordance with the terms of the Intercreditor Agreement or the applicable Collateral Document, as the case may be, that are in effect on the Closing Date; provided, however, that to the extent (i) the applicable terms of such agreements cross-reference the terms of the Second Priority Debt Documents and (ii) all of the Second Priority Debt Obligations, other than the Exchange Note Obligations, have been paid in full, such cross-references shall refer to the terms of the Second Priority Debt Documents, other than the Exchange Note Documents, that were in effect as of the Closing Date, or (5) reduce the Redemption Price payable upon the redemption of any Securities or change the time at which any Securities may be redeemed, or (6) modify any of the provisions of this Section 9.02 or Section 10.17, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.03. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.04. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.05. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 9.06. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture relating to Securities pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. ARTICLE X Covenants SECTION 10.01. Payment of Principal, Premium and Interest. The Company will duly and punctually pay the principal of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities and this Indenture. SECTION 10.02. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside the Borough of Manhattan, The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 10.03. Money for Security Payments To Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the principal of (and premium, if any) or interest on Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 10.04. Corporate Existence. Subject to Article VIII, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors in good faith shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 10.05. Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary of the Company to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, as determined by the Board of Directors in good faith, desirable in the conduct of its business or the business of any Subsidiary of the Company and not disadvantageous in any material respect to the Holders. SECTION 10.06. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries or upon the income, profits or property of the Company or any of its Subsidiaries, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any of its Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 10.07. Insurance. The Company covenants and agrees that it will, and will cause each Subsidiary to, insure and keep insured, with reputable insurance companies, their principal properties, and such insurance shall be in such amounts (and with such deductibles) as companies engaged in a similar business in accordance with good business practice customarily insure properties of a similar character against loss by fire and from other causes or, in lieu thereof, in the case of itself or of any one or more of its Subsidiaries, it will maintain or cause to be maintained a program of self-insurance in accordance with good business practices. SECTION 10.08. Restrictions on Funded Debt of Restricted Subsidiaries. The Company covenants and agrees that it will not permit any Restricted Subsidiary to create, issue, incur, assume, or in any other way become liable for any unsecured Funded Debt unless the Company would be entitled under subparagraph (e) of Section 10.10 of this Indenture to create, issue, incur, assume or guarantee any Secured Debt not specifically permitted under Section 10.10 of this Indenture but for subparagraph (e) thereof in an amount equal to such Funded Debt; provided, however, that the foregoing restriction shall not prevent (i) any Restricted Subsidiary from becoming liable to the Company or to a Wholly-owned Restricted Subsidiary for Funded Debt or (ii) the extension, renewal or refunding of any Funded Debt of any Restricted Subsidiary so long as Consolidated Funded Debt is not thereby increased. SECTION 10.09. Restriction on Sales with Leases Back. Except for a sale or transfer by a Restricted Subsidiary to the Company or a Wholly-owned Restricted Subsidiary, the Company covenants and agrees that it will not, and will not permit any Restricted Subsidiary to, sell or transfer any manufacturing plant, warehouse, retail store or equipment owned and operated or hereafter owned and operated by the Company or a Restricted Subsidiary, with the intention that the Company or any Restricted Subsidiary take back a lease thereof, except a lease for a period, including renewals, not exceeding 24 months, by the end of which period it is intended that the use of such property or equipment by the lessee will be discontinued (any such transaction being herein referred to as a "Sale and Leaseback Transaction"); provided that, notwithstanding the foregoing, the Company or any Restricted Subsidiary may enter into a Sale and Leaseback Transaction if the Company or a Restricted Subsidiary would be entitled under subparagraph (e) of Section 10.10 to create, issue, incur, assume or guarantee any Secured Debt not specifically permitted under Section 10.10 of this Indenture but for subparagraph (e) thereof in an amount equal to the Attributable Debt respecting such Sale and Leaseback Transaction; provided further that, notwithstanding the foregoing, the Company or any Restricted Subsidiary may enter into a Sale and Leaseback Transaction if entered into in respect of property acquired by the Company or a Restricted Subsidiary if such Sale and Leaseback Transaction is entered into within 24 months from the date of such acquisition; and provided further that, notwithstanding the foregoing, the Company or any Restricted Subsidiary may enter into a Sale and Leaseback Transaction if the Company, within 120 days before or after the sale or transfer shall have been made by the Company or by any Restricted Subsidiary, applied or applies an amount equal to the greater of (i) the net proceeds of the sale of the property sold and leased back pursuant to such arrangement or (ii) the fair market value of the property so sold and leased back at the time of entering into such arrangement (as determined by any two of the following: the Chairman of the Board of the Company, its Chief Executive Officer, its President, any Vice President of the Company, its Treasurer and its Controller) to the retirement of Secured Debt of the Company other than at maturity or pursuant to any mandatory sinking fund payment or any mandatory prepayment provision. SECTION 10.10. Restrictions on Secured Debt. The Company covenants and agrees that it will not, and will not permit any Restricted Subsidiary to, create, issue, incur, assume or guarantee any Secured Debt without making effective provision (and the Company covenants that in such case it will make or cause to be made effective provision) whereby the Securities then Outstanding and any other indebtedness of or guaranteed by the Company or such Restricted Subsidiary then entitled thereto, shall be secured by such mortgage, pledge, lien or encumbrance equally and ratably with (or prior to) any and all other obligations and indebtedness thereby secured for so long as any such other obligations and indebtedness shall be so secured; provided, however, that the foregoing covenants shall not be applicable to the following: (a) any mortgage, pledge, lien or other encumbrance on any property that secures the Secured Obligations, in each case, in accordance with the terms of the Collateral Documents that are in effect on the Closing Date; provided that such mortgages, pledges, liens or encumbrances are otherwise permitted under this Indenture, the Second Priority Collateral Documents and the Intercreditor Agreement. (b) (i) Any mortgage, pledge, lien or other encumbrance on any property acquired or constructed by the Company or a Restricted Subsidiary and created contemporaneously with, or within 24 months after, such acquisition or the completion of such construction and commencement of full operation of such property, whichever is later, to secure or provide for the payment of any part of the purchase or construction price of such property, or (ii) the acquisition by the Company or a Restricted Subsidiary of property subject to any mortgage, pledge, lien or other encumbrance upon such property existing at the time of acquisition thereof, whether or not assumed by the Company or such Restricted Subsidiary, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired, provided that the lien of any such mortgage, pledge, lien or other encumbrance or agreement does not spread to other property except unimproved real property previously owned upon which any new construction has taken place and subsequent additions to such acquired or constructed property. (c) Any mortgage, pledge, lien, or other encumbrance created for the sole purposes of extending, renewing or refunding, in whole or part, any mortgage, pledge, lien or other encumbrance permitted by this Section 10.10 or any mortgage, pledge, lien or other encumbrance securing the indebtedness of the Company or of any Restricted Subsidiary on the date of this Indenture or of a corporation at the time such corporation becomes a Subsidiary, or any extensions, renewals or refundings of any such mortgage, pledge, lien or other encumbrance; provided, however, that the principal amount of indebtedness secured thereby shall not exceed the principal amount of indebtedness so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding mortgage, pledge, lien or other encumbrance shall be limited to all or that part of the same properties which secured the mortgage, pledge, lien or other encumbrance extended, renewed or refunded. (d) Any Secured Debt of a Restricted Subsidiary owing to the Company or a Wholly-owned Restricted Subsidiary. (e) Secured Debt of the Company and its Restricted Subsidiaries which would otherwise be prohibited by the foregoing restrictions (not including Secured Debt permitted to be secured under subparagraphs (a) through (d) above, so long as the sum of any such Secured Debt hereafter incurred plus Attributable Debt of the Company and any Restricted Subsidiaries in respect of existing Sale and Leaseback Transactions hereafter entered into (excluding Attributable Debt incurred in respect of any Sale and Leaseback Transaction entered into in respect of property acquired by the Company or a Restricted Subsidiary not more than 24 months prior to the date such Transaction is entered into) plus unsecured Funded Debt of any Restricted Subsidiary hereafter incurred (excluding unsecured Funded Debt incurred through the extension, renewal or refunding of Funded Debt where Consolidated Funded Debt was not thereby increased and excluding any Funded Debt owed to the Company or a Wholly- owned Restricted Subsidiary) does not at the time exceed 20% of Consolidated Net Tangible Assets. SECTION 10.11. Restrictions on Impairment of Security Interest. Neither the Company nor any Subsidiary of the Company is permitted to take or omit to take any action that would materially impair the security interest with respect to the Collateral for the benefit of the Trustee and the Holders of the Securities, and neither the Company nor any Subsidiary is permitted to grant to any person any security interest whatsoever in any of the Collateral; provided, however, that the Company and such Subsidiaries may take any such actions and grant any such security interests in accordance with the Collateral Documents and the Intercreditor Agreement. SECTION 10.12. Restrictions on Amendments to Collateral Documents. Neither the Company nor any Subsidiary of the Company is permitted to amend, waive or otherwise modify, or permit or consent to any amendment, waiver or other modification of the Collateral Documents in any way that would be adverse to the Holders of the Securities, except for any such amendment, waiver or modification entered into in accordance with the terms of the Intercreditor Agreement or the applicable Collateral Document, as the case may be, that are in effect on the Closing Date. SECTION 10.13. Future Subsidiary Guarantors. The Company shall cause each Person that either (a) becomes a domestic Subsidiary following the Closing Date or (b) otherwise becomes a Subsidiary Guarantor with respect to any of the Secured Obligations, in each case, to execute and deliver a supplement to the Second Priority Subsidiary Guarantee Agreement and the applicable Second Priority Collateral Documents at the time such Person becomes a Subsidiary or Subsidiary Guarantor, as the case may be. SECTION 10.14. Application of Collateral Proceeds. (a) At any time when the Company or any Subsidiary Guarantor receives proceeds from a Senior Collateral Disposition (the "Collateral Proceeds"), the Collateral Proceeds shall be applied in accordance with Section 4.05 of the Intercreditor Agreement so that after giving effect to any required prepayment of the Senior Credit Facility in connection with such Senior Collateral Disposition in accordance with Section 4.05 of the Intercreditor Agreement, a pro rata portion of such Collateral Proceeds will be allocated to repurchase the Securities based on the outstanding principal amount of the Second Priority Debt Obligations required to be prepaid with such proceeds, such amount to be measured on the date of such Senior Collateral Disposition; provided, however, that in the event any such Senior Collateral Disposition occurs following the occurrence of a Triggering Event, whether the Holders shall be entitled to prepayment shall be determined in accordance with the terms of the Second Priority Collateral Documents and the Intercreditor Agreement. (b) Any Collateral Proceeds that are available to repurchase the Securities (the "Securities Collateral Proceeds") will be deposited into an account held by the Trustee (the "Securities Collateral Account"). When the aggregate amount of Securities Collateral Proceeds in the Securities Collateral Account exceeds $10,000,000 (taking into account income earned on such Securities Collateral Proceeds, if any), the Company shall make an offer to purchase (the "Prepayment Offer") the Securities, which offer shall be in the amount of the Securities Collateral Proceeds, on a pro rata basis according to principal amount at maturity, at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), in accordance with the procedures (including prorating in the event of oversubscription) set forth herein. To the extent that any portion of the amount of Securities Collateral Proceeds remains after compliance with the preceding sentence and provided that all Holders have been given the opportunity to tender their Securities for purchase in accordance with this Indenture, the Company may use such excess only to repurchase Securities in open market transactions, and otherwise such excess must remain deposited in an account, for the sole benefit of the Securities, which is controlled by the Trustee. The Securities will be secured by a first priority security interest in such account. Following the completion of a Prepayment Offer, the amount of Securities Collateral Proceeds will be reset to zero. (c)(1) Within five Business Days after the Company makes a Prepayment Offer in accordance with paragraph (b) above, the Company shall send a written notice, by first-class mail, to the Holders, accompanied by such information regarding the Company and its Subsidiaries as the Company in good faith believes will enable such Holders to make an informed decision with respect to such Prepayment Offer. Such notice shall state, among other things, the purchase price and the purchase date (the "Purchase Date"), which shall be, subject to any contrary requirements of applicable law, a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed. (2) Not later than the date upon which written notice of a Prepayment Offer is delivered to the Trustee as provided above, the Company shall deliver to the Trustee written instructions as to (i) the amount of the Prepayment Offer (the "Offer Amount") and (ii) the allocation of the Collateral Proceeds from the Senior Collateral Disposition, pursuant to which such Prepayment Offer is being made. On or before the Purchase Date, the Company shall also irrevocably deposit with the Trustee or with the Paying Agent (or, if the Company is the Paying Agent, shall segregate and hold in trust) in U.S. Government Obligations, maturing on the last day prior to the Purchase Date or on the Purchase Date if funds are immediately available by open of business, an amount equal to the Offer Amount to be held for payment in accordance with the provisions of this Section. Upon the expiration of the period for which the Prepayment Offer remains open (the "Offer Period"), the Company shall deliver to the Trustee for cancelation the Securities or portions thereof that have been properly tendered to and are to be accepted by the Company. The Trustee or the Paying Agent shall, on the Purchase Date, mail or deliver payment to each tendering Holder in the amount of the purchase price. In the event that the aggregate purchase price of the Securities delivered by the Company to the Trustee is less than the Offer Amount, the Trustee or the Paying Agent shall deliver the excess to the Company immediately after the expiration of the Offer Period for application in accordance with this Section. (3) Holders electing to have a Security purchased pursuant to the Prepayment Offer shall be required to surrender the Security, with an appropriate form duly completed, to the Company or its agent at the address specified in the notice at least five Business Days prior to the Purchase Date. Holders shall be entitled to withdraw their election if the Trustee or the Company receives not later than three Business Days prior to the Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security that was delivered for purchase by the Holder and a statement that such Holder is withdrawing its election to have such Security purchased. If at the expiration of the Offer Period the aggregate principal amount of Securities surrendered by Holders exceeds the Offer Amount, the Company shall select the Securities to be purchased on pro rata basis for all Securities (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased). Holders whose Securities are purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (4) At the time the Company delivers Securities to the Trustee that are to be accepted for purchase, the Company shall also deliver an Officers' Certificate stating that such Securities are to be accepted by the Company pursuant to and in accordance with the terms of this Section. A Security shall be deemed to have been accepted for purchase at the time the Trustee or the Paying Agent mails or delivers payment therefor to the surrendering Holder. (d) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of the Securities pursuant to any Prepayment Offer conducted in accordance with this Section 10.14. To the extent that the provisions of any securities laws or regulations conflict with the procedures with respect to a Prepayment Offer as set forth herein, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the covenant described hereunder by virtue thereof. SECTION 10.15. Restrictions on Permitting Unrestricted Subsidiaries To Become Restricted Subsidiaries. (a) The Company will not permit any Unrestricted Subsidiary to be designated as a Restricted Subsidiary unless such Subsidiary has outstanding no Secured Debt, Funded Debt and/or Attributable Debt in respect of Sale and Leaseback Transactions except such Secured Debt, Funded Debt and Attributable Debt as the Company could permit it to become liable for immediately after becoming a Restricted Subsidiary under the provisions of Sections 10.08, 10.09 and 10.10 of this Indenture. (b) Promptly after the adoption of any Board Resolution designating a Restricted Subsidiary as an Unrestricted Subsidiary or an Unrestricted Subsidiary as a Restricted Subsidiary, a copy thereof shall be filed with the Trustee, together, in the case of the designation of an Unrestricted Subsidiary as a Restricted Subsidiary, with an Officers' Certificate stating that the provisions of this Section have been complied with in connection with such designation. SECTION 10.16. Statement by Officers as to Default. Reference is made to Section 314(a)(4) of the Trust Indenture Act. SECTION 10.17. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition set forth in Sections 10.07 to 10.14, if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities affected thereby (voting as a class) shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect. ARTICLE XI Redemption of Securities SECTION 11.01. Right of Redemption. All of the Securities are redeemable before their maturity pursuant to the terms of this Indenture and the Securities. If less than all the Securities are to be redeemed, the Trustee shall select, in such manner as it shall deem fair and appropriate, the particular Securities to be redeemed or any portion thereof that is an integral multiple of $1,000. The Securities will not have the benefit of any sinking fund. SECTION 11.02. Election To Redeem; Notice To Trustee. The election of the Company to redeem any Securities pursuant to Section 11.01 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 90 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed. SECTION 11.03. Selection by Trustee of Securities To Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 90 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of Securities of a denomination larger than $1,000. The Trustee shall promptly notify the Company and each Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 11.04. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 90 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price (or formula for calculating the same), (3) if less than all the Outstanding Securities are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and that interest thereon will cease to accrue on and after said date, (5) the place or places where such Securities are to be surrendered for payment of the Redemption Price, and (6) CUSIP numbers of the Securities to be redeemed (if any). Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 11.05. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. SECTION 11.06. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price plus accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Securities for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.07. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate provided by the Security. SECTION 11.07. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 10.02 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. ARTICLE XII Defeasance and Covenant Defeasance SECTION 12.01. Company's Option To Effect Defeasance or Covenant Defeasance. The Company may at its option by Board Resolution, at any time, in accordance with the Exchange and Registration Rights Agreement, elect to have either Section 12.02 or Section 12.03 applied to the Outstanding Securities upon compliance with the conditions set forth below in this Article XII. SECTION 12.02. Defeasance and Discharge. Upon the Company's exercise of the option provided in Section 12.01 applicable to this Section, the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "defeasance"). If the Company exercises its defeasance option or its covenant defeasance option, each Subsidiary Guarantor, if any, shall be released from all its obligations under its Subsidiary Guarantee. For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same) except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of such Securities to receive, solely from the trust fund described in Section 12.04 and as more fully set forth in such Section, payments in respect of the principal of (and premium, if any) and interest on such Securities when such payments are due, (B) the Company's obligations with respect to such Securities under Sections 3.04, 3.05, 3.06, 10.02 and 10.03, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article XII. Subject to compliance with this Article XII, the Company may exercise its option under this Section 12.02 notwithstanding the prior exercise of its option under Section 12.03. SECTION 12.03. Covenant Defeasance. Upon the Company's exercise of the option provided in Section 12.01 applicable to this Section, (i) the Company and each Subsidiary Guarantor shall be released from their respective obligations under Sections 10.05 through 10.14, inclusive, and clauses (3) and (4) of Sections 8.01(a) and (b), (ii) the occurrence of an event specified in Sections 5.01(3) (with respect to clause (1), (3) or (4) of Sections 8.01(a) and (b)), 5.01(4) (with respect to any of Sections 10.05 through 10.14, inclusive), 5.01(5), 5.01(6), 5.01(9) and 5.01(10) shall not be deemed to be an Event of Default shall cease to be effective on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"). For this purpose, such covenant defeasance means that the Company or the Subsidiary Guarantors, as the case may be, may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section, clause or Article, whether directly or indirectly by reason of any reference elsewhere herein to any such Section, clause or Article or by reason of any reference in any such Section, clause or Article to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby. SECTION 12.04. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 12.02 or Section 12.03 to the then Outstanding Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.09 who shall agree to comply with the provisions of this Article XII applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of, premium, if any, and each installment of interest on the Securities on the Stated Maturity of such principal or installment of interest in accordance with the terms of this Indenture and of such Securities. (2) In the case of an election under Section 12.02, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities will not recognize gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred. (3) In the case of an election under Section 12.03, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities will not recognize gain or loss for Federal income tax purposes as a result of such deposit and covenant defeasance and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and covenant defeasance had not occurred. (4) The Company shall have delivered to the Trustee an Officers' Certificate to the effect that the Securities, if then listed on any securities exchange, will not be delisted as a result of such deposit. (5) Such defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest as defined in Section 6.08 and for purposes of the Trust Indenture Act with respect to any securities of the Company. (6) No Event of Default or event which with notice or lapse of time or both would become an Event of Default shall have occurred and be continuing. (7) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. (8) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 12.02 or the covenant defeasance under Section 12.03 (as the case may be) have been complied with. (9) Such defeasance or covenant defeasance shall not result in the trust arising from such deposit constituting an investment company as defined in the Investment Company Act of 1940, as amended, or such trust shall be qualified under such act or exempt from regulation thereunder. SECTION 12.05. Deposited Money and U.S. Government Obligations To Be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 10.03, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee--collectively, for purposes of this Section 12.05, the "Trustee") pursuant to Section 12.04 in respect of the Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 12.04 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities. Anything in this Article XII to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 12.04 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance. SECTION 12.06. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 12.02 or 12.03 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article XII until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 12.02 or 12.03; provided, however, that if the Company makes any payment of principal of (and premium, if any) or interest on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Security to receive such payment from the money held by the Trustee or the Paying Agent. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. RITE AID CORPORATION, By: ---------------------------- Name: Title: THRIFTY PAYLESS, INC., as a Subsidiary Guarantor, By: ---------------------------- Name: Title: PCS HEALTH SYSTEMS, INC., as a Subsidiary Guarantor, By: ---------------------------- Name: Title: EACH OF THE SUBSIDIARY GUARANTORS LISTED ON SCHEDULE A HERETO, By: ---------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, By: ---------------------------- Name: Title: SCHEDULE A Subsidiary Guarantors --------------------- EX-4 3 0003.txt EXHIBIT 4.2 - EXCHANGE AND REGISTRATION RIGHTS AGREEMENT Exhibit 4.2 RITE AID CORPORATION $467,500,000 10.50% Senior Secured Notes due 2002 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT June 14, 2000 State Street Bank and Trust Company and the Holders of the 10.50% Senior Secured Notes due 2002 c/o State Street Bank and Trust Company Corporate Trust Goodwin Square, 23rd Floor 225 Asylum Street Hartford, CT 06103 Ladies and Gentlemen: Rite Aid Corporation, a Delaware corporation (the "Company"), proposes to issue to (a) certain eligible noteholders (the "Qualified Offerees") that have validly tendered either 5.50% Notes due 2000 or 6.70% Notes due 2002 in accordance with the terms and conditions of the exchange offer (the "Exchange Offer") set forth in the Exchange Offer Circular dated April 24, 2000 (the "Circular") and (b) Fiona One Corp., a wholly-owned subsidiary of the Company (the "SPV"), in accordance with the Forward Commitment Agreement, dated as of June 14, 2000 (the "Forward Commitment Agreement"), among the Company, the SPV, Salomon Smith Barney Inc. ("SSB") and J.P. Morgan Securities Inc. ("J. P. Morgan", and together with SSB, the "Purchasers"), $467,500,000 aggregate principal amount of its 10.50% Senior Secured Notes due 2002 (the "Securities"). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Circular. As an inducement to the Dealer Managers to enter into the Dealer Manager Agreement, dated April 24, 2000, and as satisfaction of a condition to the obligations of the Dealer Managers thereunder, as an inducement to the Purchasers to enter into the Forward Commitment Agreement, and as satisfaction of the conditions thereunder, and as an inducement to the Qualified Offerees to tender the Existing Notes, the Company and each of the subsidiaries of the Company listed on the signature pages hereto (the "Subsidiary Guarantors") agrees, jointly and severally, with the Qualified Offerees that have validly tendered the Existing Notes and the SPV, for the benefit of the Purchasers, the Dealer Managers and the holders of the Securities (including the SPV, the Purchasers and the Purchasers' respective assignees and transferees) and the Exchange Securities (as defined herein) (collectively, the "Holders"), as follows: 1. Registered Exchange Offer. The Company and the Subsidiary Guarantors shall (i) prepare and, not later than the date that is one year after the Expiration Date (the date of such filing being referred to herein as the "Filing Date"), file with the Commission a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act with respect to a proposed offer to the Holders of the Securities (the "Registered Exchange Offer") to issue and deliver to such Holders, in exchange for the Securities (including, for the avoidance of doubt, the Securities issued in accordance with the Forward Commitment Agreement), a like aggregate principal amount of debt securities of the Company (the "Exchange Securities") that are identical in all material respects to the Securities, except for the transfer restrictions relating to the Securities, (ii) use their best efforts to cause the Exchange Offer Registration Statement to become effective under the Securities Act no later than 180 days after the Filing Date, (iii) as soon as practicable after the effectiveness of the Exchange Offer Registration Statement, initiate the Registered Exchange Offer as set forth in the following paragraph and (iv) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders in accordance with the following paragraph (such period being called the "Exchange Offer Registration Period"). The Exchange Securities will be issued under the same indenture as the Securities (the "Indenture") among the Company, the Subsidiary Guarantors and the Trustee or such other bank or trust company that is reasonably satisfactory to the Dealer Managers, as trustee (the "Trustee"), as the Securities, with such modifications as may be appropriate to account for the registration of the Exchange Securities under the Securities Act. As soon as practicable after the effectiveness of the Exchange Offer Registration Statement, the Company shall commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Securities (including, for the avoidance of doubt, the Securities issued in accordance with the Forward Commitment Agreement) for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company or an Exchanging Dealer (as defined herein) not complying with the requirements of the next sentence, (b) is not holding Securities that have, or that are reasonably likely to have, the status of an unsold allotment in an initial distribution, (c) acquires the Exchange Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any person to participate, and is not participating, in the distribution of the Exchange Securities) and to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company, the Holders and each Exchanging Dealer (as defined below) acknowledge that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, each Holder that is a broker-dealer electing to exchange Securities, acquired for its own account as a result of market-making activities or other trading activities, for Exchange Securities (an "Exchanging Dealer"), is required, in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer, to deliver a prospectus containing substantially the information set forth (i) in Annex A hereto on the cover of such prospectus, (ii) in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section of such prospectus and (iii) in Annex C hereto in the "Plan of Distribution" section of such prospectus. In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder of Securities and the Purchasers a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders of Securities and the Purchasers; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; (d) permit Holders to withdraw tendered Securities at any time prior to the end of the Registered Exchange Offer, as set forth in the materials originally mailed to Holders of Securities or otherwise extended by the Company; (e) prior to effectiveness of the Exchange Offer Registration Statement, if requested or required by the Securities and Exchange Commission (the "Commission"), use its best efforts to provide a supplemental letter to the Commission (A) stating that the Company is conducting the Registered Exchange Offer in reliance on the position of the Commission in Exxon Capital Holdings Corporation (pub. avail. May 13, 1988) and Morgan Stanley and Co., Inc. (pub. avail. June 5, 1991); and (B) including a representation that the Company has not entered into any arrangement or understanding with any person to distribute the Exchange Securities to be received in the Registered Exchange Offer and that, to the best of the Company's information and belief, each Holder participating in the Registered Exchange Offer is acquiring the Exchange Securities in the ordinary course of business and has no arrangement or understanding with any person to participate in the distribution of the Exchange Securities; and (f) otherwise comply in all respects with all laws that are applicable to the Registered Exchange Offer. As soon as practicable after the close of the Registered Exchange Offer, the Company shall: (a) accept for exchange all Securities (including, for the avoidance of doubt, Securities issued in accordance with the Forward Commitment Agreement) tendered and not validly withdrawn pursuant to the Registered Exchange Offer; (b) deliver to the Trustee for cancellation all Securities so accepted for exchange; and (c) cause the Trustee promptly to authenticate and deliver to each Holder, Exchange Securities equal in principal amount to the Securities of such Holder so accepted for exchange. The Company shall use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein in order to permit such prospectus to be used by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer, such period shall be the earlier of one year from the close of the Registered Exchange Offer and the date on which all Exchanging Dealers have sold all Exchange Securities held by them and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 90 days after the consummation of the Registered Exchange Offer. The Indenture shall provide that the Securities and the Exchange Securities shall vote and consent together on all matters as to which the Indenture provides for voting and consent as one class and that neither the Securities nor the Exchange Securities will have the right to vote or consent as a separate class on any matter. Interest on each Exchange Security issued pursuant to the Registered Exchange Offer will accrue from the last interest payment date on which interest was paid on the Securities surrendered in exchange therefor or, if no interest has been paid on the Securities, from the date of the closing of the Exchange Offer. Each Holder hereby acknowledges and agrees that any such Holder using the Registered Exchange Offer to participate in a distribution of the Exchange Securities (x) could not under Commission policy as in effect on the date of this Agreement rely on the position of the Commission in Morgan Stanley and Co., Inc. (pub. avail. June 5, 1991) and Exxon Capital Holdings Corporation (pub. avail. May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993 and similar no-action letters; and (y) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction which must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K under the Securities Act if the resales are of Exchange Securities obtained by such Holder in exchange for Securities acquired by such Holder directly from the Company or one of its affiliates. Accordingly, each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate and is not participating in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act and (iii) such Holder is not an affiliate of the Company or, if it is such an affiliate (as defined in Section 10(e)), such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not, as of the consummation of the Registered Exchange Offer, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If (i) because of any change in law or applicable interpretations thereof by the Commission's staff the Company is not permitted to effect the Registered Exchange Offer as contemplated by Section 1 hereof, or (ii) the Registered Exchange Offer is not completed within 220 days after the Filing Date, or (iii) a Holder of Securities (including, for the avoidance of doubt, Securities issued in accordance with the Forward Commitment Agreement) notifies the Company following the completion of the Registered Exchange Offer that the Securities held by such Holder are not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer, or (iv) certain Holders of the Securities (including, for the avoidance of doubt, Securities issued in accordance with the Forward Commitment Agreement) are prohibited by law or the policy of the Commission from participating in the Registered Exchange Offer or the Exchange Securities may not be freely transferable by such Holders, then the following provisions shall apply: (a) The Company and the Subsidiary Guarantors shall promptly file (but in no event more than 30 days after so required or requested pursuant to this Section 2) with the Commission, and thereafter shall use their best efforts to cause to be declared effective, a shelf registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined below) by the Holders thereof from time to time in accordance with the methods of distribution set forth in such registration statement (hereafter, a "Shelf Registration Statement" and, together with any Exchange Offer Registration Statement, a "Registration Statement"). (b) The Company and the Subsidiary Guarantors shall keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be used by Holders of Transfer Restricted Securities for a period ending on the earlier of (i) two years from the effective date of the Shelf Registration Statement or such shorter period that will terminate when all the Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant thereto and (ii) the date on which the Securities become eligible for resale without volume restrictions pursuant to Rule 144 under the Securities Act (in any such case, such period being called the "Shelf Registration Period"). The Company and the Subsidiary Guarantors shall be deemed not to have complied with this paragraph (b) if they voluntarily take any action that would result in Holders of Transfer Restricted Securities covered thereby not being able to offer and sell such Transfer Restricted Securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions hereof, the Company and the Subsidiary Guarantors shall ensure that (i) any Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Shelf Registration Statement and any amendment thereto (in either case, other than with respect to information included therein in reliance upon or in conformity with written information furnished to the Company by or on behalf of any Holder specifically for use therein (the "Holders' Information")) does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to Holders' Information), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 3. Additional Interest. (a) If (i) the Exchange Offer Registration Statement is not filed with the Commission on or prior to one year after the Expiration Date, (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective within 180 days after the Filing Date (or in the case of a Shelf Registration, after the day the filing is required by Section 2(a)), (iii) the Registered Exchange Offer is not consummated on or prior to 40 days after the Exchange Offer Registration Statement is declared effective, (iv) if the Company is required to file the Shelf Registration Statement in accordance with Section 2, the Company does not so file the Shelf Registration Statement on or prior to the 30th day after the Company's obligation to file such Shelf Registration Statement arises, or (v) the applicable Registration Statement is filed and declared effective but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being again effective within 30 days or being succeeded within 30 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (v), a "Registration Default"), the Company shall be obligated to pay additional interest ("Additional Interest") to each Holder of Transfer Restricted Securities, during the period of one or more such Registration Defaults, at a rate of 0.25% per annum on the applicable principal amount of Transfer Restricted Securities held by such Holder for the first 90-day period immediately following the occurrence of a Registration Default, and such rate will increase by an additional 0.25% with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum additional rate of 1.00% per annum. Such obligation to pay Additional Interest shall survive until (i) the applicable Registration Statement is filed, (ii) the Exchange Offer Registration Statement is declared effective and the Registered Exchange Offer is consummated with respect to all properly tendered Securities, (iii) the Shelf Registration Statement is declared effective or (iv) the Shelf Registration Statement again becomes effective (or is superseded by another effective Shelf Registration Statement), as the case may be. Following the cure of all Registration Defaults, the accrual of Additional Interest will cease. As used herein, the term "Transfer Restricted Securities" means (i) each Security (including, for the avoidance of doubt, each Security issued in accordance with the Forward Commitment Agreement) until the date on which such Security has been exchanged for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) each Security (including, for the avoidance of doubt, each Security issued in accordance with the Forward Commitment Agreement) until the date on which it has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) each Security (including, for the avoidance of doubt, each Security issued in accordance with the Forward Commitment Agreement) until the date on which it is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary in this Section 3(a), the Company shall not be required to pay Additional Interest to a Holder of Transfer Restricted Securities if such Holder failed to comply with its obligations to make the representations set forth in the second to last paragraph of Section 1 or failed to provide the information required to be provided by it, if any, pursuant to Section 4(n). (b) The Company shall notify the Trustee and the paying agent under the Indenture immediately upon the happening of each and every Registration Default. The Company shall pay the Additional Interest due on the Transfer Restricted Securities by depositing with the paying agent (which may not be the Company for these purposes), in trust, for the benefit of the Holders thereof, prior to 10:00 a.m., New York City time, on the next applicable interest payment date specified by the Indenture and the Securities, sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each applicable interest payment date specified by the Indenture and the Securities to the record holder entitled to receive the interest payment to be made on such date. Each obligation to pay Additional Interest shall be deemed to accrue from and including the date of the applicable Registration Default. (c) The parties hereto agree that the Additional Interest provided for in this Section 3 constitute a reasonable estimate of and are intended to constitute the sole damages that will be suffered by Holders of Transfer Restricted Securities by reason of the failure of (i) the Shelf Registration Statement or the Exchange Offer Registration Statement to be filed, (ii) the Shelf Registration Statement to remain effective or (iii) the Exchange Offer Registration Statement to be declared effective and the Registered Exchange Offer to be consummated, in each case to the extent required by this Agreement. 4. Registration Procedures. In connection with any Registration Statement, the following provisions shall apply: (a) The Company shall (i) furnish to each Purchaser, each Dealer Manager and each Holder, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and shall use its reasonable best efforts to reflect in each such document, when so filed with the Commission, such comments as either Purchaser, either Dealer Manager or any Holder may reasonably propose; (ii) include the information set forth (A) in Annex A hereto on the cover of such prospectus, (B) in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section of such prospectus and (C) in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement, and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; and (iii) if requested by either Purchaser, either Dealer Manager or any Holder, include the information required by Items 507 or 508 of Regulation S-K, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement. (b) The Company shall advise each Purchaser, each Dealer Manager, each Exchanging Dealer and the Holders (if applicable) and, if requested by any such person, confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when any Registration Statement and any amendment thereto has been filed with the Commission and when such Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to any Registration Statement or the prospectus included therein or for additional information; (iii) if known by the Company, of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities or the Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the making of any changes in any Registration Statement or the prospectus included therein in order that the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) The Company and the Subsidiary Guarantors shall make every reasonable effort to obtain the withdrawal at the earliest possible time of any order suspending the effectiveness of any Registration Statement. (d) The Company shall furnish to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, at least one conformed copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall, during the Shelf Registration Period, promptly deliver to each Purchaser, each Dealer Manager and each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, as many copies of the prospectus (including each preliminary prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Purchaser, such Dealer Manager or Holder may reasonably request; and the Company and the Subsidiary Guarantors consent to the use of such prospectus or any amendment or supplement thereto by each of the selling Holders of Transfer Restricted Securities in connection with the offer and sale of the Transfer Restricted Securities covered by such prospectus or any amendment or supplement thereto. (f) The Company shall furnish to each Purchaser, each Dealer Manager, each Exchanging Dealer, and to any Holder who so requests, without charge, at least one conformed copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if either Purchaser, either Dealer Manager, any Exchanging Dealer or any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (g) The Company shall, during the Exchange Offer Registration Period or the Shelf Registration Period, as applicable, promptly deliver to each Purchaser, each Dealer Manager, each Exchanging Dealer and such other persons that are required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement or the Shelf Registration Statement and any amendment or supplement thereto as such Purchaser, such Dealer Manager, Exchanging Dealer or other persons may reasonably request; and the Company and the Subsidiary Guarantors consent to the use of such prospectus or any amendment or supplement thereto by any such Purchaser, such Dealer Manager, Exchanging Dealer or other persons, as applicable, as aforesaid. (h) Prior to the effective date of any Registration Statement, the Company and the Subsidiary Guarantors shall use their best efforts to register or qualify, or cooperate with the Holders of Securities (including, for the avoidance of doubt, Securities issued in accordance with the Forward Commitment Agreement), Exchange Securities included therein and their respective counsel in connection with the registration or qualification of, such Securities or Exchange Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any such Holder reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities or Exchange Securities covered by such Registration Statement; provided that the Company and the Subsidiary Guarantors shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of Securities (including, for the avoidance of doubt, Securities issued in accordance with the Forward Commitment Agreement) or Exchange Securities to facilitate the timely preparation and delivery of certificates representing Securities, Exchange Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders thereof may request in writing prior to sales of Securities or Exchange Securities pursuant to such Registration Statement. (j) If any event contemplated by Section 4(b)(ii) through (v) occurs during the period for which the Company is required to maintain an effective Registration Statement, the Company and the Subsidiary Guarantors shall promptly prepare and file with the Commission a post-effective amendment to the Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to purchasers of the Securities (including, for the avoidance of doubt, Securities issued in accordance with the Forward Commitment Agreement) or Exchange Securities from a Holder, the prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (k) Not later than the effective date of the applicable Registration Statement, the Company shall provide a CUSIP number for the Securities and the Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Securities or the Exchange Securities as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company and the Subsidiary Guarantors shall comply with all applicable rules and regulations of the Commission and shall make generally available to the Company's security holders as soon as practicable after the effective date of the applicable Registration Statement an earning statement satisfying the provisions of Section 11(a) of the Securities Act; provided that in no event shall such earning statement be delivered later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the applicable Registration Statement, which statement shall cover such 12-month period. (m) The Company and the Subsidiary Guarantors shall cause the Indenture, to be qualified under the Trust Indenture Act as required by applicable law in a timely manner. (n) The Company may require each Holder of Transfer Restricted Securities to be registered pursuant to any Shelf Registration Statement to furnish to the Company such information concerning the Holder and the distribution of such Transfer Restricted Securities as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement, and the Company may exclude from such registration the Transfer Restricted Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) In the case of a Shelf Registration Statement, each Holder of Transfer Restricted Securities to be registered pursuant thereto agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company pursuant to Section 4(b)(ii) through (v), such Holder will discontinue disposition of such Transfer Restricted Securities until such Holder's receipt of copies of the supplemental or amended prospectus contemplated by Section 4(j) or until advised in writing (the "Advice") by the Company that the use of the applicable prospectus may be resumed. If the Company shall give any notice under Section 4(b)(ii) through (v) during the period that the Company is required to maintain an effective Registration Statement (the "Effectiveness Period"), such Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Transfer Restricted Securities covered by such Registration Statement shall have received (x) the copies of the supplemental or amended prospectus contemplated by Section 4(j) (if an amended or supplemental prospectus is required) or (y) the Advice (if no amended or supplemental prospectus is required). (p) In the case of a Shelf Registration Statement, the Company and the Subsidiary Guarantors shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as Holders of a majority in aggregate principal amount of the Securities or Exchange Securities being sold or the managing underwriters, if any, shall reasonably request in order to facilitate any disposition of Securities or Exchange Securities pursuant to such Shelf Registration Statement. (q) In the case of any Shelf Registration Statement, the Company and the Subsidiary Guarantors, as applicable, shall: (i) make reasonably available for inspection by the Holders of, representatives and counsel to, a majority in aggregate principal amount of the Securities to be registered thereunder, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by such Holders or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries; (ii) cause the Company's officers, directors and employees to supply all relevant information reasonably requested by the Holders or any such underwriter, attorney, accountant or agent in connection with any such Shelf Registration Statement as is customary for similar due diligence examinations; provided, however, that any information that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such information shall be kept confidential by the Holders or any such underwriter, attorney, accountant or agent, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; (iii) make such representations and warranties to the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings; (iv) if requested by Holders of a majority in aggregate principal amount of the Securities to be registered thereunder or by any underwriter participating in any disposition pursuant to such Shelf Registration Statement, to use its reasonable best efforts to have its counsel issue legal opinions and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the underwriters, if any) addressed to each selling Holder and the underwriters, if any, covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (v) if requested by Holders of a majority in aggregate principal amount of the Securities to be registered thereunder or by any underwriter participating in any disposition pursuant to such Shelf Registration Statement, to use its reasonable best efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which, in each case, financial statements and financial data are, or are required to be, included in the Shelf Registration Statement), addressed to each selling Holder of Securities registered thereunder and the underwriters, if any, in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings; and (vi) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities being sold and the underwriters, if any, and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company and the Subsidiary Guarantors. The actions set forth in clauses (iii), (iv), (v) and (vi) of this subsection shall be performed at (A) the effectiveness of such Shelf Registration Statement and each post-effective amendment thereto; and (B) each closing under any underwriting or similar agreement as and to the extent required thereunder. (r) If a Registered Exchange Offer is to be consummated, upon delivery of the Securities (including, for the avoidance of doubt, Securities issued in accordance with the Forward Commitment Agreement) by Holders to the Company (or to such other person as directed by the Company) in exchange for the Exchange Securities, the Company shall mark, or cause to be marked, on the Securities so exchanged that such Securities are being canceled in exchange for the Exchange Securities. In no event shall the Securities be marked as paid or otherwise satisfied. (s) The Company will use its reasonable best efforts to cause the Securities (including, for the avoidance of doubt, Securities issued in accordance with the Forward Commitment Agreement) covered by a Registration Statement to be rated with at least one nationally recognized statistical rating agency, if so requested by Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities being sold with respect to the related Registration Statement or by any underwriters. (t) In the event that any broker-dealer shall underwrite any Securities (including, for the avoidance of doubt, Securities issued in accordance with the Forward Commitment Agreement) or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the National Association of Securities Dealers, Inc.) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Rules and By-Laws, including, without limitation, by: (i) if such Rules or By-Laws shall so require, engaging a "qualified independent underwriter" (as defined in such Rules) to participate in the preparation of the Registration Statement, to exercise usual standards of due diligence with respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities; (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 6 hereof; and (iii) providing such information to such Broker- Dealer as may be required in order for such Broker- Dealer to comply with the requirements of such Rules. 5. Registration Expenses. The Company and the Subsidiary Guarantors shall bear all expenses incurred in connection with the performance of its obligations under Sections 1, 2, 3 and 4 and, in the case of a Shelf Registration Statement, the Company and the Subsidiary Guarantors shall reimburse the Holders for the reasonable fees and disbursements of one firm of attorneys (in addition to any local counsel) chosen by the Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities to be sold pursuant to each Registration Statement (the "Special Counsel") acting for the Holders and the Purchasers in connection therewith. 6. Indemnification. (a) In the event of a Shelf Registration Statement or in connection with any prospectus delivery pursuant to an Exchange Offer Registration Statement by an Exchanging Dealer, the Company and the Subsidiary Guarantors shall, jointly and severally, indemnify and hold harmless each Purchaser, each Dealer Manager and each Holder (including, without limitation, any such Exchanging Dealer), their affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls such Purchaser, such Dealer Manager or Holder, as applicable, within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6 and Section 7 as a Holder, Purchaser or Dealer Manager, as the case may be) from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of Securities or Exchange Securities), to which that Holder, Purchaser or Dealer Manager, as the case may be, may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming a part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and shall reimburse each Holder, each Purchaser and each Dealer Manager, as the case may be, promptly upon demand for any legal or other expenses reasonably incurred by that Holder, Purchaser or Dealer Manager, as the case may be, in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company and the Subsidiary Guarantors shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with any Holders' Information; and provided further, however, that with respect to any such untrue statement in or omission from any related preliminary prospectus, the indemnity agreement contained in this Section 6(a) shall not inure to the benefit of any Holder from whom the person asserting any such loss, claim, damage, liability or action received Securities or Exchange Securities to the extent that such loss, claim, damage, liability or action of or with respect to such Holder results from the fact that both (A) a copy of the final prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such Securities or Exchange Securities to such person and (B) the untrue statement in or omission from the related preliminary prospectus was corrected in the final prospectus unless, in either case, such failure to deliver the final prospectus was a result of non-compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g). (b) In the event of a Shelf Registration Statement, each Holder shall indemnify and hold harmless the Company, the Subsidiary Guarantors, their affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Company or any such Subsidiary Guarantor, as the case may be, within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6(b) and Section 7 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming a part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Holders' Information furnished to the Company or any Subsidiary Guarantor by such Holder, and shall reimburse the Company or such Subsidiary Guarantor, as the case may be, for any legal or other expenses reasonably incurred by the Company or such Subsidiary Guarantor, as the case may be, in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that no such Holder shall be liable for any indemnity claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Securities or Exchange Securities pursuant to such Shelf Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than the reasonable costs of investigation; provided, however, that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability or claims that were raised or could have been raised by such plaintiff in such proceeding. 7. Contribution. If the indemnification provided for in Section 6 is unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Subsidiary Guarantors from the offering and sale of the Securities and the Exchange Offer, on the one hand, and either a Holder with respect to the sale by such Holder of Securities or Exchange Securities, a Purchaser with respect to the cash consideration received by such Purchaser under the Forward Commitment Agreement or a Dealer Manager with respect to the fees received under the Dealer Manager Agreement, as the case may be, on the other, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Subsidiary Guarantors on the one hand and such Holder, such Purchaser or such Dealer Manager, as the case may be, on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Subsidiary Guarantors on the one hand and a Holder, a Purchaser or a Dealer Manager, as the case may be, on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the aggregate principal amount of Existing Notes received by the Company in exchange for the Securities, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Securities or Exchange Securities, the total cash consideration received by such Purchaser under the Forward Commitment Agreement or the total fees received by such Dealer Manager under the Dealer Manager Agreement, as the case may be, on the other. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Company and the Subsidiary Guarantors or information supplied by the Company and the Subsidiary Guarantors on the one hand or to any Holders' Information supplied by such Holder on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 7 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7 shall be deemed to include, for purposes of this Section 7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 7, an indemnifying party that is a Holder of Securities or Exchange Securities, a Purchaser or a Dealer Manager shall not be required to contribute any amount in excess of the amount by which (A) with respect to any Holder, the total price at which the Securities or Exchange Securities sold by such indemnifying party to any purchaser, (B) with respect to a Purchaser, the total consideration received by such Purchaser pursuant to the Forward Commitment Agreement or (C) with respect to a Dealer Manager, the total fees received by such Dealer Manager pursuant to the Dealer Manager Agreement, as the case may be, exceeds the amount of any damages which such indemnifying party has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 8. Rules 144 and 144A. So long as Transfer Restricted Securities remain outstanding, after July 11, 2000, the Company shall use its reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the written request of any Holder of Transfer Restricted Securities, make publicly available other information so long as necessary to permit sales of such Holder's securities pursuant to Rules 144 and 144A. So long as Transfer Restricted Securities remain outstanding, the Company covenants that after July 11, 2000 it will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including, without limitation, the requirements of Rule 144A(d)(4)). So long as Transfer Restricted Securities remain outstanding, upon the written request of any Holder of Transfer Restricted Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 9. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities included in such offering, subject to the consent of the Company (which shall not be unreasonably withheld or delayed), and such Holders shall be responsible for all underwriting commissions and discounts in connection therewith. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 10. Miscellaneous. (a) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose Securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate principal amount of the Securities and the Exchange Securities being sold by such Holders pursuant to such Registration Statement. (b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telecopier or air courier guaranteeing next-day delivery: (1) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 10(b), which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture; (2) if to a Purchaser or Dealer Manager, initially at its address set forth in the Dealer Manager Agreement; and (3) if to the Company or any Subsidiary Guarantor, initially at the address of the Company set forth in the Indenture. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being delivered to a next-day air courier; five business days after being deposited in the mail; and when receipt is acknowledged by the recipient's telecopier machine, if sent by telecopier. (c) Successors And Assigns. This Agreement shall be binding upon the Company and the Subsidiary Guarantors and their successors and assigns. (d) Counterparts. This Agreement may be executed in any number of counterparts (which may be delivered in original form or by telecopier) and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) Definition of Terms. For purposes of this Agreement, (a) the term "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (h) Remedies. In the event of a breach by the Company, the Subsidiary Guarantors or by any Holder of any of their obligations under this Agreement, each Holder, the Company or each Subsidiary Guarantor, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages (other than the recovery of damages for a breach by the Company or such Subsidiary Guarantors, as the case may be, of its obligations under Sections 1 or 2 hereof for which Additional Interest has been paid pursuant to Section 3 hereof), will be entitled to specific performance of its rights under this Agreement. The Company, each Subsidiary Guarantor and each Holder agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (i) No Inconsistent Agreements. The Company and each of the Subsidiary Guarantors represents, warrants and agrees that (i) it has not entered into, shall not, on or after the date of this Agreement, enter into any agreement that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof, (ii) it has not previously entered into any agreement granting any registration rights with respect to any of its debt securities to any person, except for such agreements where the Company has complied and is in compliance with its registration obligations to date, and (iii) without limiting the generality of the foregoing, so long as Transfer Restricted Securities remain outstanding, without the written consent of the Holders of a majority in aggregate principal amount of the then outstanding Transfer Restricted Securities, it shall not grant to any person the right to request the Company to register any debt securities of the Company under the Securities Act unless the rights so granted are not in conflict or inconsistent with the provisions of this Agreement. (j) No Piggyback on Registrations. Neither the Company nor any of its security holders (other than the Holders of Transfer Restricted Securities in such capacity) shall have the right to include any securities of the Company in any Shelf Registration or Registered Exchange Offer other than Transfer Restricted Securities. (k) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. Please confirm that the foregoing correctly sets forth the agreement among the Company and the Holders. Very truly yours, RITE AID CORPORATION, By ------------------------------------ Name: Title: THRIFY PAYLESS, INC., as a Subsidiary Guarantor, By ------------------------------------ Name: Title: PCS HEALTH SYSTEMS, INC., as a Subsidiary Guarantor, By ------------------------------------ Name: Title: EACH OF THE SUBSIDIARY GUARANTORS LISTED ON SCHEDULE A HERETO, By ------------------------------------ Name: Title: Authorized Signatory Accepted: HOLDERS OF THE SECURITIES By: State Street Bank and Trust Company, on behalf of the Holders in its capacity as Trustee, By ------------------------------- Name: Title: SCHEDULE A Subsidiary Guarantors --------------------- ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker- dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired by such broker-dealer as a result of market- making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution". ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Securities, where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities See "Plan of Distribution." ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker- dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until _______________, 200__, all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Registered Exchange Offer may be sold from time to time in one or more transactions in the over-the- counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker- dealer that resells Exchange Securities that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Registered Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any broker-dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. ANNEX D o CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: Address: If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-4 4 0004.txt EXHIBIT 4.3 - REGISTRATION RIGHTS AGREEMENT Exhibit 4.3 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT DATED AS OF JUNE 12, 2000 By and Among RITE AID CORPORATION and THE LENDERS LISTED HEREIN REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and entered into as of June 12, 2000, by and among RITE AID CORPORA TION, a Delaware corporation (the "COMPANY") and the Lenders listed herein (the "LENDERS"). W I T N E S S E T H: WHEREAS, pursuant to the Debt to Equity Conversion Letters dated as of June 12, 2000 (each an "EQUITY CONVERSION LETTER") between each Lender and the Company, the Company has agreed to issue to each Lender shares of Common Stock of the Company, par value $.01 per share (collectively, the "COMMON SHARES"), in the amounts set forth on Schedule A hereto; WHEREAS, in connection with the issuance of the Common Shares to the Lenders, the Company has agreed to provide to the holders of the Common Shares the registration rights set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to and on the terms and conditions herein set forth, the parties hereto hereby agree as follows: ARTICLE I Certain Definitions As used in this Agreement, the following terms shall have the meanings ascribed to them below: 1.1 "Commission" shall mean the Securities and Exchange Commission or any federal agency at the time administering the Securities Act. 1.2 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any federal statute then in effect which has replaced such statute. 1.3 "Group" shall mean two or more Persons that would be deemed a "group" for purposes of Rule 13d-5 under the Exchange Act. 1.4 "Holder" means any Lender for so long as it owns any Registrable Securities and any other Person who is a holder or beneficial owner of Registrable Securities for so long as such Person owns any Registrable Securities. 1.5 "Person" shall mean an individual, corporation, limited liability company, joint venture, partnership, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity that may be treated as a person under applicable law. 1.6 "Registrable Securities" shall mean the Common Shares. As to any Registrable Securities, such securities shall cease to be Registrable Securities when (i) a registration statement registering such Registrable Securities under the Securities Act has been declared or becomes effective and such Registrable Securities have been sold or otherwise transferred by the Holder thereof pursuant to such effective registration statement; (ii) such Registrable Securities are sold pursuant to Rule 144 under circumstances in which any legend borne by such Registrable Securities relating to restrictions on the transferability thereof, under the Securities Act or otherwise, is removed by the Company or such Registrable Securi ties are eligible to be sold pursuant to paragraph (k) of Rule 144; or (iii) such Registrable Securities shall cease to be outstanding. 1.7 "Rule 144" shall mean Rule 144 promulgated under the Securities Act. 1.8 "Securities Act" shall mean Securities Act of 1933, as amended, or any federal statute then in effect which has replaced such statute. ARTICLE II Public Offering Pursuant to Registration Rights 2.1 Demand Registrations. (a) Holders of Registrable Securities representing not less than one-half of the then-outstanding Registrable Securities (the "INITIATING HOLD ERS") may require that the Company effect a registration under the Securities Act at any time or times with respect to at least 25% of the Common Shares issued pursuant to the Equity Conversion Letters (or, if less, all remaining Registrable Securities) (a "DEMAND REGISTRATION"). Upon receipt of written notice of such demand, the Company will promptly give written notice of the proposed registration to all Holders other than Initiating Holders and will include in such registration (x) all Registrable Securities specified in such demand, together with Registrable Securities of like kind of any other Holder joining in such demand as are specified in a written request received by the Company within 20 days after delivery of the Company's notice and (y) all shares of equity securities of the Company which the Company or other holders of equity securities having registration rights may elect to register. Notwithstanding anything in this Section 2.1(a) to the contrary, the Holders will collectively be entitled to no more than an aggregate of two (2) Demand Registrations. (b) The Company shall file a registration statement with respect to each Demand Registration requested pursuant to Section 2.1(a) as soon as practicable after receipt of the demand of the Initiating Holders; provided, however, that (x) if in the good faith judgment of the Board of Directors of the Company (the "BOARD"), deferral of such Demand Registration or delivery of any prospectus supplement to be delivered pursuant to Section 2.5 would be in the best interests of the Company in that such registration or delivery would interfere with any other material corporate transaction (as evidenced by an appropriate resolution of the Board) of the Company or would require the disclosure of material non-public information, then the Company shall have the right to defer such filing or delivery, as the case may be, in order to effect such other material corporate transaction; provided, further, however, that the Company may not defer the filing or delivery, as the case may be, for any period or periods aggregating more than 90 days after receipt of the demand of the Initiating Holders, (y) the Company shall not be required to file any registration statement or deliver any prospectus supplement (i) if such filing or delivery is prohibited by applicable law, (ii) if the Company cannot obtain, after using its reasonable best efforts, financial information (or information used to prepare such information) necessary for inclusion of such registration statement or prospectus supplement or (iii) if the Company has already filed a registration statement which has not yet been declared effective or 30 days prior to the anticipated consummation of a public offering by the Company of its equity securities and 90 days subsequent to the consummation of such public offering, and (z) if the Company undertakes a registration within 90 days following an exercise of its deferral right, the Holders shall have "piggyback" rights under Section 2.2 hereof such that they shall be entitled to include therein a number of shares equal to not less than one-third (1/3) of the number of shares of Common Stock to be sold in such offering unless such inclusion would be in conflict with the express registration rights of any other party pursuant to any agreement by and between the Company and such party as in existence on the date hereof, in which instance such Holders shall be entitled to include in such offering the maximum number of shares not resulting in such conflict. (c) If the Initiating Holders intend to distribute the Registrable Securities covered by a Demand Registration by means of an underwrit ing, they shall so advise the Company as part of their demand made pursuant to Section 2.1(a) and the Company shall include such information in its written notice to Holders. The Initiating Holders shall have the right to select the managing underwriter(s) for any underwritten Demand Registration, subject to the approval of the Board (which will not be unreasonably withheld or delayed). The right of any Holder to participate in an underwritten Demand Registration shall be conditioned upon such Holder's participation in such underwriting in accordance with the terms and conditions thereof, and the Company and all such Holders will enter into an underwriting agreement in customary form. (d) The Holders will have absolute priority over any other securities of the Company sought to be included in a Demand Registration. If such other securities are included in any Demand Registration that is not an underwritten offering, all Registrable Securities of the Holders included in such offering shall be sold prior to or concurrently with the sale of any of such other securities. If other securities of the Company are included in any Demand Registration that is an underwritten offering, and the managing underwriter for such offering advises the Company that in its opinion the amount of securities to be included exceeds the amount of securities which can be sold in such offering without adversely affecting the marketability thereof, the Company will include in such registration all Registrable Securities requested to be included therein by the Holders prior to the inclusion of any other securities of the Company. If the number of Registrable Securities requested by the Holders to be included in such registration exceeds the amount of securities which in the opinion of such managing underwriter can be sold without adversely affecting the marketability of such offering, such Registrable Securities shall be included pro rata among the Holders based on the percentage of the then-outstanding Registrable Securities held by each such Holder. 2.2 Piggyback Registration. (a) If the Company shall determine to register any equity securities of the Company for its own account or for the account of other holders of equity securities of the Company on any registration form (other than Form S-4 or S- 8 or other successor forms) which permits the inclusion of Registrable Securities held by any Holder (a "PIGGYBACK REGISTRATION"), the Company will promptly give each Holder written notice thereof and, subject to Section 2.2(c), shall include in such registration all Registrable Securities requested to be included therein pursuant to the written requests of Holders received within 20 days after delivery of the Company's notice. (b) If the Piggyback Registration relates to an underwritten public offering, the Company shall so advise the Holders as part of the written notice given pursuant to Section 2.2(a). In such event, the right of any Holder to participate in such registration shall be conditioned upon such Holder's participation in such underwriting in accordance with the terms and conditions thereof. The Board shall have the right to select the managing underwriter(s) for any underwritten Piggyback Registration. All Holders proposing to distribute their Registrable Securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form. (c) If such proposed Piggyback Registration is an under written offering and the managing underwriter for such offering advises the Com pany that the securities requested to be included therein exceeds the amount of securities that can be sold in such offering, except as provided in Section 2.1(b), any securities to be sold by the Company or other holders of the Company's securities initiating such offering in such offering shall have priority over any Registrable Securities held by Holders, and the number of shares to be included by a Holder and other holders of the Company's securities that did not initiate the offering in such registration shall be reduced pro rata on the basis of the percentage of the then outstanding Registrable Securities held by each such Holder and all other holders exercising similar registration rights. 2.3 Expenses of Registration. All expenses incurred in connection with up to two Demand Registrations and all Piggyback Registrations shall be borne by the Company, including without limitation the reasonable cost of one counsel to all Holders reasonably acceptable to the Company (the Company herein acknowledg ing that Davis Polk & Wardwell is acceptable counsel). All underwriting discounts, selling commissions and other similar fees relating to Registrable Securities included in any Demand or Piggyback Registration shall be borne by the holders of such Registrable Securities pro rata on the basis of the amount of Registrable Securities sold by them. 2.4 Registration Procedures. In the case of each registration effected by the Company pursuant to this Article II, the Company will keep each Holder advised in writing as to the initiation of such registration and as to the completion thereof. At its expense, the Company will use its best efforts to: (a) cause such registration to be declared effective by the Commission and, in the case of a Demand Registration, keep such registration effective for a period of 180 days or until the Holders whose Registrable Securities are included therein have completed the distribution described in the registration statement relating thereto, whichever first occurs; (b) as soon as reasonably possible, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus included therein (including post-effective amendments, prospec tus supplements and pricing supplements) as may be necessary to effect and maintain the effectiveness of such registration statement for the period specified in Section 2.4(a); (c) provide (A) the Holders of the Registrable Securities to be included in such registration statement, (B) the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act) if any, thereof, (C) the sales or placement agent therefor, if any, (D) counsel for such underwriters or agent, and (E) not more than one counsel for all the holders of such Registrable Securities the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; (d) (A) register or qualify the Registrable Securities to be included in such registration statement under such securities laws or blue sky laws of such jurisdictions as any Holder of such Registrable Securities and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, and (B) take any and all other actions as may be reasonably necessary or advisable to enable each such Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that the Company shall not be required for any other purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 2.4(d) or (2) consent to general service of process or taxation in any such jurisdiction; (e) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as any Holder from time to time may reasonably request; (f) promptly notify the selling Holders of Registrable Securities, the sales or placement agent, if any, therefor and the managing under writer or underwriters, if any, thereof and confirm such advice in writing, (A) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and with respect to such registration statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission, the Blue Sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such registration statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 2.4(n) or Section 3 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for the sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (F) at any time when a prospectus is required to be delivered under the Securities Act, that such registra tion statement, prospectus, prospectus amendment or supplement or post-effective amendment, or any document incorporated by reference in any of the foregoing, contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not mislead ing in light of the circumstances then existing; (g) obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (h) if requested by any managing underwriter or underwrit ers, any placement or sales agent or any Holder of Registrable Securities, promptly incorporate in a prospectus supplement or post-effective amendment such informa tion as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold by such Holder or agent or to any underwriters, the name and description of such Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such Holder or agent or to such underwriters; (i) furnish to each Holder of Registrable Securities included in such registration statement, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 2.4(c) an executed copy of such registration statement, each such amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and such number of copies of such registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically and reasonably so requested by such Holder, agent or underwriter, as the case may be) and of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act; and the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Holder and by any such agent and underwriter, if any, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (j) cause all Registrable Securities covered by such registration to be listed on each securities exchange or inter-dealer quotation system on which similar securities issued by the Company are then listed; (k) provide a transfer agent and registrar for all Registrable Securities covered by such registration and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (l) cooperate with the Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certifi cates shall not bear any restrictive legends; (m) with respect to an underwritten Demand Registration, whether or not an agreement of the type referred to in Section 2.4(p) hereof is entered into, obtain an opinion or opinions of counsel to the Company in customary form and covering such other matters of the type customarily covered by such an opinion, as the managing underwriters may reasonably request, addressed to the underwriters thereof and dated the closing date of such offering; obtain a "cold comfort" letter or letters from the independent certified public accountants of the Company addressed to the underwriters thereof, dated (i) the effective date of such registration statement, (ii) the effective date of any prospectus supplement to the prospectus included in such registration statement or post-effective amendment to such registration state ment which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus (and, if such registration statement contemplates an underwritten offering pursuant to any prospectus supplement to the prospectus included in such registration statement or post-effective amendment to such registration statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus, dated the date of the closing under the underwriting agreement relating thereto), such letter or letters to be in customary form and covering such matters of the type customarily covered by letters of such type; deliver such documents and certificates, including officers' certificates, as may be reasonably requested by the managing underwriters thereof to evidence the accuracy of the representations and warranties contained in Section 3 hereof and the compliance with or satisfaction of any agreements or conditions contained in the underwriting agreement or other agreement entered into by the Company; and undertake such obligations relating to expense reimbursement, indemnification and contribution as are provided in Section 2.7 hereof; (n) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Conduct (the "RULES OF CONDUCT") of the National Association of Securities Dealers, Inc. ("NASD") thereof, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise use its reasonable best efforts to assist such broker-dealer in complying with the requirements of such Rules of Conduct, including, without limitation, by providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Conduct; (o) otherwise comply with all applicable rules and regula tions of the Commission and make available to its security holders, as soon as reasonably practicable but in no event later than eighteen months after the effective date of such registration statement, an earnings statement covering the period of at least twelve months, but not more than 18 months, beginning with the first month after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder); and (p) in connection with any underwritten Demand Registra tion, the Company will enter into an underwriting agreement reasonably satisfactory to the Initiating Holders containing customary underwriting provisions, including indemnification and contribution provisions. 2.5 Delivery of Prospectus Supplement. Subject to Section 2.1(b), in the event that the Company would be required, pursuant to Section 2.4(f) above, to notify the selling Holders of Registrable Securities, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company shall as soon as reasonably practicable prepare and furnish to each such Holder, to each placement or sales agent, if any, and to each underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to initial purchasers of Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company pursuant to Section 2.4(f) hereof, such Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the registration statement applicable to such Registrable Securities until such Holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. 2.6 Furnishing Information by the Holders. The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such Holder and such Holder's intended method of distribution of such Registrable Securities as the Company may from time to time reasonably request in writing, but only to the extent that such information is required in order to comply with the Securities Act. Each such Holder agrees to notify the Company as promptly as practicable of any inaccu racy or change in information previously furnished by such Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities or omits to state any material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securi ties required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish information so required so that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, an untrue statement of a material fact or omit to state a material fact required to be stated therein or neces sary to make the statements therein not misleading in light of the circumstances then existing. 2.7 Indemnification. (a) The Company will indemnify each Holder whose Registrable Securities are to be included in a registration pursuant to this Article II, each of such Holder's officers, directors, partners, agents, employees and representa tives and each person controlling such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, with respect to each registra tion, qualification or compliance effected pursuant to this Article II, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settle ments in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospec tus, or other document incorporated by reference therein, or compliance, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reim burse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to a Holder to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder and provided for use in such registration statement, prospectus, offering circular or other document or the Holder delivered a registration or prospectus in violation of Section 2.5 hereof after notice was provided by the Company as provided in Section 2.5. It is agreed that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). (b) Each Holder whose Registrable Securities are included in any registration effected pursuant to this Article II shall indemnify the Company, each of its directors, officers, agents, employees and representatives, and each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, each other such Holder and each of their officers, directors, partners, agents, employees and representatives and each person controlling such Holder, and each underwriter, if any, of such Registrable Securities and each Person who controls any such underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document incident to such registration, qualification or compliance, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reim burse such indemnified persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in strict conformity with written information furnished to the Company by such Holder and provided specifically for use therein; provided, however, that (x) no Holder shall be liable hereunder for any amounts in excess of the gross proceeds received by such Holder pursuant to such registration, and (y) the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 2.7 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemni fied Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed, the Company herein and hereby approving Davis Polk & Wardwell as counsel to the Lenders for the purposes of this Section 2.7(c)), and the Indemnified Party may participate in such defense with counsel reasonably accept able to and paid for by the Indemnifying Party but otherwise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obliga tions under this Section 2.7 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemni fied Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in an underwriting agree ment entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 2.8 Other Obligations. With a view to making available the benefits of certain rules and regulations of the Commission which may effectuate the registration of Registrable Securities or permit the sale of Registrable Securities to the public without registration, the Company agrees to: (a) exercise best efforts to cause the Company to be eligible to utilize Form S-3 (or any similar form) for the registration of securities; (b) at such time as any Registrable Securities are eligible for transfer under Rule 144(k), upon the request of the holder of such Registrable Securities, remove any restrictive legend from the certificates evidencing such Registrable Securities at no cost to such holder; (c) make and keep available public information as defined in Rule 144 under the Securities Act at all times; (d) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and (e) furnish any Holder upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after 90 days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the Commission (including Rule 144A) allowing a holder of Registrable Securities to sell any such Registrable Securities without registration. 2.9 Hold-Back Agreements. If requested by the Company or any underwriter of securities of the Company, Holders shall not sell or otherwise transfer or dispose of any Common Stock (other than pursuant to such registration) during the period 15 days prior to and 90 days following the effective date of registration statement relating to the offering of the Company's securities for its own account or such longer period that the underwriters may reasonably request. The obligations described in this Section 2.9 shall not apply to a registration on Form S-4 or Form S- 8 or similar forms which may be promulgated in the future and shall not apply to a Holder holding less than 1% of the then-outstanding Common Stock. ARTICLE III Representations and Warranties The Company represents and warrants to, and agrees with, the Lenders and each of the Holders from time to time of Registrable Securities that: (a) The compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which the Company or any subsidiary of the Company is a party or by which the Company or any subsidiary of the Company is bound or to which any of the property or assets of the Company or any subsidiary of the Company is subject nor will such action result in any violation of the provisions of the certificate of incorporation or by-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any subsidiary of the Company or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Securities Act of the Registrable Securities, and such consents, approvals, authorizations, registrations or qualifica tions as may be required under State securities or blue sky laws in connection with the offering and distribution of the Registrable Securities. (b) This Agreement has been duly authorized, executed and delivered by the Company. ARTICLE IV Termination This Agreement shall terminate immediately following the moment at which there exist no securities of the Company that constitute Registrable Securities; provided, however, that Section 2.7 hereof shall survive indefinitely. ARTICLE V Miscellaneous 5.1 Recapitalization, Exchanges, etc. Affecting the Common Stock. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (a) the Registrable Securities and (b) any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for the Registrable Securities, by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. In the event of any change in the capitalization of the Company as a result of any stock split, stock dividend or stock combination, the provisions of this Agreement shall be appropriately adjusted. 5.2 Injunctive Relief. It is hereby agreed and acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved Person will be irreparably damaged and will not have an adequate remedy at law. Any such Person shall, therefore, in addition to any other remedies available under applicable law, be entitled to injunc tive relief, including specific performance, to enforce such obligations, without the posting of any bond, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 5.3 Parties in Interest. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforce able by the respective successors and assigns of the parties hereto. In the event that any transferee of any Holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing of any kind, be deemed a party hereto for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of and be conclu sively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. 5.4 Survival. The respective indemnities, agreements, representa tions, warranties and each other provision set forth in this Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statements as to the results thereto) made by or on behalf of any Holder of Registrable Securities, any director, officer or partner of such Holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive the transfer of Registrable Securities by such Holder. 5.5 Amendment; Waiver. (a) This Agreement may be amended only by a written instrument signed by the Company and by Holders holding more than 76% of the then outstanding Registrable Securities and, in the case of any amendment that adversely affects any Holder or all of the members of any group of Holders differ ently from any of the other Holders, by such Holder or the holders of more than 76% in interest of the securities of the Company held by such group of Holders. (b) No provision of this Agreement may be waived orally, but only by a written instrument signed by the party against whom enforcement of such waiver is sought. Holders shall be bound from and after the date of the receipt of a written notice from the Company setting forth such amendment or waiver, whether or not the Registrable Securities shall have been marked to indicate such amendment or waiver. 5.6 Notices. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing (includ ing a writing delivered by facsimile transmission) and shall be deemed to have been duly given if delivered personally, or sent by either certified or registered mail, return receipt requested, postage prepaid, or by overnight courier guaranteeing next day delivery, or by telex or telecopier, at the following addresses: if to the Company: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: President Telecopier: (717) 975-3762 with a copy to Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Stacy J. Kanter Telecopier: (212) 735-2000 if to J.P. Morgan: J.P. Morgan Ventures Corporation 60 Wall Street New York, New York 10260 Attention: Sarah E. Nash Telecopier: (212) 648-5142 with a copy to: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Attention: Bradley Y. Smith, Esq. Telecopier: (212) 450-4800 if to any additional Lender, as set forth on Schedule B hereto. Any Lender may, by written notice given to the Company in accordance with this Section 4.5, change the address to which such notice or other communications are to be sent to it. All such notices and communications shall be deemed to have been given on the date of delivery thereof, if delivered by hand, on the fifth day after the mailing thereof, if mailed, on the next day after the sending thereof, if by overnight courier and when receipt is acknowledged, if telecopied. 5.7 Inspection. So long as this Agreement shall be in effect, this Agreement and any amendments hereto shall be made available for inspection by any Holder at the principal offices of the Company. 5.8 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 5.9 Headings. Article, section and paragraph headings are inserted for convenience only and do not constitute a part of this Agreement. 5.10 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof. There are no restrictions, agreements, promises, representations, warranties, covenants or under takings with respect to the subject matter hereof other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and under standings between the parties with respect to this subject matter. 5.11 Illegality. In case any provision in this Agreement shall be declared or held invalid, illegal or unenforceable, in whole or in part, whether generally or in any particular jurisdiction, such provision shall be deemed amended to the extent, but only to the extent, necessary to cure such invalidity, illegality or unenforceability, and the validity, legality and enforceability of the remaining provisions, both generally and in every other jurisdiction, shall not in any way be affected or impaired thereby. 5.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 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: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:______________________________________ Name: Title: J.P. MORGAN VENTURES CORPORATION By:______________________________________ Name: Title: SALOMON BROTHERS HOLDING COMPANY, INC. By:______________________________________ Name: Title: CHASE SECURITIES INC. as Agent for THE CHASE MANHATTAN BANK By:______________________________________ Name: Title: PNC BANK, NATIONAL ASSOCIATION By:______________________________________ Name: Title: UNION BANK OF CALIFORNIA, N.A. By:______________________________________ Name: Title: LEHMAN COMMERCIAL PAPER INC. By:______________________________________ Name: Title: ROYAL BANK OF CANADA By:______________________________________ Name: Title: BANC OF AMERICA SECURITIES LLC as agent for BANK OF AMERICA, N.A. By:______________________________________ Name: Title: FIRST UNION NATIONAL BANK By:______________________________________ Name: Title: BEAR, STEARNS & CO. INC. By:______________________________________ Name: Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By:______________________________________ Name: Title: SPECIAL SITUATIONS FUND ADVISORS, INC. as agent for THE CHASE MANHATTAN BANK By:______________________________________ Name: Title: FARALLON CAPITAL PARTNERS, L.P. FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P. FARALLON CAPITAL INSTITUTIONAL PARTNERS II, L.P. FARALLON CAPITAL INSTITUTIONAL PARTNERS III, L.P. TINICUM PARTNERS, L.P. By: Farallon Partners, L.L.C., its General Partner By:______________________________________ Name: Title: FARALLON CAPITAL OFFSHORE INVESTORS, INC. By: Farallon Capital Management, L.L.C., its Agent and Attorney-in-Fact By:______________________________________ Name: Title: SCHEDULE A SCHEDULE B EX-10 5 0005.txt EXHIBIT 10.1 - SENIOR CREDIT AGREEMENT Exhibit 10.1 EXECUTION COPY SENIOR CREDIT AGREEMENT dated as of June 12, 2000 among RITE AID CORPORATION, The Banks Party Hereto, CITICORP USA, INC., as Senior Administrative Agent, CITICORP USA, INC., as Senior Collateral Agent, and HELLER FINANCIAL, INC. and FLEET RETAIL FINANCE INC. as Syndication Agents, ============================================================================== TABLE OF CONTENTS ----------------- PAGE ---- ARTICLE 1 DEFINITIONS SECTION 1.01. DEFINITIONS.................................................1 SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS........................29 SECTION 1.03. CLASSES AND TYPES OF LOANS.................................29 SECTION 1.04. TERMS DEFINED IN DEFINITIONS ANNEX.........................29 SECTION 1.05. OTHER DEFINITIONAL PROVISIONS..............................30 ARTICLE 2 THE CREDITS SECTION 2.01. COMMITMENTS................................................30 SECTION 2.02. LOANS ..................................................31 SECTION 2.03. BORROWING PROCEDURE........................................33 SECTION 2.04. NOTES AND RECORDS..........................................34 SECTION 2.05. SENIOR FEES................................................35 SECTION 2.06. INTEREST ON LOANS..........................................36 SECTION 2.07. DEFAULT INTEREST...........................................37 SECTION 2.08. TERMINATION AND REDUCTION OF COMMITMENTS...................37 SECTION 2.09. CONVERSION AND CONTINUATION OF BORROWINGS..................38 SECTION 2.10. REPAYMENT OF BORROWINGS....................................40 SECTION 2.11. OPTIONAL PREPAYMENT........................................40 SECTION 2.12. MANDATORY PREPAYMENTS......................................41 SECTION 2.13. BREAKAGE ..................................................43 SECTION 2.14. PRO RATA TREATMENT.........................................44 SECTION 2.15. PAYMENTS ..................................................45 SECTION 2.16. SWINGLINE LOANS............................................45 SECTION 2.17. LETTERS OF CREDIT..........................................48 SECTION 2.18. ADJUSTMENTS TO BORROWING BASE ADVANCE RATES................53 ARTICLE 3 CONDITIONS SECTION 3.01. FIRST CREDIT EVENT.........................................54 SECTION 3.02. ALL CREDIT EVENTS..........................................60 ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01. CORPORATE EXISTENCE AND POWER..............................61 SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION.61 SECTION 4.03. BINDING EFFECT.............................................62 SECTION 4.04. FINANCIAL AND OTHER INFORMATION............................62 SECTION 4.05. ACCURACY OF INFORMATION....................................63 SECTION 4.06. LITIGATION.................................................63 SECTION 4.07. COMPLIANCE WITH ERISA......................................64 SECTION 4.08. TAXES ..................................................64 SECTION 4.09. SUBSIDIARIES...............................................64 SECTION 4.10. ENVIRONMENTAL MATTERS......................................65 SECTION 4.11. YEAR 2000 COMPLIANCE.......................................65 SECTION 4.12. OTHER REPRESENTATIONS......................................65 SECTION 4.13. EXISTING AND INDEPENDENT LETTERS OF CREDIT.................65 SECTION 4.14. INSURANCE..................................................66 SECTION 4.15. SOLVENCY ..................................................66 SECTION 4.16. TITLE TO PROPERTIES........................................66 SECTION 4.17. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.67 SECTION 4.18. LABOR MATTERS..............................................67 ARTICLE 5 COVENANTS SECTION 5.01. INFORMATION................................................67 SECTION 5.02. PAYMENT OF OBLIGATIONS.....................................71 SECTION 5.03. MAINTENANCE OF PROPERTY; INSURANCE.........................72 SECTION 5.04. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE...........74 SECTION 5.05. COMPLIANCE WITH LAWS.......................................74 SECTION 5.06. INSPECTION OF PROPERTY, BOOKS AND RECORDS..................74 SECTION 5.07. RESTRICTION ON OTHER AGREEMENTS, PAYMENT LIMITATIONS, DEBT PREPAYMENTS, AMENDMENTS TO OTHER AGREEMENTS................74 SECTION 5.08. FURTHER ASSURANCES.........................................76 SECTION 5.09. BORROWING BASE REVIEWS.....................................76 SECTION 5.10. SUBSIDIARIES...............................................77 SECTION 5.11. INTERCOMPANY TRANSFERS.....................................77 SECTION 5.12. INVENTORY PURCHASING.......................................77 SECTION 5.13. CASH MANAGEMENT SYSTEM.....................................78 SECTION 5.14. RESTRICTION ON SALE AND LEASEBACK TRANSACTIONS.............78 SECTION 5.15. RESTRICTION ON LIENS.......................................79 SECTION 5.16. CAPITAL EXPENDITURES.......................................80 SECTION 5.17. MINIMUM EBITDA.............................................81 SECTION 5.18. MINIMUM INTEREST COVERAGE RATIO............................82 SECTION 5.19. MINIMUM FIXED CHARGE COVERAGE RATIO........................83 SECTION 5.20. RESTRICTION ON DEBT........................................84 SECTION 5.21. LIMITATION ON INVESTMENTS AND ACQUISITIONS.................86 SECTION 5.22. CONSOLIDATIONS AND MERGERS.................................88 SECTION 5.23. DISPOSITIONS OF ASSETS.....................................88 SECTION 5.24. USE OF PROCEEDS............................................89 SECTION 5.25. RESTRICTIONS ON ASSET HOLDINGS BY THE BORROWER.............90 SECTION 5.26. RESTRICTED PAYMENTS........................................91 SECTION 5.27. BUSINESS OF BORROWER AND SUBSIDIARIES......................91 SECTION 5.28. TRANSACTIONS WITH AFFILIATES...............................91 SECTION 5.29. NEW SYNTHETIC LEASES.......................................92 SECTION 5.30. CORPORATE SEPARATENESS.....................................93 SECTION 5.31. LIMITATION ON DERIVATIVE OBLIGATIONS.......................93 ARTICLE 6 DEFAULTS SECTION 6.01. EVENTS OF DEFAULT..........................................93 SECTION 6.02. NOTICE OF DEFAULT..........................................96 ARTICLE 7 THE AGENTS SECTION 7.01. APPOINTMENT AND AUTHORIZATION..............................96 SECTION 7.02. SENIOR ADMINISTRATIVE AGENT AND AFFILIATES.................97 SECTION 7.03. ACTION BY AGENTS...........................................97 SECTION 7.04. CONSULTATION WITH EXPERTS..................................97 SECTION 7.05. LIABILITY OF SENIOR ADMINISTRATIVE AGENT...................97 SECTION 7.06. INDEMNIFICATION............................................98 SECTION 7.07. CREDIT DECISION............................................98 SECTION 7.08. RESIGNATION OF AGENTS......................................98 SECTION 7.09. REMOVAL OF SENIOR ADMINISTRATIVE AGENT.....................99 ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR...100 SECTION 8.02. ILLEGALITY.................................................100 SECTION 8.03. INCREASED COST AND REDUCED RETURN..........................101 SECTION 8.04. TAXES ..................................................102 SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED EURO-DOLLAR LOANS.104 ARTICLE 9 MISCELLANEOUS SECTION 9.01. NOTICES ..................................................105 SECTION 9.02. NO WAIVERS.................................................105 SECTION 9.03. EXPENSES; INDEMNIFICATION..................................105 SECTION 9.04. SETOFF; SHARING OF SETOFFS.................................106 SECTION 9.05. AMENDMENTS AND WAIVERS; RELEASE OF SENIOR COLLATERAL AND SUBSIDIARY GUARANTORS......................................107 SECTION 9.06. SUCCESSORS AND ASSIGNS.....................................108 SECTION 9.07. GOVERNING LAW; SUBMISSION TO JURISDICTION..................109 SECTION 9.08. COUNTERPARTS; INTEGRATION..................................110 SECTION 9.09. WAIVER OF JURY TRIAL.......................................110 SECTION 9.10. COLLATERAL TRUST AND INTERCREDITOR AGREEMENT...............110 SECTION 9.11. CASH SWEEP.................................................110 ANNEXES Annex 1 - Initial Revolving Credit Commitments and Term Loan Commitments Annex 2 - Administrative Information Annex 3 - Description of the Transactions Annex 4 - Definitions Annex SCHEDULES Schedule 1.01(a) - Existing Litigation Schedule 1.01(b) - Mortgaged Properties Schedule 1.01(c) - Subsidiary Guarantors Schedule 4.13(a) - Independent Standby Letters of Credit Schedule 4.13(b) - Existing Trade Letters of Credit Schedule 4.14 - Insurance Schedule 4.16(b)(i) - Leases on Mortgaged Properties Schedule 4.16(b)(ii) - Permitted Liens on Mortgaged Properties Schedule 4.16(c) - Leased Warehouses and Distribution Centers Schedule 5.14(a) - Permitted Sale and Leaseback Transactions Schedule 5.15(i) - Permitted Liens Schedule 5.20(f) - Permitted Debt Schedule 5.24(b)(iv) - Permitted Dividends Payable on Capital Stock Schedule 5.28 - Permitted Affiliate Transactions EXHIBITS Exhibit A-1 - Form of Term Note Exhibit A-2 - Form of Revolving Credit Note Exhibit A-3 - Form of Swingline Note Exhibit B - Form of Borrowing Request Exhibit C - Form of Continuation/Conversion Request Exhibit D - Form of Issuance Request Exhibit E - Form of Borrowing Base Certificate Exhibit F - Form of Assignment and Assumption Agreement Exhibit G - Form of Senior Subsidiary Guarantee Agreement Exhibit H - Form of Senior Subsidiary Security Agreement Exhibit I - Form of Senior Indemnity, Subrogation and Contribution Agreement Exhibit J - Form of Senior Mortgage Exhibit K - Form of Second Priority Subsidiary Guarantee Agreement Exhibit L - Form of Second Priority Subsidiary Security Agreement Exhibit M - Form of Second Priority Indemnity, Subrogation and Contribution Agreement Exhibit N - Form of Second Priority Mortgage Exhibit O-1 - Form of Opinion of Skadden, Arps, Slate, Meagher & Flom, Special New York Counsel to the Borrower Exhibit O-2 - Form of Opinion of General Counsel of the Borrower Exhibit P - Form of Administrative Questionnaire Exhibit Q - Form of Intercompany Inventory Purchase Agreement SENIOR CREDIT AGREEMENT dated as of June 12, 2000, among RITE AID CORPORATION, a Delaware corporation ("Rite Aid" or the "Borrower"), the Banks (as defined in Article 1), CITICORP USA, INC. ("Citicorp USA"), as a Swingline Bank, as an Issuing Bank, and as administrative agent for the Banks (in such capacity, the "Senior Administrative Agent"), CITICORP USA, INC., as collateral agent for the Banks (in such capacity, the "Senior Collateral Agent") and HELLER FINANCIAL, INC. and FLEET RETAIL FINANCE INC., as syndication agents (in such capacity, the "Syndication Agents"). The Borrower has requested the Banks to extend credit in the form of (a) Term Loans on the Initial Borrowing Date in an aggregate principal amount not in excess of $500,000,000, and (b) Revolving Loans at any time and from time to time before the Maturity Date, in an aggregate principal amount at any time outstanding not in excess of $500,000,000. The Borrower has requested the Swingline Banks to extend credit, on an uncommitted basis, at any time and from time to time before the Maturity Date in the form of Swingline Loans, in an aggregate principal amount at any time outstanding not in excess of $100,000,000. The Borrower has requested the Issuing Banks to issue letters of credit, in an aggregate face amount at any time outstanding not in excess of $100,000,000, to support payment obligations incurred in the ordinary course of business by the Borrower on behalf of its Subsidiaries and by the Borrower's Subsidiaries. The Banks and the Swingline Banks are willing to extend such credit to the Borrower and the Issuing Banks are willing to issue letters of credit for the account of the Borrower on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. DEFINITIONS. The following terms, as used herein, have the following meanings: "Account" means any right to payment for goods sold or leased or for services rendered, whether or not earned by performance. "Account Debtor" means, with respect to any Account, the obligor with respect to such Account. "Accounts Receivable Advance Rate" means the amount determined in accordance with Section 2.18. "Adjusted London Interbank Offered Rate" means, with respect to any Euro-Dollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a) the London Interbank Offered Rate in effect for such Interest Period and (b) Statutory Reserves. "Adjusted Working Capital" means, for any date, current assets (other than cash and cash equivalents) less current liabilities (other than Debt permitted hereunder). "Administrative Questionnaire" means, with respect to each Bank, an Administrative Questionnaire in the form of Exhibit P, duly completed by such Bank and submitted to the Senior Administrative Agent (with a copy to the Borrower). "Affiliate Transaction" is defined in Section 5.28. "Agents" means the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents. "Aggregate Revolving Credit Exposure" means the aggregate amount of the Banks' Revolving Credit Exposures. "Agreement" means this Agreement as the same may be amended from time to time in accordance with the terms hereof. "Applicable Date" is defined in Section 8.04(d). "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office. "Assessment Rate" means for any date the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Senior Administrative Agent as the then current net annual assessment rate that will be employed in determining amounts payable by any Bank to the Federal Deposit Insurance Corporation (or any successor thereto) for insurance by such Corporation (or such successor) of time deposits made in dollars at the Senior Administrative Agent's domestic offices. "Assignee" has the meaning set forth in Section 9.06(c). "Assignment and Acceptance Agreement" means an assignment and acceptance agreement in the form of Exhibit F or such other form as may be approved by the Senior Administrative Agent. "Bank" means each bank or other institution listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. Unless the context clearly indicates otherwise, the term "Bank" shall include the Swingline Banks. "Base CD Rate" means the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate. "Base Rate" means, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) Citibank Base Rate, (b) the Base CD Rate in effect on such day plus 1/2 of 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Senior Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate or both for any reason, including the inability or failure of the Senior Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Base Rate shall be determined without regard to clause (b) or (c), or both, of the preceding sentence, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Citibank Base Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Citibank Base Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. "Base Rate Borrowing" means a Borrowing comprised of Base Rate Loans. "Base Rate Loan" means any Base Rate Term Loan or Base Rate Revolving Loan. "Base Rate Revolving Loan" means any Revolving Loan bearing interest at a rate determined by reference to the Base Rate in accordance with the provisions of Article 2. "Base Rate Term Borrowing" means a Borrowing comprised of Base Rate Term Loans. "Base Rate Term Loan" means any Term Loan bearing interest at a rate determined by reference to the Base Rate in accordance with the provisions of Article 2. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Borrowing" means a group of Loans of a single Type made by the Banks on a single date and as to which a single Interest Period is in effect. "Borrowing Base Amount" means, with respect to the Borrower, an amount in dollars equal to the sum of, without duplication, (a) the Accounts Receivable Advance Rate multiplied by the book value of Eligible Accounts Receivable; (b) plus the Pharmaceutical Inventory Advance Rate multiplied by the Eligible Inventory Value of Eligible Inventory consisting of products that can be dispensed only on order of a licensed professional; (c) plus the Other Inventory Advance Rate multiplied by the Eligible Inventory Value of all other Eligible Inventory; (d) minus any reserves established by the Senior Administrative Agent in the exercise of its reasonable judgment to reflect Borrowing Base Factors. The Borrowing Base Amount shall be computed weekly in accordance with Section 5.01(g). The Borrowing Base at any time in effect shall be determined by reference to the Borrowing Base Amount Certificate most recently delivered hereunder. "Borrowing Base Certificate" means a certificate substantially in the form of Exhibit E or such other form as the Senior Administrative Agent may approve. "Borrowing Base Factors" means landlord's liens affecting Eligible Inventory, factors affecting the saleability or collectability of Eligible Accounts Receivable and Eligible Inventory at retail or in liquidation, factors affecting the market value of Eligible Inventory or Eligible Accounts Receivable, other impediments to the Senior Collateral Agent's ability to realize upon the Eligible Accounts Receivable or the Eligible Inventory and other factors affecting the credit value to be afforded the Eligible Accounts Receivable and the Eligible Inventory. "Borrowing Request" means a request by the Borrower in accordance with the terms of Section 2.03 (or in the case of Swingline Loans, Section 2.16) and substantially in the form of Exhibit B. "Business Acquisition" means (i) an Investment by the Borrower or any of its Subsidiaries in any other Person (including an Investment by way of acquisition of securities of any other Person) pursuant to which such Person shall become a Subsidiary or shall be merged into or consolidated with the Borrower or any of its Subsidiaries or (ii) an acquisition by the Borrower or any of its Subsidiaries of the property and assets of any Person (other than the Borrower or any of its Subsidiaries) that constitute substantially all the assets of such Person or any division or other business unit of such Person; provided, that the acquisition of prescription files, Stores and Persons substantially all of whose assets consist of fewer than ten Stores, in each case, in the ordinary course of business and not inconsistent with the Borrower's business plan delivered pursuant to Section 3.01(l), shall not be a Business Acquisition. "Capital Lease" means any lease of property which, in accordance with generally accepted accounting principles, should be capitalized on the lessee's balance sheet. "Cash Management System" is defined in the Senior Subsidiary Security Agreement. "Cash Sweep Cash Collateral Account" is defined in the Senior Subsidiary Security Agreement. "Cash Sweep Notice" is defined in the Senior Subsidiary Security Agreement. "Cash Sweep Period" is defined in the Senior Subsidiary Security Agreement. "Citibank Base Rate" means the rate of interest publicly announced by Citibank, N.A., in New York City from time to time as its Citibank Base Rate. "Citibank Concentration Account" is defined in the Senior Subsidiary Security Agreement. "Citicorp USA" is defined in the preamble. "Class" has the meaning set forth in Section 1.03. "Commitment" means, with respect to any Bank, such Bank's Revolving Credit Commitment or Term Loan Commitment. "Concentration Account" is defined in the Senior Subsidiary Security Agreement. "Consolidated Capital Expenditures" means, for any period, the aggregate amount of expenditures by the Borrower and its Consolidated Subsidiaries for plant, property and equipment 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 for the replacement or restoration of assets to the extent financed by Casualty/Condemnation Proceeds relating to the asset or assets being replaced or restored. "Consolidated Debt" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated EBITDA" means, for any period, without duplication, Consolidated Net Income for such period, plus (a) to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) consolidated interest expenses, whether cash or non-cash, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments which reduced such Consolidated Net Income, (v) store closing expenses and (vi) any other nonrecurring charge to the extent such nonrecurring charge does not involve any cash expenditure during such period, (vii) all fees, costs, charges and expenses in connection with the Transactions, (viii) all fees, costs, charges and expenses in connection with the restatement of the consolidated financial statements of the Borrower and its Consolidated Subsidiaries for periods before February 26, 2000 and litigation expenses (exclusive of damages or amounts paid in settlement of claims) incurred in connection with litigation, investigation (including internal review) or other proceedings relating to such restatement, (ix) any advisory or other fees payable by the Borrower pursuant to the one-year financial services advisory contract as described in the Borrower's quarterly report on Form 10-Q for the fiscal quarter ended as of August 28, 1999, (x) non-cash compensation expenses related to stock option and restricted stock employee benefit plans, and (xi) the non-cash interest component, as adjusted from time to time, in respect of reserves, 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 and added back to Consolidated Net Income pursuant to clause (a) above in calculating Consolidated EBITDA in any prior period and (ii) LIFO Adjustments which increased such Consolidated Net Income. "Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio of (i) Consolidated EBITDA plus Consolidated Rent to (ii) Consolidated Interest Charges plus Consolidated Rent, in each case for such period. "Consolidated Interest Charges" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Borrower and its Consolidated Subsidiaries, solely to the extent paid or payable in cash, during such period. "Consolidated Interest Coverage Ratio" means, with respect to any period, the ratio of Consolidated EBITDA for such period to Consolidated Interest Charges for such period. "Consolidated Net Income" means, for any period, the net income (or loss) of the Borrower and its Consolidated Subsidiaries (exclusive of (a) extraordinary items of gain or loss, (b) any gain or loss in connection with any sale of assets other than sales of inventory in the ordinary course of business, but in the case of loss only to the extent that such loss does not involve any cash expenditure during such period and (c) the Borrower's share of the net income (or loss) of Drugstore.com), determined on a consolidated basis for such period. "Consolidated Net Worth" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries determined as of such date. Consolidated Net Worth includes the Borrower's 8% Convertible Pay-In-Kind Preferred Stock. "Consolidated Rent" means, for any period, the consolidated rental expense of the Borrower and its Consolidated Subsidiaries for such period, and including in any event rental costs of closed stores for such period whether or not reflected as an expense in the determination of Consolidated Net Income for such period and including base or basic rent payments under Synthetic Leases. "Consolidated Subsidiary" means, with respect to any Person, at any date any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "Continuation/Conversion Request" means a continuation/conversion request delivered by the Borrower to the Senior Administrative Agent, in the form of Exhibit C or such other form as shall be approved by the Senior Administrative Agent. "Credit Event" is defined in Section 3.02. "Credit Exposure" means, with respect to any Bank, the sum of its Revolving Credit Exposure and its Term Exposure. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Definitions Annex" means the Definitions Annex, attached hereto as Annex 4. "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 Senior Administrative Agent. "Drugstore.com" means Drugstore.com, Inc., a Delaware corporation, and its successors. "Eligible Accounts Receivable" means at the time of any determination thereof all Accounts that satisfy at the time of creation and continue to meet the same at the time of such determination the criteria established from time to time by the Agents in their reasonable judgment to reflect Borrowing Base Factors. Initially, those criteria are: (a) such Account constitutes an "account" or "chattel paper" within the meaning of the Uniform Commercial Code of the state in which the Account is located; (b) all payments on such Account are by the terms of such Account due not later than 90 days after the date stated in the original related invoice and are otherwise on terms that are normal and customary in the business of the Borrower and its Subsidiaries; (c) such Account has been invoiced and is not more than 90 days past due; (d) such Account is denominated in dollars; (e) such Account arose from a completed, outright and lawful sale of goods or the completed performance of services by the applicable Subsidiary Guarantor and accepted by the applicable Account Debtor, and the amount of such Account has been properly recognized as revenue on the books of the applicable Subsidiary Guarantor; (f) (i) such Account is owned solely by a Subsidiary Guarantor other than PCS, and (ii) so long as PCS is a Subsidiary Guarantor, if such Account is owned by PCS, such Account is a PCS Linked Account; (g) such Account arose in the ordinary course of business of the applicable Subsidiary Guarantor; (h) not more than 50% of the aggregate amount of Accounts from the same Account Debtor and any Affiliates thereof are more than 90 days past due; (i) to the knowledge of the Borrower and its Subsidiaries, no event of death, bankruptcy, insolvency or inability to pay creditors generally of the Account Debtor of such Account has occurred, and no notice thereof has been received; (j) payment of such Account is not being disputed by the Account Debtor thereof; (k) such Account complies in all material respects with the requirements of all applicable laws and regulations, whether Federal, state or local, including the Federal Consumer Credit Protection Act, the Federal Truth in Lending Act and Regulation Z of the Federal Reserve Board; (l) with respect to such Account, the Account Debtor (i) is organized in the United States (or, if such Account Debtor is not organized in the United States, such Account is supported by a letter of credit approved by the Senior Administrative Agent in favor of the applicable Subsidiary Guarantor), (ii) is not an Affiliate or Subsidiary of the Borrower or an Affiliate of any of the Borrower's Subsidiaries (other than with respect to PCS Linked Accounts); (m) such Account is subject to a perfected first priority security interest in favor of the Senior Collateral Agent for the benefit of the Senior Bank Parties pursuant to the Senior Collateral Documents and is not subject to any other Lien (other than the Second Priority Lien); (n) with respect to such Account (if such Account is for an amount greater than $5,000,000), the Account Debtor has not been disapproved by the Majority Banks (based, in such Banks' reasonable judgment, upon the creditworthiness of such Account Debtor); (o) the representations and warranties contained in the Senior Loan Documents with respect to such Account are true and correct in all material respects; and (p) such Account is in full force and effect and constitutes a legal, valid and binding obligation of the Account Debtor enforceable in accordance with its terms. "Eligible Inventory" means, at any date of determination thereof, all inventory (as defined in the Uniform Commercial Code) owned by any Subsidiary Guarantor that satisfies at the time of such determination the criteria established from time to time by the Agents in their reasonable judgment to reflect Borrowing Base Factors. Initially, Eligible Inventory shall exclude, without duplication: (a) any such inventory that has been shipped to a customer, even if on a consignment or "sale or return" basis or is otherwise not in the possession or control of or any Subsidiary Guarantor or a warehouseman or bailee of any Subsidiary Guarantor; (b) any inventory against which Subsidiary Guarantor has taken a reserve, to the extent of such reserve; (c) any inventory that has been discontinued or is otherwise of a type (SKU) not currently offered for sale on a regular basis by the Subsidiary Guarantors (including any such inventory obtained in connection with a Business Acquisition) to the extent specified by the Senior Collateral Agent from time to time in its reasonable judgment to reflect Borrowing Base Factors; (d) any inventory not located in the United States or located in a jurisdiction as to which a UCC-1 financing statement has not been filed or otherwise not subject to a valid and perfected Lien under the Senior Collateral Documents, subject to no prior or equal Lien; (e) any supply, scrap or obsolete inventory or inventory that is otherwise unsaleable; (f) any inventory that is past its expiration date, is damaged or not in good condition, is a sample used for marketing purposes or does not meet all material standards imposed by any governmental authority having regulatory authority over such inventory; (g) any inventory that is subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third party from whom any of its Subsidiaries has received notice of a dispute in respect of such agreement to the extent that such dispute could reasonably be expected to prevent the sale of such inventory; (h) any inventory which is subject to a negotiable document of title and such document of title has not been delivered to the Senior Collateral Agent; (i) any inventory to the extent that such inventory is not comprised of readily marketable materials of a type manufactured, consumed or held for resale by the Subsidiary Guarantors in the ordinary course of business; (j) any inventory to the extent that such inventory consists of raw materials, component parts and/or work-in-progress; (k) any inventory to which the representations and warranties of the Senior Loan Documents are not true and correct in all material respects; (l) any inventory to which the Subsidiary Guarantors do not have good title or any inventory which a Subsidiary Guarantor holds on consignment or on a "sale or return" basis; (m) any inventory which is owned by PCS; and (n) any inventory (as notified by the Senior Administrative Agent to the Borrower) that the Senior Administrative Agent has deemed is ineligible in its reasonable judgment to reflect Borrowing Base Factors; provided, however, that no inventory which is stored at a distribution center leased by the Borrower or any other Person shall be considered "Eligible Inventory" unless the Borrower shall have complied with Section 3.01(cc) (or the Senior Collateral Agent shall have granted a waiver to such compliance pursuant to Section 3.01(cc)). "Eligible Inventory Value" means at the time of any determination thereof the lower of cost (less any appropriate reserve for obsolete inventory and any profits accrued in connection with transfers of inventory between the Borrower and its Subsidiaries or between Subsidiaries of the Borrower) and fair market value of the Eligible Inventory at such time, in dollars, determined in accordance with generally accepted accounting principles consistently applied, and effective upon delivery of the Initial Financial Statements, on a basis consistent with that used in the preparation of the Initial Financial Statements. "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 Borrowing" means a Borrowing comprised of Euro-Dollar Loans. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Senior Administrative Agent. "Euro-Dollar Loan" means any Euro-Dollar Revolving Loan or Euro-Dollar Term Loan. "Euro-Dollar Revolving Credit Borrowing" means a Borrowing comprised of Euro-Dollar Revolving Loans. "Euro-Dollar Revolving Loan" means any Revolving Loan bearing interest at a rate determined by reference to the Adjusted London Interbank Offered Rate in accordance with the provisions of Article 2. "Euro-Dollar Term Borrowing" means a Borrowing comprised of Euro-Dollar Term Loans. "Euro-Dollar Term Loan" means any Term Loan bearing interest at a rate determined by reference to the Adjusted London Interbank Offered Rate in accordance with the provisions of Article 2. "Event of Default" has the meaning set forth in Section 6.01. "Excess Cash Flow" means, for any period, the sum (without duplication) of Consolidated EBITDA for such period, plus (a) to the extent not included in Consolidated Net Income in calculating Consolidated EBITDA, the sum of (1) any Casualty/Condemnation Proceeds previously received by the Borrower or any Subsidiary in respect of which the time for reinvestment thereof (in accordance with the proviso to the definition of Casualty/Condemnation in respect of Proceeds) has elapsed during such period without such reinvestment having been effected, and (2) any Net Cash Proceeds received during such period by the Borrower or any Subsidiary in respect of Asset Sales; plus (b) decreases in Adjusted Working Capital for such period (other than any portion of such decrease resulting solely from the reclassification of assets or liabilities as short-term or long-term); plus (c) refunds of Taxes paid in prior periods; and minus (d) Taxes to the extent paid during such period in cash; minus (e) Consolidated Interest Charges to the extent paid during such period in cash; minus (f) increases in Adjusted Working Capital for such period (other than any portion of such increase resulting solely from the reclassification of assets or liabilities as short-term or long-term); minus (g) to the extent paid in cash during such period, costs and expenses referred to in clauses (v), (vii), (viii) and (ix) of the definition of "Consolidated EBITDA" which were added back to Consolidated Net Income to calculate Consolidated EBITDA for such period; minus (h) Consolidated Capital Expenditures for such period (except to the extent attributable to the incurrence of Debt under Capital Leases, Attributable Debt under Synthetic Leases or otherwise financed by the incurrence of Debt and except to the extent made with Casualty/Condemnation Proceeds or Net Cash Proceeds from Basket Asset Sales); minus (i) cash consideration paid by the Borrower or its Subsidiaries for permitted Business Acquisitions or other capital acquisitions (except to the extent financed by the incurrence of Debt and except to the extent made with Casualty/Condemnation Proceeds or Net Cash Proceeds from Basket Asset Sales); minus (j) cash expenditures made during such period in respect of long-term liabilities (other than Debt) or long-term assets to the extent such expenditures were not deducted in determining Consolidated Net Income for such period; minus (k) the aggregate principal amount of Debt (including Attributable Debt in respect of Synthetic Leases) paid or prepaid in cash by the Borrower or its Subsidiaries during such period (or immediately after such period in the case of mandatory prepayment of Debt required to be made with Net Cash Proceeds from Asset Sales received during such period), in each case to the extent permitted or required by this Agreement, but excluding (i) Debt in respect of Revolving Credit Loans and Letters of Credit that can be reborrowed or otherwise incurred again, (ii) repayments of Debt made with Net Cash Proceeds from Basket Asset Sales, and (iii) repayments or prepayments of Debt financed by incurring other Debt. "Existing Litigation" means the bondholders' class actions and shareholders' class actions pending as of April 10, 2000 in the Eastern District of Pennsylvania, identified in Schedule 1.01(a) and the related pending investigation by the SEC. "Existing Trade Letters of Credit" means each trade letter of credit previously issued for the account of the Borrower that is outstanding on the Initial Borrowing Date. "Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Senior Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System of the United States of America (or any successor thereto). "Financial Officer" of any person means the chief financial officer, principal accounting officer, Treasurer or senior vice president finance of such person. "Fleet National Bank" means Fleet National Bank and its successors. "Government Lockbox Account" is defined in the Senior Subsidiary Security Agreement. "Government Lockbox Account Agreement" is defined in the Senior Subsidiary Security Agreement. "Government Lockbox Account Bank" is defined in the Senior Subsidiary Security Agreement. "Governmental Authority" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Hazardous Materials" means all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Indemnitee" has the meaning set forth in Section 9.03(b). "Initial Borrowing Date" means the date of the first Credit Event. "Initial Financial Statements" means the consolidated financial statements of the Borrower and its Consolidated Subsidiaries for the fiscal year ended February 26, 2000, and for the fiscal quarter ended May 27, 2000. "Intercompany Inventory Purchase Agreement" means the Intercompany Inventory Purchase Agreement, dated as of June 12, 2000, among the Borrower, Rite Aid Hdqtrs. Corp., each of the Distribution Subsidiaries and each of the Operating Subsidiaries named therein, substantially in the form of Exhibit Q hereto. Interest Payment Date" means, the last day of the Interest Period applicable to any Loan and, in the case of a Euro-Dollar Borrowing with an Interest Period of more than three months duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months duration been applicable to such Loan, and, in addition, the date of any prepayment of such Loan or continuation or conversion of such Loan as or to a Loan of a different Type. "Interest Period" means (a) as to any Euro-Dollar Loan, the period commencing on the date of any Borrowing and ending on the seventh day thereafter or on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 1-1/2, 2, 3 or 6 months thereafter, in each case as the Borrower may elect; (b) as to any Base Rate Borrowing of a Term Loan or a Revolving Loan, the period commencing on the date of such Borrowing and extending through the earliest of (i) the next succeeding March 31, June 30, September 30 or December 31, (ii) the Maturity Date, and (iii) the date such Borrowing is converted to a Borrowing of a different Type in accordance with Section 2.09 or repaid or prepaid in accordance with Section 2.11 or 2.12; and (c) as to any Swingline Loan, a period of one week; provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Euro-Dollar Borrowing having an interest period of one month or longer, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. "Interest Rate Agreement" means, for any person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement designed to protect against fluctuations in interest rates. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "Investment" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. Any repurchase by the Borrower of its own capital stock shall not constitute an Investment for purposes of this Agreement. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of such transfer or exchange. "Issuance Request" means a letter of credit issuance request delivered by the Borrower to the Senior Administrative Agent, in the form of Exhibit D or such other form as shall be approved by the Senior Administrative Agent and the applicable Issuing Bank. "Issuing Bank" is defined in Section 2.17(k), and shall include Citicorp USA, Fleet National Bank, and with respect to the Existing Trade Letters of Credit that become Letters of Credit under this Agreement pursuant to Section 2.17, Mellon Bank. "Issuing Bank Fees" is defined in Section 2.05(d). "L/C Cash Collateral Account" means the collateral account with Citibank, N.A.,, A/C 30429836, at its office at 399 Park Avenue, New York, New York 10043, in the name of the Senior Collateral Agent and under the sole control and dominion of the Senior Collateral Agent. "L/C Commitment" means the commitment of the Issuing Bank to issue Letters of Credit pursuant to Section 2.17. "L/C Disbursement" means a payment or disbursement made by an Issuing Bank pursuant to a Letter of Credit. "L/C Exposure" means at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time, plus (b) the aggregate principal amount of all L/C Disbursements that have not yet been reimbursed at such time. The L/C Exposure of any Revolving Credit Bank at any time means its Revolving Percentage of the aggregate L/C Exposure at such time. "L/C Participation Fee" is defined in Section 2.05(d). "Letter of Credit" means any letter of credit issued pursuant to Section 2.17 and includes any Existing Trade Letter of Credit that is deemed to be a Letter of Credit hereunder. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. "LIFO Adjustments" means, for any period, the net adjustment to costs of goods sold for such period required by the Borrower's LIFO inventory method, determined in accordance with generally accepted accounting principles. "Loans" means the Revolving Loans, the Swingline Loans and the Term Loans. "London Interbank Offered Rate" means, with respect to any Euro-Dollar Borrowing, the rate (rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits approximately equal in principal amount to the Senior Administrative Agent's portion of such Euro-Dollar Borrowing, and for a maturity comparable to such Interest Period are offered to the principal London office of the Senior Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days before the commencement of such Interest Period. "Majority Banks" means, at any time, Banks having unused Revolving Credit Commitments, Revolving Credit Exposure, unused Term Loan Commitments and outstanding Term Loans representing greater than 50% of the sum of all unused Revolving Credit Commitments, Revolving Credit Exposures, unused Term Loan Commitments and outstanding Term Loans at such time. "Majority Revolving Credit Banks" means, at any time, Revolving Credit Banks having unused Revolving Credit Commitments and Revolving Credit Exposures representing greater than 50% of the sum of all unused Revolving Credit Commitments and Revolving Credit Exposures. "Material Adverse Effect" means (i) any material adverse effect on the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole, (ii) any material impairment of the legality, validity and enforceability of the Senior Loan Documents (including without limitation, the validity, enforceability or priority of security interests to be granted), or the rights and remedies of the Senior Secured Parties, or (iii) any material impairment of the Borrower's or the Subsidiary Guarantors' ability to perform its or their obligations under the Senior Loan Documents. "Material Financial Obligations" means, without duplication, (a) the Second Priority Debt Obligations, (b) the Independent Standby L/C Obligations, and (c) (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 August 1, 2002. "Mortgaged Properties" means the owned real properties of the Subsidiary Guarantors specified on Schedule 1.01(b), together with real properties that are mortgaged pursuant to Section 5.08. Each Mortgaged Property shall include any owned fixtures used in connection with the operation of such Mortgaged Property. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Notes" means any Revolving Credit Notes, Swingline Notes or Term Notes. "Other Inventory Advance Rate" means the amount determined in accordance with Section 2.18. "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 EBITDA" means, for any period, Consolidated EBITDA for such period less Retail EBITDA for such period. "Perfection Certificate" means the Perfection Certificate substantially in the form of Annex 2 to the Senior Subsidiary Security Agreement. "Pharmaceutical Inventory Advance Rate" means the amount determined in accordance with Section 2.18. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Qualified Preferred Stock" means preferred stock of the Borrower that requires no cash payment before the date that is six months after the Maturity Date. "Refunding Borrowing" means a Borrowing which, after application of the proceeds thereof, results in no net increase in the outstanding principal amount of Loans of any Class made by any Bank. "Regulation T, U, or X" means Regulation T, U or X of the Federal Reserve Board, as in effect from time to time. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. "Remedial Action" means (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, clause (i) or (ii). "Required Prepayment Amount" means, on any date when a mandatory prepayment is to be made pursuant to Section 2.12(c), the amount computed according to the following formula (and after giving effect to any transaction giving rise to a Required Repayment Amount): RPA = CCEMPD -- (CCECD x VMPD) ---------------------------- VCD RPA = Required Prepayment Amount CCECD = Aggregate unused Revolving Credit Commitments, Revolving Credit Exposure and Term Exposure of all Banks on the Initial Borrowing Date CCEMPD = Aggregate unused Revolving Credit Commitments, Revolving Credit Exposure and Term Exposure of all Banks on the date of such mandatory prepayment VCD = Aggregate amount of Eligible Inventory Value and Eligible Accounts Receivable on the Initial Borrowing Date VMPD = Aggregate amount of Eligible Inventory Value and Eligible Accounts Receivable on the date of such mandatory prepayment ; provided, that (i) notwithstanding the eligibility criteria in effect for other purposes hereunder from time to time, the eligibility criteria used in calculating VMPD shall be the same as those used in calculating VCD, and (ii) if calculation of the Required Prepayment Amount pursuant to the foregoing formula results in a negative number, the Required Prepayment Amount shall be zero. "Restricted Payment" means (a) any dividend or other distribution on any shares of the Borrower's or any Subsidiary's capital stock (except dividends payable solely in shares of the Borrower's capital stock); or (b) any payment on account of the purchase, redemption, retirement or acquisition of (i) any shares of the Borrower's or any Subsidiary's capital stock or (ii) any option, warrant or other right to acquire shares of the Borrower's or any Subsidiary's capital stock (other than such payment in connection with employee benefit plans in the ordinary course of business). "Retail Capital Expenditures" means, for any period, Consolidated Capital Expenditures for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Borrower. "Retail EBITDA" means, for any period, Consolidated EBITDA for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Borrower. "Retail Fixed Charge Coverage Ratio" means, for any period, the ratio of (i) Retail EBITDA plus Retail Rent to (ii) Retail Interest Charges plus Retail Rent, in each case for such period. "Retail Interest Coverage Ratio" means, with respect to any period, the ratio of Retail EBITDA for such period to Retail Interest Charges for such periods. "Retail Interest Charges" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Borrower and its Consolidated Subsidiaries, solely to the extent paid or payable in cash, during such period; provided, however, that for such period, such interest charges relating to the PCS Facility for such period will be computed as though the aggregate principal amount on which such interest charges are calculated at all times during such period were the lesser of (a) $300,000,000 and (b) the actual principal amount of the PCS Facility from time to time after giving effect to any repayment of the PCS Facility after the consummation of a PCS Disposition. "Retail Rent" means, for any period, Consolidated Rent for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Borrower. "Revolving Credit Bank" means a Bank with a Revolving Credit Commitment. "Revolving Credit Borrowing" means a Borrowing comprised of Revolving Loans. "Revolving Credit Commitment" means, with respect to each Bank, the commitment of such Bank to make Revolving Loans hereunder (or to participate in Letters of Credit) as set forth in Annex 1, or in the Assignment and Acceptance pursuant to which such Bank assumed its Revolving Credit Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.08, and (b) reduced or increased from time to time pursuant to assignments by or to such Bank pursuant to Section 9.06. "Revolving Credit Exposure" means, with respect to any Bank at any time, the aggregate principal amount at such time of all outstanding Revolving Loans of such Bank, plus the aggregate amount at such time of such Bank's L/C Exposure, plus the aggregate amount at such time of such Bank's Swingline Exposure. "Revolving Credit Note" means a promissory note of the Borrower, substantially in the form of Exhibit A-2, evidencing Revolving Loans. "Revolving Loans" means the revolving loans made by the Banks to the Borrower pursuant to Section 2.01(b). "Revolving Percentage" of any Revolving Credit Bank at any time means the percentage of the total Revolving Credit Commitments of all Revolving Credit Banks represented by such Bank's Revolving Credit Commitment, or if the Revolving Credit Commitments shall have expired or terminated, the percentage of the aggregate Revolving Credit Exposures of all Banks represented by such Bank's Revolving Credit Exposure. "SEC" means the Securities and Exchange Commission, or any Person succeeding to its functions under the Securities Exchange Act of 1934, as amended. "Secured Debt" means Debt which is secured by a Lien on property of the Borrower or any Subsidiary, but shall not include guarantees arising in connection with the sale, discount, guarantee or pledge of notes, chattel mortgages, leases, accounts receivable, trade acceptances and other papers arising, in the ordinary course of business, out of installment or conditional sales to or by, or transactions involving title retention with, distributors, dealers or other customers, of merchandise, equipment or services. "Securitization Facility" is defined in Annex 3. "Senior Administrative Agent" means Citicorp USA, in its capacity as agent for the Banks under the Senior Loan Documents, and its successors in such capacity. "Senior Administrative Agent's Account" means the account of the Administrative Agent maintained by the Administrative Agent with Citicorp Industrial Credit at 399 Park Avenue, New York, New York 10043, Account No. 38858061, ABA 021000089, Attention: Mae Wong, or such other account as the Administrative Agent shall specify in writing to the Banks. "Senior Administrative Agent's Fees" is defined in Section 2.05(b). "Senior Commitment Fee" is defined in Section 2.05(a). "Senior Fee Letter" means the Fee Letter dated April 10, 2000, between the Borrower and the Senior Administrative Agent, relating to this Agreement. "Senior Fees" means the L/C Participation Fees, the Issuing Bank Fees, the Senior Commitment Fees, the fees described in Section 2.05(c), and the Senior Administrative Agent's Fees. "Statutory Reserves" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Federal Reserve Board and any other banking authority, domestic or foreign, to which the Senior Administrative Agent or any Bank (including any branch, Affiliate, or other fronting office making or holding a Loan) is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months, in the case of the Base CD Rate (as such term is used in the definition of "Base Rate"), and (b) with respect to the Adjusted London Interbank Offered Rate, for Euro-Dollar Liabilities (as defined in Regulation D of the Federal Reserve Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Euro-Dollar Loans shall be deemed to constitute Euro-Dollar Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Bank under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Store" means any retail store (which may include any real property, fixtures, equipment, inventory and script files related thereto) operated, or to be operated, by any Subsidiary Guarantor. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "Subsidiary Guarantor" means, initially, each Subsidiary listed on Schedule 1.01(c), and each other Subsidiary that is or becomes a party to a Senior Subsidiary Guarantee Agreement. "Supermajority Banks" means, at any time, Banks having unused Revolving Credit Commitments, Revolving Credit Exposure, unused Term Loan Commitments and outstanding Term Loans representing at least 66-2/3% of the sum of all unused Revolving Credit Commitments, Revolving Credit Exposures, unused Term Loan Commitments and outstanding Term Loans at such time. "Swingline Bank" means, subject to Section 2.16(g) either Citicorp USA, or Fleet National Bank. "Swingline Exposure" means at any time the aggregate principal amount at such time of all outstanding Swingline Loans. The Swingline Exposure of any Revolving Credit Bank at any time shall equal its Revolving Percentage of the aggregate Swingline Exposure at such time. "Swingline Loan" means any loan made by a Swingline Bank pursuant to Section 2.16. "Swingline Note" means a promissory note evidencing Swingline Loans, executed and delivered as provided in Section 2.16 in substantially the form of Exhibit A-3. "Syndication Agents" is defined in the preamble. "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. "Taxes" is defined in Section 8.04(a). "Term Borrowing" means a Borrowing comprised of Term Loans. "Term Exposure" means, with respect to any Bank at any time, the aggregate principal amount at such time of all outstanding Term Loans of such Bank. "Term Loan Commitments" means with respect to each Bank, the commitment of such Bank to make Term Loans hereunder as set forth on Annex 1, or in the Assignment and Acceptance pursuant to which such Bank assumed its Term Loan Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to assignments by or to such Bank pursuant to Section 9.06 "Term Loans" means the term loans made by the Banks to the Borrower pursuant Section 2.01(a). "Term Note" means a promissory note of the Borrower, substantially in the form of Exhibit A-1, evidencing Term Loans. "Three-Month Secondary CD Rate" means, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Federal Reserve Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Federal Reserve Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Senior Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. "Transactions" is defined in Annex 3. "Transaction Costs" is defined in Annex 3. "Transaction Documents" means the agreements evidencing the Transactions. "Type" has the meaning set forth in Section 1.03. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "United States" means the United States of America, including the States, the District of Columbia and Puerto Rico but excluding its other territories and possessions. "Wholly-Owned Consolidated Subsidiary" means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly (through Wholly-Owned Consolidated Subsidiaries) owned by the Borrower. SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied (effective after delivery of the Initial Financial Statements) on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Borrower notifies the Senior Administrative Agent that the Borrower wishes to amend any covenant in Article 5 to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Senior Administrative Agent notifies the Borrower that the Majority Banks wish to amend Article 5 for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Majority Banks. SECTION 1.03. CLASSES AND TYPES OF LOANS. Loans hereunder are distinguished by "Class" and by "Type". The "Class" of a Loan (or of a Commitment to make such a Loan or of a Borrowing comprised of such Loans) refers to the determination whether such Loan is a Revolving Loan or a Term Loan, each of which constitutes a Class. The "Type" of a Loan refers to the determination whether such Loan is a Euro-Dollar Loan or a Base Rate Loan. Identification of a Loan (or a Borrowing) by both Class and Type (e.g., a "Term Euro-Dollar Loan") indicates that such Loan is both a Term Loan and a Euro-Dollar Loan (or that such Borrowing is comprised of such Loans). SECTION 1.04. TERMS DEFINED IN DEFINITIONS ANNEX. Capitalized terms used in this agreement that are not defined in Section 1.01 have the meanings provided in the Definitions Annex. SECTION 1.05. OTHER DEFINITIONAL PROVISIONS. References in this Agreement to "Articles", "Sections", "Annexes", "Schedules" or "Exhibits" shall be to Articles, Annexes, Sections, Schedules or Exhibits of or to this Agreement unless otherwise specifically provided. Any of the terms defined in Article 1 may, unless the context otherwise requires, be used in the singular or plural depending on the reference. "Include" or "includes" and "including" shall be deemed to be followed by "without limitation" whether or not they are in fact followed by such words or words of like import. "Writing", "written" and comparable terms refer to printing, typing and other means of reproducing words in a durable visible form, including telecopy. References to any agreement or contract are to such agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof; provided that amendments to the Indentures, the Existing Facilities Documents, the Second Priority Lien Documents and the other Transaction Documents after the Closing Date shall be effective for purposes of references thereto in this Agreement and the other Senior Loan Documents only if such amendments are permitted hereunder or are consented to in writing for such purpose by the Majority Banks (or such other percentage of the Banks as may be specified hereunder). References to any Person include the successors and assigns of such Person. References "from" or "through" any date mean, unless otherwise specified, "from and including" or "through and including", respectively. ARTICLE 2 THE CREDITS SECTION 2.01. COMMITMENTS. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Bank agrees, severally and not jointly, (a) to make Term Loans to the Borrower on the Initial Borrowing Date in an aggregate principal amount not to exceed its Term Loan Commitment, (b) to make Revolving Loans to the Borrower, at any time and from time to time on or after the date hereof, and until the earlier of the Maturity Date or the termination of the Revolving Credit Commitment of such Bank in accordance with the terms hereof in an aggregate principal amount at any time outstanding that will not result in such Bank's Revolving Credit Exposure exceeding the lesser of (i) such Bank's Revolving Credit Commitment, and (ii) such Bank's Revolving Percentage of (A) the Borrowing Base Amount in effect at such time less (B) the aggregate Term Exposures of the Banks at such time. Within the limits set forth above and subject to the terms, conditions and limitations set forth herein, the Borrower may borrow, pay or prepay and reborrow Revolving Loans. Amounts paid or prepaid in respect of Term Loans may not be reborrowed. SECTION 2.02. LOANS. (a) Each Loan (other than Swingline Loans) shall be made as part of a Borrowing consisting of Loans made by the Banks ratably in accordance with their applicable Revolving Credit Commitments or Term Loan Commitments, as the case may be; provided, however, that the failure of any Bank to make any Loan shall not in itself relieve any other Bank of its obligation to lend hereunder, and no Bank shall be responsible for the failure of any other Bank to make any Loan required to be made by such other Bank. Except for Loans deemed made pursuant to Section 2.02(e) and Swingline Loans, the Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) a multiple of $1,000,000 and not less than $5,000,000, or (ii) equal to the remaining available balance of the applicable Commitments. (b) Subject to Sections 8.01 and 8.02, each Borrowing of Revolving Loans and Term Loans shall be comprised entirely of Base Rate Loans or Euro-Dollar Loans as the Borrower may request pursuant to Section 2.03 or Section 2.09. Each Bank may at its option make any Euro-Dollar Loan by causing any domestic or foreign branch or Affiliate of such Bank to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement and the applicable Note. Borrowings of more than one Type may be outstanding at the same time; provided, that the Borrower shall not be entitled to request any Borrowing that, if made, would result in more than 10 Euro-Dollar Borrowings outstanding hereunder at any time. For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings. (c) (i) Except with respect to Loans made pursuant to Section 2.02(e) and Section 2.03(b)(1), each Bank shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account as the Senior Administrative Agent may designate not later than 12:00 noon, New York City time, and the Senior Administrative Agent shall by 1:00 p.m., New York City time, credit the amounts so received to an account in the name of the Borrower and designated by the Borrower in the applicable Borrowing Request or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Banks. (ii) With respect to Loans made pursuant to Section 2.03(b)(1), each Bank shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account as the Senior Administrative Agent may designate not later than 3:00 p.m., New York City time, and the Senior Administrative Agent shall by 4:00 p.m., New York City time, credit the amounts so received to an account in the name of the Borrower and designated by the Borrower in the applicable Borrowing Request or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Banks. (d) Unless the Senior Administrative Agent shall have received notice from a Bank before the date of any Borrowing that such Bank will not make available to the Senior Administrative Agent such Bank's portion of such Borrowing, the Senior Administrative Agent may assume that such Bank has made such portion available to the Senior Administrative Agent on the date of such Borrowing in accordance with clause (c) and the Senior Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If the Senior Administrative Agent shall have so made funds available then, to the extent that such Bank shall not have made such portion available to the Senior Administrative Agent, such Bank and the Borrower severally agree to repay to the Senior Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Senior Administrative Agent at (a) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (b) in the case of such Bank, a rate determined by the Senior Administrative Agent to represent its cost of overnight or short-term funds in dollars (which determination shall be conclusive absent manifest error). If such Bank shall repay to the Senior Administrative Agent such corresponding amount, such amount shall constitute such Bank's Loan as part of such Borrowing for purposes of this Agreement. (e) If an Issuing Bank shall not have received from the Borrower the payment required to be made by Section 2.17(e) within the time specified in such Section, such Issuing Bank will promptly notify the Senior Administrative Agent of the L/C Disbursement and the Senior Administrative Agent will promptly notify each Revolving Credit Bank of such L/C Disbursement and its Revolving Percentage thereof. Each Revolving Credit Bank shall pay by wire transfer of immediately available funds to the Senior Administrative Agent not later than 2:00 p.m., New York City time, on such date (or, if such Revolving Credit Bank shall have received such notice later than 12:00 (noon), New York City time, on any day, not later than 10:00 a.m., New York City time, on the immediately following Business Day), an amount equal to such Bank's Revolving Percentage of such L/C Disbursement (and such amount shall be deemed to constitute a Base Rate Revolving Loan of such Bank and such payment shall be deemed to have reduced the L/C Exposure), and the Senior Administrative Agent will promptly pay to the applicable Issuing Bank amounts so received by it from the Revolving Credit Banks. The Senior Administrative Agent will promptly pay to the applicable Issuing Bank any amounts received by it from the Borrower pursuant to Section 2.17(e) before the time that any Revolving Credit Bank makes any payment pursuant to this clause; any such amounts received by the Senior Administrative Agent thereafter will be promptly remitted by the Senior Administrative Agent to the Revolving Credit Banks that shall have made such payments and to such Issuing Bank, as their interests may appear. If any Revolving Credit Bank shall not have made its Revolving Percentage of such L/C Disbursement available to the Senior Administrative Agent as provided above, such Bank and the Borrower severally agree to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this clause to but excluding the date such amount is paid, to the Senior Administrative Agent for the account of the applicable Issuing Bank at: (i) in the case of the Borrower, a rate per annum equal to the interest rate applicable to Revolving Loans pursuant to Section 2.06(a); and (ii) in the case of such Bank, for the first such day, the Federal Funds Effective Rate, and for each day thereafter, the Base Rate. SECTION 2.03. BORROWING PROCEDURE. In order to request a Borrowing (other than a Swingline Loan or a deemed Borrowing pursuant to Section 2.02(e), as to which this Section shall not apply), the Borrower shall hand deliver or telecopy to the Senior Administrative Agent a duly completed Borrowing Request (a) in the case of a Euro-Dollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before a proposed Borrowing, and (b) in the case of a Base Rate Borrowing, not later than (1) 10:30 a.m., New York City time, on the Business Day of the proposed Borrowing, in the case of Borrowings to be made on the same day as such notice is given or (2) otherwise, 12:00 noon, New York City time, on the Business Day before the proposed Borrowing. Each Borrowing Request shall be irrevocable, shall be signed by or on behalf of the Borrower and shall specify the following information: (i) whether the Borrowing then being requested is to be a Term Borrowing or a Revolving Credit Borrowing, and whether such Borrowing is to be a Euro-Dollar Borrowing or a Base Rate Borrowing; (ii) the date of such Borrowing (which shall be a Business Day); (iii) the number and location of the account to which funds are to be disbursed; (iv) the amount of such Borrowing; and (v) if such Borrowing is to be a Euro-Dollar Borrowing, the Interest Period with respect thereto; provided, however, that, notwithstanding any contrary specification in any Borrowing Request, each requested Borrowing shall comply with the requirements set forth in Section 2.02. The Senior Administrative Agent shall promptly advise the applicable Banks of any notice given pursuant to this Section, and of each Bank's portion of the requested Borrowing. SECTION 2.04. NOTES AND RECORDS. (a) If any Bank so requests, the Revolving Loans made by such Bank shall be evidenced by a Revolving Credit Note duly executed on behalf of the Borrower, dated the Initial Borrowing Date, in the amount of such Bank's Revolving Credit Commitment. If any Bank so requests, the Term Loans made by such Bank shall be evidenced by a Term Note duly executed on behalf of the Borrower, dated the Initial Borrowing Date, in the amount of such Bank's Term Loan Commitment. If a Swingline Bank so requests, the Swingline Loans shall be evidenced by a Swingline Note duly executed on behalf of the Borrower, dated the Initial Borrowing Date, in the amount of $100,000,000. (b) Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Bank resulting from each Loan made by such Bank from time to time, including the amounts of principal and interest payable and paid such Bank from time to time under this Agreement. Each Bank shall, and is hereby authorized by the Borrower to, endorse on the schedule attached to each Note delivered to such Bank (or on a continuation of such schedule attached to such Note and made a part thereof), or otherwise to record in such Bank's internal records, an appropriate notation evidencing the date and amount of each Loan from such Bank, each payment and prepayment of principal of any such Loan, each payment of interest on any such Loan and the other information provided for on such schedule; provided, however, that the failure of any Bank to make such a notation or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans made by such Bank in accordance with the terms of this Agreement and the applicable Note. (c) The Senior Administrative Agent shall maintain accounts in which it will record the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Bank hereunder and the amount of any sum received by the Senior Administrative Agent hereunder from the Borrower or any other Obligor and each Bank's share thereof. (d) The entries made in the accounts maintained pursuant to clauses (b) and (c) shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Bank or the Senior Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrower to repay the Loans in accordance with their terms. (e) Not less often than once per week, the Senior Administrative Agent will distribute to each Bank its share of the net amount of payments received by the Senior Administrative Agent. SECTION 2.05. SENIOR FEES. (a) The Borrower agrees to pay to each Bank, through the Senior Administrative Agent, on January 1, April 1, July 1 and October 1 in each year and on each date on which any Commitment of such Bank shall expire or be terminated as provided herein, a commitment fee (a "Senior Commitment Fee") equal to 0.50% per annum on the daily unused amount of the Commitments of such Bank during the preceding quarter (or other period commencing with the date hereof or ending with the Maturity Date or the date on which the Commitments of such Bank shall expire or be terminated). All Senior Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Senior Commitment Fee due to each Bank shall commence to accrue on the date hereof and shall cease to accrue on the date on which the Commitment of such Bank shall expire or be terminated as provided herein. For purposes of calculating Senior Commitment Fees only, no portion of the Revolving Credit Commitments shall be deemed used as a result of outstanding Swingline Loans. (b) The Borrower agrees to pay to the Senior Administrative Agent, for its own account, the administrative fees set forth in the Senior Fee Letter at the times and in the amounts specified therein (the "Senior Administrative Agent's Fee"). (c) The Borrower agrees to pay to the Senior Administrative Agent, for payment to the other Banks (to the extent applicable), on the Initial Borrowing Date, the other fees specified in the Senior Fee Letter, and the Senior Administrative Agent shall pay to each Bank on the Initial Borrowing Date that portion of such fees that shall be owing to such Bank. (d) The Borrower agrees to pay (i) to each Revolving Credit Bank, through the Senior Administrative Agent, on January 1, April 1, July 1, and October 1 of each year and on the date on which the Revolving Credit Commitment of such Bank shall be terminated as provided herein, a fee (an "L/C Participation Fee") calculated on such Bank's Revolving Percentage of the daily aggregate L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C Disbursements) during the preceding quarter (or shorter period commencing with the date hereof or ending with the Maturity Date or the date on which all Letters of Credit have been canceled or have expired and the Revolving Credit Commitments of all Banks shall have been terminated) at a rate equal to 3.00% per annum, and (ii) to each Issuing Bank with respect to each Letter of Credit a fronting fee of 1/4% and customary issuance and drawing fees specified from time to time by such Issuing Bank (the "Issuing Bank Fees"). All L/C Participation Fees and Issuing Bank Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. All Senior Fees shall be paid on the dates due, in immediately available funds, to the Senior Administrative Agent for distribution, if and as appropriate, among the Banks, except that the Issuing Bank Fees shall be paid directly to the applicable Issuing Bank. Once paid, none of the Senior Fees shall be refundable under any circumstances. SECTION 2.06. INTEREST ON LOANS. (a) The Loans comprising each Base Rate Borrowing, including each Swingline Loan, shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when the Base Rate is determined by reference to the Citibank Base Rate and over a year of 360 days at all other times) at a rate per annum equal to the Base Rate plus 2.00%. (b) Subject to the provisions of Section 8.01, the Loans comprising each Euro-Dollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Adjusted London Interbank Offered Rate for the Interest Period in effect for such Borrowing plus 3.00%. (c) Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period, and shall be payable on outstanding amounts from and including the date such amount is borrowed to but excluding the day such amount is repaid. Interest on each Loan shall be payable on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement. The applicable Base Rate or Adjusted London Interbank Offered Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Senior Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.07. DEFAULT INTEREST. Upon the occurrence and during the continuation of an Event of Default, at the option of the Administrative Agent or at the request of the Majority Banks, the Borrower shall on demand from time to time pay interest, to the extent permitted by law, on the Senior Bank Obligations to but excluding the date of actual payment (after as well as before judgment) in the case of principal, at the rate otherwise applicable to such Loan pursuant to Section 2.06 plus 2.00% per annum, and in all other cases, at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when determined by reference to the Citibank Base Rate and over a year of 360 days at all other times) equal to the sum of the Base Rate plus 2.00%. SECTION 2.08. TERMINATION AND REDUCTION OF COMMITMENTS. (a) The Term Loan Commitments hereunder shall terminate on the earliest of (i) the date on which the Borrower informs the Banks that it has decided not to proceed with the Transactions, or (ii) 5:00 p.m., New York City time, on the earlier of the Initial Borrowing Date or June 30, 2000, if the initial Credit Event is not made on or before such date. The L/C Commitment and the Revolving Credit Commitments shall automatically terminate on the earliest of (i) the Maturity Date, (ii) the date on which the Borrower informs the Banks that it has decided not to proceed with the Transactions, or (iii) 5:00 p.m., New York City time, June 30, 2000, if the initial Credit Event shall not have occurred by such time. (b) The Revolving Credit Commitments, subject to Section 2.12(a), shall be permanently reduced by the amount of any amount allocated to the Revolving Loans pursuant to Section 2.12(c). (c) Upon at least one Business Day prior irrevocable written or telecopy notice to the Senior Administrative Agent, the Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Term Loan Commitments or the Revolving Credit Commitments; provided, however, that (i) each partial reduction of the Term Loan Commitments or the Revolving Credit Commitments shall be in (1) a multiple of $1,000,000 and in a minimum amount of $5,000,000 or (2) in the full remaining amount of the Term Loan Commitments or the Revolving Credit Commitments, as the case may be, and (ii) the Total Revolving Credit Commitment shall not be reduced to an amount that is less than the sum of the Aggregate Revolving Credit Exposure. If no Term Loans are outstanding, the Revolving Credit Commitments shall automatically be reduced by the amount of any mandatory prepayment that would otherwise have been applied to the prepayment of Term Loans pursuant to Section 2.08(b). (d) Each reduction in the Term Loan Commitments or the Revolving Credit Commitments hereunder shall be made ratably among the Banks in accordance with their respective applicable Commitments. The Borrower shall pay to the Senior Administrative Agent for the account of the applicable Banks, on the date of each termination or reduction, the Senior Commitment Fees on the amount of the Commitments so terminated or reduced accrued to but excluding the date of such termination or reduction. SECTION 2.09. CONVERSION AND CONTINUATION OF BORROWINGS. The Borrower shall have the right at any time by delivery of a Continuation/Conversion Request to the Senior Administrative Agent (a) not later than 12:00 (noon), New York City time, one Business Day before conversion, to convert any Euro-Dollar Borrowing into a Base Rate Borrowing, (b) not later than 10:00 a.m., New York City time, three Business Days before conversion or continuation, to convert any Base Rate Borrowing into a Euro-Dollar Borrowing or to continue any Euro-Dollar Borrowing as a Euro-Dollar Borrowing for an additional Interest Period, and (c) not later than 10:00 a.m., New York City time, three Business Days before conversion, to convert the Interest Period with respect to any Euro-Dollar Borrowing to another permissible Interest Period, subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Banks in accordance with the respective principal amounts of the Loans comprising the converted or continued Borrowing; (ii) if less than all the outstanding principal amount of any Borrowing shall be converted or continued, then each resulting Borrowing shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b) regarding the principal amount and maximum number of Borrowings of the relevant Type; (iii) each conversion shall be effected by each Bank and the Senior Administrative Agent by recording for the account of such Bank the new Loan of such Bank resulting from such conversion and reducing the Loan (or portion thereof) of such Bank being converted by an equivalent principal amount; accrued interest on any Euro-Dollar Loan (or portion thereof) being converted shall be paid by the Borrower at the time of conversion; (iv) if any Euro-Dollar Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the Borrower shall pay, upon demand, any amounts due to the Banks pursuant to Section 2.13; (v) any portion of a Borrowing maturing or required to be repaid in less than seven days may not be converted into or continued as a Euro-Dollar Borrowing; (vi) any portion of a Euro-Dollar Borrowing that cannot be converted into or continued as a Euro-Dollar Borrowing by reason of the two immediately preceding clauses shall be automatically converted at the end of the Interest Period in effect for such Borrowing into a Base Rate Borrowing; (vii) no Interest Period may end later than the Maturity Date; and (viii) upon notice to the Borrower from the Senior Administrative Agent given at the request of the Majority Banks, after the occurrence and during the continuance of a Default or Event of Default, no outstanding Loan may be converted into, or continued after the expiration of an Interest Period as, a Euro-Dollar Loan. Each notice pursuant to this Section shall be irrevocable and shall refer to this Agreement and specify (i) the identity and amount of the Borrowing that the Borrower requests be converted or continued, (ii) whether such Borrowing is to be converted to or continued as a Euro-Dollar Borrowing or a Base Rate Borrowing, (iii) if such notice requests a conversion, the date of such conversion (which shall be a Business Day), and (iv) if such Borrowing is to be converted to or continued as a Euro-Dollar Borrowing, the Interest Period with respect thereto. If no election as to the Type of Borrowing is specified in any such notice, then the requested Borrowing shall be a Base Rate Borrowing. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Euro-Dollar Borrowing, the Borrower shall be deemed to have given notice for an Interest Period of one month's duration. The Senior Administrative Agent shall advise the Banks of any notice given pursuant to this Section and of each Bank's portion of any converted or continued Borrowing. If the Borrower shall not have given notice in accordance with this Section to continue any Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section to convert such Borrowing), such Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be continued into a new Interest Period as a Base Rate Borrowing. SECTION 2.10. REPAYMENT OF BORROWINGS. (a) To the extent not previously paid, all Term Loans shall be due and payable on the Maturity Date, (b) To the extent not previously paid, all Revolving Loans shall be due and payable on the Maturity Date. (c) To the extent not previously paid, all Swingline Loans shall be due and payable the earlier of (i) on the last day of the Interest Period applicable to such Loan, and (ii) the Maturity Date. (d) All repayments pursuant to this Section shall be subject to Section 2.13, but shall otherwise be without premium or penalty. SECTION 2.11. OPTIONAL PREPAYMENT. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, upon at least one Business Day prior written or telecopy notice (or telephone notice promptly confirmed by written or telecopy notice) to the Senior Administrative Agent before 11:00 a.m., New York City time; provided, however, that each partial prepayment shall be in an amount that is a multiple of $1,000,000 and not less than $5,000,000. (b) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Borrower to prepay such Borrowing by the amount stated therein on the date stated therein. All prepayments under this Section shall be subject to Section 2.13 but otherwise without premium or penalty. All prepayments under this Section shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment. SECTION 2.12. MANDATORY PREPAYMENTS. (a) In the event of any termination of all the Revolving Credit Commitments, the Borrower shall repay or prepay all its outstanding Revolving Credit Borrowings and all outstanding Swingline Loans on the date of such termination. In the event of any partial reduction of the Revolving Credit Commitments, then (i) at or before the effective date of such reduction, the Senior Administrative Agent shall notify the Borrower and the Revolving Credit Banks of the Aggregate Revolving Credit Exposure after giving effect thereto and (ii) if the Aggregate Revolving Credit Exposure at the time would exceed the Total Revolving Credit Commitment after giving effect to such reduction or termination, then the Borrower shall, on the date of such reduction or termination, repay or prepay Revolving Credit Borrowings or Swingline Loans (or a combination thereof), or cash collateralize Letters of Credit in a dollar amount sufficient to eliminate such excess. (b) If on any date the Aggregate Revolving Credit Exposure and the aggregate Term Exposures of the Banks shall exceed the Borrowing Base Amount, the Borrower shall on such date apply an amount equal to such excess first, to prepay the then outstanding Revolving Loans (if any) and Swingline Loans (if any), second, to the extent of any remaining excess (after the prepayment of Revolving Loans and Swingline Loans), to replace outstanding Letters of Credit and/or deposit an amount in cash in a cash collateral account (to the extent such cash collateralization would not result in an obligation to grant a security interest in such cash collateral to the holders of notes under any Indenture) established with the Senior Collateral Agent for the benefit of the Senior Bank Parties, and third to prepay the then outstanding Term Loans (if any). (c) Not later than two Business Days following the receipt of Net Cash Proceeds from any Reduction Event, the Borrower shall apply to the prepayment of the Loans and the permanent reduction of the Revolving Credit Commitments the amounts required to be so applied by the Collateral Trust and Intercreditor Agreement. If the Senior Administrative Agent receives any payments in respect of such Reductions, the Senior Administrative Agent shall promptly apply such payments between Term Loans and Revolving Credit Commitments pro rata based on the Term Exposure and the Revolving Credit Commitments on the date the applicable amounts are paid to the Senior Administrative Agent. Amounts allocated to the Revolving Credit Loans shall be applied pursuant to Section 2.08(b), and if applicable, Section 2.12(a). Amounts allocated to the Term Exposure shall be applied to prepay the Term Loans. (d) On each Business Day during a Cash Sweep Period, the Senior Collateral Agent will use funds on deposit in any Citibank Concentration Account as follows: (i) after the occurrence of a Triggering Event (as defined in the Collateral Trust and Intercreditor Agreement) in accordance with the provisions of Section 4.01(b) or (c) of the Collateral Trust and Intercreditor Agreement, as applicable; and (ii) at any other time, first to repay the Revolving Credit Borrowings (without any reduction of the Commitments) and second, to be deposited into the Cash Sweep Cash Collateral Account in accordance with the provisions of Section 2(c) (ii) of Schedule 5 of the Senior Subsidiary Security Agreement. Upon termination of any Cash Sweep Period, funds in the Cash Sweep Cash Collateral Account shall be released to the Concentration Account within three Business Days after the end of such Cash Sweep Period. (e) Not later than the earlier of (i) 120 days after the end of each fiscal year of the Borrower, beginning with the fiscal year ending on or about March 3, 2001, and (ii) the date on which the financial statements for such fiscal year are delivered pursuant to Section 5.01(a), the Borrower shall make a prepayment of the Loans and a permanent reduction of the Revolving Credit Commitments in an amount equal to 50% of:
(a) for the fiscal year ending on March 3, 2001, the Excess Cash Flow for the sum of the principal amount the three fiscal quarters of the Term Loans and Revolving Credit Commitments ending on March 3, 2001, x ------------------------------------------------------------------ and (b) for the fiscal year the sum of the principal + the aggregate amount of ending on March 2, 2002, amount of the Term Loans and the Second Priority Debt Excess Cash Flow for the Revolving Credit Obligations constituting four fiscal quarters ending Commitments principal (or Attributable on March 2, 2002 Debt)
to be applied as follows: (i) at any time when the Loans have been accelerated pursuant to Section 6.01, to pay Senior Obligations pro rata based on the amounts of such obligations; and (ii) at any other time, to be allocated between Term Loans and Revolving Credit Commitments pro rata based on the Term Exposure and the Revolving Credit Commitments on the date the applicable amounts are paid to the Senior Administrative Agent. Amounts allocated to the Revolving Credit Loans shall be applied pursuant to Section 2.08(b), and if applicable, Section 2.12(a). Amounts allocated to the Term Exposure shall be applied to prepay the Term Loans. (f) The Borrower shall deliver to the Senior Administrative Agent, at the time of each Loan prepayment or Revolving Credit Commitment reduction required under this Section, (i) a certificate signed by a Financial Officer of the Borrower setting forth in reasonable detail the calculation of the amount of such prepayment and (ii) to the extent practicable, at least three days prior written notice of such prepayment. Each notice of prepayment shall specify the prepayment date, the Type of each Loan being prepaid and the principal amount of each Loan (or portion thereof) to be prepaid. All prepayments of Borrowings under this Section shall be subject to Section 2.13, but shall otherwise be without premium or penalty. SECTION 2.13. BREAKAGE. The Borrower shall indemnify each Bank against any loss or expense that such Bank may sustain or incur as a consequence of any event, other than a default by such Bank in the performance of its obligations hereunder, which results in such Bank receiving or being deemed to receive any amount on account of the principal of any Euro-Dollar Loan before the end of the Interest Period in effect therefor (including as a result of acceleration of a Loan), the conversion of any Euro-Dollar Loan to a Loan of another Type, or the conversion of the Interest Period with respect to any Euro-Dollar Loan other than on the last day of the Interest Period in effect therefor, or any Euro-Dollar Loan to be made by such Bank (including any Euro-Dollar Loan to be made pursuant to a conversion or continuation under Section 2.09) not being made after notice of such Loan shall have been given (or deemed given pursuant to Section 2.09) by the Borrower hereunder (any of the events referred to in this clause (a) being called a "Breakage Event") or (b) any default in the making of any payment or prepayment required to be made hereunder. In the case of any Breakage Event, such loss shall include an amount equal to the excess, as reasonably determined by such Bank, of (i) its cost of obtaining funds for Euro-Dollar Loans that is the subject of such Breakage Event for the period from the date of such Breakage Event to the last day of the Interest Period in effect (or that would have been in effect) for such Loan over (ii) the amount of interest likely to be realized by such Bank in redeploying the funds released or not utilized by reason of such Breakage Event for such period. A certificate of any Bank setting forth any amount or amounts which such Bank is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower may determine, in consultation with the Senior Administrative Agent, which Loans will be repaid with amounts to be applied to the repayment of Loans pursuant to Section 2.11 or 2.12, subject to Section 2.12(c) and Section 2.14. Any amount payable by the Borrower pursuant to this Section will be payable to the Senior Administrative Agent for the account of each applicable Bank. SECTION 2.14. PRO RATA TREATMENT. (a) Except as provided in this Section with respect to Swingline Loans and as provided in clause (b), each Borrowing, each payment or prepayment of principal of any Borrowing of a Class, each payment of interest on the Loans of a Borrowing, each payment of the Senior Commitment Fees, each reduction of the Term Loan Commitments or the Revolving Credit Commitments and each conversion of any Borrowing to or continuation of any Borrowing as a Borrowing of any Type within a Class shall be allocated pro rata among the Banks in accordance with their respective applicable Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their applicable Loans). For purposes of determining the available Revolving Credit Commitments of the Banks at any time, each outstanding Swingline Loan shall be deemed to have utilized the Revolving Credit Commitments of the Banks (including those Banks which shall not have made Swingline Loans) pro rata in accordance with such respective Revolving Credit Commitments. Each Bank agrees that in computing such Bank's portion of any Borrowing to be made hereunder, the Senior Administrative Agent may, in its discretion, round each Bank's percentage of such Borrowing to the next higher or lower whole dollar amount. (b) If any Bank shall obtain any payment of or recovery with respect to any Senior Bank Obligations with proceeds of any sale of or other realization on any Collateral (including any Mortgaged Property) in which the Banks as a whole do not have a pro rata Lien, and such payment or recovery is in excess of its pro rata share of payments or recovery with respect to all Senior Bank Obligations then outstanding, such Bank shall purchase from the other Banks such participations in Senior Bank Obligations made by such other Banks as shall be necessary to cause such purchasing Bank to share the excess payment or other recovery ratably with each of such other Banks; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Bank, the purchase shall be rescinded and each Bank which has sold a participation to the purchasing Bank shall repay to the purchasing Bank the purchase price to the ratable extent of such recovery together with an amount equal to such selling Bank's ratable share (according to the proportion of (a) the amount of such selling Bank's required repayment to the purchasing Bank to (b) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Borrower agrees that any Bank so purchasing a participation from another Bank pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Bank receives a secured claim in lieu of a setoff to which this Section applies, such Bank shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Banks entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 2.15. PAYMENTS. (a) The Borrower shall make each payment (including principal of or interest on any Borrowing or any L/C Disbursement or any Senior Fees or other amounts) hereunder and under any other Senior Loan Document not later than 12:00 (noon), New York City time, on the date when due in immediately available funds, without setoff, defense or counterclaim. Each such payment (other than Issuing Bank Fees, which shall be paid directly to the applicable Issuing Bank, and principal of and interest on Swingline Loans, which shall be paid directly to the applicable Swingline Bank except as otherwise provided in Section 2.16(e)) shall be made to the Senior Administrative Agent's Account. Each such payment shall be made in dollars. (b) Whenever any payment (including principal of or interest on any Borrowing or any Senior Fees or other amounts) hereunder or under any other Senior Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Senior Fees, if applicable. SECTION 2.16. SWINGLINE LOANS. (a) Uncommitted Loans. Each Swingline Bank may, in its sole discretion, from time to time make Swingline Loans on an uncommitted basis. The Borrower acknowledges that neither Swingline Bank has any obligation to make any Swingline Loan, and that the Swingline Banks may decline to make any Swingline Loan at any time for any reason or no reason. The Swingline Banks are prohibited from making any Swingline Loan: (i) to refinance any outstanding Swingline Loan; (ii) on or after the Maturity Date or the termination of the Revolving Credit Commitments in accordance with the terms hereof; (iii) if at the time of the Borrowing of such Swingline Loans, the Borrower, in the Swingline Banks' reasonable judgment, would be unable to satisfy the conditions set forth in Section 3.02; (iv) if after giving effect thereto, the aggregate principal amount of all Swingline Loans would exceed $100,000,000; or (v) if after giving effect thereto, the Aggregate Revolving Credit Exposure would exceed the lesser of (A) the Total Revolving Credit Commitment; and (B) the Borrowing Base Amount in effect at such time less the aggregate Term Exposures of the Banks at such time. Each Swingline Loan shall be in a principal amount that is a multiple of $1,000,000. Within the foregoing limits, the Borrower may request, pay or prepay Swingline Loans hereunder, subject to the terms, conditions and limitations set forth herein. (b) Borrowing Procedure. The Borrower shall notify the Senior Administrative Agent by telecopy, or by telephone (confirmed by telecopy), not later than 1:00 p.m., New York City time, on the day of a proposed Swingline Loan. Such notice shall be delivered on a Business Day, shall be irrevocable and shall refer to this Agreement and shall specify the requested date (which shall be a Business Day) and amount of such Swingline Loan. The Senior Administrative Agent will promptly advise the Swingline Banks of any notice received from the Borrower pursuant to this clause (b). If a Swingline Bank determines in its sole discretion to make a Swingline Loan, such Swingline Bank shall make such Swingline Loan available to the Borrower by means of a credit or wire transfer to the account of the Borrower referred to in Section 2.02(c) by 3:00 p.m. on the date such Swingline Loan is so requested. (c) Denomination and Prepayment. Each Swingline Loan shall be denominated in dollars. The Borrower shall have the right at any time and from time to time to prepay any Swingline Loan, in whole or in part, without premium or penalty upon giving written or telecopy notice (or telephone notice promptly confirmed by written or telecopy notice) to the applicable Swingline Bank and to the Senior Administrative Agent before 12:00 (noon), local time on the date of prepayment at such Swingline Bank's address for notices specified on Annex 2. (d) Interest. Each Swingline Loan denominated in dollars shall be a Base Rate Loan and, subject to the provisions of Section 2.07, shall bear interest as provided in Section 2.06(a). Interest on each Swingline Loan shall be payable on the Interest Payment Date with respect thereto. (e) Conversion to Revolving Loans. The Senior Administrative Agent shall (i) at any time when Swingline Loans in an aggregate principal amount of $10,000,000 or more are outstanding, at the request of either Swingline Bank that has made outstanding Swingline Loans in its sole discretion, or (ii) on the last day of the Interest Period of such Swingline Loan, deliver on behalf of the Borrower a Borrowing Request pursuant to Section 2.03 for a Base Rate Borrowing in the amount of such Swingline Loans; provided, however, that the obligations of the Banks to fund such Borrowing shall not be subject to Section 3.02. (f) Participations. If the Borrower does not fully repay a Swingline Loan on or before the last day of the Interest Period with respect thereto, the applicable Swingline Bank shall promptly notify the Senior Administrative Agent thereof (by telecopy or by telephone, confirmed in writing), and the Senior Administrative Agent shall promptly notify each Revolving Credit Bank thereof (by telecopy or by telephone, confirmed in writing) and of its Revolving Percentage of such Swingline Loan. Upon such notice but without any further action, such Swingline Bank hereby agrees to grant to each Bank, and each Bank hereby agrees to acquire from such Swingline Bank, a participation in such defaulted Swingline Loan equal to such Bank's Revolving Percentage of the aggregate principal amount of such defaulted Swingline Loan. In furtherance of the foregoing, each Revolving Credit Bank hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Senior Administrative Agent, for the account of such Swingline Bank, such Bank's Revolving Percentage of each Swingline Loan that is not repaid on the last day of the Interest Period with respect thereto. Each Bank agrees that its obligation to acquire participations in Swingline Loans pursuant to this clause is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Bank shall comply with its obligation under this clause by wire transfer of immediately available funds, in the same manner as provided in Section 2.02(c) with respect to Loans made by such Bank (and Section 2.02(c) shall apply, mutatis mutandis, to the payment obligations of the Banks) and the Senior Administrative Agent shall promptly pay to such Swingline Bank the amounts so received by it from the Banks. The Senior Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this clause and thereafter payments in respect of such Swingline Loan shall be made to the Senior Administrative Agent and not to such Swingline Bank. Any amounts received by such Swingline Bank from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by such Swingline Bank of the proceeds of a sale of participations therein shall be promptly remitted to the Senior Administrative Agent; any such amounts received by the Senior Administrative Agent shall be promptly remitted by the Senior Administrative Agent to the Banks that shall have made their payments pursuant to this clause and to such Swingline Bank, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this clause shall not relieve the Borrower (or other party liable for obligations of the Borrower) of any default in the payment thereof. (g) Swingline Banks. As between themselves, Citicorp USA and Fleet National Bank agree that (i) Citicorp USA shall have the option of first refusal with respect to any request for a Swingline Loan, to the extent that after giving effect to the making of such Swingline Loan and all other Swingline Loans of Citicorp USA will not exceed $50,000,000, and (ii) Fleet National Bank shall have the option of first refusal with respect to any other request for a Swingline Loan. SECTION 2.17. LETTERS OF CREDIT. (a) General. The Borrower may request the issuance of a Letter of Credit for its own account, by delivering an Issuance Request, at any time and from time to time while the Revolving Credit Commitments remain in effect. This Section shall not be construed to impose an obligation upon any Issuing Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement. Subject to clauses (b) and (c), and effective at the time of the initial Credit Event, the Existing Trade Letters of Credit will be deemed to be Letters of Credit outstanding under this Agreement, issued by Mellon Bank as Issuing Bank. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. In order to request the issuance of a Letter of Credit (or to amend, renew or extend an existing Letter of Credit, or to cause an Existing Trade Letter of Credit to become a Letter of Credit under this Agreement), the Borrower shall hand deliver, electronically transmit or telecopy to the applicable Issuing Bank and the Senior Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) an Issuance Request requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with clause (c)), the amount of such Letter of Credit, the name and address of the beneficiary thereof, the applicable Issuing Bank (if other than Citicorp USA) and such other information as shall be necessary to prepare such Letter of Credit. By requesting the initial Credit Event, the Borrower will be deemed to have requested that each Existing Trade Letter of Credit be deemed to be issued under this Agreement. A Letter of Credit shall be issued, amended, renewed or extended or deemed to be issued under this Agreement only if, and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that, and it shall be the case that, after giving effect to such issuance, amendment, renewal or extension (and the making or repayment of any other Credit Events to be made at or before such time): (i) the L/C Exposure shall not exceed $100,000,000; and (ii) the Aggregate Revolving Credit Exposure shall not exceed the lesser of (A) the Total Revolving Credit Commitment; and (B) the Borrowing Base Amount in effect at such time less the aggregate Term Exposures of the Banks at such time. (c) Expiration Date. Each Letter of Credit shall expire at the close of business on the earlier of the date one year after the date of the issuance of such Letter of Credit (subject to customary automatic renewal provisions) and the date that is five Business Days before the Maturity Date, unless such Letter of Credit expires by its terms on an earlier date. (d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the applicable Issuing Bank or the Banks, the applicable Issuing Bank hereby grants to each Revolving Credit Bank, and each such Bank hereby acquires from the applicable Issuing Bank, a participation in such Letter of Credit equal to such Bank's Revolving Percentage of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Credit Bank hereby absolutely and unconditionally agrees to pay to the Senior Administrative Agent, for the account of such Issuing Bank, such Bank's Revolving Percentage of each L/C Disbursement made by such Issuing Bank and not reimbursed by the Borrower (or, if applicable, another party pursuant to its obligations under any other Senior Loan Document) forthwith on the date due as provided in Section 2.02(e), in dollars. Each Revolving Credit Bank agrees that its obligation to acquire participations pursuant to this clause in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If an Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, the Borrower shall pay to such Issuing Bank an amount equal to such L/C Disbursement not later than 3:30 p.m., New York City time, on the date that the Borrower shall have received notice from such Issuing Bank that payment of such draft will be made, or, if the Borrower shall have received such notice later than 10:00 a.m., New York City time, on any Business Day, not later than 1:00 p.m., New York City time, on the immediately following Business Day. (f) Obligations Absolute. The Borrower's obligations to reimburse L/C Disbursements as provided in clause (e) shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or any Senior Loan Document, or any term or provision therein; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Senior Loan Document; (iii) the existence of any claim, setoff, defense or other right that the Borrower, any other party guaranteeing, or otherwise obligated with, the Borrower, any Subsidiary or other Affiliate thereof or any other Person may at any time have against the beneficiary under any Letter of Credit, the applicable Issuing Bank, the Senior Administrative Agent or any Bank or any other Person, whether in connection with this Agreement, any other Senior Loan Document or any other related or unrelated agreement or transaction; (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by the applicable Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and (vi) any other act or omission to act or delay of any kind of any Issuing Bank, the Banks, the Senior Administrative Agent or any other Person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the Borrower's obligations hereunder. Without limiting the generality of the foregoing, the absolute and unconditional obligation of the Borrower hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or wilful misconduct of any Issuing Bank. However, the foregoing shall not be construed to excuse the applicable Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by applicable Issuing Bank's gross negligence or wilful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The applicable Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the applicable Issuing Bank's exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute wilful misconduct or gross negligence of the applicable Issuing Bank. Without limiting any other provision of this Agreement, the Senior Administrative Agent and any Issuing Bank and any of their correspondents may rely upon any oral, telephonic, telegraphic, facsimile, electronic, written or other communication believed in good faith to have been authorized by the Borrower, whether or not given or signed by an authorized person. (g) Disbursement Procedures. The applicable Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The applicable Issuing Bank shall as promptly as possible give telephonic notification, confirmed by telecopy or electronic transmission, to the Senior Administrative Agent and the Borrower of such demand for payment and whether such Issuing Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse such Issuing Bank and the Revolving Credit Banks with respect to any such L/C Disbursement. The Senior Administrative Agent shall promptly give each Revolving Credit Bank notice thereof. (h) Interim Interest. If the applicable Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, then, unless the Borrower shall reimburse such L/C Disbursement in full on such date, the unpaid amount thereof shall bear interest for the account of such Issuing Bank, for each day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by the Borrower or the date on which interest shall commence to accrue thereon as provided in Section 2.02(e), at the rate per annum that would apply to such amount if such amount were a Base Rate Loan. (i) Resignation or Removal of an Issuing Bank. Any Issuing Bank may resign at any time by giving 180 days prior written notice to the Senior Administrative Agent, the Banks and the Borrower, and may be removed at any time by the Borrower by notice to the applicable Issuing Bank, the Senior Administrative Agent and the Banks, to be effective only upon the appointment of a successor Issuing Bank pursuant to the following sentence. Subject to the next succeeding clause, upon the acceptance of any appointment as a successor Issuing Bank hereunder by a Bank that shall agree to serve as successor Issuing Bank, such successor shall succeed to and become vested with all the interests, rights and obligations of the retiring Issuing Bank and the retiring Issuing Bank shall be discharged from its obligations to issue additional Letters of Credit hereunder. At the time such removal or resignation shall become effective, the Borrower shall pay all accrued and unpaid fees pursuant to Section 2.05(d)(ii). The acceptance of any appointment as an Issuing Bank hereunder by a successor Bank shall be evidenced by an agreement entered into by such successor, in a form satisfactory to the Borrower and the Senior Administrative Agent, and, from and after the effective date of such agreement, such successor Bank shall have all the rights and obligations of the previous Issuing Bank under this Agreement and the other Senior Loan Documents and references herein and in the other Senior Loan Documents to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the resignation or removal of an Issuing Bank hereunder, the retiring Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement and the other Senior Loan Documents with respect to Letters of Credit issued by it before such resignation or removal, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If any Event of Default shall occur and be continuing, and to the extent any such cash collateralization will not result in an obligation to grant a security interest in such cash collateral to holders of notes under any Indenture, the Borrower shall, on the Business Day it receives notice from the Senior Administrative Agent or the Majority Revolving Credit Banks (or, if the maturity of the Loans has been accelerated, Revolving Credit Banks holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit) thereof and of the amount to be deposited, deposit in the L/C Cash Collateral Account, for the benefit of the Revolving Credit Banks, an amount in cash equal to the L/C Exposure as of such date. Such deposits shall be held by the Senior Collateral Agent as collateral for the payment and performance of the Senior Obligations. The Senior Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Such deposits shall be invested in Temporary Cash Investments, to be selected by the Senior Collateral Agent in its sole discretion, and interest earned on such deposits shall be deposited in such account as additional collateral for the payment and performance of the Senior Obligations. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall (i) automatically be applied by the Senior Administrative Agent to reimburse the applicable Issuing Bank for L/C Disbursements for which it has not been reimbursed, (ii) be held for the satisfaction of the reimbursement obligations of the Borrower for the L/C Exposure at such time and (iii) if the maturity of the Loans has been accelerated, be applied to satisfy the Senior Obligations. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived (or during a Cash Sweep Period, paid into the Citibank Concentration Account). (k) Additional Issuing Banks. The Borrower may, at any time and from time to time with the consent of the Senior Administrative Agent (which consent shall not be unreasonably withheld) and such Bank, designate one or more additional Banks to act as an issuing bank under the terms of the Agreement. Any Bank designated as an issuing bank pursuant to this clause (k) shall be deemed to be an "Issuing Bank" (in addition to being a Bank) in respect of Letters of Credit issued or to be issued by such Bank, and, with respect to such Letters of Credit, such term shall thereafter apply to the other Issuing Bank and such Bank. SECTION 2.18. ADJUSTMENTS TO BORROWING BASE ADVANCE RATES. (a) As of the Initial Borrowing Date, the Accounts Receivable Advance Rate will be 85%, the Pharmaceutical Inventory Advance Rate will be 57%, and the Other Inventory Advance Rate will be 50%. (b) Subject to clauses (c) and (d), the Senior Collateral Agent may, in the exercise of its reasonable judgment, increase the Pharmaceutical Inventory Advance Rate up to a level of 62%, and increase the Other Inventory Advance Rate up to a level of 55%. (c) Subject to clause (d), any increase in the Pharmaceutical Inventory Advance Rate above 62% and any increase in the Other Inventory Advance Rate above 55% will require the consent of the Supermajority Banks. (d) Any increase in the Pharmaceutical Inventory Advance Rate or the Other Inventory Advance Rate above 80% of orderly liquidation value thereof, as determined by periodic appraisals, or the Accounts Receivable Advance Rate above 85%, will require the consent of all of the Banks. (e) The Senior Collateral Agent, in the exercise of its reasonable judgment to reflect Borrowing Base Factors, may reduce the Accounts Receivable Advance Rate, the Pharmaceutical Inventory Advance Rate and the Other Inventory Advance Rate from time to time. (f) The Senior Collateral Agent will give prompt written notice to the Borrower and the Banks of any adjustments effected pursuant to this Section 2.18. ARTICLE 3 CONDITIONS The obligations of the Banks to make Loans (other than a Borrowing pursuant to Section 2.02(e) or Section 2.16(e)) and of the Issuing Banks to issue Letters of Credit hereunder are subject to the satisfaction of the following conditions: SECTION 3.01. FIRST CREDIT EVENT. On the Initial Borrowing Date, each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05): (a) Counterparts of this Agreement. The Senior Administrative Agent shall have received counterparts of this Agreement signed by each of the Borrower, the Agents and the Banks (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Senior Administrative Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party). (b) Notes. The Senior Administrative Agent shall have received for the account of each Bank which so requests pursuant to Section 2.04 a Revolving Credit Note, a Term Note, and/or a Swingline Note, as applicable, in each case dated as of the Initial Borrowing Date and complying with the provisions of Section 2.04. (c) Senior Subsidiary Guarantee Agreement. The Senior Subsidiary Guarantee Agreement shall have been duly executed by each Subsidiary Guarantor, shall have been delivered to the Senior Collateral Agent and shall be in full force and effect. (d) Senior Indemnity, Subrogation and Contribution Agreement. The Senior Indemnity, Subrogation and Contribution Agreement shall have been duly executed by the parties thereto, shall have been delivered to the Senior Collateral Agent and shall be in full force and effect. (e) Senior Subsidiary Security Agreement. The Senior Subsidiary Security Agreement shall have been duly executed by each Subsidiary Guarantor and shall have been delivered to the Senior Collateral Agent and shall be in full force and effect on such date and each document (including each Uniform Commercial Code financing statement and in the case of Intellectual Property (as defined in the Senior Subsidiary Security Agreement) appropriate filings in United States Patent and Trademark Office and the United States Copyright Office ) required by law to be filed, registered or recorded in order to create and perfect in favor of the Senior Collateral Agent for the benefit of the Senior Bank Parties a valid, legal and perfected first-priority security interest in and lien on the Senior Collateral shall have been delivered to the Senior Collateral Agent. (f) Senior Mortgages. (i) The Agents shall have received (i) counterparts of a Senior Mortgage with respect to each Mortgaged Property duly executed, acknowledged and delivered by the record owner of such Mortgaged Property and in recordable form, and (ii) mortgage and lien searches satisfactory to the Senior Administrative Agent. (g) Collateral Trust and Intercreditor Agreement. The Collateral Trust and Intercreditor Agreement shall have been duly executed by the Borrower and each other party thereto, shall have been delivered to the Senior Collateral Agent, and shall be in full force and effect. (h) Perfection Certificates. The Senior Collateral Agent shall have received a Perfection Certificate with respect to each Subsidiary Guarantor dated the Initial Borrowing Date and duly executed by a Financial Officer of the Borrower. (i) Lien Searches. The Senior Collateral Agent shall have received the results of a search of the Uniform Commercial Code (or equivalent filings) filings made with respect to the Borrower and each other Obligor in the states (or other jurisdictions) in which the chief executive office of each such Person is located, any offices of such Persons in which records have been kept relating to Accounts and the other jurisdictions in which Uniform Commercial Code filings (or equivalent filings) are to be made pursuant to the preceding clause, together with copies of the financing statements (or similar documents) disclosed by such search, and accompanied by evidence satisfactory to the Senior Collateral Agent that the Liens indicated in any such financing statement (or similar document) would be permitted under Section 5.15 or have been released (or arrangements shall have been made for the release or discharge thereof reasonably satisfactory to the Senior Administrative Agent). (j) Approvals and Consents. All requisite material governmental authorities and third parties shall have approved or consented to the transactions contemplated hereby to the extent required, all applicable appeal periods shall have expired and there shall be no governmental or judicial action, actual or threatened, that could reasonably be expected to restrain, prevent or impose burdensome conditions on the transactions contemplated hereby. (k) Working Capital. The Agents shall be reasonably satisfied with the sufficiency of amounts available under this Agreement to meet the ongoing working capital requirements of the Borrower and its Subsidiaries. (l) Business Plan. The Agents and the Banks shall have received a three year business plan of the Borrower which shall be satisfactory in all material respects to the Agents and the Banks. (m) Existing Management. The Agents shall be satisfied with any proposed changes in the management of the Borrower. (n) Borrowing Base Certificate. The Senior Administrative Agent shall have received a Borrowing Base Certificate dated the Initial Borrowing Date, containing information as of a date not more than eight Business Days before the Initial Borrowing Date, and executed by a Financial Officer of the Borrower. The Borrowing Base Amount shall be sufficient to support the initial Credit Events. (o) Borrowing Base Appraisal. The Senior Administrative Agent shall have received such valuations and appraisals of the inventory and accounts receivable that are part of the Borrowing Base by an independent appraisal firm reasonably satisfactory to the Senior Administrative Agent as the Senior Administrative Agent shall reasonably request. The Senior Administrative Agent shall have completed a field examination, the results of which shall be satisfactory to the Agents. (p) Opinions of Borrower's Counsel. The Senior Administrative Agent shall have received opinions of: (i) Skadden, Arps, Slate, Meagher & Flom LLP, special New York counsel for the Borrower, substantially in the form of Exhibit O-1 hereto; and (ii) Elliot S. Gerson, General Counsel of the Borrower, substantially in the form of Exhibit O-2 hereto. The Borrower hereby requests such counsel to deliver such opinions. (q) Corporate Documents. The Senior Administrative Agent shall have received all documents it may reasonably request relating to the existence of the Borrower and the Subsidiary Guarantors, the corporate authority for and the validity of this Agreement and the other Senior Loan Documents, and any other matters relevant hereto, all in form and substance satisfactory to the Senior Administrative Agent. (r) Payments of Senior Fees, Etc. The Senior Administrative Agent shall have received all Senior Fees and other amounts due and payable on or before the Initial Borrowing Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder or under any other Senior Loan Document. (s) Consummation of Transactions. The Transactions shall have been consummated substantially concurrently with the initial Credit Event in accordance with Annex 3, and the capital structure of the Borrower shall be as set forth in Annex 3. All of the conditions precedent set forth in the Transaction Documents shall have been satisfied or waived, and no material provision of the Transaction Documents shall have been amended, supplemented, waived or otherwise modified without the prior written consent of the Agents. The Agents shall be satisfied with the Transaction Documents in all respects. (t) Cash Management System. The Borrower shall have established a cash management system reasonably satisfactory to the Senior Administrative Agent that complies with Section 5.13. (u) Insurance. The Senior Administrative Agent shall have received a copy of, or a certificate as to coverage under, the insurance policies required by Section 5.03 and the applicable provisions of the Senior Collateral Documents, each of which shall be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement and to name the Senior Collateral Agent as additional insured, in form and substance satisfactory to the Senior Administrative Agent. (v) Environmental Assessment. The Senior Administrative Agent shall have received Phase I desk audits relating to the Mortgaged Properties reasonably satisfactory to the Agents, from an environmental consulting firm reasonably satisfactory to the Agents, as to any environmental hazards, liabilities or Remedial Action to which the Borrower or any of the Subsidiaries may be subject. (w) Environmental and Employee Matters. The Agents shall be reasonably satisfied as to the amount and nature of any environmental and employee health and safety exposures to which the Borrower and the Subsidiaries may be subject and the plans of the Borrower with respect thereto. (x) Officer's Certificate. The Senior Administrative Agent shall have received a certificate, dated the Initial Borrowing Date and signed by a Financial Officer of the Borrower, confirming compliance with the conditions precedent set forth in Section 3.02, and as to such other matters relating to the satisfaction of the conditions specified in this Section 3.01 as the Senior Administrative Agent may reasonably request. (y) Second Priority Collateral Documents. Each of the Second Priority Mortgages, the Second Priority Subsidiary Security Agreement, the Second Priority Subsidiary Guarantee Agreements shall be in form an substance satisfactory to the Agents, shall have been duly executed by each Subsidiary Guarantor, and by or on behalf of the Second Priority Debt Parties, shall have been delivered to the Senior Collateral Agent, and shall be in full force and effect. (z) Transaction Documents. The Senior Administrative Agent shall have received, with a copy for each Bank, a copy of each Transaction Document reasonably requested by the Senior Administrative Agent, certified by a Financial Officer of the Borrower. (aa) No Litigation. There shall have been (i) no development in any Existing Litigation after April 10, 2000, and (ii) no litigation or administrative proceeding commenced, that in case of either clause (i) or (ii) could reasonably be expected to have a Material Adverse Effect. There shall have been no development in any Existing Litigation after April 10, 2000, and there shall have been no litigation or administrative proceeding that, in the Banks' sole judgment, could impair the validity, enforceability or priority of the security interests to be granted in favor of the Banks under the Senior Loan Documents. (bb) No Material Adverse Change. There shall have been no material adverse change in the revenues, store operations, inventory, accounts receivable, business or prospects of the Borrower and its Subsidiaries considered as a whole, or to the Borrower's knowledge, in any relationship with any vendor or third party insurance payor of the Borrower or any of its Consolidated Subsidiaries, considered as a whole, since November 2, 1999, other than, in each case, as publicly disclosed before April 10, 2000. (cc) Landlord's Waivers. The Senior Administrative Agent shall have received waivers, in form and substance reasonably satisfactory to the Banks, from the lessor of each leased distribution center of the Subsidiary Guarantors of any statutory, common law or contractual landlord's lien with respect to any inventory of any Subsidiary Guarantor (other than with respect to inventory located at leased warehouses having a value in the aggregate not to exceed $40,000,000); provided, however, that if failure to comply with this condition would not otherwise reduce the principal amount of the Loans that the Borrower may borrow on the Initial Borrowing Date pursuant to Section 2.01(b)(ii), or result in a prepayment obligation pursuant to Section 2.12(b), the Senior Administrative Agent may waive this condition for one or more periods of not more than 120 days in the aggregate. (dd) Intercompany Inventory Purchase Agreement. The Intercompany Inventory Purchase Agreement shall have been duly executed by the Borrower and each other party thereto, and shall have been delivered to the Senior Administrative Agent, and shall be in full force and effect. (ee) Legal Matters. All legal matters incident to this Agreement, the Borrowings and extensions of credit hereunder and the other Senior Loan Documents shall be satisfactory to the Banks. (ff) Flood Hazard Certificates. The Senior Administrative Agent shall have received standard flood hazard determination certificates in the form required by 12 CFR 22.6 for each Mortgaged Property. SECTION 3.02. ALL CREDIT EVENTS. On the date of each issuance of a Letter of Credit and each Borrowing of a Loan (each such event being called a "Credit Event") (other than a Borrowing pursuant to Section 2.02(e) or a Borrowing pursuant to Section 2.16(e)) each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05): (a) Request. The Borrower shall have delivered a Borrowing Request to the Senior Administrative Agent, or an Issuance Request to the Senior Administrative Agent and the applicable Issuing Bank, or a Swingline Request to the Senior Administrative Agent and the Swingline Banks, as the case may be. (b) Representations and Warranties. The fact that the representations and warranties of the Borrower contained in this Agreement (except, in the case of a Refunding Borrowing, the representations and warranties set forth in Sections 4.04(a)(iii) and Section 4.06 as to any matter which has theretofore been disclosed in writing by the Borrower to the Banks) shall be true in all material respects on and as of the date of such Credit Event. (c) No Default. The fact that, immediately after such Credit Event, no Default shall have occurred and be continuing. (d) Borrowing Base. The Borrowing Base Amount shall be sufficient to support such Credit Event. Each Credit Event shall be deemed to constitute a representation and warranty by the Borrower on the date of such Credit Event as to the matters specified in clauses (b) (except as aforesaid) and (c) of this Section, and the Borrower expects the proceeds of such Credit Event (other than the issuance of a Letter of Credit) will be applied to uses of proceeds which are permitted pursuant to Section 5.24 and which are reasonably anticipated to be made within the five Business Days following such Credit Event. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Borrower is a corporation and each Subsidiary Guarantor is a corporation (or other entity) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization (except as otherwise indicated in Schedule 1.01(c)), and has all corporate (or other organizational) powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION. (a) The execution, delivery and performance by the Borrower and each Subsidiary Guarantor of each Senior Loan Document to which it is a party are within the Borrower's corporate powers or such Subsidiary Guarantor's corporate (or other organizational) powers, have been duly authorized by all necessary corporate or other action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws (or other organizational documents) of the Borrower or such Subsidiary Guarantor or of any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary or any other material agreement, instrument, judgment, injunction, order or decree binding upon the Borrower or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary pursuant to any such agreement, instrument, judgment, injunction, order or decree (other than the Liens created by the Senior Collateral Documents). None of the Borrower or any of the Subsidiaries is in default in any manner under any provision of any Material Financial Obligation, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default could reasonably be expected to have a Material Adverse Effect. (b) The execution, delivery and performance by the Borrower and each Subsidiary Guarantor of each Transaction Document (other than the Senior Loan Documents) to which it is a party are within the Borrower's corporate powers or such Subsidiary Guarantor's corporate (or other organizational) powers, have been duly authorized by all necessary corporate or other action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws (or other organizational documents) of the Borrower or such Subsidiary Guarantor or of any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary or any other material agreement, instrument, judgment, injunction, order or decree binding upon the Borrower or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary pursuant to any such agreement, instrument, judgment, injunction, order or decree (other than the Liens permitted by Section 5.15). SECTION 4.03. BINDING EFFECT. This Agreement and each other Senior Loan Document constitutes a valid and binding agreement of the Borrower and the Subsidiary Guarantors, and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms. SECTION 4.04. FINANCIAL AND OTHER INFORMATION. (a) Effective upon and after delivery by the Borrower of the Initial Financial Statements, (i) the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of February 26, 2000 and each following fiscal year end of the Borrower and its Consolidated Subsidiaries and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by Deloitte & Touche (or other independent public accountants of nationally recognized standing) fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year; (ii) the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of such fiscal quarter end and each following fiscal quarter end of the Borrower and its Consolidated Subsidiaries (other than the fourth fiscal quarter of any fiscal year) and the related consolidated statements of income and cash flows for the fiscal quarter then ended, set forth in the Borrower's quarterly report on Form 10-Q for the fiscal quarter then ended, a copy of which will be delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the Initial Financial Statements, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal period, subject to normal year-end adjustments; and (iii) there has been no material adverse change in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole since May 27, 2000. (b) Since November 2, 1999, and until delivery by the Borrower of the Initial Financial Statements, there has been no material adverse effect on the revenues, store operations, inventory, accounts receivable, business or prospects of the Borrower and its Subsidiaries considered as a whole, or to the Borrower's knowledge, in any relationship with any vendor or third party insurance payor of the Borrower or any of its Consolidated Subsidiaries, considered as a whole, other than, in each case, as publicly disclosed before April 10, 2000. SECTION 4.05. ACCURACY OF INFORMATION. (a) Subject to any disclosure in the Initial Financial Statements for the period on or before May 27, 2000, all information (other than financial projections) that has been or will hereafter be made available to the Agents or any Bank by or on behalf of the Borrower or any of its representatives in connection with the transactions contemplated hereby is and will be complete and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances under which such statements were or are made. (b) Each Borrowing Base Certificate that has been or will hereafter be made available to the Agents or any Bank is and will be complete and correct in all material respects. (c) All financial projections, if any, that have been or will be prepared by or on behalf of the Borrower or any of its representatives and made available to the Agents or any Bank have been or will be prepared in good faith based upon assumptions that are reasonable at the time made and at the time the related financial projections are made available to the Agents. (d) Subject to any disclosure in the Initial Financial Statements, for the period on or before May 27, 2000, 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. There has been (a) no development in any Existing Litigation after April 10, 2000, and (b) no litigation or administrative proceeding that in case of either clause (a) or (b) could reasonably be expected to have a Material Adverse Effect. There has been no development in any Existing Litigation after April 10, 2000, and there has been no litigation or administrative proceeding that could, in the Majority Banks' sole judgment, impair the validity, enforceability or priority of the security interests to be granted in favor of the Banks under the Senior Loan Documents. 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, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA, in each case except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. SECTION 4.08. TAXES. The Borrower and its Subsidiaries have filed all United States Federal income tax returns, and the Borrower and its Subsidiaries have filed all other material tax returns, which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary Guarantor except where the payment of any such taxes is being contested in good faith by appropriate proceedings. Effective upon delivery by the Borrower of the Initial Financial Statements, the charges, accruals and reserves on the books of the Borrower and its Consolidated Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.09. SUBSIDIARIES. Schedule 1.01(c) sets forth a complete and correct list of the Borrower's Subsidiaries as of the Initial Borrowing Date, and the percentage ownership interest of the Borrower therein. Each of the Borrower's corporate Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. Each of the Borrower's Subsidiaries is an "Unrestricted Subsidiary" as referred to in Section 5.10. SECTION 4.10. ENVIRONMENTAL MATTERS. In the ordinary course of its business, the Borrower conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or hazardous substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the Borrower has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a Material Adverse Effect. SECTION 4.11. YEAR 2000 COMPLIANCE. The Borrower has (i) initiated a review and assessment of all areas within the business and operations of the Borrower and 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 substantial 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. SECTION 4.12. OTHER REPRESENTATIONS. The representations and warranties of the Borrower and each Subsidiary Guarantor set forth in each other Senior Loan Document and in each other Transaction Document are true and correct. SECTION 4.13. EXISTING AND INDEPENDENT LETTERS OF CREDIT. Schedule 4.13(a) sets forth all of the Existing Trade Letters of Credit of the Borrower and its Subsidiaries as of the Initial Borrowing Date which are to become Letters of Credit under this Agreement pursuant to Section 2.17. Schedule 4.13(b) sets forth all of the Independent Standby Letters of Credit of the Borrower and its Subsidiaries as of the Initial Borrowing Date which will continue to be outstanding in accordance with their terms after the Initial Borrowing Date. The Borrower and the Subsidiaries are account parties of no other letters of credit as of the Initial Borrowing Date. SECTION 4.14. INSURANCE. Schedule 4.14 sets forth a true, complete and correct description of all liability, property and casualty insurance maintained by the Borrower or by the Borrower for its Subsidiaries as of the Initial Borrowing Date. Such insurance is in full force and effect and all premiums have been duly paid. The Borrower and its Subsidiaries have insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice and as required by the Senior Loan Documents. SECTION 4.15. SOLVENCY. Immediately after the consummation of the Transactions to occur on the Initial Borrowing Date and immediately following the making of each Loan made on the Initial Borrowing Date and after giving effect to the application of the proceeds of such Loans, the fair value of the assets of the Borrower and the other Obligors, taken as a whole, at a fair valuation, will exceed their debts and liabilities, subordinated, contingent or otherwise; the present fair saleable value of the property of the Borrower and the other Obligors, taken as a whole will be greater than the amount that will be required to pay the probable liability of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; the Borrower and the other Obligors, taken as a whole will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and the Borrower and the other Obligors will not have unreasonably small capital with which to conduct the business in which they are engaged as such business is now conducted and is proposed to be conducted following the Initial Borrowing Date. SECTION 4.16. TITLE TO PROPERTIES. (a) Each of the Borrower and the Subsidiaries has good and marketable title to, or valid leasehold interests in, all its material real properties (including all Mortgaged Properties) and valid title to all other assets, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. All such material properties and assets are free and clear of Liens that secure indebtedness for borrowed money, other than Liens expressly permitted by Section 5.15 and as set forth in Schedule 4.16(b)(ii) (or arrangements reasonably satisfactory to the Senior Administrative Agent have been made for the release or discharge of such Liens). (b) Schedule 1.01(b) sets forth the address of each Mortgaged Property on the Initial Borrowing Date. As of the Initial Borrowing Date, none of the Mortgaged Properties are subject to leases, license agreements or subleases under which the Borrower or any Subsidiary is the lessor/licensor except as set forth on Schedule 4.16(b)(i). Each Mortgaged Property is free of Liens that secure indebtedness for borrowed money except for the Second Priority Mortgages and as set forth on Schedule 4.16(b)(ii) (or arrangements reasonably satisfactory to the Senior Administrative Agent have been made for the release of such Liens). (c) Schedule 4.16(c) sets forth the address of every leased warehouse or distribution center in which inventory owned by the Company and or any Subsidiary is located. SECTION 4.17. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT. None of the Borrower or any Subsidiary is an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 4.18. LABOR MATTERS. As of the Initial Borrowing Date, there are no strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending or, to the knowledge of the Borrower, threatened. The hours worked by and payments made to employees of the Borrower and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters. All payments due from the Borrower or any Subsidiary, or for which any claim may be made against the Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Borrower or such Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Borrower or any Subsidiary is bound. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any Loan or other amount payable remains unpaid or any Letter of Credit remains outstanding: SECTION 5.01. INFORMATION. The Borrower will deliver to each of the Banks: (a) (i) with respect to the fiscal year of the Borrower ended February 26, 2000 as soon as available but not later than July 11, 2000, and (ii) with respect to each following fiscal year of the Borrower as soon as available and in any event within 90 days (or within such longer period of time, not greater than 120 days, to which the SEC may extend the filing deadline for the Borrower's Annual Report on Form 10-K) after the end of each such fiscal year, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on without any material qualification by Deloitte & Touche (or other independent public accountants of nationally recognized standing); (b) with respect to the fiscal quarter of the Borrower ending May 27, 2000 as soon as available but not later then July 11, 2000, and (ii) with respect to each following fiscal quarter of the Borrower (other than the last fiscal quarter of a fiscal year) as soon as available and in any event within 45 days (or within such longer period of time, not greater than 60 days, to which the SEC may extend the filing deadline for the Borrower's Quarterly Report on Form 10-Q) after the end of each such fiscal quarter, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in each case in comparative form 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 a Financial Officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of a Financial Officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.11, 5.16, 5.17, 5.18 and 5.19 on the date of such financial statements, (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto and (iii) in the case of the certificate delivered together with the financial statements referred to in clause (a) above, a calculation of Excess Cash Flow for the applicable period specified in Section 2.12(e) and the amount required for Reductions hereunder, if any, in respect thereof; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above; (e) within three Business Days after the end of each fiscal month a certificate of a Financial Officer of the Borrower setting forth in reasonable detail, a description of each disposition of assets not in the ordinary course of business for which the book value or fair market value of the assets of the Borrower or the Subsidiaries disposed or the consideration received therefor was greater than $5,000,000; (f) (i) within five days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of a Financial Officer of the Borrower setting forth information with respect thereto in reasonable detail and the action which the Borrower is taking or proposes to take with respect thereto, and (ii) within five days after the general counsel of the Borrower obtains knowledge of the filing or commencement of any action, suit or proceeding, whether at law or in equity or by or before any court, governmental authority or other tribunal, against the Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect a certificate of such general counsel of the Borrower setting forth information with respect thereto in reasonable detail and the action which the Borrower is taking or proposes to take with respect thereto; (g) within four Business Days after the end of each fiscal week a Borrowing Base Certificate showing the Borrowing Base Amount as of the close of business on the last day of such fiscal week, each such Borrowing Base Certificate to be certified as complete and correct on behalf of the Borrower by a Financial Officer of the Borrower; (h) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (i) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the SEC; (j) within five days, if and when any member of the ERISA Group (i) gives or any Financial Officer becomes aware that such member is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or any Financial Officer knows that the plan administrator of any Plan has given or any Financial Officer becomes aware that such member is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer, any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of a Financial Officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; (k) on or prior to the dates specified below (or, in the reasonable discretion of the Senior Administrative Agent, no later than 5 days thereafter): (i) a monthly forecast of cash receipts and disbursements, commencing with July, 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 June 17, 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, 2002, no later than March 31, 2001; 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 (l) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries or the Collateral as the Senior Administrative Agent, at the request of any Bank, may reasonably request. Information required to be delivered pursuant to clauses (a), (b), (h) and (i) shall be deemed to have been delivered on the date on which the Borrower provides notice to the Banks that such information has been posted on the Borrower's website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux/searches.htm or at another website identified in such notice and accessible by the Banks without charge; provided that (i) such notice may be included in a certificate delivered pursuant to clause (c), and (ii) the Borrower shall deliver paper copies of the information referred to in clauses (a), (b), (h) and (i) to any Bank which requests such delivery. SECTION 5.02. PAYMENT OF OBLIGATIONS. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge, as the same shall become due and payable, (i) all material claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons prior to the time such claims or demands give rise to a material Lien upon any of its property or assets or a material risk of forfeiture of a Mortgaged Property, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except where any of the items in clause (i) or (ii) above may be contested in good faith by appropriate proceedings, and the Borrower or such Subsidiary, as the case may be, shall have set aside on its books, in accordance with generally accepted accounting principles, appropriate reserves, if any, for the accrual of any such items. SECTION 5.03. MAINTENANCE OF PROPERTY; INSURANCE. (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will, and will cause each of its Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to the Banks, upon request from the Senior Administrative Agent, information presented in reasonable detail as to the insurance so carried. The Borrower will, and will cause each of its Subsidiaries to, maintain such insurance in a coverage amount of not less than 90% of the coverage amount as of the Initial Borrowing Date, with deductibles, risks covered and other provisions (other than amount of premiums) not materially less favorable to the Borrower and its Subsidiaries as of the Initial Borrowing Date. (c) The Borrower will, and will cause each of the Subsidiary Guarantors to, cause all such policies to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement, in form and substance satisfactory to the Senior Administrative Agent and the Senior Collateral Agent, which endorsement shall provide that, from and after the Initial Borrowing Date, if the insurance carrier shall have received written notice from the Senior Administrative Agent or the Senior Collateral Agent of the occurrence of an Event of Default, the insurance carrier shall pay all proceeds otherwise payable to the Borrower and any other Obligor under such policies directly to the Senior Collateral Agent for application pursuant to the Collateral Trust and Intercreditor Agreement; cause all such policies to provide that neither the Borrower, the Senior Administrative Agent, the Senior Collateral Agent nor any other party shall be a coinsurer thereunder and to contain a "Replacement Cost Endorsement", without any deduction for depreciation, and such other provisions as the Senior Administrative Agent or the Senior Collateral Agent may reasonably require from time to time to protect their interests; deliver broker's certificates to the Senior Collateral Agent; cause each such policy to provide that it shall not be canceled or not renewed by reason of nonpayment of premium upon not less than 10 days prior written notice thereof by the insurer to the Senior Administrative Agent and the Senior Collateral Agent (giving the Senior Administrative Agent and the Senior Collateral Agent the right to cure defaults in the payment of premiums) or for any other reason upon not less than 30 days' prior written notice thereof by the insurer to the Senior Administrative Agent and the Senior Collateral Agent; deliver to the Senior Administrative Agent and the Senior Collateral Agent, before the cancellation or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Senior Administrative Agent and the Senior Collateral Agent) together with evidence reasonably satisfactory to the Senior Administrative Agent and the Senior Collateral Agent of payment of the premium therefor. (d) [Reserved]. (e) The Borrower will, and will cause each of the Subsidiary Guarantors to, with respect to any Mortgaged Property, carry and maintain comprehensive general liability insurance including the "broad form CGL endorsement" and coverage on an occurrence basis against claims made for personal injury (including bodily injury, death and property damage) and umbrella liability insurance against any and all claims, in no event for a combined single limit of less than $10,000,000, naming the Senior Collateral Agent (for the benefit of the Senior Bank Parties) as an additional insured, on forms satisfactory to the Senior Collateral Agent. (f) The Borrower will notify the Senior Administrative Agent and the Senior Collateral Agent promptly whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section is taken out by the Borrower or its Subsidiaries; and promptly deliver to the Senior Administrative Agent and the Senior Collateral Agent a duplicate original copy of such policy or policies. (g) In connection with the covenants set forth in this Section, it is agreed that: (i) none of the Senior Administrative Agent, the Banks, or their respective agents or employees shall be liable for any loss or damage insured by the insurance policies required to be maintained under this Section, and (A) the Borrower and each other Obligor shall look solely to their insurance companies or any other parties other than the aforesaid parties for the recovery of such loss or damage and (B) such insurance companies shall have no rights of subrogation against the Senior Administrative Agent, the Senior Collateral Agent, the Banks or their agents or employees. If, however, the insurance policies do not provide waiver of subrogation rights against such parties, as required above, then the Borrower hereby agrees, to the extent permitted by law, to waive its right of recovery, if any, against the Senior Administrative Agent, the Senior Collateral Agent, the Banks and their agents and employees; and (ii) the designation of any form, type or amount of insurance coverage by the Senior Administrative Agent, the Senior Collateral Agent or the Majority Banks under this Section shall in no event be deemed a representation, warranty or advice by the Senior Administrative Agent, the Senior Collateral Agent or the Banks that such insurance is adequate for the purposes of the business of the Borrower and the Subsidiaries or the protection of their properties. SECTION 5.04. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Except as otherwise permitted in this Agreement, the Borrower will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary (except where such Subsidiary merges into a Subsidiary Guarantor) to preserve, renew and keep in full force and effect their respective legal existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that the foregoing will not prohibit any merger or liquidation of, or sale of assets by, a Subsidiary that is permitted by Section 5.22. SECTION 5.05. COMPLIANCE WITH LAWS. The Borrower will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) applicable to it or its property except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply would not have a Material Adverse Effect. SECTION 5.06. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank (at such Bank's expense, unless a Default has occurred and is continuing, in which case at the Borrower's expense), after such Bank has consulted the Senior Administrative Agent with respect thereto, to visit and inspect any of their properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.07. RESTRICTION ON OTHER AGREEMENTS, PAYMENT LIMITATIONS, DEBT PREPAYMENTS, AMENDMENTS TO OTHER AGREEMENTS. (a) The Borrower will not, and will not permit any Subsidiary to, enter into any agreement which imposes a limitation on incurrence by the Borrower and its Subsidiaries of Liens that (i) would restrict any Subsidiary from granting Liens on any of its assets (including assets in addition to the then-existing Collateral to secure the Senior Obligations), or (ii) is more restrictive than the limitation on Liens set forth in this Agreement or (iii) which imposes other covenants more restrictive than those set forth in this Agreement except, in each case, (A) agreements with respect to Debt secured by Liens permitted by Section 5.15 containing restrictions on the ability to transfer or grant Liens on the assets securing such Debt, (B) customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, (D) pursuant to applicable law, (E) agreements in effect as of the Initial Borrowing Date and not entered into in contemplation of the Transactions and (F) the Existing Facilities Documents and the Forward Commitment Agreement as in effect on the Initial Borrowing Date. (b) The Borrower will not, and will not permit any Subsidiary to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (i) make Restricted Payments in respect of any capital stock of such Subsidiary held by, or pay any Debt owed to, the Borrower or any other Subsidiary, (ii) make any Investment in the Borrower or any other Subsidiary, or (iii) transfer any of its assets to the Borrower or any other Subsidiary, except for such encumbrances or restrictions existing under or by reason (A) any restriction existing under the Senior Loan Documents, the Second Priority Debt Documents, the Indentures or the Forward Commitment Agreement, (B) any restrictions with respect to PCS imposed pursuant to a PCS Disposition pending the consummation thereof, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, and (D) as required by applicable law. (c) The Borrower will not, and will not permit any Subsidiary to, make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption or, or otherwise voluntarily or optionally defease, the Existing Facilities, the Exchange Debt Obligations, the Synthetic Lease Facilities, the Existing Notes (as defined in Annex 3) (other than pursuant to the Exchange Offer, as defined in Annex 3), the Exchange Notes or any other Debt for borrowed money of the Borrower or any Subsidiary, or segregate funds for any such payment, prepayment, repurchase, redemption or defeasance, except for refinancings, refundings and exchanges pursuant to Section 5.20(d) or repurchases or redemption of such Debt for consideration consisting solely of common stock of the Borrower or Qualified Preferred Stock or prepayments of Capital Leases in connection with the sale, closing or relocation of Stores; or (d) The Borrower shall not, and will not permit any Subsidiary party to the Intercompany Inventory Purchase Agreement to, amend, terminate, or otherwise modify the Intercompany Inventory Purchase Agreement in any manner materially adverse to the Senior Bank Parties or their interests under the Senior Loan Documents without the prior written approval of the Senior Collateral Agent, provided, however, the foregoing shall not limit the Borrower's responsibilities pursuant to Section 3.2 of the Intercompany Inventory Purchase Agreement. SECTION 5.08. FURTHER ASSURANCES. The Borrower will cause each of the Subsidiary Guarantors to execute any and all further documents, financing statements, recordations, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements, recordations, mortgages and deeds of trust) that may be required under applicable law, or that the Majority Banks, the Syndication Agents, the Senior Administrative Agent or the Senior Collateral Agent may reasonably request, in order to effectuate the transactions contemplated by the Senior Loan Documents and in order to grant, preserve, protect and perfect the validity and first priority of the security interests created or intended to be created by the Senior Collateral Documents. The Borrower will cause any subsequently acquired or organized Domestic Subsidiary to execute a Senior Subsidiary Guarantee Agreement, Senior Indemnity, Subrogation and Contribution Agreement, Senior Subsidiary Security Agreement and any applicable financing statement or other recordation from time to time, and to comply with the terms thereof. The Borrower agrees to cause to be provided such evidence as the Senior Collateral Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. SECTION 5.09. BORROWING BASE REVIEWS. (a) The Borrower will, and will cause each of the Subsidiary Guarantors to, from time to time upon the request of the Senior Collateral Agent or the Majority Banks through the Senior Administrative Agent, or upon any request from an increase in the Pharmaceutical Advance Rate above 62% or an increase in the Other Inventory Advance Rate above 55%, permit the Senior Collateral Agent or professionals (including investment bankers, consultants, accountants, lawyers and appraisers) retained by the Senior Collateral Agent to conduct evaluations and appraisals of (i) the Borrower's practices in the computation of the Borrowing Base Amount and (ii) the assets included in the Borrowing Base Amount, and pay the reasonable fees and expenses of such professionals. (b) The Borrower will, and will cause each of the Subsidiary Guarantors to, in connection with any evaluation and appraisal relating to the computation of the Borrowing Base Amount, maintain such additional reserves (for purposes of computing the Borrowing Base Amount) in respect of Eligible Accounts Receivable and Eligible Inventory and make such other adjustments to its parameters for including Eligible Accounts Receivable and Eligible Inventory in the Borrowing Base Amount as the Senior Collateral Agent shall require based upon the results of such evaluation and appraisal in its reasonable judgment to reflect Borrowing Base Factors. SECTION 5.10. SUBSIDIARIES. The Borrower will cause all of its Subsidiaries that own Eligible Accounts Receivable or Eligible Inventory to be "Unrestricted Subsidiaries" as defined in, and for all purposes of, each of the Indentures and will deliver such documents to the trustees under each of the Indentures and take such actions thereunder as may be necessary to effect the foregoing. SECTION 5.11. INTERCOMPANY TRANSFERS. The Borrower shall establish and maintain accounting systems capable of tracing intercompany transfers of funds and other assets. SECTION 5.12. INVENTORY PURCHASING. (a) The Borrower shall, and shall cause each Subsidiary party to the Intercompany Inventory Purchase Agreement, at all times to establish and maintain in all material respects the vendor inventory purchasing system and the intercompany inventory purchasing system in accordance with the terms of the Intercompany Inventory Purchase Agreement. (b) The Borrower shall notify in writing in a manner reasonably satisfactory to the Senior Administrative Agent all of its Vendors (as such term is defined in the Intercompany Inventory Purchase Agreement) no later than 30 days from the Closing Date with respect to the Intercompany Inventory Purchase Agreement. In addition, the Borrower shall use its best efforts to obtain the consent of any Vendor to the Intercompany Inventory Purchase Agreement no later than 120 days from the Closing Date; provided, that (i) any such Vendor which presents invoices for the purchase of inventory reflecting Rite Aid Hdqtrs. Corp. as the purchaser shall be deemed to have given such consent, and (ii) to the extent that any Vendor (or inventory supplied by any Vendor) which is material to the conduct of the business of the Borrower and its Subsidiaries, taken as a whole, has not given such consent within 120 days from the Closing Date, the Borrower will thereafter diligently endeavor to obtain such consents. (c) The Borrower shall not permit any Operating Subsidiary (as defined in the Intercompany Inventory Purchase Agreement) to purchase any Inventory (as defined in the Intercompany Inventory Purchase Agreement) from any Direct Delivery Vendor (as defined in the Intercompany Inventory Purchase Agreement) other than (i) acquisition of inventory from McKesson Corporation consistent with past practice, and (ii) foodstuffs, beverages, periodicals, greeting cards and similar items which are either paid for in cash substantially concurrently with the time of delivery or otherwise consistent with past practice. SECTION 5.13. CASH MANAGEMENT SYSTEM. The Borrower will cause each Subsidiary Guarantor to at all times maintain a Cash Management System that complies with Schedule 5 of the Senior Subsidiary Security Agreement. The Borrower will cause each Subsidiary Guarantor to comply with each obligation thereof under the Cash Management System. The Borrower will cause each Subsidiary Guarantor to comply with each of its obligations under the Cash Management System, and shall cause each Subsidiary Guarantor to use its best efforts to cause any applicable third party to effectuate the Cash Management System. SECTION 5.14. RESTRICTION ON SALE AND LEASEBACK TRANSACTIONS. Except for a sale or transfer by a Subsidiary to a Subsidiary Guarantor, the Borrower will not, and will not permit any Subsidiary to, enter into any Sale and Leaseback Transaction after the Closing Date other than (a) a Sale and Leaseback Transaction listed on Schedule 5.14(a), (b) with respect to any property other than a Mortgaged Property owned by the Borrower or any Subsidiary Guarantor as of the Initial Borrowing Date, for a lease for a period, including renewals, not exceeding 24 months, by the end of which period it is intended that the use of such property or equipment by the lessee will be discontinued; provided, however, that such Sale and Leaseback Transaction will be subject to Section 5.23(b), (c) with respect to any property other than a Mortgaged Property, if entered into in respect of property acquired, developed or constructed by the Borrower or a Subsidiary after the Initial Borrowing Date, if such Sale and Leaseback Transaction is entered into within 24 months from the date of completion of such acquisition, development or construction (which, in the case of any Store, shall be deemed to be 24 months from the date of the opening of such Store), or (d) if none of clauses (a) through (c) above are applicable, any other Sale and Leaseback Transaction not involving a Mortgaged Property, subject to Section 5.23(b). SECTION 5.15. RESTRICTION ON LIENS. The Borrower will not, and will not permit any Subsidiary to, create, issue, incur, assume or guarantee any Secured Debt; provided that the foregoing covenant shall not apply to the following: (a) (i) any Lien on any property in connection with a Sale and Leaseback Transaction permitted by Section 5.14, (ii) the acquisition by the Borrower or a Subsidiary of property subject to any Lien upon such property existing at the time of acquisition thereof, whether or not assumed by the Borrower or such Subsidiary and not created in anticipation of such acquisition which acquisition is not otherwise prohibited by this Agreement, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired; provided that the Lien does not attach to other property except unimproved real property previously owned upon which any new construction has taken place and subsequent additions to such acquired or constructed property; (b) any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 5.15 or any Lien securing the Debt of the Borrower or of any Subsidiary on the date of this Agreement or of a corporation at the time such corporation becomes a Subsidiary, or any extensions, renewals or refundings of any such Lien; provided that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding Lien shall be limited to all or that part of the same property which secured the Debt so extended, renewed or refunded; (c) any Lien securing Debt of a Subsidiary owing to a Subsidiary Guarantor; (d) any Lien created by the Senior Loan Documents; (e) any Lien created or permitted by the Second Priority Collateral Documents with respect to the Second Priority Debt Obligations in favor of the Second Priority Debt Parties; provided that such Lien is created simultaneously with or after an equivalent Lien under the Senior Collateral Documents on the applicable Collateral and is subject to the Collateral Trust and Intercreditor Agreement, and any Lien on the proceeds of such Collateral permitted by the Collateral Trust and Intercreditor Agreement; (f) any Lien under the Exchange Debt First Priority Collateral Documents in favor of the Exchange Debt Parties, provided that such Lien is limited to the Exchange Debt First Priority Collateral; (g) any Lien under the PCS Pledge Agreement and the Drugstore.com Pledge Agreement in favor of the Existing Facility Parties and the Synthetic Lease Parties, provided that such Lien is limited to the "Collateral" as such term is defined in each such document; (h) existing Liens under the Synthetic Lease Documents and Liens under the Synthetic Leases permitted pursuant to Section 5.29; (i) Liens identified on Schedule 5.15(i); provided, however, that such Liens do not attach to any other property other than that identified in such Schedule; (j) Liens in respect of Debt or Attributable Debt permitted under Section 5.20(f), (g), (h), (i) and (j) so long as such Liens attach only to (i) the equipment subject to such financing, (ii) the property to which they attach on the Initial Borrowing Date (or in the case of any lease which is reclassified as a Capital Lease, any property subject to such lease on the Initial Borrowing Date), or (iii) the property or assets constructed, developed or purchased with such financing; (k) any Lien consisting of the cash collateralization of Independent Standby Letters of Credit if (i) there is a default in the payment when due of any reimbursement obligation in connection therewith or (ii) if (and for so long as) an Event of Default has occurred and is continuing hereunder; and (l) any Lien on Net Cash Proceeds of Reduction Events allocated to the Exchange Note Obligations in accordance with the Collateral Trust and Intercreditor Agreement, which Lien arises pursuant to Section 10.14 of the Exchange Note Indenture. SECTION 5.16. CAPITAL EXPENDITURES. The aggregate amount of Consolidated Capital Expenditures for any period set forth below shall not exceed the amount set forth below opposite such period:
PERIOD AMOUNT IF A PCS DIVESTITURE IF NO PCS DIVESTITURE HAS HAS BEEN BEEN CONSUMMATED ON OR CONSUMMATED ON OR BEFORE THE LAST DAY OF SUCH BEFORE THE LAST DAY OF PERIOD, MAXIMUM SUCH PERIOD, MAXIMUM CONSOLIDATED CAPITAL RETAIL CAPITAL EXPENDITURES EXPENDITURES Fiscal quarter ending on August 26, 2000 $70,000,000 $64,000,000 Two fiscal quarters ending on November 25, 2000 $138,000,000 $125,000,000 Three fiscal quarters ending on March 3, 2001 $205,000,000 $186,000,000 Four fiscal quarters ending on June 2, 2001 $270,000,000 $245,000,000 Four fiscal quarters ending on September 1, 2001 $265,000,000 $241,000,000 Four fiscal quarters ending on December 1, 2001 $265,000,000 $242,000,000 Four fiscal quarters ending on March 2, 2002 $265,000,000 $243,000,000 Four fiscal quarters ending on June 1, 2002 $265,000,000 $243,000,000
SECTION 5.17. MINIMUM EBITDA. The aggregate amount of Consolidated EBITDA, Retail EBITDA or PCS EBITDA, as the case may be, for any period set forth below shall not be less than the amount set forth below opposite such period:
PERIOD AMOUNT IF A PCS IF NO PCS DIVESTITURE HAS DIVESTITURE IF NO PCS BEEN HAS BEEN DIVESTITURE HAS BEEN CONSUMMATED CONSUMMATED CONSUMMATED ON OR ON OR BEFORE ON OR BEFORE BEFORE THE LAST DAY OF THE LAST DAY OF THE LAST DAY SUCH PERIOD, SUCH PERIOD, OF SUCH MINIMUM MINIMUM PERIOD, CONSOLIDATED RETAIL MINIMUM EBITDA EBITDA PCS EBITDA Fiscal quarter ending on August 26, 2000 $104,000,000 $81,000,000 N/A Two fiscal quarters ending on November 25, 2000 $244,000,000 $194,000,000 N/A Three fiscal quarters ending on March 3, 2001 $448,000,000 $364,000,000 N/A Four fiscal quarters ending on March 3, 2001 N/A N/A $100,000,000 Four fiscal quarters ending on June 2, 2001 $599,000,000 $480,000,000 N/A Four fiscal quarters ending on September 1, 2001 $680,000,000 $542,000,000 N/A Four fiscal quarters ending on December 1, 2001 $760,000,000 $603,000,000 N/A Four fiscal quarters ending on March 2, 2002 $860,000,000 $689,000,000 $100,000,000 Four fiscal quarters ending on June 1, 2002 $894,000,000 $720,000,000 N/A
SECTION 5.18. MINIMUM INTEREST COVERAGE RATIO. At no time shall the Consolidated Interest Coverage Ratio or the Retail Interest Coverage Ratio, as the case may be, for any period be less than the amount set forth below opposite such period:
PERIOD AMOUNT IF NO PCS DIVESTITURE HAS IF A PCS DIVESTITURE HAS BEEN CONSUMMATED ON OR BEEN CONSUMMATED ON OR BEFORE THE LAST DAY OF BEFORE THE LAST DAY OF SUCH SUCH PERIOD, THE PERIOD, THE MINIMUM MINIMUM CONSOLIDATED RETAIL INTEREST COVERAGE INTEREST COVERAGE RATIO RATIO Fiscal quarter ending on August 26, 2000 .75 .72 Two fiscal quarters ending on November 25, 2000 .86 .84 Three fiscal quarters ending on March 3, 2001 1.01 1.00 Four fiscal quarters ending on June 2, 2001 1.01 .99 Four fiscal quarters ending on September 1, 2001 1.12 1.09 Four fiscal quarters ending on December 1, 2001 1.23 1.19 Four fiscal quarters ending on March 2, 2002 1.39 1.37 Four fiscal quarters ending on June 1, 2002 1.40 1.40
SECTION 5.19. MINIMUM FIXED CHARGE COVERAGE RATIO. At no time shall the Consolidated Fixed Charge Coverage Ratio or the Retail Fixed Charge Coverage Ratio, as the case may be, for any period set forth below be less than the amount set forth below opposite such period:
PERIOD AMOUNT IF NO PCS DIVESTITURE HAS BEEN CONSUMMATED ON OR IF A PCS DIVESTITURE HAS BEFORE THE LAST DAY OF BEEN CONSUMMATED ON OR SUCH PERIOD, THE BEFORE THE LAST DAY OF SUCH MINIMUM CONSOLIDATED PERIOD, THE MINIMUM FIXED CHARGE COVERAGE RETAIL FIXED CHARGE RATIO COVERAGE RATIO Fiscal quarter ending on August 26, 2000 .88 .88 Two fiscal quarters ending on November 25, 2000 .94 .93 Three fiscal quarters ending on March 3, 2001 1.01 1.00 Four fiscal quarters ending on June 2, 2001 1.01 .99 Four fiscal quarters ending on September 1, 2001 1.06 1.04 Four fiscal quarters ending on December 1, 2001 1.11 1.09 Four fiscal quarters ending on March 2, 2002 1.19 1.17 Four fiscal quarters ending on June 1, 2002 1.20 1.19
SECTION 5.20. RESTRICTION ON DEBT. The Borrower will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any Debt or any Attributable Debt in respect of any Sale and Leaseback Transaction except: (a) Debt under the Senior Loan Documents; (b) the Existing Facility Obligations, the Exchange Note Obligations, and Debt under the Indentures in each case in a principal amount not greater than the principal amount thereof on the Initial Borrowing Date after giving effect to the Transactions; provided that no Subsidiary Guarantor will have any liability thereon except its obligations under the Second Priority Collateral Agreements or the Exchange Debt First Priority Collateral Documents; (c) Attributable Debt of (i) the Synthetic Lease Obligations in a principal amount not greater than the principal amount thereof on the Initial Borrowing Date, plus amounts permitted pursuant to Section 5.29; provided that no Subsidiary Guarantor will have any liability thereon except its obligations under the Second Priority Collateral Agreements and (ii) any Sale and Leaseback Transactions in existence on the Closing Date; (d) unsecured Debt of the Borrower extending, or having the effect of extending, the maturity of, or refunding, refinancing or exchanging, in whole or in part, Debt described in clauses (b) and (c), provided that (i) the terms of any such extending, refunding, refinancing or exchanging of Debt, and of any agreement entered into and of any instrument issued in connection therewith, are otherwise permitted by the Senior Loan Documents, (ii) the terms relating to principal amount, amortization, maturity, convertibility and subordination (if any), and other material terms taken as a whole, of any such extending, refunding, refinancing or exchanging of Debt, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Borrower and the Subsidiaries or the Senior Bank Parties than the terms of any agreement or instrument governing the Debt being extended, refunded, refinanced or exchanged and the interest rate applicable to such extending, refunding or refinancing Debt does not exceed the then applicable market interest rate, and (iii) the principal amount of such extending, refunding, refinancing or exchanging of Debt shall not be increased above the principal amount of the Debt being extended, refunded, refinanced or exchanged outstanding immediately prior to such extension, refunding, refinancing or exchanging; (e) indorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (f) Debt for borrowed money and Capital Leases existing on the date hereof and set forth in Schedule 5.20(f), but not any extensions, renewals or replacements of such Debt; (g) Debt or Attributable Debt in respect of Capital Leases (whether or not in the form of Sale and Leaseback Transactions or Synthetic Leases) so long as such Capital Leases were leases existing as of the Initial Borrowing Date, which are reclassified from operating leases to Capital Leases; (h) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions in respect of equipment financing or leasing in the ordinary course of business of the Borrower and its Subsidiaries consistent with past practices; (i) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions incurred to finance the acquisition, development, construction or opening of any Store after the Initial Borrowing Date which is not inconsistent with the Borrower's business plan delivered pursuant to Section 3.01(l); provided that such Debt or Attributable Debt is (A) incurred within 24 months of the completion of the acquisition, development, construction or opening thereof, and any Lien securing such Debt or Attributable Debt is limited to the Store financed with the proceeds thereof, or (B) in the case of a Sale and Leaseback Transaction, permitted under Section 5.14(a), (b) or (c); (j) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions incurred to finance the acquisition after the Initial Borrowing Date of property or assets provided that (i) such Debt or Attributable Debt is incurred within 24 months of the acquisition of such property or assets, (ii) any Lien securing such Debt or Attributable Debt is limited to the property or assets financed with the proceeds thereof and (iii) the aggregate principal amount of Debt and Attributable Debt incurred pursuant to this clause (j) shall not exceed $50,000,000 at any time outstanding; and (k) Debt in respect of the Independent Standby Letters of Credit, or any extension, renewals, replacements or reissuances thereof; provided that the aggregate drawable stated amount and unreimbursed drawings of all Independent Standby Letters of Credit outstanding at any time shall not exceed $34,000,000 less the stated amount of any such letters of credit which expire or are not extended, replaced or renewed; (l) Debt of the Borrower and its Subsidiaries in respect of intercompany investments permitted under Section 5.21(a); and (m) unsecured Debt of the Borrower not otherwise permitted by this Section in an aggregate principal amount at any time outstanding not to exceed $100,000,000. SECTION 5.21. LIMITATION ON INVESTMENTS AND ACQUISITIONS. (a) Neither the Borrower nor any Subsidiary will make or acquire any Investment in any Person other than: (i) Investments in Subsidiary Guarantors, other than PCS and its Subsidiaries; (ii) Investments of the Borrower and the Subsidiary Guarantors in existence on the Initial Borrowing Date; (iii) advances made by Rite Aid Hdqtrs. Corp. to PCS that reduce the intercompany payable due from Rite Aid Hdqtrs. Corp. to PCS; (iv) Temporary Cash Investments; (v) Investments received as consideration for any sale or other disposition permitted by Section 5.23; (vi) Investments in Drugstore.com existing on the date hereof; (vii) Investments of PCS and its Subsidiaries in PCS and its Subsidiaries; (viii) Investments by the Subsidiaries of the Borrower in the Borrower, but only to the extent that the uses of the proceeds of such Investments would be permitted as uses of proceeds of the Loans pursuant to Section 5.24(b); (ix) Exchange Notes issued by the Borrower to and held by SPV pursuant to the Forward Commitment Agreement; and (x) any Investment by a Subsidiary Guarantor in a Person other than a Subsidiary that is not otherwise permitted by the foregoing clauses of this Section if, immediately after such Investment is made or acquired, the aggregate net book value of all Investments permitted by this clause (x) does not exceed at any one time outstanding the greater of (A) $200,000,000 or, (B) after the delivery of the Initial Financial Statements, 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 (including Debt assumed or consolidated in accordance with generally accepted accounting principles) in connection with all such Business Acquisitions on or after the Initial Borrowing Date would exceed $15,000,000. SECTION 5.22. CONSOLIDATIONS AND MERGERS. (a) Without limiting the restrictions on Business Acquisitions set forth above, the Borrower will not consolidate or merge with or into any other Person; provided that the Borrower may merge with another Person if (i) the Borrower is the corporation surviving such merger, (ii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, and (iii) if such other Person is a Subsidiary Guarantor, such Subsidiary Guarantor shall have no property that constitutes Senior Collateral. (b) No Subsidiary Guarantor will consolidate or merge with or into any other Person, except (i) without limiting the restrictions on Business Acquisitions set forth above, a Subsidiary Guarantor may merge with another Person if (A) either (1) a Subsidiary Guarantor is the corporation surviving such merger, or (2) the Subsidiary Guarantor that merges with such Person shall have no property that constitutes Senior Collateral, and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing, (ii) PCS or its Subsidiaries may consolidate with or merge into another Person as part of a PCS Disposition. SECTION 5.23. DISPOSITIONS OF ASSETS. (a) The Borrower will not dispose of any capital stock of any Subsidiary Guarantor other than to another Subsidiary Guarantor, or permit any Subsidiary Guarantor to issue capital stock to any Person other than the Borrower or another Subsidiary Guarantor, except, in each case, for a PCS Disposition. (b) The Borrower will not, and will not permit any Subsidiary Guarantor to, dispose of any property or assets except (i) any Permitted Disposition; (ii) any PCS Disposition or sale or other disposition of the stock of Drugstore.com; and (iii) any other disposition of property or assets of the Borrower or any Subsidiary for fair value not in the ordinary course of business; provided that (A) with respect to such dispositions of Collateral under this clause (iii) (1) at least 75% of the consideration therefor shall consist of cash, and (2) the Net Cash Proceeds of such disposition of Collateral are applied as provided in Section 4.05 of the Collateral Trust and Intercreditor Agreement; and (B) if the amount of any prepayment under Section 4.05 of the Collateral Trust and Intercreditor Agreement would be less than the applicable Required Prepayment Amount, such disposition will not be consummated without the prior approval of the Majority Banks; provided, however that this limitation shall not apply to such dispositions to the extent that the cumulative value of the consideration received by the Borrower and any such Subsidiary for all such dispositions otherwise limited by this clause (B) does not exceed $50,000,000. (c) The consideration received by the Borrower or the applicable Subsidiary Guarantor for any PCS Disposition or the disposition of the capital stock of Drugstore.com shall be for the fair market value of such disposition and shall consist solely of a combination of at least 75% cash and no more than 25% of publicly traded securities, in each case payable and deliverable at the closing of such disposition, unless, (i) in the case of a PCS Disposition, the "Required Banks" under the PCS Facility otherwise agree or (ii) in the case of a disposition of the capital stock of Drugstore.com, the "Required Banks" under the RCF Facility otherwise agree. Consideration in the form of forgiveness of intercompany obligations shall be disregarded for purposes of determinations of compliance with this clause (c). SECTION 5.24. USE OF PROCEEDS. (a) The proceeds of the Term Loans will be used by the Borrower exclusively (i) to be advanced to the applicable Subsidiary Guarantors to finance the repurchase by Subsidiary Guarantors that are the sellers thereof from the purchasers thereof of all outstanding uncollected receivables to be collected by the Borrower as collection agent under the Securitization Facility, (ii) to pay transaction costs for the Transactions, and (iii) for purposes set forth in clause (b). (b) The proceeds of the Revolving Loans and Swingline Loans will be used by the solely Borrower for the following purposes: (i) loans or other transfers to Rite Aid Hdqtrs. Corp. for purposes of financing inventory purchases pursuant to the Intercompany Inventory Purchase Agreement and advancing funds to Subsidiary Guarantors for their general corporate purposes, including working capital, permitted Capital Expenditures and permitted Business Acquisitions; (ii) transfers to an operating account for the payment of operating expenses (including rent, utilities, taxes, wages, repair and similar expenses) of, and intercompany Investments permitted under Section 5.21(a) in, the Borrower or any Subsidiary Guarantors; (iii) payment by the Borrower of principal, interest, fees and expenses with respect to its Debt when due (including associated costs, fees and expenses) and payment of the Borrower's taxes, administrative, operating and other expenses; and (iv) dividends required to be made in respect of the capital stock listed on Schedule 5.24(b)(iv). (c) Letters of Credit may be issued in the ordinary course of the Borrower's business for permitted general corporate purposes. (d) No use of the proceeds of the Loans or the issuance of Letters of Credit will be for the purpose of prepaying commercial paper prior to the maturity thereof and no such use of proceeds will be, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation U. The Borrower will ensure that no such use of proceeds or issuance of Letters of Credit will violate Regulation T, U or X. SECTION 5.25. RESTRICTIONS ON ASSET HOLDINGS BY THE BORROWER. The Borrower will not at any time: (i) make or hold any Investments other than investments in the capital stock of Drugstore.com and its Subsidiaries (including any distributions or other assets received in respect thereto), Investments received as consideration in connection with the PCS Disposition or a disposition of Drugstore.com, intercompany advances to Subsidiaries, and Investments permitted by clause (iii) below; (ii) acquire or hold any Stores, other capital assets, inventory or accounts receivable, other than any real estate which the Borrower holds only as lessor, and which is leased and operated by another Person; or (iii) acquire or hold cash, cash equivalents, Temporary Cash Investments or balances in bank accounts other than such amounts as are reasonably anticipated (at the time so acquired or held) to be utilized within five Business Days to pay costs, expenses and other obligations of the Borrower referred to in Section 5.24(b). SECTION 5.26. RESTRICTED PAYMENTS. After the date hereof, neither the Borrower nor any Subsidiary will declare or make any Restricted Payment other than (a) payments of dividends to Subsidiary Guarantors; and (b) payments of cash dividends (i) to the Borrower for purposes permitted as uses of the proceeds of the Loans pursuant to Section 5.24(b), and (ii) required to be made in respect of the capital stock listed on Schedule 5.24(b)(iv). SECTION 5.27. BUSINESS OF BORROWER AND SUBSIDIARIES. The Borrower will not, and will not cause or permit any of the Subsidiaries to, engage at any time in any business or business activity other than the business conducted on the Initial Borrowing Date by it and business activities reasonably incidental thereto. Without limitation of the foregoing, the Borrower will not permit SPV to have any assets or liabilities or conduct any business other than as specifically contemplated by the Forward Commitment Agreement. SECTION 5.28. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not cause or permit any of the Subsidiaries to, directly or indirectly enter into or conduct any transactions or series of transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any Affiliate of the Borrower, other than the payment of transaction costs approved by the Senior Administrative Agent before the Initial Borrowing Date (an "Affiliate Transaction"), other than (a) the payment of compensation to directors, officers, and employees of the Borrower and its Subsidiaries in the ordinary course of business; (b) payments in respect of Affiliate Transactions required to be made pursuant to agreements or arrangements in effect on the Initial Borrowing Date and set forth in Schedule 5.28 hereto; (c) Affiliate Transactions involving the acquisition of inventory in the ordinary course of business, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Borrower or such Subsidiary as the case may be, and (C) no less favorable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Borrower, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000, the board of directors of the Borrower (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (C) of this paragraph; (d) the issuance of Exchange Notes by the Borrower to the SPV as contemplated by the Forward Commitment Agreement; (e) any other Affiliate Transaction, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Borrower or such Subsidiary, as the case may be, and (C) no less favorable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Borrower, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $25,000,000 in any 12-month period, the board of directors of the Borrower (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (C) of this paragraph and (iii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000 in any 12-month period, the Borrower obtains a written opinion from an independent investment banking firm or appraiser of national prominence, as appropriate to the effect that such transaction is fair to the Borrower or such Subsidiary, as the case may be, from a financial point of view; and (f) Affiliate Transactions between or among the Borrower and/or one or more Subsidiary Guarantors; provided that any such transaction between PCS or a Subsidiary of PCS (a "PCS Entity"), on the one hand, and the Borrower or a Subsidiary Guarantor which is not a PCS Entity, on the other hand, shall be in the ordinary course of business. SECTION 5.29. NEW SYNTHETIC LEASES. Neither the Borrower nor any Subsidiary will enter into any Synthetic Lease after the Initial Borrowing Date if, after giving effect thereto, the aggregate amount financed under all Synthetic Leases entered into in any period of twelve consecutive calendar months commencing after the date hereof would exceed $35,000,000 unless such Synthetic Lease is otherwise permitted under Section 5.20(h), (i) or (j). SECTION 5.30. CORPORATE SEPARATENESS. The Borrower will, and will cause each Subsidiary to, take all necessary steps to maintain its identity as a separate legal entity from other Persons and to make it manifest to third parties that it is an entity with assets and liabilities distinct from those of each of other Person. SECTION 5.31. LIMITATION ON DERIVATIVE OBLIGATIONS. The Borrower will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any monetary liability under any Derivative Obligations; unless such Derivative Obligations are entered into for bona fide hedging purposes of the Borrower or its Subsidiary Guarantors (as determined in good faith by the board of directors or senior management of the Borrower) and correspond in terms of notional amount, duration, currencies and interest rates, as applicable, to Debt of the Borrower or its Subsidiary Guarantors incurred without violation of this Agreement or to business transactions of the Borrower or its Subsidiary Guarantors on customary terms entered into in the ordinary course of business, and do not exceed an amount equal to the aggregate principal amount of the Loans and the Second Priority Debt Obligations. ARTICLE 6 DEFAULTS SECTION 6.01. EVENTS OF DEFAULT. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within five days of the due date thereof any interest, fees or other amount payable hereunder; (b) the Borrower or any Subsidiary Guarantor shall fail to observe or perform any covenant contained in Sections 5.07, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17, 5.18, 5.19, 5.20, 5.21, 5.22, 5.23, 5.24, 5.26, 5.27, 5.28, and 5.29; (c) the Borrower or any Subsidiary Guarantor shall fail to observe or perform any covenant or agreement contained in the Senior Loan Documents (other than those covered by clause (a) or (b) above) in the case of covenants contained in Section 5.06 or 5.09, for 5 days, and in the case of any other covenant, for 20 days after written notice thereof has been given to the Borrower by the Senior Administrative Agent at the request of the Majority Banks; (d) any representation, warranty, certification or statement made (or deemed made) by the Borrower or any Subsidiary Guarantor in any Senior Loan Document or in any certificate, financial statement or other document delivered pursuant to any Senior Loan Document shall prove to have been incorrect in any material respect when made (or deemed made); (e) the Borrower or any Subsidiary shall fail to make any payment in respect of any Material Financial Obligations, including any obligation to reimburse letter of credit obligations or to post cash collateral with respect thereto, when due or within any applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Financial Obligations or enables (or, if such event or condition does not otherwise give rise to a Default hereunder, which with the giving of notice or lapse of time or both would enable) the holder of such Material Financial Obligations or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) the Borrower or any Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $5,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer, any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000; (j) judgments or orders, individually or in the aggregate, for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; (k) (i) any Lien created by any Senior Collateral Document shall at any time fail to constitute a valid and (to the extent required by such Senior Collateral Document) perfected Lien on all of the Senior Collateral purported to be subject thereto, securing the obligations purported to be secured thereby, with the priority required by the Senior Loan Documents; provided, however, if such failure does not result in a prepayment obligation pursuant to Section 2.12(b), such failure continues uncured for 30 days, or (ii) the Borrower or any Subsidiary shall so assert in writing, or any Senior Loan Document shall become invalid or the Borrower or any Subsidiary shall so assert in writing; (l) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) other than Green Equity Investors III, L.P., and its Affiliates shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under said Act) of 20% or more of the outstanding shares of common stock of the Borrower; or, during any period of 12 consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; or (m) any Subsidiary Guarantor shall amend or revoke any instruction in the Government Lockbox Account Agreement to any Government Lockbox Account Bank in respect of a Government Lockbox Account unless the Senior Administrative Agent shall have given its prior written consent; then, and in every such event, the Senior Administrative Agent shall (i) if requested by the Majority Revolving Credit Banks, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Loans (together with accrued interest thereon) to be, and the Loans (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Senior Administrative Agent or the Banks, the Commitments shall thereupon terminate and the Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.02. NOTICE OF DEFAULT. The Senior Administrative Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE 7 THE AGENTS SECTION 7.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably appoints and authorizes the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents to take such action as agent on its behalf and to exercise such powers under the Senior Loan Documents as are delegated to such Agent by the terms thereof, together with all such powers as are reasonably incidental thereto. The Senior Administrative Agent is hereby expressly authorized by the Banks and the Issuing Banks, without hereby limiting any implied authority, (a) to receive on behalf of the Banks and the Issuing Banks all payments of principal of and interest on the Loans, all payments in respect of L/C Disbursements and all other amounts due to the Banks hereunder, and promptly to distribute to each Bank its proper share of each payment so received; (b) to give notice on behalf of each of the Banks or the Issuing Banks to the Borrower of any Event of Default specified in this Agreement of which the Senior Administrative Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Bank copies of all notices, financial statements and other materials delivered by the Borrower or any other Obligor pursuant to this Agreement or the other Senior Loan Documents as received by the Senior Administrative Agent. Without limiting the generality of the foregoing, the Agents are hereby expressly authorized to execute any and all documents (including releases) with respect to the Senior Collateral and the rights of the Senior Bank Parties with respect thereto, as contemplated by and in accordance with the provisions of this Agreement and the Senior Collateral Documents. SECTION 7.02. SENIOR ADMINISTRATIVE AGENT AND AFFILIATES. Each of Citicorp USA, Heller Financial, Inc., and Fleet Retail Finance Inc. shall have the same rights and powers under the Senior Loan Documents as any other Bank and may exercise or refrain from exercising the same as though it were not an Agent, and Citicorp USA, Heller Financial, Inc., and Fleet Retail Finance Inc. and their affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not an Agent. SECTION 7.03. ACTION BY AGENTS. The obligations of the Agents under the Senior Loan Documents are only those expressly set forth therein. Without limiting the generality of the foregoing, no Agent shall be required to take any action with respect to any Default, except as expressly provided in the Senior Loan Documents. The Banks hereby acknowledge that no Agent shall be under any duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Majority Banks or the Supermajority Banks, as the case may be. SECTION 7.04. CONSULTATION WITH EXPERTS. Each of the Agents may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. LIABILITY OF SENIOR ADMINISTRATIVE AGENT. Neither any Agent nor any of their affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it or any of them in connection herewith (i) with the consent or at the request of the Majority Banks (or such other number or percentage of Banks as may be specified in the Senior Loan Documents for particular purposes) or (ii) in the absence of its or their own gross negligence or willful misconduct. Neither any Agent nor any of their affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with the Senior Loan Documents or any Borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Agents; or (iv) the validity, effectiveness or genuineness of any Senior Loan Document or any other instrument or writing furnished in connection herewith. No Agent shall incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. INDEMNIFICATION. Each Bank shall, ratably in accordance with its Credit Exposure, indemnify the Agents, their affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. SECTION 7.07. CREDIT DECISION. Each Bank acknowledges that it has, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. RESIGNATION OF AGENTS. Either Syndication Agent may resign at any time by giving notice thereof to the other Agents, the Banks and the Borrower. The Senior Administrative Agent and the Senior Collateral Agent may resign at any time by giving notice thereof to the other Agents, the Banks and the Borrower. Upon any such resignation of the Senior Administrative Agent or Senior Collateral Agent, the Majority Banks shall have the right, with (so long as no Default shall have occurred and be continuing) the consent of the Borrower (which shall not be unreasonably withheld or delayed), to appoint a successor Senior Administrative Agent or Senior Collateral Agent. If no successor Senior Administrative Agent or Senior Collateral Agent, as the case may be, shall have been so appointed by the Majority Banks, and shall have accepted such appointment, within 30 days after the retiring Senior Administrative Agent or Senior Collateral Agent, as the case may be, gives notice of resignation, then the retiring Senior Administrative Agent or Senior Collateral Agent, as the case may be, may, on behalf of the Banks, appoint a successor Senior Administrative Agent or Senior Collateral Agent, as the case may be, 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 $500,000,000. Upon the acceptance of its appointment as Senior Administrative Agent or Senior Collateral Agent, as the case may be, by a successor Senior Administrative Agent or Senior Collateral Agent, as the case may be, such successor Senior Administrative Agent or Senior Collateral Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Senior Administrative Agent or Senior Collateral Agent, and the retiring Senior Administrative Agent or Senior Collateral Agent shall be discharged from its duties and obligations under the Senior Loan Documents. After any retiring Senior Administrative Agent's or Senior Collateral Agent's resignation hereunder, 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 Senior Administrative Agent or Senior Collateral Agent. SECTION 7.09. REMOVAL OF SENIOR ADMINISTRATIVE AGENT. Either Senior Administrative Agent or the Senior Collateral Agent may be removed, with or without cause, at any time by vote of the Majority Banks and notice thereof to the other Agents, the Banks and the Borrower. Upon any such removal of the Senior Administrative Agent or the Senior Collateral Agent, as the case may be, the Majority Banks shall have the right, with (so long as no Default shall have occurred and be continuing) the consent of the Borrower (which shall not be unreasonably withheld or delayed), to appoint a successor Senior Administrative Agent or Senior Collateral 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 $500,000,000. Upon the acceptance of its appointment as Senior Administrative Agent or Senior Collateral Agent, as the case may be, by a successor Senior Administrative Agent or Senior Collateral Agent, as the case may be, such successor Senior Administrative Agent or Senior Collateral Agent shall thereupon succeed to and become vested with all the rights and duties of the removed Senior Administrative Agent or Senior Collateral Agent, and the removed Senior Administrative Agent or Senior Collateral Agent shall be discharged from its duties and obligations under the Senior Loan Documents. After any removed Senior Administrative Agent's or Senior Collateral Agent's removal hereunder, 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 Senior Administrative Agent or Senior Collateral 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 Borrowing: (a) the Senior Administrative Agent determines that deposits in dollars (in the applicable amounts) are not being offered to the Senior Administrative Agent in the London interbank market for such Interest Period, or (b) Banks having 50% or more of the aggregate amount of the Commitments of the relevant Class advise the Senior Administrative Agent that the Adjusted London Interbank Offered Rate as determined by the Senior Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period, the Senior Administrative Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Senior Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make Euro-Dollar Loans or to continue or convert outstanding Loans as or into Euro-Dollar Loans, shall be suspended, and each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Senior Administrative Agent at least two Domestic Business Days before the date of any Euro-Dollar Borrowing for which a Borrowing Request has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing. SECTION 8.02. ILLEGALITY. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Senior Administrative Agent, the Senior Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Senior Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before giving any notice to the Senior Administrative Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day. Interest and principal on any such Base Rate Loan shall be payable on the same dates as, and on a pro rata basis with, the interest and principal payable on the related Euro-Dollar Loans of the other Banks. SECTION 8.03. INCREASED COST AND REDUCED RETURN. (a) If on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Federal Reserve Board, but excluding any such requirement included in Statutory Reserves), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Euro-Dollar Lending Office) or shall impose on any Bank (or its Euro-Dollar Lending Office) or on the London interbank market any other condition affecting its Euro-Dollar Loans, its Note or its obligation to make Euro-Dollar Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Euro-Dollar Lending Office) of making or maintaining any Euro-Dollar Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Euro-Dollar Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Senior Administrative Agent), the Borrower shall pay to such Bank (on an after-tax basis) such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Senior Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) (on an after-tax basis) for such reduction. (c) Each Bank will promptly notify the Borrower and the Senior Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Euro-Dollar Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of clearly demonstrable error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. SECTION 8.04. TAXES. (a) Any and all payments by the Borrower to or for the account of any Bank or the Senior Administrative Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, (i) in the case of each Bank and the Senior Administrative Agent, taxes imposed on its income, and franchise or similar taxes imposed on its net income, (A) by the jurisdiction or any political subdivision thereof under the laws of which such Bank or the Senior Administrative Agent (as the case may be) is organized, or (B) by any jurisdiction or any political subdivision thereof in which such Bank or the Senior Administrative Agent (as the case may be) carries on business (but only if such taxes are imposed as a result of the carrying on of such business in that jurisdiction) or, (C) in the case of each Bank, by the jurisdiction or any political subdivision thereof where such Bank's Applicable Lending Office is located or carries on business, and (ii) taxes to which a Bank becomes subject after the Applicable Date as a result of a change in the residence, place of incorporation, or principal place of business of such Bank, a change in the Applicable Lending Office of such Bank or other similar circumstances, or as a result of the recognition by such Bank of gain on the sale, assignment or participation by such Bank of the participating interests in its creditor positions hereunder, (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or the Senior Administrative Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) such Bank or the Senior Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Senior Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, or charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, any Senior Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Bank and the Senior Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Senior Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 15 days from the date such Bank or the Senior Administrative Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank (the "Applicable Date"), and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service Form 1001 or W-8BEN, 4224 or W-8ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that each of such Bank and such Bank's Applicable Lending Office is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest 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 (a) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (b) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Senior Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, all Loans which would otherwise be made by such Bank as (or continued as or converted into) Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks). If such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks. ARTICLE 9 MISCELLANEOUS SECTION 9.01. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party at its address or telex number set forth in Annex 2, in an Administrative Questionnaire pursuant to Section 9.05(a), or at such other address or telex number as such party may specify from time to time for the purpose by notice to the Senior Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (a) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (b) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (c) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Senior Administrative Agent under Article 2 or Article 8 shall not be effective until received. SECTION 9.02. NO WAIVERS. No failure or delay by the Senior Administrative Agent or any Bank in exercising any right, power or privilege under any Senior Loan Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in the Senior Loan Documents shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Senior Administrative Agent, including fees and disbursements of special counsel for the Senior Administrative Agent, in connection with the preparation and administration of the Senior Loan Documents, any waiver or consent thereunder or any amendment thereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Senior Administrative Agent and each Bank, including fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify the Senior Administrative Agent and each Bank, their respective affiliates and the respective directors, officers, agents 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. SETOFF; SHARING OF SETOFFS. (a) If an Event of Default shall have occurred and be continuing, each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Indebtedness at any time owing by such Bank to or for the credit or the account of any Subsidiary Guarantor against any or all the obligations of such Subsidiary Guarantor now or hereafter existing under this Agreement and the other Senior Loan Documents held by such Bank, irrespective of whether or not such Bank shall have made any demand under this Agreement or any other Senior Loan Document and although such obligations may be unmatured and regardless of the adequacy of any collateral. The rights of each Bank under this Section are in addition to other rights and remedies (including other rights of setoff) which such Bank may have. (b) Each Bank agrees that if it shall, by exercising any right of setoff or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Loan held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Loan held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Loan held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Loans held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of setoff or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Loans. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Loan acquired pursuant to the foregoing arrangements may exercise rights of setoff or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.05. AMENDMENTS AND WAIVERS; RELEASE OF SENIOR COLLATERAL AND SUBSIDIARY GUARANTORS. (a) Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower, by the Majority Banks (or if such provision by its terms requires the consent of the Supermajority Banks or all of the Banks, by the Supermajority Banks or all of the Banks, as the case may be, and if the rights or duties of the Senior Administrative Agent are affected thereby, by the Senior Administrative Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for termination of any Commitment, (iv) waive any condition for the initial Credit Event, (v) amend or waive any provision of Section 2.12 or Section 2.18, the definitions of "Term Exposure", "Borrowing Base Amount" and "Required Prepayment Amount" or Section 4.05 of the Collateral Trust and Intercreditor Agreement, or (vi) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans, or the number of Banks, the definitions of Majority Banks or Supermajority Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. (b) Any provision of any Senior Collateral Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Senior Administrative Agent with the consent of the Majority Banks; provided that no such amendment or waiver shall, unless signed by all the Banks, (i) alter the priorities set forth in Section 4.01 of the Collateral Trust and Intercreditor Agreement or (ii) effect or permit a release of all or substantially all of the Senior Collateral. Notwithstanding the foregoing, (i) Senior Collateral shall be released from the Lien of the Senior Collateral Documents from time to time as necessary to effect any sale of Senior Collateral permitted by the Senior Loan Documents, and the Senior Administrative Agent shall execute and deliver all release documents reasonably requested to evidence such release; provided that arrangements satisfactory to the Senior Administrative Agent shall have been made for application of the cash proceeds thereof in accordance with Section 2.12 and for the pledge of any non-cash proceeds thereof pursuant to the Senior Collateral Documents, and (ii) if a Subsidiary Guarantor ceases to be a Subsidiary of the Borrower in accordance with this Agreement, or ceases to own any property that constitutes Senior Collateral, at the request of and at the expense of the Borrower, such Subsidiary Guarantor shall be released from the Senior Subsidiary Guarantee Agreement, the Senior Subsidiary Security Agreement and each other Senior Loan Document to which it is a party. SECTION 9.06. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitments or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Senior Administrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Senior Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05(a) without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article 8 with respect to its participating interest. An assignment or other transfer which is not permitted by clause (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this clause (b). (c) Any Bank may at any time assign to one or more banks 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 hereto executed by such Assignee and such transferor Bank, with (and subject to) notice to, and the subscribed consent of, the Borrower, so long as no Default shall have occurred and be continuing, and the Senior Administrative Agent (such consent of the Borrower and the Senior Administrative Agent not to be unreasonably withheld or delayed); provided that (i) if an Assignee is an affiliate of 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, and (ii) in the case of an assignment of less than all of the rights and obligations of a Bank hereunder, such assignment shall be in a minimum amount of $5,000,000 and multiples of $1,000,000. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with Loans, participations and Commitments as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this clause (c), the transferor Bank, the Senior Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Senior Administrative Agent an administrative fee for processing such assignment in the amount of $3,500, and the transferee Bank shall deliver a completed Administrative Questionnaire to the Senior Administrative Agent. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to the Borrower and the Senior Administrative Agent 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; INTEGRATION. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 9.09. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.10. COLLATERAL TRUST AND INTERCREDITOR AGREEMENT. Each Bank, Issuing Bank and Agent hereby authorizes the Senior Administrative Agent to enter into the Collateral Trust Agreement and each other Senior Collateral Document on its behalf, and agrees that the Senior Administrative Agent and the Senior Collateral Agent may enforce the rights and remedies of the Senior Bank Parties under each Senior Loan Document to the extent provided in the Senior Collateral Documents and the Collateral Trust and Intercreditor Agreement. SECTION 9.11. CASH SWEEP. (a) On any day which: (i) an Event of Default exists, or (ii) the lesser of the Revolving Credit Commitments (after deducting the Aggregate Revolving Credit Exposure at such time) and the Borrowing Base Amount (after deducting the Aggregate Revolving Credit Exposure and the aggregate Term Exposures of the Banks at such time), in each case, together with all amounts then on deposit in the Cash Sweep Cash Collateral Account, is less than (A) $300,000,000 for the period prior to the date of issuance of consolidated financial statements of the Borrower and its Consolidated Subsidiaries as of and for the fiscal year of the Borrower ended February 26, 2000; and (B) $100,000,000 for all periods on and after the issuance of such financial statements, the Senior Collateral Agent, upon its determination or upon request by the Majority Banks, shall be immediately be entitled to deliver Cash Sweep Notices. (b) During a Cash Sweep Period, if: (i) there is no Event of Default, and (ii) the lesser of the Revolving Credit Commitments (after deducting the Aggregate Revolving Credit Exposure at such time) and the Borrowing Base Amount (after deducting the Aggregate Revolving Credit Exposure and the aggregate Term Exposures of the Banks at such time), in each case, together with all amounts then on deposit in the Cash Sweep Cash Collateral Account, is for any period of 21 consecutive days, greater than (A) $300,000,000 for the period prior to the date of issuance of consolidated financial statements of the Borrower and its Consolidated Subsidiaries as of and for the fiscal year of the Borrower ended February 26, 2000, and (B) $100,000,000 on and after the issuance of such financial statements, the Senior Collateral Agent shall automatically rescind any Cash Sweep Notice. (c) The Senior Collateral Agent reserves the right to send as many Cash Sweep Notices to the extent that it is entitled to do so under the Senior Subsidiary Security Agreement. 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: CITICORP USA, INC., as Senior Administrative Agent By:_________________________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent By:_________________________________________ Name: Title: HELLER FINANCIAL, INC., as Syndication Agent By:_________________________________________ Name: Title: FLEET RETAIL FINANCE INC., as Syndication Agent By:_________________________________________ Name: Title: CITICORP USA, INC., as Issuing Bank and Swingline Bank By:_________________________________________ Name: Title: FLEET RETAIL FINANCE INC., as Issuing Bank and Swingline Bank By:_________________________________________ Name: Title: MELLON BANK, N.A., as Issuing Bank solely with respect to the Existing Trade Letters of Credit By:_________________________________________ Name: Title: FLEET RETAIL FINANCE INC., as Swingline Bank By:_________________________________________ Name: Title: FOOTHILL INCOME TRUST II, L.P. By:_________________________________________ Name: Title: FOOTHILL CAPITAL CORPORATION By:_________________________________________ Name: Title: THE CHASE MANHATTAN BANK By:_________________________________________ Name: Title: THE CIT GROUP/BUSINESS CREDIT, INC. By:_________________________________________ Name: Title: GMAC BUSINESS CREDIT, LLC By:_________________________________________ Name: Title: GMAC COMMERCIAL CREDIT LLC By:_________________________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By:_________________________________________ Name: Title: PPM AMERICA, INC. By:_________________________________________ Name: Title: NATIONAL CITY COMMERCIAL FINANCE, INC. By:_________________________________________ Name: Title: AMSOUTH BANK By:_________________________________________ Name: Title: DEBIS FINANCIAL SERVICES, INC. By:_________________________________________ Name: Title: BANCA NAZIONALE DELL'AGRICOLTURA, S.p.A ACTING THROUGH ITS NEW YORK BRANCH By:_________________________________________ Name: Title: THE PROVIDENT BANK By:_________________________________________ Name: Title: SIEMENS FINANCIAL SERVICES, INC. By:_________________________________________ Name: Title: SOVEREIGN BANK By:_________________________________________ Name: Title: TEXTRON FINANCIAL CORPORATION By:_________________________________________ Name: Title: KZH CRESCENT LLC By:_________________________________________ Name: Title: KZH CRESCENT-2 LLC By:_________________________________________ Name: Title: KZH CRESCENT-3 LLC By:_________________________________________ Name: Title: UNITED OF OMAHA LIFE INSURANCE COMPANY BY: TCW ASSET MANAGEMENT COMPANY, ITS INVESTMENT ADVISOR By:_________________________________________ Name: Title:
ANNEX 1 INITIAL REVOLVING CREDIT COMMITMENTS AND TERM LOAN COMMITMENTS Bank Term Loan Revolving Credit Total Commitment Commitment Commitment Citicorp USA, Inc. $ 247,785,714.29 $45,714,285.71 $293,500,000.00 Heller Financial, Inc. $ 14,285,714.29 $35,714,285.71 $50,000,000.00 Fleet Retail Finance Inc. $ 18,571,428.57 $46,428,571.43 $65,000,000.00 Foothill Income Trust II, L.P. $ 30,142,857.14 $12,857,142.86 $43,000,000.00 Foothill Capital Corporation $ 14,285,714.29 $35,714,285.71 $50,000,000.00 The Chase Manhattan Bank $ 18,571,428.57 $46,428,571.43 $65,000,000.00 The CIT Group/Business Credit, Inc. $ 14,285,714.29 $35,714,285.71 $50,000,000.00 GMAC Business Credit, LLC $ 7,142,857.14 $17,857,142.86 $25,000,000.00 GMAC Commercial Credit, LLC $ 21,428,571.43 $53,571,428.57 $75,000,000.00 General Electronic Capital Corporation $ 44,428,571.43 $48,571,428.57 $93,000,000.00 PPM America, Inc. $ 14,285,714.29 $35,714,285.71 $50,000,000.00 National City Commercial Finance, Inc. $ 7,142,857.14 $17,857,142.86 $25,000,000.00 Amsouth $ 5,714,285.71 $14,285,714.29 $20,000,000.00 Debis Financial Services, Inc. $ 4,285,714.29 $10,714,285.71 $15,000,000.00 Banca Nazionale Dell'Agricoltura S.p.A. $ 2,857,142.86 $7,142,857.42 $10,000,000.00 The Provident Bank $ 2,857,142.86 $7,142,857.14 $10,000,000.00 Siemens Financial Services, Inc. $ 2,857,142.86 $7,142,857.14 $10,000,000.00 Sovereign Bank $ 2,857,142.86 $7,142,857.14 $10,000,000.00 Textron Financial Corporation $ 5,714,285.71 $14,285,714.29 $20,000,000.00 KZH Crescent LLC $ 5,500,000.00 $5,500,000.00 KZH Crescent-2 LLC $ 7,500,000.00 $7,500,000.00 KZH Crescent-3 LLC $ 5,500,000.00 $5,500,000.00 United of Omaha Life Insurance Company $ 2,000,000.00 $2,000,000.00 TOTAL COMMITMENTS $500,000,000.00 $500,000,000.00 $1,000,000,000.00
ANNEX 2 ADMINISTRATIVE INFORMATION NAME AND ADDRESS TELEPHONE TELECOPY ATTENTION Rite Aid Corporation (717) 975-5750 (717) 975-3764 Chief Financial 30 Hunter Lane Officer Camp Hill, PA 17011 www.riteaid.com Citicorp USA, Inc., as Senior Administrative Agent 399 Park Avenue New York, NY 10022 Citicorp USA, Inc., as Senior Collateral Agent 399 Park Avenue New York, NY 10022 Heller Financial, Inc., as 312-441-7802 312-441-7026 Barry O'Neall Syndication Agent 500 W. Monroe Street Chicago, IL 60661 Fleet Retail Finance Inc., as 617-434-4130 617-434-4310 Lisa Landry Syndication Agent 617-434-4386 617-434-4339 Timothy Tobin 40 Broad Street, 10th Floor Boston, MA 02109 Citicorp USA, Inc., as Swingline Bank 399 Park Avenue New York, NY 10022 [Fleet National Bank], as Swingline Bank [Address] Citicorp USA, Inc., as Issuing Bank 399 Park Avenue New York, NY 10022 [Fleet Retail Finance Inc.], as Issuing Bank [Address] [Mellon Bank, N.A.], as Issuing Bank [Address] [Name of Bank] Notices: Domestic Lending Office: Euro-Dollar Lending Office: Foothill Capital Corporation 310-996-7153 310-479-0671 Mike Bohannon 11111 Santa Monica Blvd, Suite 1500 Los Angeles, CA 90025 The Chase Manhattan Bank 212-270-9803 212-270-5646 Maggie Lane 270 Park Avenue - 48th Floor New York, NY 10017 CIT Business Credit 212-536-1275 212-536-1295 Nick Malatestinic 1211 Avenue of the Americas New York, NY 10036 GMAC Business Credit, LLC 212-489-4755 212-489-3980 W. Wakefield Smith 630 Fifth Avenue, 30th Floor New York, NY 10011 General Electric Capital 203-852-3618 203-852-3640 James Hogan Corporation 801 Connecticut Ave., 2nd Floor, Two North Norwalk, CT 06854 PPM America, Inc. 312-634-1283 312-896-5109 Michael Williams 225 West Wacker Dr., Suite 1200 Chicago, IL 60606 National City Commercial Finance, Inc. 216-222-3651 216-575-9555 Michael McNeirney 1965 E. Sixth St., Suite 400 Cleveland, OH 44114 AmSouth Bank 205-326-5456 205-581-7578 Becky Dempsey 1900 5th Avenue North, 7th Floor Birmingham, AL 35203 or 350 Park Avenue 212-935-4584 212-935-7458 Stephen V. Mangiante New York, NY 10022 Debis Financial Services, Inc. 973-631-6196 973-631-6172 Chris Esposito 89 Headquarters Plaza North, Suite 1444 Morristown, NJ 07960 Banca Nazionale dell'Agricoltura- 212-412-9625 212-412-9609 Loschiavo D. New York 17 State Street, 21st Floor New York, NY 10004 The Provident Bank 513-345-7011 513-639-1588 Marshall M. Stuart One East Fourth Street, 249A Cincinnati, Ohio 45202 Siemens Financial Services, Inc. 908-575-4071 908-575-4060 Victor Alarcon 991 US Highway 22 Bridgewater, NJ 08807 Sovereign Bank 610-526-6244 610-526-6227 Michele Walcoff Two Aldwyn Center Route 320 & Lancaster Avenue Villanova, PA 19085 Textron Financial Corporation 770-360-1496 770-360-1607 Shikwe Zimba 4550 North Point Parkway, #400 770-360-1442 770-360-1672 Gary Silvers Alpharetta, GA 30022 KZH Crescent LLC 212-771-4137 212-771-4089 Mark L. Gold c/o Trust Company of the West Justin L. Driscoll 200 Park Avenue, Suite 2200 New York, NY 10166-0228 KZH Crescent-2 LLC 212-771-4137 212-771-4089 Mark L. Gold c/o Trust Company of the West Justin L. Driscoll 200 Park Avenue, Suite 2200 New York, NY 10166-0228 KZH Crescent-3 LLC 212-771-4137 212-771-4089 Mark L. Gold c/o Trust Company of the West Justin L. Driscoll 200 Park Avenue, Suite 2200 New York, NY 10166-0228 TCW Asset Management Company 212-771-4137 212-771-4159 Mark L. Gold 200 Park Avenue, Suite 2200 Justin L. Driscoll New York, NY 10166-0228 Jonathan R. Insull
ANNEX 3 DESCRIPTION OF THE TRANSACTIONS All capitalized terms used herein but not defined herein shall have the meanings provided in the Senior Credit Facility to which this Annex 3 is attached and the Definitions Annex referred to therein. The following transactions are referred to herein as the "Transactions". 1. Rite Aid will obtain a new senior secured credit facility pursuant to the Senior Credit Facility in an aggregate principal amount of $1,000,000,000. The Revolving Credit Commitments under the Senior Credit Facility will incorporate the Existing Trade Letters of Credit as Letters of Credit under the Senior Credit Facility. 2. The Independent Standby Letters of Credit will continue to be outstanding under the Independent Standby L/C Documents. 3. The Senior Bank Obligations will be unconditionally guaranteed by the Subsidiary Guarantors pursuant to the Senior Subsidiary Guarantee Agreement and secured by a first priority security interest in the Senior Collateral pursuant to the Senior Subsidiary Security Agreement and the Senior Mortgages. 4. Rite Aid will provide its lenders with respect to each of Existing Facilities the option to exchange (the "Debt Exchange") a portion of the Debt under the Existing Facilities (the "Exchangeable Debt") for a combination of: (x) shares of common stock, par value $.01 per share (the "Common Stock"), of Rite Aid with an aggregate value equal to 50% of the aggregate principal amount of the Exchangeable Debt (based on a price per share of Common Stock of $5.50), together with registration rights; and (y) except as described below with respect to Morgan, indebtedness in an aggregate principal amount equal to 50% of the principal amount of the Exchangeable Debt (the "Exchange Debt"); (collectively, the "Exchange Offer"); provided that J.P. Morgan Ventures Corporation shall convert $200,000,000 of Debt to Common Stock of Rite Aid and Morgan Guaranty Trust Company of New York and J.P. Morgan Ventures Corporation, (together, "Morgan") shall exchange approximately $189,000,000 of Debt for Exchange Debt. The maximum aggregate amount of Exchangeable Debt that will be eligible for the Debt Exchange shall be equal to the product of two multiplied by the value of 20% of the outstanding Common Stock of Rite Aid prior to the Debt Exchange. Morgan shall participate in the Debt Exchange with respect to all of its outstanding loans to Rite Aid, and the remaining lenders with respect to Debt under the Existing Facilities shall be permitted to participate in the Debt Exchange on a pro rata basis. 5. The terms of the Exchange Debt will include (i) a first priority security interest in the Exchange Debt First Priority Collateral, (ii) a Second Priority Lien on the Senior Collateral that will be shared with the Existing Facilities, the Synthetic Leases and the Exchange Notes on a pari passu basis pursuant to the Second Priority Subsidiary Security Agreement, (iii) an unconditional subordinated guarantee by all of the Subsidiary Guarantors pursuant to the Second Priority Subsidiary Guarantee Agreement, (iv) with respect to any Debt under the Existing Facilities that constitutes Exchangeable Debt, continued Liens on the pledged stock of PCS and Drugstore.com pursuant to the PCS Pledge Agreement and the Drugstore.com Pledge Agreement, and (v) a maturity date of August 15, 2002. 6. To the extent the Debt under the Existing Facilities has not been exchanged for Exchange Debt and shares of Common Stock in connection with the Debt Exchange, Rite Aid will modify the terms of, and obtain the appropriate amendments to, the Existing Facilities, in order to, among other things, provide for the extension of the maturity date of Debt under the Existing Facilities to August 15, 2002, modify existing covenants to conform substantially to those of the Senior Credit Facility (except that certain of the financial covenants will be set at less restrictive levels satisfactory to the Agent) and provide that the obligations of Rite Aid under the Existing Facilities be guaranteed on a subordinated basis by the Subsidiary Guarantors pursuant to the Second Priority Subsidiary Guarantee Agreement . The Second Priority Guarantee Agreement shall be secured by a Second Priority Lien on the Senior Collateral pursuant to the Second Priority Subsidiary Security Agreement that will be shared among the Existing Facilities, the Exchange Debt, the Exchange Notes and the Existing Synthetic Leases on a pari passu basis, subject to special provisions governing the application of proceeds from dispositions of Collateral of PCS. 7. Rite Aid will modify the terms of, and obtain the appropriate amendments to, the Synthetic Leases to, among other things, provide for the modification of certain covenants and provide that the obligations of Rite Aid under the Synthetic Leases shall be secured by the Second Priority Lien on the Second Priority Senior Collateral pursuant to the Second Priority Subsidiary Security Agreement. 8. Not less than $467,500,000 in principal amount of Rite Aid's senior indenture debt consisting of $200,000,000 of 5.50% Notes due 2000 and $350,000,000 of 6.70% Notes due 2001 (the "Existing Notes") will be exchanged at par in an exchange offer in accordance with Section 4(2) of the Securities Act of 1933 (the "Securities Act") for 10.50% Senior Secured Notes due 2002 (the "Exchange Notes") of Rite Aid, which will mature on September 15, 2002 and will, among other things, be guaranteed by the Subsidiary Guarantors pursuant to the Second Priority Subsidiary Guarantee Agreement. 9. Salomon Smith Barney Inc. and J.P. Morgan Securities Inc. (collectively, the "Dealer Managers") will enter into the Forward Commitment Agreement pursuant to which they severally agree to purchase additional Exchange Notes on December 15, 2000, in an aggregate principal amount equal to the amount by which the aggregate principal amount of the Existing Notes that are validly tendered and exchanged pursuant to the Exchange Offer is less than $467,500,000. 10. All outstanding receivables under Rite Aid's accounts receivable securitization facility (the "Securitization Facility") will be repurchased by the seller thereof from the purchaser thereof and the Securitization Facility and all security interests in connection therewith terminated. Provisions satisfactory to the Senior Administrative Agent shall be made for the filing of appropriately completed termination statements on Form UCC-3. 11. Costs and expenses (including, without limitation, all fees and amounts payable under the Senior Fee Letters) incurred in connection with the foregoing transactions will be paid in an amount approximately equal to $60,000,000 (the "Transaction Costs"). 12. All Transactions which are contemplated by the Senior Loan Documents or the Second Priority Debt Documents to have been consummated on the Closing Date or substantially concurrently with the Closing Date shall have been consummated. 13. The application of funds on the Closing Date will be as set forth in a funds flow memo dated the Closing Date which is satisfactory to the Senior Administrative Agent. ANNEX 4 DEFINITIONS ANNEX This is the Definitions Annex referred to in the Senior Loan Documents (such term and each other capitalized term used herein as defined below, and if not defined herein, have the meanings assigned to such terms in the applicable Senior Loan Document or Second Priority Debt Document) and the Second Priority Debt Documents. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 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 thereof and of each Senior Loan Document and Second Priority Debt Document containing restrictions or imposing conditions on the amendment, modification or supplementing of such agreement or contract. "Affiliate" means, when used with respect to a specified Person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Asset Sale" means any sale, transfer or other disposition (including pursuant to a Sale and Leaseback Transaction) of any property or asset of the Borrower or any Subsidiary (including any equity interest in a Subsidiary), other than a Permitted Disposition "Attributable Debt" means, as to any particular Capital Lease or 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 a transaction involving a Capital Lease, the amount on such date of the obligation thereunder that would appear on a balance sheet prepared as of such date in accordance with generally accepted accounting principles, or (ii) in the case of a Sale and Leaseback Transaction not involving a Capital Lease, 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 per annum that would be applicable to a Capital Lease of the Borrower having similar payment terms. 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, whether or not characterized as rent. "Bankruptcy Proceeding" means any proceeding under Title 11 of the U.S. Code or any other Federal, state or foreign bankruptcy, insolvency, reorganization, receivership or similar law. "Basket Asset Sale" means any sale or disposition (including a Sale and Leaseback Transaction not involving any Mortgaged Property) of office locations, stores or other personal or real property (including any improvements thereon), whether or not constituting Mortgaged Property, or leasehold interest therein for fair value in the ordinary course of business consistent with past practice and not inconsistent with the Borrower's business plan delivered to the Representatives on the Closing Date, provided, however, that, (i) the aggregate consideration received therefor (including the fair market value of any non-cash consideration) shall not exceed $75,000,000 in any fiscal year (calculated without regard to Sale and Leaseback Transactions permitted by Section 5.14(a), (b) and (c) of the Senior Credit Facility as in effect on the Closing Date) and (ii) at least 75% of such consideration shall consist of cash. "Borrower" means Rite Aid. "Business Day" means any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Euro-Dollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Markets Transaction" means the receipt by the Borrower or a Subsidiary of proceeds of 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 any proceeds in respect of the issuance of Exchange Notes to SPV and the disposition of such Exchange Notes pursuant to the Forward Commitment Agreement). "Casualty/Condemnation" means any event that gives rise to Casualty/Condemnation Proceeds. "Casualty/Condemnation Proceeds" means (a) any insurance proceeds under any insurance policies or otherwise with respect to any casualty or other insured damage to any assets of the Borrower or its Subsidiaries, and (b) any proceeds received by the Borrower or any Subsidiary of any action or proceeding for the taking of any assets of the Borrower or its Subsidiaries, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any similar public improvement or condemnation proceeding, less, in each case (i) any fees, commissions and expenses (including the costs of adjustment and condemnation proceedings) and other costs paid or incurred by the Borrower or any Subsidiary in connection therewith, (ii) income taxes reasonably estimated to be payable as a result of any gain recognized in connection with the receipt of such payment or proceeds and (iii) payment of the outstanding amount of any Debt (or Attributable Debt), other than the Secured Obligations, together with premium or penalty, if any, and interest thereon (or comparable obligations in respect of Attributable Debt), that is secured by a Lien on (or if Attributable Debt, the lease of) the stock or assets in question and that has priority over both the Senior Lien and the Second Priority Lien and is to be repaid as a result of receipt of such payments or proceeds; provided, however, that no such proceeds shall constitute Casualty/Condemnation Proceeds to the extent that such proceeds are (A) reinvested in other like fixed or capital assets within 180 days of the Casualty/Condemnation that gave rise to such proceeds or (B) committed to be reinvested in other like fixed or capital assets within 180 days of such Casualty/Condemnation, with diligent pursuit of such reinvestment, and reinvested in such assets within 365 days of such Casualty/Condemnation. "Citibank" means Citibank, N.A. "Citibank Standby L/C Documents" means the reimbursement agreements, letter of credit applications and other documents relating to the Citibank Standby Letters of Credit. "Citibank Standby L/C Obligations" means (a) each payment, including payments in respect of reimbursements and cash collateralization, required to be made by Rite Aid under the Citibank Standby L/C Documents in respect of Citibank Standby Letters of Credit in an aggregate amount at any time outstanding not in excess of (i) $8,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied to such obligations as the result of the exercise of remedies under the Senior Collateral Documents and (b) all other monetary obligations, including fees, costs, expenses and indemnities (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) of Rite Aid or any Obligor under the Citibank Standby L/C Documents to the extent attributable to the Citibank Standby Letters of Credit referred to in clause (a). "Citibank Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Citibank outstanding on the Closing Date in an aggregate face amount of approximately $8,000,000, together with any standby letter of credit (other than any letter of credit issued under the Senior Credit Facility) hereafter issued by Citibank for the account of any Obligor, provided that the Citibank Standby Letters of Credit shall be limited to an amount at any time outstanding not in excess of (i) $8,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied as the result of the exercise of remedies under the Senior Collateral Documents to reimbursement and cash collateralization obligations in respect of Citibank Standby Letters of Credit. "Closing Date" means the date on which the Senior Credit Facility, the amendments and restatements giving rise to the Existing Facilities and the exchange offer and other transactions giving rise to the Exchange Notes become effective. "Collateral" means the Senior Collateral and the Second Priority Collateral. "Collateral Documents" means (a) the Senior Collateral Documents and (b) the Second Priority Collateral Documents. "Collateral Trust and Intercreditor Agreement" means the Collateral Trust and Intercreditor Agreement, dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors, the Second Priority Collateral Trustee, the Senior Collateral Agent and each Second Priority Representative. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed by such Person. "Debt Facility" means any of the Senior Credit Facility, the Existing Facilities, the Synthetic Lease Facilities and the Exchange Note Indenture. "Default Rate" means a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) equal to the sum of (a) the rate of interest publicly announced by Citibank in New York, New York, from time to time as its "base rate", plus (b) 2.00%. "Designated Asset Disposition" means any sale, transfer or other disposition of Exchange Debt First Priority Collateral other than a Permitted Disposition. "Domestic Subsidiary" means any Subsidiary incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "Drugstore.com Common Stock" means the common stock of Drugstore.com, Inc., a Delaware corporation, owned by Rite Aid. "Drugstore.com Pledge Agreement" means the Drugstore.com Pledge Agreement dated as of October 25, 1999 and amended and restated as of June 12, 2000, between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "Exchange Debt Facility" means the Exchange Debt Facility dated as of June 12, 2000 among Rite Aid Corporation, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "Exchange Debt Facility Documents" means the collective reference to the "Loan Documents" as defined in the Exchange Debt Facility. "Exchange Debt First Priority Collateral" means the prescription files of Rite Aid's Subsidiaries and the proceeds thereof. "Exchange Debt First Priority Collateral Documents" means the collective reference to the "First Priority Collateral Documents", as defined in the Exchange Debt Facility. "Exchange Debt Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loans made under the Exchange Debt Facility, (ii) all other amounts payable by the Borrower to the Exchange Debt Parties under the Exchange Debt Facility Documents, and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the Exchange Debt Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Exchange Debt Parties" means all parties to the Exchange Debt Facility Documents other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the administrative agent under the Exchange Debt Facility and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Exchange Debt Facility Document. "Exchange Note Documents" means the Exchange Notes and the Exchange Note Indenture, Exchange and Registration Rights Agreement among the State Street Bank and Trust, as trustee, Rite Aid and the Subsidiary Guarantors, and the Forward Commitment Agreement. "Exchange Note Indenture" means the Indenture dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors and State Street Bank and Trust Company, as trustee, relating to the Exchange Notes. "Exchange Note Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the Exchange Notes, (ii) all other amounts payable by the Borrower to the Exchange Note Parties under the Exchange Note Documents, and (iii) any renewals or extensions of any of the foregoing. "Exchange Note Parties" means all parties to the Exchange Note Documents and the holders from time to time of the Exchange Notes, in each case other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the trustee under the Exchange Note Indentures and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Exchange Note Document. "Exchange Notes" means the 10.50% Senior Secured Notes Due 2002 of Rite Aid (i) issued in exchange for certain 5.50% Notes Due 2000 of Rite Aid and 6.70% Notes Due 2001 of Rite Aid or (ii) issued on the Closing Date to SPV and to be transferred to SSB, JPM and their respective transferees and assignees pursuant to the Forward Commitment Agreement; provided, however, that the aggregate principal amount of Exchange Notes issued pursuant to the Forward Commitment Agreement shall not exceed $93,158,000. "Existing Facilities" means (a) the PCS Facility; (b) the RCF Facility; (c) the Finco Facility; and (d) the Exchange Debt Facility. "Existing Facilities Documents" means the collective reference to (i) the PCS Facility Documents, (ii) the RCF Facility Documents, (iii) the Finco Facility Documents and (iv) the Exchange Debt Facility Documents. "Existing Facility Obligations" means the PCS Facility Obligations, the RCF Facility Obligations, the Finco Facility Obligations and the Exchange Debt Obligations. "Existing Facility Parties" means the PCS Facility Parties, the RCF Facility Parties, the Finco Facility Parties and the Exchange Debt Parties. "Finco Facility" means the Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, Amendment No. 1 to Put Agreement (the "Omnibus Amendment") dated as of June 12, 2000, relating to the Adjustable Rate Senior Secured Notes due August 15, 2002 originally issued by Finco, Inc. and guaranteed by Rite Aid. The "Finco Facility " shall be deemed to include the Note Agreement dated as of September 30, 1996, among Finco, Inc., and each of the Purchasers listed in Annex 1 thereto, as amended through the Closing Date. "Finco Facility Documents" means (i) the Finco Facility, (ii) the Guaranty Agreement dated as of September 30, 1996 pursuant to which Rite Aid guaranteed the obligations of Finco, Inc. under the Finco Facility; (iii) the Put Agreement dated as of September 30, 1996 entered into by Rite Aid, and (iv) the Security Agreement dated as of September 30, 1996 entered into by Finco, Inc. and The Prudential Insurance Company of America as the Security Agent on behalf of the Finco Facility Parties, in each case as amended through the Closing Date. "Finco Facility Obligations" means (i) all outstanding principal amounts under the Finco Facility Documents, (ii) all interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the principal amounts pursuant to clause (i) of this definition, (iii) any renewals or extensions of any of the foregoing and (iv) any and all other amounts payable by the Borrower in respect of the Finco Facility Documents; provided, however, that the principal amount of indebtedness included in the Finco Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Finco Facility Parties" means The Prudential Insurance Company of America and Pruco Life Insurance Company and their successors and assigns as noteholders and purchasers under the Finco Facility Documents and The Prudential Insurance Company of America, as Security Agent under the Finco Facility Documents and its successor or assignee. "Forward Commitment Agreement" means the Forward Commitment Agreement dated June 12, 2000, among Rite Aid, SPV, SSB and JPM. "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" mean, collectively, (a) the Indenture dated as of December 21, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee, (b) the Indenture dated as of August 1, 1993, between Rite Aid and Morgan Guaranty Trust Company of New York, as trustee, (c) the Indenture dated as September 10, 1997, between Rite Aid and Harris Trust and Savings Bank, as trustee and (d) the Indenture dated as of September 22, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee. "Independent Standby L/C Documents" means the Citibank Standby L/C Documents and the Mellon Standby L/C Documents. "Independent Standby L/C Obligations" means the Citibank Standby L/C Obligations and the Mellon Standby L/C Obligations. "Independent Standby L/C Parties" means Citibank and Mellon Bank in their capacities as issuers of Independent Standby Letters of Credit. "Independent Standby Letters of Credit" means the Citibank Standby Letters of Credit and the Mellon Standby Letters of Credit. "Instructing Group" means, until the Senior Obligation Payment Date, the Majority Senior Parties, and thereafter the Second Priority Instructing Group. "JPM" means J.P. Morgan Securities, Inc. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. "Majority Senior Parties" means the Majority Banks, as defined in the Senior Credit Facility, or with respect to any waiver, amendment or request, Senior Banks having such amount of unused Revolving Credit Commitments, Revolving Credit Exposure, unused Term Loan Commitments and outstanding Term Loans as may be required under the Senior Credit Facility to approve the same. "Mellon Bank" means Mellon Bank, N.A. "Mellon Standby L/C Documents" mean the reimbursement agreements, letter of credit applications and other documents relating to the Mellon Standby Letters of Credit. "Mellon Standby L/C Obligations" means (a) each payment, including payments in respect of reimbursements and cash collateralization, required to be made by Rite Aid under the Mellon Standby L/C Documents in respect of Mellon Standby Letters of Credit in an aggregate amount at any time outstanding not in excess of (i) $26,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied to such obligations as the result of the exercise of remedies under the Senior Collateral Documents and (b) all other monetary obligations, including fees, costs, expenses and indemnities (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable as a claim in such proceeding) of Rite Aid under the Mellon Standby L/C Documents to the extent attributable to the Mellon Standby Letters of Credit referred to in clause (a). "Mellon Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Mellon Bank outstanding on the Closing Date in an aggregate face amount of $26,000,000, together with any standby letter of credit (other than any letter of credit issued under the Senior Credit Facility) hereafter issued by Mellon Bank for the account of any Obligor provided that the Mellon Standby Letters of Credit shall be limited to an amount at any time outstanding not in excess of (i) $26,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied as the result of the exercise of remedies under the Senior Collateral Documents to reimbursement and cash collateralization obligations in respect of Mellon Standby Letters of Credit. "Moody's" means Moody's Investors Service, Inc., or any successor to its business of rating debt securities. "Net Cash Proceeds" means, (a) with respect to any sale, transfer or other disposition of any property or asset (a "Disposition"), an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Disposition (including, when received, any cash proceeds received in respect of any noncash proceeds of any Disposition), less (I) the sum of (i) reasonable costs and expenses paid or incurred in connection with such transaction, including, without limitation, any underwriting brokerage or other customary selling commissions and reasonable legal, advisory and other fees and expenses (including title and recording expenses, associated therewith), payments of unassumed liabilities relating to the assets sold and any severance and termination costs; (ii) the amount of any Debt (or Attributable Debt), together with premium or penalty, if any, and accrued interest thereon (or comparable obligations in respect of Attributable Debt) secured by a Lien on (or if Attributable Debt, the lease of) any asset disposed of in such Disposition and discharged from the proceeds thereof, but only to the extent such Lien has priority over the Senior Lien, the Second Priority Lien and the Liens under the Exchange Debt First Priority Collateral Documents; (iii) 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 Disposition; (iv) the portion of such cash proceeds which the Borrower determines in good faith and reasonably should be reserved for post-closing adjustments, including, without limitation, indemnification payments and purchase price adjustments, provided, that on the date that all such post-closing adjustments have been determined, the amount (if any) by which the reserved amount in respect of such Disposition exceeds the actual post-closing adjustments payable by the Borrower or any of the Subsidiary Guarantors shall constitute Net Cash Proceeds on such date; and (v) in the case of a PCS Divestiture the sum of (1) the PCS Incremental Investment as of the date of consummation of such disposition plus (2) the aggregate Net Cash Proceeds of PCS Dispositions in the form of Sale and Leaseback Transactions theretofore applied to prepayments of the PCS Facility; and plus (II) in the case of a PCS Divestiture, the PCS Investment Reduction as of the date of consummation of such transaction; (b) with respect to any Capital Markets Transaction, an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Capital Markets Transaction, less any reasonable transaction costs; including investment banking and underwriting fees, discounts and commissions and any other expenses (including legal fees and expenses) reasonably incurred by such Person in respect of such Capital Markets Transaction; and (c) with respect to receipt of Casualty/Condemnation Proceeds, the amount thereof. "Obligors" means Rite Aid, the Subsidiary Guarantors and any other Person who is liable for any of the Secured Obligations. "paid in full" means paid in full in cash. "PCS" means PCS Holding Corporation, a Delaware corporation, and its successors. "PCS Common Stock" means the common stock of PCS owned by Rite Aid. "PCS Disposition" means (i) any sale or other disposition of capital stock of PCS (or of any non-cash proceeds thereof), (ii) any sale, lease or other disposition (including a Casualty/Condemnation) by PCS or any of its Subsidiaries of any asset, other than (y) 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, and (z) dispositions to PCS or a wholly-owned Subsidiary of PCS or (iii) any sale, lease or other disposition (including a Casualty/Condemnation) of PCS Land. "PCS Divestiture" means a PCS Disposition as a result of which the business of PCS is no longer conducted by a Consolidated Subsidiary of the Borrower. "PCS/Drugstore Pledged Collateral" means the capital stock of PCS and Drugstore.com pledged by Rite Aid under the PCS Pledge Agreement and the Drugstore.com Pledge Agreement and all income and profits thereon, dividends and other payments and distributions with respect thereto and all proceeds of the foregoing subject to a Lien under such agreements. "PCS Excluded Assets" means (i) any Collateral consisting of assets of PCS or a Subsidiary of PCS, other than PCS Linked Accounts, (ii) PCS Land and (iii) any proceeds of clauses (i) and (ii). For purposes of Article IV of the Collateral Trust and Intercreditor Agreement, any proceeds of enforcement of the Senior Subsidiary Guarantee Agreement or the Second Priority Guarantee Agreement against PCS or a Subsidiary of PCS (other than with respect to the PCS Linked Accounts and the proceeds thereof) shall be deemed to be proceeds of Collateral consisting of PCS Excluded Assets. "PCS Facility" means the PCS Facility dated as of June 12, 2000, among Rite Aid, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "PCS Facility Documents" means the "Loan Documents" as defined in the PCS Facility. "PCS Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the PCS Facility, (ii) all other amounts payable by the Borrower under the PCS Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the PCS Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "PCS Facility Parties" means the parties to the PCS Facility Documents other than the Obligors, the Senior Bank Parties and the Representatives, but including the administrative agent under the PCS Facility and the beneficiaries of each indemnification obligation by Rite Aid or any other Obligor under any PCS Facility Documents. "PCS Incremental Investment" means, at any date, the amount, if any, by which the inter-company payable owing by Rite Aid Hdqtrs. Corp. to PCS at such date is less than such amount as at May 27, 2000. The Borrower shall promptly notify each of the Representatives following the Closing Date of such latter amount. "PCS Investment Reduction" means, at any date, the excess, if any, of (i) the amount, if any, by which the intercompany payable owing by Rite Aid Hdqtrs. Corp. to PCS at such date is greater than such amount as at May 27, 2000, over (ii) the cumulative PCS EBITDA, as defined in the Senior Credit Facility, for the period from May 27, 2000, to such date. "PCS Land" means the real property described as N.W. 96th Street and Mountainview Road, Scottsdale, Arizona, together with any improvements thereon. "PCS Linked Accounts" means any accounts receivable owed to PCS by third party insurers in respect of claims generated by other Subsidiaries of Rite Aid and giving rise to related accounts payable owed by PCS to such other Subsidiaries of Rite Aid. "PCS Pledge Agreement" means the PCS Pledge Agreement dated as of October 25, 1999 and amended and restated as of June 12, 2000, between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "Permitted Disposition" means any of the following: (i) dispositions of inventory at retail, cash, cash equivalents and other cash managing investments and obsolete, unused, uneconomic or unnecessary equipment, in each case in the ordinary course of business; (ii) a disposition to a Subsidiary Guarantor, provided, that (A) if the property subject to such disposition constitutes Collateral immediately before giving effect to such disposition, such property continues to constitute Collateral subject to the Senior Lien and the Second Priority Lien, and (B) no dispositions of property will be made to or by PCS or its Subsidiaries except in the ordinary course of business consistent with past practice; (iii) a sale or discount, in each case without recourse and in the ordinary course of business, of overdue Accounts (as defined in the Senior Credit Facility) arising in the ordinary course of business, but only to the extent such Accounts are no longer Eligible Accounts Receivable (as defined in the Senior Credit Facility) and such sale or discount is in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale); (iv) Basket Asset Sales; and (v) any disposition of Exchange Notes by SPV to SSB or JPM (or their respective successors, assigns and affiliates), pursuant to the Forward Commitment Agreement as in effect on the Closing Date. "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. "RCF Facility" means the RCF Facility dated as of June 12, 2000, among Rite Aid, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "RCF Facility Documents" means the "Loan Documents" as defined in the RCF Facility. "RCF Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the RCF Facility, (ii) all other amounts payable by the Borrower to the RCF Facility Parties under the RCF Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the RCF Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "RCF Facility Parties" means the parties to the RCF Facility Documents other than the Obligors. "Reduction" means, when applied to any Debt Facility, (i) the permanent repayment of outstanding loans (or obligations in respect of Attributable Debt) under such Debt Facility, (ii) the permanent reduction of outstanding lending commitments under such Debt Facility or (iii) the permanent cash collateralization of outstanding letters of credit under such facility (together with the termination of any lending commitments utilized by such letters of credit). "Reduction Event" is (i) a PCS Disposition, (ii) a Capital Markets Transaction, (iii) a Designated Asset Disposition, (iv) a Senior Collateral Disposition, (v) other Asset Sales or (vi) receipt of other Casualty/Condemnation Proceeds. "Related Exchange Debt" means, with respect to any of the Existing Facilities (other than the Exchange Debt Facility), Debt under the Exchange Debt Facility issued in exchange for Debt under such Existing Facility. "Related Exchange Debt Obligation" shall mean Exchange Debt Obligations in respect of Related Exchange Debt. "Representatives" means each of the Senior Collateral Agent and the Second Priority Representatives. "Required Prepayment Amount" has the meaning assigned to such term in the Senior Credit Facility, as in effect on the Closing Date. "Rite Aid" means Rite Aid Corporation, a Delaware corporation, and its successors. "Rite Aid Hdqtrs. Corp." means Rite Aid Hdqtrs. Corp., a Delaware corporation and a Wholly-Owned Consolidated Subsidiary of the Borrower. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor to its business of rating debt securities. "Sale and Leaseback Transaction" means the sale or transfer by the Borrower or any Subsidiary of any office building (including its headquarters), distribution center, manufacturing plant, warehouse, Store or equipment now or hereafter owned by the Borrower or any Subsidiary with the intention that the Borrower or any Subsidiary take back a lease thereof. "Second Priority Collateral" means all the "Second Priority Collateral" as defined in any Second Priority Collateral Documents and shall also include the Mortgaged Properties and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral or the Exchange Debt First Priority Collateral. "Second Priority Collateral Documents" means the Second Priority Mortgages, the Second Priority Subsidiary Security Agreement, the Second Priority Subsidiary Guarantee Agreement, the Second Priority Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing for purposes of providing collateral security or credit support for any Second Priority Debt Obligation or obligation under the Second Priority Subsidiary Guarantee Agreement but specifically excluding the Drugstore.com Pledge Agreement, the Exchange Debt First Priority Collateral Documents and the PCS Pledge Agreement. "Second Priority Collateral Trustee" means Wilmington Trust Company, in its capacity as collateral trustee under the Collateral Trust and Intercreditor Agreement and the Second Priority Collateral Documents, and its successors. "Second Priority Debt Documents" means the Existing Facility Documents, the Exchange Note Documents, the Synthetic Lease Documents and the Second Priority Collateral Documents. "Second Priority Debt Obligations" means the collective reference to the Exchange Debt Obligations, the Exchange Note Obligations, the Synthetic Lease Obligations, the PCS Facility Obligations, the RCF Facility Obligations and the Finco Facility Obligations. "Second Priority Debt Parties" means the Existing Facility Parties, the Exchange Note Parties, the Synthetic Lease Parties and the Second Priority Collateral Trustee. "Second Priority Facilities" means the Exchange Debt Facility, the Exchange Note Indenture, the Synthetic Lease Facilities, the PCS Facility, the RCF Facility and the Finco Facility. "Second Priority Indemnity, Subrogation and Contribution Agreement" means the Second Priority Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors and the Second Priority Collateral Trustee. "Second Priority Instructing Group" means Second Priority Representatives with respect to Second Priority Facilities under which at least a majority of the then aggregate amount of Second Priority Debt Obligations are outstanding. "Second Priority Lien" means the Liens on the Second Priority Collateral in favor of the Second Priority Debt Parties under the Second Priority Collateral Documents. "Second Priority Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents which create a Lien in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties, delivered pursuant to the Second Priority Debt Documents, each substantially in the form of Exhibit [ ] to the RCF Facility, with such changes as are approved by the Senior Collateral Agent and the Second Priority Representatives. "Second Priority Representative" means, in respect of each Second Priority Facility, the trustee under the Exchange Note Indenture and the administrative agent, security agent or agent under each other Second Priority Facility and each of their successors in such capacities. "Second Priority Subsidiary Guarantee Agreement" means the Second Priority Subsidiary Guarantee Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Second Priority Subsidiary Security Agreement" means the Second Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Secured Obligations" means the Senior Obligations and the Second Priority Debt Obligations. "Senior Bank" means a "Bank" as defined in the Senior Credit Facility. "Senior Bank Obligations" means (i) the principal of each loan made under the Senior Credit Facility, (ii) all reimbursement and cash collateralization obligations in respect of letters of credit issued under the Senior Credit Facility, (iii) all monetary obligations of the Borrower or any Subsidiary under each Senior Interest Rate Agreement entered into with any counterparty that was a Senior Bank (or an Affiliate thereof) at the time such Senior Interest Rate Agreement was entered into, (iv) all interest on the loans, letter of credit reimbursement, fees and other obligations under the Senior Credit Facility or such Senior Interest Rate Agreements (including, without limitation any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower or any Subsidiary Guarantor, whether or not allowed or allowable as a claim in such proceeding), (v) all other amounts payable by the Borrower under the Senior Loan Documents and (vi) all increases, renewals, extensions and refinancings of the foregoing; provided, however, that the principal amount of the indebtedness under the Senior Credit Facility included in the Senior Bank Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Senior Bank Parties" means each party to the Senior Credit Facility other than any Obligor, each counterparty to a Senior Interest Rate Agreement, the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Senior Loan Document, and the successors and permitted assigns of each of the foregoing. "Senior Collateral" means all the "Senior Collateral" as defined in any Senior Collateral Document and shall also include the Mortgaged Properties and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral and the Exchange Debt First Priority Collateral. "Senior Collateral Agent" means Citicorp USA, Inc., in its capacity as Senior Collateral Agent under the Senior Collateral Documents, and its successors. "Senior Collateral Disposition" means (i) any sale, transfer or other disposition of Senior Collateral (including any property or assets that would constitute Senior Collateral but for the release of the Senior Lien with respect thereto in connection with such sale, transfer or other disposition), other than a PCS Disposition, or a Permitted Disposition or (ii) a Casualty/Condemnation with respect to Senior Collateral (other than PCS Excluded Assets). "Senior Collateral Documents" means the Senior Mortgages, the Senior Subsidiary Security Agreement, the Senior Subsidiary Guarantee Agreement, the Senior Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing or pursuant to the Senior Credit Facility or for purposes of providing collateral security or credit support for any Senior Obligation or obligation under the Senior Subsidiary Guarantee Agreement. "Senior Credit Facility" means the Senior Credit Agreement, dated as of June 12, 2000, among Rite Aid, as Borrower, the Senior Banks, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents. "Senior Indemnity, Subrogation and Contribution Agreement" means the Senior Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000 among Rite Aid, the Subsidiary Guarantors (including Subsidiary Guarantors becoming party thereto after the Closing Date) and the Senior Collateral Agent. "Senior Interest Rate Agreement" means any Interest Rate Agreement entered into with Rite Aid or any Subsidiary, if the applicable counterparty was a Senior Bank or an Affiliate thereof at the time the Interest Rate Agreement was entered into. "Senior Lien" means the Liens on the Senior Collateral in favor of the Senior Secured Parties under the Senior Collateral Documents. "Senior Loan Documents" means the Senior Credit Facility, the Notes referred to in the Senior Credit Facility, each Senior Interest Rate Agreement, and the Senior Collateral Documents. "Senior Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents delivered pursuant to the Senior Credit Facility, each substantially in the form of Exhibit J to the Senior Credit Facility, with such changes as are approved by the Senior Collateral Agent. "Senior Obligation Payment Date" means the date on which (i) the Senior Obligations have been paid in full, (ii) all lending commitments under the Senior Credit Facility have been terminated and (iii) there are no outstanding Independent Standby Letters of Credit or letters of credit issued under the Senior Credit Facility other than such as have been fully cash collateralized under documents and arrangements satisfactory to the issuer of such letters of credit. "Senior Obligations" means (a) the Senior Bank Obligations and (b) the Independent Standby L/C Obligations. "Senior Secured Parties" means (a) the Senior Bank Parties and (b) the Independent Standby L/C Parties. "Senior Subsidiary Guarantee Agreement" means the Senior Subsidiary Guarantee Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "Senior Subsidiary Security Agreement" means the Senior Subsidiary Security Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "SPV" means Fiona One Corp., a Delaware corporation and a wholly-owned Subsidiary of Rite Aid which is organized for the sole purpose of acquiring Exchange Notes on the Closing Date from Rite Aid and selling such Exchange Notes to SSB and JPM in accordance with the Forward Commitment Agreement. "SSB" means Salomon Smith Barney Inc. "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. "Subsidiary Guarantor" means each Subsidiary that is party to the Senior Subsidiary Guarantee Agreement, the Second Priority Subsidiary Guarantee Agreement or any other Senior Collateral Document or Second Priority Collateral Document. "Synthetic Lease Documents" means the documents governing the Synthetic Leases. "Synthetic Lease Facilities" means certain synthetic leases entered into by the Subsidiary Guarantors and guaranteed by Rite Aid having an aggregate discounted present value of approximately $214,000,000, as amended and restated as of the Closing Date. "Synthetic Lease Obligations" means all rent and supplemental rent, all fees and all other expenses or amounts payable by any Obligors to any Synthetic Lease Parties under any Synthetic Lease Document; provided, however, that the aggregate amount of the Synthetic Lease Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Synthetic Lease Parties" means all parties to the Synthetic Lease Documents other than the Obligors. "Temporary Cash Investment" means any investment by any Person in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by S&P and P-1 by Moody's, (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized or licensed under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $500,000,000, (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, provided in each case that such investment matures within one year from the date of acquisition thereof by such Person or (v) money market mutual funds at least 90% the assets of which are held in investments referred to in clauses (i) through (iv) above (except that the maturities of certain investments held by any such money market funds may exceed one year so long as the dollar-weighted average life of the investments of such money market mutual fund is less than one year). "Uniform Commercial Code" or "UCC" means, unless otherwise specified, the Uniform Commercial Code as from time to time in effect in the State of New York. EXHIBIT A-1 [FORM OF] TERM NOTE $ New York, New York June 14, 2000 FOR VALUE RECEIVED, the undersigned, RITE AID CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay to the order of [Name of Bank] (the "Bank") or its registered assigns, at the office of the Senior Administrative Agent, at [Address] on the Maturity Date, such term and each other term used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Senior Credit Agreement dated as of June 12, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "Senior Credit Agreement"), among the Borrower, the Banks, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents, the lesser of the principal sum of [TERM LOAN COMMITMENT] DOLLARS ($ ) and the aggregate unpaid principal amount of all Term Loans made to the Borrower by the Bank pursuant to the Senior Credit Agreement, in lawful money of the United States of America in immediately available funds, and to pay interest from the date hereof on the principal amount hereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on the dates provided in the Senior Credit Agreement. The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates at the rate or rates provided in the Senior Credit Agreement. The Borrower hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by the holder of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. All borrowings evidenced by this Term Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that the failure of the holder hereof to make such a notation or any error in such notation shall not affect the obligations of the Borrower under this Term Note. This Term Note is one of the Term Notes referred to in the Senior Credit Agreement, which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for optional and mandatory prepayment of the principal hereof before the maturity hereof and for the amendment or waiver of certain provisions of the Senior Credit Agreement, all upon the terms and conditions therein specified. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. 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 Note. 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. RITE AID CORPORATION, By_______________________ Name: Title:
LOANS AND PAYMENTS Unpaid Name of Payments of Principal Person Amount and Principal / Balance Making Date Type of Loan Maturity Date Interest of Note Notation - --------------- --------------------- --------------------- --------------------- -------------- --------------
EXHIBIT A-2 [FORM OF] REVOLVING CREDIT NOTE $ NEW YORK, NEW YORK JUNE 14, 2000 FOR VALUE RECEIVED, the undersigned, RITE AID CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay to the order of [Name of Bank] (the "Bank") or its registered assigns, at the office of the Senior Administrative Agent at [Address], on the Maturity Date, such term and each other term used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Senior Credit Agreement dated as of June 12, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "Senior Credit Agreement"), among the Borrower, the Banks, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents, the lesser of the principal sum of [REVOLVING CREDIT COMMITMENT] DOLLARS ($ ) and the aggregate unpaid principal amount of all Revolving Loans made by the bank to the Borrower pursuant to the Senior Credit Agreement, in lawful money of the United States of America in immediately available funds, and to pay interest from the date hereof on the principal amount thereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on such dates as provided in to the Senior Credit Agreement. The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates at a rate or rates provided in the Senior Credit aAreement. The Borrower hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by the holder of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. All borrowings evidenced by this Revolving Credit Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that the failure of the holder hereof to make such a notation or any error in such notation shall not affect the obligations of the Borrower to make payments of principal and interest in accordance with the terms of this revolving credit note and the Senior Credit Agreement. This Revolving Credit Note is one of the Revolving Credit Notes referred to in the Senior Credit Agreement which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for optional and mandatory prepayment of the principal hereof before the maturity hereof and for the amendment or waiver of certain provisions of the senior credit agreement, all upon the terms and conditions therein specified. THIS REVOLVING CREDIT NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. 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 Note. 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. RITE AID CORPORATION, BY_______________________ Name: Title:
LOANS AND PAYMENTS Unpaid Name of Payments of Principal Person Amount and Principal / Balance Making Date Type of Loan Maturity Date Interest of Note Notation - --------------- --------------------- --------------------- --------------------- -------------- --------------
EXHIBIT A-3 [FORM OF] SWINGLINE NOTE $ New York, New York June 14, 2000 FOR VALUE RECEIVED, the undersigned, RITE AID CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay to the order of [Name of Bank] (the "Bank") or its registered assigns, at the office of the Senior Administrative Agent at [Address], on the Maturity Date, such term and each other term used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Senior Credit Agreement dated as of June 12, 2000 (as the same may be amended, modified, extended or restated from time to time, the "Senior Credit Agreement"), among the Borrower, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents, the aggregate unpaid principal amount of all Swingline Loans made by the Bank to the Borrower pursuant to the Senior Credit Agreement, in lawful money of the United States of America in immediately available funds, and to pay interest from the date hereof on the principal amount thereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on such dates as provided in the Senior Credit Agreement. The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates at a rate or rates as provided in the Senior Credit Agreement. The Borrower hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by the holder of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. All Borrowings evidenced by this Swingline Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that the failure of the holder hereof to make such a notation or any error in such notation shall not affect the obligation of the Borrower to make payments of principal and interest in accordance with the terms of this Swingline Note and the Senior Credit Agreement. This Swingline Note is one of the Swingline Notes referred to in the Senior Credit Agreement which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for optional and mandatory prepayment of the principal hereof before the maturity hereof and for the amendment or waiver of certain provisions of the Senior Credit Agreement, all upon the terms and conditions therein specified. THIS SWINGLINE NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. 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 Vourt sitting in New York City for purposes of all legal proceedings arising out of or relating to this note. 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. RITE AID CORPORATION, By_______________________ Name: Title:
LOANS AND PAYMENTS Unpaid Name of Payments of Principal Person Adjusted Base Principal / Balance Making Date Amount of Loan Rate Interest of Note Notation - --------------- --------------------- --------------------- --------------------- -------------- --------------
EXHIBIT B [FORM OF] BORROWING REQUEST Citicorp Usa, Inc., as Senior Administrative Agent for the Banks Referred to Below, [Address] Attention : [Date] Ladies and Gentlemen: The undersigned, Rite Aid Corporation, a Delaware Corporation (the "Borrower"), refers to the Senior Credit Agreement dated as of June 12, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "Senior Credit Agreement"), among the Borrower, the Banks, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents. The Borrower hereby gives you notice pursuant to Section 2.03 Of the Senior Credit Agreement that it requests a borrowing under the Senior Credit Agreement, and in that connection sets forth below the terms on which such borrowing is requested to be made: Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Senior Credit Agreement. (A) Date of Borrowing (which is a Business Day) ______________________ (B) Principal Amount of Borrowing* ______________________ (C) Type of Loan (Term, Revolving or or Swingline) ______________________ (D) Interest rate basis** ______________________ - -------- * Not less than $5,000,000 and in a multiple of $1,000,000. ** Include for Revolving Loans and Term Loans only. (E) Interest Period and the last day thereof* ______________________ (F) Funds are requested to be disbursed to the Borrower's account with [ ] (Account No. ). Upon acceptance of any or all of the Loans offered by the Banks in response to this request, the Borrower shall be deemed to have represented and warranted that the conditions to lending specified in Sections 3.02 (b) and (c) of the Senior Credit Agreement have been satisfied. RITE AID CORPORATION, By_______________________ Name: Title: - -------- * Include for Revolving Loans and Term Loans only. EXHIBIT C [[FORM OF]] CONTINUATION/CONVERSION REQUEST Citicorp USA, Inc., as Senior Administrative Agent [Address] Attention: [Name] [Title] RITE AID CORPORATION Ladies and Gentlemen: This Continuation/Conversion Request is delivered to you pursuant to Section 2.09 of the Senior Credit Agreement dated as of June 12, 2000 (as amended, supplemented or otherwise modified from time to time, the "Senior Credit Agreement"), among the Borrower, the Banks, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Senior Credit Agreement. The Borrower hereby requests that on [ ], 20[ ]: [(PAGE2I) $[ ] of the presently outstanding principal amount of [Base Rate Loans][Euro-Dollar Loans] be [converted into][continued as] [Base Rate Loans][Euro-Dollar Loans].]* [(ii) $[ ] of the presently outstanding principal amount of Euro-Dollar Loans having an Interest Period of [ ] months [seven days] be converted to Euro-Dollar Loans having an Interest Period of [ ] months. [seven days]]** The Borrower hereby: - -------- * Include paragraph (i) if a conversion or continuation of Loans is being requested. ** Include paragraph (ii) if a conversion of the Interest Period with respect to Eurodollar Loans is being requested. (a) certifies and warrants that no Default or Event of Default has occurred and is continuing; and (b) agrees that if before the time of such continuation or conversion any matter certified to herein will not be true and correct at such time as if then made, it will immediately so notify the Senior Administrative Agent. Each matter certified to herein shall be deemed to be certified at the date of such continuation or conversion as if then made unless the Senior Administrative Agent shall have received written notice to the contrary from the Borrower before such continuation or conversion. The Borrower has caused this Continuation/Conversion Request to be executed and delivered, and the certifications and warranties contained herein to be made, this [ ] day of [ ], 20[ ]. RITE AID CORPORATION, By_______________________ Name: Title: EXHIBIT D [[FORM OF]] ISSUANCE REQUEST Citicorp USA, Inc., as Senior Administrative Agent [ ], as Issuing Bank [Address] Attention: [ ] RITE AID CORPORATION Ladies and Gentlemen: This Letter of Credit Request is delivered to you pursuant to Section 2.17(b) of the Senior Credit Agreement dated as of June 12, 2000 (as amended, supplemented or otherwise modified from time to time, the "Senior Credit Agreement"), the Borrower, the Banks, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents. Capitalized terms used herein and not otherwise defined herein shall have the meanings provided in the Senior Credit Agreement. The Borrower hereby requests that [the Issuing Bank issue a Letter of Credit for the account of the Borrower on __________, 20 in an aggregate stated amount of $__________. The beneficiary of the Letter of Credit will be and the Letter of Credit will have a stated expiration date of __________] [Letter of Credit No. __________ in the amount of $___________ be hereby [extended][amended] as follows: __________ ]. The Borrower hereby certifies and warrants that: (pAGE2I) the representations and warranties in the Senior Credit Agreement will be true and correct in all material respects on the date of issuance of the Letter of Credit requested hereby. (ii) no Default or Event of Default has occurred and is continuing nor, after giving effect to the [issuance of the Letter of Credit] [amendment][extension] of Letter of Credit No._____] requested hereby, would such a Default or Event of Default occur. (iii) after giving effect to the [issuance of the Letter of Credit] [amendment][extension] of Letter of Credit No._____] requested hereby, the L/C Exposure shall not exceed $[__,000,000]. (iv) after giving effect to the [issuance of the Letter of Credit] [[amendment][extension] of Letter of Credit No. _____] requested hereby, the Aggregate Revolving Credit Exposure shall not exceed the Total Revolving Credit Commitment. The Borrower has caused this Letter of Credit request to be executed and delivered, and the certifications and warranties contained herein to be made, this [ ] day of [ ], 20[ ]. RITE AID CORPORATION, By_______________________ Name: Title: EXHIBIT E [FORM OF] BORROWING BASE CERTIFICATE Citicorp USA, Inc. as Senior Administrative Agent 399 Park Avenue New York, NY 10022 Attention: Ladies and Gentlemen: Pursuant to Section 5.01(g) of the Senior Credit Agreement dated as of June 12, 2000 (as amended, supplemented or otherwise modified from time to time, the "Senior Credit Agreement") among the Borrower, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents, the undersigned officer of the Borrower named hereby certifies the truth, accuracy and completeness of the information attached hereto as Annex 1 as of the close of business on [ ]. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Senior Credit Agreement. RITE AID CORPORATION By_____________________ Name: Title: Annex 1 Total ----- Accounts Receivable Advance Rate x the book value of the Eligible Accounts $ Receivable Pharmaceutical Inventory Advance Rate x Eligible Inventory Value of Eligible Inventory consisting of products that can be dispensed only on order of a licensed professional Other Inventory Advance Rate x Eligible Inventory Value of all other Eligible Inventory Reserves TOTAL AVAILABILITY Outstanding Term Loans Outstanding Revolving Credit Loans Letter of Credit Exposure Outstanding Swingline Loans TOTAL EXCESS AVAILABILITY EXHIBIT F [[FORM OF]] ASSIGNMENT AND ACCEPTANCE Reference is made to the Senior Credit Agreement dated as of June 12, 2000 (as amended, supplemented or otherwise modified from time to time, the "Senior Credit Agreement"), among the Borrower, the Banks, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Senior Credit Agreement. 1. [ ] (the "Assignor") hereby sells and assigns, without recourse, to the Assignee, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as set forth below, the interests set forth below (the "Assigned Interest") in the Assignor's rights and obligations under the Senior Credit Agreement and the other Senior Loan Documents, including, without limitation, the amounts and percentages set forth below of (pAGE2I) the Commitments of the Assignor on the Effective Date, (ii) the Loans owing to the Assignor which are outstanding on the Effective Date and (iii) participations in Letters of Credit and Swingline Loans which are outstanding on the Effective Date. Each of the Assignor and the Assignee hereby makes and agrees to be bound by all the representations, warranties and agreements set forth in Section 9.06(c) of the Senior Credit Agreement, a copy of which has been received by each such party. From and after the Effective Date (pAGE2I) the Assignee shall be a party to and be bound by the provisions of the Senior Credit Agreement and, to the extent of the interests assigned by this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and under the Senior Loan Documents and (ii) the Assignor shall, to the extent of the interests assigned by this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Senior Credit Agreement. The Assignor represents that it is the sole legal owner of the Assigned Interest free and clear of all liens and encumbrances and has not conveyed any interest in the Assigned Interest to any other Person. 2. This Assignment and Acceptance is being delivered to the Senior Administrative Agent together with (pAGE2I) the Notes evidencing the Loans included in the Assigned Interest, (ii) if the Assignee is organized under the laws of a jurisdiction outside the United States, the forms specified in Section 8.04(d) of the Senior Credit Agreement, duly completed and executed by such Assignee, (iii) if the Assignee is not already a Bank under the Senior Credit Agreement, an Administrative Questionnaire in the form of Exhibit P to the Senior Credit Agreement and (iv) a processing and recordation fee of $3,500. 3. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York. Date of Assignment: Legal Name of Assignor: Legal Name of Assignee: Assignee's Address for Notices: Effective Date of Assignment (may not be fewer than 5 Business Days after the Date of Assignment):
Percentage Assigned of Applicable Facility/Commitment (set forth, to at least 8 decimals, as a percentage of the Facility and Principal Amount the aggregate Commitments of Facility/Commitment Assigned all Banks thereunder) - ------------------- --------------------- ------------------------------- Revolving Credit $ % Term Loans $ % Swingline Loans $ %
The terms set forth above are hereby agreed to: Accepted* _________________, as Assignor CITICORP USA, INC., as Senior Administrative Agent by:___________________________ by:_________________________ Name: Name: Title: Title: - -------- * To be completed to the extent consents are required under Section 9.06(b) of the Senior Credit Agreement. _________________, as Assignee RITE AID CORPORATION, by:___________________________ by:_________________________ Name: Name: Title: Title: [Issuing Bank] by:_________________________ Name: Title: [Swingline Bank] by:_________________________ Name: Title: EXHIBIT G [FORM OF] SENIOR SUBSIDIARY GUARANTEE AGREEMENT dated as of June 12, 2000, among each of the subsidiaries listed on Schedule I hereto (each such subsidiary individually, a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors") of RITE AID CORPORATION, a Delaware corporation (the "Borrower"), and CITICORP USA, INC., a Delaware corporation, as collateral agent (the "Senior Collateral Agent") for the Senior Secured Parties. See Exhibit 10.4 of Form 8-K. EXHIBIT H [FORM OF] SENIOR SUBSIDIARY SECURITY AGREEMENT See Exhibit 10.3 of Form 8-K. EXHIBIT I [FORM OF] SENIOR INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT dated as of June 12, 2000, among RITE AID CORPORATION, a Delaware corporation (the "Borrower"), each Subsidiary of the Borrower listed on Schedule I hereto (the "Subsidiary Guarantors") and CITICORP USA, INC., a Delaware corporation ("Citicorp USA"), as collateral agent (in such capacity, the "Senior Collateral Agent") for the Senior Secured Parties. See Exhibit 10.5 of Form 8-K. EXHIBIT J =========================================================================== Citicorp/Rite Aid [FORM OF] MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT From [ ] to CITICORP USA, INC. ---------------------------------------- Dated: Premises: ---------------------------------------- =========================================================================== TABLE OF CONTENTS Page ARTICLE I Representations, Warranties and Covenants of Mortgagor SECTION 1.01. Title....................................................... SECTION 1.02. Senior Credit Agreement; Senior Subsidiary Guarantee Agreement; Certain Amounts........................................... SECTION 1.03. Payment of Taxes, Liens and Charges................................................... SECTION 1.04. Payment of Closing Costs ................................... SECTION 1.05. Plans; Alterations and Waste; Repairs SECTION 1.06. Insurance .................................................. SECTION 1.07. Casualty; Condemnation/Eminent Domain....................... SECTION 1.08. Assignment of Leases and Rents ............................. SECTION 1.09. Restrictions on Transfers and Encumbrances.............................................. SECTION 1.10. Security Agreement ......................................... SECTION 1.11. Filing and Recording ....................................... SECTION 1.12. Further Assurances ......................................... SECTION 1.13. Additions to Mortgaged Property ............................ SECTION 1.14. No Claims Against Mortgagee ................................ SECTION 1.15. Fixture Filing ............................................. SECTION 1.16. Notice Regarding Special Flood Hazards...................... ARTICLE II Defaults and Remedies SECTION 2.01. Events of Default........................................... SECTION 2.02. Demand for Payment.......................................... SECTION 2.03. Rights To Take Possession, Operate and Apply Revenues........................................... SECTION 2.04. Right To Cure Mortgagor's Failure to Perform.................................................. SECTION 2.05. Right to a Receiver......................................... SECTION 2.06. Foreclosure and Sale........................................ SECTION 2.07. Other Remedies.............................................. SECTION 2.08. Application of Sale Proceeds and Rents.................................................... SECTION 2.09. Mortgagor as Tenant Holding Over............................ SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws............................ SECTION 2.11. Discontinuance of Proceedings............................... SECTION 2.12. Suits To Protect the Mortgaged Property................................................. SECTION 2.13. Filing Proofs of Claim...................................... SECTION 2.14. Possession by Mortgagee..................................... SECTION 2.15. Waiver...................................................... SECTION 2.16. Remedies Cumulative......................................... ARTICLE III Miscellaneous SECTION 3.01. Partial Invalidity.......................................... SECTION 3.02. Notices..................................................... SECTION 3.03. Successors and Assigns...................................... SECTION 3.04. Satisfaction and Cancelation................................ SECTION 3.05. Definitions................................................. SECTION 3.06. Multisite Real Estate Transaction........................... ARTICLE IV Particular Provisions SECTION 4.01. Applicable Law; Certain Particular Provisions...................................... Exhibit A Description of Land Exhibit B Premises Located in a Special Flood Hazard Area Appendix A Local Law Provisions Appendix B Definitions Annex THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT dated as of June [ ], 2000 (this "Mortgage"), by [RITE AID SUBSIDIARY], a [ ], having an office at 30 Hunter Lane, Camp Hill, Pennsylvania 17011 (the "Mortgagor"), to CITICORP USA, INC., a Delaware corporation, having an office at 399 Park Avenue, New York, NY 10043( the "Mortgagee") as Senior Collateral Agent for the benefit of the Senior Secured Parties. WITNESSETH THAT: Capitalized terms used but not defined in this Mortgage have the meanings given to them in the Definitions Annex annexed hereto as Appendix B. Reference is made to the Senior Credit Agreement dated as of even date herewith (as amended, replaced or refinanced from time to time, the "Senior Credit Agreement"), among Rite Aid Corporation, a Delaware corporation (the "Borrower"), the banks from time to time party thereto, Citicorp USA, Inc., as Senior Administrative Agent and Senior Collateral Agent and Heller Financial, Inc. and Fleet Retail Finance, Inc. as Syndication Agents. Pursuant to the terms of, and subject to the conditions specified in, the Senior Credit Agreement, (i) the Senior Banks have agreed to make certain term and revolving loans to the Borrower, (ii) one or more Senior Banks (the "Swingline Banks") have agreed to make swingline loans to the Borrower on an uncommitted basis (the "Swingline Loans" - together with the loans referenced in clause (i), above, the "Senior Loans") and (iii) one or more Senior Banks (the "Issuing Banks") have agreed to issue letters of credit (the "Letters of Credit") for the account of the Borrower. Reference is made to certain letter of credit applications, reimbursement agreements and other documents (the "Independent Standby LC Documents") pursuant to which Mellon Bank, N.A. and Citibank, N.A. (the "Independent Standby L/C Parties") have issued and may in the future issue certain standby letters of credit (the "Independent Standby Letters of Credit") for the account of the Borrower. Mortgagor is a wholly owned subsidiary of the Borrower and will derive substantial benefit from the making of the Senior Loans by the Senior Banks and the issuance of the Letters of Credit by the Issuing Banks. In order to induce the Senior Banks to make the Senior Loans and the Issuing Banks to issue Letters of Credit, the Mortgagor has agreed to guarantee the due and punctual payment of the Senior Bank Obligations and the Independent Standby L/C Obligations (together, the "Senior Obligations") pursuant to the terms of the senior subsidiary guarantee agreement dated as of even date herewith (the "Senior Subsidiary Guarantee Agreement") made by Mortgagor and certain other Subsidiaries of Borrower (each, a "Subsidiary Guarantor") in favor of Mortgagee in its capacity as Senior Collateral Agent for the benefit of the Senior Bank Parties and the Independent Standby L/C Parties (together, the "Senior Secured Parties"). The sum of the principal amount of the Senior Loans and the Letters of Credit from time to time outstanding and secured hereby shall not exceed $1,000,000,000. The aggregate amount of Independent Standby Letters of Credit from time to time outstanding and secured hereby shall not exceed $34,000,000. The obligations of the Senior Banks to make Senior Loans and of the Issuing Banks to issue Letters of Credit are conditioned upon, among other things, the execution and delivery by the Mortgagor of this Mortgage in the form hereof to secure the guarantee of the Senior Obligations contained in the Senior Subsidiary Guarantee Agreement. Pursuant to the requirements of the Senior Credit Agreement and the Senior Subsidiary Guarantee Agreement, the Mortgagor therefore grants this Mortgage to create a lien on and a security interest in the Mortgaged Property (as defined herein) to secure the payment and performance of the Senior Obligations. The Senior Credit Agreement also requires the granting by other Subsidiary Guarantors of mortgages, deeds of trust and deeds to secure debt (the "Other Mortgages") that create liens on and security interests in certain parcels of real property (each, a "Mortgaged Property") other than the Mortgaged Property to secure the payment and performance of the Senior Obligations. Granting Clauses NOW, THEREFORE, IN CONSIDERATION OF the foregoing and in order to secure the due and punctual payment and performance of the Senior Obligations for the benefit of the Senior Secured Parties, Mortgagor hereby grants, conveys, mortgages, assigns and pledges to the Mortgagee and its successors and assigns forever, a security interest in, all the following described property (the "Mortgaged Property") whether now owned or held or hereafter acquired: (1) the land more particularly described on Exhibit A hereto (the "Land"), together with all rights appurtenant thereto which may, by their terms or as a matter of law, be conveyed or assigned along with the Land, including the easements over certain other adjoining land granted by any easement agreements, covenant or restrictive agreements and all air rights, mineral rights, water rights, oil and gas rights and development rights, if any, relating thereto, and also together with all of the other easements, rights, privileges, interests, hereditaments and appurtenances thereunto belonging or in any way appertaining and all of the estate, right, title, interest, claim or demand whatsoever of Mortgagor therein and in the streets and ways adjacent thereto, either in law or in equity, in possession or expectancy, now or hereafter acquired (the "Premises"); (2) all buildings, improvements, structures, paving, parking areas, walkways and landscaping now or hereafter erected or located upon the Land, and all fixtures of every kind and type affixed to the Premises or attached to or forming part of any structures, buildings or improvements and replacements thereof now or hereafter erected or located upon the Land (the "Improvements"); (3) all apparatus, appliances, building materials, equipment, fittings, machinery and other articles of tangible personal property of every kind and nature, and replacements thereof owned by Mortgagor and now or at any time hereafter affixed to the Improvements or the Premises, including all pumps, tanks, machinery, equipment, lifts, fire sprinklers and alarm systems, fire prevention or control systems, cleaning rigs, air conditioning, heating, boilers, refrigerating, electronic monitoring, water, loading, unloading, lighting, power, sanitation, waste removal, communications, partitions, lighting fixtures, freezers, refrigerators, walk-in coolers, signs (indoor and outdoor) and all other items of tangible personal property of any kind affixed to the Improvements or the Premises, it being understood that the enumeration of any specific articles of property shall in no way result in or be held to exclude any items of property not specifically mentioned (the property referred to in this subparagraph (3), the "Fixtures"); (4) all general intangibles owned by Mortgagor and relating to design, development, operation, management and use of the Premises or the Improvements, all certificates of occupancy, zoning variances, building, use or other permits, approvals, authorizations and consents obtained from and all materials prepared for filing or filed with any governmental agency in connection with the development, use, operation or management of the Premises and Improvements, all construction, service, engineering, consulting, leasing, architectural and other similar contracts concerning the design, construction, management, operation, occupancy and/or use of the Premises and Improvements, all architectural drawings, plans, specifications, soil tests, feasibility studies, appraisals, environmental studies, engineering reports and similar materials relating to any portion of or all of the Premises and Improvements, and all payment and performance bonds or warranties or guarantees relating to the Premises or the Improvements, all to the extent assignable (the "Permits, Plans and Warranties"); (5) all now or hereafter existing leases or licenses (under which Mortgagor is landlord or licensor) and subleases (under which Mortgagor is sublandlord), concession, management, mineral or other agreements of a similar kind that permit the use or occupancy of the Premises or the Improvements for any purpose in return for any payment, or the extraction or taking of any gas, oil, water or other minerals from the Premises in return for payment of any fee, rent or royalty (collectively, "Leases"), and all agreements or contracts for the sale or other disposition of all or any part of the Premises or the Improvements, now or hereafter entered into by Mortgagor, together with all charges, fees, income, issues, profits, receipts, rents, revenues or royalties payable thereunder ("Rents"); (6) all real estate tax refunds and all proceeds of the conversion, voluntary or involuntary, of any of the Mortgaged Property into cash or liquidated claims ("Proceeds"), including Proceeds of insurance maintained by the Mortgagor and condemnation awards, any awards that may become due by reason of the taking by eminent domain or any transfer in lieu thereof of the whole or any part of the Premises or Improvements or any rights appurtenant thereto, and any awards for change of grade of streets, together with any and all moneys now or hereafter on deposit for the payment of real estate taxes, assessments or common area charges levied against the Mortgaged Property, unearned premiums on policies of fire and other insurance maintained by the Mortgagor covering any interest in the Mortgaged Property or required by the Senior Credit Agreement; and (7) all extensions, improvements, betterments, renewals, substitutes and replacements of and all additions and appurtenances to, the Land, the Premises, the Improvements, the Fixtures, the Permits, Plans and Warranties and the Leases, hereinafter acquired by or released to the Mortgagor or constructed, assembled or placed by the Mortgagor on the Land, the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case, without any further mortgage, deed of trust, conveyance, assignment or other act by the Mortgagor, all of which shall become subject to the lien of this Mortgage as fully and completely, and with the same effect, as though now owned by the Mortgagor and specifically described herein. TO HAVE AND TO HOLD the Mortgaged Property unto the Mortgagee, its successors and assigns, for the ratable benefit of the Senior Secured Parties, forever, subject only to the Permitted Encumbrances (as hereinafter defined) and to satisfaction and cancelation as provided in Section 3.04. ARTICLE I Representations, Warranties and Covenants of Mortgagor Mortgagor agrees, covenants, represents and/or warrants as follows: SECTION 1.01. Title. (a) Mortgagor has good and marketable title to: (i) an indefeasible fee estate in the Land and Improvements; and (ii) all of the Fixtures; subject only to (A) liens, pledges, charges and other encumbrances which are identified in Section 4.16(a) of the Senior Credit Agreement and (B) minor defects in title that do not interfere with the ability of Mortgagor or any other subsidiary of the Borrower to conduct its business as presently conducted or to utilize the Mortgaged Property for its intended purpose (collectively, the "Permitted Encumbrances"). (b) There are no Leases affecting the Land or the Improvements except as disclosed in the Senior Credit Agreement. (c) Mortgagor is not obligated under, and the Mortgaged Property is not bound by or subject to, any right, of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Mortgaged Property or any interest therein. (d) The granting of this Mortgage is within Mortgagor's corporate powers and has been duly authorized by all necessary corporate, and, if required, stockholder action. This Mortgage has been duly executed and delivered by Mortgagor and constitutes a legal, valid and binding obligation of Mortgagor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (e) This Mortgage, when duly recorded in the appropriate public records and when financing statements are duly filed in the appropriate public records, will create a valid, perfected and enforceable first-priority lien upon and security interest in all the Mortgaged Property subject only to the Permitted Encumbrances. As of the date hereof, there are no defenses or offsets to this Mortgage that will be asserted by Mortgagor or its affiliates (or any third party defense or offset now known to Mortgagor or its affiliates) or to any of the Senior Obligations secured hereby for so long as any portion of the Senior Obligations remains outstanding. Mortgagor will forever warrant and defend its title to the Mortgaged Property, the rights of Mortgagee therein under this Mortgage and the validity and priority of the lien of this Mortgage against the claims of all persons and parties except those having rights under Permitted Encumbrances, to the extent of those rights. SECTION 1.02. Senior Credit Agreement; Senior Subsidiary Guarantee Agreement; Certain Amounts. (a) This Mortgage is given pursuant to the Senior Credit Agreement and the Senior Subsidiary Guarantee Agreement. Each and every term and provision of the Senior Credit Agreement and the Senior Subsidiary Guarantee Agreement (excluding the governing law provisions thereof), including the rights, remedies, obligations, covenants, conditions, agreements, indemnities, representations and warranties of the parties thereto shall be considered as if a part of this Mortgage. (b) If Mortgagee exercises any of its rights or remedies under this Mortgage, or if any actions or proceedings (including any bankruptcy, insolvency or reorganization proceedings) are commenced in which Mortgagee is made a party and is obliged to defend or uphold or enforce this Mortgage or the rights of Mortgagee hereunder or the terms of any Lease, or if a condemnation proceeding is instituted affecting the Mortgaged Property, Mortgagor will pay all reasonable sums, including reasonable attorneys' fees and disbursements, incurred by Mortgagee related to the exercise of any remedy or right of Mortgagee pursuant hereto and the reasonable expenses of any such action or proceeding together with all statutory or other costs, disbursements and allowances, interest thereon from the date of demand for payment thereof at the lesser of (i) the rate specified in Section 2.07(b) of the Senior Credit Agreement and (ii) the rate which, together with all fees, charges and other amounts which are treated as interest on such amounts under applicable law, constitutes the maximum lawful rate which may be contracted for, charged, taken, received or reserved by Mortgagee in accordance with applicable law (the "Default Interest Rate"), and such sums and the interest thereon shall, to the extent permissible by law, be a lien on the Mortgaged Property prior to any right, title to, interest in or claim upon the Mortgaged Property attaching or accruing subsequent to the recording of this Mortgage and shall be secured by this Mortgage to the extent permitted by law. Any payment of amounts due under this Mortgage not made on or before the due date for such payments shall accrue interest daily without notice from the due date until paid at the Default Interest Rate, and such interest at the Default Interest Rate shall be paid by Mortgagor to Mortgagee within 10 days after Mortgagor's receipt of notice from the Mortgagee that it is due. SECTION 1.03. Payment of Taxes, Liens and Charges. (a) Except to the extent they are being contested in the manner permitted by the Senior Credit Agreement, Mortgagor will pay and discharge from time to time prior to the time when the same shall become delinquent, and before any interest or penalty accrues thereon or attaches thereto (i) all taxes and assessments (general and special), water and sewer rents and/or charges, public or private impositions, levies, dues, permit, inspection and license fees, vault charges, service charges, public or private common area charges or maintenance charges, utility charges of every kind and nature which may become liens on the Mortgaged Property with priority over the lien of this Mortgage and (ii) all other material public or private charges, whether created or evidenced by recorded or unrecorded documents or of a like or different nature, imposed upon or assessed against the Mortgaged Property or any part thereof or upon the Rents from the Mortgaged Property or arising in respect of the occupancy, use, operation or possession thereof. (b) In the event of the passage of any state, Federal, municipal or other governmental law, order, rule or regulation subsequent to the date hereof (i) deducting from the value of real property for the purpose of taxation any lien or encumbrance thereon or in any manner changing or modifying the laws now in force governing the taxation of this Mortgage or debts secured by mortgages or deeds of trust (other than laws governing income, franchise and similar taxes generally) or the manner of collecting taxes thereon and (ii) imposing a tax to be paid by Mortgagee, either directly or indirectly, on this Mortgage or any of the Senior Loan Documents, or requiring an amount of taxes to be withheld or deducted therefrom, Mortgagor will promptly notify Mortgagee of such event. In such event, (A) Mortgagor shall at the request of Mortgagee, execute an instrument or agreement which obligates Mortgagor to make such additional payments as may be necessary to place Mortgagor and the Senior Secured Parties in the same economic position they would have been in with respect to the Senior Loans and other Senior Obligations if such law, order, rule or regulation had not been passed and (B) Mortgagor shall make such additional payments. (c) At any time that an Event of Default (as hereinafter defined) shall occur and be continuing, or if required by any law applicable to Mortgagor or to Mortgagee, Mortgagee shall have the right to direct Mortgagor to make an initial deposit on account of real estate taxes and assessments, insurance premiums and common area charges, levied against or payable in respect of the Mortgaged Property in advance and thereafter on a quarterly basis, each such deposit to be equal to one-quarter of any such annual charges estimated in a reasonable manner by Mortgagee in order to accumulate with Mortgagee sufficient funds to pay such taxes, assessments, insurance premiums and charges. Any such deposits held by Mortgagee shall be returned to Mortgagor within 30 days after this Mortgage is released or satisfied as provided in Section 3.04. SECTION 1.04. Payment of Closing Costs. Mortgagor shall pay all reasonable costs incurred by or on behalf of the Mortgagee in connection with, relating to or arising out of the preparation, execution and recording of this Mortgage, including title company charges, inspection costs, recording fees and taxes, attorneys', engineers' and consultants' fees and disbursements and all other, similar expenses of every kind. SECTION 1.05. Plans; Alterations and Waste; Repairs. (a) To the extent the same exist on the date hereof or are obtained in connection with future permitted alterations, Mortgagor shall maintain a complete set of final plans, specifications, blueprints and drawings for the Mortgaged Property either at the Mortgaged Property or in a particular office at the headquarters of Mortgagor to which Mortgagee shall have access upon reasonable advance notice and at reasonable times. (b) Mortgagor shall not: (i) demolish or remove all or any material portion of the Improvements; (ii) commit any waste on the Mortgaged Property or make any alterations to the Mortgaged Property which would materially diminish the utility of Mortgaged Property in the conduct of the business of the Mortgagor or its affiliates as conducted thereon on the date hereof; (iii) change the use of the Mortgaged Property or take any other action with respect to the Mortgaged Property if it would materially increase the risk of fire or any other hazard or violate the terms of any insurance policy required by Section 1.06 hereof; without the consent of the Mortgagee in each instance, such consent not to be unreasonably withheld or delayed. (c) Mortgagor will keep and maintain the Improvements and the Fixtures in good repair, working order and condition, reasonable wear and tear excepted. SECTION 1.06. Insurance. Mortgagor will purchase and maintain liability insurance, insurance on the Improvements and Fixtures and other insurance in accordance with the terms of the Senior Credit Agreement. SECTION 1.07. Casualty; Condemnation/Eminent Domain. Mortgagor shall give Mortgagee prompt written notice of any casualty or other damage to the Mortgaged Property or any proceeding for the taking of the Mortgaged Property or any portion thereof or interest therein under power of eminent domain or by condemnation or any similar proceeding. The proceeds received by or on behalf of the Mortgagor in respect of any such casualty, damage or taking shall constitute trust funds held by the Mortgagor for the benefit of the Senior Secured Parties to be applied in accordance with the terms of the Senior Credit Agreement. SECTION 1.08. Assignment of Leases and Rents. (a) Mortgagor hereby irrevocably and absolutely grants, transfers and assigns all of its right title and interest in all Leases, together with any and all extensions and renewals thereof for purposes of securing and discharging the performance by Mortgagor of the Senior Obligations. Mortgagor has not assigned or executed any assignment of, and will not assign or execute any assignment of, any other Lease or their respective Rents to anyone other than Mortgagee. (b) Without Mortgagee's prior written consent, which shall not be unreasonably withheld or delayed, Mortgagor will not enter into, modify, amend, terminate or consent to the cancelation or surrender of any Lease. (c) Subject to Section 1.08(d), Mortgagor has assigned and transferred to Mortgagee all of Mortgagor's right, title and interest in and to the Rents now or hereafter arising from each Lease heretofore or hereafter made or agreed to by Mortgagor, it being intended that this assignment establish, subject to Section 1.08(d), an absolute transfer and assignment of all Rents and all Leases to Mortgagee and not merely to grant a security interest therein. Subject to Section 1.08(d), Mortgagee may in Mortgagor's name and stead (with or without first taking possession of any of the Mortgaged Property personally or by receiver as provided herein) operate the Mortgaged Property and rent, lease or let all or any portion of any of the Mortgaged Property to any party or parties at such rental and upon such terms as Mortgagee shall, in its sole discretion, determine, and may collect and have the benefit of all of said Rents arising from or accruing at any time thereafter or that may thereafter become due under any Lease. (d) So long as an Event of Default shall not have occurred and be continuing, Mortgagee will not exercise any of its rights under Section 1.08(c), and Mortgagor shall receive and collect the Rents accruing under any Lease; but after the happening and during the continuance of any Event of Default, Mortgagee may, at its option, receive and collect all Rents and enter upon the Premises and Improvements through its officers, agents, employees or attorneys for such purpose and for the operation and maintenance thereof. Mortgagor hereby irrevocably authorizes and directs each tenant, if any, and each successor, if any, to the interest of any tenant under any Lease, respectively, to rely upon any notice of a claimed Event of Default sent by Mortgagee to any such tenant or any of such tenant's successors in interest, and thereafter to pay Rents to Mortgagee without any obligation or right to inquire as to whether an Event of Default actually exists and even if some notice to the contrary is received from the Mortgagor, who shall have no right or claim against any such tenant or successor in interest for any such Rents so paid to Mortgagee. Each tenant or any of such tenant's successors in interest from whom Mortgagee or any officer, agent, attorney or employee of Mortgagee shall have collected any Rents, shall be authorized to pay Rents to Mortgagor only after such tenant or any of their successors in interest shall have received written notice from Mortgagee that the Event of Default is no longer continuing, unless and until a further notice of an Event of Default is given by Mortgagee to such tenant or any of its successors in interest. (e) Mortgagee will not become a mortgagee in possession so long as it does not enter or take actual possession of the Mortgaged Property. In addition, Mortgagee shall not be responsible or liable for performing any of the obligations of the landlord under any Lease, for any waste by any tenant, or others, for any dangerous or defective conditions of any of the Mortgaged Property, for negligence in the management, upkeep, repair or control of any of the Mortgaged Property or any other act or omission by any other person. (f) Mortgagor shall furnish to Mortgagee, within 45 days after a request by Mortgagee to do so (but no more frequently than twice annually), a written statement containing the names of all tenants, subtenants and concessionaires of the Premises or Improvements, the terms of any Lease, the space occupied and the rentals or license fees payable thereunder. SECTION 1.09. Restrictions on Transfers and Encumbrances. Except as expressly permitted by the Senior Credit Agreement or this Mortgage, Mortgagor shall not directly or indirectly sell, convey, alienate, assign, lease, sublease, license, mortgage, pledge, encumber or otherwise transfer, create, consent to or suffer the creation of any lien, charges or any form of encumbrance upon any interest in or any part of the Mortgaged Property, or be divested of its title to the Mortgaged Property or any interest therein in any manner or way, whether voluntarily or involuntarily (other than resulting from a condemnation), or engage in any common, cooperative, joint, time-sharing or other congregate ownership of all or part thereof. SECTION 1.10. Security Agreement. This Mortgage is both a mortgage of real property and a grant of a security interest in personal property, and shall constitute and serve as a "Security Agreement" within the meaning of the uniform commercial code as adopted in the state wherein the Premises are located ("UCC"). Mortgagor has hereby granted unto Mortgagee a security interest in and to all the Mortgaged Property described in this Mortgage that is not real property, and simultaneously with the recording of this Mortgage, Mortgagor has filed or will file UCC financing statements, and will file continuation statements prior to the lapse thereof, at the appropriate offices in the state in which the Premises are located to perfect the security interest granted by this Mortgage in all the Mortgaged Property that is not real property. Mortgagor hereby appoints Mortgagee as its true and lawful attorney-in-fact and agent, for Mortgagor and in its name, place and stead, in any and all capacities, to execute any document and to file the same in the appropriate offices (to the extent it may lawfully do so), and to perform each and every act and thing reasonably requisite and necessary to be done to perfect the security interest contemplated by the preceding sentence. Mortgagee shall have all rights with respect to the part of the Mortgaged Property that is the subject of a security interest afforded by the UCC in addition to, but not in limitation of, the other rights afforded Mortgagee hereunder and under the Security Agreement. SECTION 1.11. Filing and Recording. Mortgagor will cause this Mortgage, any other security instrument creating a security interest in or evidencing the lien hereof upon the Mortgaged Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien hereof upon, and the security interest of Mortgagee in, the Mortgaged Property. Mortgagor will pay all filing, registration and recording fees, all Federal, state, county and municipal recording, documentary or intangible taxes and other taxes, duties, imposts, assessments and charges, and all reasonable expenses incidental to or arising out of or in connection with the execution, delivery and recording of this Mortgage, any mortgage supplemental hereto, any security instrument with respect to the Fixtures or any instrument of further assurance. SECTION 1.12. Further Assurances. Upon demand by Mortgagee, Mortgagor will, at the cost of Mortgagor and without expense to Mortgagee, do, execute, acknowledge and deliver all such further acts, deeds, conveyances, mortgages, assignments, notices of assignment, transfers and assurances as Mortgagee shall from time to time reasonably require for the better conveying, assigning, transferring and confirming unto Mortgagee the property and rights hereby conveyed or assigned or intended now or hereafter so to be, or which Mortgagor may be or may hereafter become bound to convey or assign to Mortgagee, or for carrying out the intention or facilitating the performance of the terms of this Mortgage, or for filing, registering or recording this Mortgage, and on demand, Mortgagor will also execute and deliver and hereby appoints Mortgagee as its true and lawful attorney-in-fact and agent, for Mortgagor and in its name, place and stead, in any and all capacities, to execute and file to the extent it may lawfully do so, one or more financing statements, chattel mortgages or comparable security instruments reasonably requested by Mortgagee to evidence more effectively the lien hereof upon the Fixtures and to perform each and every act and thing requisite and necessary to be done to accomplish the same. SECTION 1.13. Additions to Mortgaged Property. All right, title and interest of Mortgagor in and to all extensions, improvements, betterments, renewals, substitutes and replacements of, and all additions and appurtenances to, the Mortgaged Property hereafter acquired by or released to Mortgagor or constructed, assembled or placed by Mortgagor upon the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case without any further mortgage, conveyance, assignment or other act by Mortgagor, shall become subject to the lien and security interest of this Mortgage as fully and completely and with the same effect as though now owned by Mortgagor and specifically described in the grant of the Mortgaged Property above, but at any and all times Mortgagor will execute and deliver to Mortgagee any and all such further assurances, mortgages, conveyances or assignments thereof as Mortgagee may reasonably require for the purpose of expressly and specifically subjecting the same to the lien and security interest of this Mortgage. SECTION 1.14. No Claims Against Mortgagee. Nothing contained in this Mortgage shall constitute any consent or request by Mortgagee, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Mortgaged Property or any part thereof, nor as giving Mortgagor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Mortgagee in respect thereof. SECTION 1.15. Fixture Filing. Certain portions of the Mortgaged Property are or will become "fixtures" (as that term is defined in the UCC) on the Land, and this Mortgage, upon being filed for record in the real estate records of the county wherein such fixtures are situated, shall operate also as a financing statement filed as a fixture filing in accordance with the applicable provisions of said UCC upon such portions of the Mortgaged Property that are or become fixtures. The addresses of the Mortgagor, as debtor, and Mortgagee, as secured party, are set forth in the first page of this Mortgage. SECTION 1.16. Notice Regarding Special Flood Hazards. Mortgagee has informed Mortgagor, and Mortgagor hereby acknowledges that it realizes, that the Premises listed on Exhibit B is in an area identified by the Director of the Federal Emergency Management Agency as a "special flood hazard area" described in 12 C.F.R. ss.22.2, and Mortgagor hereby acknowledges that it has received, prior to the making of the Senior Loans and the incurrence of indebtedness constituting part of the Senior Obligations, the notice regarding Federal disaster relief assistance referred to in the Appendix to 12 C.F.R. Part 22. ARTICLE II Defaults and Remedies SECTION 2.01. Events of Default. Any event of default under the Senior Credit Agreement (as such term is defined therein, an "Event of Default") shall constitute an Event of Default under this Mortgage. SECTION 2.02. Demand for Payment. If an Event of Default shall occur and be continuing, then, requirement of protest, demand or notice of Mortgagee, Mortgagor will pay to Mortgagee all amounts due hereunder and under the Senior Credit Agreement and such further amount as shall be sufficient to cover the costs and expenses of collection, including attorneys' fees, disbursements and expenses incurred by Mortgagee, and Mortgagee shall be entitled and empowered to institute an action or proceedings at law or in equity for the collection of the sums so due and unpaid, to prosecute any such action or proceedings to judgment or final decree, to enforce any such judgment or final decree against Mortgagor and to collect, in any manner provided by law, all moneys adjudged or decreed to be payable. SECTION 2.03. Rights To Take Possession, Operate and Apply Revenues. (a) If an Event of Default shall occur and be continuing, Mortgagor shall, upon demand of Mortgagee, forthwith surrender to Mortgagee actual possession of the Mortgaged Property and, if and to the extent not prohibited by applicable law, Mortgagee itself, or by such officers or agents as it may appoint, may then enter and take possession of all the Mortgaged Property without the appointment of a receiver or an application therefor, and exclude Mortgagor and its agents and employees wholly therefrom. (b) If Mortgagor shall for any reason fail to surrender or deliver the Mortgaged Property or any part thereof after such demand by Mortgagee, Mortgagee may to the extent not prohibited by applicable law, obtain a judgment or decree conferring upon Mortgagee the right to immediate possession or requiring Mortgagor to deliver immediate possession of the Mortgaged Property to Mortgagee, to the entry of which judgment or decree Mortgagor hereby specifically consents. Mortgagor will pay to Mortgagee, upon demand, all reasonable expenses of obtaining such judgment or decree, including reasonable compensation to Mortgagee's attorneys and agents with interest thereon at the Default Interest Rate; and all such expenses and compensation shall, until paid, be secured by this Mortgage. (c) Upon every such entry or taking of possession, Mortgagee may, to the extent not prohibited by applicable law, hold, store, use, operate, manage and control the Mortgaged Property, conduct the business thereof and, from time to time, (i) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon, (ii) purchase or otherwise acquire additional fixtures, personalty and other property, (iii) insure or keep the Mortgaged Property insured, (iv) manage and operate the Mortgaged Property and exercise all the rights and powers of Mortgagor to the same extent as Mortgagor could in its own name or otherwise with respect to the same, or (v) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted Mortgagee, all as may from time to time be directed or determined by Mortgagee to be in its best interest and Mortgagor hereby appoints Mortgagee as its true and lawful attorney-in-fact and agent, for Mortgagor and in its name, place and stead, in any and all capacities, to perform any of the foregoing acts. Mortgagee may collect and receive all the Rents, issues, profits and revenues from the Mortgaged Property, including those past due as well as those accruing thereafter, and, after deducting (i) all expenses of taking, holding, managing and operating the Mortgaged Property (including compensation for the services of all persons employed for such purposes), (ii) the costs of all such maintenance, repairs, renewals, replacements, additions, betterments, improvements, purchases and acquisitions, (iii) the costs of insurance, (iv) such taxes, assessments and other similar charges as Mortgagee may at its option pay, (v) other proper charges upon the Mortgaged Property or any part thereof and (vi) the compensation, expenses and disbursements of the attorneys and agents of Mortgagee, Mortgagee shall apply the remainder of the moneys and proceeds so received as provided in Section 2.08. (d) Whenever, before any sale of the Mortgaged Property under Section 2.06, all Senior Obligations that are then due shall have been paid and all Events of Default fully cured, Mortgagee will surrender possession of the Mortgaged Property back to Mortgagor, its successors or assigns. The same right of taking possession shall, however, arise again if any subsequent Event of Default shall occur and be continuing. SECTION 2.04. Right To Cure Mortgagor's Failure to Perform. Should Mortgagor fail in the payment, performance or observance of any term, covenant or condition set forth in this Mortgage or the Senior Credit Agreement (with respect to the Mortgaged Property) for 10 days after notice of such failure from Mortgagee (in the case of a monetary default) or 20 days after notice of such failure from Mortgagee (in the case of a non-monetary default), Mortgagee may pay, perform or observe the same, and all payments made or costs or expenses incurred by Mortgagee in connection therewith shall be secured hereby and shall be repaid by Mortgagor to Mortgagee with interest thereon at the Default Interest Rate from the date incurred within 10 days after demand made by Mortgagee. Mortgagee shall be the judge using reasonable discretion of the necessity for any such actions and of the amounts to be paid. Mortgagee is hereby empowered to enter and to authorize others to enter upon the Premises or the Improvements or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without having any obligation to so perform or observe and without thereby becoming liable to Mortgagor, to any person in possession holding under Mortgagor or to any other person. SECTION 2.05. Right to a Receiver. If an Event of Default shall occur and be continuing, Mortgagee, upon application to a court of competent jurisdiction, shall be entitled as a matter of right to the appointment of a receiver (which may be Mortgagee or an employee of Mortgagee) to take possession of and to operate the Mortgaged Property and to collect and apply the Rents. The receiver shall have all of the rights and powers permitted under the laws of the state wherein the Mortgaged Property is located. Mortgagor shall pay to Mortgagee upon demand all reasonable expenses, including receiver's fees, reasonable attorney's fees and disbursements, costs and agent's compensation incurred pursuant to the provisions of this Section 2.05; and all such expenses shall be secured by this Mortgage and shall be, without demand, immediately repaid by Mortgagor to Mortgagee with interest thereon at the Default Interest Rate. SECTION 2.06. Foreclosure and Sale. (a) If an Event of Default shall occur and be continuing, Mortgagee may elect to sell the Mortgaged Property or any part of the Mortgaged Property by exercise of the power of foreclosure or of sale granted to Mortgagee by applicable law or this Mortgage. In such case, Mortgagee may commence a civil action to foreclose this Mortgage, or it may proceed and sell the Mortgaged Property to satisfy any Senior Obligation. Mortgagee or an officer appointed by a judgment of foreclosure to sell the Mortgaged Property, may sell all or such parts of the Mortgaged Property as may be chosen by Mortgagee at the time and place of sale fixed by it in a notice of sale, either as a whole or in separate lots, parcels or items as Mortgagee shall deem expedient, and in such order as it may determine, at public auction to the highest bidder. Mortgagee or an officer appointed by a judgment of foreclosure to sell the Mortgaged Property may postpone any foreclosure or other sale of all or any portion of the Mortgaged Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement or subsequently noticed sale. Without further notice, Mortgagee or an officer appointed to sell the Mortgaged Property may make such sale at the time fixed by the last postponement, or may, in its discretion, give a new notice of sale. Any person, including Mortgagor or Mortgagee or any designee or affiliate thereof, may purchase at such sale. (b) The Mortgaged Property may be sold subject to unpaid taxes and Permitted Encumbrances, and, after deducting all costs, fees and expenses of Mortgagee (including costs of evidence of title in connection with the sale), Mortgagee or an officer that makes any sale shall apply the proceeds of sale in the manner set forth in Section 2.08. (c) Any foreclosure or other sale of less than the whole of the Mortgaged Property or any defective or irregular sale made hereunder shall not exhaust the power of foreclosure or of sale provided for herein; and subsequent sales may be made hereunder until the Senior Obligations have been satisfied, or the entirety of the Mortgaged Property has been sold. (d) If an Event of Default shall occur and be continuing, Mortgagee may instead of, or in addition to, exercising the rights described in Section 2.06(a) above and either with or without entry or taking possession as herein permitted, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (i) to specifically enforce payment of some or all of the Senior Obligations, or the performance of any term, covenant, condition or agreement of this Mortgage or any other Senior Loan Document or any other right, or (ii) to pursue any other remedy available to Mortgagee, all as Mortgagee shall determine most effectual for such purposes. SECTION 2.07. Other Remedies. (a) In case an Event of Default shall occur and be continuing, Mortgagee may also exercise, to the extent not prohibited by law, any or all of the remedies available to a secured party under the UCC. (b) In connection with a sale of the Mortgaged Property or any Fixtures and the application of the proceeds of sale as provided in Section 2.08, Mortgagee shall be entitled to enforce payment of and to receive up to the principal amount of the Senior Obligations, plus all other charges, payments and costs due under this Mortgage, and to recover a deficiency judgment for any portion of the aggregate principal amount of the Senior Obligations remaining unpaid, with interest. SECTION 2.08. Application of Sale Proceeds and Rents. After any foreclosure sale of all or any portion of the Mortgaged Property, Mortgagee shall receive and apply the proceeds of the sale together with any Rents that may have been collected and any other sums that may then be held by Mortgagee under this Mortgage as follows: FIRST, to the payment of the costs and expenses of such sale, including compensation to Mortgagee's attorneys and agents, and of any judicial proceedings wherein the same may be made, and of all expenses, liabilities and advances made or incurred by Mortgagee under this Mortgage, together with interest at the Default Interest Rate on all advances made by Mortgagee, including all taxes, assessments (or other charges) (except any taxes, assessments or other charges subject to which the Mortgaged Property shall have been sold) and the cost of removing any liens or encumbrances (except any liens or encumbrances subject to which the Mortgaged Property was sold); SECOND, to the Mortgagee for the distribution to the Senior Secured Parties for the satisfaction of the Senior Obligations owed to the Senior Secured Parties; THIRD, to the holder of any subordinate mortgage encumbering the Mortgaged Property entitled to receive such proceeds; and FOURTH, to the Mortgagor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Mortgagee shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Mortgage. In the event of any inconsistency between this Section 2.08 and the Collateral Trust and Intercreditor Agreement, the Collateral Trust and Intercreditor Agreement shall control. Nothing in this Mortgage shall be interpreted to make the Mortgagee an agent of the Second Priority Debt Parties. Upon any sale of the Mortgaged Property by the Mortgagee (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Mortgagee or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Mortgaged Property so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Mortgagee or such officer or be answerable in any way for the misapplication thereof. SECTION 2.09. Mortgagor as Tenant Holding Over. If Mortgagor remains in possession of any of the Mortgaged Property after any foreclosure sale by Mortgagee, at Mortgagee's election Mortgagor shall be deemed a tenant holding over and shall forthwith surrender possession to the purchaser or purchasers at such sale or be summarily dispossessed or evicted according to provisions of law applicable to tenants holding over. SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws. Mortgagor waives, to the extent not prohibited by law, (i) the benefit of all laws now existing or that hereafter may be enacted (x) providing for any appraisement or valuation of any portion of the Mortgaged Property and/or (y) in any way extending the time for the enforcement or the collection of amounts due under any of the Senior Obligations or creating or extending a period of redemption from any sale made in collecting said debt or any other amounts due Mortgagee, (ii) any right to at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any homestead exemption, stay, statute of limitations, extension or redemption, or sale of the Mortgaged Property as separate tracts, units or estates or as a single parcel in the event of foreclosure or notice of deficiency, and (iii) all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of or each of the Senior Obligations and marshaling in the event of foreclosure of this Mortgage. SECTION 2.11. Discontinuance of Proceedings. In case Mortgagee shall proceed to enforce any right, power or remedy under this Mortgage by foreclosure, entry or otherwise, and such proceedings shall be discontinued or abandoned for any reason, or shall be determined adversely to Mortgagee, then and in every such case Mortgagor and Mortgagee shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Mortgagee shall continue as if no such proceeding had been taken. SECTION 2.12. Suits To Protect the Mortgaged Property. Mortgagee shall have power (a) to institute and maintain suits and proceedings to prevent any impairment of the Mortgaged Property by any acts that may be unlawful or in violation of this Mortgage, (b) to preserve or protect its interest in the Mortgaged Property and in the Rents arising therefrom and (c) to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of or compliance with such enactment, rule or order would impair the security or be prejudicial to the interest of Mortgagee hereunder. SECTION 2.13. Filing Proofs of Claim. In case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Mortgagor, Mortgagee shall, to the extent permitted by law, be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Mortgagee allowed in such proceedings for the Senior Obligations secured by this Mortgage at the date of the institution of such proceedings and for any interest accrued, late charges and additional interest or other amounts due or that may become due and payable hereunder after such date. SECTION 2.14. Possession by Mortgagee. Notwithstanding the appointment of any receiver, liquidator or trustee of Mortgagor, any of its property or the Mortgaged Property, Mortgagee shall be entitled, to the extent not prohibited by law, to remain in possession and control of all parts of the Mortgaged Property now or hereafter granted under this Mortgage to Mortgagee in accordance with the terms hereof and applicable law. SECTION 2.15. Waiver. (a) No delay or failure by Mortgagee to exercise any right, power or remedy accruing upon any breach or Event of Default shall exhaust or impair any such right, power or remedy or be construed to be a waiver of any such breach or Event of Default or acquiescence therein; and every right, power and remedy given by this Mortgage to Mortgagee may be exercised from time to time and as often as may be deemed expedient by Mortgagee. No consent or waiver by Mortgagee to or of any breach or Event of Default by Mortgagor in the performance of the Senior Obligations shall be deemed or construed to be a consent or waiver to or of any other breach or Event of Default in the performance of the same or of any other Senior Obligations by Mortgagor hereunder. No failure on the part of Mortgagee to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall constitute a waiver by Mortgagee of its rights hereunder or impair any rights, powers or remedies consequent on any future Event of Default by Mortgagor. (b) Even if Mortgagee (i) grants some forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security for the payment of any sums secured hereby, (iii) waives or does not exercise some right granted herein or under the Senior Loan Documents, (iv) releases a part of the Mortgaged Property from this Mortgage, (v) agrees to change some of the terms, covenants, conditions or agreements of any of the Loan Documents, (vi) consents to the filing of a map, plat or replat affecting the Premises, (vii) consents to the granting of an easement or other right affecting the Premises or (viii) makes or consents to an agreement subordinating Mortgagee's lien on the Mortgaged Property hereunder; no such act or omission shall preclude Mortgagee from exercising any other right, power or privilege herein granted or intended to be granted in the event of any breach or Event of Default then made or of any subsequent default; nor, except as otherwise expressly provided in an instrument executed by Mortgagee, shall this Mortgage be altered thereby. In the event of the sale or transfer by operation of law or otherwise of all or part of the Mortgaged Property, Mortgagee is hereby authorized and empowered to deal with any vendee or transferee with reference to the Mortgaged Property secured hereby, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any liabilities, obligations or undertakings. SECTION 2.16. Remedies Cumulative. No right, power or remedy conferred upon or reserved to Mortgagee by this Mortgage is intended to be exclusive of any other right, power or remedy, and each and every such right, power and remedy shall be cumulative and concurrent and in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity or by statute. ARTICLE III Miscellaneous SECTION 3.01. Partial Invalidity. In the event any one or more of the provisions contained in this Mortgage shall for any reason be held to be invalid, illegal or unenforceable in any respect, such validity, illegality or unenforceability shall, at the option of Mortgagee, not affect any other provision of this Mortgage, and this Mortgage shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein or therein. SECTION 3.02. Notices. All notices requests, demands and other communications hereunder shall be in writing and given to Mortgagor in accordance with the terms of the Senior Credit Agreement at the address set forth on the first page of this Mortgage and to the Mortgagee as provided in the Senior Credit Agreement. SECTION 3.03. Successors and Assigns. All of the grants, covenants, terms, provisions and conditions herein shall run with the Premises and the Improvements and shall apply to, bind and inure to, the benefit of the permitted successors and assigns of Mortgagor and the successors and assigns of Mortgagee. SECTION 3.04. Satisfaction and Cancelation. (a) The conveyance to Mortgagee of the Mortgaged Property as security created and consummated by this Mortgage shall be null and void when all the Senior Obligations have been indefeasibly paid in full in accordance with the terms of the Loan Documents and the Senior Banks have no further commitment to make Senior Loans under the Senior Credit Agreement, no Letters of Credit are outstanding and the Issuing Bank has no further obligation to issue Letters of Credit under the Senior Credit Agreement. (b) Upon a sale or financing by Mortgagor of all or any portion of the Mortgaged Property that is permitted by the Senior Credit Agreement and the application of the Net Proceeds of such sale or financing in accordance with the Senior Credit Agreement, the lien of this Mortgage shall be released from the applicable portion of the Mortgaged Property. Mortgagor shall give the Mortgagee reasonable written notice of any sale or financing of the Mortgaged Property prior to the closing of such sale or financing. (c) In connection with any termination or release pursuant to paragraph (a), the Mortgage shall be marked "satisfied" by the Mortgagee, and this Mortgage shall be canceled of record at the request and at the expense of the Mortgagor. Mortgagee shall execute any documents reasonably requested by Mortgagor to accomplish the foregoing or to accomplish any release contemplated by this Section 3.04 and Mortgagor will pay all costs and expenses, including reasonable attorneys' fees, disbursements and other charges, incurred by Mortgagee in connection with the preparation and execution of such documents. SECTION 3.05. Definitions. As used in this Mortgage, the singular shall include the plural as the context requires and the following words and phrases shall have the following meanings: (a) "including" shall mean "including but not limited to"; (b) "provisions" shall mean "provisions, terms, covenants and/or conditions"; (c) "lien" shall mean "lien, charge, encumbrance, security interest, mortgage or deed of trust"; (d) "obligation" shall mean "obligation, duty, covenant and/or condition"; and (e) "any of the Mortgaged Property" shall mean "the Mortgaged Property or any part thereof or interest therein". Any act that Mortgagee is permitted to perform hereunder may be performed at any time and from time to time by Mortgagee or any person or entity designated by Mortgagee. Any act that is prohibited to Mortgagor hereunder is also prohibited to all lessees of any of the Mortgaged Property, except to the extent that a Lease executed prior to the date hereof expressly permits such act without the consent of the Mortgagor or the holder of any mortgage. Each appointment of Mortgagee as attorney-in-fact for Mortgagor under the Mortgage is irrevocable, with power of substitution and coupled with an interest. Subject to express provisions to the contrary contained in this Mortgage, Mortgagee has the right to refuse to grant its consent, approval or acceptance or to indicate its satisfaction, in its sole discretion, whenever such consent, approval, acceptance or satisfaction is required hereunder. To the extent that this Mortgage provides that any particular consent, approval, acceptance or satisfaction is subject to the terms of the Senior Credit Agreement, it shall be granted or withheld as provided in the Senior Credit Agreement. SECTION 3.06. Multisite Real Estate Transaction. Mortgagor acknowledges that this Mortgage is one of a number of Other Mortgages that secure the Senior Obligations. Mortgagor agrees that the lien of this Mortgage shall be absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of Mortgagee, and without limiting the generality of the foregoing, the lien hereof shall not be impaired by any acceptance by the Mortgagee of any security for or guarantees of any of the Senior Obligations hereby secured, or by any failure, neglect or omission on the part of Mortgagee to realize upon or protect any Obligation or indebtedness hereby secured or any collateral security therefor including the Other Mortgages and other Loan Documents. The lien hereof shall not in any manner be impaired or affected by any release (except as to the property released), sale, pledge, surrender, compromise, settlement, renewal, extension, indulgence, alteration, changing, modification or disposition of any of the Senior Obligations secured or of any of the collateral security therefor, including the Other Mortgages and other Loan Documents or of any guarantee thereof, and Mortgagee may at its discretion foreclose, exercise any power of sale, or exercise any other remedy available to it under any or all of the Other Mortgages and other Loan Documents without first exercising or enforcing any of its rights and remedies hereunder. Such exercise of Mortgagee's rights and remedies under any or all of the Other Mortgages and other Loan Documents shall not in any manner impair the indebtedness hereby secured or the lien of this Mortgage and any exercise of the rights or remedies of Mortgagee hereunder shall not impair the lien of any of the Other Mortgages and other Loan Documents or any of Mortgagee's rights and remedies thereunder. Mortgagor specifically consents and agrees that Mortgagee may exercise its rights and remedies hereunder and under the Other Mortgages and other Senior Loan Documents separately or concurrently and in any order that it may deem appropriate and waives any rights of subrogation. ARTICLE IV Particular Provisions This Mortgage is subject to the following provisions relating to the particular laws of the state wherein the Premises are located: SECTION 4.01. Applicable Law; Certain Particular Provisions. This Mortgage shall be governed by and construed in accordance with the internal law of the State in which the Mortgaged Property is located without regard to principles of conflicts of laws and Mortgagor and Mortgagee agree to submit to jurisdiction and the laying of venue for any suit on this Mortgage in such state, except that the internal laws of the State of New York (without regard to principles of conflicts of laws) shall govern (i) those terms and conditions contained in the Senior Credit Agreement and/or the Senior Subsidiary Guarantee Agreement which are incorporated by reference herein and (ii) the resolution of issues arising under the Senior Credit Agreement and/or the Senior Subsidiary Guarantee Agreement to the extent that such resolution is necessary to the interpretation of this Mortgage. The terms and provisions set forth in Appendix A attached hereto are hereby incorporated by reference as though fully set forth herein. In the event of any conflict between the terms and provisions contained in the body of this Mortgage and the terms and provisions set forth in Appendix A, the terms and provisions set forth in Appendix A shall govern and control. [The balance of this page intentionally left blank.] IN WITNESS WHEREOF, this Mortgage has been duly executed and delivered to Mortgagee by Mortgagor on the date of the acknowledgment attached hereto. [NAME OF Mortgagor], a [ ], by: __________________________________ Name: Title: Attest: by: _______________________________ Name: Title: [Corporate Seal] [LOCAL FORM OF ACKNOWLEDGMENT] Exhibit A to Mortgage Description of Land Exhibit B Premises Located in a Special Flood Hazard Area None. Appendix A to Mortgage Local Law Provisions Appendix B to Mortgage Definitions Annex This is the Definitions Annex referred to in the Senior Loan Documents (such term and each other capitalized term used herein as defined below, and if not defined herein, have the meanings assigned to such terms in the applicable Senior Loan Document or Second Priority Debt Document) and the Second Priority Debt Documents. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 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 thereof and of each Senior Loan Document and Second Priority Debt Document containing restrictions or imposing conditions on the amendment, modification or supplementing of such agreement or contract. "Affiliate" means, when used with respect to a specified Person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Asset Sale" means any sale, transfer or other disposition (including pursuant to a Sale and Leaseback Transaction) of any property or asset of the Borrower or any Subsidiary (including any equity interest in a Subsidiary), other than a Permitted Disposition "Assignee" has the meaning ascribed to it in Section 9.06(c) of the Senior Credit Agreement. "Assignment and Acceptance Agreement" means an assignment and acceptance agreement in the form of Exhibit F to the Senior Credit Agreement. "Attributable Debt" means, as to any particular Capital Lease or 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 a transaction involving a Capital Lease, the amount on such date of the obligation thereunder that would appear on a balance sheet prepared as of such date in accordance with generally accepted accounting principles, or (ii) in the case of a Sale and Leaseback Transaction not involving a Capital Lease, 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 per annum that would be applicable to a Capital Lease of the Borrower having similar payment terms. 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, whether or not characterized as rent. "Bank" means each bank listed on the signature pages of the Senior Credit Agreement, each Assignee which becomes a Bank pursuant to Section 9.06(c) of the Senior Credit Agreement, and their respective successors. Unless the context clearly indicates otherwise, the term "Bank" shall include the Swingline Banks. "Bankruptcy Proceeding" means any proceeding under Title 11 of the U.S. Code or any other Federal, state or foreign bankruptcy, insolvency, reorganization, receivership or similar law. "Basket Asset Sale" means any sale or disposition (including a Sale and Leaseback Transaction not involving any Mortgaged Property) of office locations, stores or other personal or real property (including any improvements thereon), whether or not constituting Mortgaged Property, or leasehold interest therein for fair value in the ordinary course of business consistent with past practice and not inconsistent with the Borrower's business plan delivered to the Representatives on the Closing Date, provided, however, that, (i) the aggregate consideration received therefor (including the fair market value of any non-cash consideration) shall not exceed $75,000,000 in any fiscal year (calculated without regard to Sale and Leaseback Transactions permitted by Section 5.14(a), (b) and (c) of the Senior Credit Facility as in effect on the Closing Date) and (ii) at least 75% of such consideration shall consist of cash. "Borrower" means Rite Aid. "Business Day" means any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Euro-Dollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease" means any lease of property which, in accordance with generally accepted accounting principles, should be capitalized on the lessee's balance sheet. "Capital Markets Transaction" means the receipt by the Borrower or a Subsidiary of proceeds of 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 any proceeds in respect of the issuance of Exchange Notes to SPV and the disposition of such Exchange Notes pursuant to the Forward Commitment Agreement). "Casualty/Condemnation" means any event that gives rise to Casualty/Condemnation Proceeds. "Casualty/Condemnation Proceeds" means (a) any insurance proceeds under any insurance policies or otherwise with respect to any casualty or other insured damage to any assets of the Borrower or its Subsidiaries, and (b) any proceeds received by the Borrower or any Subsidiary of any action or proceeding for the taking of any assets of the Borrower or its Subsidiaries, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any similar public improvement or condemnation proceeding, less, in each case (i) any fees, commissions and expenses (including the costs of adjustment and condemnation proceedings) and other costs paid or incurred by the Borrower or any Subsidiary in connection therewith, (ii) income taxes reasonably estimated to be payable as a result of any gain recognized in connection with the receipt of such payment or proceeds and (iii) payment of the outstanding amount of any Debt (or Attributable Debt), other than the Secured Obligations, together with premium or penalty, if any, and interest thereon (or comparable obligations in respect of Attributable Debt), that is secured by a Lien on (or if Attributable Debt, the lease of) the stock or assets in question and that has priority over both the Senior Lien and the Second Priority Lien and is to be repaid as a result of receipt of such payments or proceeds; provided, however, that no such proceeds shall constitute Casualty/Condemnation Proceeds to the extent that such proceeds are (A) reinvested in other like fixed or capital assets within 180 days of the Casualty/Condemnation that gave rise to such proceeds or (B) committed to be reinvested in other like fixed or capital assets within 180 days of such Casualty/Condemnation, with diligent pursuit of such reinvestment, and reinvested in such assets within 365 days of such Casualty/Condemnation. "Citibank" means Citibank, N.A. "Citibank Standby L/C Documents" means the reimbursement agreements, letter of credit applications and other documents relating to the Citibank Standby Letters of Credit. "Citibank Standby L/C Obligations" means (a) each payment, including payments in respect of reimbursements and cash collateralization, required to be made by Rite Aid under the Citibank Standby L/C Documents in respect of Citibank Standby Letters of Credit in an aggregate amount at any time outstanding not in excess of (i) $8,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied to such obligations as the result of the exercise of remedies under the Senior Collateral Documents and (b) all other monetary obligations, including fees, costs, expenses and indemnities (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) of Rite Aid or any Obligor under the Citibank Standby L/C Documents to the extent attributable to the Citibank Standby Letters of Credit referred to in clause (a). "Citibank Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Citibank outstanding on the Closing Date in an aggregate face amount of approximately $8,000,000, together with any standby letter of credit (other than any letter of credit issued under the Senior Credit Facility) hereafter issued by Citibank for the account of any Obligor, provided that the Citibank Standby Letters of Credit shall be limited to an amount at any time outstanding not in excess of (i) $8,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied as the result of the exercise of remedies under the Senior Collateral Documents to reimbursement and cash collateralization obligations in respect of Citibank Standby Letters of Credit. "Closing Date" means the date on which the Senior Credit Facility, the amendments and restatements giving rise to the Existing Facilities and the exchange offer and other transactions giving rise to the Exchange Notes become effective. "Collateral" means the Senior Collateral and the Second Priority Collateral. "Collateral Documents" means (a) the Senior Collateral Documents and (b) the Second Priority Collateral Documents. "Collateral Trust and Intercreditor Agreement" means the Collateral Trust and Intercreditor Agreement, dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors, the Second Priority Collateral Trustee, the Senior Collateral Agent and each Second Priority Representative. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed by such Person. "Debt Facility" means any of the Senior Credit Facility, the Existing Facilities, the Synthetic Lease Facilities and the Exchange Note Indenture. "Default Rate" means a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) equal to the sum of (a) the rate of interest publicly announced by Citibank in New York, New York, from time to time as its "base rate", plus (b) 2.00%. "Designated Asset Disposition" means any sale, transfer or other disposition of Exchange Debt First Priority Collateral other than a Permitted Disposition. "Domestic Subsidiary" means any Subsidiary incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "Drugstore.com Common Stock" means the common stock of Drugstore.com, Inc., a Delaware corporation, owned by Rite Aid. "Drugstore.com Pledge Agreement" means the Drugstore.com Pledge Agreement dated as of October 25, 1999 and amended and restated as of June 12, 2000, between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "Exchange Debt Facility" means the Exchange Debt Facility dated as of June 12, 2000 among Rite Aid Corporation, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "Exchange Debt Facility Documents" means the collective reference to the "Loan Documents" as defined in the Exchange Debt Facility. "Exchange Debt First Priority Collateral" means the prescription files of Rite Aid's Subsidiaries and the proceeds thereof. "Exchange Debt First Priority Collateral Documents" means the collective reference to the "First Priority Collateral Documents", as defined in the Exchange Debt Facility. "Exchange Debt Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loans made under the Exchange Debt Facility, (ii) all other amounts payable by the Borrower to the Exchange Debt Parties under the Exchange Debt Facility Documents, and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the Exchange Debt Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Exchange Debt Parties" means all parties to the Exchange Debt Facility Documents other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the administrative agent under the Exchange Debt Facility and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Exchange Debt Facility Document. "Exchange Note Documents" means the Exchange Notes and the Exchange Note Indenture, Exchange and Registration Rights Agreement among the State Street Bank and Trust, as trustee, Rite Aid and the Subsidiary Guarantors, and the Forward Commitment Agreement. "Exchange Note Indenture" means the Indenture dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors and State Street Bank and Trust Company, as trustee, relating to the Exchange Notes. "Exchange Note Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the Exchange Notes, (ii) all other amounts payable by the Borrower to the Exchange Note Parties under the Exchange Note Documents, and (iii) any renewals or extensions of any of the foregoing. "Exchange Note Parties" means all parties to the Exchange Note Documents and the holders from time to time of the Exchange Notes, in each case other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the trustee under the Exchange Note Indentures and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Exchange Note Document. "Exchange Notes" means the 10.50% Senior Secured Notes Due 2002 of Rite Aid (i) issued in exchange for certain 5.50% Notes Due 2000 of Rite Aid and 6.70% Notes Due 2001 of Rite Aid or (ii) issued on the Closing Date to SPV and to be transferred to SSB, JPM and their respective transferees and assignees pursuant to the Forward Commitment Agreement. "Existing Facilities" means (a) the PCS Facility; (b) the RCF Facility; (c) the Finco Facility; and (d) the Exchange Debt Facility. "Existing Facilities Documents" means the collective reference to (i) the PCS Facility Documents, (ii) the RCF Facility Documents, (iii) the Finco Facility Documents and (iv) the Exchange Debt Facility Documents. "Existing Facility Obligations" means the PCS Facility Obligations, the RCF Facility Obligations, the Finco Facility Obligations and the Exchange Debt Obligations. "Existing Facility Parties" means the PCS Facility Parties, the RCF Facility Parties, the Finco Facility Parties and the Exchange Debt Parties. "Finco Facility" means the Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, Amendment No. 1 to Put Agreement (the "Omnibus Agreement") dated as of June 12, 2000, relating to the Adjustable Rate Senior Secured Notes due August 15, 2002 originally issued by Finco, Inc. and guaranteed by Rite Aid pursuant to separate Note Agreements dated as of September 30, 1996. "Finco Facility Documents" means the (i) Guaranty Agreement dated as of September 30, 1996 pursuant to which Rite Aid guaranteed the obligations of Finco, Inc. under the Finco Facility; (ii) Put Agreement dated as of September 30, 1996 entered into by Rite Aid, and (iii) Security Agreement dated as of September 30, 1996 entered into by Finco, Inc. and The Prudential Insurance Company of America as the Security Agent on behalf of the Finco Facility Parties, in each case as amended through the Closing Date. "Finco Facility Obligations" means (i) all outstanding principal amounts under the Finco Facility Documents, (ii) all interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the principal amounts pursuant to clause (i) of this definition, (iii) any renewals or extensions of any of the foregoing and (iv) any and all other amounts payable by the Borrower in respect of the Finco Facility Documents; provided, however, that the principal amount of indebtedness included in the Finco Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Finco Facility Parties" means The Prudential Insurance Company of America and Pruco Life Insurance Company and their successors and assigns as noteholders and purchasers under the Finco Facility Documents and The Prudential Insurance Company of America, as Security Agent under the Finco Facility Documents and its successor or assignee. "Forward Commitment Agreement" means the Forward Commitment Agreement dated June 12, 2000, among Rite Aid, SPV, SSB and JPM. "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" mean, collectively, (a) the Indenture dated as of December 21, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee, (b) the Indenture dated as of August 1, 1993, between Rite Aid and Morgan Guaranty Trust Company of New York, as trustee, (c) the Indenture dated as September 10, 1997, between Rite Aid and Harris Trust and Savings Bank, as trustee and (d) the Indenture dated as of September 22, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee. "Independent Standby L/C Documents" means the Citibank Standby L/C Documents and the Mellon Standby L/C Documents. "Independent Standby L/C Obligations" means the Citibank Standby L/C Obligations and the Mellon Standby L/C Obligations. "Independent Standby L/C Parties" means Citibank and Mellon Bank in their capacities as issuers of Independent Standby Letters of Credit. "Independent Standby Letters of Credit" means the Citibank Standby Letters of Credit and the Mellon Standby Letters of Credit. "Instructing Group" means, until the Senior Obligation Payment Date, the Majority Senior Parties, and thereafter the Second Priority Instructing Group. "Issuing Bank" is defined in Section 2.17 (i) of the Senior Credit Agreement, and shall include Citicorp USA, Inc., Fleet National Bank, and with respect to the Existing Trade Letters of Credit pursuant to Section 2.17 of the Senior Credit Agreement, Mellon Bank. "JPM" means J.P. Morgan Securities, Inc. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. "Majority Senior Parties" means the Majority Banks, as defined in the Senior Credit Facility, or with respect to any waiver, amendment or request, Senior Banks having such amount of unused Revolving Credit Commitments, Revolving Credit Exposure, unused Term Loan Commitments and outstanding Term Loans as may be required under the Senior Credit Facility to approve the same. "Mellon Bank" means Mellon Bank, N.A. "Mellon Standby L/C Documents" mean the reimbursement agreements, letter of credit applications and other documents relating to the Mellon Standby Letters of Credit. "Mellon Standby L/C Obligations" means (a) each payment, including payments in respect of reimbursements and cash collateralization, required to be made by Rite Aid under the Mellon Standby L/C Documents in respect of Mellon Standby Letters of Credit in an aggregate amount at any time outstanding not in excess of (i) $26,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied to such obligations as the result of the exercise of remedies under the Senior Collateral Documents and (b) all other monetary obligations, including fees, costs, expenses and indemnities (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable as a claim in such proceeding) of Rite Aid under the Mellon Standby L/C Documents to the extent attributable to the Mellon Standby Letters of Credit referred to in clause (a). "Mellon Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Mellon Bank outstanding on the Closing Date in an aggregate face amount of $26,000,000, together with any standby letter of credit (other than any letter of credit issued under the Senior Credit Facility) hereafter issued by Mellon Bank for the account of any Obligor provided that the Mellon Standby Letters of Credit shall be limited to an amount at any time outstanding not in excess of (i) $26,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied as the result of the exercise of remedies under the Senior Collateral Documents to reimbursement and cash collateralization obligations in respect of Mellon Standby Letters of Credit. "Moody's" means Moody's Investors Service, Inc., or any successor to its business of rating debt securities. "Net Cash Proceeds" means, (a) with respect to any sale, transfer or other disposition of any property or asset (a "Disposition"), an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Disposition (including, when received, any cash proceeds received in respect of any noncash proceeds of any Disposition), less (I) the sum of (i) reasonable costs and expenses paid or incurred in connection with such transaction, including, without limitation, any underwriting brokerage or other customary selling commissions and reasonable legal, advisory and other fees and expenses (including title and recording expenses, associated therewith), payments of unassumed liabilities relating to the assets sold and any severance and termination costs; (ii) the amount of any Debt (or Attributable Debt), together with premium or penalty, if any, and accrued interest thereon (or comparable obligations in respect of Attributable Debt) secured by a Lien on (or if Attributable Debt, the lease of) any asset disposed of in such Disposition and discharged from the proceeds thereof, but only to the extent such Lien has priority over the Senior Lien, the Second Priority Lien and the Liens under the Exchange Debt First Priority Collateral Documents; (iii) 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 Disposition; (iv) the portion of such cash proceeds which the Borrower determines in good faith and reasonably should be reserved for post-closing adjustments, including, without limitation, indemnification payments and purchase price adjustments, provided, that on the date that all such post-closing adjustments have been determined, the amount (if any) by which the reserved amount in respect of such Disposition exceeds the actual post-closing adjustments payable by the Borrower or any of the Subsidiary Guarantors shall constitute Net Cash Proceeds on such date; and (v) in the case of a PCS Divestiture the sum of (1) the PCS Incremental Investment as of the date of consummation of such disposition plus (2) the aggregate Net Cash Proceeds of PCS Dispositions in the form of Sale and Leaseback Transactions theretofore applied to prepayments of the PCS Facility; and plus (II) in the case of a PCS Divestiture, the PCS Investment Reduction as of the date of consummation of such transaction; (b) with respect to any Capital Markets Transaction, an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Capital Markets Transaction, less any reasonable transaction costs; including investment banking and underwriting fees, discounts and commissions and any other expenses (including legal fees and expenses) reasonably incurred by such Person in respect of such Capital Markets Transaction; and (c) with respect to receipt of Casualty/Condemnation Proceeds, the amount thereof. "Obligors" means Rite Aid, the Subsidiary Guarantors and any other Person who is liable for any of the Secured Obligations. "paid in full" means paid in full in cash. "PCS" means PCS Holding Corporation, a Delaware corporation, and its successors. "PCS Common Stock" means the common stock of PCS owned by Rite Aid. "PCS Disposition" means (i) any sale or other disposition of capital stock of PCS (or of any non-cash proceeds thereof), (ii) any sale, lease or other disposition (including a Casualty/Condemnation) by PCS or any of its Subsidiaries of any asset, other than (y) 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, and (z) dispositions to PCS or a wholly-owned Subsidiary of PCS or (iii) any sale, lease or other disposition (including a Casualty/Condemnation) of PCS Land. "PCS Divestiture" means a PCS Disposition as a result of which the business of PCS is no longer conducted by a Consolidated Subsidiary of the Borrower. "PCS/Drugstore Pledged Collateral" means the capital stock of PCS and Drugstore.com pledged by Rite Aid under the PCS Pledge Agreement and the Drugstore.com Pledge Agreement and all income and profits thereon, dividends and other payments and distributions with respect thereto and all proceeds of the foregoing subject to a Lien under such agreements. "PCS Excluded Assets" means (i) any Collateral consisting of assets of PCS or a Subsidiary of PCS, other than PCS Linked Accounts, (ii) PCS Land and (iii) any proceeds of clauses (i) and (ii). For purposes of Article IV of the Collateral Trust and Intercreditor Agreement, any proceeds of enforcement of the Senior Subsidiary Guarantee Agreement or the Second Priority Guarantee Agreement against PCS or a Subsidiary of PCS (other than with respect to the PCS Linked Accounts and the proceeds thereof) shall be deemed to be proceeds of Collateral consisting of PCS Excluded Assets. "PCS Facility" means the PCS Facility dated as of June 12, 2000, among Rite Aid, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "PCS Facility Documents" means the "Loan Documents" as defined in the PCS Facility. "PCS Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the PCS Facility, (ii) all other amounts payable by the Borrower under the PCS Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the PCS Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "PCS Facility Parties" means the parties to the PCS Facility Documents other than the Obligors, the Senior Bank Parties and the Representatives, but including the administrative agent under the PCS Facility and the beneficiaries of each indemnification obligation by Rite Aid or any other Obligor under any PCS Facility Documents. "PCS Incremental Investment" means, at any date, the amount, if any, by which the inter-company payable owing by Rite Aid Hdqtrs. Corp. to PCS at such date is less than such amount as at the Closing Date. The Borrower shall promptly notify each of the Representatives following the Closing Date of such latter amount. "PCS Investment Reduction" means, at any date, the excess, if any, of (i) the amount, if any, by which the intercompany payable owing by Rite Aid Hdqtrs. Corp. to PCS at such date is greater than such amount as at May 27, 2000, over (ii) the cumulative PCS EBITDA, as defined in the Senior Credit Facility, for the period from May 27, 2000, to such date. "PCS Land" means the real property described as N.W. 96th Street and Mountainview Road, Scottsdale, Arizona, together with any improvements thereon. "PCS Linked Accounts" means any accounts receivable owed to PCS by third party insurers in respect of claims generated by other Subsidiaries of Rite Aid and giving rise to related accounts payable owed by PCS to such other Subsidiaries of Rite Aid. "PCS Pledge Agreement" means the PCS Pledge Agreement dated as of October 25, 1999 and amended and restated as of June 12, 2000, between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "Permitted Disposition" means any of the following: (i) dispositions of inventory at retail, cash, cash equivalents and other cash managing investments and obsolete, unused, uneconomic or unnecessary equipment, in each case in the ordinary course of business; (ii) a disposition to a Subsidiary Guarantor, provided, that (A) if the property subject to such disposition constitutes Collateral immediately before giving effect to such disposition, such property continues to constitute Collateral subject to the Senior Lien and the Second Priority Lien, and (B) no dispositions of property will be made to or by PCS or its Subsidiaries except in the ordinary course of business consistent with past practice; (iii) a sale or discount, in each case without recourse and in the ordinary course of business, of overdue Accounts (as defined in the Senior Credit Facility) arising in the ordinary course of business, but only to the extent such Accounts are no longer Eligible Accounts Receivable (as defined in the Senior Credit Facility) and such sale or discount is in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale); (iv) Basket Asset Sales; and (v) any disposition of Exchange Notes by SPV to SSB or JPM (or their respective successors, assigns and affiliates), pursuant to the Forward Commitment Agreement as in effect on the Closing Date. "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. "RCF Facility" means the RCF Facility dated as of June 12, 2000, among Rite Aid, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "RCF Facility Documents" means the "Loan Documents" as defined in the RCF Facility. "RCF Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the RCF Facility, (ii) all other amounts payable by the Borrower to the RCF Facility Parties under the RCF Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the RCF Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "RCF Facility Parties" means the parties to the RCF Facility Documents other than the Obligors. "Reduction" means, when applied to any Debt Facility, (i) the permanent repayment of outstanding loans (or obligations in respect of Attributable Debt) under such Debt Facility, (ii) the permanent reduction of outstanding lending commitments under such Debt Facility or (iii) the permanent cash collateralization of outstanding letters of credit under such facility (together with the termination of any lending commitments utilized by such letters of credit). "Reduction Event" is (i) a PCS Disposition, (ii) a Capital Markets Transaction, (iii) a Designated Asset Disposition, (iv) a Senior Collateral Disposition, (v) other Asset Sales or (vi) receipt of other Casualty/Condemnation Proceeds. "Related Exchange Debt" means, with respect to any of the Existing Facilities (other than the Exchange Debt Facility), Debt under the Exchange Debt Facility issued in exchange for Debt under such Existing Facility. "Related Exchange Debt Obligation" shall mean Exchange Debt Obligations in respect of Related Exchange Debt. "Representatives" means each of the Senior Collateral Agent and the Second Priority Representatives. "Required Prepayment Amount" has the meaning assigned to such term in the Senior Credit Facility, as in effect on the Closing Date. "Revolving Credit Commitment" means, with respect to each Bank, the commitment of such Bank to make Revolving Loans as set forth in Annex 1 of the Senior Credit Agreement, or in the Assignment and Acceptance Agreement pursuant to which such Bank assumed its Revolving Credit Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.08 of the Senior Credit Agreement, and (b) reduced or increased from time to time pursuant to assignments by or to such Bank pursuant to Section 9.06 of the Senior Credit Agreement. "Revolving Loans" means the revolving loans made by the Banks to the Borrower pursuant to Section 2.01(b) of the Senior Credit Agreement. "Rite Aid" means Rite Aid Corporation, a Delaware corporation, and its successors. "Rite Aid Hdqtrs. Corp." means Rite Aid Hdqtrs. Corp., a Delaware corporation and a Wholly-Owned Consolidated Subsidiary of the Borrower. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor to its business of rating debt securities. "Sale and Leaseback Transaction" means the sale or transfer by the Borrower or any Subsidiary of any office building (including its headquarters), distribution center, manufacturing plant, warehouse, Store or equipment now or hereafter owned by the Borrower or any Subsidiary with the intention that the Borrower or any Subsidiary take back a lease thereof. "Second Priority Collateral" means all the "Second Priority Collateral" as defined in any Second Priority Collateral Documents and shall also include the Mortgaged Properties and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral or the Exchange Debt First Priority Collateral. "Second Priority Collateral Documents" means the Second Priority Mortgages, the Second Priority Subsidiary Security Agreement, the Second Priority Subsidiary Guarantee Agreement, the Second Priority Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing for purposes of providing collateral security or credit support for any Second Priority Debt Obligation or obligation under the Second Priority Subsidiary Guarantee Agreement but specifically excluding the Drugstore.com Pledge Agreement, the Exchange Debt First Priority Collateral Documents and the PCS Pledge Agreement. "Second Priority Collateral Trustee" means Wilmington Trust Company, in its capacity as collateral trustee under the Collateral Trust and Intercreditor Agreement and the Second Priority Collateral Documents, and its successors. "Second Priority Debt Documents" means the Existing Facility Documents, the Exchange Note Documents, the Synthetic Lease Documents and the Second Priority Collateral Documents. "Second Priority Debt Obligations" means the collective reference to the Exchange Debt Obligations, the Exchange Note Obligations, the Synthetic Lease Obligations, the PCS Facility Obligations, the RCF Facility Obligations and the Finco Facility Obligations. "Second Priority Debt Parties" means the Existing Facility Parties, the Exchange Note Parties, the Synthetic Lease Parties and the Second Priority Collateral Trustee. "Second Priority Facilities" means the Exchange Debt Facility, the Exchange Note Indenture, the Synthetic Lease Facilities, the PCS Facility, the RCF Facility and the Finco Facility. "Second Priority Indemnity, Subrogation and Contribution Agreement" means the Second Priority Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors and the Second Priority Collateral Trustee. "Second Priority Instructing Group" means Second Priority Representatives with respect to Second Priority Facilities under which at least a majority of the then aggregate amount of Second Priority Debt Obligations are outstanding. "Second Priority Lien" means the Liens on the Second Priority Collateral in favor of the Second Priority Debt Parties under the Second Priority Collateral Documents. "Second Priority Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents which create a Lien in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties, delivered pursuant to the Second Priority Debt Documents, each substantially in the form of Exhibit [ ] to the RCF Facility, with such changes as are approved by the Senior Collateral Agent and the Second Priority Representatives. "Second Priority Representative" means, in respect of each Second Priority Facility, the trustee under the Exchange Note Indenture and the administrative agent, security agent or agent under each other Second Priority Facility and each of their successors in such capacities. "Second Priority Subsidiary Guarantee Agreement" means the Second Priority Subsidiary Guarantee Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Second Priority Subsidiary Security Agreement" means the Second Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Secured Obligations" means the Senior Obligations and the Second Priority Debt Obligations. "Senior Bank" means a "Bank" as defined in the Senior Credit Facility. "Senior Bank Obligations" means (i) the principal of each loan made under the Senior Credit Facility, (ii) all reimbursement and cash collateralization obligations in respect of letters of credit issued under the Senior Credit Facility, (iii) all monetary obligations of the Borrower or any Subsidiary under each Senior Interest Rate Agreement entered into with any counterparty that was a Senior Bank (or an Affiliate thereof) at the time such Senior Interest Rate Agreement was entered into, (iv) all interest on the loans, letter of credit reimbursement, fees and other obligations under the Senior Credit Facility or such Senior Interest Rate Agreements (including, without limitation any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower or any Subsidiary Guarantor, whether or not allowed or allowable as a claim in such proceeding), (v) all other amounts payable by the Borrower under the Senior Loan Documents and (vi) all increases, renewals, extensions and refinancings of the foregoing; provided, however, that the principal amount of the indebtedness under the Senior Credit Facility included in the Senior Bank Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Senior Bank Parties" means each party to the Senior Credit Facility other than any Obligor, each counterparty to a Senior Interest Rate Agreement, the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Senior Loan Document, and the successors and permitted assigns of each of the foregoing. "Senior Collateral" means all the "Senior Collateral" as defined in any Senior Collateral Document and shall also include the Mortgaged Properties and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral and the Exchange Debt First Priority Collateral. "Senior Collateral Agent" means Citicorp USA, Inc., in its capacity as Senior Collateral Agent under the Senior Collateral Documents, and its successors. "Senior Collateral Disposition" means (i) any sale, transfer or other disposition of Senior Collateral (including of any property or assets that would constitute Senior Collateral but for the release of the Senior Lien with respect thereto in connection with such sale, transfer or other disposition), other than a PCS Disposition, or a Permitted Disposition or (ii) a Casualty/Condemnation with respect to Senior Collateral (other than PCS Excluded Assets). "Senior Collateral Documents" means the Senior Mortgages, the Senior Subsidiary Security Agreement, the Senior Subsidiary Guarantee Agreement, the Senior Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing or pursuant to the Senior Credit Facility or for purposes of providing collateral security or credit support for any Senior Obligation or obligation under the Senior Subsidiary Guarantee Agreement. "Senior Credit Facility" means the Senior Credit Agreement, dated as of June 12, 2000, among Rite Aid, as Borrower, the Senior Banks, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents. "Senior Indemnity, Subrogation and Contribution Agreement" means the Senior Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000 among Rite Aid, the Subsidiary Guarantors (including Subsidiary Guarantors becoming party thereto after the Closing Date) and the Senior Collateral Agent. "Senior Interest Rate Agreement" means any Interest Rate Agreement entered into with Rite Aid or any Subsidiary, if the applicable counterparty was a Senior Bank or an Affiliate thereof at the time the Interest Rate Agreement was entered into. "Senior Lien" means the Liens on the Senior Collateral in favor of the Senior Secured Parties under the Senior Collateral Documents. "Senior Loan Documents" means the Senior Credit Facility, the Notes referred to in the Senior Credit Facility, each Senior Interest Rate Agreement, and the Senior Collateral Documents. "Senior Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents delivered pursuant to the Senior Credit Facility, each substantially in the form of Exhibit J to the Senior Credit Facility, with such changes as are approved by the Senior Collateral Agent. "Senior Obligation Payment Date" means the date on which (i) the Senior Obligations have been paid in full, (ii) all lending commitments under the Senior Credit Facility have been terminated and (iii) there are no outstanding Independent Standby Letters of Credit or letters of credit issued under the Senior Credit Facility other than such as have been fully cash collateralized under documents and arrangements satisfactory to the issuer of such letters of credit. "Senior Obligations" means (a) the Senior Bank Obligations and (b) the Independent Standby L/C Obligations. "Senior Secured Parties" means (a) the Senior Bank Parties and (b) the Independent Standby L/C Parties. "Senior Subsidiary Guarantee Agreement" means the Senior Subsidiary Guarantee Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "Senior Subsidiary Security Agreement" means the Senior Subsidiary Security Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "SPV" means Fiona One Corp., a Delaware corporation and a wholly-owned Subsidiary of Rite Aid which is organized for the sole purpose of acquiring Exchange Notes on the Closing Date from Rite Aid and selling such Exchange Notes to SSB and JPM in accordance with the Forward Commitment Agreement. "SSB" means Salomon Smith Barney Inc. "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. "Subsidiary Guarantor" means each Subsidiary that is party to the Senior Subsidiary Guarantee Agreement, the Second Priority Subsidiary Guarantee Agreement or any other Senior Collateral Document or Second Priority Collateral Document. "Synthetic Lease" means a lease which is treated as an operating lease under generally accepted accounting principles but as ownership of the leased asset by the lessee for purposes of the Internal Revenue Code. "Synthetic Lease Documents" means [the documents governing the Synthetic Leases]. "Synthetic Lease Facilities" means certain synthetic leases entered into by the Subsidiary Guarantors and guaranteed by Rite Aid having an aggregate discounted present value of approximately $214,000,000, as amended and restated as of the Closing Date. "Synthetic Lease Obligations" means all rent and supplemental rent, all fees and all other expenses or amounts payable by any Obligors to any Synthetic Lease Parties under any Synthetic Lease Document; provided, however, that the aggregate amount of the Synthetic Lease Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Synthetic Lease Parties" means all parties to the Synthetic Lease Documents other than the Obligors. "Temporary Cash Investment" means any investment by any Person in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by S&P and P-1 by Moody's, (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized or licensed under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $500,000,000, (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, provided in each case that such investment matures within one year from the date of acquisition thereof by such Person or (v) money market mutual funds at least 90% the assets of which are held in investments referred to in clauses (i) through (iv) above (except that the maturities of certain investments held by any such money market funds may exceed one year so long as the dollar-weighted average life of the investments of such money market mutual fund is less than one year). "Term Loans" means the term loans made by the Banks to the Borrower pursuant Section 2.01(a) of the Senior Credit Agreement. "Term Loan Commitments" means with respect to each Bank, the commitment of such Bank to make Term Loans as set forth on Annex 1 of the Senior Credit Agreement, or in the Assignment and Acceptance pursuant to which such Bank assumed its Term Loan Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.08 of the Senior Credit Commitment and (b) reduced or increased from time to time pursuant to assignments by or to such Bank pursuant to Section 9.06 of the Senior Credit Commitment. "Uniform Commercial Code" or "UCC" means, unless otherwise specified, the Uniform Commercial Code as from time to time in effect in the State of New York. EXHIBIT K [FORM OF] SECOND PRIORITY SUBSIDIARY GUARANTEE AGREEMENT dated as of June 12, 2000, among each of the subsidiaries listed on Schedule I hereto (each such subsidiary individually, a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors") of RITE AID CORPORATION, a Delaware corporation (the "Borrower"), and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral trustee (in such capacity, the "Second Priority Collateral Trustee") for the holders from time to time of the Second Priority Debt Obligations. See Exhibit 10.9 of Form 8-K. EXHIBIT L [FORM OF] SECOND PRIORITY SUBSIDIARY SECURITY AGREEMENT See Exhibit 10.10 of Form 8-K. EXHIBIT M [FORM OF] SECOND PRIORITY INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT dated as of JUNE 12, 2000, among RITE AID CORPORATION, a Delaware corporation (the "Borrower"), each Subsidiary of the Borrower listed on Schedule I hereto (the "Subsidiary Guarantors") and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral trustee (in such capacity, the "Second Priority Collateral Trustee") for the holders from time to time of the Second Priority Debt Obligations. See Exhibit 10.11 of Form 8-K. EXHIBIT N ============================================================================= [FORM OF] SECOND PRIORITY MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT FROM [ ] AS SUBSIDIARY GUARANTOR, THE MORTGAGOR, TO WILMINGTON TRUST COMPANY, AS COLLATERAL TRUSTEE FOR THE SECOND PRIORITY DEBT PARTIES, THE MORTGAGEE, ---------------------------------------- DATED: PREMISES: ---------------------------------------- =========================================================================== See Exhibit 10.15 of Form 8-K. EX-10 6 0006.txt EXHIBIT 10.2 - COLLATERAL TRUST AND INTERCREDITOR AGREEMENT Exhibit 10.2 EXECUTION COPY COLLATERAL TRUST AND INTERCREDITOR AGREEMENT COLLATERAL TRUST AND INTERCREDITOR AGREEMENT (as amended and modified from time to time, this "Agreement") dated as of June 12, 2000, among RITE AID CORPORATION, a Delaware corporation ("Rite Aid"), each Subsidiary of Rite Aid listed on the signature pages hereto or which becomes a party hereto pursuant to Section 9.11 hereof (each such Subsidiary, individually, a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors"), WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral trustee (in such capacity, the "Second Priority Collateral Trustee") for the holders from time to time of the Second Priority Debt Obligations, CITICORP USA, INC., a Delaware corporation ("Citicorp USA"), as collateral agent (in such capacity, the "Senior Collateral Agent") for the Senior Secured Parties under the Senior Loan Documents, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as administrative agent for the RCF Facility Parties under the RCF Facility, the PCS Facility Parties under the PCS Facility Documents and the Exchange Debt Parties under the Exchange Debt Facility Documents, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, as Security Agent for the Finco Facility Parties under the Finco Facility Documents, STATE STREET BANK AND TRUST COMPANY, as trustee under the Exchange Note Indenture for the holders of the Exchange Notes, and THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH, as Collateral Agent for the Synthetic Lease Parties under the Synthetic Lease Documents. Reference is made to the Senior Loan Documents. Each of the Subsidiary Guarantors has entered into the Senior Subsidiary Guarantee Agreement, pursuant to which they have, jointly and severally, guaranteed the Senior Obligations for the benefit of each Senior Secured Party. Each of the Subsidiary Guarantors has also entered into the Senior Subsidiary Security Agreement, each Senior Mortgage and each other Senior Collateral Document to which it is a party to secure, among other things, the Senior Obligations, including their obligations under the Senior Subsidiary Guarantee Agreement, and such Subsidiary Guarantors have pledged collateral to the Senior Collateral Agent under such agreements. Reference is made to the Second Priority Debt Documents. Each of the Subsidiary Guarantors has entered into the Second Priority Subsidiary Guarantee Agreement, pursuant to which they have, jointly and severally, guaranteed the Second Priority Debt Obligations for the benefit of each Second Priority Debt Party. Each of the Subsidiary Guarantors has also entered into the Second Priority Subsidiary Security Agreement, each Second Priority Mortgage and each other Second Priority Collateral Document to which it is a party to secure, among other things, the Second Priority Debt Obligations, including their obligations under the Second Priority Subsidiary Guarantee Agreement, and such Subsidiary Guarantors have pledged collateral to the Second Priority Collateral Trustee under such agreements. Rite Aid, the Subsidiary Guarantors, and the Second Priority Representatives on behalf of the Second Priority Debt Parties, have requested the Second Priority Collateral Trustee to act as collateral trustee for the Second Priority Debt Parties hereunder and under the Second Priority Collateral Documents. The Second Priority Collateral Trustee is willing to act as collateral trustee for the Second Priority Debt Parties hereunder and under the Second Priority Collateral Documents on the terms and subject to the conditions set forth in this Agreement. Accordingly, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01 INCORPORATION BY REFERENCE. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Definitions Annex annexed hereto, which is hereby incorporated by reference herein with the same effect as set forth in its entirety herein. SECTION 1.02. CERTAIN DEFINITIONS. (a) As used in this Agreement, the capitalized terms defined in the recitals hereto shall have the meanings specified therein, and the following terms have the meanings specified below: "Collateral Account" is defined in Section 3.01. "Definitions Annex" means the Definitions Annex annexed hereto. "Distribution Date" means the date on which any funds are distributed by the Senior Collateral Agent or the Second Priority Collateral Trustee in accordance with the provisions of Section 4.01. "Event of Default" means any "Event of Default" under the Senior Credit Facility or any "Event of Default" under any Second Priority Debt Document. "Fees" means, with respect to the Second Priority Collateral Trustee, the Senior Collateral Agent or any Second Priority Representative, any fees, expenses, reimbursements or indemnifications payable by Rite Aid or any Subsidiary Guarantor to such Person in such capacity. "Secured Documents" means (a) each Senior Loan Document and (b) each Second Priority Debt Document. "Secured Obligations" means, without duplication, (a) the Senior Obligations and (b) the Second Priority Debt Obligations. "Secured Parties" means (a) the Senior Secured Parties and (b) the Second Priority Debt Parties. "Triggering Event" means (x) the occurrence of any Event of Default and, as a result thereof, (A) the acceleration (including any automatic acceleration in connection with any Bankruptcy Proceeding) of the principal amount of any Senior Obligations or Second Priority Debt Obligations under the terms of any Senior Loan Document or any Second Priority Debt Document or (B) the commencement of the exercise of remedies in respect of Collateral, and (y) in either case, receipt by the Second Priority Collateral Trustee of written notice thereof from the Senior Collateral Agent (in the case of any such Event of Default arising under the Senior Loan Documents) or receipt by the Senior Collateral Agent and the Second Priority Collateral Trustee of written notice thereof from any Second Priority Representative (in the case of any such Event of Default arising under any Second Priority Debt Document). "Trust Estate" means the right, title and interest of the Second Priority Debt Parties under the Second Priority Collateral Documents. (b) The words "hereof", "herein" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof. All references herein to Articles or Sections shall, unless otherwise specified, be deemed to refer to Articles and Sections of this Agreement. As used in this Agreement, the singular shall include the plural as the context requires and the following words and phrases shall have the following meanings: (a) "including" means "including but not limited to"; (b) "provisions" means "provisions, terms, covenants and/or conditions"; (c) "lien" means "lien, charge, encumbrance, security interest, mortgage, deed of trust or deed to secure debt"; (d) "obligation" means "obligation, duty, covenant and/or condition"; and (e) "any of the Mortgaged Property" means "the Mortgaged Property or any part thereof or interest therein". ARTICLE II DECLARATION AND ACCEPTANCE OF TRUST; REMEDIES SECTION 2.01. DECLARATION AND ACCEPTANCE OF TRUST. The Second Priority Collateral Trustee hereby declares, and each of Rite Aid, the Subsidiary Guarantors and the Second Priority Debt Parties agrees, that the Second Priority Collateral Trustee holds the Trust Estate as trustee in trust under this Agreement for the benefit of the Second Priority Debt Parties as provided herein. By acceptance of the benefits of this Agreement, each Second Priority Debt Party (whether or not a signatory hereto) (i) consents to the appointment of the Second Priority Collateral Trustee as trustee hereunder, (ii) confirms that the Second Priority Collateral Trustee shall have the authority to act as the exclusive agent of such Second Priority Debt Party for enforcement of any remedies under or with respect to any Second Priority Collateral Document and the giving or withholding of any consent or approval relating to any Collateral or any Subsidiary Guarantor's obligations with respect thereto and (iii) agrees that, except as provided in this Agreement, it shall not take any action to enforce any of such remedies or give any such consents or approvals. SECTION 2.02. DETERMINATIONS RELATING TO COLLATERAL. If (i) the Second Priority Collateral Trustee shall receive any written request from Rite Aid or any Subsidiary Guarantor under any Second Priority Collateral Document for consent or approval with respect to any matter or thing relating to any Collateral or any Subsidiary Guarantor's obligations with respect thereto or (ii) there shall be due to or from the Second Priority Collateral Trustee under the provisions of any Second Priority Collateral Document any material performance or the delivery of any material instrument or (iii) the Second Priority Collateral Trustee shall become aware of any nonperformance by any Subsidiary Guarantor of any covenant or any breach of any representation or warranty set forth in any Second Priority Collateral Document, then, in each such event, the Second Priority Collateral Trustee shall advise the Representatives of the matter or thing as to which consent has been requested or the performance or instrument required to be delivered or the nonperformance or breach of which the Second Priority Collateral Trustee has become aware. Until the occurrence of the Senior Obligation Payment Date, and subject to Section 8.01, the Senior Collateral Agent and the Majority Senior Parties shall have the exclusive authority to direct the Second Priority Collateral Trustee's response to any of the events or circumstances contemplated in clauses (i), (ii) and (iii) above. SECTION 2.03. REMEDIES. (a) Within five Business Days after the occurrence of a Triggering Event, the Second Priority Collateral Trustee shall notify each of the Representatives and Rite Aid in writing that a Triggering Event exists, specifying the nature of such Triggering Event. (b) Until the Senior Obligation Payment Date, the Senior Collateral Agent and the Majority Senior Parties shall have the exclusive right to exercise any right or remedy with respect to the Collateral and shall have the exclusive right to determine and direct the time, method and place for exercising such right or remedy or conducting any proceeding with respect thereto. Following the Senior Obligation Payment Date, the Second Priority Collateral Trustee and the Second Priority Instructing Group shall have the exclusive right to exercise any right or remedy with respect to the Collateral, and the Second Priority Instructing Group shall have the exclusive right to direct the time, method and place of exercising or conducting any proceeding for the exercise of any right or remedy available to the Second Priority Collateral Trustee with respect to the Collateral, or of exercising any trust or power conferred on the Second Priority Collateral Trustee, or for the taking of any other action authorized by the Second Priority Collateral Documents; provided, however, that nothing in this Section shall impair the right of the Second Priority Collateral Trustee in its discretion to take any action deemed proper by the Second Priority Collateral Trustee and which is not inconsistent with the terms hereof or any such direction by the Second Priority Instructing Group. (c) In the event the Second Priority Collateral Trustee receives written notice from the Second Priority Instructing Group of any direction given pursuant to paragraph (b) of this Section, the Second Priority Collateral Trustee will give prompt written notice thereof to each Second Priority Representative. The Senior Collateral Agent will give the Second Priority Collateral Trustee and each Second Priority Representative prompt written notice of the occurrence of the Senior Obligation Payment Date. SECTION 2.04. RIGHT TO MAKE ADVANCES. If an advance of funds shall at any time be required for the preservation or maintenance of any Collateral, the Senior Collateral Agent, the Second Priority Collateral Trustee or any Secured Party shall be entitled to make such advance after notice to Rite Aid and the Representatives of its intention to do so but without notice to any other Secured Party. Each such advance shall be reimbursed, with interest accrued from the date such advance was made at the Default Rate, by Rite Aid upon demand by the Senior Collateral Agent, the Second Priority Collateral Trustee or such Secured Party, and if Rite Aid fails to comply with any such demand, out of the proceeds of any Collateral in accordance with the provisions of Section 4.01 (b) or (c). If any Secured Party shall receive any funds which, under this Section 2.04, belong to the Senior Collateral Agent, the Second Priority Collateral Trustee or any other Secured Party, such Secured Party shall remit such funds promptly to the Senior Collateral Agent or the Second Priority Collateral Trustee for distribution to itself or such other Secured Party, as the case may be, and before such remittance shall hold such funds in trust for the Senior Collateral Agent, the Second Priority Collateral Trustee or such other Secured Party, as the case may be. SECTION 2.05. NATURE OF SECURED PARTIES' RIGHTS. All of the Secured Parties shall be bound by any instruction or direction given by the Instructing Group pursuant to this Agreement. ARTICLE III COLLATERAL ACCOUNTS SECTION 3.01. COLLATERAL ACCOUNTS. The Second Priority Collateral Trustee shall establish and, at all times thereafter until all Second Priority Debt Obligations have been paid in full, there shall be maintained with the Second Priority Collateral Trustee a separate collateral trust account (each, a "Collateral Account" and collectively, the "Collateral Accounts") in the name of each of the Second Priority Representatives for the benefit of the Second Priority Debt Parties for which such Second Priority Representative is acting. The Second Priority Collateral Trustee shall deposit in such Collateral Accounts only such funds as are distributable to the relevant Second Priority Representative (or Second Priority Debt Parties for which such Representative acts) in accordance with the provisions of this Agreement. All such funds on deposit in the Collateral Accounts shall be held, applied and disbursed by the Second Priority Collateral Trustee as part of the Trust Estate in accordance with the terms of this Agreement. SECTION 3.02. INVESTMENT OF FUNDS. The Second Priority Collateral Trustee shall invest and reinvest funds on deposit in the Collateral Accounts at any time in Temporary Cash Investments as directed in writing by Rite Aid, and the investment earnings thereon shall, so long as no Event of Default shall have occurred and be continuing, be paid to Rite Aid monthly; provided, however, that if any party other than a holder of Second Priority Debt Obligations claims entitlement to any such investment earnings, the same shall not be released to Rite Aid but shall continue to be held and reinvested by the Second Priority Collateral Trustee pending receipt by the Second Priority Collateral Trustee of joint instructions signed by Rite Aid and such party or a nonappealable court judgment determining the disposition of such earnings. Rite Aid shall bear the risk of loss on any investment made hereunder (except for such losses that result from the gross negligence or wilful misconduct of the Second Priority Collateral Trustee in failing to follow proper investment instructions given by Rite Aid pursuant to this Section) and shall, upon demand of the Second Priority Collateral Trustee to Rite Aid, deliver immediately available funds to the Second Priority Collateral Trustee in an amount equal to such loss or losses. ARTICLE IV APPLICATION OF CERTAIN AMOUNTS MANDATORY PREPAYMENTS SECTION 4.01. APPLICATION OF PROCEEDS OF COLLATERAL AFTER TRIGGERING EVENT. (a) [Reserved]. (b) If, following a Triggering Event, any Collateral (other than any PCS Excluded Assets) is sold or otherwise realized upon (whether pursuant to the exercise of any remedy set forth in any Collateral Document, in a Bankruptcy Proceeding or otherwise), the proceeds in respect of such Collateral shall be applied as soon as practicable after receipt as follows: FIRST: to the Second Priority Collateral Trustee and the Senior Collateral Agent in an amount equal to the Fees thereof which are unpaid as of the applicable Distribution Date and to any Senior Secured Party which has theretofore advanced or paid any such Fees in an amount equal to the amount thereof so advanced or paid by such Senior Secured Party, pro rata based on the amounts of such Fees (or such advance or payment); SECOND: to the Second Priority Collateral Trustee, the Senior Collateral Agent and any Senior Secured Party to reimburse to the Second Priority Collateral Trustee, the Senior Collateral Agent and such Senior Secured Party for the amount of any advance made pursuant to Section 2.04 hereof (with interest thereon at the Default Rate), pro rata based on the amounts so advanced; THIRD: to the Senior Collateral Agent, for distribution to the Senior Secured Parties to be applied to the payment of the Senior Obligations, pro rata based on the amount of Senior Obligations then due and owing, until the Senior Obligation Payment Date; FOURTH: to the Second Priority Representatives in an amount equal to the Fees thereof which are unpaid as of the applicable Distribution Date and to any Second Priority Debt Parties which has theretofore advanced or paid any such Fees in an amount equal to the amount thereof so advanced or paid by such Second Priority Debt Party, pro rata based on the amounts of such Fees (or such advance or payment); FIFTH: to any Second Priority Representative and any Second Priority Debt Party to reimburse to such Second Priority Representative or such Second Priority Debt Party for the amount of any advance made pursuant to Section 2.04 hereof (with interest thereon at the Default Rate), pro rata based on the amounts so advanced; SIXTH: to the Second Priority Representatives, for distribution to the Second Priority Debt Parties to be applied to the payment of the Second Priority Debt Obligations, pro rata based on the amount of Second Priority Debt Obligations then due and owing, until all the Second Priority Debt Obligations have been paid in full; and SEVENTH: after payment in full of all Secured Obligations, to Rite Aid and the Subsidiary Guarantors or their successors or assigns, as their interests may appear, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. (c) If, following a Triggering Event, any Collateral consisting of PCS Excluded Assets is sold or otherwise realized upon (whether pursuant to the exercise of any remedy set forth in any Collateral Document, in a Bankruptcy Proceeding or otherwise), the proceeds received in respect of such Collateral shall be applied as soon as practicable after receipt as follows: FIRST: to the Second Priority Collateral Trustee, the Senior Collateral Agent and the Second Priority Representatives in an amount equal to the Fees thereof which are properly allocable to the PCS Excluded Assets and are unpaid as of the applicable Distribution Date and to any Secured Party which has theretofore advanced or paid any such Fees in an amount equal to the amount thereof so advanced or paid by such Secured Party, pro rata based on the amounts of such Fees (or such advance or payment); SECOND: to the Second Priority Collateral Trustee, any Representative and any Secured Party to reimburse to the Second Priority Collateral Trustee, such Representative or such Secured Party for the amount of any advance made pursuant to Section 2.04 hereof in respect of PCS Excluded Assets (with interest thereon at the Default Rate), pro rata based on the amount so advanced; THIRD: to the Senior Collateral Agent, for distribution to the Senior Secured Parties to be applied to the payment of the Senior Obligations, pro rata based on the amount of Senior Obligations then due and owing, an amount equal to the PCS Incremental Investment as at the date of such sale or realization; FOURTH: to the Second Priority Representatives for the PCS Facility and the Exchange Debt Facility for distribution to the PCS Facility Parties and the Exchange Debt Parties to be applied to the payment of the PCS Facility Obligations and Related Exchange Debt Obligations, pro rata, until all such PCS Facility Obligations and Related Exchange Debt Obligations have been paid in full; FIFTH: to the Second Priority Representative for the RCF Facility and the Exchange Debt Facility for distribution to the RCF Facility Parties and the Exchange Debt Facility Parties to be applied to the payment of the RCF Facility Obligations in respect of Tranche A Loans and Related Exchange Debt Obligations, pro rata, until all such RCF Facility Obligations and Related Debt Obligations have been paid in full; SIXTH: to the Second Priority Representatives for the other Existing Facilities, to be applied to the payment of the Existing Facility Obligations, pro rata based upon the amount of Existing Facility Obligations then due and owing, until the Existing Facility Obligations have been paid in full; SEVENTH: to the Second Priority Representative for the Synthetic Lease Facilities, to be applied to the payment of the Synthetic Lease Obligations, pro rata, based on the amount of Synthetic Lease Obligations then due and owing, until the Synthetic Lease Obligations have been paid in full; EIGHTH: to the Senior Collateral Agent, for distribution to the Senior Secured Parties to be applied to the payment of the Senior Obligations, pro rata based on the amount of Senior Obligations then due and owing, until the Senior Obligation Payment Date; NINTH: to the Second Priority Representatives, for the other Second Priority Facilities for distribution to the other Second Priority Debt Parties to be applied to the payment of all such Second Priority Debt Obligations, pro rata based on the amount of Second Priority Debt Obligations then due and owing, until all such Second Priority Debt Obligations have been paid in full; and TENTH: after payment in full of all Secured Obligations, to Rite Aid and the Subsidiary Guarantors or their successors or assigns, as their interests may appear, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. (d) Whenever pursuant to the foregoing provisions of this Section any proceeds are required to be distributed to any Second Priority Representative, then the Second Priority Collateral Trustee or the Senior Collateral Agent, as the case may be, shall effect such distribution only upon receiving written notification from the Second Priority Instructing Group as to the identities of the Second Priority Representatives entitled to receive such distribution and the amounts or percentages of such distribution to which each such Second Priority Representative is entitled and, if requested by the Second Priority Collateral Trustee or the Senior Collateral Agent, the amount of outstanding Second Priority Debt Obligations then due and owing to Second Priority Debt Parties for which each such Representative is acting on the basis of which such amounts to be distributed are to be determined. Each of the Second Priority Collateral Trustee and the Senior Collateral Agent shall be fully protected in, and shall not incur or have any liability as a result of, relying on such written notification received by it. (e) Whenever any proceeds are required by the terms hereof to be distributed to the trustee under the Exchange Note Indenture for application to the Exchange Note Obligations, such proceeds may be applied to the payment of such Exchange Note Obligations, utilized to make one or more offers to repurchase Exchange Notes or held by such trustee as security for the payment of the Exchange Note Obligations as permitted by the Exchange Note Indenture. (f) Notwithstanding the foregoing provisions of Section 4.01(b), proceeds of PCS Linked Accounts in excess of amounts distributed pursuant to paragraphs FIRST, SECOND and THIRD of Section 4.01(b) shall be distributed in accordance with Section 4.01(c). SECTION 4.02. [RESERVED] SECTION 4.03. [RESERVED] SECTION 4.04. PAYMENT PROVISIONS. For the purposes of applying the provisions of Section 4.01, all interest, fees and other amounts to be paid on any of the Secured Obligations pursuant to the terms of any Secured Document shall, as among the Secured Parties and regardless of whether any such interest, fees or other amounts are or would be recognized or allowed as a claim in any bankruptcy or similar proceeding, be treated as due and owing on the Secured Obligations. SECTION 4.05. 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 (but in the case of any sale or disposition of Collateral, only prior to the occurrence of a Triggering Event) receive any Net Cash Proceeds of any Reduction Event, (x) the Borrower shall, not later than the Business Day following the date of receipt of such Net Cash Proceeds, notify the Representatives of such fact and of the amount of such Net Cash Proceeds, (y) the Borrower shall, not later than the second Business Day following the date of receipt of such Net Cash Proceeds, cause the portion of the same required to be applied by the provisions of this Section to any Debt Facility to be transferred to the Representative for such Debt Facility for application in accordance with the provisions of this Agreement and (z) the Borrower shall apply an amount equal to the largest multiple of $1,000,000 which does not exceed the amount of such Net Cash Proceeds to the reduction of the Debt Facilities in accordance with the following: (i) if such Reduction Event is a PCS Disposition, such Net Cash Proceeds shall be applied: FIRST, to the ratable prepayment of loans outstanding under the PCS Facility and Related Exchange Debt, until the same shall have been prepaid in full; then SECOND, to prepayment of the Tranche A Loans under the RCF Facility and Related Exchange Debt, until the same have been prepaid in full; then THIRD, to the ratable prepayment of other loans under the Existing Facilities and the Exchange Debt Facility; then FOURTH, to the ratable payment of the Synthetic Lease Obligations, until the same have been paid in full; then FIFTH to Reductions of the Senior Credit Facility, until the Senior Obligation Payment Date; then SIXTH, to the ratable prepayment of all other outstanding Second Priority Debt Obligations; provided that, notwithstanding anything to the contrary in this clause (i), the Net Cash Proceeds of any PCS Disposition attributable to PCS Linked Accounts shall first be applied to Reductions of the Senior Credit Facility to the extent required by Section 2.12(b) of the Senior Credit Facility; (ii) if such Reduction Event is a Capital Markets Transaction, such Net Cash Proceeds shall be applied: FIRST, to Reductions of the Senior Credit Facility, to the extent of the Required Prepayment Amount; then, SECOND, to prepayment of loans outstanding under the PCS Facility and Related Exchange Debt, until the same shall have been prepaid in full; and then, THIRD, in accordance with paragraph (vii) below; (iii) if such Reduction Event is a Designated Asset Disposition, such Net Cash Proceeds shall be applied: FIRST, to prepayment of loans outstanding under the Exchange Debt Facility, until the same shall have been prepaid in full; and then, SECOND, in accordance with paragraph (vi) below; (iv) if such Reduction Event is a Senior Collateral Disposition, such Net Cash Proceeds shall be applied: FIRST, to Reductions of the Senior Credit Facility, to the extent of the Required Prepayment Amount; and then SECOND, to the ratable prepayment of the principal of all outstanding Second Priority Debt Obligations, until the same shall have been prepaid in full; (v) if such Reduction Event is an Asset Sale of collateral under the Drugstore.com Pledge Agreement, such Net Cash Proceeds shall be applied in accordance with paragraph (vii) below; (vi) if such Reduction Event is an Asset Sale not covered by paragraphs (i) through (v) above (or if there are Net Cash Proceeds in excess of those applied in accordance with paragraph (iii) above) such Net Cash Proceeds shall be applied: FIRST, to Reductions of the Senior Credit Facility, to the extent of the Required Prepayment Amount; and then SECOND, in accordance with paragraph (vii) below; and (vii) if there are Net Cash Proceeds of a Reduction Event in excess of those applied in accordance with paragraphs (ii) through (vi) above, such Net Cash Proceeds shall be applied: FIRST, to the ratable prepayment of all loans outstanding under the Existing Facilities (other than the PCS Facility and Related Exchange Debt), until such loans shall have been prepaid in full; and then SECOND, to prepayment of loans outstanding under the PCS Facility and Related Exchange Debt; and then THIRD, to the prepayment of the Synthetic Lease Obligations. Each prepayment of loans or other Reduction required pursuant to the foregoing provisions of this Section will be made not later than the second Business Day following the receipt of the relevant Net Cash Proceeds. Each prepayment of loans required pursuant to the foregoing provisions of this Section will be made together with accrued interest to the date of prepayment and any applicable premium in accordance with the terms of the applicable Senior Loan Document or Second Priority Debt Document, as the case may be, but such interest and premium, if any, shall not reduce the amount of principal required to be prepaid in accordance with this Section. (b) In the event the Borrower or any of its Subsidiaries shall, at any time after the occurrence of a Triggering Event, receive any Net Cash Proceeds of any Reduction Event which are attributable to Collateral, such Net Cash Proceeds shall be subject to and applied in accordance with the provisions of Section 4.01(b) or (c), as applicable. (c) Notwithstanding the foregoing, any payment made or to be made by any Subsidiary Guarantor in respect of Second Priority Debt Obligations subsequent to the occurrence of a Triggering Event other than from the proceeds of Collateral or Exchange Debt First Priority Collateral shall be subject to, and only made in accordance with, the subordination provisions of the Second Priority Subsidiary Guarantee Agreement. (d) Notwithstanding the foregoing, proceeds of collateral realized through enforcement of the Liens under the PCS Pledge Agreement, the Drugstore.com Pledge Agreement or the Exchange Debt First Priority Collateral Documents shall be applied in accordance with the terms of such documents. (e) For avoidance of doubt, the provisions of Section 4.05(a) establish dates and amounts of contingent Reductions required to be made by the Borrower. Section 4.05(a) does not itself create any Lien nor does it alter the priorities of Liens which are created by the other Senior Loan Documents and Second Priority Debt Documents. SECTION 4.06. CASH SWEEP; CERTAIN ENFORCEMENT PROCEEDS. (a) Notwithstanding the foregoing provisions of this Article IV, at all times during a Cash Sweep Period prior to the occurrence of a Triggering Event, the funds on deposit in the Citibank Concentration Account (as such terms are defined in the Senior Subsidiary Security Agreement as in effect on the Closing Date) may be applied in accordance with the provisions of Section 2.12(d) of the Senior Credit Facility, as in effect on the Closing Date. After the occurrence of a Triggering Event, funds on deposit in the Citibank Concentration Account consisting of proceeds of Collateral shall be applied in accordance with the provisions of Section 4.01(b) or (c), as applicable. The Borrower and the Subsidiary Guarantors will not deposit funds representing Net Cash Proceeds from Reduction Events in the Citibank Concentration Account or into accounts that are swept into the Citibank Concentration Account pursuant to the Senior Loan Documents. (b) Notwithstanding the foregoing, for purposes of this Article IV, any proceeds of enforcement of the Second Priority Subsidiary Guarantee Agreement against any Subsidiary Guarantor other than PCS or a Subsidiary of PCS shall be deemed proceeds of Senior Collateral that do not constitute PCS Excluded Assets. ARTICLE V SUBORDINATION SECTION 5.01. PERFECTION AND PRIORITY OF SECURITY INTERESTS. (a) Any and all security interests, assignments, pledges, mortgages, deeds of trust, deeds to secure debt and other liens, charges or encumbrances now existing or hereafter created or arising in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties with respect to the Collateral and securing the Second Priority Debt Obligations are expressly junior in priority, operation and effect to any and all security interests, assignments, pledges and other liens, charges or encumbrances now existing or hereafter created or arising in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties with respect to the Collateral and securing the Senior Obligations, notwithstanding anything to the contrary contained in any agreement or filing to which the Second Priority Collateral Trustee or any Second Priority Debt Party may now or hereafter be a party, and regardless of the time, order or method of attachment, recording or perfection of any financing statements or other security interests, assignments, pledges, mortgages and other liens, charges or encumbrances or any defect or deficiency or alleged defect or deficiency in any of the foregoing but subject, in the case of application of proceeds from the sale of or realization on PCS Excluded Assets, to the provisions of Section 4.01(c). (b) The Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, acknowledge that a portion of the Senior Obligations represent debt that is revolving in nature and that the amount thereof that may be outstanding at any time or from time to time may be increased or reduced and subsequently reborrowed, and that the terms of the Senior Obligations may be modified, extended or amended from time to time, and the aggregate amount of the Senior Obligations may be increased, replaced or refinanced, all in accordance with Section 6.01 hereof but otherwise without notice to or consent by the Second Priority Debt Parties and without affecting the provisions hereof. The lien priorities provided in this Section 5.01 shall not be altered or otherwise affected by any such amendment, modification, supplement, extension, repayment, reborrowing, increase, replacement, renewal, restatement or refinancing of either the Senior Obligations or the Second Priority Debt Obligations, or any portion thereof, nor by any action that the Senior Secured Parties or the Second Priority Debt Parties may take or fail to take in respect of the Collateral in accordance with this Agreement. (c) For purposes of perfecting the Second Priority Lien in the Collateral and the proceeds thereof, the Subsidiary Guarantors and the Senior Collateral Agent hereby acknowledge that UCC-1 financing statements, patent/trademark/copyright filings and mortgages or other filings or recordings covering the Collateral, naming one or more Subsidiary Guarantors as debtor, and the Second Priority Collateral Trustee, on behalf of the Second Priority Debt Parties, as secured party, may be filed in appropriate public offices from time to time. (i) Each of the Second Priority Representatives and each Second Priority Debt Party agrees that all UCC-1 financing statements, patent/trademark/copyright filings (except as provided in clause (ii) below) or other filings or recordings filed or recorded by or on behalf of the Second Priority Debt Parties shall be in form satisfactory to the Senior Collateral Agent and shall contain the following notation: "The interest of the Secured Party in the collateral described herein is junior and subordinate to the interests of Citicorp USA, Inc., and its successors and assigns, as collateral agent for certain secured parties, including the lenders from time to time party to that certain Senior Credit Agreement dated as of June 12, 2000, as amended, refinanced or replaced from time to time, with Rite Aid Corporation in accordance with the provisions of that certain Collateral Trust and Intercreditor Agreement dated as of June 12, 2000, among Rite Aid Corporation, certain subsidiaries of Rite Aid Corporation, Wilmington Trust Company, as Second Priority Collateral Trustee, Citicorp USA, Inc., as Senior Collateral Agent, and certain other parties, as Second Priority Representatives, as amended from time to time." (ii) In addition, each of the Second Priority Representatives and each Second Priority Debt Party agrees that all mortgages, deeds of trust, deeds to secure debt and similar instruments (collectively, "mortgages") now or hereafter filed against real and/or personal property pursuant to any Secured Document in favor of or for the benefit of the Second Priority Collateral Trustee and/or the Second Priority Debt Parties shall be in form satisfactory to the Senior Collateral Agent and shall contain the following provision: "The lien of this [Mortgage] is junior and subordinate to the lien of any mortgage now or hereafter granted to Citicorp USA, Inc. and its successors and assigns, as collateral agent for certain secured parties, including the lenders from time to time party to that certain Senior Credit Agreement dated as of June 12, 2000, as amended, replaced or refinanced from time to time, with Rite Aid Corporation and its successors and assigns, in accordance with the provisions of that certain Collateral Trust and Intercreditor Agreement dated as of June 12, 2000, among Rite Aid Corporation, certain subsidiaries of Rite Aid Corporation, Wilmington Trust Company, as Second Priority Collateral Trustee, Citicorp USA, Inc., as Senior Collateral Agent, and certain other parties, as Second Priority Representatives, as amended from time to time." (d) The Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, hereby agree: (i) to subordinate the Second Priority Collateral Documents to any lease of any of the Mortgaged Properties to the same extent that the Senior Collateral Documents are or have been subordinated to such lease, but without affecting the relative priority of the Senior Collateral Documents and the Second Priority Collateral Documents, (ii) to grant nondisturbance rights with respect to any lease of any of the Mortgaged Properties with respect to which the Senior Collateral Agent has granted nondisturbance on substantially the same terms as granted by the Senior Collateral Agent, (iii) that if all or any portion of a Mortgaged Property is a leasehold interest, (A) upon termination of any lease creating such leasehold interest (the "Original Lease"), any right of the Second Priority Collateral Trustee to request a "new lease" pursuant to the terms of the Original Lease shall be junior and subordinate to the right of the Senior Collateral Agent to request such a new lease and the Second Priority Collateral Trustee shall not exercise any such right without the prior written consent of the Senior Collateral Agent, (B) the Second Priority Collateral Trustee shall waive, surrender and give up any right either the Second Priority Collateral Trustee or the Second Priority Debt Parties may have to redeem the premises demised by the Original Lease or to continue the Original Lease for its original term after the lessee thereunder has been dispossessed or ejected therefrom by process of law or otherwise and (C) the Senior Lien and the Second Priority Lien shall remain in force or be reinstated with the same relative priority that existed with respect to the Original Lease, and (iv) that if the holder or grantor of a Second Priority Collateral Document pays or discharges any liens prior in right to the lien created by the Senior Collateral Documents with funds provided by the Second Priority Collateral Trustee or any Second Priority Debt Party, neither the Second Priority Collateral Trustee nor any Second Priority Debt Party shall acquire, by subrogation or otherwise, any claim superior or equivalent to the lien of the Senior Collateral Documents so long as any indebtedness secured by the Senior Collateral Documents remains outstanding. Notwithstanding anything to the contrary in the Senior Mortgages, the Senior Collateral Agent and the Senior Secured Parties hereby consent to the assignment of leases and rents to the Second Priority Collateral Trustee for the Second Priority Secured Parties contained in the Second Priority Mortgages for the purpose of securing and discharging the performance by the respective Subsidiary Guarantors party thereto, provided however, that such assignment is subject to the terms of this Agreement. The Senior Collateral Agent and the Senior Secured Parties agree that the terms of each Senior Mortgage and the rights and remedies of the parties thereto are subject to this Agreement. The Second Priority Collateral Trustee and the Second Priority Debt Parties agree that the terms of each Second Priority Mortgage and the rights and remedies of the parties thereto are subject to this Agreement and subordinated as provided herein. (e) The Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, acknowledge and agree with the Senior Collateral Agent and the Senior Secured Parties that the arrangements described in clauses (a), (b), (c) and (d) above are solely for the purpose of providing the Second Priority Debt Parties with a perfected second priority Lien in the Collateral under the Second Priority Collateral Documents and shall in no way be construed as imposing any duties or other obligations on the Senior Collateral Agent other than: (i) with respect to the application of proceeds from dispositions of PCS Excluded Assets, as set forth in Section 4.01(c) and 5.02(d); (ii) to transfer to the Second Priority Collateral Trustee or the Second Priority Representatives (or as a court of competent jurisdiction may otherwise direct) the proceeds, if any, that remain following a sale, transfer or other disposition of the Collateral (other than the PCS Excluded Assets) and the occurrence of the Senior Obligation Payment Date or, if the Senior Collateral Agent shall still be in possession of all or any part of such Collateral after the Senior Obligation Payment Date, such Collateral or such part thereof remaining, without representation or warranty on the part of the Senior Collateral Agent or the Senior Secured Parties. In furtherance of the foregoing, the Second Priority Representatives and the Second Priority Debt Parties acknowledge and agree with the Senior Secured Parties that, at all times following a Triggering Event until the Senior Obligation Payment Date, the Senior Collateral Agent shall have the right to sell, transfer or otherwise dispose of or deal with the Collateral as provided in the Senior Collateral Documents without regard to the security interest of the Second Priority Debt Parties therein, or any rights to which the Second Priority Debt Parties would otherwise be entitled as a result of such security interest, the only obligation of the Senior Collateral Agent to the Second Priority Debt Parties in respect thereof being (i) to apply proceeds of disposition of PCS Excluded Assets as set forth in Section 4.01(c) and 5.02(d) and (ii) to deliver to the Second Priority Collateral Trustee or the Second Priority Representatives (unless otherwise directed in writing by the Second Priority Collateral Trustee or by a court of competent jurisdiction) any proceeds remaining from such sale, transfer or other disposition of such Collateral after the Senior Obligation Payment Date or, if the Senior Collateral Agent shall still be in possession of all or any part of such Collateral after such payment and satisfaction in full, such Collateral or such part thereof remaining, without representation or warranty on the part of the Senior Collateral Agent or the Senior Secured Parties, provided that nothing contained in this sentence shall be construed to give rise to, nor shall the Second Priority Collateral Trustee or the Second Priority Debt Parties have, any claims whatsoever against the Senior Collateral Agent or any Senior Secured Party on account of any act or omission to act in connection with the exercise of any right or remedy of the Senior Collateral Agent with respect to the Collateral that is permitted by the Collateral Documents (other than with respect to any claims that may arise as a result of the failure of the Senior Collateral Agent, after the Senior Obligation Payment Date, to deliver any such remaining Collateral or proceeds to the Second Priority Collateral Trustee or the Second Priority Representatives). The Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, agree that they shall not, and shall not attempt to, exercise any rights with respect to (A) the Senior Lien in the Collateral or (B) the Second Priority Lien in the Collateral, whether pursuant to the Second Priority Collateral Documents or otherwise, until the Senior Obligation Payment Date; provided that nothing in this sentence (or elsewhere in the Agreement) shall preclude (x) exercise of the rights expressly reserved to the Second Priority Collateral Trustee, the Second Priority Representatives and the Second Priority Debt Parties in accordance with the terms of this Agreement or (y) the enforcement of this Agreement. (f) In any Bankruptcy Proceeding, until the Senior Obligation Payment Date, the Second Priority Collateral Trustee and the Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, agree not to take any action whatsoever (including, without limitation, voting any claim) in respect of or relating to the Second Priority Debt Obligations, insofar as any such action arises from or relates to the Second Priority Collateral Documents, the Second Priority Lien or relates to the Collateral, in any manner that is inconsistent with or adverse to the rights and priorities of the Senior Secured Parties as set forth herein. (g) In the event that in any Bankruptcy Proceeding, the Second Priority Debt Parties shall not have filed a proof of claim in respect of any Second Priority Debt Obligation by the date ten days prior to the latest date on which such proof of claim may be filed, the Senior Collateral Agent is hereby authorized but not obligated, on behalf of any applicable Second Priority Debt Party, to file such proof of claim; provided that any Second Priority Debt Parties shall be entitled to amend, vote or otherwise exercise rights in respect of any such proof of claim so filed by the Senior Collateral Agent to the same extent as they would be permitted under this Agreement to do so had such proof of claim been filed by them. SECTION 5.02. NO INTERFERENCE; NO RIGHT TO INSTRUCT SENIOR COLLATERAL AGENT; PAYMENT OVER; REINSTATEMENT; PERMITTED ACTIONS. (a) The Second Priority Collateral Trustee and the Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, agree that: (i) they will not take or cause to be taken any action, the purpose or effect of which is to make any Second Priority Lien pari passu with, or to give any Second Priority Debt Party or any Second Priority Representative any preference or priority relative to, the Senior Lien or the Senior Secured Parties with respect to the Collateral or any part thereof, (ii) they will not interfere, hinder or delay, in any manner, whether by judicial proceedings or otherwise, any sale, transfer or other disposition of the Collateral by the Senior Collateral Agent or any other Senior Secured Party or any other action taken by or on behalf of the Senior Collateral Agent or any Senior Secured Party permitted to be taken by it pursuant to the Senior Collateral Documents, (iii) they have no right to (A) direct the Senior Collateral Agent or any other Senior Secured Party to exercise any right, remedy or power with respect to the Collateral or pursuant to the Senior Collateral Documents or (B) consent to the exercise by the Senior Collateral Agent or any other Senior Secured Party of any right, remedy or power with respect to the Collateral or pursuant to the Senior Collateral Documents, (iv) they will not institute any suit or assert in any suit, Bankruptcy Proceeding or other proceeding any claim against the Senior Collateral Agent or any other Senior Secured Party seeking damages from or other relief by way of specific performance, instructions or otherwise, with respect to, and none of the Senior Collateral Agent nor any other Senior Secured Party shall be liable for, any action taken or omitted to be taken by the Senior Collateral Agent or the Senior Secured Parties with respect to the Collateral or pursuant to the Senior Collateral Documents, (v) until the Senior Obligation Payment Date, they will not make any judicial or nonjudicial claim or demand or commence any judicial or non-judicial proceedings against any Subsidiary Guarantor under or with respect to any Collateral Document seeking payment or damages from or other relief by way of specific performance, instructions or otherwise under or with respect to any Collateral Document (other than filing a proof of claim) or exercise any right, remedy or power under or with respect to, or otherwise take any action to enforce, other than filing a proof of claim, any Collateral Document; provided, however, that (A) if there is a Bankruptcy Proceeding with respect to Rite Aid, the Second Priority Collateral Trustee or any Second Priority Debt Party may make claims under and seek to enforce the Second Priority Subsidiary Guarantee Agreement, subject to the subordination provisions thereof and to the other provisions of this Agreement, and (B) none of the Second Priority Collateral Trustee, the Second Priority Representatives or any other Second Priority Debt Party may exercise any right, remedy or power under or with respect to any other Second Priority Debt Document, or otherwise take any action to enforce rights or remedies with respect to any Collateral, (vi) until the Senior Obligation Payment Date, they will not commence judicial or nonjudicial foreclosure proceedings with respect to, seek to have a trustee, receiver, liquidator or similar official appointed for or over, attempt any action to take possession of any Collateral, exercise any right, remedy or power with respect to, or otherwise take any action to enforce its interest in or realize upon, the Collateral or pursuant to the Second Priority Collateral Documents; provided that nothing in this paragraph (or elsewhere in this Agreement) shall restrict the right of the Second Priority Collateral Trustee, any Second Priority Representative or any other Second Priority Debt Party to request "adequate protection" (within the meaning of Section 361 of the U.S. Bankruptcy Code) for the interests of the Second Priority Debt Parties in the Second Priority Collateral in the event of any Bankruptcy Proceeding on a basis that is not inconsistent with the rights and priorities of the Senior Secured Parties as set forth herein, in the Senior Loan Documents and in the Second Priority Debt Documents, (vii) they will not seek, and hereby waive any right, to have the Collateral or any part thereof marshaled upon any foreclosure or other disposition of the Collateral, and (viii) they will not attempt, directly or indirectly, whether by judicial proceedings or otherwise, to challenge the enforceability of any provision of this Agreement or any Senior Loan Document or the validity, perfection, priority or enforceability of the Senior Lien. (b) (i) The Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, hereby agree that, in the event of a sale, transfer or other disposition of Collateral following a Triggering Event, any security interest or lien of the Second Priority Debt Parties in such Collateral (but not the proceeds thereof to the extent that such proceeds are to be applied to Second Priority Debt Obligations pursuant to Section 4.01) shall terminate and be released automatically and without further action if the Senior Lien in such Collateral is released. The Second Priority Collateral Trustee will execute and deliver to the Senior Collateral Agent promptly upon request therefor all necessary instruments and documents to evidence such termination and release. (ii) With respect to the PCS Excluded Assets, the Senior Collateral Agent, on behalf of itself and the other Senior Debt Parties, hereby agrees that, in the event of a sale, transfer or other disposition of the PCS Excluded Assets, the Senior Lien in such Collateral (but not the proceeds thereof to the extent that such proceeds are to be applied to Senior Obligations pursuant to Section 4.01) shall terminate and be released automatically and without further action if the Second Priority Lien in such assets is released. The Senior Collateral Agent further agrees to execute and deliver to the Second Priority Representatives promptly upon request therefor all necessary instruments and documents to evidence such termination and release. (c) Except with respect to proceeds of any sale or other realization on Collateral (i) payable prior to the occurrence of a Triggering Event to the Second Priority Representatives for the benefit of the Second Priority Debt Parties pursuant to Section 4.05 or (ii) received by the Second Priority Representatives pursuant to distributions made by the Senior Collateral Agent after the occurrence of a Triggering Event under Section 4.01(b) or (c), the Second Priority Representatives, on behalf of themselves and the other Second Priority Debt Parties, hereby agree that if any of them shall obtain possession of any of the Collateral, or shall realize any payment of insurance or condemnation proceeds, proceeds of any sale or other disposition, rents, profits or other income, reserve or compensation of any kind in respect of the Collateral, in any case before the Senior Obligation Payment Date, then it shall hold such Collateral or payment in trust for the Senior Secured Parties and transfer such Collateral or payment, as the case may be, to the Senior Collateral Agent for application in accordance with the provisions of Section 4.01. If, at any time, all or part of any payment with respect to the Senior Obligations previously made is rescinded for any reason whatsoever, (i) the Second Priority Collateral Trustee, the Second Priority Representatives and the Second Priority Debt Parties shall promptly pay over to the Senior Collateral Agent any payment received by any of them after the occurrence of a Triggering Event in respect of the Collateral or proceeds thereof, and shall promptly turn any Collateral then held by any of them over to the Senior Collateral Agent, in each case to the extent that the Second Priority Debt Parties would not have been entitled to receive or hold such payment or Collateral pursuant to the terms of this Agreement had the rescinded payment in respect of the Senior Obligations never been made in the first instance, and (ii) the provisions set forth in this Agreement shall be reinstated as if such rescinded payment had not been made, until the Senior Obligation Payment Date; provided, however, that the foregoing shall not require the Second Priority Debt Parties to pay over to the Senior Collateral Agent any payment received by them or Collateral delivered to them if such payment or delivery is itself rescinded for any reason (and any such payment or Collateral theretofore paid over to the Senior Secured Parties pursuant to the foregoing provisions shall be released and delivered to the appropriate Person to the extent necessary to effect such rescission.) (d) With respect to proceeds of any sale or other realization on Collateral to the extent payable to the Second Priority Representatives for the benefit of the Second Priority Debt Parties pursuant to Section 4.01, the Senior Collateral Agent, on behalf of itself and the other Senior Secured Parties, hereby agrees that if any of them shall obtain possession of any of such proceeds before the time when the Second Priority Debt Obligations have been paid in full, then it shall hold such proceeds in trust for the holders of the Second Priority Debt Obligations and transfer such proceeds to the Second Priority Collateral Trustee. If, at any time, all or part of any payment with respect to the Second Priority Debt Obligations previously made from proceeds from PCS Excluded Assets is rescinded for any reason whatsoever, (i) the Senior Collateral Agent and the Senior Secured Parties shall promptly pay over to the Second Priority Collateral Trustee any payment received by any of them after the occurrence of a Triggering Event out of such proceeds of PCS Excluded Assets to the extent that the Senior Secured Parties would not have been entitled to receive or hold such payment pursuant to the terms of this Agreement had the rescinded payment in respect of the Second Priority Debt Obligations never been made in the first instance and (ii) the provisions set forth in this Agreement shall be reinstated as if such rescinded payment to the holders of the Second Priority Debt Obligations had not been made, until the payment and satisfaction in full of the Second Priority Debt Obligations; provided, however, that the foregoing shall not require the Senior Collateral Agent and the Senior Secured Parties to pay over to the Second Priority Collateral Trustee any payment received by them if such payment is itself rescinded for any reason (and any such payment theretofore paid over to the Second Priority Collateral Trustee or the Second Priority Debt Parties pursuant to the foregoing provisions shall be released and delivered to the appropriate Person to the extent necessary to effect such rescission). (e) The Second Priority Representative for the Exchange Debt Parties and the Exchange Debt Parties agree that prior to the Senior Obligation Payment Date, they will not exercise any remedies or seek to enforce their rights under the Exchange Debt First Priority Collateral Documents in respect of the Exchange Debt First Priority Collateral of any Subsidiary Guarantor or against any Subsidiary Guarantor unless a Bankruptcy Proceeding shall have been commenced with respect to either Rite Aid or such Subsidiary Guarantor; provided that this provision shall not limit enforcement of the rights of the Exchange Debt Parties to receive payments from proceeds of Exchange Debt First Priority Collateral. ARTICLE VI AMENDMENTS OF DOCUMENTS LIMITATIONS ON FACILITY AMOUNTS SECTION 6.01. AMENDMENTS AND MODIFICATIONS OF SENIOR LOAN DOCUMENTS AND SECOND PRIORITY DEBT DOCUMENTS. (a) Unless the Majority Senior Parties and the Second Priority Instructing Group have consented thereto in writing, none of the Borrower, the Subsidiary Guarantors, the Senior Bank Parties or the Second Priority Debt Parties will amend, modify or otherwise change, or consent or agree to any amendment, modification, or other change to, any Senior Loan Document, Second Priority Debt Document or Independent Standby L/C Document to which it is party if the effect thereof is to (A) increase the principal amount of, or lending commitments with respect to, indebtedness under the Senior Loan Documents or Second Priority Debt Documents, except as expressly permitted by Section 6.02 hereof, (B) increase the interest rate or fees payable with respect to any Senior Obligations (other than in respect of additional Senior Obligations permitted to be incurred pursuant to Section 6.02), Second Priority Debt Obligations or Independent Standby L/C Obligations or change (to earlier dates) any dates upon which payments of principal or interest are due thereon, (C) change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), (D) change the redemption, prepayment or defeasance provisions thereof (or of any guaranty thereof), (E) change any collateral therefor (other than to release such collateral), (F) increase materially the obligations of the obligor thereunder, (G) add any covenant or modify any covenant to render it more restrictive, or (H) confer any additional rights on any Senior Secured Parties or any Second Priority Debt Parties, which could reasonably be expected to be adverse in any significant respect to any of the Senior Secured Parties or Second Priority Debt Parties; provided that if any such amendment, modification or other change by its terms adversely affects the rights of the Second Priority Debt Parties under a particular Second Priority Facility in a manner different from its effect on the other Second Priority Facilities, such amendment, modification or other change will not be effected without the consent of the Second Priority Representative for each Second Priority Facility so adversely affected. (b) Unless the Majority Senior Parties have consented thereto in writing, none of the Subsidiary Guarantors, the Second Priority Debt Parties or their Representatives or the Second Priority Collateral Trustee will amend or modify or consent to any amendment or modification of the Second Priority Subsidiary Guarantee Agreement. SECTION 6.02. LIMITATION ON FACILITY AMOUNTS. None of the Borrower, the Subsidiary Guarantors, the Senior Bank Parties and the Existing Facility Parties will amend or modify, or consent to any amendment or modification of, any Debt Facility to which it is party if the effect thereof would be to increase the aggregate amount of indebtedness outstanding (or commitments to lend) thereunder above an amount equal to (x) the aggregate amount of such indebtedness and lending commitments outstanding on the Closing Date minus (y) any permanent repayments of such indebtedness or reductions in such commitments made after the Closing Date; provided, however, that the foregoing shall not prohibit (i) increases after the Closing Date in lending commitments and/or loans under the Senior Credit Facility in an aggregate amount not in excess of $135,000,000, (ii) the issuance or renewal of Mellon Standby Letters of Credit or Citibank Standby Letters of Credit, provided that the aggregate amounts thereof shall not exceed $34,000,000 at any time outstanding, and (iii) the sale by a Subsidiary of the Borrower after the Closing Date of the Exchange Notes issued to such Subsidiary on the Closing Date pursuant to the terms of the Forward Commitment Agreement, as in effect on the Closing Date. ARTICLE VII SECOND PRIORITY COLLATERAL TRUSTEE SECTION 7.01. DELIVERY OF SECURED DOCUMENTS. On the date hereof, Rite Aid shall deliver to the Second Priority Collateral Trustee a true and complete copy of each of the Secured Documents as in effect on the date hereof. Promptly upon the execution thereof, Rite Aid shall deliver to the Second Priority Collateral Trustee a true and complete copy of any and all amendments, modifications or supplements to any Secured Document and of any Secured Documents entered into after the date of this Agreement. SECTION 7.02. INFORMATION AS TO HOLDERS. Rite Aid shall deliver to the Second Priority Collateral Trustee at the Closing Date from time to time upon request of the Second Priority Collateral Trustee a list setting forth, by each Secured Document, (i) the aggregate principal amount outstanding thereunder, (ii) the interest rate or rates then in effect thereunder, and (iii) the names of the holders thereof and the unpaid principal amount thereof owing to each such holder. Rite Aid shall furnish or cause to be furnished to the Second Priority Collateral Trustee within 30 days of a request therefor a list setting forth the name and address of each party to whom notices must be sent under the Secured Documents, and Rite Aid agrees to furnish promptly to the Second Priority Collateral Trustee any changes or additions to such list. SECTION 7.03. COMPENSATION AND EXPENSES. Rite Aid and each Subsidiary Guarantor, jointly and severally, agrees to pay to the Second Priority Collateral Trustee, from time to time upon demand, (i) compensation (which shall not be limited by any provision of law in regard to compensation of a trustee of an express trust) for its services hereunder and for administering the Trust Estate, as heretofore agreed between the Second Priority Collateral Trustee and Rite Aid, and (ii) all of the reasonable fees, costs and expenses of the Second Priority Collateral Trustee (including, without limitation, the reasonable fees and disbursements of its counsel and such special counsel and other professionals and consultants as the Second Priority Collateral Trustee elects to retain) (a) arising in connection with the preparation, execution, delivery, modification and termination of this Agreement, or the enforcement of any provisions hereof, or (b) incurred or required to be advanced in connection with the administration of the Trust Estate or the preservation, protection or defense of the Second Priority Collateral Trustee's rights under this Agreement and in and to the Collateral and the Trust Estate. The obligations of Rite Aid under this Section 7.03 shall survive the termination of this Agreement. SECTION 7.04. STAMP AND OTHER SIMILAR TAXES. Rite Aid agrees to indemnify and hold harmless the Second Priority Collateral Trustee and each Secured Party from any present or future claim or liability for any mortgage, stamp or other similar tax and any penalties or interest with respect thereto, which may be assessed, levied or collected by any jurisdiction in connection with this Agreement and the Collateral Documents. The obligations of Rite Aid under this Section 7.04 shall survive the termination of this Agreement. SECTION 7.05. FILING FEES, EXCISE TAXES, ETC. Rite Aid agrees to pay or to reimburse the Second Priority Collateral Trustee for any and all amounts in respect of all search, filing, recording and registration fees, taxes, excise taxes and other similar imposts which may be payable or determined to be payable in respect of the execution, delivery, performance and enforcement of this Agreement to the extent the same may be paid or reimbursed by Rite Aid without subjecting the Second Priority Collateral Trustee, the Collateral Agents or any Secured Party to any civil or criminal liability. The obligations of Rite Aid under this Section 7.05 shall survive the termination of this Agreement. SECTION 7.06. INDEMNIFICATION. (a) Rite Aid and each of the Subsidiary Guarantors, jointly and severally, agrees to pay, indemnify, and hold the Second Priority Collateral Trustee harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and the Collateral Documents; provided, however, that the Second Priority Collateral Trustee shall not be indemnified under this clause to the extent such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements are determined by a court of competent jurisdiction to have resulted from the gross negligence or wilful misconduct of the Second Priority Collateral Trustee. (b) In any suit, proceeding or action brought by the Second Priority Collateral Trustee with respect to the Collateral or for any sum owing in respect of Secured Obligations, or to enforce the provisions of any Collateral Document, each of the Subsidiary Guarantors, jointly and severally, shall save, indemnify and keep the Second Priority Collateral Trustee and each of the Secured Parties harmless from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction of liability whatsoever incurred or suffered by the Second Priority Collateral Trustee or such Secured Party, as the case may be, arising out of a breach by any Subsidiary Guarantor of any obligation set forth in this Agreement, or any other Collateral Document and all such obligations of each Subsidiary Guarantor shall be and remain enforceable against and only against such Subsidiary Guarantor and shall not be enforceable against the Second Priority Collateral Trustee or any Secured Party. The provisions of this Section 7.06. shall survive the termination of this Agreement. SECTION 7.07. FURTHER ASSURANCES. At any time and from time to time, upon the written request of the Second Priority Collateral Trustee, and at the joint and several expense of Rite Aid and the Subsidiary Guarantors, Rite Aid and each Subsidiary Guarantor shall promptly execute and deliver any and all such further instruments and documents and take such further action as Second Priority Collateral Trustee reasonably deems necessary or desirable in obtaining the full benefits of this Agreement. Without limitation of the foregoing or of any requirement of any Second Priority Collateral Document, each Subsidiary Guarantor agrees, from time to time, at its own expense to execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further mortgages, financing statements and continuations thereof, notices of assignment, transfers, certificates, assurances and other instruments as may be necessary or desirable, or as the Second Priority Collateral Trustee, and any Second Priority Representative, or any Second Priority Debt Party through its administrative agent, may reasonably request from time to time in order (i) to carry out more effectively the purposes of this Agreement, (ii) to subject to the liens and security interests created by any of the Second Priority Collateral Documents in any of the properties, (iii) to perfect and maintain the validity, effectiveness and priority of any of the Second Priority Collateral Documents and the liens and security interests intended to be created thereby, (iv) to better assure, convey, grant, assign, transfer, preserve, protect and confirm unto the Second Priority Collateral Trustee the rights granted or now or hereafter intended to be granted to the Second Priority Collateral Trustee under any Second Priority Collateral Document or under any other instrument executed in connection with any Second Priority Collateral Document to which it is or may become a party, and (v) to enable the Second Priority Collateral Trustee to exercise and enforce its rights and remedies hereunder and under each Second Priority Collateral Document with respect to any Second Priority Collateral. SECTION 7.08. CERTAIN DUTIES. The Second Priority Collateral Trustee's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC or otherwise, shall be to deal with such Collateral in the same manner as it customarily deals with similar collateral of other parties held by it. The Second Priority Collateral Trustee shall promptly deliver to each of the Second Priority Representatives a copy of each notice, request, report or other document delivered to it pursuant to the Second Priority Collateral Documents (unless the Second Priority Collateral Trustee can reasonably determine that such Second Priority Representative has already received the same). SECTION 7.09. EXCULPATORY PROVISIONS. (a) The Second Priority Collateral Trustee shall not be responsible in any manner whatsoever for the correctness of any recitals, statements, representations or warranties herein contained, all of which are made solely by the Subsidiary Guarantors. The Second Priority Collateral Trustee makes no representations as to the value or condition of the Trust Estate or any part thereof, or as to the title of the Subsidiary Guarantors thereto or as to the security afforded by the Collateral Documents or this Agreement or as to the validity, execution (except its own execution thereof), enforceability, legality or sufficiency of the Collateral Documents or this Agreement or of the Secured Obligations, and the Second Priority Collateral Trustee shall incur no liability or responsibility with respect to any such matters. The Second Priority Collateral Trustee shall not be responsible for insuring the Trust Estate or for the payment of taxes, charges, assessments or Liens upon the Trust Estate or otherwise as to the maintenance of the Trust Estate. (b) The Second Priority Collateral Trustee shall not be required to ascertain or inquire as to the performance by Rite Aid or any other person of any of the covenants or agreements contained herein, in any Collateral Document or in any Secured Document. Whenever it is necessary, or in the opinion of the Second Priority Collateral Trustee advisable, for the Second Priority Collateral Trustee to ascertain the amount of Secured Obligations then held by a Secured Party, the Second Priority Collateral Trustee may rely on a certificate of such Secured Party as to such amount, and if any Secured Party shall not provide such information to the Second Priority Collateral Trustee, such Secured Party shall not be entitled to receive payments hereunder (in which case the amounts otherwise payable to such Secured Party shall be held in trust for such Secured Party in the applicable Collateral Account) until such Secured Party has provided such information to the Second Priority Collateral Trustee. (c) The Second Priority Collateral Trustee shall not be personally liable for any action taken or omitted to be taken by it in accordance with this Agreement or any Collateral Document or any Secured Document, except for such actions or omissions that constitute gross negligence or wilful misconduct by the Second Priority Collateral Trustee. The Second Priority Collateral Trustee and its affiliates may make credit extensions to, accept deposits from and generally engage in any kind of business with Rite Aid and its Subsidiaries as though the Second Priority Collateral Trustee were not the collateral trustee hereunder. With respect to any Secured Obligations owing to it, the Second Priority Collateral Trustee shall have the same rights and powers under this Agreement as any Senior Secured Party or any Second Priority Debt Party, as the case may be, and may exercise the same as though it were not the collateral trustee hereunder. The Second Priority Collateral Trustee, in its individual capacity, may be either a Senior Secured Party or a Second Priority Debt Party. SECTION 7.10. DELEGATION OF DUTIES. The Second Priority Collateral Trustee may execute any of the trusts or powers hereof and perform any duty hereunder either directly or by or through agents or attorneys-in-fact which it shall select with due care. The Second Priority Collateral Trustee shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it. SECTION 7.11. RELIANCE BY SECOND PRIORITY COLLATERAL TRUSTEE. (a) Whenever in the administration of the trusts of this Agreement the Second Priority Collateral Trustee shall deem it necessary or advisable that a matter be proved or established in connection with the taking of any action hereunder by the Second Priority Collateral Trustee, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively provided or established by a certificate of an officer of Rite Aid delivered to the Second Priority Collateral Trustee, and such officers' certificate shall be full warranty to Second Priority Collateral Trustee for any action taken, suffered or omitted in reliance thereon. (b) The Second Priority Collateral Trustee may consult with counsel, and any opinion of such counsel (which may be in-house counsel for the Second Priority Collateral Trustee) shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in accordance therewith. The Second Priority Collateral Trustee shall have the right at any time to seek instructions concerning the administration of the Trust Estate from any court of competent jurisdiction. (c) The Second Priority Collateral Trustee may rely, and shall be fully protected in acting, upon any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order, bond or other paper or document which it has no reason to believe to be other than genuine and to have been signed or presented by the proper party or parties or, in the case of telecopies and telexes, to have been sent by the proper party or parties. The Second Priority Collateral Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Second Priority Collateral Trustee and conforming to the requirements of this Agreement or any Collateral Document. (d) The Second Priority Collateral Trustee shall not be under any obligation to exercise any of the rights or powers vested in the Second Priority Collateral Trustee by this Agreement unless the Second Priority Collateral Trustee shall have been provided adequate security and indemnity against the costs, expenses and liabilities which may be incurred by it in compliance with such request or direction, including, without limitation, such reasonable advances as may be requested by the Second Priority Collateral Trustee. SECTION 7.12. LIMITATIONS ON DUTIES OF SECOND PRIORITY COLLATERAL TRUSTEE. The Second Priority Collateral Trustee shall not be liable with respect to any action taken or omitted to be taken by it in accordance with the direction of the Second Priority Instructing Group. Except as herein otherwise expressly provided, the Second Priority Collateral Trustee shall not be under any obligation to take any action which is discretionary with the Second Priority Collateral Trustee under the provisions hereof except upon the written request of the Second Priority Instructing Group. The Second Priority Collateral Trustee shall make available for inspection and copying by any Secured Party each certificate or other paper furnished to the Second Priority Collateral Trustee by Rite Aid or any Subsidiary Guarantor under or in respect of this Agreement, any Collateral Document or any portion of the Trust Estate. SECTION 7.13. FUNDS TO BE HELD IN TRUST. All funds received by the Second Priority Collateral Trustee under or pursuant to any provision of this Agreement shall be held in trust for the purposes for which they were paid or are held in accordance with the provisions hereof. SECTION 7.14. RESIGNATION OF THE SECOND PRIORITY COLLATERAL TRUSTEE. (a) The Second Priority Collateral Trustee may at any time, by giving 30 days' prior written notice to Rite Aid and the Secured Parties, resign and be discharged of the responsibilities hereby created, such resignation to become effective upon the earlier of (i) 60 days from the date of such notice and (ii) the appointment of a successor collateral trustee or collateral trustees by the Second Priority Instructing Group (subject, if no Triggering Event has occurred, to the approval of the Borrower, which approval shall not to be unreasonably delayed or withheld). If no successor collateral trustee or collateral trustees shall be appointed and approved within 60 days from the date of the giving of the aforesaid notice of resignation, the Second Priority Collateral Trustee (notwithstanding the termination of all of its other duties and obligations hereunder by reason of such resignation) shall, or any Senior Secured Party, Second Priority Debt Party or Rite Aid may, apply to any court of competent jurisdiction to appoint a successor collateral trustee or collateral trustees (which may be an individual or individuals) to act until such time, if any, as a successor collateral trustee or collateral trustees shall have been appointed as above provided. Any successor collateral trustee or collateral trustees so appointed by such court shall immediately and without further act be superseded by any successor collateral trustee or collateral trustees approved by the Second Priority Instructing Group as above provided. (b) If at any time the Second Priority Collateral Trustee shall resign or otherwise become incapable of acting, or if at any time a vacancy shall occur in the office of Second Priority Collateral Trustee for any other cause, a successor collateral trustee or collateral trustees may be appointed by the Second Priority Instructing Group (subject, if no Triggering Event has occurred, to the approval of the Borrower, which approval shall not to be unreasonably delayed or withheld), and the powers, duties, authority and title of the predecessor collateral trustee or collateral trustees terminated and canceled without procuring the resignation of such predecessor collateral trustee or collateral trustees, and without any other formality (except as may be required by applicable law) other than appointment and designation of a successor collateral trustee or collateral trustees in writing, duly acknowledged, delivered to the predecessor collateral trustee or collateral trustees, and filed for record in each public office, if any, in which this Agreement is required to be filed. (c) The appointment and designation referred to in Section 7.14(b) shall, after any required filing, be full evidence of the right and authority to make the same and of all the facts therein recited, and this Agreement shall vest in such successor collateral trustee or collateral trustees, without any further act, deed or conveyance, all of the estate and title of its predecessor or their predecessors, and upon such filing for record the successor collateral trustee or collateral trustees shall become fully vested with all the estates, properties, rights, powers, trusts, duties, authority and title of its predecessor or their predecessors. Such predecessor or predecessors shall, nevertheless, on the written request of the Second Priority Instructing Group or its or their successor collateral trustee or collateral trustees, execute and deliver an instrument transferring to such successor or successors all the estates, properties, rights, powers, trusts, duties, authority and title of such predecessor or predecessors hereunder and shall deliver all securities and funds held by it or them to such successor collateral trustee or collateral trustees. (d) Any required filing for record of the instrument appointing a successor collateral trustees as herein above provided shall be at the expense of Rite Aid. SECTION 7.15. STATUS OF SUCCESSORS TO SECOND PRIORITY COLLATERAL TRUSTEE. Except as permitted by Section 7.14, every successor to the Second Priority Collateral Trustee appointed pursuant to Section 7.14 shall be a bank or trust company in good standing and having power so to act, incorporated under the laws of the United States or any State thereof or the District of Columbia, and having its principal corporate trust office within the forty-eight contiguous States, and shall also have capital, surplus and undivided profits of not less than $250,000,000. SECTION 7.16. MERGER OF SECOND PRIORITY COLLATERAL TRUSTEE. Any corporate Person into which Second Priority Collateral Trustee may be merged, or with which it may be consolidated, or any company resulting from any merger or consolidation to which Second Priority Collateral Trustee shall be a party, shall be Second Priority Collateral Trustee under this Agreement without the execution or filing of any paper or any further act on the part of the parties hereto. SECTION 7.17. APPOINTMENT OF ADDITIONAL AND SEPARATE SECOND PRIORITY COLLATERAL TRUSTEE. Whenever (i) the Second Priority Collateral Trustee shall deem it necessary or prudent in order to conform to any law of any jurisdiction in which all or any part of the Collateral shall be situated or to make any claim or bring any suit with respect to or in connection with the Collateral, or (ii) the Second Priority Collateral Trustee shall be advised by counsel satisfactory to it that it is so necessary or prudent in the interest of the Second Priority Debt Parties, then in any such case, the Second Priority Collateral Trustee shall execute and deliver from time to time all instruments and agreements necessary or proper to constitute another bank or trust company or one or more persons approved by the Second Priority Collateral Trustee either to act as additional trustee or trustees of all or any part of the Trust Estate, jointly with the Second Priority Collateral Trustee, or to act as separate trustee or trustees of all or any part of the Trust Estate, in any such case with such powers and on substantially the same terms and conditions as set forth in this Agreement, and to vest in such bank, trust company or person as such additional trustee or separate trustee, as the case may be, any property, title, right or power of the Second Priority Collateral Trustee deemed necessary or advisable by the Second Priority Collateral Trustee. Each of the Subsidiary Guarantors hereby consents to all actions taken by the Second Priority Collateral Trustee under the foregoing provisions of this Section 7.17. ARTICLE VIII RELEASE OF COLLATERAL; EXPIRATION OF CERTAIN RIGHTS SECTION 8.01. RELEASES OF COLLATERAL. At any time during which no Triggering Event has occurred and is continuing: (a) If (i) any Collateral is to be disposed of in a disposition that is specifically permitted by the Senior Loan Documents and the Second Priority Debt Documents, (ii) Rite Aid delivers a certificate to such effect to the Second Priority Collateral Trustee, the Senior Collateral Agent and each Second Priority Representative at least 3 Business Days before the date of the requested release, and (iii) neither the Senior Collateral Agent nor any Second Priority Representative objects before the date of the requested release that such disposition is prohibited by the Senior Loan Documents or the Second Priority Debt Documents, as the case may be, then the Liens in favor of the Secured Parties under the Collateral Documents with respect to such Collateral (but not the proceeds thereof) will be released automatically upon consummation of such disposition, without the need for any consent or approval by any other Secured Party, and the Second Priority Collateral Trustee, Senior Collateral Agent and the Second Priority Representatives, at the expense of Rite Aid, shall execute such documents as are reasonably necessary to effectuate such release. No such release shall require any consent or approval by any other Secured Party. (b) The Lien of any Collateral Document may, at any time, be released in whole or in part by the Second Priority Collateral Trustee or the Senior Collateral Agent, as the case may be, pursuant to written directions signed by the Majority Senior Parties (or the Senior Collateral Agent on behalf of the Majority Senior Parties) and the Second Priority Instructing Group; provided that (i) the release of all or substantially all of the Collateral shall require the written consent of all Secured Parties, (ii) the release of any Collateral consisting of PCS Excluded Assets shall require the written consent of the Representative for the PCS Facility and (iii) the release of all or substantially all of the Collateral consisting of PCS Excluded Assets shall require the written consent of all Second Priority Secured Parties under the PCS Facility. Except as aforesaid, no such release shall require any consent or approval by any other Secured Party. ARTICLE IX MISCELLANEOUS SECTION 9.01. AMENDMENTS, SUPPLEMENTS AND WAIVERS. The Majority Senior Parties and the Second Priority Instructing Group (and with respect to any such amendment, supplement or waiver (i) which by the terms of this Agreement requires Rite Aid's consent or which increases the obligations or reduces the rights of Rite Aid or any Subsidiary Guarantor, with the consent of Rite Aid, (ii) which by the terms of this Agreement requires the Second Priority Collateral Trustee's consent or which increases the obligations or reduces the rights of the Second Priority Collateral Trustee, with the consent of the Second Priority Collateral Trustee and (iii) which by the terms of this Agreement requires the consent of a particular Second Priority Representative, or which by its terms adversely affects the rights of the Second Priority Debt Parties under a particular Second Priority Facility in a manner different from its effect on the other Second Priority Facilities, with the consent of the Second Priority Representative for such Second Priority Facility) may from time to time amend, supplement or waive any provision hereof. Any such amendment, supplement or waiver shall be in writing and shall be binding upon the Secured Parties and their respective successors and assigns. SECTION 9.02. NOTICES. All notices, requests, demands and other communications provided for or permitted hereunder shall be in writing (including telecopy communications) and shall be sent by mail, telecopier or hand delivery: (i) If to Rite Aid or any Subsidiary Guarantor, to Rite Aid, at its address at: 30 Hunter Lane, Camp Hill, PA 17011, Attention of Chief Financial Officer, telecopy 717- 975-5961, or at such other address as shall be designated by it in a written notice to the other parties to this Agreement. (ii) If to the Second Priority Collateral Trustee, to: Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001, Attention of Corporate Trust Administration, telecopy 302-651-8882, or at such other address as shall be designated by it in a written notice to the other parties to this Agreement. (iii) If to the Senior Collateral Agent, to it at its address at: 399 Park Avenue, 6- 4, New York, NY 10022, Attention of Jeffrey Nitz, Vice President, telecopy 212-793- 1290, or at such other address as shall be designated by it in a written notice to the other parties to this Agreement. (iv) If to the Second Priority Collateral Trustee, to it at its address: Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001, Attention of Corporate Trust Administration, telecopy 302-651-8882, or at such other address as shall be designated by it in a written notice to the other parties to this Agreement. (v) If to Morgan Guaranty Trust Company as administrative agent for the RCF Facility, the PCS Facility, and the Exchange Debt Facility, to it at its address: J.P. Morgan Services, 500 Stanton Christiana Road, Newark, DE 19713, Attention of Mark Connor, telecopy 302-634-4300, or at such other address as shall be designated by it in a written notice to the other parties to this Agreement. (vi) If to The Prudential Insurance Company of America, as Security Agent for the Finco Facility, to it at its address: Four Gateway Center, 7th Floor, 100 Mulberry Street, Newark, NJ 07102-5311, Attention of Managing Director, telecopy (973) 802- 2333, or at such other address as shall be designated by it in a written notice to the other parties to this Agreement. (vii) If to State Street Bank and Trust Company, as trustee under the Exchange Note Indenture, to it at its address: Corporate Trust, Goodwin Square, 23rd Floor, 225 Asylum Street, Hartford, CT 06103, Attention of Mark Forgetta, telecopy 860-244-1884, or at such other address as shall be designated by it in a written notice to the other parties to this Agreement. (viii) If to The Sumitomo Bank, Limited, New York Branch, as Collateral Agent under the Synthetic Lease Facilities, to it at its address: 277 Park Avenue, New York, NY 10172, Attention of Leo Pagarigan, telecopy 212-224-5188, or at such other address as shall be designated by it in a written notice to the other parties to this Agreement. All such notices, requests, demands and communications shall be deemed to have been duly given or made, when delivered by hand or when telecopied. SECTION 9.03. HEADINGS. Headings used in this Agreement are for convenience only and shall not affect the construction of this Agreement. SECTION 9.04. SEVERABILITY. If any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 9.05. DEALINGS WITH THE SUBSIDIARY GUARANTORS. Upon any application or demand by Rite Aid or any Subsidiary Guarantor to the Second Priority Collateral Trustee or the Senior Collateral Agent to take or permit any action under any of the provisions of this Agreement or under any Collateral Document, Rite Aid or such Subsidiary Guarantor, as appropriate, shall furnish to the Second Priority Collateral Trustee or the Senior Collateral Agent a certificate of an appropriate officer stating that all conditions precedent, if any, provided for in this Agreement or such Collateral Document, as the case may be, relating to the proposed action have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Agreement or any Collateral Document relating to such particular application or demand, no additional certificate or opinion need be furnished. SECTION 9.06. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and each of the Secured Parties and their respective successors and assigns, and nothing herein or in any Collateral Document is intended or shall be construed to give any other person any right, remedy or claim under, to or in respect of this Agreement, the Collateral or the Trust Estate. Each of the Representatives in respect of each Debt Facility represents that it has the authority to enter into this Agreement on behalf of the Secured Parties that are party to the Senior Loan Documents or Second Priority Debt Documents relating to such Facility and that this Agreement will be binding on such Secured Parties, assuming their due authorization, execution and delivery of such Senior Loan Documents or Second Priority Debt Documents. SECTION 9.07. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW. SECTION 9.08. COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. SECTION 9.09. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. Rite Aid and each Subsidiary Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any Collateral Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that, to the extent permitted by applicable law, all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Second Priority Collateral Trustee or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Secured Documents against Rite Aid or any Subsidiary Guarantor or its properties in the courts of any jurisdiction. (b) Rite Aid and each Subsidiary Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.02. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 9.11. ADDITIONAL SUBSIDIARY GUARANTORS. Pursuant to 5.08(a) of the Senior Credit Facility and provisions of certain of the Second Priority Debt Documents, any Domestic Subsidiary of Rite Aid which is acquired or organized after the date of this Agreement is required to enter into this Agreement. Upon execution and delivery by a Subsidiary of Rite Aid of an instrument in the form of Annex 2, such Subsidiary shall become a Subsidiary Guarantor hereunder with the same force and effect as if originally named as a Subsidiary Guarantor herein. The execution and delivery of such instrument shall not require the consent of any other party hereunder, and will be acknowledged by the Second Priority Collateral Trustee and the Senior Collateral Agent. The rights and obligations of each Subsidiary Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Guarantor as a party to this Agreement. SECTION 9.12. LIMITATION OF SCOPE. The provisions of this Agreement are inapplicable to the Liens created pursuant to the PCS Pledge Agreement, the Drugstore.com Pledge Agreement and, except as provided in Section 5.02(e), the Exchange Debt First Priority Collateral Documents. The provisions of Article V hereof are inapplicable to the rights of the Second Priority Debt Parties as creditors of Rite Aid (as opposed to any Subsidiary Guarantor). SECTION 9.13. CALL OPTION. The Existing Facility Parties, at their option exercisable by notice from the Second Priority Instructing Group to the Senior Collateral Agent and the Borrower, shall have the right, at any time at which an Event of Default under the Senior Credit Facility shall have occurred and be continuing, to purchase, for a purchase price equal to the principal amount thereof together with accrued interest thereon, accrued fees and all other amounts then payable under the Senior Credit Facility, the Senior Bank Obligations, and in connection therewith, if the commitments under the Senior Credit Facility are still in effect, to assume such commitments by assignment and novation, on a date not less than ten nor more than 30 days subsequent to the date of such notice; provided, however, that, in connection with any such purchase, the issuing banks under the Senior Credit Facility shall be relieved of any obligation to issue additional letters of credit and any outstanding letters of credit will be replaced, fully cash collateralized for the sole benefit of such issuing banks or subject to other arrangements satisfactory to such issuing banks to ensure that they will not suffer any loss in connection therewith. The Existing Facility Parties will determine among themselves which of them will participate in and fund such purchase (any such election to participate being at the sole discretion of each Existing Facility Party), and any notice of the exercise of the purchase option hereunder will specify which Existing Facility Parties will be liable for consummating such purchase. Such Existing Facility Parties will reimburse the Senior Collateral Agent and the Senior Bank Parties for their reasonable out-of-pocket expenses (including reasonable fees of counsel) incurred in connection with the purchase option provided for herein, and the Senior Collateral Agent, for itself and on behalf of the Senior Bank Parties, agrees to take all necessary steps to give effect to the exercise of such option. SECTION 9.14. BAILEE FOR PERFECTION. The Senior Collateral Agent hereby acknowledges that, to the extent that it holds, or a third party holds on its behalf, possession of Collateral pursuant to the Senior Collateral Documents which is also Collateral under the Second Priority Collateral Documents, such possession is also for the benefit of the Second Priority Collateral Trustee and the Second Priority Secured Parties to the extent required to perfect their security interest in such Collateral. Nothing in the preceding sentence shall be construed to impose any additional duty on the Senior Collateral Agent with respect to such Collateral or provide the Second Priority Collateral Trustee or any Second Priority Secured Party with any rights with respect to such Collateral beyond those specified in this Agreement. SECTION 9.15. EXCHANGE NOTES HELD BY BORROWER OR SUBSIDIARIES. The Borrower and each Subsidiary Guarantor hereby acknowledges and agrees that its and its Subsidiaries' rights (including any and all rights to receive or retain payments) with respect to any Exchange Notes held by the Borrower or any Subsidiary shall, for so long as they are so held, (i) be subordinated to all other Secured Obligations to the same extent as the Second Priority Debt Obligations are subordinated to the Senior Obligations with respect to all Collateral (other than PCS Excluded Assets) and (ii) be treated as if such Exchange Notes are not outstanding for purposes of determining the requisite votes for any amendments, modifications or waivers hereunder or under the other Second Priority Collateral Documents or for giving any directions hereunder or under the other Second Priority Collateral Documents. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. RITE AID CORPORATION, By________________________________ Name: Title: THRIFTY PAYLESS, INC., as a Subsidiary Guarantor, By________________________________ Name: Title: PCS HEALTH SYSTEMS, INC., as a Subsidiary Guarantor, By________________________________ Name: Title: THE SUBSIDIARY GUARANTORS LISTED ON ANNEX 1 HERETO, By________________________________ Name: Title: Authorized Signatory WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee, By________________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent, By________________________________ Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent for and on behalf of the RCF Facility Parties, the PCS Facility Parties and the Exchange Debt Parties, By________________________________ Name: Title: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, as Security Agent for and on behalf of the Finco Facility Parties, By________________________________ Name: Title: THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH, as Collateral Agent, for and on behalf of the Synthetic Lease Parties, By________________________________ Name: Title: STATE STREET BANK AND TRUST COMPANY, as trustee under the Exchange Note Indenture, By_______________________________ Name: Title: Annex 1 to the Collateral Trust and Intercreditor Agreement Subsidiary Guarantors --------------------- Rite Aid Hdqtrs. Corp. Rite Aid of Alabama, Inc. Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Florida, Inc. Rite Aid of Georgia, Inc. Rite Aid of Illinois, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Massachusetts, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of North Carolina, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. Rite Aid of South Carolina, Inc. Rite Aid of Tennessee, Inc. Rite Aid of Vermont, Inc. Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Drug Fair of PA. Inc. Drug Fair, Inc. Eagle Managed Care Corp. GDF, Inc. Harco, Inc. The Lane Drug Company Keystone Centers, Inc. Ocean Acquisition Corporation PCS Holding Corporation Perry Drug Stores, Inc. Reed, Inc. Rite Aid Funding LLC Rite Investments Corp. Rite Aid Drug Palace, Inc. Rite Aid Rome Distribution Center, Inc. Rite Aid Transport, Inc. RX Choice, Inc. Script South Thrifty Payless, Inc. W.R.A.C., Inc. 3581 Carter Hill Road - Montgomery Corp. 4042 Warrensville Center Road - Warrensville Ohio, Inc. 5277 Associates, Inc. 537 Elm Street Corporation 5600 Superior Properties, Inc. 657-659 Broad St. Corp. Broadview and Wallings -Broadview Heights Ohio, Inc. Dominion Action One Corporation Dominion Action Two Corporation Dominion Action Three Corporation Dominion Action Four Corporation Dominion Drug Stores Corp. England Street-Asheland Corporation Jaime Nathan Travis Corporation Lakehurst and Broadway Corporation Patton Drive and Navy Boulevard Property Corporation Portfolio Medical Services, Inc. Rack Rite Distributors, Inc. Ram-Utica, INC. Rite Aid Venturer #1, Inc. Rite Fund, Inc. The Muir Company Virginia Corporation K&B, Incorporated K&B Alabama Corporation K&B Florida Corporation K&B Louisiana Corporation K&B Mississippi Corporation K&B Services, Incorporated K&B Tennessee Corporation K&B Texas Corporation K&B Trainees, Inc. Katz & Besthoff, Inc. Super Beverage of Texas #2, Inc. Super Beverage of Texas #3, Inc. Super Beverage of Texas #4, Inc. Super Beverage of Texas #5, Inc. Super Beverage of Texas #6, Inc. Super Distributors, Inc. Super Ice Cream Suppliers, Inc. Super Laboratories, Inc. Super Pharmacy Network, Inc. Super Tobacco Distributors, Inc. PCS Health Systems, Inc. PCS Services, Inc. PCS Mail Services, Inc. PCS Mail Service of Fort Worth, Inc. PCS Mail Service of Birmingham, Inc. PCS Mail Services of Scottsdale, Inc. Clinical Pharmaceuticals, Inc. Apex Drug Stores, Inc. PDS-1 Michigan, Inc. RDS Detroit, Inc. Perry Distributors, Inc. PL Xpress, Inc. Thrifty Corporation P.L.D. Enterprises, Inc. Rite Aid Lease Management Company Rite Aid Realty Corp. Thrifty Wilshire, Inc. Name Rite LLC Sophie One Corp. 112 Burleigh Avenue Norfolk, LLC. 1515 West State Street Boise, Idaho, LLC 1525 Cortyou Road - Brooklyn Inc. 1740 Associates, LLC 764 South Broadway- Geneva, Ohio, LLC 912 Elmwood Avenue- Buffalo, LLC Ann & Government Streets- Mobile, Alabama, LLC Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC Central Avenue and Main Street- Petal, MS, LLC Eighth and Water Streets- Ulrichsville, Ohio, LLC Euclid and Wilders Roads- Bay City, LLC Gettysburg and Hoover-Dayton, Ohio, LLC Gratiot & Center- Saginaw Township, Michigan, LLC Louisville Avenue & North 18th Street- Monroe, Louisiana, LLC Main & McPherson- Clyde, LLC Mayfield & Chillicothe Roads- Chesterland, LLC Munson & Andrews LLC Northline & Dix- Toledo- Southgate, LLC Paw Paw Lake Road & Paw Paw Avenue- Coloma, Michigan, LLC Richmond Road & Monticello Boulevard- Richmond Heights, Ohio, LLC Route 1 and Hood Road- Fredricksburg, LLC Route 202 at Route 124 Jaffrey- New Hampshire, LLC Seven Mile and Evergreen- Detroit, LLC Silver Springs Road- Baltimore, Maryland/ One, LLC Silver Springs Road- Baltimore, Maryland/ Two, LLC State Street and Hill Road- Gerard, Ohio, LLC State & Fortification Streets- Jackson, Mississippi, LLC Tyler and Sanders Roads, Birmingham- Alabama, LLC Annex 2 to the Collateral Trust and Intercreditor Agreement DEFINITIONS ANNEX This is the Definitions Annex referred to in the Senior Loan Documents (such term and each other capitalized term used herein as defined below, and if not defined herein, have the meanings assigned to such terms in the applicable Senior Loan Document or Second Priority Debt Document) and the Second Priority Debt Documents. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 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 thereof and of each Senior Loan Document and Second Priority Debt Document containing restrictions or imposing conditions on the amendment, modification or supplementing of such agreement or contract. "Affiliate" means, when used with respect to a specified Person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Asset Sale" means any sale, transfer or other disposition (including pursuant to a Sale and Leaseback Transaction) of any property or asset of the Borrower or any Subsidiary (including any equity interest in a Subsidiary), other than a Permitted Disposition. "Attributable Debt" means, as to any particular Capital Lease or 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 a transaction involving a Capital Lease, the amount on such date of the obligation thereunder that would appear on a balance sheet prepared as of such date in accordance with generally accepted accounting principles, or (ii) in the case of a Sale and Leaseback Transaction not involving a Capital Lease, 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 per annum that would be applicable to a Capital Lease of the Borrower having similar payment terms. 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, whether or not characterized as rent. "Bankruptcy Proceeding" means any proceeding under Title 11 of the U.S. Code or any other Federal, state or foreign bankruptcy, insolvency, reorganization, receivership or similar law. "Basket Asset Sale" means any sale or disposition (including a Sale and Leaseback Transaction not involving any Mortgaged Property) of office locations, stores or other personal or real property (including any improvements thereon), whether or not constituting Mortgaged Property, or leasehold interest therein for fair value in the ordinary course of business consistent with past practice and not inconsistent with the Borrower's business plan delivered to the Representatives on the Closing Date, provided, however, that, (i) the aggregate consideration received therefor (including the fair market value of any non-cash consideration) shall not exceed $75,000,000 in any fiscal year (calculated without regard to Sale and Leaseback Transactions permitted by Section 5.14(a), (b) and (c) of the Senior Credit Facility as in effect on the Closing Date) and (ii) at least 75% of such consideration shall consist of cash. "Borrower" means Rite Aid. "Business Day" means any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Euro-Dollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Markets Transaction" means the receipt by the Borrower or a Subsidiary of proceeds of 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 any proceeds in respect of the issuance of Exchange Notes to SPV and the disposition of such Exchange Notes pursuant to the Forward Commitment Agreement). "Casualty/Condemnation" means any event that gives rise to Casualty/Condemnation Proceeds. "Casualty/Condemnation Proceeds" means (a) any insurance proceeds under any insurance policies or otherwise with respect to any casualty or other insured damage to any assets of the Borrower or its Subsidiaries, and (b) any proceeds received by the Borrower or any Subsidiary of any action or proceeding for the taking of any assets of the Borrower or its Subsidiaries, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any similar public improvement or condemnation proceeding, less, in each case (i) any fees, commissions and expenses (including the costs of adjustment and condemnation proceedings) and other costs paid or incurred by the Borrower or any Subsidiary in connection therewith, (ii) income taxes reasonably estimated to be payable as a result of any gain recognized in connection with the receipt of such payment or proceeds and (iii) payment of the outstanding amount of any Debt (or Attributable Debt), other than the Secured Obligations, together with premium or penalty, if any, and interest thereon (or comparable obligations in respect of Attributable Debt), that is secured by a Lien on (or if Attributable Debt, the lease of) the stock or assets in question and that has priority over both the Senior Lien and the Second Priority Lien and is to be repaid as a result of receipt of such payments or proceeds; provided, however, that no such proceeds shall constitute Casualty/Condemnation Proceeds to the extent that such proceeds are (A) reinvested in other like fixed or capital assets within 180 days of the Casualty/Condemnation that gave rise to such proceeds or (B) committed to be reinvested in other like fixed or capital assets within 180 days of such Casualty/Condemnation, with diligent pursuit of such reinvestment, and reinvested in such assets within 365 days of such Casualty/Condemnation. "Citibank" means Citibank, N.A. "Citibank Standby L/C Documents" means the reimbursement agreements, letter of credit applications and other documents relating to the Citibank Standby Letters of Credit. "Citibank Standby L/C Obligations" means (a) each payment, including payments in respect of reimbursements and cash collateralization, required to be made by Rite Aid under the Citibank Standby L/C Documents in respect of Citibank Standby Letters of Credit in an aggregate amount at any time outstanding not in excess of (i) $8,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied to such obligations as the result of the exercise of remedies under the Senior Collateral Documents and (b) all other monetary obligations, including fees, costs, expenses and indemnities (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) of Rite Aid or any Obligor under the Citibank Standby L/C Documents to the extent attributable to the Citibank Standby Letters of Credit referred to in clause (a). "Citibank Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Citibank outstanding on the Closing Date in an aggregate face amount of approximately $8,000,000, together with any standby letter of credit (other than any letter of credit issued under the Senior Credit Facility) hereafter issued by Citibank for the account of any Obligor, provided that the Citibank Standby Letters of Credit shall be limited to an amount at any time outstanding not in excess of (i) $8,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied as the result of the exercise of remedies under the Senior Collateral Documents to reimbursement and cash collateralization obligations in respect of Citibank Standby Letters of Credit. "Closing Date" means the date on which the Senior Credit Facility, the amendments and restatements giving rise to the Existing Facilities and the exchange offer and other transactions giving rise to the Exchange Notes become effective. "Collateral" means the Senior Collateral and the Second Priority Collateral. "Collateral Documents" means (a) the Senior Collateral Documents and (b) the Second Priority Collateral Documents. "Collateral Trust and Intercreditor Agreement" means the Collateral Trust and Intercreditor Agreement, dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors, the Second Priority Collateral Trustee, the Senior Collateral Agent and each Second Priority Representative. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed by such Person. "Debt Facility" means any of the Senior Credit Facility, the Existing Facilities, the Synthetic Lease Facilities and the Exchange Note Indenture. "Default Rate" means a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) equal to the sum of (a) the rate of interest publicly announced by Citibank in New York, New York, from time to time as its "base rate", plus (b) 2.00%. "Designated Asset Disposition" means any sale, transfer or other disposition of Exchange Debt First Priority Collateral other than a Permitted Disposition. "Domestic Subsidiary" means any Subsidiary incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "Drugstore.com Common Stock" means the common stock of Drugstore.com, Inc., a Delaware corporation, owned by Rite Aid. "Drugstore.com Pledge Agreement" means the Drugstore.com Pledge Agreement dated as of October 25, 1999 and amended and restated as of June 12, 2000, between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "Exchange Debt Facility" means the Exchange Debt Facility dated as of June 12, 2000 among Rite Aid Corporation, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "Exchange Debt Facility Documents" means the collective reference to the "Loan Documents" as defined in the Exchange Debt Facility. "Exchange Debt First Priority Collateral" means the prescription files of Rite Aid's Subsidiaries and the proceeds thereof. "Exchange Debt First Priority Collateral Documents" means the collective reference to the "First Priority Collateral Documents", as defined in the Exchange Debt Facility. "Exchange Debt Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loans made under the Exchange Debt Facility, (ii) all other amounts payable by the Borrower to the Exchange Debt Parties under the Exchange Debt Facility Documents, and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the Exchange Debt Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Exchange Debt Parties" means all parties to the Exchange Debt Facility Documents other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the administrative agent under the Exchange Debt Facility and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Exchange Debt Facility Document. "Exchange Note Documents" means the Exchange Notes and the Exchange Note Indenture, Exchange and Registration Rights Agreement among the State Street Bank and Trust, as trustee, Rite Aid and the Subsidiary Guarantors, and the Forward Commitment Agreement. "Exchange Note Indenture" means the Indenture dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors and State Street Bank and Trust Company, as trustee, relating to the Exchange Notes. "Exchange Note Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the Exchange Notes, (ii) all other amounts payable by the Borrower to the Exchange Note Parties under the Exchange Note Documents, and (iii) any renewals or extensions of any of the foregoing. "Exchange Note Parties" means all parties to the Exchange Note Documents and the holders from time to time of the Exchange Notes, in each case other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the trustee under the Exchange Note Indentures and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Exchange Note Document. "Exchange Notes" means the 10.50% Senior Secured Notes Due 2002 of Rite Aid (i) issued in exchange for certain 5.50% Notes Due 2000 of Rite Aid and 6.70% Notes Due 2001 of Rite Aid or (ii) issued on the Closing Date to SPV and to be transferred to SSB, JPM and their respective transferees and assignees pursuant to the Forward Commitment Agreement; provided, however, that the aggregate principal amount of Exchange Notes issued pursuant to the Forward Commitment Agreement shall not exceed $93,158,000. "Existing Facilities" means (a) the PCS Facility; (b) the RCF Facility; (c) the Finco Facility; and (d) the Exchange Debt Facility. "Existing Facilities Documents" means the collective reference to (i) the PCS Facility Documents, (ii) the RCF Facility Documents, (iii) the Finco Facility Documents and (iv) the Exchange Debt Facility Documents. "Existing Facility Obligations" means the PCS Facility Obligations, the RCF Facility Obligations, the Finco Facility Obligations and the Exchange Debt Obligations. "Existing Facility Parties" means the PCS Facility Parties, the RCF Facility Parties, the Finco Facility Parties and the Exchange Debt Parties. "Finco Facility" means the Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, Amendment No. 1 to Put Agreement (the "Omnibus Amendment") dated as of June 12, 2000, relating to the Adjustable Rate Senior Secured Notes due August 15, 2002 originally issued by Finco, Inc. and guaranteed by Rite Aid. The "Finco Facility " shall be deemed to include the Note Agreement dated as of September 30, 1996, among Finco, Inc., and each of the Purchasers listed in Annex 1 thereto, as amended through the Closing Date. "Finco Facility Documents" means (i) the Finco Facility, (ii) the Guaranty Agreement dated as of September 30, 1996 pursuant to which Rite Aid guaranteed the obligations of Finco, Inc. under the Finco Facility; (iii) the Put Agreement dated as of September 30, 1996 entered into by Rite Aid, and (iv) the Security Agreement dated as of September 30, 1996 entered into by Finco, Inc. and The Prudential Insurance Company of America as the Security Agent on behalf of the Finco Facility Parties, in each case as amended through the Closing Date. "Finco Facility Obligations" means (i) all outstanding principal amounts under the Finco Facility Documents, (ii) all interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the principal amounts pursuant to clause (i) of this definition, (iii) any renewals or extensions of any of the foregoing and (iv) any and all other amounts payable by the Borrower in respect of the Finco Facility Documents; provided, however, that the principal amount of indebtedness included in the Finco Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Finco Facility Parties" means The Prudential Insurance Company of America and Pruco Life Insurance Company and their successors and assigns as noteholders and purchasers under the Finco Facility Documents and The Prudential Insurance Company of America, as Security Agent under the Finco Facility Documents and its successor or assignee. "Forward Commitment Agreement" means the Forward Commitment Agreement dated June 12, 2000, among Rite Aid, SPV, SSB and JPM. "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" mean, collectively, (a) the Indenture dated as of December 21, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee, (b) the Indenture dated as of August 1, 1993, between Rite Aid and Morgan Guaranty Trust Company of New York, as trustee, (c) the Indenture dated as September 10, 1997, between Rite Aid and Harris Trust and Savings Bank, as trustee and (d) the Indenture dated as of September 22, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee. "Independent Standby L/C Documents" means the Citibank Standby L/C Documents and the Mellon Standby L/C Documents. "Independent Standby L/C Obligations" means the Citibank Standby L/C Obligations and the Mellon Standby L/C Obligations. "Independent Standby L/C Parties" means Citibank and Mellon Bank in their capacities as issuers of Independent Standby Letters of Credit. "Independent Standby Letters of Credit" means the Citibank Standby Letters of Credit and the Mellon Standby Letters of Credit. "Instructing Group" means, until the Senior Obligation Payment Date, the Majority Senior Parties, and thereafter the Second Priority Instructing Group. "JPM" means J.P. Morgan Securities, Inc. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. "Majority Senior Parties" means the Majority Banks, as defined in the Senior Credit Facility, or with respect to any waiver, amendment or request, Senior Banks having such amount of unused Revolving Credit Commitments, Revolving Credit Exposure, unused Term Loan Commitments and outstanding Term Loans as may be required under the Senior Credit Facility to approve the same. "Mellon Bank" means Mellon Bank, N.A. "Mellon Standby L/C Documents" mean the reimbursement agreements, letter of credit applications and other documents relating to the Mellon Standby Letters of Credit. "Mellon Standby L/C Obligations" means (a) each payment, including payments in respect of reimbursements and cash collateralization, required to be made by Rite Aid under the Mellon Standby L/C Documents in respect of Mellon Standby Letters of Credit in an aggregate amount at any time outstanding not in excess of (i) $26,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied to such obligations as the result of the exercise of remedies under the Senior Collateral Documents and (b) all other monetary obligations, including fees, costs, expenses and indemnities (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable as a claim in such proceeding) of Rite Aid under the Mellon Standby L/C Documents to the extent attributable to the Mellon Standby Letters of Credit referred to in clause (a). "Mellon Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Mellon Bank outstanding on the Closing Date in an aggregate face amount of $26,000,000, together with any standby letter of credit (other than any letter of credit issued under the Senior Credit Facility) hereafter issued by Mellon Bank for the account of any Obligor provided that the Mellon Standby Letters of Credit shall be limited to an amount at any time outstanding not in excess of (i) $26,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied as the result of the exercise of remedies under the Senior Collateral Documents to reimbursement and cash collateralization obligations in respect of Mellon Standby Letters of Credit. "Moody's" means Moody's Investors Service, Inc., or any successor to its business of rating debt securities. "Net Cash Proceeds" means, (a) with respect to any sale, transfer or other disposition of any property or asset (a "Disposition"), an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Disposition (including, when received, any cash proceeds received in respect of any noncash proceeds of any Disposition), less (I) the sum of (i) reasonable costs and expenses paid or incurred in connection with such transaction, including, without limitation, any underwriting brokerage or other customary selling commissions and reasonable legal, advisory and other fees and expenses (including title and recording expenses, associated therewith), payments of unassumed liabilities relating to the assets sold and any severance and termination costs; (ii) the amount of any Debt (or Attributable Debt), together with premium or penalty, if any, and accrued interest thereon (or comparable obligations in respect of Attributable Debt) secured by a Lien on (or if Attributable Debt, the lease of) any asset disposed of in such Disposition and discharged from the proceeds thereof, but only to the extent such Lien has priority over the Senior Lien, the Second Priority Lien and the Liens under the Exchange Debt First Priority Collateral Documents; (iii) 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 Disposition; (iv) the portion of such cash proceeds which the Borrower determines in good faith and reasonably should be reserved for post-closing adjustments, including, without limitation, indemnification payments and purchase price adjustments, provided, that on the date that all such post-closing adjustments have been determined, the amount (if any) by which the reserved amount in respect of such Disposition exceeds the actual post-closing adjustments payable by the Borrower or any of the Subsidiary Guarantors shall constitute Net Cash Proceeds on such date; and (v) in the case of a PCS Divestiture the sum of (1) the PCS Incremental Investment as of the date of consummation of such disposition plus (2) the aggregate Net Cash Proceeds of PCS Dispositions in the form of Sale and Leaseback Transactions theretofore applied to prepayments of the PCS Facility; and plus (II) in the case of a PCS Divestiture, the PCS Investment Reduction as of the date of consummation of such transaction; (b) with respect to any Capital Markets Transaction, an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Capital Markets Transaction, less any reasonable transaction costs; including investment banking and underwriting fees, discounts and commissions and any other expenses (including legal fees and expenses) reasonably incurred by such Person in respect of such Capital Markets Transaction; and (c) with respect to receipt of Casualty/Condemnation Proceeds, the amount thereof. "Obligors" means Rite Aid, the Subsidiary Guarantors and any other Person who is liable for any of the Secured Obligations. "paid in full" means paid in full in cash. "PCS" means PCS Holding Corporation, a Delaware corporation, and its successors. "PCS Common Stock" means the common stock of PCS owned by Rite Aid. "PCS Disposition" means (i) any sale or other disposition of capital stock of PCS (or of any non-cash proceeds thereof), (ii) any sale, lease or other disposition (including a Casualty/Condemnation) by PCS or any of its Subsidiaries of any asset, other than (y) 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, and (z) dispositions to PCS or a wholly-owned Subsidiary of PCS or (iii) any sale, lease or other disposition (including a Casualty/Condemnation) of PCS Land. "PCS Divestiture" means a PCS Disposition as a result of which the business of PCS is no longer conducted by a Consolidated Subsidiary of the Borrower. "PCS/Drugstore Pledged Collateral" means the capital stock of PCS and Drugstore.com pledged by Rite Aid under the PCS Pledge Agreement and the Drugstore.com Pledge Agreement and all income and profits thereon, dividends and other payments and distributions with respect thereto and all proceeds of the foregoing subject to a Lien under such agreements. "PCS Excluded Assets" means (i) any Collateral consisting of assets of PCS or a Subsidiary of PCS, other than PCS Linked Accounts, (ii) PCS Land and (iii) any proceeds of clauses (i) and (ii). For purposes of Article IV of the Collateral Trust and Intercreditor Agreement, any proceeds of enforcement of the Senior Subsidiary Guarantee Agreement or the Second Priority Guarantee Agreement against PCS or a Subsidiary of PCS (other than with respect to the PCS Linked Accounts and the proceeds thereof) shall be deemed to be proceeds of Collateral consisting of PCS Excluded Assets. "PCS Facility" means the PCS Facility dated as of June 12, 2000, among Rite Aid, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "PCS Facility Documents" means the "Loan Documents" as defined in the PCS Facility. "PCS Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the PCS Facility, (ii) all other amounts payable by the Borrower under the PCS Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the PCS Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "PCS Facility Parties" means the parties to the PCS Facility Documents other than the Obligors, the Senior Bank Parties and the Representatives, but including the administrative agent under the PCS Facility and the beneficiaries of each indemnification obligation by Rite Aid or any other Obligor under any PCS Facility Documents. "PCS Incremental Investment" means, at any date, the amount, if any, by which the inter-company payable owing by Rite Aid Hdqtrs. Corp. to PCS at such date is less than such amount as at May 27, 2000. The Borrower shall promptly notify each of the Representatives following the Closing Date of such latter amount. "PCS Investment Reduction" means, at any date, the excess, if any, of (i) the amount, if any, by which the intercompany payable owing by Rite Aid Hdqtrs. Corp. to PCS at such date is greater than such amount as at May 27, 2000, over (ii) the cumulative PCS EBITDA, as defined in the Senior Credit Facility, for the period from May 27, 2000, to such date. "PCS Land" means the real property described as N.W. 96th Street and Mountainview Road, Scottsdale, Arizona, together with any improvements thereon. "PCS Linked Accounts" means any accounts receivable owed to PCS by third party insurers in respect of claims generated by other Subsidiaries of Rite Aid and giving rise to related accounts payable owed by PCS to such other Subsidiaries of Rite Aid. "PCS Pledge Agreement" means the PCS Pledge Agreement dated as of October 25, 1999 and amended and restated as of June 12, 2000, between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "Permitted Disposition" means any of the following: (i) dispositions of inventory at retail, cash, cash equivalents and other cash managing investments and obsolete, unused, uneconomic or unnecessary equipment, in each case in the ordinary course of business; (ii) a disposition to a Subsidiary Guarantor, provided, that (A) if the property subject to such disposition constitutes Collateral immediately before giving effect to such disposition, such property continues to constitute Collateral subject to the Senior Lien and the Second Priority Lien, and (B) no dispositions of property will be made to or by PCS or its Subsidiaries except in the ordinary course of business consistent with past practice; (iii) a sale or discount, in each case without recourse and in the ordinary course of business, of overdue Accounts (as defined in the Senior Credit Facility) arising in the ordinary course of business, but only to the extent such Accounts are no longer Eligible Accounts Receivable (as defined in the Senior Credit Facility) and such sale or discount is in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale); (iv) Basket Asset Sales; and (v) any disposition of Exchange Notes by SPV to SSB or JPM (or their respective successors, assigns and affiliates), pursuant to the Forward Commitment Agreement as in effect on the Closing Date. "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. "RCF Facility" means the RCF Facility dated as of June 12, 2000, among Rite Aid, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "RCF Facility Documents" means the "Loan Documents" as defined in the RCF Facility. "RCF Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the RCF Facility, (ii) all other amounts payable by the Borrower to the RCF Facility Parties under the RCF Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the RCF Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "RCF Facility Parties" means the parties to the RCF Facility Documents other than the Obligors. "Reduction" means, when applied to any Debt Facility, (i) the permanent repayment of outstanding loans (or obligations in respect of Attributable Debt) under such Debt Facility, (ii) the permanent reduction of outstanding lending commitments under such Debt Facility or (iii) the permanent cash collateralization of outstanding letters of credit under such facility (together with the termination of any lending commitments utilized by such letters of credit). "Reduction Event" is (i) a PCS Disposition, (ii) a Capital Markets Transaction, (iii) a Designated Asset Disposition, (iv) a Senior Collateral Disposition, (v) other Asset Sales or (vi) receipt of other Casualty/Condemnation Proceeds. "Related Exchange Debt" means, with respect to any of the Existing Facilities (other than the Exchange Debt Facility), Debt under the Exchange Debt Facility issued in exchange for Debt under such Existing Facility. "Related Exchange Debt Obligation" shall mean Exchange Debt Obligations in respect of Related Exchange Debt. "Representatives" means each of the Senior Collateral Agent and the Second Priority Representatives. "Required Prepayment Amount" has the meaning assigned to such term in the Senior Credit Facility, as in effect on the Closing Date. "Rite Aid" means Rite Aid Corporation, a Delaware corporation, and its successors. "Rite Aid Hdqtrs. Corp." means Rite Aid Hdqtrs. Corp., a Delaware corporation and a Wholly-Owned Consolidated Subsidiary of the Borrower. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor to its business of rating debt securities. "Sale and Leaseback Transaction" means the sale or transfer by the Borrower or any Subsidiary of any office building (including its headquarters), distribution center, manufacturing plant, warehouse, Store or equipment now or hereafter owned by the Borrower or any Subsidiary with the intention that the Borrower or any Subsidiary take back a lease thereof. "Second Priority Collateral" means all the "Second Priority Collateral" as defined in any Second Priority Collateral Documents and shall also include the Mortgaged Properties and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral or the Exchange Debt First Priority Collateral. "Second Priority Collateral Documents" means the Second Priority Mortgages, the Second Priority Subsidiary Security Agreement, the Second Priority Subsidiary Guarantee Agreement, the Second Priority Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing for purposes of providing collateral security or credit support for any Second Priority Debt Obligation or obligation under the Second Priority Subsidiary Guarantee Agreement but specifically excluding the Drugstore.com Pledge Agreement, the Exchange Debt First Priority Collateral Documents and the PCS Pledge Agreement. "Second Priority Collateral Trustee" means Wilmington Trust Company, in its capacity as collateral trustee under the Collateral Trust and Intercreditor Agreement and the Second Priority Collateral Documents, and its successors. "Second Priority Debt Documents" means the Existing Facility Documents, the Exchange Note Documents, the Synthetic Lease Documents and the Second Priority Collateral Documents. "Second Priority Debt Obligations" means the collective reference to the Exchange Debt Obligations, the Exchange Note Obligations, the Synthetic Lease Obligations, the PCS Facility Obligations, the RCF Facility Obligations and the Finco Facility Obligations. "Second Priority Debt Parties" means the Existing Facility Parties, the Exchange Note Parties, the Synthetic Lease Parties and the Second Priority Collateral Trustee. "Second Priority Facilities" means the Exchange Debt Facility, the Exchange Note Indenture, the Synthetic Lease Facilities, the PCS Facility, the RCF Facility and the Finco Facility. "Second Priority Indemnity, Subrogation and Contribution Agreement" means the Second Priority Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors and the Second Priority Collateral Trustee. "Second Priority Instructing Group" means Second Priority Representatives with respect to Second Priority Facilities under which at least a majority of the then aggregate amount of Second Priority Debt Obligations are outstanding. "Second Priority Lien" means the Liens on the Second Priority Collateral in favor of the Second Priority Debt Parties under the Second Priority Collateral Documents. "Second Priority Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents which create a Lien in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties, delivered pursuant to the Second Priority Debt Documents, each substantially in the form of Exhibit [ ] to the RCF Facility, with such changes as are approved by the Senior Collateral Agent and the Second Priority Representatives. "Second Priority Representative" means, in respect of each Second Priority Facility, the trustee under the Exchange Note Indenture and the administrative agent, security agent or agent under each other Second Priority Facility and each of their successors in such capacities. "Second Priority Subsidiary Guarantee Agreement" means the Second Priority Subsidiary Guarantee Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Second Priority Subsidiary Security Agreement" means the Second Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Secured Obligations" means the Senior Obligations and the Second Priority Debt Obligations. "Senior Bank" means a "Bank" as defined in the Senior Credit Facility. "Senior Bank Obligations" means (i) the principal of each loan made under the Senior Credit Facility, (ii) all reimbursement and cash collateralization obligations in respect of letters of credit issued under the Senior Credit Facility, (iii) all monetary obligations of the Borrower or any Subsidiary under each Senior Interest Rate Agreement entered into with any counterparty that was a Senior Bank (or an Affiliate thereof) at the time such Senior Interest Rate Agreement was entered into, (iv) all interest on the loans, letter of credit reimbursement, fees and other obligations under the Senior Credit Facility or such Senior Interest Rate Agreements (including, without limitation any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower or any Subsidiary Guarantor, whether or not allowed or allowable as a claim in such proceeding), (v) all other amounts payable by the Borrower under the Senior Loan Documents and (vi) all increases, renewals, extensions and refinancings of the foregoing; provided, however, that the principal amount of the indebtedness under the Senior Credit Facility included in the Senior Bank Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Senior Bank Parties" means each party to the Senior Credit Facility other than any Obligor, each counterparty to a Senior Interest Rate Agreement, the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Senior Loan Document, and the successors and permitted assigns of each of the foregoing. "Senior Collateral" means all the "Senior Collateral" as defined in any Senior Collateral Document and shall also include the Mortgaged Properties and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral and the Exchange Debt First Priority Collateral. "Senior Collateral Agent" means Citicorp USA, Inc., in its capacity as Senior Collateral Agent under the Senior Collateral Documents, and its successors. "Senior Collateral Disposition" means (i) any sale, transfer or other disposition of Senior Collateral (including any property or assets that would constitute Senior Collateral but for the release of the Senior Lien with respect thereto in connection with such sale, transfer or other disposition), other than a PCS Disposition, or a Permitted Disposition or (ii) a Casualty/Condemnation with respect to Senior Collateral (other than PCS Excluded Assets). "Senior Collateral Documents" means the Senior Mortgages, the Senior Subsidiary Security Agreement, the Senior Subsidiary Guarantee Agreement, the Senior Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing or pursuant to the Senior Credit Facility or for purposes of providing collateral security or credit support for any Senior Obligation or obligation under the Senior Subsidiary Guarantee Agreement. "Senior Credit Facility" means the Senior Credit Agreement, dated as of June 12, 2000, among Rite Aid, as Borrower, the Senior Banks, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents. "Senior Indemnity, Subrogation and Contribution Agreement" means the Senior Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000 among Rite Aid, the Subsidiary Guarantors (including Subsidiary Guarantors becoming party thereto after the Closing Date) and the Senior Collateral Agent. "Senior Interest Rate Agreement" means any Interest Rate Agreement entered into with Rite Aid or any Subsidiary, if the applicable counterparty was a Senior Bank or an Affiliate thereof at the time the Interest Rate Agreement was entered into. "Senior Lien" means the Liens on the Senior Collateral in favor of the Senior Secured Parties under the Senior Collateral Documents. "Senior Loan Documents" means the Senior Credit Facility, the Notes referred to in the Senior Credit Facility, each Senior Interest Rate Agreement, and the Senior Collateral Documents. "Senior Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents delivered pursuant to the Senior Credit Facility, each substantially in the form of Exhibit K to the Senior Credit Facility, with such changes as are approved by the Senior Collateral Agent. "Senior Obligation Payment Date" means the date on which (i) the Senior Obligations have been paid in full, (ii) all lending commitments under the Senior Credit Facility have been terminated and (iii) there are no outstanding Independent Standby Letters of Credit or letters of credit issued under the Senior Credit Facility other than such as have been fully cash collateralized under documents and arrangements satisfactory to the issuer of such letters of credit. "Senior Obligations" means (a) the Senior Bank Obligations and (b) the Independent Standby L/C Obligations. "Senior Secured Parties" means (a) the Senior Bank Parties and (b) the Independent Standby L/C Parties. "Senior Subsidiary Guarantee Agreement" means the Senior Subsidiary Guarantee Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "Senior Subsidiary Security Agreement" means the Senior Subsidiary Security Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "SPV" means Fiona One Corp., a Delaware corporation and a wholly-owned Subsidiary of Rite Aid which is organized for the sole purpose of acquiring Exchange Notes on the Closing Date from Rite Aid and selling such Exchange Notes to SSB and JPM in accordance with the Forward Commitment Agreement. "SSB" means Salomon Smith Barney Inc. "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. "Subsidiary Guarantor" means each Subsidiary that is party to the Senior Subsidiary Guarantee Agreement, the Second Priority Subsidiary Guarantee Agreement or any other Senior Collateral Document or Second Priority Collateral Document. "Synthetic Lease Documents" means the documents governing the Synthetic Leases. "Synthetic Lease Facilities" means certain synthetic leases entered into by the Subsidiary Guarantors and guaranteed by Rite Aid having an aggregate discounted present value of approximately $214,000,000, as amended and restated as of the Closing Date. "Synthetic Lease Obligations" means all rent and supplemental rent, all fees and all other expenses or amounts payable by any Obligors to any Synthetic Lease Parties under any Synthetic Lease Document; provided, however, that the aggregate amount of the Synthetic Lease Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Synthetic Lease Parties" means all parties to the Synthetic Lease Documents other than the Obligors. "Temporary Cash Investment" means any investment by any Person in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by S&P and P-1 by Moody's, (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized or licensed under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $500,000,000, (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, provided in each case that such investment matures within one year from the date of acquisition thereof by such Person or (v) money market mutual funds at least 90% the assets of which are held in investments referred to in clauses (i) through (iv) above (except that the maturities of certain investments held by any such money market funds may exceed one year so long as the dollar-weighted average life of the investments of such money market mutual fund is less than one year). "Uniform Commercial Code" or "UCC" means, unless otherwise specified, the Uniform Commercial Code as from time to time in effect in the State of New York. Annex 3 to the Collateral Trust and Intercreditor Agreement SUPPLEMENT NO. dated as of , to the COLLATERAL TRUST AND INTERCREDITOR AGREEMENT dated as of June 12, 2000 (the "Collateral Trust and Intercreditor Agreement"), among Rite Aid Corporation ("Rite Aid"), certain subsidiaries of Rite Aid (each a "Subsidiary Guarantor"), Wilmington Trust Company, a Delaware banking corporation, as Second Priority Collateral Trustee for the holders from time to time of the Second Priority Debt Obligations, Citicorp USA, Inc., a Delaware corporation, as Senior Collateral Agent for the Senior Secured Parties under the Senior Loan Documents, Morgan Guaranty Trust Company of New York, as administrative agent for the RCF Facility Parties under the RCF Facility Documents, the PCS Facility Parties under the PCS Facility Documents and the Exchange Debt Parties under the Exchange Debt Facility Documents, The Prudential Insurance Company of America, as Security Agent for the Finco Facility Parties under the Finco Facility Documents, State Street Bank and Trust Company, as trustee under the Exchange Note Indenture for the holders of the Exchange Notes, and The Sumitomo Bank, Limited, New York Branch, as collateral agent for the Synthetic Lease Parties under the Synthetic Lease Documents. A. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Collateral Trust and Intercreditor Agreement, including the Definitions Annex referred to therein. B. The Subsidiary Guarantors have entered into the Collateral Trust and Intercreditor Agreement. Pursuant to Section 5.08(a) of the Senior Credit Facility and certain provisions of the Second Priority Debt Documents, any subsequently acquired or organized Domestic Subsidiary of Rite Aid is required to enter into the Collateral Trust and Intercreditor Agreement. Section 9.11 of the Collateral Trust and Intercreditor Agreement provides that such Subsidiaries may become party to the Collateral Trust and Intercreditor Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary (the "New Subsidiary Guarantor") is executing this Supplement in accordance with the requirements of the Senior Credit Facility in order to induce the Senior Banks to make additional extensions of credit thereunder and as consideration for extensions of credit previously made, and in accordance with the requirements of the Second Priority Debt Documents. Accordingly, the Second Priority Collateral Trustee, the Senior Collateral Agent and the New Subsidiary Guarantor agree as follows: SECTION 1. In accordance with Section 9.11 of the Collateral Trust and Intercreditor Agreement, the New Subsidiary Guarantor by its signature below becomes a Subsidiary Guarantor under the Collateral Trust and Intercreditor Agreement with the same force and effect as if originally named therein as a Subsidiary Guarantor, and the New Subsidiary Guarantor hereby agrees to all the terms and provisions of the Collateral Trust and Intercreditor Agreement applicable to it as a Subsidiary Guarantor thereunder. Each reference to a "Subsidiary Guarantor" in the Collateral Trust and Intercreditor Agreement shall be deemed to include the New Subsidiary Guarantor. The Collateral Trust and Intercreditor Agreement is hereby incorporated herein by reference. SECTION 2. The New Subsidiary Guarantor represents and warrants to the Second Priority Collateral Trustee, the Senior Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. SECTION 3. This Supplement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when each of the Second Priority Collateral Trustee and the Collateral Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary Guarantor. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement. SECTION 4. Except as expressly supplemented hereby, the Collateral Trust and Intercreditor Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Collateral Trust and Intercreditor Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 9.02 of the Collateral Trust and Intercreditor Agreement. All communications and notices hereunder to the New Subsidiary Guarantor shall be given to it in care of Rite Aid as specified in the Collateral Trust and Intercreditor Agreement. SECTION 8. The New Subsidiary Guarantor agrees to reimburse each of the Second Priority Collateral Trustee and the Senior Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Second Priority Collateral Trustee and the Senior Collateral Agent. IN WITNESS WHEREOF, the New Subsidiary Guarantor, the Second Priority Collateral Trustee and the Senior Collateral Agent have duly executed this Supplement to the Collateral Trust and Intercreditor Agreement as of the day and year first above written. [NAME OF NEW SUBSIDIARY GUARANTOR], By________________________________ Name: Title: Authorized Signatory Acknowledged by: WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee, By________________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent, By________________________________ Name: Title: EX-10 7 0007.txt EXHIBIT 10.3 - SENIOR SUBSIDIARY SECURITY AGREEMENT Exhibit 10.3 EXECUTION COPY SENIOR SUBSIDIARY SECURITY AGREEMENT SENIOR SUBSIDIARY SECURITY AGREEMENT, dated as of June 12, 2000, made by the SUBSIDIARY GUARANTORS identified on the signature pages hereto and any other person that becomes a Subsidiary Guarantor pursuant to the Senior Credit Facility (as such term is defined below) (the "Grantors"), in favor of CITICORP USA, INC., a New York banking corporation, as collateral agent (in such capacity, the "Senior Collateral Agent") for the Senior Secured Parties. Reference is made to (a) the Senior Credit Agreement, dated as of June 12, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "Senior Credit Facility"), among Rite Aid, as Borrower, the Senior Banks parties thereto, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents and (b) the Independent Standby L/C Documents pursuant to which Mellon Bank and Citibank have issued and may in the future issue certain standby letters of credit. The Senior Banks have agreed to make Loans to the Borrower, and the Issuing Banks have agreed to issue Letters of Credit for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Senior Credit Facility. Mellon Bank and Citibank have issued and may in the future issue the Independent Standby Letters of Credit. Each of the Subsidiary Guarantors has agreed to guarantee, among other things, all the obligations of the Borrower under the Senior Credit Facility. The obligations of the Senior Banks to make Loans and of the Issuing Banks to issue Letters of Credit are conditioned upon, among other things, the execution and delivery by the Grantors of an agreement in the form hereof to secure the Senior Obligations. Accordingly, the Grantors and the Senior Collateral Agent, on behalf of itself and each Senior Secured Party (and each of their respective successors or assigns), hereby agree as follows: SECTION 1. Defined Terms. SECTION 1.01. Definitions. (a) Unless otherwise defined herein, terms used herein shall have the meanings given in the Definitions Annex attached as Annex 2 hereto, or if not defined therein, as defined in or by reference to the Senior Credit Facility, and the following terms which are defined in the Uniform Commercial Code in effect in the State of New York on the date hereof are used herein as so defined: Chattel Paper and Farm Products. (b) The following terms shall have the following meanings: "Account Debtor" includes "Account Debtor" as defined in the Senior Credit Facility and with respect to each Grantor means any person who is or may become obligated to any Grantor with respect to or on account of an Account. "Accounts" includes Accounts as defined in the Senior Credit Facility and means with respect to each Grantor, any and all right, title and interest of such Grantor to payment for goods and services sold, leased or rendered, including any such right evidenced by Chattel Paper, whether due or to become due, whether or not it has been earned or performed, and whether now or hereafter acquired or arising in the future, including, without limitation, accounts receivable from affiliates of such person, except that "Accounts" shalll not include Accounts owned by Affiliates not incorporated or otherwise organized in a state of United States of America. "Accounts Receivable" means with respect to each Grantor, all right, title and interest of such Grantor to Accounts and all of its right, title and interest in any returned goods, together with all rights, titles, securities and guaranties with respect thereto, including any rights to stoppage in transit, replevin, reclamation and resales, and all related security interests, liens and pledges, whether voluntary or involuntary in each case whether due or become due, whether now or hereafter arising in the future. "Agreement" means this Senior Subsidiary Security Agreement, as the same may be amended, modified or otherwise supplemented from time to time. "Blocked Account" means each of the accounts established by the applicable Grantors listed in Section 4 of Schedule 5 to this Agreement and maintained with a Blocked Account Bank pursuant to a Blocked Account Agreement. "Blocked Account Agreement" means any Blocked Account Agreement between the Senior Collateral Agent and a Blocked Account Bank substantially in the form of Schedule 6 to this Agreement. "Blocked Account Bank" means any bank or financial institution that is satisfactory to the Senior Collateral Agent that executes and delivers to the Senior Collateral Agent a Blocked Account Agreement. "Blocked Account Cash Sweep Notice" means a notice in the form attached as Exhibit A to the Blocked Account Agreement. "Cash Management Accounts" mean, collectively, (a) the Blocked Accounts, (b) the Deposit Accounts, (c) the Concentration Account and (d) the Citibank Concentration Accounts. "Cash Management System" means the system of cash management described in Schedule 5 to this Agreement. "Cash Sweep Cash Collateral Account" means the collateral account established as part of the Cash Management System at Citibank and under the sole dominion and control of the Senior Collateral Agent, Account No. 30429836. "Cash Sweep Notice" means (a) any Blocked Account Cash Sweep Notice and (b) the Concentration Account Cash Sweep Notice. "Cash Sweep Period" means any period in which funds are transferred from (a) any Blocked Account to the Concentration Account or any Citibank Concentration Account, as applicable, pursuant to a Blocked Account Cash Sweep Notice or (b) the Concentration Account to any Citibank Concentration Account pursuant to a Concentration Account Cash Sweep Notice. "Citibank Concentration Account" means the account established at Citibank and under sole dominion and control of the Senior Collateral Agent, Account No. 30429828, together with any similar account established at Citibank for the purpose of collecting funds during a Cash Sweep Period. "Concentration Account" means the account established at The Chase Manhattan Bank and maintained with the Concentration Account Bank pursuant to a Concentration Account Agreement, Account No. 9102750222. "Concentration Account Agreement" means a Concentration Account Agreement between any Subsidiary Guarantor, the Senior Collateral Agent and a bank or financial institution satisfactory to the Senior Collateral Agent substantially in the form of Schedule 9 to this Agreement. "Concentration Account Bank" means the bank or financial institution that is satisfactory to the Senior Collateral Agent that executes and delivers to the Senior Collateral Agent a Concentration Account Agreement. "Concentration Account Cash Sweep Notice" means a notice in the form attached as Exhibit A to the Concentration Account Agreement. "Contracts" means with respect to each Grantor, all rights of such Grantor under contracts and agreements to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same may from time to time be amended, supplemented or otherwise modified, including, without limitation, (a) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of such Grantor to damages arising out of, or for, breach or default in respect thereof and (c) all rights of such Grantor to exercise all remedies thereunder, in each case to the extent the grant by such Grantor of a security interest pursuant to this Agreement in its rights under such contract or agreement is not validly prohibited without the consent of any other Person, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from all such other Persons (it being understood that the foregoing shall not be deemed to obligate such Grantor to obtain such consents) in each case, to the extent that such Contract relates to any Accounts, Inventory or Intercompany Advances, provided, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any such Contract to the extent that an otherwise applicable prohibition on such grant is rendered ineffective by the Uniform Commercial Code . "Copyrights" means (a) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished (including, without limitation, those listed in Schedule 4), all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (b) the right to obtain all renewals thereof. "Copyright Licenses" means any written agreement naming any Grantor as licensor or licensee (including, without limitation, those listed in Schedule 4), granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright, and all rights of such Grantor under any such Agreement. "Deposit Account" means, collectively, (a) the Lockbox Account and (b) the Government Lockbox Account. "Documents" means with respect to each Grantor, all Instruments, files, records, ledger sheets, and documents covering or relating to any of the Accounts, General Intangibles, Inventory or Proceeds. "Event of Default" means an "Event of Default" as defined in any Senior Loan Document. "General Intangibles" means with respect to each Grantor, as defined in the Uniform Commercial Code in effect on the date hereof to the extent, in the case of any General Intangibles arising under any contract or agreement, that the grant by such Grantor of a security interest pursuant to this Agreement in its rights under such contract or agreement is not prohibited without the consent of any other person, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from all such other persons (it being understood that the foregoing shall not be deemed to obligate such Grantor to obtain such consents) in each case to the extent that such General Intangibles relate to the Accounts, Inventory or Intercompany Advances, provided, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any such General Intangible to the extent that an otherwise applicable prohibition on such grant is rendered ineffective by the Uniform Commercial Code, and provided, further, that "General Intangibles" shall not include any General Intangibles owned by an Affiliate not incorporated or otherwise organized in a state of the United States. "Government Lockbox Account" means the deposit account and corresponding lockbox established at Mellon Bank and maintained with a Government Lockbox Account Bank, Account No. 1037294. "Government Lockbox Account Agreement" means any Government Lockbox Account Agreement between the Senior Collateral Agent and a Government Lockbox Account Bank substantially in the form of Schedule 8 to this Agreement. "Government Lockbox Account Bank" means any bank or financial institution that is satisfactory to the Senior Collateral Agent that executes and delivers to the Senior Collateral Agent a Government Lockbox Account Agreement. "Indemnitee" means the Senior Secured Parties and their respective officers, directors, trustees, affiliates and controlling persons. "Instrument" means an Instrument as defined in the Uniform Commercial Code, insofar as such Instruments evidence Intercompany Advances, Accounts Receivable or proceeds of Inventory. "Intellectual Property" means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks, the Trademark Licenses, inventions, designs, trade secrets, confidential or proprietary technical and business information, know-how, show-how or other data or information, software and databases and all embodiments or fixations thereof, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "Intercompany Advances" means any advances or open accounts owing by the Borrower or any Subsidiary of the Borrower to any Grantor. "Inventory" means with respect to each Grantor, all right, title and interest of such Grantor in and to goods intended for sale or lease by such Grantor, or consumed in such Grantor's business (including, without limitation, all operating parts and supplies), together with all raw materials and finished goods, whether now owned or hereafter acquired or arising. "License" means any Patent License, Trademark License, Copyright License or other license or sublicense to which any Grantor is a party, including those listed on Schedule 4 (other than those license agreements in existence on the date hereof and listed on Schedule 4 and those license agreements entered into after the date hereof, which by their terms prohibit assignment or a grant of a security interest by such Grantor as licensee thereunder). "Lockbox Account" means the deposit account and corresponding lockbox established at Mellon Bank and maintained with the Lockbox Account Bank pursuant to a Lockbox Account Agreement, Account No. 0693636. "Lockbox Account Agreement" means any Lockbox Account Agreement between the Senior Collateral Agent and a Lockbox Account Bank substantially in the form of Schedule 7 to this Agreement. "Lockbox Account Bank" means any bank or financial institution that is satisfactory to the Senior Collateral Agent that executes and delivers to the Senior Collateral Agent a Lockbox Account Agreement. "Patents" means (a) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, including, without limitation, any of the foregoing referred to in Schedule 4, (b) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including, without limitation, any of the foregoing referred to in Schedule 4, and (c) all rights to obtain any reissues or extensions of the foregoing. "Patent License" means all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent, including, without limitation, any of the foregoing referred to in Schedule 4. "Proceeds" means with respect to each Grantor, any consideration received from the sale, exchange, collection or other disposition of any asset or property which constitutes Senior Collateral, any value received as a consequence of the possession of any Senior Collateral and any payment received from any insurer or other Person or entity as a result of the destruction, loss, theft, damage or other involuntary conversion of whatever nature of any asset or property which constitutes Senior Collateral, and shall include, without limitation, (a) all cash and negotiable instruments received or held on behalf of the Senior Collateral Agent pursuant to Section 5.03, (b) any claim of such Grantor against a third party for (and the right to sue and recover for and the rights to damages or profits due or accrued arising out of or in connection with) (i) past, present or future infringement of any Patent now or hereafter owned by any Grantor, or licensed under a Patent License, (ii) past, present or future infringement or dilution of any Trademark now or hereafter owned by any Grantor or licensed under a Trademark License or injury to the goodwill associated with or symbolized by any Trademark now or hereafter owned by any Grantor and (iii) past, present or future infringement of any Copyright now or hereafter owned by any Grantor or licensed under a Copyright License and (c) any and all amounts from time to time paid or payable under or in connection with any of the Senior Collateral. "Senior Collateral" is defined in Section 2 of this Agreement. "Senior Collateral Account" means any collateral account established by the Senior Collateral Agent as provided in Section 5.03 or Section 8.02. "Trademarks" means (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, including, without limitation, any of the foregoing referred to in Schedule 4, and (b) the right to obtain all renewals thereof. "Trademark License" means any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including, without limitation, any of the foregoing referred to in Schedule 4. SECTION 1.2. Other Definitional Provisions. (a) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. Grant of Security Interest. As collateral security for the prompt and complete payment and performance when due, whether at the stated maturity, by acceleration, upon one or more dates set for prepayment or otherwise of the obligations of each Grantor under the Senior Subsidiary Guarantee Agreement, such Grantor hereby grants to the Senior Collateral Agent, for the ratable benefit of the Senior Secured Parties, a security interest in all of the following property now owned or at any time hereafter acquired by such Grantor (collectively, with respect to each Grantor, the "Senior Collateral"): (a) the Accounts Receivable and Chattel Paper; (b) the Cash Management Accounts and the cash on deposit therein; (c) all Contracts; (d) all Documents; (e) all General Intangibles; (f) all Instruments; (g) all Intellectual Property; (h) all Inventory; (i) all books and records pertaining to any and all of the foregoing and item (j) herein; and (j) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. Nothing contained in this Section 2 is intended to limit any Grantor's rights to create Permitted Liens (as defined below). "Senior Collateral" shall not include (i) any contract, lease or license, which, by its terms, validly prohibits the granting of a security interest therein unless a consent to the pledge hereunder has been obtained, provided that each Grantor will use commercially reasonable efforts to obtain any consent necessary thereunder to permit the pledge hereunder, and provided, further, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any such Senior Collateral to the extent that an otherwise applicable prohibition on such grant is rendered ineffective by the Uniform Commercial Code or (ii) the Exchange Debt First Priority Collateral. Furthermore, Senior Collateral shall not include any property specified in Section 2(g) above if the granting of a security interest therein would jeopardize the Grantor's rights in any pending intent-to-use applications for Federal Trademark registration. Such security interests are granted as security only and shall not subject any Senior Secured Party to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of the Senior Collateral. SECTION 3. Representations and Warranties. Each Grantor hereby represents and warrants, as to itself and the Senior Collateral in which the security interest is created hereunder, that: SECTION 3.01. Title; No Other Liens. Except for the security interest granted to the Senior Collateral Agent for the ratable benefit of the Senior Secured Parties pursuant to this Agreement and the other Liens permitted to exist pursuant to the Senior Credit Facility (the "Permitted Liens"), each Grantor owns each item of the Senior Collateral free and clear of any and all Liens or claims of others (or arrangements reasonably satisfactory to the Senior Collateral Agent have been made for the timely release or discharge of such Liens). No security agreement, financing statement or other public notice with respect to all or any part of such Senior Collateral is on file or of record in any public office, except such as have been filed or will be filed, pursuant to this Agreement, in favor of the Senior Collateral Agent, for the ratable benefit of the Senior Secured Parties, or in respect of Permitted Liens (or arrangements reasonably satisfactory to the Senior Collateral Agent have been made for the timely termination of such agreement or financing statement). Further, no Grantor has intentionally entered into any contract, lease or license in anticipation of this Agreement, which by its terms, validly prohibits the granting of a security interest herein. SECTION 3.02. Enforceable Obligation; Perfected, First Priority Security Interests. This Agreement constitutes a legal, valid and binding obligation of each Grantor, enforceable against such Grantor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), and the security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified in Schedule 1 hereto (or in the case of Instruments, delivery to the Senior Collateral Agent or its designee) shall constitute fully perfected security interests in the Senior Collateral in favor of the Senior Collateral Agent for the ratable benefit of the Senior Secured Parties, and (b) are prior and superior in right to all other Liens (other than Permitted Liens, to the extent that such Permitted Liens are expressly permitted by the Senior Loan Documents to have priority) on the Senior Collateral in existence on the date hereof. SECTION 3.03. Inventory. The Inventory owned by such Grantor are kept at the locations listed in Schedule 2 hereto, which shall be updated from time to time in accordance with Section 4.05 of this Agreement, or at such other locations as shall be permitted by Section 4.04. SECTION 3.04. Chief Executive Office; Jurisdiction of Incorporation. As of the Closing Date, each Grantor's chief executive office, principal place of business and jurisdiction of incorporation is located at the locations listed in Schedule 10 hereto. SECTION 3.05. Farm Products. None of the Senior Collateral constitutes, or is the Proceeds of, Farm Products (as such term is defined in the Uniform Commercial Code). SECTION 3.06. Intellectual Property. (a) Schedule 4 lists all Intellectual Property owned (and registered with the U.S. Copyright Office or the U.S. Patent and Trademark Office) or licensed by such Grantor in its own name on the date hereof. (b) On the date hereof, based on information known, or reasonably available to such Grantor, all Intellectual Property material to the conduct of such Grantor's business is valid, subsisting, unexpired and enforceable, has not been abandoned and does not infringe the intellectual property rights of any other person. (c) Except as set forth in Schedule 4, on the date hereof, none of the Intellectual Property is the subject of any licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor. (d) On the date hereof, based on information known, or reasonably available to such Grantor, no holding decision or judgment has been rendered by any Governmental Authority which would materially limit, cancel or question the validity of, or such Grantor's rights in, any Intellectual Property in any respect that could reasonably be expected to have a Material Adverse Effect. (e) Except as set forth on Schedule 4, on the date hereof, no action or proceeding is pending, or, to the knowledge of such Grantor, threatened, on the date hereof (i) seeking to materially limit, cancel or question the validity of any Intellectual Property material to the conduct of such Grantor's business or such Grantor's ownership interest therein, or (ii) which, if adversely determined, would have a material adverse effect on the value of any Intellectual Property. SECTION 4. Covenants. Each Grantor covenants and agrees with the Senior Secured Parties that, from and after the date of this Agreement until this Agreement is terminated and the security interests created hereby are released: SECTION 4.01. Delivery of Instruments. If an Intercompany Advance owned by such Grantor shall be or become evidenced by any promissory note, or other Instrument, upon the request of the Senior Collateral Agent, such promissory note, or other Instrument shall be immediately delivered to the Senior Collateral Agent, duly indorsed in a manner reasonably satisfactory to the Senior Collateral Agent, to be held as Senior Collateral pursuant to this Agreement. SECTION 4.02. Maintenance of Insurance. Each Grantor shall maintain insurance policies in accordance with the requirements of Section 5.03 of the Senior Credit Facility. SECTION 4.03. Maintenance of Perfected Security Interest; Further Documentation. (a) Each Grantor shall cause all filings and other actions listed in Schedule 1 to be taken. Each Grantor shall maintain the security interests created by this Agreement as first priority perfected security interests subject only to Permitted Liens, to the extent such Permitted Liens are expressly permitted by the Senior Loan Documents to have priority, and shall defend such security interests against all claims and demands of all persons whomsoever (other than those pursuant to Permitted Liens). (b) At any time and from time to time, upon the written request of the Senior Collateral Agent, and at the sole expense of a Grantor, such Grantor shall promptly and duly execute and deliver such further instruments and documents and take such further action as the Senior Collateral Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the security interests created hereby. (c) No Grantor shall intentionally enter into any contract, lease or license in contemplation of this Agreement, which by its terms would validly prohibit the grant of a security interest herein. SECTION 4.04. Changes in Locations, Name, etc. A Grantor shall not, except (x) upon prior written notice to the Senior Collateral Agent and delivery to the Senior Collateral Agent of a written supplement to Schedule 2 showing the additional location or locations at which Inventory shall be kept, and (y) if filings under the Uniform Commercial Code or otherwise have been made which maintain in favor of the Senior Collateral Agent a valid, legal and perfected security interest in the Senior Collateral subject to no liens, other than Permitted Liens, (a) permit any of the Inventory to be kept at a location other than those listed in Schedule 2 hereto, except for Inventory in transit between locations described in this paragraph (a); (b) change the location of its chief executive office, principal place of business and jurisdiction of incorporation from that specified in Schedule 10 hereto; or (c) change its (i) corporate name or any trade name used to identify it in its conduct of business or in the ownership of its properties, (ii) identity or (iii) corporate structure to such an extent that any financing statement filed in favor of the Senior Collateral Agent in connection with this Agreement would become seriously misleading. SECTION 4.05. Further Identification of Senior Collateral. Each Grantor shall furnish to the Senior Collateral Agent from time to time statements and schedules further identifying and describing the Senior Collateral and such other reports in connection with such Senior Collateral as the Senior Collateral Agent may reasonably request, all in reasonable detail. SECTION 4.06. Notices. A Grantor shall advise the Senior Collateral Agent promptly, in reasonable detail, in accordance with Section 13 hereto, of: (a) any Lien (other than security interests created hereby or Permitted Liens) on any material portion of the Senior Collateral; and (b) the occurrence of any other event which could reasonably be expected to have a material adverse effect on the security interests created hereby or on the aggregate value of the Senior Collateral. SECTION 4.07. Senior Collateral Agent's Liabilities and Expenses; Indemnification. (a) Notwithstanding anything to the contrary provided herein, neither the Senior Collateral Agent nor any other Senior Secured Party assumes any liabilities with respect to any claims regarding each Grantor's ownership (or purported ownership) of, or rights or obligations (or purported rights or obligations) arising from, the Senior Collateral or any use (or actual or alleged misuse) whether arising out of any past, current or future event, circumstance, act or omission or otherwise, or any claim, suit, loss, damage, expense or liability of any kind or nature arising out of or in connection with the Senior Collateral or the production, marketing, delivery, sale or provision of goods or services under or in connection with any of the Senior Collateral. All of such liabilities shall, as between the Senior Collateral Agent, the Senior Secured Parties and the Grantors, be borne exclusively by the Grantors unless such liability arises from the gross negligence or willful misconduct of the Senior Collateral Agent or any Senior Secured Party. (b) Each Grantor hereby agrees to pay all reasonable expenses of the Senior Collateral Agent and the other Senior Secured Parties and to indemnify the Senior Collateral Agent and the other Senior Secured Parties with respect to any and all losses, claims, damages, liabilities and related expenses in respect of this Agreement or the Senior Collateral in each case to the extent and under the circumstances the Borrower is required to do so pursuant to Section 9.03 of the Senior Credit Facility. (c) Any amounts payable as provided hereunder shall be additional Senior Obligations secured hereby and by the other Senior Collateral Documents. Without prejudice to the survival of any other agreements contained herein, all indemnification and reimbursement obligations contained herein shall survive the Senior Obligation Payment Date and the termination of this Agreement. SECTION 4.08. Intellectual Property. (a) Each relevant Grantor (either itself or through licensees) will (i) continue to use each Trademark material to the conduct of such Grantor's business, to the extent that such Grantor's business operations continue as to the said goods and/or services (subject to such Grantor's reasonable business judgment), sufficient to avoid unintentional abandonment of any rights in such Trademarks, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable law, (iv) not knowingly adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Senior Collateral Agent, for the ratable benefit of the Senior Secured Parties, shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not knowingly (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark material to the conduct of Grantor's business may become invalidated or impaired in any way. (b) Such Grantor (either itself or through licensees) will not do any act, or omit to do any act, whereby any Patent material to the conduct of Grantor's business may become forfeited, abandoned or dedicated to the public. (c) Such Grantor (either itself or through licensees) will not knowingly (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any portion of the Copyrights material to the conduct of Grantor's business may become invalidated or otherwise impaired or fall into the public domain. (d) Such Grantor (either itself or through licensees) will not do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other person. (e) In a status report provided to the Senior Collateral Agent on a quarterly basis ("Quarterly Status Report"), such Grantor will indicate whether any application or registration relating to any material Intellectual Property has been forfeited, abandoned or dedicated to the public, or of any such determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor's ownership of, or the validity of, any material Intellectual Property or such Grantor's right to register the same or to own and maintain the same. (f) In the Quarterly Status Report provided to the Senior Collateral Agent pursuant to Section 4.08(e), such Grantor will report whenever such Grantor, either by itself or through any agent, employee, licensee or designee, has filed an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof. Upon request of the Senior Collateral Agent, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Senior Collateral Agent may request to evidence the Senior Collateral Agent's and Senior Secured Parties' security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. (g) Such Grantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the Intellectual Property material to the conduct of Grantor's business, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability. (h) In the event that any Intellectual Property material to the conduct of Grantor's business is infringed, misappropriated or diluted by a third party, such Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Senior Collateral Agent after it learns thereof and take all reasonable steps to protect its interests, which may include bringing suit for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution. SECTION 4.09. Cash Management System. (a) The Grantors shall at all times maintain, and each Subsidiary Guarantor shall comply with its obligations under, the Cash Management System. (b) Each Grantor shall use its commercially reasonable efforts to cause any applicable third party to effectuate the Cash Management System. SECTION 5. Provisions Relating to Accounts. SECTION 5.01. Grantors Remain Liable under Accounts. Anything herein to the contrary notwithstanding, a Grantor shall remain liable under each of the Accounts to observe and perform all the material conditions and material obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account. No Senior Secured Party shall have any obligation or liability under any Account (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Senior Collateral Agent or any Senior Secured Party of any payment relating to such Account pursuant hereto, nor shall any Senior Secured Party be obligated in any manner to perform any of the obligations of a Grantor under or pursuant to any Account (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. SECTION 5.02. Analysis of Accounts. In addition to its rights under the Senior Credit Facility, the Senior Collateral Agent shall have the right upon the occurrence and during the continuance of an Event of Default to make test verifications of the Accounts in any manner and through any medium that it considers reasonably advisable, and each Grantor shall furnish all such assistance and information as the Senior Collateral Agent may reasonably require in connection with such test verifications. At any time and from time to time upon the occurrence and during the continuance of an Event of Default, upon the Senior Collateral Agent's reasonable request and at the expense of each Grantor, each Grantor shall immediately request and use commercially reasonable efforts to cause independent public accountants or others reasonably satisfactory to the Senior Collateral Agent to furnish to the Senior Collateral Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts. Upon the occurrence and during the continuance of an Event of Default, the Senior Collateral Agent in its own name or in the name of others may communicate with Account Debtors on the Accounts to verify with them to the Senior Collateral Agent's reasonable satisfaction the existence, amount and terms of any Accounts and to direct all payments to the Senior Collateral Agent. To the extent reasonably practicable the Senior Collateral Agent will seek to take such actions through third parties. SECTION 5.03. Collections on Accounts. (a) The Senior Collateral Agent hereby authorizes each Grantor to collect the Accounts, and the Senior Collateral Agent may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default. If required by the Senior Collateral Agent at any time after the occurrence and during the continuance of an Event of Default, any payments of Accounts, when collected by a Grantor during the continuance of such an Event of Default, (i) shall be forthwith (and, in any event, within two Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Senior Collateral Agent if required, in a Senior Collateral Account maintained under the sole dominion and control of and on terms and conditions reasonably satisfactory to the Senior Collateral Agent, subject to withdrawal by the Senior Collateral Agent as provided in Section 8.03, and (ii) until so turned over, shall be held by such Grantor in trust for the Senior Secured Parties, segregated from other funds of such Grantor. (b) At the Senior Collateral Agent's request after the occurrence and during the continuance of an Event of Default, each Grantor shall deliver to the Senior Collateral Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Accounts, including, without limitation, all original orders, invoices and shipping receipts. SECTION 5.04. Representations and Warranties. As of the Closing Date, the place where each Grantor keeps its records concerning the Accounts is at the location listed in Schedule 3 hereto. SECTION 5.05. Covenants. (a) The amount represented by each Grantor to the Senior Secured Parties from time to time as owing by each account debtor or by all Account Debtors in respect of the Accounts shall at such time be in all material respects the correct amount actually owing by such Account Debtor or debtors thereunder. (b) Upon the occurrence and during the continuance of an Event of Default, a Grantor shall not grant any extension of the time of payment of any of the Accounts Receivable, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any person liable for the payment thereof, or allow any credit or discount whatsoever thereon other than extensions, credits, discounts, compromises or settlements granted or made in the ordinary course of business. (c) Unless a Grantor shall deliver prior written notice, identifying the change of location for its books and records, such Grantor shall not remove its books and records from the location specified in Schedule 3. SECTION 6. [Intentionally Reserved] SECTION 7. Provisions Relating to Contracts. SECTION 7.01. Grantors Remain Liable under Contracts. Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each Contract to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with and pursuant to the terms and provisions of such Contract. No Senior Secured Party shall have any obligation or liability under any Contract by reason of or arising out of this Agreement or the receipt by any such Senior Secured Party of any payment relating to such Contract pursuant hereto, nor shall any Senior Secured Party be obligated in any manner to perform any of the obligations of a Grantor under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. SECTION 7.02. Communication With Contracting Parties. Upon the occurrence and during the continuance of an Event of Default, the Senior Collateral Agent in its own name or in the name of its nominee may communicate with parties to the Contracts to verify with them to the Senior Collateral Agent's reasonable satisfaction the existence, amount and terms of any Contracts. To the extent reasonably practicable the Senior Collateral Agent will seek to take such actions through third parties. SECTION 8. Remedies. SECTION 8.01. Notice to Account Debtors and Contract Parties. Upon the request of the Senior Collateral Agent at any time after the occurrence and during the continuance of an Event of Default, a Grantor shall notify Account Debtors on the Accounts and parties to the Contracts that the Accounts and the Contracts have been assigned to the Senior Collateral Agent for the ratable benefit of the Senior Secured Parties and that payments in respect thereof during the continuance of such an Event of Default shall be made directly to the Senior Collateral Agent. SECTION 8.02. Proceeds to be Turned Over To Senior Collateral Agent. In addition to the rights of the Senior Collateral Agent and the Senior Secured Parties specified in Section 5.03 with respect to payments of Accounts, if an Event of Default shall occur and be continuing all Proceeds received by a Grantor consisting of cash, checks and other near-cash items shall upon the Senior Collateral Agent's request be held by such Grantor in trust for the Senior Secured Parties, segregated from other funds of such Grantor, and shall, upon the Senior Collateral Agent's request (it being understood that the exercise of remedies by the Senior Secured Parties in connection with an Event of Default under Section 6.01(g) and Section 6.01(h) of the Senior Credit Facility shall be deemed to constitute a request by the Senior Collateral Agent for the purposes of this sentence) forthwith upon receipt by such Grantor, be turned over to the Senior Collateral Agent in the exact form received by such Grantor (duly indorsed by such Grantor to the Senior Collateral Agent, if required) and held by the Senior Collateral Agent in a Senior Collateral Account maintained under the sole dominion and control of the Senior Collateral Agent and on terms and conditions reasonably satisfactory to the Senior Collateral Agent. All Proceeds while held by the Senior Collateral Agent in a Senior Collateral Account (or by such Grantor in trust for the Senior Collateral Agent and the Senior Secured Parties) shall subject to Section 8.03 continue to be held as collateral security for all the Senior Obligations and shall not constitute payment thereof until applied as provided in Section 8.03. SECTION 8.03. Application of Proceeds. (a) So long as the Collateral Trust and Intercreditor Agreement is in effect, following a Triggering Event (as defined therein), the proceeds of any sale or other realization upon any Collateral will be applied as set forth in the Collateral Trust and Intercreditor Agreement. (b) At all times when the Collateral Trust and Intercreditor Agreement is not in effect, the proceeds of any sale or other realization upon any Collateral following an Event of Default will be applied as soon as practicable after receipt as follows: FIRST: to the Senior Collateral Agent in an amount equal to the fees and expenses of the Senior Collateral Agent pursuant to this Agreement and the Senior Credit Facility that are unpaid as of the applicable date of receipt of such proceeds, and to any Senior Secured Party which has theretofore advanced or paid any such fees and expenses of the Senior Collateral Agent in an amount equal to the amount thereof so advanced or paid by such Senior Secured Party pro rata based on the amount of such fees and expenses (or such advances or payment); SECOND: to the Senior Collateral Agent to reimburse any amounts owing to the Senior Collateral Agent pursuant to Section 9.03; THIRD: to the Senior Collateral Agent, for distribution to the Senior Secured Parties to be applied to the payment of the Senior Obligations then due and owing, pro rata based on the amount of Senior Obligations then due and owing (after giving effect to any payments previously made under this Section), until all of the Senior Obligations then due and owing have been paid in full; and FOURTH: after payment in full of all Senior Obligations, to Rite Aid and the Grantors or their successors or assigns, as their interests may appear, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. SECTION 8.04. Uniform Commercial Code Remedies. If an Event of Default shall have occurred and be continuing, the Senior Collateral Agent, on behalf of the Senior Secured Parties may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Senior Obligations, all rights and remedies of a senior secured party under the Uniform Commercial Code. Without limiting the generality of the foregoing, the Senior Collateral Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon a Grantor or any other person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Senior Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Senior Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of any Senior Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Any Senior Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Senior Collateral so sold, free of (to the extent permitted by law) any right or equity of redemption in a Grantor, which right or equity is hereby, to the extent permitted by law, waived or released. Each Grantor further agrees, at the Senior Collateral Agent's request, to assemble the Senior Collateral and make it available to the Senior Collateral Agent at places which the Senior Collateral Agent shall reasonably select, whether at such Grantor's premises or elsewhere. The Senior Collateral Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses incurred therein or incidental to the care or safekeeping of any of such Senior Collateral or reasonably relating to such Senior Collateral or the rights of the Senior Collateral Agent and the Senior Secured Parties hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Senior Obligations, in accordance with Section 8.03, and only after such application and after the payment by the Senior Collateral Agent of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the Uniform Commercial Code, need the Senior Collateral Agent account for the surplus, if any, to such Grantor. If any notice of a proposed sale or other disposition of such Senior Collateral shall be required by law, such notice shall be in writing and deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Senior Collateral Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of the Senior Collateral by the Senior Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Senior Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Senior Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Senior Collateral Agent or such officer or be answerable in any way for the misapplication thereof. SECTION 8.05. Grant of License to Use Intellectual Property. For the purpose of enabling the Senior Collateral Agent to exercise rights and remedies under this Article at such time as the Senior Collateral Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Senior Collateral Agent an irrevocable, non- exclusive license (exercisable without payment of royalty or other compensation to the Grantors) to use, license or sub-license any of the Senior Collateral consisting of Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. The use of such license by the Senior Collateral Agent shall be exercised, at the option of the Senior Collateral Agent, solely upon the occurrence and during the continuation of an Event of Default; provided that any license, sub-license or other transaction entered into by the Senior Collateral Agent in accordance herewith shall be binding upon the Grantors notwithstanding any subsequent cure of an Event of Default. SECTION 8.06. Waiver; Deficiency. Each Grantor waives and agrees not to assert any rights or privileges it may acquire under Section 9-112 of the Uniform Commercial Code. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Senior Collateral are insufficient to pay the Senior Obligations and the reasonable fees and disbursements of any attorneys employed by any Senior Secured Party to collect such deficiency. SECTION 8.07. Cash Sweep Remedies. The Senior Collateral Agent, on behalf of the Senior Secured Parties is entitled to exercise all rights and remedies granted to them in respect of the Cash Management Accounts in accordance with Schedule 5 of this Agreement. SECTION 9. Senior Collateral Agent's Appointment as Attorney-in-Fact; Senior Collateral Agent's Performance of Grantors' Obligations. SECTION 9.01. Powers. Each Grantor hereby irrevocably constitutes and appoints the Senior Collateral Agent and any officer or agent thereof, with full power of substitution, during the continuance of an Event of Default, as its true and lawful attorney-in-fact, with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name from time to time in the Senior Collateral Agent's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, such Grantor hereby gives the Senior Collateral Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do the following upon the occurrence and during the continuance of an Event of Default: (a) in the name of such Grantor or its own name, or otherwise, to take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account, Instrument, General Intangible or Contract or with respect to any other Senior Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Senior Collateral Agent for the purpose of collecting any and all such moneys due under any Account, Instrument, General Intangible or Contract or with respect to any other Senior Collateral whenever payable; (b) in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Senior Collateral Agent may request to evidence the Senior Collateral Agent's and the Senior Secured Parties' security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby; (c) to pay or discharge taxes and Liens levied or placed on or threatened against the Senior Collateral (other than Permitted Liens), to effect any repairs or any insurance called for by the terms of this Agreement and to pay all or any part of the premiums therefor and the costs thereof; (d) to execute, in connection with any sale provided for in Section 8.04 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Senior Collateral; (e)(i) to direct any party liable for any payment under any of the Senior Collateral to make payment of any and all moneys due or to become due thereunder directly to the Senior Collateral Agent or as the Senior Collateral Agent shall direct; (ii) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Senior Collateral; (iii) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Senior Collateral; (iv) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Senior Collateral or any thereof and to enforce any other right in respect of any Senior Collateral; (v) to defend any suit, action or proceeding brought against any Grantor with respect to any Senior Collateral; (vi) to settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, to give such discharges or releases as the Senior Collateral Agent may deem appropriate; (vii) to the extent permitted by applicable law, assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains); and (viii) generally, to use, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Senior Collateral as fully and completely as though the Senior Collateral Agent were the absolute owner thereof for all purposes, and to do, at the Senior Collateral Agent's option and at the expense of such Grantor, at any time, or from time to time, all acts and things which the Senior Collateral Agent reasonably deems necessary to protect, preserve or realize upon such Senior Collateral and the Senior Collateral Agent's and the Senior Secured Parties' security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do; and (f) to file any Uniform Commercial Code financing statement, or to take such other steps, required to perfect or confirm the perfection of any security interest described herein. SECTION 9.02. Performance by Senior Collateral Agent of Grantor's Obligations. If any Grantor fails to perform or comply with any of its agreements contained herein, the Senior Collateral Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. SECTION 9.03. Grantor's Reimbursement Obligation. The expenses of the Senior Collateral Agent and any other Senior Secured Party, as applicable, reasonably incurred in connection with actions undertaken as provided in this Section 9, together with interest thereon at a rate per annum equal to the default rate of interest set forth in Section 2.07 of the Senior Credit Facility, from the date payment is demanded by the Senior Collateral Agent to the date reimbursed by such Grantor, shall be payable by the Borrower to the Senior Collateral Agent on demand. SECTION 9.04. Ratification; Power Coupled With An Interest. Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. SECTION 10. Duty of Senior Collateral Agent. The Senior Collateral Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Senior Collateral in its possession, under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to deal with it in the same manner as the Senior Collateral Agent deals with similar property for its own account. No Senior Secured Party nor any of its respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Senior Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Senior Collateral upon the request of a Grantor or any other person or to take any other action whatsoever with regard to the Senior Collateral or any part thereof. The powers conferred on the Senior Secured Parties hereunder are solely to protect the Senior Secured Parties' interests in the Senior Collateral and shall not impose any duty upon any Senior Secured Party to exercise any such powers. The Senior Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or wilful misconduct. SECTION 11. Execution of Financing Statements. Pursuant to Section 9-402 of the Uniform Commercial Code, each Grantor authorizes the Senior Collateral Agent to file financing statements with respect to the Senior Collateral without the signature of such Grantor in such form and in such filing offices as the Senior Collateral Agent reasonably determines appropriate to perfect the security interests of the Senior Collateral Agent under this Agreement. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. SECTION 12. Authority of Senior Collateral Agent. Each Grantor acknowledges that the rights and responsibilities of the Senior Collateral Agent under this Agreement with respect to any action taken by the Senior Collateral Agent or the exercise or non-exercise by the Senior Collateral Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Senior Collateral Agent and the other Senior Secured Parties, be governed by the Senior Credit Facility and by such other agreements with respect thereto as may exist from time to time among them but, as between the Senior Collateral Agent and the Grantors, the Senior Collateral Agent shall be conclusively presumed to be acting as agent for the other Senior Secured Parties with full and valid authority so to act or refrain from acting. SECTION 13. Notices. All notices, requests and demands to or upon the Senior Secured Parties or the Grantors under this Agreement shall be given or made in accordance with Section 9.01 of the Senior Credit Facility and addressed as follows: (a) if to the Senior Collateral Agent, in accordance with Section 9.01 of the Senior Credit Facility; (b) if to any Grantor, c/o the Borrower at the address of the Borrower specified in Annex 2 Senior Credit Facility. SECTION 14. Security Interest Absolute. All rights of the Senior Collateral Agent hereunder, the security interest and all obligations of the Grantors hereunder shall be absolute and unconditional. SECTION 15. Survival of Agreement. All covenants, agreements, representations and warranties made by any Grantor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Senior Loan Document shall be considered to have been relied upon by the Senior Secured Parties and shall survive the making by the Senior Banks of the Loans, the execution and delivery to the Senior Banks of the Senior Loan Documents and the issuance of any Letters of Credit, regardless of any investigation made by the Senior Secured Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or L/C Disbursement, or any other Senior Obligation is outstanding and unpaid and so long as any Letter of Credit or Independent Standby Letter of Credit is outstanding and so long as the Commitments have not been terminated. SECTION 16. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER SENIOR LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 16. SECTION 17. Jurisdiction; Consent to Service of Process. (a) Each Grantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Senior Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Obligor or any Senior Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Senior Loan Documents against any Grantor or any Senior Secured Party or its properties in the courts of any jurisdiction. (b) Each Grantor and each Senior Secured Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Senior Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 13. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 18. Release. (a) This Agreement and the security interest created hereunder shall terminate when all Senior Obligations have been fully and indefeasibly paid and when the Senior Secured Parties have no further Commitments under the Senior Credit Facility and no Letters of Credit or Independent Standby Letters of Credit are outstanding, at which time the Senior Collateral Agent shall execute and deliver to each Grantor, or to such person or persons as such Grantor shall reasonably designate, all Uniform Commercial Code termination statements and similar documents prepared by such Grantor at its expense which such Grantor shall reasonably request to evidence such termination. Any execution and delivery of termination statements or documents pursuant to this Section 18(a) shall be without recourse to or warranty by the Senior Collateral Agent. (b) All Senior Collateral used, sold, transferred or otherwise disposed of in accordance with the terms of the Senior Credit Facility and the Collateral Trust and Intercreditor Agreement (including pursuant to a waiver or amendment of the terms thereof) shall be used, sold, transferred or otherwise disposed of free and clear of the Lien and the security interest created hereunder. In connection with the foregoing, (i) the Senior Collateral Agent shall execute and deliver to each Grantor, or to such person or persons as such Grantor shall reasonably designate, all Uniform Commercial Code termination statements and similar documents prepared by such Grantor at its expense which such Grantor shall reasonably request to evidence the release of the Lien and security interest created hereunder with respect to such Senior Collateral and (ii) any representation, warranty or covenant contained herein relating to such Senior Collateral shall no longer be deemed to be made with respect to such used, sold, transferred or otherwise disposed Senior Collateral. SECTION 19. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties hereunder shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 20. Amendments in Writing; No Waiver. (a) None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Grantors and the Senior Collateral Agent, provided that any provision of this Agreement may be waived by the Majority Senior Parties pursuant to a letter or agreement executed by the Senior Collateral Agent or by telecopy transmission from the Senior Collateral Agent, except any amendment or waiver which materially adversely affects the Independent Standby L/C Parties under this Agreement will require the additional consent of the Independent Standby L/C Parties pursuant to a letter or agreement by the Independent Standby L/C Parties or by telecopy transmission from the Independent Standby L/C Parties. (b) No Senior Secured Party shall by any act (except by a written instrument pursuant to Section 20 hereof) or delay be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of any Senior Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by any Senior Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such Senior Secured Party would otherwise have on any future occasion. SECTION 21. Remedies Cumulative. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. SECTION 22. Section Headings. The section and Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. SECTION 23. Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of each Grantor and the Senior Secured Parties and their successors and assigns, provided that this Agreement may not be assigned by any Grantor without the prior written consent of the Senior Collateral Agent. SECTION 24. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. SECTION 25. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract. SECTION 26. Additional Grantors. Pursuant to Section 5.08 of the Senior Credit Facility, each Domestic Subsidiary that was not in existence or not a Domestic Subsidiary on the date thereof is required to enter into this Agreement as a Grantor upon becoming a Domestic Subsidiary. Upon execution and delivery, after the date hereof, by the Senior Collateral Agent and such Domestic Subsidiary of an instrument in the form of Annex 1, such Domestic Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor hereunder. The execution and delivery of any such instrument shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement. SECTION 27. Patient Confidentiality. The Senior Collateral Agent hereby agrees on behalf of itself and each Senior Secured Party and any of their designees and assigns to, and shall take all reasonable steps to, comply with all applicable state or federal laws or administrative regulations regarding the confidentiality of patient records and patient medical information it receives in connection with the transactions described in this Agreement. SECTION 28. Collateral Trust and Intercreditor Agreement. Notwithstanding anything herein to the contrary, the terms of this Agreement, and the rights of the Senior Collateral Agent and the Senior Secured Parties hereunder, are subject to the Collateral Trust and Intercreditor Agreement. IN WITNESS WHEREOF, the undersigned has caused this Senior Subsidiary Security Agreement to be duly executed and delivered as of the date first above written. CITICORP USA, INC., as Senior Collateral Agent, By________________________________ Name: Title: THRIFTY PAYLESS, INC., as a Grantor, By________________________________ Name: Title: PCS HEALTH SYSTEMS, INC., as a Grantor, By________________________________ Name: Title: EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE A HERETO, as Grantors, By________________________________ Name: Title: Schedules: - --------- Annex 1 Supplement Annex 2 Definitions Annex Schedule A Subsidiary Guarantors Schedule 1 Filings and Other Actions Required to Perfect Security Interests Schedule 2 Inventory Schedule 3 Records of Accounts Schedule 4 Copyrights and Copyright Licenses; Patents and Patent Licenses; and Trademarks and Trademark Licenses Schedule 5 Cash Management System Schedule 6 Form of Blocked Account Agreement Schedule 7 Form of Lockbox Account Agreement Schedule 8 Form of Government Lockbox Account Agreement Schedule 9 Form of Concentration Agreement Schedule 10 Perfection Certificate Annex 1 to the Senior Subsidiary Security Agreement SUPPLEMENT NO. dated as of [ ] (this "Supplement") to the Senior Subsidiary Security Agreement dated as of June 12, 2000 (the "Senior Subsidiary Security Agreement"), between the SUBSIDIARIES GUARANTORS identified on the signature pages thereto and any other person that becomes a Subsidiary Guarantor (the "Grantors"), in favor of CITICORP USA, INC., a New York banking corporation, as collateral agent (the " Senior Collateral Agent") for the Senior Secured Parties. A. Reference is made to the (a) Senior Credit Agreement dated as of June 12, 2000 (as amended or modified from time to time, the "Senior Credit Agreement"), among Rite Aid, as Borrower, the Senior Banks parties thereto, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents, (b) the Independent Standby L/C Documents pursuant to which Mellon Bank and Citibank have issued and may in the future issue certain letters of credit and (c) the Senior Subsidiary Security Agreement dated as of June 12, 2000, among the Subsidiary Guarantors and the Senior Collateral Agent. B. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Senior Subsidiary Security Agreement, including the Definitions Annex and the Senior Credit Facility referred to therein. C. The Grantors have entered into the Senior Subsidiary Security Agreement in order to induce the Senior Banks to make Loans and induce the Issuing Banks to issue Letters of Credit pursuant to, and upon the terms and subject to the conditions specified in, the Senior Credit Facility. Pursuant to Section 5.08 of the Senior Credit Facility, each Domestic Subsidiary that was not in existence or not a Domestic Subsidiary on the date thereof is required to enter into the Senior Subsidiary Security Agreement as a Grantor upon becoming a Domestic Subsidiary. Section 26 of the Senior Subsidiary Security Agreement provides that additional Domestic Subsidiaries may become Grantors under the Senior Subsidiary Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "New Grantor") is a Domestic Subsidiary and is executing this Supplement in accordance with the requirements of the Senior Credit Facility to become a Grantor under the Senior Subsidiary Security Agreement in order to induce the Senior Banks to make additional Loans and the Issuing Banks to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued. Accordingly, the Senior Collateral Agent and the New Grantor agree as follows: SECTION 1. In accordance with Section 26 of the Senior Subsidiary Security Agreement, the New Grantor by its signature below becomes a Grantor under the Senior Subsidiary Security Agreement with the same force and effect as if originally named therein as a Grantor and the New Grantor hereby agrees to all the terms and provisions of the Senior Subsidiary Security Agreement applicable to it as a Grantor thereunder. Each reference to a "Grantor" in the Senior Subsidiary Security Agreement shall be deemed to include the New Grantor. The Senior Subsidiary Security Agreement is hereby incorporated herein by reference. SECTION 2. The New Grantor represents and warrants to the Senior Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to the effects of applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and equitable principles of general applicability. SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Senior Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Grantor and the Senior Collateral Agent. SECTION 4. Except as expressly supplemented hereby, the Senior Subsidiary Security Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Senior Subsidiary Security Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in the Senior Credit Facility. All communications and notices hereunder to the New Grantor shall be given to it c/o the Borrower as set forth in Section 9.01 of the Senior Credit Facility. IN WITNESS WHEREOF, the New Grantor and the Senior Collateral Agent have duly executed this Supplement to the Senior Subsidiary Security Agreement as of the day and year first above written. [NAME OF NEW GRANTOR], by ___________________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent, by ___________________________________ Name: Title: Annex 2 to the Senior Subsidiary Security Agreement DEFINITIONS ANNEX This is the Definitions Annex referred to in the Senior Loan Documents (such term and each other capitalized term used herein as defined below, and if not defined herein, have the meanings assigned to such terms in the applicable Senior Loan Document or Second Priority Debt Document) and the Second Priority Debt Documents. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 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 thereof and of each Senior Loan Document and Second Priority Debt Document containing restrictions or imposing conditions on the amendment, modification or supplementing of such agreement or contract. "Affiliate" means, when used with respect to a specified Person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Asset Sale" means any sale, transfer or other disposition (including pursuant to a Sale and Leaseback Transaction) of any property or asset of the Borrower or any Subsidiary (including any equity interest in a Subsidiary), other than a Permitted Disposition. "Attributable Debt" means, as to any particular Capital Lease or 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 a transaction involving a Capital Lease, the amount on such date of the obligation thereunder that would appear on a balance sheet prepared as of such date in accordance with generally accepted accounting principles, or (ii) in the case of a Sale and Leaseback Transaction not involving a Capital Lease, 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 per annum that would be applicable to a Capital Lease of the Borrower having similar payment terms. 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, whether or not characterized as rent. "Bankruptcy Proceeding" means any proceeding under Title 11 of the U.S. Code or any other Federal, state or foreign bankruptcy, insolvency, reorganization, receivership or similar law. "Basket Asset Sale" means any sale or disposition (including a Sale and Leaseback Transaction not involving any Mortgaged Property) of office locations, stores or other personal or real property (including any improvements thereon), whether or not constituting Mortgaged Property, or leasehold interest therein for fair value in the ordinary course of business consistent with past practice and not inconsistent with the Borrower's business plan delivered to the Representatives on the Closing Date, provided, however, that, (i) the aggregate consideration received therefor (including the fair market value of any non-cash consideration) shall not exceed $75,000,000 in any fiscal year (calculated without regard to Sale and Leaseback Transactions permitted by Section 5.14(a), (b) and (c) of the Senior Credit Facility as in effect on the Closing Date) and (ii) at least 75% of such consideration shall consist of cash. "Borrower" means Rite Aid. "Business Day" means any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Euro-Dollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Markets Transaction" means the receipt by the Borrower or a Subsidiary of proceeds of 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 any proceeds in respect of the issuance of Exchange Notes to SPV and the disposition of such Exchange Notes pursuant to the Forward Commitment Agreement). "Casualty/Condemnation" means any event that gives rise to Casualty/Condemnation Proceeds. "Casualty/Condemnation Proceeds" means (a) any insurance proceeds under any insurance policies or otherwise with respect to any casualty or other insured damage to any assets of the Borrower or its Subsidiaries, and (b) any proceeds received by the Borrower or any Subsidiary of any action or proceeding for the taking of any assets of the Borrower or its Subsidiaries, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any similar public improvement or condemnation proceeding, less, in each case (i) any fees, commissions and expenses (including the costs of adjustment and condemnation proceedings) and other costs paid or incurred by the Borrower or any Subsidiary in connection therewith, (ii) income taxes reasonably estimated to be payable as a result of any gain recognized in connection with the receipt of such payment or proceeds and (iii) payment of the outstanding amount of any Debt (or Attributable Debt), other than the Secured Obligations, together with premium or penalty, if any, and interest thereon (or comparable obligations in respect of Attributable Debt), that is secured by a Lien on (or if Attributable Debt, the lease of) the stock or assets in question and that has priority over both the Senior Lien and the Second Priority Lien and is to be repaid as a result of receipt of such payments or proceeds; provided, however, that no such proceeds shall constitute Casualty/Condemnation Proceeds to the extent that such proceeds are (A) reinvested in other like fixed or capital assets within 180 days of the Casualty/Condemnation that gave rise to such proceeds or (B) committed to be reinvested in other like fixed or capital assets within 180 days of such Casualty/Condemnation, with diligent pursuit of such reinvestment, and reinvested in such assets within 365 days of such Casualty/Condemnation. "Citibank" means Citibank, N.A. "Citibank Standby L/C Documents" means the reimbursement agreements, letter of credit applications and other documents relating to the Citibank Standby Letters of Credit. "Citibank Standby L/C Obligations" means (a) each payment, including payments in respect of reimbursements and cash collateralization, required to be made by Rite Aid under the Citibank Standby L/C Documents in respect of Citibank Standby Letters of Credit in an aggregate amount at any time outstanding not in excess of (i) $8,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied to such obligations as the result of the exercise of remedies under the Senior Collateral Documents and (b) all other monetary obligations, including fees, costs, expenses and indemnities (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) of Rite Aid or any Obligor under the Citibank Standby L/C Documents to the extent attributable to the Citibank Standby Letters of Credit referred to in clause (a). "Citibank Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Citibank outstanding on the Closing Date in an aggregate face amount of approximately $8,000,000, together with any standby letter of credit (other than any letter of credit issued under the Senior Credit Facility) hereafter issued by Citibank for the account of any Obligor, provided that the Citibank Standby Letters of Credit shall be limited to an amount at any time outstanding not in excess of (i) $8,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied as the result of the exercise of remedies under the Senior Collateral Documents to reimbursement and cash collateralization obligations in respect of Citibank Standby Letters of Credit. "Closing Date" means the date on which the Senior Credit Facility, the amendments and restatements giving rise to the Existing Facilities and the exchange offer and other transactions giving rise to the Exchange Notes become effective. "Collateral" means the Senior Collateral and the Second Priority Collateral. "Collateral Documents" means (a) the Senior Collateral Documents and (b) the Second Priority Collateral Documents. "Collateral Trust and Intercreditor Agreement" means the Collateral Trust and Intercreditor Agreement, dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors, the Second Priority Collateral Trustee, the Senior Collateral Agent and each Second Priority Representative. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed by such Person. "Debt Facility" means any of the Senior Credit Facility, the Existing Facilities, the Synthetic Lease Facilities and the Exchange Note Indenture. "Default Rate" means a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) equal to the sum of (a) the rate of interest publicly announced by Citibank in New York, New York, from time to time as its "base rate", plus (b) 2.00%. "Designated Asset Disposition" means any sale, transfer or other disposition of Exchange Debt First Priority Collateral other than a Permitted Disposition. "Domestic Subsidiary" means any Subsidiary incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "Drugstore.com Common Stock" means the common stock of Drugstore.com, Inc., a Delaware corporation, owned by Rite Aid. "Drugstore.com Pledge Agreement" means the Drugstore.com Pledge Agreement dated as of October 25, 1999 and amended and restated as of June 12, 2000, between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "Exchange Debt Facility" means the Exchange Debt Facility dated as of June 12, 2000 among Rite Aid Corporation, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "Exchange Debt Facility Documents" means the collective reference to the "Loan Documents" as defined in the Exchange Debt Facility. "Exchange Debt First Priority Collateral" means the prescription files of Rite Aid's Subsidiaries and the proceeds thereof. "Exchange Debt First Priority Collateral Documents" means the collective reference to the "First Priority Collateral Documents", as defined in the Exchange Debt Facility. "Exchange Debt Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loans made under the Exchange Debt Facility, (ii) all other amounts payable by the Borrower to the Exchange Debt Parties under the Exchange Debt Facility Documents, and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the Exchange Debt Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Exchange Debt Parties" means all parties to the Exchange Debt Facility Documents other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the administrative agent under the Exchange Debt Facility and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Exchange Debt Facility Document. "Exchange Note Documents" means the Exchange Notes and the Exchange Note Indenture, Exchange and Registration Rights Agreement among the State Street Bank and Trust, as trustee, Rite Aid and the Subsidiary Guarantors, and the Forward Commitment Agreement. "Exchange Note Indenture" means the Indenture dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors and State Street Bank and Trust Company, as trustee, relating to the Exchange Notes. "Exchange Note Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the Exchange Notes, (ii) all other amounts payable by the Borrower to the Exchange Note Parties under the Exchange Note Documents, and (iii) any renewals or extensions of any of the foregoing. "Exchange Note Parties" means all parties to the Exchange Note Documents and the holders from time to time of the Exchange Notes, in each case other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the trustee under the Exchange Note Indentures and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Exchange Note Document. "Exchange Notes" means the 10.50% Senior Secured Notes Due 2002 of Rite Aid (i) issued in exchange for certain 5.50% Notes Due 2000 of Rite Aid and 6.70% Notes Due 2001 of Rite Aid or (ii) issued on the Closing Date to SPV and to be transferred to SSB, JPM and their respective transferees and assignees pursuant to the Forward Commitment Agreement; provided, however, that the aggregate principal amount of Exchange Notes issued pursuant to the Forward Commitment Agreement shall not exceed $93,158,000. "Existing Facilities" means (a) the PCS Facility; (b) the RCF Facility; (c) the Finco Facility; and (d) the Exchange Debt Facility. "Existing Facilities Documents" means the collective reference to (i) the PCS Facility Documents, (ii) the RCF Facility Documents, (iii) the Finco Facility Documents and (iv) the Exchange Debt Facility Documents. "Existing Facility Obligations" means the PCS Facility Obligations, the RCF Facility Obligations, the Finco Facility Obligations and the Exchange Debt Obligations. "Existing Facility Parties" means the PCS Facility Parties, the RCF Facility Parties, the Finco Facility Parties and the Exchange Debt Parties. "Finco Facility" means the Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, Amendment No. 1 to Put Agreement (the "Omnibus Amendment") dated as of June 12, 2000, relating to the Adjustable Rate Senior Secured Notes due August 15, 2002 originally issued by Finco, Inc. and guaranteed by Rite Aid. The "Finco Facility " shall be deemed to include the Note Agreement dated as of September 30, 1996, among Finco, Inc., and each of the Purchasers listed in Annex 1 thereto, as amended through the Closing Date. "Finco Facility Documents" means (i) the Finco Facility, (ii) the Guaranty Agreement dated as of September 30, 1996 pursuant to which Rite Aid guaranteed the obligations of Finco, Inc. under the Finco Facility; (iii) the Put Agreement dated as of September 30, 1996 entered into by Rite Aid, and (iv) the Security Agreement dated as of September 30, 1996 entered into by Finco, Inc. and The Prudential Insurance Company of America as the Security Agent on behalf of the Finco Facility Parties, in each case as amended through the Closing Date. "Finco Facility Obligations" means (i) all outstanding principal amounts under the Finco Facility Documents, (ii) all interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the principal amounts pursuant to clause (i) of this definition, (iii) any renewals or extensions of any of the foregoing and (iv) any and all other amounts payable by the Borrower in respect of the Finco Facility Documents; provided, however, that the principal amount of indebtedness included in the Finco Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Finco Facility Parties" means The Prudential Insurance Company of America and Pruco Life Insurance Company and their successors and assigns as noteholders and purchasers under the Finco Facility Documents and The Prudential Insurance Company of America, as Security Agent under the Finco Facility Documents and its successor or assignee. "Forward Commitment Agreement" means the Forward Commitment Agreement dated June 12, 2000, among Rite Aid, SPV, SSB and JPM. "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" mean, collectively, (a) the Indenture dated as of December 21, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee, (b) the Indenture dated as of August 1, 1993, between Rite Aid and Morgan Guaranty Trust Company of New York, as trustee, (c) the Indenture dated as September 10, 1997, between Rite Aid and Harris Trust and Savings Bank, as trustee and (d) the Indenture dated as of September 22, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee. "Independent Standby L/C Documents" means the Citibank Standby L/C Documents and the Mellon Standby L/C Documents. "Independent Standby L/C Obligations" means the Citibank Standby L/C Obligations and the Mellon Standby L/C Obligations. "Independent Standby L/C Parties" means Citibank and Mellon Bank in their capacities as issuers of Independent Standby Letters of Credit. "Independent Standby Letters of Credit" means the Citibank Standby Letters of Credit and the Mellon Standby Letters of Credit. "Instructing Group" means, until the Senior Obligation Payment Date, the Majority Senior Parties, and thereafter the Second Priority Instructing Group. "JPM" means J.P. Morgan Securities, Inc. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. "Majority Senior Parties" means the Majority Banks, as defined in the Senior Credit Facility, or with respect to any waiver, amendment or request, Senior Banks having such amount of unused Revolving Credit Commitments, Revolving Credit Exposure, unused Term Loan Commitments and outstanding Term Loans as may be required under the Senior Credit Facility to approve the same. "Mellon Bank" means Mellon Bank, N.A. "Mellon Standby L/C Documents" mean the reimbursement agreements, letter of credit applications and other documents relating to the Mellon Standby Letters of Credit. "Mellon Standby L/C Obligations" means (a) each payment, including payments in respect of reimbursements and cash collateralization, required to be made by Rite Aid under the Mellon Standby L/C Documents in respect of Mellon Standby Letters of Credit in an aggregate amount at any time outstanding not in excess of (i) $26,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied to such obligations as the result of the exercise of remedies under the Senior Collateral Documents and (b) all other monetary obligations, including fees, costs, expenses and indemnities (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable as a claim in such proceeding) of Rite Aid under the Mellon Standby L/C Documents to the extent attributable to the Mellon Standby Letters of Credit referred to in clause (a). "Mellon Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Mellon Bank outstanding on the Closing Date in an aggregate face amount of $26,000,000, together with any standby letter of credit (other than any letter of credit issued under the Senior Credit Facility) hereafter issued by Mellon Bank for the account of any Obligor provided that the Mellon Standby Letters of Credit shall be limited to an amount at any time outstanding not in excess of (i) $26,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied as the result of the exercise of remedies under the Senior Collateral Documents to reimbursement and cash collateralization obligations in respect of Mellon Standby Letters of Credit. "Moody's" means Moody's Investors Service, Inc., or any successor to its business of rating debt securities. "Net Cash Proceeds" means, (a) with respect to any sale, transfer or other disposition of any property or asset (a "Disposition"), an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Disposition (including, when received, any cash proceeds received in respect of any noncash proceeds of any Disposition), less (I) the sum of (i) reasonable costs and expenses paid or incurred in connection with such transaction, including, without limitation, any underwriting brokerage or other customary selling commissions and reasonable legal, advisory and other fees and expenses (including title and recording expenses, associated therewith), payments of unassumed liabilities relating to the assets sold and any severance and termination costs; (ii) the amount of any Debt (or Attributable Debt), together with premium or penalty, if any, and accrued interest thereon (or comparable obligations in respect of Attributable Debt) secured by a Lien on (or if Attributable Debt, the lease of) any asset disposed of in such Disposition and discharged from the proceeds thereof, but only to the extent such Lien has priority over the Senior Lien, the Second Priority Lien and the Liens under the Exchange Debt First Priority Collateral Documents; (iii) 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 Disposition; (iv) the portion of such cash proceeds which the Borrower determines in good faith and reasonably should be reserved for post-closing adjustments, including, without limitation, indemnification payments and purchase price adjustments, provided, that on the date that all such post-closing adjustments have been determined, the amount (if any) by which the reserved amount in respect of such Disposition exceeds the actual post-closing adjustments payable by the Borrower or any of the Subsidiary Guarantors shall constitute Net Cash Proceeds on such date; and (v) in the case of a PCS Divestiture the sum of (1) the PCS Incremental Investment as of the date of consummation of such disposition plus (2) the aggregate Net Cash Proceeds of PCS Dispositions in the form of Sale and Leaseback Transactions theretofore applied to prepayments of the PCS Facility; and plus (II) in the case of a PCS Divestiture, the PCS Investment Reduction as of the date of consummation of such transaction; (b) with respect to any Capital Markets Transaction, an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Capital Markets Transaction, less any reasonable transaction costs; including investment banking and underwriting fees, discounts and commissions and any other expenses (including legal fees and expenses) reasonably incurred by such Person in respect of such Capital Markets Transaction; and (c) with respect to receipt of Casualty/Condemnation Proceeds, the amount thereof. "Obligors" means Rite Aid, the Subsidiary Guarantors and any other Person who is liable for any of the Secured Obligations. "paid in full" means paid in full in cash. "PCS" means PCS Holding Corporation, a Delaware corporation, and its successors. "PCS Common Stock" means the common stock of PCS owned by Rite Aid. "PCS Dispositions" means (i) any sale or other disposition of capital stock of PCS (or of any non-cash proceeds thereof), (ii) any sale, lease or other disposition (including a Casualty/Condemnation) by PCS or any of its Subsidiaries of any asset, other than (y) 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, and (z) dispositions to PCS or a wholly-owned Subsidiary of PCS or (iii) any sale, lease or other disposition (including a Casualty/Condemnation) of PCS Land. "PCS Divestiture" means a PCS Disposition as a result of which the business of PCS is no longer conducted by a Consolidated Subsidiary of the Borrower. "PCS/Drugstore Pledged Collateral" means the capital stock of PCS and Drugstore.com pledged by Rite Aid under the PCS Pledge Agreement and the Drugstore.com Pledge Agreement and all income and profits thereon, dividends and other payments and distributions with respect thereto and all proceeds of the foregoing subject to a Lien under such agreements. "PCS Excluded Assets" means (i) any Collateral consisting of assets of PCS or a Subsidiary of PCS, other than PCS Linked Accounts, (ii) PCS Land and (iii) any proceeds of clauses (i) and (ii). For purposes of Article IV of the Collateral Trust and Intercreditor Agreement, any proceeds of enforcement of the Senior Subsidiary Guarantee Agreement or the Second Priority Guarantee Agreement against PCS or a Subsidiary of PCS (other than with respect to the PCS Linked Accounts and the proceeds thereof) shall be deemed to be proceeds of Collateral consisting of PCS Excluded Assets. "PCS Facility" means the PCS Facility dated as of June 12, 2000, among Rite Aid, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "PCS Facility Documents" means the "Loan Documents" as defined in the PCS Facility. "PCS Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the PCS Facility, (ii) all other amounts payable by the Borrower under the PCS Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the PCS Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "PCS Facility Parties" means the parties to the PCS Facility Documents other than the Obligors, the Senior Bank Parties and the Representatives, but including the administrative agent under the PCS Facility and the beneficiaries of each indemnification obligation by Rite Aid or any other Obligor under any PCS Facility Documents. "PCS Incremental Investment" means, at any date, the amount, if any, by which the inter-company payable owing by Rite Aid Hdqtrs. Corp. to PCS at such date is less than such amount as at May 27, 2000. The Borrower shall promptly notify each of the Representatives following the Closing Date of such latter amount. "PCS Investment Reduction" means, at any date, the excess, if any, of (i) the amount, if any, by which the intercompany payable owing by Rite Aid Hdqtrs. Corp. to PCS at such date is greater than such amount as at May 27, 2000, over (ii) the cumulative PCS EBITDA, as defined in the Senior Credit Facility, for the period from May 27, 2000, to such date. "PCS Land" means the real property described as N.W. 96th Street and Mountainview Road, Scottsdale, Arizona, together with any improvements thereon. "PCS Linked Accounts" means any accounts receivable owed to PCS by third party insurers in respect of claims generated by other Subsidiaries of Rite Aid and giving rise to related accounts payable owed by PCS to such other Subsidiaries of Rite Aid. "PCS Pledge Agreement" means the PCS Pledge Agreement dated as of October 25, 1999 and amended and restated as of June 12, 2000, between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "Permitted Disposition" means any of the following: (i) dispositions of inventory at retail, cash, cash equivalents and other cash managing investments and obsolete, unused, uneconomic or unnecessary equipment, in each case in the ordinary course of business; (ii) a disposition to a Subsidiary Guarantor, provided, that (A) if the property subject to such disposition constitutes Collateral immediately before giving effect to such disposition, such property continues to constitute Collateral subject to the Senior Lien and the Second Priority Lien, and (B) no dispositions of property will be made to or by PCS or its Subsidiaries except in the ordinary course of business consistent with past practice; (iii) a sale or discount, in each case without recourse and in the ordinary course of business, of overdue Accounts (as defined in the Senior Credit Facility) arising in the ordinary course of business, but only to the extent such Accounts are no longer Eligible Accounts Receivable (as defined in the Senior Credit Facility) and such sale or discount is in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale); (iv) Basket Asset Sales; and (v) any disposition of Exchange Notes by SPV to SSB or JPM (or their respective successors, assigns and affiliates), pursuant to the Forward Commitment Agreement as in effect on the Closing Date. "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. "RCF Facility" means the RCF Facility dated as of June 12, 2000, among Rite Aid, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "RCF Facility Documents" means the "Loan Documents" as defined in the RCF Facility. "RCF Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the RCF Facility, (ii) all other amounts payable by the Borrower to the RCF Facility Parties under the RCF Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the RCF Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "RCF Facility Parties" means the parties to the RCF Facility Documents other than the Obligors. "Reduction" means, when applied to any Debt Facility, (i) the permanent repayment of outstanding loans (or obligations in respect of Attributable Debt) under such Debt Facility, (ii) the permanent reduction of outstanding lending commitments under such Debt Facility or (iii) the permanent cash collateralization of outstanding letters of credit under such facility (together with the termination of any lending commitments utilized by such letters of credit). "Reduction Event" is (i) a PCS Disposition, (ii) a Capital Markets Transaction, (iii) a Designated Asset Disposition, (iv) a Senior Collateral Disposition, (v) other Asset Sales or (vi) receipt of other Casualty/Condemnation Proceeds. "Related Exchange Debt" means, with respect to any of the Existing Facilities (other than the Exchange Debt Facility), Debt under the Exchange Debt Facility issued in exchange for Debt under such Existing Facility. "Related Exchange Debt Obligation" shall mean Exchange Debt Obligations in respect of Related Exchange Debt. "Representatives" means each of the Senior Collateral Agent and the Second Priority Representatives. "Required Prepayment Amount" has the meaning assigned to such term in the Senior Credit Facility, as in effect on the Closing Date. "Rite Aid" means Rite Aid Corporation, a Delaware corporation, and its successors. "Rite Aid Hdqtrs. Corp." means Rite Aid Hdqtrs. Corp., a Delaware corporation and a Wholly-Owned Consolidated Subsidiary of the Borrower. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor to its business of rating debt securities. "Sale and Leaseback Transaction" means the sale or transfer by the Borrower or any Subsidiary of any office building (including its headquarters), distribution center, manufacturing plant, warehouse, Store or equipment now or hereafter owned by the Borrower or any Subsidiary with the intention that the Borrower or any Subsidiary take back a lease thereof. "Second Priority Collateral" means all the "Second Priority Collateral" as defined in any Second Priority Collateral Documents and shall also include the Mortgaged Properties and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral or the Exchange Debt First Priority Collateral. "Second Priority Collateral Documents" means the Second Priority Mortgages, the Second Priority Subsidiary Security Agreement, the Second Priority Subsidiary Guarantee Agreement, the Second Priority Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing for purposes of providing collateral security or credit support for any Second Priority Debt Obligation or obligation under the Second Priority Subsidiary Guarantee Agreement but specifically excluding the Drugstore.com Pledge Agreement, the Exchange Debt First Priority Collateral Documents and the PCS Pledge Agreement. "Second Priority Collateral Trustee" means Wilmington Trust Company, in its capacity as collateral trustee under the Collateral Trust and Intercreditor Agreement and the Second Priority Collateral Documents, and its successors. "Second Priority Debt Documents" means the Existing Facility Documents, the Exchange Note Documents, the Synthetic Lease Documents and the Second Priority Collateral Documents. "Second Priority Debt Obligations" means the collective reference to the Exchange Debt Obligations, the Exchange Note Obligations, the Synthetic Lease Obligations, the PCS Facility Obligations, the RCF Facility Obligations and the Finco Facility Obligations. "Second Priority Debt Parties" means the Existing Facility Parties, the Exchange Note Parties, the Synthetic Lease Parties and the Second Priority Collateral Trustee. "Second Priority Facilities" means the Exchange Debt Facility, the Exchange Note Indenture, the Synthetic Lease Facilities, the PCS Facility, the RCF Facility and the Finco Facility. "Second Priority Indemnity, Subrogation and Contribution Agreement" means the Second Priority Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors and the Second Priority Collateral Trustee. "Second Priority Instructing Group" means Second Priority Representatives with respect to Second Priority Facilities under which at least a majority of the then aggregate amount of Second Priority Debt Obligations are outstanding. "Second Priority Lien" means the Liens on the Second Priority Collateral in favor of the Second Priority Debt Parties under the Second Priority Collateral Documents. "Second Priority Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents which create a Lien in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties, delivered pursuant to the Second Priority Debt Documents, each substantially in the form of Exhibit [ ] to the RCF Facility, with such changes as are approved by the Senior Collateral Agent and the Second Priority Representatives. "Second Priority Representative" means, in respect of each Second Priority Facility, the trustee under the Exchange Note Indenture and the administrative agent, security agent or agent under each other Second Priority Facility and each of their successors in such capacities. "Second Priority Subsidiary Guarantee Agreement" means the Second Priority Subsidiary Guarantee Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Second Priority Subsidiary Security Agreement" means the Second Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Secured Obligations" means the Senior Obligations and the Second Priority Debt Obligations. "Senior Bank" means a "Bank" as defined in the Senior Credit Facility. "Senior Bank Obligations" means (i) the principal of each loan made under the Senior Credit Facility, (ii) all reimbursement and cash collateralization obligations in respect of letters of credit issued under the Senior Credit Facility, (iii) all monetary obligations of the Borrower or any Subsidiary under each Senior Interest Rate Agreement entered into with any counterparty that was a Senior Bank (or an Affiliate thereof) at the time such Senior Interest Rate Agreement was entered into, (iv) all interest on the loans, letter of credit reimbursement, fees and other obligations under the Senior Credit Facility or such Senior Interest Rate Agreements (including, without limitation any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower or any Subsidiary Guarantor, whether or not allowed or allowable as a claim in such proceeding), (v) all other amounts payable by the Borrower under the Senior Loan Documents and (vi) all increases, renewals, extensions and refinancings of the foregoing; provided, however, that the principal amount of the indebtedness under the Senior Credit Facility included in the Senior Bank Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Senior Bank Parties" means each party to the Senior Credit Facility other than any Obligor, each counterparty to a Senior Interest Rate Agreement, the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Senior Loan Document, and the successors and permitted assigns of each of the foregoing. "Senior Collateral" means all the "Senior Collateral" as defined in any Senior Collateral Document and shall also include the Mortgaged Properties and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral and the Exchange Debt First Priority Collateral. "Senior Collateral Agent" means Citicorp USA, Inc., in its capacity as Senior Collateral Agent under the Senior Collateral Documents, and its successors. "Senior Collateral Disposition" means (i) any sale, transfer or other disposition of Senior Collateral (including any property or assets that would constitute Senior Collateral but for the release of the Senior Lien with respect thereto in connection with such sale, transfer or other disposition), other than a PCS Disposition, or a Permitted Disposition or (ii) a Casualty/Condemnation with respect to Senior Collateral (other than PCS Excluded Assets). "Senior Collateral Documents" means the Senior Mortgages, the Senior Subsidiary Security Agreement, the Senior Subsidiary Guarantee Agreement, the Senior Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing or pursuant to the Senior Credit Facility or for purposes of providing collateral security or credit support for any Senior Obligation or obligation under the Senior Subsidiary Guarantee Agreement. "Senior Credit Facility" means the Senior Credit Agreement, dated as of June 12, 2000, among Rite Aid, as Borrower, the Senior Banks, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents. "Senior Indemnity, Subrogation and Contribution Agreement" means the Senior Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000 among Rite Aid, the Subsidiary Guarantors (including Subsidiary Guarantors becoming party thereto after the Closing Date) and the Senior Collateral Agent. "Senior Interest Rate Agreement" means any Interest Rate Agreement entered into with Rite Aid or any Subsidiary, if the applicable counterparty was a Senior Bank or an Affiliate thereof at the time the Interest Rate Agreement was entered into. "Senior Lien" means the Liens on the Senior Collateral in favor of the Senior Secured Parties under the Senior Collateral Documents. "Senior Loan Documents" means the Senior Credit Facility, the Notes referred to in the Senior Credit Facility, each Senior Interest Rate Agreement, and the Senior Collateral Documents. "Senior Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents delivered pursuant to the Senior Credit Facility, each substantially in the form of Exhibit J to the Senior Credit Facility, with such changes as are approved by the Senior Collateral Agent. "Senior Obligation Payment Date" means the date on which (i) the Senior Obligations have been paid in full, (ii) all lending commitments under the Senior Credit Facility have been terminated and (iii) there are no outstanding Independent Standby Letters of Credit or letters of credit issued under the Senior Credit Facility other than such as have been fully cash collateralized under documents and arrangements satisfactory to the issuer of such letters of credit. "Senior Obligations" means (a) the Senior Bank Obligations and (b) the Independent Standby L/C Obligations. "Senior Secured Parties" means (a) the Senior Bank Parties and (b) the Independent Standby L/C Parties. "Senior Subsidiary Guarantee Agreement" means the Senior Subsidiary Guarantee Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "Senior Subsidiary Security Agreement" means the Senior Subsidiary Security Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "SPV" means Fiona One Corp., a Delaware corporation and a wholly-owned Subsidiary of Rite Aid which is organized for the sole purpose of acquiring Exchange Notes on the Closing Date from Rite Aid and selling such Exchange Notes to SSB and JPM in accordance with the Forward Commitment Agreement. "SSB" means Salomon Smith Barney Inc. "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. "Subsidiary Guarantor" means each Subsidiary that is party to the Senior Subsidiary Guarantee Agreement, the Second Priority Subsidiary Guarantee Agreement or any other Senior Collateral Document or Second Priority Collateral Document. "Synthetic Lease Documents" means the documents governing the Synthetic Leases. "Synthetic Lease Facilities" means certain synthetic leases entered into by the Subsidiary Guarantors and guaranteed by Rite Aid having an aggregate discounted present value of approximately $214,000,000, as amended and restated as of the Closing Date. "Synthetic Lease Obligations" means all rent and supplemental rent, all fees and all other expenses or amounts payable by any Obligors to any Synthetic Lease Parties under any Synthetic Lease Document; provided, however, that the aggregate amount of the Synthetic Lease Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Synthetic Lease Parties" means all parties to the Synthetic Lease Documents other than the Obligors. "Temporary Cash Investment" means any investment by any Person in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by S&P and P-1 by Moody's, (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized or licensed under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $500,000,000, (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, provided in each case that such investment matures within one year from the date of acquisition thereof by such Person or (v) money market mutual funds at least 90% the assets of which are held in investments referred to in clauses (i) through (iv) above (except that the maturities of certain investments held by any such money market funds may exceed one year so long as the dollar-weighted average life of the investments of such money market mutual fund is less than one year). "Uniform Commercial Code" or "UCC" means, unless otherwise specified, the Uniform Commercial Code as from time to time in effect in the State of New York. Schedule A to the Senior Subsidiary Security Agreement SUBSIDIARY GUARANTORS Subsidiary Guarantors Rite Aid Hdqtrs. Corp. Rite Aid of Alabama, Inc. Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Florida, Inc. Rite Aid of Georgia, Inc. Rite Aid of Illinois, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Massachusetts, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of North Carolina, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. Rite Aid of South Carolina, Inc. Rite Aid of Tennessee, Inc. Rite Aid of Vermont, Inc. Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Drug Fair of PA. Inc. Drug Fair, Inc. Eagle Managed Care Corp. GDF, Inc. Harco, Inc. The Lane Drug Company Keystone Centers, Inc. Ocean Acquisition Corporation PCS Holding Corporation Perry Drug Stores, Inc. Reed, Inc. Rite Aid Funding LLC Rite Investments Corp. Rite Aid Drug Palace, Inc. Rite Aid Rome Distribution Center, Inc. Rite Aid Transport, Inc. RX Choice, Inc. Script South Thrifty Payless, Inc. W.R.A.C., Inc. 3581 Carter Hill Road - Montgomery Corp. 4042 Warrensville Center Road - Warrensville Ohio, Inc. 5277 Associates, Inc. 537 Elm Street Corporation 5600 Superior Properties, Inc. 657-659 Broad St. Corp. Broadview and Wallings -Broadview Heights Ohio, Inc. Dominion Action One Corporation Dominion Action Two Corporation Dominion Action Three Corporation Dominion Action Four Corporation Dominion Drug Stores Corp. England Street-Asheland Corporation Jaime Nathan Travis Corporation Lakehurst and Broadway Corporation Patton Drive and Navy Boulevard Property Corporation Portfolio Medical Services, Inc. Rack Rite Distributors, Inc. Ram-Utica, INC. Rite Aid Venturer #1, Inc. Rite Fund, Inc. The Muir Company Virginia Corporation K&B, Incorporated K&B Alabama Corporation K&B Florida Corporation K&B Louisiana Corporation K&B Mississippi Corporation K&B Services, Incorporated K&B Tennessee Corporation K&B Texas Corporation K&B Trainees, Inc. Katz & Besthoff, Inc. Super Beverage of Texas #2, Inc. Super Beverage of Texas #3, Inc. Super Beverage of Texas #4, Inc. Super Beverage of Texas #5, Inc. Super Beverage of Texas #6, Inc. Super Distributors, Inc. Super Ice Cream Suppliers, Inc. Super Laboratories, Inc. Super Pharmacy Network, Inc. Super Tobacco Distributors, Inc. PCS Health Systems, Inc. PCS Services, Inc. PCS Mail Services, Inc. PCS Mail Service of Fort Worth, Inc. PCS Mail Service of Birmingham, Inc. PCS Mail Services of Scottsdale, Inc. Clinical Pharmaceuticals, Inc. Apex Drug Stores, Inc. PDS-1 Michigan, Inc. RDS Detroit, Inc. Perry Distributors, Inc. PL Xpress, Inc. Thrifty Corporation P.L.D. Enterprises, Inc. Rite Aid Lease Management Company Rite Aid Realty Corp. Thrifty Wilshire, Inc. Name Rite LLC Sophie One Corp. 112 Burleigh Avenue Norfolk, LLC. 1515 West State Street Boise, Idaho, LLC 1525 Cortyou Road - Brooklyn Inc. 1740 Associates, LLC 764 South Broadway- Geneva, Ohio, LLC 912 Elmwood Avenue- Buffalo, LLC Ann & Government Streets- Mobile, Alabama, LLC Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC Central Avenue and Main Street- Petal, MS, LLC Eighth and Water Streets- Ulrichsville, Ohio, LLC Euclid and Wilders Roads- Bay City, LLC Gettysburg and Hoover-Dayton, Ohio, LLC Gratiot & Center- Saginaw Township, Michigan, LLC Louisville Avenue & North 18th Street- Monroe, Louisiana, LLC Main & McPherson- Clyde, LLC Mayfield & Chillicothe Roads- Chesterland, LLC Munson & Andrews LLC Northline & Dix- Toledo- Southgate, LLC Paw Paw Lake Road & Paw Paw Avenue- Coloma, Michigan, LLC Richmond Road & Monticello Boulevard- Richmond Heights, Ohio, LLC Route 1 and Hood Road- Fredricksburg, LLC Route 202 at Route 124 Jaffrey- New Hampshire, LLC Seven Mile and Evergreen- Detroit, LLC Silver Springs Road- Baltimore, Maryland/ One, LLC Silver Springs Road- Baltimore, Maryland/ Two, LLC State Street and Hill Road- Gerard, Ohio, LLC State & Fortification Streets- Jackson, Mississippi, LLC Tyler and Sanders Roads, Birmingham- Alabama, LLC Schedule 1 to the Senior Subsidiary Security Agreement FILINGS AND OTHER ACTIONS REQUIRED TO PERFECT SECURITY INTERESTS Uniform Commercial Code Filings Patent and Trademark Filings Copyright Filings Schedule 2 to the Senior Subsidiary Security Agreement INVENTORY LOCATIONS Schedule 3 to the Senior Subsidiary Security Agreement RECORDS OF ACCOUNTS Description Schedule 4 to the Senior Subsidiary Security Agreement COPYRIGHTS REGISTRATIONS AND COPYRIGHT LICENSES PATENTS AND PATENT LICENSES TRADEMARK REGISTRATIONS AND TRADEMARK LICENSES PENDING ACTIONS Schedule 5 to the Senior Subsidiary Security Agreement CASH MANAGEMENT SYSTEM SECTION 1. Accounts. (a) Each Grantor shall cause: (i) each Blocked Account Bank to execute and deliver a Blocked Account Agreement in respect of each Blocked Account by the Closing Date; (ii) each Lockbox Account Bank to execute and deliver a Lockbox Account Agreement in respect of each Lockbox Account by the Closing Date; (iii) each Government Lockbox Account Bank to execute and deliver an Government Lockbox Account Agreement in respect of each Government Lockbox Account by the Closing Date; and (iv) each Concentration Account Bank to execute and deliver a Concentration Account Agreement in respect of the Concentration Account by the Closing Date. (b) (i) On each Business Day, each Grantor will transfer, directly or indirectly substantially all of the funds credited to each of its depositary accounts in same day funds, to a Blocked Account (including during a Cash Sweep Period) in accordance with its customary business practice. (ii)Funds from PCS and its Subsidiaries shall, at all times, be deposited in a segregated Blocked Account(s). (c) Each Grantor shall cause all payments in the Government Lockbox Account to be deposited into the Lockbox Account as promptly as possible and in any event no later than the Business Day on which such payments become available in the Government Lockbox Account (including during a Cash Sweep Period). (d) Each Cash Management Account is, and shall remain, under the sole dominion and control of the Senior Collateral Agent. Each Grantor acknowledges and agrees that: (i) during a Cash Sweep Period such Grantor has no right of withdrawal from any Cash Management Account except that: (A) the relevant Grantors shall be permitted to instruct any Blocked Account Bank to transfer all amounts deposited in or credited to any Blocked Account to the Concentration Account in accordance with the applicable Blocked Account Agreement, and (B) the relevant Grantor shall be permitted to instruct the Concentration Account Bank to transfer all amounts deposited in or credited to the Concentration Account in accordance with the Concentration Account Agreement; (ii) the funds on deposit in the Cash Management Accounts shall continue to be collateral security for all of the Senior Obligations. (e) Prior to the delivery of a Cash Sweep Notice, the Grantor is free to withdraw funds on deposit in or credited to the Blocked Accounts and the Concentration Account in such amounts and with such frequency as the Grantor may from time to time determine, without notice to or consent from the Senior Collateral Agent. SECTION 2. Cash Sweep. (a) The Senior Collateral Agent, shall immediately be entitled to deliver Cash Sweep Notices upon the conditions specified in Section 9.11(a) in the Senior Credit Facility. (b) Upon delivery of: (i) a Blocked Account Cash Sweep Notice from the Senior Collateral Agent, the balance of each Blocked Account shall be forwarded to the Concentration Account, each Business Day or the next Business Day (as permitted by the applicable Blocked Account Agreement), in same day funds, for so long as such Blocked Account Cash Sweep Notice shall be in effect; provided, however, upon the occurrence of a Triggering Event (as defined in the Collateral Trust and Intercreditor Agreement), at the Senior Collateral Agent's option, the balance of each Blocked Account which holds funds from PCS and its Subsidiaries shall be forwarded to a segregated Citibank Concentration Account each Business Day or the next Business Day (as permitted by the applicable Blocked Account Agreement) in same day funds, for so long as such Blocked Account Cash Sweep Notice shall be in effect; and (ii) a Concentration Account Cash Sweep Notice from the Senior Collateral Agent, the balance of the Concentration Account shall be forwarded to a Citibank Concentration Account, each Business Day (or the next Business Day (as permitted by the Concentration Account Agreement)), in same day funds, for so long as such Concentration Account Cash Sweep Notice shall be in effect. (c) On each Business Day during a Cash Sweep Period, the Senior Collateral Agent shall use funds on deposit in any Citibank Concentration Account as follows: (i) after the occurrence of a Triggering Event, in accordance with the provisions of Section 4.01(b) or (c) of the Collateral Trust and Intercreditor Agreement, as applicable; and (ii) at any other time, first, to repay the Revolving Credit Borrowings (without any reduction of the Commitments) and second, to be deposited into the Cash Sweep Cash Collateral Account for the benefit of the Senior Secured Parties, as collateral for the payment and performance of the Senior Obligations. The Senior Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over the Cash Sweep Cash Collateral Account. Deposits in the Cash Sweep Cash Collateral Account shall be invested in Temporary Cash Investments, to be selected by the Senior Collateral Agent in its sole discretion, and interest earned on such deposits shall be deposited in such account as additional collateral for the payment and performance of the Senior Obligations. Interest or profits, if any, on such investments shall accumulate in such account. Upon termination of any Cash Sweep Period, funds in the Cash Sweep Cash Collateral Account shall be released to the Concentration Account within three Business Days after the end of such Cash Sweep Period. (d) The Senior Collateral Agent shall be required to automatically rescind any Cash Sweep Notice upon the conditions specified in Section 9.11(b) of the Senior Credit Facility. (e) The Senior Collateral Agent reserves the right to send as many Cash Sweep Notices to the extent that it is entitled to do so under paragraph (a) of this Section 2. SECTION 3. Collections. (a) Each Grantor agrees to notify and direct promptly (i) subject to paragraph (ii) below, each Account Debtor and every other Person obligated to make payments to any Blocked Account or Deposit Account, as applicable, to make all such payments to such Blocked Account or Deposit Account, as applicable. Each Grantor shall use all commercially reasonable efforts to cause each Account Debtor and every other person identified in the preceding sentence to make all payments owing to any Grantor to a Blocked Account or Deposit Account, as applicable; and (ii) each Account Debtor which is a Governmental Entity (and only such Account Debtors) to make all payments owing to any Grantor to the Government Lockbox Account. (b) In the event that any Grantor directly receives any remittances or payments on Accounts Receivable or any other obligation, notwithstanding the arrangements for payment directly into the Blocked Accounts or the Deposit Accounts, such remittances and payments shall be held in trust for the benefit of the Senior Collateral Agent and the other Senior Secured Parties and shall be segregated from other funds of such Grantor, subject to the Lien granted by the Senior Subsidiary Security Agreement, and such Grantor shall cause such remittances and payments to be deposited into the applicable Blocked Account or Deposit Account as soon as practicable after such Grantor's receipt thereof. SECTION 4. Accounts. (a) The following are the Blocked Accounts: BLOCKED ACCOUNT BANK ACCOUNT NUMBERS Bank of America 3750909869 Bank of America 1233625317 Bank of America 1233829710 PNC Bank 8612489237 PNC Bank 8550419961 US Bank 153607068225 Bank One 1134843 Fleet Bank 9415842956 Union Bank of CA 1870024297 First Union National Bank 2000611234904 Harris Bank 3931276 (b) The following are the Deposit Accounts: ACCOUNT HOLDER ACCOUNT DETAILS Mellon Bank 0693636 Mellon Bank 1037294 (c) The following is the Concentration Account: ACCOUNT HOLDER ACCOUNT DETAILS The Chase Manhattan Bank 9102750222 Schedule 6 to the Senior Subsidiary Security Agreement [FORM OF] BLOCKED ACCOUNT AGREEMENT [Date] [Blocked Account Bank] [address] Ladies and Gentlemen: Reference is made to (a) account no. [ ] maintained with you (the "Blocked Account Bank") by [ ] (the "Grantor") into which funds are deposited from time to time (the "Blocked Account") and (b) the Senior Subsidiary Security Agreement dated as of June 12, 2000 (as amended, supplemented or otherwise modified from time to time, the Senior Subsidiary Security Agreement"), among the Subsidiary Guarantors (such term and each other capitalized term used but not defined herein having the meaning assigned to such term in the Senior Subsidiary Security Agreement, including the Definitions Annex and Senior Credit Facility referred to therein) and the Senior Collateral Agent. Pursuant to the Senior Subsidiary Security Agreement, the Grantor has granted to the Senior Collateral Agent, for the benefit of the Senior Secured Parties, a perfected security interest in certain property of the Grantor, including, the Blocked Account. The Grantor hereby transfers to the Senior Collateral Agent exclusive ownership and control of, and all of its right, title and interest in and to, the Blocked Account and all funds and other property on deposit therein. By executing this Blocked Account Agreement, the Blocked Account Bank acknowledges that the Senior Collateral Agent now has exclusive ownership and control of the Blocked Account, that all funds in the Blocked Account shall be transferred to the Senior Collateral Agent as provided herein, that the Blocked Account is being maintained by the Blocked Account Bank for the benefit of the Senior Collateral Agent and that all amounts and other property therein are held by the Blocked Account Bank as custodian for the Senior Collateral Agent. Except as provided in paragraphs (e), (f) and (l) below, the Blocked Account shall not be subject to deduction, setoff, banker's lien, counterclaim, defense, recoupment or any other right in favor of any person or entity other than the Senior Collateral Agent. By executing this Blocked Account Agreement the Blocked Account Bank also acknowledges that, as of the date hereof, the Blocked Account Bank has received no notice of any other pledge or assignment of the Blocked Account and the Blocked Account Bank agrees with the Senior Collateral Agent as follows: (a) Notwithstanding anything to the contrary or any other agreement relating to the Blocked Account, the Blocked Account is and will be maintained for the benefit of the Senior Collateral Agent, will be entitled "Citicorp USA, Inc. as Senior Collateral Agent under the Senior Subsidiary Agreement dated as of May [ ], 2000 Account" and will be subject to written instructions only from an authorized officer of the Senior Collateral Agent (except as expressly provided otherwise herein). (b) The Blocked Account Bank agrees to give the Senior Collateral Agent prompt notice if the Blocked Account shall become subject to any writ, judgment, warrant of attachment, execution or similar process. (c) [A post office box (the "Lockbox") has been rented in the name of the Grantor at the [post office and the address to be used for such Lockbox is: [Insert address] The Blocked Account Bank's authorized representatives will have access to the Lockbox under the authority given by the Grantor to the post office and will make regular pick-ups from the Lockbox timed to gain maximum benefit of early presentation and availability of funds. The Blocked Account Bank will endorse process all checks received in the Lockbox and deposit such checks (to the extent eligible) in the Blocked Account in accordance with the procedures set forth below .] (d) The Blocked Account Bank will follow your its operating procedures for the handling of any [checks received from the Lockbox] or other remittance received in the Blocked Account that contains restrictive endorsements, irregularities (such as a variance between the written and numerical amounts), undated or postdated items, missing signatures, incorrect payees and the like. (e) The Blocked Account Bank will endorse and process all eligible checks and other remittance items not covered by paragraph (d) and deposit such checks and remittance items in the Blocked Account. (f) The Blocked Account Bank will mail all checks returned unpaid because of uncollected or insufficient funds under appropriate advice to the Grantor (with a copy of the notification of return to the Senior Collateral Agent). The Blocked Account Bank may charge the Blocked Account for the amounts of any returned check that has been previously credited to the Blocked Account. To the extent insufficient funds remain in the Blocked Account to cover any such returned check, the Grantor shall indemnify the Blocked Account Bank for the uncollected amount of such returned check upon your demand. (g) The Blocked Account Bank will maintain a record of all checks and other remittance items received in the Blocked Account on a daily basis and, in addition to providing the Grantor with photostatic copies thereof, vouchers, enclosures and the like of such checks and remittance items, furnish to the Senior Collateral Agent a monthly statement setting forth the amounts deposited in and withdrawn from the Blocked Account and shall furnish such other information relating to the Blocked Account at such times as shall be reasonably requested by the Senior Collateral Agent to: Citicorp USA, Inc., as Senior Collateral Agent, [ ], Attention: [ ], with a copy to the Grantor. (h) Prior to the delivery of a written notice in the form of Exhibit A hereto (the "Blocked Account Cash Sweep Notice"), the Grantor is free to withdraw funds from the Blocked Account in such amounts and with such frequency as the Grantor may from time to time determine, without notice to or consent from the Senior Collateral Agent. (i) From and after delivery to the Blocked Account Bank of a Blocked Account Cash Sweep Notice and until the Blocked Account Bank is notified in writing by the Senior Collateral Agent that the Blocked Account Cash Sweep Notice is no longer in effect (a "Blocked Account Cash Sweep Period"), the Grantor will have no control over the use of, or any right to withdraw any amount from, to draw upon, or to otherwise exercise any power with respect to the Blocked Account, except that the Grantor shall be permitted to instruct the Blocked Account Bank only with respect to the transfer of funds from the Blocked Account to the Concentration Account in accordance with paragraph (k) below. (j) During a Blocked Account Cash Sweep Period, the Blocked Account Bank shall transfer, in same day funds, on each Business Day, all funds, if any on deposit, or otherwise to the credit of, the Blocked Account to the account listed below (the "Concentration Account"), provided that funds on deposit that are subject to collection may be transmitted promptly upon collection: ABA Number: [name and address of Grantor's bank] Account Name: Concentration Account Account Number: Reference: Attn: or to such other account as the Senior Collateral Agent may from time to time, or at any time, designate in writing. (k) During a Blocked Account Cash Sweep Period, (i) the Grantor shall provide written instructions to the Blocked Account Bank on each Business Day to transfer all funds on deposit in, or otherwise credited to, the Blocked Account to the Concentration Account; (ii) to the extent there are any available balances in the Blocked Account at the end of any Business Day which have not been transferred pursuant to clause (i) of this paragraph, the Grantor shall provide, on the next Business Day, written instructions for the transfer of such available balances from the Blocked Account to the Concentration Account; and (iii) if the Grantor does not provide the written instructions pursuant to clause (ii) of this paragraph, the Blocked Account Bank shall automatically initiate such transfer described in clause (ii) of this paragraph and all other transfers from the Blocked Account to the Concentration Bank without further direction from the Grantor until otherwise notified by the Senior Collateral Agent. (l) All customary service charges and fees with respect to the Blocked Account shall be debited to the Blocked Account. In the event insufficient funds remain in the Blocked Account to cover such customary service charges and fees, the Grantor shall pay and indemnify the Blocked Account Bank for the amounts of such customary service charges and fees. Neither the Senior Collateral Agent nor the Senior Secured Parties shall have any liability for the payment of any such fees in respect to the Blocked Account. This letter agreement shall be binding upon and shall inure to the benefit of the Blocked Account Bank, the Grantor, the Senior Collateral Agent, the Senior Secured Parties referred to in the Senior Subsidiary Security Agreement and their respective successors, transferees and assigns of any of the foregoing. This letter agreement may not be modified or terminated except upon the mutual consent of the Senior Collateral Agent, the Grantor and the Blocked Account Bank. The Blocked Account Bank may terminate the letter agreement only upon 45 days' prior written notice to the Grantor and the Senior Collateral Agent. The Senior Collateral Agent may terminate this letter agreement at any time. So long as any Senior Obligations remain outstanding and the Commitments are still outstanding, upon such termination the Blocked Account Bank shall close the Blocked Account and transfer all funds in the Blocked Account to the Senior Collateral Agent at the Concentration Account or as otherwise directed by the Senior Collateral Agent. After any such termination, the Blocked Account Bank shall nonetheless remain obligated promptly to transfer to the Concentration Account or as the Senior Collateral Agent may otherwise direct all funds and other property received in respect of the Blocked Account. This letter agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this letter agreement by telecopier shall be effective as delivery of a manually executed counterpart of this letter agreement. This letter agreement supersedes all prior agreements, oral or written, with respect to the subject matter hereof and may not be amended, modified or supplemented except by a writing signed by the Senior Collateral Agent, the Grantor and the Blocked Account Bank. This letter agreement shall be governed by, and construed in accordance with, the law of the state of New York. Upon acceptance of this letter agreement it will be the valid and binding obligation of the Grantor, the Senior Collateral Agent, and the Blocked Account Bank, in accordance with its terms. Very truly yours, [ ]. By:____________________________ Name: Title: CITICORP USA, INC, as Senior Collateral Agent By:____________________________ Name: Title: Acknowledged and agreed to as of the date first above written: [ ] By:_____________________________ Name: Title: Exhibit A to the Blocked Account Agreement BLOCKED ACCOUNT CASH SWEEP NOTICE [Blocked Account Bank] [Address] Re: Account No. [ ] (the "Blocked Account") Ladies and Gentlemen: Reference is made to the Blocked Account and that certain Blocked Account Agreement dated May [ ], 2000 (as amended, supplemented or otherwise modified from time to time, the "Blocked Account Agreement") among the Blocked Account Bank, the Grantor and the Senior Collateral Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Blocked Account Agreement. The Senior Collateral Agent hereby notifies you that, in accordance with certain provisions of the Senior Subsidiary Security Agreement, from and after the date of this notice, you are hereby directed to transfer (by wire transfer or other method of transfer mutually acceptable to you and the Senior Collateral Agent) to the Senior Collateral Agent, in same day funds, on each Business Day, the entire balance in the Blocked Account to the Concentration Account specified in paragraph (j) of the Blocked Account Agreement (or to such other account as the Senior Collateral Agent may from time to time, or at any time, designate in writing) until you are notified in writing by the Senior Collateral Agent that this Blocked Account Cash Sweep Notice is no longer effective. Very truly yours, CITICORP USA, INC, as Senior Collateral Agent By:__________________________________________ Name: Title: Schedule 7 to the Senior Subsidiary Security Agreement [FORM OF] LOCKBOX ACCOUNT AGREEMENT [Date] [Mellon Bank, N.A. Document Control Manager Three Mellon Bank Center Room 3119 Pittsburgh, PA 15259] Ladies and Gentlemen: Reference is made to (a) account number [ ] and corresponding lockbox and date automation system maintained with you (the "Lockbox Account Bank") by [ ] (the "Grantor") into which funds are deposited from time to time (the "Lockbox Account") and (b) the Senior Subsidiary Security Agreement dated as of June 12, 2000 (as further amended, supplemented or otherwise modified from time to time, the "Senior Subsidiary Security Agreement") among the Subsidiary Guarantors (such term and each other capitalized term used but not defined herein having the meaning assigned to such term in the Senior Subsidiary Security Agreement, including the Definitions Annex and Senior Credit Facility referred to therein) and the Senior Collateral Agent. The Grantor hereby confirms its irrevocable and unconditional instruction to you that, until receipt of a written notice from the Senior Collateral Agent to the contrary, you shall follow exclusively the instructions of the Senior Collateral Agent with respect to the Lockbox Account and that the Lockbox Account shall be under the sole dominion and control of the Senior Collateral Agent. Notwithstanding anything to the contrary or any other agreement relating to the Lockbox Account, the Lockbox Account is and will be maintained for the benefit of the Senior Collateral Agent, will be entitled "Citicorp USA, Inc. as Senior Collateral Agent under the Senior Subsidiary Agreement dated as of May [ ], 2000 Account" and will be subject to written instructions only from an authorized officer of the Senior Collateral Agent. The Grantor also hereby notifies you that the Senior Collateral Agent shall be irrevocably entitled to exercise any and all rights in respect of, or in connection with, the Lockbox Account, including, without limitation, the right to specify when payments are to be made out of, or in connection with, the Lockbox Account. The Senior Collateral Agent hereby instructs you, until you receive notice from the Senior Collateral Agent changing this instruction, to transfer, in same day funds, on each Business Day, all funds, if any on deposit, or otherwise to the credit of, the Lockbox Account to the Account listed below, provided that funds on deposit that are subject to collection may be transmitted properly upon collection. ABA Number:___________________________ [name and address of Grantor's bank] Account Name:_________________________ Concentration Account Account Number:_______________________ Reference:____________________________ Attn:_________________________________ [or to such other account as the Senior Collateral Agent and the Grantor may designate in writing.] All expenses for the maintenance and provision of services in conjunction with the Lockbox Account held in the name of the Grantor are the responsibility of the Grantor. In the event that the Grantor does not pay all service fees due to the Lockbox Account Bank within thirty (30) days after the due date, the Lockbox Account Bank is authorized to charge the Lockbox Account for such fees. In the event the Lockbox Account Bank is unable to obtain sufficient funds from such charges to cover such fees the Grantor shall indemnify the Lockbox Account Bank for all then-due fees on the Lockbox Account that have not been paid. The Grantor and the Senior Collateral Agent agree that the Lockbox Account Bank may debit the Lockbox Account for any items (including, but not limited to, checks, drafts, Automatic Clearinghouse (ACH) credits or wire transfers or other electronic transfers or credits) deposited or credited to the Lockbox Account which may be returned or otherwise not collected and, subject to the preceding paragraph, for all charges, fees, commissions and expenses incurred by the Lockbox Account Bank in providing services or otherwise in connection herewith. The Lockbox Account Bank may charge the Lockbox Account as permitted herein at such times as are in accordance with the Lockbox Account Bank's customary practice for the chargeback of returned items and expenses. In the event the Lockbox Account Bank is unable to obtain sufficient funds for such charges to cover returned items, or reversed or returned credits, or any other items not collected and any other charges, expenses, or commissions incurred by the Lockbox Account Bank in providing the services (referred to as a "cost" or "costs") the Grantor shall indemnify the Lockbox Account Bank for all amounts related to the above described costs incurred by the Lockbox Account Bank. The Senior Collateral Agent agrees that if the Grantor has not reimbursed the Lockbox Account Bank for the amounts described in this paragraph and the Lockbox Account Bank has transferred funds to the Senior Collateral Agent, then the Senior Collateral Agent agrees to reimburse the Lockbox Account Bank (for any returned items described in this paragraph but not for charges, fees or commissions incurred therewith) within ten business days after demand by the Lockbox Account Bank. Notwithstanding any other provision of this Agreement, unless the Lockbox Account Bank is grossly negligent or engages in wilful misconduct in performance or non-performance in connection with this Agreement and the Lockbox Account, the Grantor agrees to indemnify and hold the Lockbox Account Bank harmless from any claims, damages, losses or expenses incurred by any party in connection herewith; in the event the Lockbox Account Bank breaches the standard of care set forth herein, the Grantor and the Senior Collateral Agent each expressly agrees that the Lockbox Account Bank's liability shall be limited to damages directly caused by such breach and in no event shall the Lockbox Account Bank be liable for any incidental, indirect, punitive or consequential damages or attorney's fees whatsoever. Notwithstanding any other provision of this Agreement, the Lockbox Account Bank shall not be liable for any failure, inability to perform, or delay in performance hereunder, if such failure, inability, or delay is due to an act of God, war, civil commotion, governmental action, fire, explosion, strikes, other industrial disturbance, equipment malfunction, action, non-action or delayed action on the part of the Grantor or the Senior Collateral Agent or of any other entity or any other causes that are beyond the Lockbox Account Bank's reasonable control. This Agreement may not be modified or terminated by the Grantor unless, in the case of a modification, the prior written consent of the Senior Collateral Agent and the Lockbox Account Bank is obtained and in the case of termination the prior written consent of the Senior Collateral Agent is obtained. The Lockbox Account Bank may terminate this Agreement upon forty-five (45) days' prior written notice to the Grantor and the Senior Collateral Agent. The Senior Collateral Agent may terminate this Agreement at any time. The Grantor's obligations under this Agreement to indemnify, hold harmless and pay amounts owed (and the Grantor's obligation to reimburse the Lockbox Account Bank for any returned items) shall survive the termination of this Agreement. [This Agreement shall be governed by the laws of the state of New York.] The terms and conditions of the services, attached as Exhibit A, is made part of this Agreement with respect to matters not explicitly covered in this Agreement. To the extent there is a conflict between this Agreement and the terms and conditions of services, this agreement shall take precedence. This Agreement shall become effective immediately upon its execution by all parties hereto. Any notice permitted or required hereunder shall be in writing and shall be deemed to have ben duly given if sent by personal delivery, express or first class mail, or facsimile addressed, in the case of notice to the Lockbox Account Bank to: [Mellon Bank, N.A. Document Control Manager Three Mellon Bank Center Room 3119 Pittsburgh, PA 15259] Phone: (412) 234-4172 Fax: (412) 236-7419 and in the case of notice to the Grantor, to: [30 Hunter Lane Camp Hill, PA 17011 Phone: (717) 975-5760 Fax: (717) 731-3878 Attn: Rite Aid Funding LLC/ Rite Aid Treasury] and in the case of notice to the Senior Collateral Agent: [ ] Fax: [ ] Attn: [ ] or to such other address or addresses as the party to receive notice may provide in writing to the other party in accordance with this paragraph. The Lockbox Account Bank shall have no duty or obligation to inquire into the authenticity or effectiveness of any such notice received pursuant to this Agreement. Please agree to the terms of, and acknowledge receipt of, this notice by signing in the space provided below. Very truly yours, [NAME OF SUBSIDIARY GUARANTOR] ' By:____________________ Name: Title: [RITE AID CORPORATION RITE AID OF TENNESSEE, INC. RITE AID OF ALABAMA, INC. RITE AID OF VERMONT, INC. RITE AID OF CONNECTICUT, INC. RITE AID OF VIRGINIA, INC. RITE AID OF DELAWARE, INC. RITE AID OF WEST VIRGINIA, INC. RITE AID OF WASHINGTON, DC., INC KEYSTONE CENTERS, INC. RITE AID OF FLORIDA, INC. RITE AID DRUG PALACE, INC. RITE AID OF GEORGIA, INC. LANE DRUG COMPANY RITE AID OF INDIANA, INC. APEX DRUG STORES, INC. RITE AID OF KENTUCKY, INC. PERRY DRUG STORES, INC. RITE AID OF MAINE, INC. RDS DETROIT, INC. RITE AID OF MARYLAND, INC. PDS-1 MICHIGAN, INC. RITE AID OF MASSACHUSETTS, INC. THRIFTY PAYLESS, INC. RITE AID OF MICHIGAN, INC. HARCO, INC. RITE AID OF NEW HAMPSHIRE, INC. K&B ALABAMA CORPORATION RITE AID OF NEW JERSEY, INC. K&B FLORIDA CORPORATION RITE AID OF NEW YORK, INC. K&B LOUISIANA CORPORATION RITE AID OF NORTH CAROLINA, INC. K&B MISSISSIPPI CORPORATION RITE AID OF OHIO, INC. K&B TEXAS CORPORATION RITE AID OF PENNSYLVANIA, INC. K&B TENNESSEE CORPORATION RITE AID OF SOUTH CAROLINA, INC. SUPER PHARMACY NETWORK, INC. PCS MAIL SERVICE OF FORT WORTH, INC. PCS HEALTH SYSTEMS, INC.] PCS MAIL SERVICE OF BIRMINGHAM, INC. By:____________________, on behalf By:____________________, on behalf of each of the above listed companies of each of the above listed companies Name: Agreed and acknowledged: [MELLON BANK, N.A.] By:__________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent By:__________________________ Name: Title: Schedule 8 to the Senior Subsidiary Security Agreement GOVERNMENT LOCKBOX ACCOUNT AGREEMENT [Date] [Mellon Bank, N.A. Document Control Manager Three Mellon Bank Center Room 3119 Pittsburgh, PA 15259] Ladies and Gentlemen: Reference is made to (a) account no. [ ] and corresponding lockbox and data automation system maintained with you (the "Government Lockbox Account Bank") by [ ] (the "Grantor") into which funds are deposited from time to time (the "Government Lockbox") and (b) the Senior Subsidiary Security Agreement dated as of May [ ], 2000 (as amended, supplemented or otherwise modified from time to time, the " Senior Subsidiary Security Agreement"), among the Subsidiary Guarantors (such term and each other capitalized term used and not otherwise defined herein having the meaning assigned to such term in the Senior Subsidiary Security Agreement including the Definitions Annex and Senior Credit Facility referred to therein) and the Senior Collateral Agent. The Grantor hereby provides the following revocable instruction with respect to the Government Lockbox Account (the "Standing Revocable Instruction"): the Government Lockbox Account Bank shall transfer from the Government Lockbox Account daily, via a zero balance service as described in the terms and conditions of the services, attached as Exhibit A, all available funds held in the Government Lockbox Account to account no. [ ] at Mellon Bank, N.A. in the name of the Grantor for Citicorp USA, Inc., as Senior Collateral Agent (which account is under the sole dominion and control of the Senior Collateral Agent). This Standing Revocable Instruction is revocable by the Grantor at any time and for any reason by providing written instructions to the Government Lockbox Account Bank, signed by the undersigned (which writing may be by facsimile and upon which you may conclusively rely), whereupon the Government Lockbox Account Bank shall follow, without further inquiry, such contrary written instruction and not the Standing Revocable Instruction. The Grantor also hereby notifies the Government Lockbox Account that, as collateral security for the Senior Obligations, the undersigned Subsidiary Guarantors granted to the Grantor and the Grantor hereby assigns to the Senior Collateral Agent a continuing security interest in (i) the Government Lockbox Account, (ii) all contract rights and privileges in respect to the Government Lockbox Account, (iii) all cash, checks, money orders and other items of value on deposit in the Government Lockbox Account and (iv) all proceeds of the foregoing. All expenses for the maintenance and provision of services in conjunction with the Government Lockbox Account held in the name of the Grantor are the responsibility of the Grantor. In the event that the Grantor does not pay all service fees due to the Government Lockbox Account Bank within thirty (30) days after the due date, the Government Lockbox Account Bank is authorized to charge the Government Lockbox Account for such fees. In the event the Government Lockbox Account Bank is unable to obtain sufficient funds from such charges to cover such fees the Grantor shall indemnify the Government Lockbox Account Bank for all then-due fees on the Government Lockbox Account that have not been paid. The Grantor and the Senior Collateral Agent agree that the Government Lockbox Account Bank may debit the Government Lockbox Account for any items (including, but not limited to, checks, drafts, Automatic Clearinghouse (ACH) credits or wire transfers or other electronic transfers or credits) deposited or credited to the Government Lockbox Account which may be returned or otherwise not collected and, subject to the preceding paragraph, for all charges, fees, commissions and expenses incurred by the Government Lockbox Account Bank in providing services or otherwise in connection herewith. The Government Lockbox Account Bank may charge the Government Lockbox Account as permitted herein at such times as are in accordance with the Government Lockbox Account Bank's customary practice for the chargeback of returned items and expenses. In the event the Government Lockbox Account Bank is unable to obtain sufficient funds for such charges to cover returned items, or reversed or returned credits, or any other items not collected and any other charges, expenses, or commissions incurred by the Government Lockbox Account Bank in providing the services (referred to as a "cost" or "costs") the Grantor shall indemnify the Government Lockbox Account Bank for all amounts related to the above described costs incurred by the Government Lockbox Account Bank. The Senior Collateral Agent agrees that if the Grantor has not reimbursed the Government Lockbox Account Bank for the amounts described in this paragraph and the Government Lockbox Account Bank has transferred funds to the Senior Collateral Agent, then the Senior Collateral Agent agrees to reimburse the Government Lockbox Account Bank (for any returned items described in this paragraph but not for charges, fees or commissions incurred therewith) within ten business days after demand by the Government Lockbox Account Bank. Notwithstanding any other provision of this Government Lockbox Account Agreement, unless the Government Lockbox Account Bank is grossly negligent or engages in wilful misconduct in performance or non-performance in connection with this Agreement and the Government Lockbox Account, the Grantor agrees to indemnify and hold the Government Lockbox Account Bank harmless from any claims, damages, losses or expenses incurred by any party in connection herewith; in the event the Government Lockbox Account Bank breaches the standard of care set forth herein, the Grantor and the Senior Collateral Agent each expressly agrees that the Government Lockbox Account Bank's liability shall be limited to damages directly caused by such breach and in no event shall the Government Lockbox Account Bank be liable for any incidental, indirect, punitive or consequential damages or attorney's fees whatsoever. Notwithstanding any other provision of this Government Lockbox Account Agreement, the Government Lockbox Account Bank shall not be liable for any failure, inability to perform, or delay in performance hereunder, if such failure, inability, or delay is due to an act of God, war, civil commotion, governmental action, fire, explosion, strikes, other industrial disturbance, equipment malfunction, action, non-action or delayed action on the part of the Grantor or the Senior Collateral Agent or of any other entity or any other causes that are beyond the Government Lockbox Account Bank's reasonable control. This Government Lockbox Account Agreement may not be modified or terminated by the Grantor unless, in the case of a modification, the prior written consent of the Senior Collateral Agent and the Government Lockbox Account Bank is obtained and in the case of termination the prior written consent of the Senior Collateral Agent is obtained. The Government Lockbox Account Bank may terminate this Agreement upon forty-five (45) days' prior written notice to the Grantor and the Senior Collateral Agent. The Senior Collateral Agent may terminate this Agreement at any time. The Grantor's obligations under this Agreement to indemnify, hold harmless and pay amounts owed (and the Senior Collateral Agent's obligation to reimburse the Government Lockbox Account Bank for any returned items) shall survive the termination of this Agreement. This Agreement shall be governed by the laws of the State of New York. The terms and conditions of the services, attached as Exhibit A, is made part of this Agreement with respect to matters not explicitly covered in this Agreement. To the extent there is a conflict between this Agreement and the terms and conditions of services, this agreement shall take precedence. This Agreement shall become effective immediately upon its execution by all parties hereto. Any notice permitted or required hereunder shall be in writing and shall be deemed to have been duly given if sent by personal delivery, express or first class mail, or facsimile addressed, in the case of notice to the Government Lockbox Account Bank to: [Mellon Bank, N.A. Document Control Manager Three Mellon Bank Center Room 3119 Pittsburgh, PA 15259 Phone: (412) 234-4172 Fax: (412) 236-7419] and in the case of notice to the Grantor, to: [30 Hunter Lane Camp Hill, PA 17011 Phone: (717) 975-5760 Fax: (717) 731-3878 Attn: Rite Aid Funding LLC/ Rite Aid Treasury] and in the case of notice to the Senior Collateral Agent: [ ] Fax: [ ] Attn: [ ] or to such other address or addresses as the party to receive notice may provide in writing to the other party in accordance with this paragraph. The Government Lockbox Account Bank shall have no duty or obligation to inquire into the authenticity or effectiveness of any such notice received pursuant to this Agreement. Please agree to the terms of, and acknowledge receipt of, this notice (including, without limitation, the notice of, and consent to, the security interest referred to in the foregoing paragraph) by signing in the space provided below. Very truly yours, [NAME OF SUBSIDIARY GUARANTOR] By:____________________ Name: Title: [RITE AID CORPORATION RITE AID OF ALABAMA, INC. RITE AID OF CONNECTICUT, INC. RITE AID OF DELAWARE, INC. RITE AID OF WASHINGTON, DC., INC RITE AID OF FLORIDA, INC. RITE AID OF GEORGIA, INC. RITE AID OF INDIANA, INC. RITE AID OF KENTUCKY, INC. RITE AID OF MAINE, INC. RITE AID OF MARYLAND, INC. RITE AID OF MASSACHUSETTS, INC. RITE AID OF MICHIGAN, INC. RITE AID OF NEW HAMPSHIRE, INC. RITE AID OF NEW JERSEY, INC. RITE AID OF NEW YORK, INC. RITE AID OF NORTH CAROLINA, INC. RITE AID OF OHIO, INC. RITE AID OF PENNSYLVANIA, INC. RITE AID OF SOUTH CAROLINA, INC. PCS MAIL SERVICE OF FORT WORTH, INC. PCS MAIL SERVICE OF BIRMINGHAM, INC. By:___________________, on behalf of each of the above listed companies Name: RITE AID OF TENNESSEE, INC. RITE AID OF VERMONT, INC. RITE AID OF VIRGINIA, INC. RITE AID OF WEST VIRGINIA, INC. KEYSTONE CENTERS, INC. RITE AID DRUG PALACE, INC. LANE DRUG COMPANY APPEX DRUG STORES, INC. PERRY DRUG STORES, INC. RDS DETROIT, INC. PDS-1 MICHIGAN, INC. THRIFTY PAYLESS, INC. HARCO, INC. K&B ALABAMA CORPORATION K&B FLORIDA CORPORATION K&B LOUISIANA CORPORATION K&B MISSISSIPPI CORPORATION K&B TEXAS CORPORATION K&B TENNESSEE CORPORATION SUPER PHARMACY NETWORK, INC. PCS HEALTH SYSTEMS, INC.] By:____________________, on behalf of each of the above listed companies Name: Agreed and acknowledged: [MELLON BANK, N.A.] By:__________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent By:__________________________ Name: Title: Schedule 9 to the Senior Subsidiary Security Agreement [FORM OF] CONCENTRATION ACCOUNT AGREEMENT [Date] [Concentration Account Bank] [address] Ladies and Gentlemen: Reference is made to (a) account no. [ ] maintained with you (the "Concentration Account Bank") by [ ] (the "Grantor") into which funds are deposited from time to time (the "Concentration Account") and (b) the Senior Subsidiary Security Agreement dated as of June 12, 2000 (as amended, supplemented or otherwise modified from time to time, the Senior Subsidiary Security Agreement"), among the Subsidiary Guarantors (such term and each other capitalized term used but not defined herein having the meaning assigned to such term in the Senior Subsidiary Security Agreement, including the Definitions Annex and Senior Credit Facility referred to therein) and the Senior Collateral Agent. Pursuant to the Senior Subsidiary Security Agreement, the Grantor has granted to the Senior Collateral Agent, for the benefit of the Senior Secured Parties, a perfected security interest in certain property of the Grantor, including, the Concentration Account. The Grantor hereby transfers to the Senior Collateral Agent exclusive ownership and control of, and all of its right, title and interest in and to, the Concentration Account and all funds and other property on deposit therein. By executing this Concentration Account Agreement, the Concentration Account Bank acknowledges that the Senior Collateral Agent now has exclusive ownership and control of the Concentration Account, that all funds in the Concentration Account shall be transferred to the Senior Collateral Agent as provided herein, that the Concentration Account is being maintained by the Concentration Account Bank for the benefit of the Senior Collateral Agent and that all amounts and other property therein are held by the Concentration Account Bank as custodian for the Senior Collateral Agent. Except as provided in paragraphs (e), (f) and (j) below, the Concentration Account shall not be subject to deduction, setoff, banker's lien, counterclaim, defense, recoupment or any other right in favor of any person or entity other than the Senior Collateral Agent. By executing this Concentration Account Agreement the Concentration Account Bank also acknowledges that, as of the date hereof, the Concentration Account Bank has received no notice of any other pledge or assignment of the Concentration Account and the Concentration Account Bank agrees with the Senior Collateral Agent as follows: (a) Notwithstanding anything to the contrary or any other agreement relating to the Concentration Account, the Concentration Account is and will be maintained for the benefit of the Senior Collateral Agent, will be entitled "Citicorp USA, Inc. as Senior Collateral Agent under the Senior Subsidiary Security Agreement dated as of May [ ], 2000 Account" and will be subject to written instructions only from an authorized officer of the Senior Collateral Agent (except as expressly provided otherwise herein). (b) The Concentration Account Bank agrees to give the Senior Collateral Agent prompt notice if the Concentration Account shall become subject to any writ, judgment, warrant of attachment, execution or similar process. (c) [A post office box (the "Lockbox") has been rented in the name of the Grantor at the [ post office and the address to be used for such Lockbox is: [Insert address] The Concentration Account Bank's authorized representatives will have access to the Lockbox under the authority given by the Grantor to the post office and will make regular pick-ups from the Lockbox timed to gain maximum benefit of early presentation and availability of funds. The Concentration Account Bank will endorse process all checks received in the Lockbox and deposit such checks (to the extent eligible) in the Concentration Account in accordance with the procedures set forth below .] (d) The Concentration Account Bank will follow its usual operating procedures for the handling of any [checks received from the Lockbox] or other remittance received in the Concentration Account that contains restrictive endorsements, irregularities (such as a variance between the written and numerical amounts), undated or postdated items, missing signatures, incorrect payees and the like. (e) The Concentration Account Bank will endorse and process all eligible checks and other remittance items not covered by paragraph (d) and deposit such checks and remittance items in the Concentration Account. (f) The Concentration Account Bank will mail all checks returned unpaid because of uncollected or insufficient funds under appropriate advice to the Grantor (with a copy of the notification of return to the Senior Collateral Agent). The Concentration Account Bank may charge the Concentration Account for the amounts of any returned check that has been previously credited to the Concentration Account. To the extent insufficient funds remain in the Concentration Account to cover any such returned check, the Grantor shall indemnify the Concentration Account Bank for the uncollected amount of such returned check upon your demand. (g) The Concentration Account Bank will maintain a record of all checks and other remittance items received in the Concentration Account on a daily basis and, in addition to providing the Grantor with photostatic copies thereof, vouchers, enclosures and the like of such checks and remittance items, furnish to the Senior Collateral Agent a monthly statement setting forth the amounts deposited in and withdrawn from the Concentration Account and shall furnish such other information relating to the Concentration Account at such times as shall be reasonably requested by the Senior Collateral Agent to: Citicorp USA, Inc., as Senior Collateral Agent, 399 Park Avenue, New York, New York 10043, Attention: [ ], with a copy to the Grantor. (h) Prior to the delivery of a written notice from the Senior Collateral Agent in the form of Exhibit A hereto (the "Concentration Account Cash Sweep Notice"), the Grantor is free to withdraw funds from the Concentration Account in such amounts and with such frequency as the Grantor may from time to time determine, without notice to or consent from the Senior Collateral Agent. (i) From and after delivery to the Concentration Account Bank of a Concentration Account Cash Sweep Notice and until the Concentration Account Bank is notified in writing by the Senior Collateral Agent that the Concentration Account Cash Sweep Notice is no longer in effect (a "Concentration Account Cash Sweep Period"), the Grantor will have no control over the use of, or any right to withdraw any amount from, to draw upon, or to otherwise exercise any power with respect to the Concentration Account. (j) During a Concentration Account Cash Sweep Period, the Concentration Account Bank shall transfer, in same day funds, on each Business Day, all funds, if any on deposit, or otherwise to the credit of, the Concentration Account to the account listed below (the "Citibank Concentration Account") or to such other account as the Senior Collateral Agent may from time to time designate in writing, provided that funds on deposit that are subject to collection may be transmitted promptly upon collection: ABA NUMBER:_________________________________ [Citicorp USA, Inc. 399 Park Avenue New York, NY 10043] ACCOUNT NAME: Citibank Concentration Account ACCOUNT NUMBER:_____________________________ REFERENCE:__________________________________ ATTN:_______________________________________ (k) All customary service charges and fees with respect to the Concentration Account shall be debited to the Concentration Account. In the event insufficient funds remain in the Concentration Account to cover such customary service charges and fees, the Grantor shall pay and indemnify the Concentration Account Bank for the amounts of such customary service charges and fees. Neither the Senior Collateral Agent nor the Senior Secured Parties shall have any liability for the payment of any fees or charges in respect of the Concentration Account. This letter agreement shall be binding upon and shall inure to the benefit of the Concentration Account Bank, the Grantor, the Senior Collateral Agent, the Senior Secured Parties referred to in the Senior Subsidiary Security Agreement and their respective successors, transferees and assigns of any of the foregoing. This letter agreement may not be modified or terminated except upon the mutual consent of the Senior Collateral Agent, the Grantor and the Concentration Account Bank. The Concentration Account Bank may terminate the letter agreement only upon 45 days' prior written notice to the Grantor and the Senior Collateral Agent. The Senior Collateral Agent may terminate this letter agreement at any time. So long as any Senior Obligations remain outstanding and the Commitments are still outstanding, upon such termination the Concentration Account Bank shall close the Concentration Account and transfer all funds in the Concentration Account to the Senior Collateral Agent at the Citibank Concentration Account or as otherwise directed by the Senior Collateral Agent. After any such termination, the Concentration Account Bank shall nonetheless remain obligated promptly to transfer to the Concentration Account or as the Senior Collateral Agent may otherwise direct all funds and other property received in respect of the Concentration Account. This letter agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this letter agreement by telecopier shall be effective as delivery of a manually executed counterpart of this letter agreement. This letter agreement supersedes all prior agreements, oral or written, with respect to the subject matter hereof and may not be amended, modified or supplemented except by a writing signed by the Senior Collateral Agent, the Grantor and the Concentration Account Bank. This letter agreement shall be governed by, and construed in accordance with, the law of the state of New York. Upon acceptance of this letter agreement it will be the valid and binding obligation of the Grantor, the Senior Collateral Agent, and the Concentration Account Bank, in accordance with its terms. Very truly yours, [ ]. By:____________________________ Name: Title: CITICORP USA, INC, as Senior Collateral Agent By:____________________________ Name: Title: Acknowledged and agreed to as of the date first above written: [ ] By:____________________________ Name: Title: Exhibit A to the Concentration Account Agreement CONCENTRATION ACCOUNT CASH SWEEP NOTICE [Concentration Account Bank] [Address] Re: Account No. [ ] (the "Concentration Account") Ladies and Gentlemen: Reference is made to the Concentration Account and that certain Concentration Account Agreement dated June 12, 2000 (as amended, supplemented or otherwise modified from time to time, the "Concentration Account Agreement") among the Concentration Account Bank, the Grantor and the Senior Collateral Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Concentration Account Agreement. The Senior Collateral Agent hereby notifies you that, in accordance with certain provisions of the Senior Subsidiary Security Agreement, from and after the date of this notice, you are hereby directed to transfer (by wire transfer or other method of transfer mutually acceptable to you and the Senior Collateral Agent) to the Senior Collateral Agent, in same day funds, on each Business Day, the entire balance in the Concentration Account to the Citibank Concentration Account specified in paragraph (j) of the Concentration Account Agreement (or to such other account as the Senior Collateral Agent may from time to time, or at any time, designate in writing) until you are notified in writing by the Senior Collateral Agent that this Concentration Account Cash Sweep Notice is no longer effective or to such other account as the Senior Collateral Agent may from time to time designate in writing. Very truly yours, CITICORP USA, INC, as Senior Collateral Agent By:__________________________________________ Name: Title: Schedule 10 to the Senior Subsidiary Security Agreement PERFECTION CERTIFICATE EX-10 8 0008.txt EXHIBIT 10.4 - SENIOR SUBSIDIARY GUARANTEE AGREEMENT Exhibit 10.4 EXECUTION COPY SENIOR SUBSIDIARY GUARANTEE AGREEMENT dated as of June 12, 2000, among each of the subsidiaries listed on Schedule I hereto (each such subsidiary individually, a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors") of RITE AID CORPORATION, a Delaware corporation (the "Borrower"), and CITICORP USA, INC., a Delaware corporation, as collateral agent (the "Senior Collateral Agent") for the Senior Secured Parties. Reference is made to (a) the Senior Credit Agreement dated as of June 12, 2000 (as amended, supplemented or otherwise modified from time to time, the "Senior Credit Facility"), among Rite Aid, as Borrower, the Senior Banks parties thereto, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents and (b) the Independent Standby L/C Documents pursuant to which Mellon Bank and Citibank have issued and may in the future issue certain standby letters of credit. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Definitions Annex attached as Annex 2 hereto, and if not defined therein, as defined in or by reference to the Senior Credit Facility. The Senior Banks have agreed to make Loans to the Borrower, and the Issuing Banks have agreed to issue Letters of Credit for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Senior Credit Facility. Mellon Bank and Citibank have issued and may in the future issue the Independent Standby Letters of Credit. Each of the Subsidiary Guarantors is a wholly owned Subsidiary of the Borrower and acknowledges that it will derive substantial benefit from the making of the Loans by the Senior Banks and the issuance of the Letters of Credit and the Independent Letters of Credit. The obligations of the Senior Banks to make Loans and of the Issuing Banks to issue Letters of Credit are conditioned on, among other things, the execution and delivery by the Subsidiary Guarantors of a Senior Subsidiary Guarantee Agreement in the form hereof. As consideration therefor and (a) in order to induce the Senior Banks to make Loans and the Issuing Banks to issue Letters of Credit and (b) in consideration of the issuance of the Independent Standby Letters of Credit by Mellon Bank and Citibank, the Subsidiary Guarantors are willing to execute this Agreement. Accordingly, the parties hereto agree as follows: SECTION 1. GUARANTEE. Each Subsidiary Guarantor unconditionally guarantees, jointly with the other Subsidiary Guarantors and severally, as a primary obligor and not merely as a surety, the due and punctual payment of, and the due and punctual performance of, the Senior Obligations. Each Subsidiary Guarantor agrees that the Senior Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guarantee notwithstanding any extension or renewal of any Senior Obligation. Anything contained in this Agreement to the contrary notwithstanding, the obligations of each Subsidiary Guarantor hereunder shall be limited to a maximum aggregate amount equal to the greater of: (a) the direct or indirect benefit to any Subsidiary Guarantor from the Loans and other extensions of credit under the Senior Loan Documents, and (b) the greatest amount that would not render such Subsidiary Guarantor's obligations hereunder subject to avoidance under Section 548 of Title 11 of the United States Code or any comparable provisions of any applicable state law, after giving effect to all other liabilities of such Subsidiary Guarantor, contingent or otherwise, that are relevant under such laws (specifically excluding, however, any liabilities of such Subsidiary Guarantor (x) in respect of intercompany indebtedness to the Borrower or Affiliates of the Borrower to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Subsidiary Guarantor hereunder, and (y) under any Guarantee of the Second Priority Debt Obligations) and after giving effect as assets to the value of any rights to subrogation, contribution, reimbursement, indemnity or similar rights of such Subsidiary Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an equitable allocation among such Subsidiary Guarantor and other Affiliates of the Borrower of obligations arising under Guarantees by such parties (including the Senior Indemnity, Subrogation and Contribution Agreement). SECTION 2. OBLIGATIONS NOT WAIVED. To the fullest extent permitted by applicable law, each Subsidiary Guarantor waives presentment to, demand of payment from and protest to the Borrower of any of the Senior Obligations, and also waives notice of acceptance of its guarantee and notice of protest for nonpayment. To the fullest extent permitted by applicable law, the obligations of each Subsidiary Guarantor hereunder shall not be affected by (a) the failure of the Senior Collateral Agent or any other Senior Secured Party to assert any claim or demand or to enforce or exercise any right or remedy against the Borrower or any other Subsidiary Guarantor under the provisions of the Senior Credit Facility, any other Senior Loan Document or otherwise, (b) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of this Agreement, any other Senior Loan Document, any Guarantee or any other agreement, including with respect to any other Subsidiary Guarantor under this Agreement or (c) the failure to perfect any security interest in, or the release of, any of the security held by or on behalf of the Senior Collateral Agent or any other Senior Secured Party. SECTION 3. SECURITY. Each of the Subsidiary Guarantors authorizes the Senior Collateral Agent and each of the other Senior Secured Parties, to (a) take and hold security for the payment of this Guarantee and the Senior Obligations and exchange, enforce, waive and release any such security, (b) apply such security and direct the order or manner of sale thereof as they in their sole discretion may determine and (c) release or substitute any one or more endorsees, other Subsidiary Guarantors or other Obligors. SECTION 4. GUARANTEE OF PAYMENT. Each Subsidiary Guarantor agrees that its guarantee constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Senior Collateral Agent or any other Senior Secured Party to any of the security held for payment of the Senior Obligations or to any balance of any deposit account or credit on the books of the Senior Collateral Agent or any other Senior Secured Party in favor of the Borrower, any other Obligor or any other Person. SECTION 5. NO DISCHARGE OR DIMINISHMENT OF GUARANTEE. The obligations of each Subsidiary Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Senior Obligations), including any claim of waiver, release, surrender, alteration or compromise of any of the Senior Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Senior Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of the Senior Collateral Agent or any other Senior Secured Party to assert any claim or demand or to enforce any remedy under the Senior Credit Facility, any other Senior Loan Document or any other agreement, by any waiver or modification of any provision of any thereof, by any default, failure or delay, wilful or otherwise, in the performance of the Senior Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of any Subsidiary Guarantor or that would otherwise operate as a discharge of each Subsidiary Guarantor as a matter of law or equity (other than the indefeasible payment in full in cash of all the Senior Obligations). SECTION 6. DEFENSES OF BORROWER WAIVED. To the fullest extent permitted by applicable law, each of the Subsidiary Guarantors waives any defense based on or arising out of any defense of the Borrower or the unenforceability of the Senior Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower, other than the final and indefeasible payment in full in cash of the Senior Obligations. The Senior Collateral Agent and the other Senior Secured Parties may, at their election, foreclose on any security held by one or more of them by one or more judicial or nonjudicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Senior Obligations, make any other accommodation with the Borrower or any other guarantor or exercise any other right or remedy available to them against the Borrower or any other guarantor, without affecting or impairing in any way the liability of any Subsidiary Guarantor hereunder except to the extent the Senior Obligations have been fully, finally and indefeasibly paid in cash. Pursuant to applicable law, each of the Subsidiary Guarantors waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Subsidiary Guarantor against the Borrower or any other Subsidiary Guarantor or guarantor, as the case may be, or any security. SECTION 7. AGREEMENT TO PAY; SUBORDINATION. In furtherance of the foregoing and not in limitation of any other right that the Senior Collateral Agent or any other Senior Secured Party has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the failure of the Borrower or any other Obligor to pay any Senior Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Subsidiary Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the Senior Collateral Agent or such other Senior Secured Party as designated thereby in cash the amount of such unpaid Senior Obligations. Upon payment by any Subsidiary Guarantor of any sums to the Senior Collateral Agent or any Senior Secured Party as provided above, all rights of such Subsidiary Guarantor against the Borrower arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise, including pursuant to the Senior Indemnity, Subrogation and Contribution Agreement, shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full in cash of all the Senior Obligations. In addition, any indebtedness of the Borrower now or hereafter held by any Subsidiary Guarantor is hereby subordinated in right of payment to the prior payment in full of the Senior Obligations. If any amount shall erroneously be paid to any Subsidiary Guarantor on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such indebtedness of the Borrower, such amount shall be held in trust for the benefit of the Senior Secured Parties and shall forthwith be paid to the Senior Collateral Agent to be credited against the payment of the Senior Obligations, whether matured or unmatured, in accordance with the terms of the Senior Loan Documents. SECTION 8. CASH COLLATERALIZATION OF LETTER OF CREDIT OBLIGATIONS. If any Event of Default shall occur and be continuing, each Subsidiary Guarantor agrees, jointly and severally, and in addition to its obligations under Section 1, on the Business Day on which the Borrower receives notice from the Senior Administrative Agent or the Majority Revolving Credit Banks (or, if the maturity of the Loans has been accelerated, Revolving Credit Banks holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit) thereof and of the amount to be deposited, deposit in the L/C Cash Collateral Account, for the benefit of the Revolving Credit Banks, an amount in cash equal to the L/C Exposure as of such date. Such deposits shall be held by the Senior Collateral Agent as collateral for the payment and performance of the Senior Obligations. The Senior Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Such deposits shall be invested in Temporary Cash Investments, to be selected by the Senior Collateral Agent in its sole discretion, and interest earned on such deposits shall be deposited in such account as additional collateral for the payment and performance of the Senior Obligations. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall (i) automatically be applied by the Senior Administrative Agent to reimburse the applicable Issuing Bank for L/C Disbursements for which it has not been reimbursed, (ii) be held for the satisfaction of the reimbursement obligations of the Borrower for the L/C Exposure at such time and (iii) if the maturity of the Loans has been accelerated be applied to satisfy other Senior Obligations. If a Subsidiary Guarantor is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to such Subsidiary Guarantor within three Business Days after all Events of Default have been cured or waived (or during a Cash Sweep Period, paid into the Citibank Concentration Account). SECTION 9. INFORMATION. Each of the Subsidiary Guarantors assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Senior Obligations and the nature, scope and extent of the risks that such Subsidiary Guarantor assumes and incurs hereunder, and agrees that none of the Senior Collateral Agent or the other Senior Secured Parties will have any duty to advise any of the Subsidiary Guarantors of information known to it or any of them regarding such circumstances or risks. SECTION 10. REPRESENTATIONS AND WARRANTIES. Each of the Subsidiary Guarantors represents and warrants as to itself that all representations and warranties relating to it contained in the Senior Credit Facility are true and correct. SECTION 11. TERMINATION. The Guarantees made hereunder (a) shall terminate on the Senior Obligation Payment Date and (b) shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Senior Obligations is rescinded or must otherwise be restored by any Senior Secured Party or any Subsidiary Guarantor upon the bankruptcy or reorganization of the Borrower, any Subsidiary Guarantor or otherwise. SECTION 12. BINDING EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Subsidiary Guarantors that are contained in this Agreement shall bind and inure to the benefit of each party hereto and their respective successors and assigns. This Agreement shall become effective as to any Subsidiary Guarantor when a counterpart hereof executed on behalf of such Subsidiary Guarantor shall have been delivered to the Senior Collateral Agent, and a counterpart hereof shall have been executed on behalf of the Senior Collateral Agent, and thereafter shall be binding upon such Subsidiary Guarantor and the Senior Collateral Agent and their respective successors and assigns, and shall inure to the benefit of such Subsidiary Guarantor, the Senior Collateral Agent and the other Senior Secured Parties, and their respective successors and assigns, except that no Subsidiary Guarantor shall have the right to assign its rights or obligations hereunder or any interest herein (and any such attempted assignment shall be void). If all of the capital stock of a Subsidiary Guarantor is sold, transferred or otherwise disposed of pursuant to a transaction permitted by Section 5.23 of the Senior Credit Facility, such Subsidiary Guarantor shall be released from its obligations under this Agreement without further action. This Agreement shall be construed as a separate agreement with respect to each Subsidiary Guarantor and may be amended, modified, supplemented, waived or released with respect to any Subsidiary Guarantor without the approval of any other Subsidiary Guarantor and without affecting the obligations of any other Subsidiary Guarantor hereunder. SECTION 13. WAIVERS; AMENDMENT. (a) No failure or delay of the Senior Collateral Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Senior Collateral Agent hereunder and of the other Senior Secured Parties under the other Senior Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Subsidiary Guarantor therefrom shall in any event be effective unless the same shall be permitted by clause (b), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any Subsidiary Guarantor in any case shall entitle such Subsidiary Guarantor to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Subsidiary Guarantors with respect to which such waiver, amendment or modification relates and the Senior Collateral Agent, with the prior written consent of the Majority Senior Parties, except (i) as otherwise provided in the Senior Credit Facility and (ii) any amendment or waiver which adversely affects the Independent Standby L/C Parties under this Agreement will require the additional consent of the Independent Standby L/C Parties pursuant to a letter or agreement by the Independent Standby L/C Parties or by telecopy transmission from the Independent Standby L/C Parties. SECTION 14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 15. NOTICES. All communications and notices hereunder shall be in writing and given as provided in Section 9.01 of the Senior Credit Facility. All communications and notices hereunder to each Subsidiary Guarantor shall be given to it in care of the Borrower, at the address of the Borrower specified in Annex 2 to the Senior Credit Facility. SECTION 16. SURVIVAL OF AGREEMENT; SEVERABILITY. (a) All covenants, agreements, representations and warranties made by the Subsidiary Guarantors herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Senior Loan Document shall be considered to have been relied upon by the Senior Collateral Agent and the other Senior Secured Parties and shall survive the making by the Senior Banks of the Loans and the issuance of the Letters of Credit by the Issuing Banks regardless of any investigation made by the Senior Secured Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any other fee or amount payable under this Agreement or any other Senior Loan Document is outstanding and unpaid or the L/C Exposure does not equal zero and as long as the Commitments and the L/C Commitment have not been terminated. (b) In the event any one or more of the provisions contained in this Agreement or in any other Senior Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 17. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 12. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Agreement. SECTION 18. RULES OF INTERPRETATION. The rules of interpretation specified in Section 1.02 of the Senior Credit Facility shall be applicable to this Agreement. SECTION 19. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each Subsidiary Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Senior Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Senior Collateral Agent or any other Senior Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Senior Loan Documents against any Subsidiary Guarantor or its properties in the courts of any jurisdiction. (b) Each Subsidiary Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Senior Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 15. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 20. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER SENIOR LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER SENIOR LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 20. SECTION 21. ADDITIONAL SUBSIDIARY GUARANTORS. Pursuant to Section 5.08 of the Senior Credit Facility, each Subsidiary of the Borrower that was not in existence on the date of the Senior Credit Facility is required to enter into this Agreement as a Subsidiary Guarantor upon becoming a Subsidiary. Upon execution and delivery after the date hereof by the Senior Collateral Agent and such a Subsidiary of an instrument in the form of Annex 1, such Subsidiary shall become a Subsidiary Guarantor hereunder with the same force and effect as if originally named as a Subsidiary Guarantor herein. The execution and delivery of any instrument adding an additional Subsidiary Guarantor as a party to this Agreement shall not require the consent of any other Subsidiary Guarantor hereunder. The rights and obligations of each Subsidiary Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Guarantor as a party to this Agreement. SECTION 22. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, each Senior Secured Party is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Debt at any time owing by such Senior Secured Party to or for the credit or the account of any Subsidiary Guarantor against any or all the obligations of such Subsidiary Guarantor now or hereafter existing under this Agreement and the other Senior Loan Documents held by such Senior Secured Party, irrespective of whether or not such Senior Secured Party shall have made any demand under this Agreement or any other Senior Loan Document and although such obligations may be unmatured and regardless of the adequacy of any Collateral. The rights of each Senior Secured Party under this Section 22 are in addition to other rights and remedies (including other rights of setoff) which such Senior Secured Party may have. SECTION 23. COLLATERAL TRUST AND INTERCREDITOR AGREEMENT. Each of the parties to this Agreement acknowledges and agrees, for the benefit of each other party to the Collateral Trust and Intercreditor Agreement, that notwithstanding anything herein to the contrary, the terms of this Agreement, and the rights and remedies of the parties hereto, are subject to the Collateral Trust and Intercreditor Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. CITICORP USA, INC., as Senior Collateral Agent, By________________________________ Name: Title: THRIFTY PAYLESS, INC., as a Subsidiary Guarantor, By________________________________ Name: Title: PCS HEALTH SYSTEMS, INC., as a Subsidiary Guarantor, By________________________________ Name: Title: EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE I HERETO, as Grantors, By________________________________ Name: Title: Schedule I to the Senior Subsidiary Guarantee Agreement Subsidiary Guarantors Rite Aid Hdqtrs. Corp. Rite Aid of Alabama, Inc. Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Florida, Inc. Rite Aid of Georgia, Inc. Rite Aid of Illinois, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Massachusetts, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of North Carolina, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. Rite Aid of South Carolina, Inc. Rite Aid of Tennessee, Inc. Rite Aid of Vermont, Inc. Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Drug Fair of PA. Inc. Drug Fair, Inc. Eagle Managed Care Corp. GDF, Inc. Harco, Inc. The Lane Drug Company Keystone Centers, Inc. Ocean Acquisition Corporation PCS Holding Corporation Perry Drug Stores, Inc. Reed, Inc. Rite Aid Funding LLC Rite Investments Corp. Rite Aid Drug Palace, Inc. Rite Aid Rome Distribution Center, Inc. Rite Aid Transport, Inc. RX Choice, Inc. Script South Thrifty Payless, Inc. W.R.A.C., Inc. 3581 Carter Hill Road - Montgomery Corp. 4042 Warrensville Center Road - Warrensville Ohio, Inc. 5277 Associates, Inc. 537 Elm Street Corporation 5600 Superior Properties, Inc. 657-659 Broad St. Corp. Broadview and Wallings -Broadview Heights Ohio, Inc. Dominion Action One Corporation Dominion Action Two Corporation Dominion Action Three Corporation Dominion Action Four Corporation Dominion Drug Stores Corp. England Street-Asheland Corporation Jaime Nathan Travis Corporation Lakehurst and Broadway Corporation Patton Drive and Navy Boulevard Property Corporation Portfolio Medical Services, Inc. Rack Rite Distributors, Inc. Ram-Utica, INC. Rite Aid Venturer #1, Inc. Rite Fund, Inc. The Muir Company Virginia Corporation K&B, Incorporated K&B Alabama Corporation K&B Florida Corporation K&B Louisiana Corporation K&B Mississippi Corporation K&B Services, Incorporated K&B Tennessee Corporation K&B Texas Corporation K&B Trainees, Inc. Katz & Besthoff, Inc. Super Beverage of Texas #2, Inc. Super Beverage of Texas #3, Inc. Super Beverage of Texas #4, Inc. Super Beverage of Texas #5, Inc. Super Beverage of Texas #6, Inc. Super Distributors, Inc. Super Ice Cream Suppliers, Inc. Super Laboratories, Inc. Super Pharmacy Network, Inc. Super Tobacco Distributors, Inc. PCS Health Systems, Inc. PCS Services, Inc. PCS Mail Services, Inc. PCS Mail Service of Fort Worth, Inc. PCS Mail Service of Birmingham, Inc. PCS Mail Services of Scottsdale, Inc. Clinical Pharmaceuticals, Inc. Apex Drug Stores, Inc. PDS-1 Michigan, Inc. RDS Detroit, Inc. Perry Distributors, Inc. PL Xpress, Inc. Thrifty Corporation P.L.D. Enterprises, Inc. Rite Aid Lease Management Company Rite Aid Realty Corp. Thrifty Wilshire, Inc. Name Rite LLC Sophie One Corp. 112 Burleigh Avenue Norfolk, LLC. 1515 West State Street Boise, Idaho, LLC 1525 Cortyou Road - Brooklyn Inc. 1740 Associates, LLC 764 South Broadway- Geneva, Ohio, LLC 912 Elmwood Avenue- Buffalo, LLC Ann & Government Streets- Mobile, Alabama, LLC Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC Central Avenue and Main Street- Petal, MS, LLC Eighth and Water Streets- Ulrichsville, Ohio, LLC Euclid and Wilders Roads- Bay City, LLC Gettysburg and Hoover-Dayton, Ohio, LLC Gratiot & Center- Saginaw Township, Michigan, LLC Louisville Avenue & North 18th Street- Monroe, Louisiana, LLC Main & McPherson- Clyde, LLC Mayfield & Chillicothe Roads- Chesterland, LLC Munson & Andrews LLC Northline & Dix- Toledo- Southgate, LLC Paw Paw Lake Road & Paw Paw Avenue- Coloma, Michigan, LLC Richmond Road & Monticello Boulevard- Richmond Heights, Ohio, LLC Route 1 and Hood Road- Fredricksburg, LLC Route 202 at Route 124 Jaffrey- New Hampshire, LLC Seven Mile and Evergreen- Detroit, LLC Silver Springs Road- Baltimore, Maryland/ One, LLC Silver Springs Road- Baltimore, Maryland/ Two, LLC State Street and Hill Road- Gerard, Ohio, LLC State & Fortification Streets- Jackson, Mississippi, LLC Tyler and Sanders Roads, Birmingham- Alabama, LLC Annex 1 to the Senior Subsidiary Guarantee Agreement SUPPLEMENT NO. dated as of , to the Senior Subsidiary Guarantee Agreement dated as of June 12, 2000, among each of the subsidiaries listed on Schedule I thereto (each such subsidiary individually, a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors") of RITE AID CORPORATION, a Delaware corporation (the "Borrower"), and CITICORP USA, INC., a Delaware corporation, as collateral agent (the "Senior Collateral Agent") for the Senior Secured Parties. A. Reference is made to (a) the Senior Credit Agreement dated as of June 12, 2000 (as amended, supplemented or otherwise modified from time to time, the "Senior Credit Facility"), among Rite Aid, as Borrower, the Senior Banks parties thereto, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents and (b) the Independent Standby L/C Documents pursuant to which Mellon Bank and Citibank have issued and may in the future issue certain standby letters of credit. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Senior Subsidiary Guarantee Agreement, including the Definitions Annex and the Senior Credit Facility referred to therein. C. The Subsidiary Guarantors have entered into the Senior Subsidiary Guarantee Agreement (a) in order to induce the Senior Banks to make Loans and the Issuing Banks to issue Letters of Credit and (b) in consideration of the issuance of the Independent Standby Letters of Credit by Mellon Bank and Citibank. Pursuant to Section 5.08 of the Senior Credit Facility, each Domestic Subsidiary of the Borrower that was not in existence or not a Subsidiary on the date of the Senior Credit Facility is required to enter into the Senior Subsidiary Guarantee Agreement as a Subsidiary Guarantor upon becoming a Domestic Subsidiary. Section 21 of the Senior Subsidiary Guarantee Agreement provides that additional Subsidiaries of the Borrower may become Subsidiary Guarantors under the Senior Subsidiary Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary of the Borrower (the "New Subsidiary Guarantor") is executing this Supplement in accordance with the requirements of the Senior Credit Facility to become a Subsidiary Guarantor under the Senior Subsidiary Guarantee Agreement in order to (a) induce the Senior Banks to make additional Loans and the Issuing Banks to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued and (b) in consideration of the issuance of the Independent Standby Letters of Credit by Mellon Bank and Citibank. Accordingly, the Senior Collateral Agent and the New Subsidiary Guarantor agree as follows: SECTION 1. In accordance with Section 20 of the Senior Subsidiary Guarantee Agreement, the New Subsidiary Guarantor by its signature below becomes a Subsidiary Guarantor under the Senior Subsidiary Guarantee Agreement with the same force and effect as if originally named therein as a Subsidiary Guarantor and the New Subsidiary Guarantor hereby (a) agrees to all the terms and provisions of the Senior Subsidiary Guarantee Agreement applicable to it as a Subsidiary Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Subsidiary Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a "Subsidiary Guarantor" in the Senior Subsidiary Guarantee Agreement shall be deemed to include the New Subsidiary Guarantor. The Senior Subsidiary Guarantee Agreement is hereby incorporated herein by reference. SECTION 2. The New Subsidiary Guarantor represents and warrants to the Senior Collateral Agent and the other Senior Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. SECTION 3. This Supplement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Senior Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Subsidiary Guarantor and the Senior Collateral Agent. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Supplement. SECTION 4. Except as expressly supplemented hereby, the Senior Subsidiary Guarantee Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Senior Subsidiary Guarantee Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision hereof in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 14 of the Senior Subsidiary Guarantee Agreement. All communications and notices hereunder to the New Subsidiary Guarantor shall be given to it at the address set forth under its signature below, with a copy to the Borrower. SECTION 8. The New Subsidiary Guarantor agrees to reimburse the Senior Collateral Agent for its out-of-pocket expenses in connection with this Supplement, including the fees, disbursements and other charges of counsel for the Senior Collateral Agent. IN WITNESS WHEREOF, the New Subsidiary Guarantor and the Senior Collateral Agent have duly executed this Supplement to the Senior Subsidiary Guarantee Agreement as of the day and year first above written. [NAME OF NEW SUBSIDIARY GUARANTOR], By________________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent, By________________________________ Name: Title: Annex 2 to the Senior Subsidiary Guarantee Agreement DEFINITIONS ANNEX This is the Definitions Annex referred to in the Senior Loan Documents (such term and each other capitalized term used herein as defined below, and if not defined herein, have the meanings assigned to such terms in the applicable Senior Loan Document or Second Priority Debt Document) and the Second Priority Debt Documents. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 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 thereof and of each Senior Loan Document and Second Priority Debt Document containing restrictions or imposing conditions on the amendment, modification or supplementing of such agreement or contract. "Affiliate" means, when used with respect to a specified Person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Asset Sale" means any sale, transfer or other disposition (including pursuant to a Sale and Leaseback Transaction) of any property or asset of the Borrower or any Subsidiary (including any equity interest in a Subsidiary), other than a Permitted Disposition. "Attributable Debt" means, as to any particular Capital Lease or 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 a transaction involving a Capital Lease, the amount on such date of the obligation thereunder that would appear on a balance sheet prepared as of such date in accordance with generally accepted accounting principles, or (ii) in the case of a Sale and Leaseback Transaction not involving a Capital Lease, 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 per annum that would be applicable to a Capital Lease of the Borrower having similar payment terms. 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, whether or not characterized as rent. "Bankruptcy Proceeding" means any proceeding under Title 11 of the U.S. Code or any other Federal, state or foreign bankruptcy, insolvency, reorganization, receivership or similar law. "Basket Asset Sale" means any sale or disposition (including a Sale and Leaseback Transaction not involving any Mortgaged Property) of office locations, stores or other personal or real property (including any improvements thereon), whether or not constituting Mortgaged Property, or leasehold interest therein for fair value in the ordinary course of business consistent with past practice and not inconsistent with the Borrower's business plan delivered to the Representatives on the Closing Date, provided, however, that, (i) the aggregate consideration received therefor (including the fair market value of any non-cash consideration) shall not exceed $75,000,000 in any fiscal year (calculated without regard to Sale and Leaseback Transactions permitted by Section 5.14(a), (b) and (c) of the Senior Credit Facility as in effect on the Closing Date) and (ii) at least 75% of such consideration shall consist of cash. "Borrower" means Rite Aid. "Business Day" means any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Euro-Dollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Markets Transaction" means the receipt by the Borrower or a Subsidiary of proceeds of 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 any proceeds in respect of the issuance of Exchange Notes to SPV and the disposition of such Exchange Notes pursuant to the Forward Commitment Agreement). "Casualty/Condemnation" means any event that gives rise to Casualty/Condemnation Proceeds. "Casualty/Condemnation Proceeds" means (a) any insurance proceeds under any insurance policies or otherwise with respect to any casualty or other insured damage to any assets of the Borrower or its Subsidiaries, and (b) any proceeds received by the Borrower or any Subsidiary of any action or proceeding for the taking of any assets of the Borrower or its Subsidiaries, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any similar public improvement or condemnation proceeding, less, in each case (i) any fees, commissions and expenses (including the costs of adjustment and condemnation proceedings) and other costs paid or incurred by the Borrower or any Subsidiary in connection therewith, (ii) income taxes reasonably estimated to be payable as a result of any gain recognized in connection with the receipt of such payment or proceeds and (iii) payment of the outstanding amount of any Debt (or Attributable Debt), other than the Secured Obligations, together with premium or penalty, if any, and interest thereon (or comparable obligations in respect of Attributable Debt), that is secured by a Lien on (or if Attributable Debt, the lease of) the stock or assets in question and that has priority over both the Senior Lien and the Second Priority Lien and is to be repaid as a result of receipt of such payments or proceeds; provided, however, that no such proceeds shall constitute Casualty/Condemnation Proceeds to the extent that such proceeds are (A) reinvested in other like fixed or capital assets within 180 days of the Casualty/Condemnation that gave rise to such proceeds or (B) committed to be reinvested in other like fixed or capital assets within 180 days of such Casualty/Condemnation, with diligent pursuit of such reinvestment, and reinvested in such assets within 365 days of such Casualty/Condemnation. "Citibank" means Citibank, N.A. "Citibank Standby L/C Documents" means the reimbursement agreements, letter of credit applications and other documents relating to the Citibank Standby Letters of Credit. "Citibank Standby L/C Obligations" means (a) each payment, including payments in respect of reimbursements and cash collateralization, required to be made by Rite Aid under the Citibank Standby L/C Documents in respect of Citibank Standby Letters of Credit in an aggregate amount at any time outstanding not in excess of (i) $8,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied to such obligations as the result of the exercise of remedies under the Senior Collateral Documents and (b) all other monetary obligations, including fees, costs, expenses and indemnities (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) of Rite Aid or any Obligor under the Citibank Standby L/C Documents to the extent attributable to the Citibank Standby Letters of Credit referred to in clause (a). "Citibank Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Citibank outstanding on the Closing Date in an aggregate face amount of approximately $8,000,000, together with any standby letter of credit (other than any letter of credit issued under the Senior Credit Facility) hereafter issued by Citibank for the account of any Obligor, provided that the Citibank Standby Letters of Credit shall be limited to an amount at any time outstanding not in excess of (i) $8,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied as the result of the exercise of remedies under the Senior Collateral Documents to reimbursement and cash collateralization obligations in respect of Citibank Standby Letters of Credit. "Closing Date" means the date on which the Senior Credit Facility, the amendments and restatements giving rise to the Existing Facilities and the exchange offer and other transactions giving rise to the Exchange Notes become effective. "Collateral" means the Senior Collateral and the Second Priority Collateral. "Collateral Documents" means (a) the Senior Collateral Documents and (b) the Second Priority Collateral Documents. "Collateral Trust and Intercreditor Agreement" means the Collateral Trust and Intercreditor Agreement, dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors, the Second Priority Collateral Trustee, the Senior Collateral Agent and each Second Priority Representative. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed by such Person. "Debt Facility" means any of the Senior Credit Facility, the Existing Facilities, the Synthetic Lease Facilities and the Exchange Note Indenture. "Default Rate" means a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) equal to the sum of (a) the rate of interest publicly announced by Citibank in New York, New York, from time to time as its "base rate", plus (b) 2.00%. "Designated Asset Disposition" means any sale, transfer or other disposition of Exchange Debt First Priority Collateral other than a Permitted Disposition. "Domestic Subsidiary" means any Subsidiary incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "Drugstore.com Common Stock" means the common stock of Drugstore.com, Inc., a Delaware corporation, owned by Rite Aid. "Drugstore.com Pledge Agreement" means the Drugstore.com Pledge Agreement dated as of October 25, 1999 and amended and restated as of June 12, 2000, between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "Exchange Debt Facility" means the Exchange Debt Facility dated as of June 12, 2000 among Rite Aid Corporation, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "Exchange Debt Facility Documents" means the collective reference to the "Loan Documents" as defined in the Exchange Debt Facility. "Exchange Debt First Priority Collateral" means the prescription files of Rite Aid's Subsidiaries and the proceeds thereof. "Exchange Debt First Priority Collateral Documents" means the collective reference to the "First Priority Collateral Documents", as defined in the Exchange Debt Facility. "Exchange Debt Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loans made under the Exchange Debt Facility, (ii) all other amounts payable by the Borrower to the Exchange Debt Parties under the Exchange Debt Facility Documents, and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the Exchange Debt Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Exchange Debt Parties" means all parties to the Exchange Debt Facility Documents other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the administrative agent under the Exchange Debt Facility and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Exchange Debt Facility Document. "Exchange Note Documents" means the Exchange Notes and the Exchange Note Indenture, Exchange and Registration Rights Agreement among the State Street Bank and Trust, as trustee, Rite Aid and the Subsidiary Guarantors, and the Forward Commitment Agreement. "Exchange Note Indenture" means the Indenture dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors and State Street Bank and Trust Company, as trustee, relating to the Exchange Notes. "Exchange Note Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the Exchange Notes, (ii) all other amounts payable by the Borrower to the Exchange Note Parties under the Exchange Note Documents, and (iii) any renewals or extensions of any of the foregoing. "Exchange Note Parties" means all parties to the Exchange Note Documents and the holders from time to time of the Exchange Notes, in each case other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the trustee under the Exchange Note Indentures and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Exchange Note Document. "Exchange Notes" means the 10.50% Senior Secured Notes Due 2002 of Rite Aid (i) issued in exchange for certain 5.50% Notes Due 2000 of Rite Aid and 6.70% Notes Due 2001 of Rite Aid or (ii) issued on the Closing Date to SPV and to be transferred to SSB, JPM and their respective transferees and assignees pursuant to the Forward Commitment Agreement; provided, however, that the aggregate principal amount of Exchange Notes issued pursuant to the Forward Commitment Agreement shall not exceed $93,158,000. "Existing Facilities" means (a) the PCS Facility; (b) the RCF Facility; (c) the Finco Facility; and (d) the Exchange Debt Facility. "Existing Facilities Documents" means the collective reference to (i) the PCS Facility Documents, (ii) the RCF Facility Documents, (iii) the Finco Facility Documents and (iv) the Exchange Debt Facility Documents. "Existing Facility Obligations" means the PCS Facility Obligations, the RCF Facility Obligations, the Finco Facility Obligations and the Exchange Debt Obligations. "Existing Facility Parties" means the PCS Facility Parties, the RCF Facility Parties, the Finco Facility Parties and the Exchange Debt Parties. "Finco Facility" means the Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, Amendment No. 1 to Put Agreement (the "Omnibus Amendment") dated as of June 12, 2000, relating to the Adjustable Rate Senior Secured Notes due August 15, 2002 originally issued by Finco, Inc. and guaranteed by Rite Aid. The "Finco Facility " shall be deemed to include the Note Agreement dated as of September 30, 1996, among Finco, Inc., and each of the Purchasers listed in Annex 1 thereto, as amended through the Closing Date. "Finco Facility Documents" means (i) the Finco Facility, (ii) the Guaranty Agreement dated as of September 30, 1996 pursuant to which Rite Aid guaranteed the obligations of Finco, Inc. under the Finco Facility; (iii) the Put Agreement dated as of September 30, 1996 entered into by Rite Aid, and (iv) the Security Agreement dated as of September 30, 1996 entered into by Finco, Inc. and The Prudential Insurance Company of America as the Security Agent on behalf of the Finco Facility Parties, in each case as amended through the Closing Date. "Finco Facility Obligations" means (i) all outstanding principal amounts under the Finco Facility Documents, (ii) all interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the principal amounts pursuant to clause (i) of this definition, (iii) any renewals or extensions of any of the foregoing and (iv) any and all other amounts payable by the Borrower in respect of the Finco Facility Documents; provided, however, that the principal amount of indebtedness included in the Finco Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Finco Facility Parties" means The Prudential Insurance Company of America and Pruco Life Insurance Company and their successors and assigns as noteholders and purchasers under the Finco Facility Documents and The Prudential Insurance Company of America, as Security Agent under the Finco Facility Documents and its successor or assignee. "Forward Commitment Agreement" means the Forward Commitment Agreement dated June 12, 2000, among Rite Aid, SPV, SSB and JPM. "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" mean, collectively, (a) the Indenture dated as of December 21, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee, (b) the Indenture dated as of August 1, 1993, between Rite Aid and Morgan Guaranty Trust Company of New York, as trustee, (c) the Indenture dated as September 10, 1997, between Rite Aid and Harris Trust and Savings Bank, as trustee and (d) the Indenture dated as of September 22, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee. "Independent Standby L/C Documents" means the Citibank Standby L/C Documents and the Mellon Standby L/C Documents. "Independent Standby L/C Obligations" means the Citibank Standby L/C Obligations and the Mellon Standby L/C Obligations. "Independent Standby L/C Parties" means Citibank and Mellon Bank in their capacities as issuers of Independent Standby Letters of Credit. "Independent Standby Letters of Credit" means the Citibank Standby Letters of Credit and the Mellon Standby Letters of Credit. "Instructing Group" means, until the Senior Obligation Payment Date, the Majority Senior Parties, and thereafter the Second Priority Instructing Group. "JPM" means J.P. Morgan Securities, Inc. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. "Majority Senior Parties" means the Majority Banks, as defined in the Senior Credit Facility, or with respect to any waiver, amendment or request, Senior Banks having such amount of unused Revolving Credit Commitments, Revolving Credit Exposure, unused Term Loan Commitments and outstanding Term Loans as may be required under the Senior Credit Facility to approve the same. "Mellon Bank" means Mellon Bank, N.A. "Mellon Standby L/C Documents" mean the reimbursement agreements, letter of credit applications and other documents relating to the Mellon Standby Letters of Credit. "Mellon Standby L/C Obligations" means (a) each payment, including payments in respect of reimbursements and cash collateralization, required to be made by Rite Aid under the Mellon Standby L/C Documents in respect of Mellon Standby Letters of Credit in an aggregate amount at any time outstanding not in excess of (i) $26,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied to such obligations as the result of the exercise of remedies under the Senior Collateral Documents and (b) all other monetary obligations, including fees, costs, expenses and indemnities (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable as a claim in such proceeding) of Rite Aid under the Mellon Standby L/C Documents to the extent attributable to the Mellon Standby Letters of Credit referred to in clause (a). "Mellon Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Mellon Bank outstanding on the Closing Date in an aggregate face amount of $26,000,000, together with any standby letter of credit (other than any letter of credit issued under the Senior Credit Facility) hereafter issued by Mellon Bank for the account of any Obligor provided that the Mellon Standby Letters of Credit shall be limited to an amount at any time outstanding not in excess of (i) $26,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied as the result of the exercise of remedies under the Senior Collateral Documents to reimbursement and cash collateralization obligations in respect of Mellon Standby Letters of Credit. "Moody's" means Moody's Investors Service, Inc., or any successor to its business of rating debt securities. "Net Cash Proceeds" means, (a) with respect to any sale, transfer or other disposition of any property or asset (a "Disposition"), an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Disposition (including, when received, any cash proceeds received in respect of any noncash proceeds of any Disposition), less (I) the sum of (i) reasonable costs and expenses paid or incurred in connection with such transaction, including, without limitation, any underwriting brokerage or other customary selling commissions and reasonable legal, advisory and other fees and expenses (including title and recording expenses, associated therewith), payments of unassumed liabilities relating to the assets sold and any severance and termination costs; (ii) the amount of any Debt (or Attributable Debt), together with premium or penalty, if any, and accrued interest thereon (or comparable obligations in respect of Attributable Debt) secured by a Lien on (or if Attributable Debt, the lease of) any asset disposed of in such Disposition and discharged from the proceeds thereof, but only to the extent such Lien has priority over the Senior Lien, the Second Priority Lien and the Liens under the Exchange Debt First Priority Collateral Documents; (iii) 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 Disposition; (iv) the portion of such cash proceeds which the Borrower determines in good faith and reasonably should be reserved for post-closing adjustments, including, without limitation, indemnification payments and purchase price adjustments, provided, that on the date that all such post-closing adjustments have been determined, the amount (if any) by which the reserved amount in respect of such Disposition exceeds the actual post-closing adjustments payable by the Borrower or any of the Subsidiary Guarantors shall constitute Net Cash Proceeds on such date; and (v) in the case of a PCS Divestiture the sum of (1) the PCS Incremental Investment as of the date of consummation of such disposition plus (2) the aggregate Net Cash Proceeds of PCS Dispositions in the form of Sale and Leaseback Transactions theretofore applied to prepayments of the PCS Facility; and plus (II) in the case of a PCS Divestiture, the PCS Investment Reduction as of the date of consummation of such transaction; (b) with respect to any Capital Markets Transaction, an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Capital Markets Transaction, less any reasonable transaction costs; including investment banking and underwriting fees, discounts and commissions and any other expenses (including legal fees and expenses) reasonably incurred by such Person in respect of such Capital Markets Transaction; and (c) with respect to receipt of Casualty/Condemnation Proceeds, the amount thereof. "Obligors" means Rite Aid, the Subsidiary Guarantors and any other Person who is liable for any of the Secured Obligations. "paid in full" means paid in full in cash. "PCS" means PCS Holding Corporation, a Delaware corporation, and its successors. "PCS Common Stock" means the common stock of PCS owned by Rite Aid. "PCS Dispositions" means (i) any sale or other disposition of capital stock of PCS (or of any non-cash proceeds thereof), (ii) any sale, lease or other disposition (including a Casualty/Condemnation) by PCS or any of its Subsidiaries of any asset, other than (y) 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, and (z) dispositions to PCS or a wholly-owned Subsidiary of PCS or (iii) any sale, lease or other disposition (including a Casualty/Condemnation) of PCS Land. "PCS Divestiture" means a PCS Disposition as a result of which the business of PCS is no longer conducted by a Consolidated Subsidiary of the Borrower. "PCS/Drugstore Pledged Collateral" means the capital stock of PCS and Drugstore.com pledged by Rite Aid under the PCS Pledge Agreement and the Drugstore.com Pledge Agreement and all income and profits thereon, dividends and other payments and distributions with respect thereto and all proceeds of the foregoing subject to a Lien under such agreements. "PCS Excluded Assets" means (i) any Collateral consisting of assets of PCS or a Subsidiary of PCS, other than PCS Linked Accounts, (ii) PCS Land and (iii) any proceeds of clauses (i) and (ii). For purposes of Article IV of the Collateral Trust and Intercreditor Agreement, any proceeds of enforcement of the Senior Subsidiary Guarantee Agreement or the Second Priority Guarantee Agreement against PCS or a Subsidiary of PCS (other than with respect to the PCS Linked Accounts and the proceeds thereof) shall be deemed to be proceeds of Collateral consisting of PCS Excluded Assets. "PCS Facility" means the PCS Facility dated as of June 12, 2000, among Rite Aid, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "PCS Facility Documents" means the "Loan Documents" as defined in the PCS Facility. "PCS Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the PCS Facility, (ii) all other amounts payable by the Borrower under the PCS Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the PCS Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "PCS Facility Parties" means the parties to the PCS Facility Documents other than the Obligors, the Senior Bank Parties and the Representatives, but including the administrative agent under the PCS Facility and the beneficiaries of each indemnification obligation by Rite Aid or any other Obligor under any PCS Facility Documents. "PCS Incremental Investment" means, at any date, the amount, if any, by which the inter-company payable owing by Rite Aid Hdqtrs. Corp. to PCS at such date is less than such amount as at May 27, 2000. The Borrower shall promptly notify each of the Representatives following the Closing Date of such latter amount. "PCS Investment Reduction" means, at any date, the excess, if any, of (i) the amount, if any, by which the intercompany payable owing by Rite Aid Hdqtrs. Corp. to PCS at such date is greater than such amount as at May 27, 2000, over (ii) the cumulative PCS EBITDA, as defined in the Senior Credit Facility, for the period from May 27, 2000, to such date. "PCS Land" means the real property described as N.W. 96th Street and Mountainview Road, Scottsdale, Arizona, together with any improvements thereon. "PCS Linked Accounts" means any accounts receivable owed to PCS by third party insurers in respect of claims generated by other Subsidiaries of Rite Aid and giving rise to related accounts payable owed by PCS to such other Subsidiaries of Rite Aid. "PCS Pledge Agreement" means the PCS Pledge Agreement dated as of October 25, 1999 and amended and restated as of June 12, 2000, between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "Permitted Disposition" means any of the following: (i) dispositions of inventory at retail, cash, cash equivalents and other cash managing investments and obsolete, unused, uneconomic or unnecessary equipment, in each case in the ordinary course of business; (ii) a disposition to a Subsidiary Guarantor, provided, that (A) if the property subject to such disposition constitutes Collateral immediately before giving effect to such disposition, such property continues to constitute Collateral subject to the Senior Lien and the Second Priority Lien, and (B) no dispositions of property will be made to or by PCS or its Subsidiaries except in the ordinary course of business consistent with past practice; (iii) a sale or discount, in each case without recourse and in the ordinary course of business, of overdue Accounts (as defined in the Senior Credit Facility) arising in the ordinary course of business, but only to the extent such Accounts are no longer Eligible Accounts Receivable (as defined in the Senior Credit Facility) and such sale or discount is in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale); (iv) Basket Asset Sales; and (v) any disposition of Exchange Notes by SPV to SSB or JPM (or their respective successors, assigns and affiliates), pursuant to the Forward Commitment Agreement as in effect on the Closing Date. "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. "RCF Facility" means the RCF Facility dated as of June 12, 2000, among Rite Aid, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "RCF Facility Documents" means the "Loan Documents" as defined in the RCF Facility. "RCF Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the RCF Facility, (ii) all other amounts payable by the Borrower to the RCF Facility Parties under the RCF Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the RCF Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "RCF Facility Parties" means the parties to the RCF Facility Documents other than the Obligors. "Reduction" means, when applied to any Debt Facility, (i) the permanent repayment of outstanding loans (or obligations in respect of Attributable Debt) under such Debt Facility, (ii) the permanent reduction of outstanding lending commitments under such Debt Facility or (iii) the permanent cash collateralization of outstanding letters of credit under such facility (together with the termination of any lending commitments utilized by such letters of credit). "Reduction Event" is (i) a PCS Disposition, (ii) a Capital Markets Transaction, (iii) a Designated Asset Disposition, (iv) a Senior Collateral Disposition, (v) other Asset Sales or (vi) receipt of other Casualty/Condemnation Proceeds. "Related Exchange Debt" means, with respect to any of the Existing Facilities (other than the Exchange Debt Facility), Debt under the Exchange Debt Facility issued in exchange for Debt under such Existing Facility. "Related Exchange Debt Obligation" shall mean Exchange Debt Obligations in respect of Related Exchange Debt. "Representatives" means each of the Senior Collateral Agent and the Second Priority Representatives. "Required Prepayment Amount" has the meaning assigned to such term in the Senior Credit Facility, as in effect on the Closing Date. "Rite Aid" means Rite Aid Corporation, a Delaware corporation, and its successors. "Rite Aid Hdqtrs. Corp." means Rite Aid Hdqtrs. Corp., a Delaware corporation and a Wholly-Owned Consolidated Subsidiary of the Borrower. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor to its business of rating debt securities. "Sale and Leaseback Transaction" means the sale or transfer by the Borrower or any Subsidiary of any office building (including its headquarters), distribution center, manufacturing plant, warehouse, Store or equipment now or hereafter owned by the Borrower or any Subsidiary with the intention that the Borrower or any Subsidiary take back a lease thereof. "Second Priority Collateral" means all the "Second Priority Collateral" as defined in any Second Priority Collateral Documents and shall also include the Mortgaged Properties and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral or the Exchange Debt First Priority Collateral. "Second Priority Collateral Documents" means the Second Priority Mortgages, the Second Priority Subsidiary Security Agreement, the Second Priority Subsidiary Guarantee Agreement, the Second Priority Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing for purposes of providing collateral security or credit support for any Second Priority Debt Obligation or obligation under the Second Priority Subsidiary Guarantee Agreement but specifically excluding the Drugstore.com Pledge Agreement, the Exchange Debt First Priority Collateral Documents and the PCS Pledge Agreement. "Second Priority Collateral Trustee" means Wilmington Trust Company, in its capacity as collateral trustee under the Collateral Trust and Intercreditor Agreement and the Second Priority Collateral Documents, and its successors. "Second Priority Debt Documents" means the Existing Facility Documents, the Exchange Note Documents, the Synthetic Lease Documents and the Second Priority Collateral Documents. "Second Priority Debt Obligations" means the collective reference to the Exchange Debt Obligations, the Exchange Note Obligations, the Synthetic Lease Obligations, the PCS Facility Obligations, the RCF Facility Obligations and the Finco Facility Obligations. "Second Priority Debt Parties" means the Existing Facility Parties, the Exchange Note Parties, the Synthetic Lease Parties and the Second Priority Collateral Trustee. "Second Priority Facilities" means the Exchange Debt Facility, the Exchange Note Indenture, the Synthetic Lease Facilities, the PCS Facility, the RCF Facility and the Finco Facility. "Second Priority Indemnity, Subrogation and Contribution Agreement" means the Second Priority Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors and the Second Priority Collateral Trustee. "Second Priority Instructing Group" means Second Priority Representatives with respect to Second Priority Facilities under which at least a majority of the then aggregate amount of Second Priority Debt Obligations are outstanding. "Second Priority Lien" means the Liens on the Second Priority Collateral in favor of the Second Priority Debt Parties under the Second Priority Collateral Documents. "Second Priority Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents which create a Lien in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties, delivered pursuant to the Second Priority Debt Documents, each substantially in the form of Exhibit [ ] to the RCF Facility, with such changes as are approved by the Senior Collateral Agent and the Second Priority Representatives. "Second Priority Representative" means, in respect of each Second Priority Facility, the trustee under the Exchange Note Indenture and the administrative agent, security agent or agent under each other Second Priority Facility and each of their successors in such capacities. "Second Priority Subsidiary Guarantee Agreement" means the Second Priority Subsidiary Guarantee Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Second Priority Subsidiary Security Agreement" means the Second Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Secured Obligations" means the Senior Obligations and the Second Priority Debt Obligations. "Senior Bank" means a "Bank" as defined in the Senior Credit Facility. "Senior Bank Obligations" means (i) the principal of each loan made under the Senior Credit Facility, (ii) all reimbursement and cash collateralization obligations in respect of letters of credit issued under the Senior Credit Facility, (iii) all monetary obligations of the Borrower or any Subsidiary under each Senior Interest Rate Agreement entered into with any counterparty that was a Senior Bank (or an Affiliate thereof) at the time such Senior Interest Rate Agreement was entered into, (iv) all interest on the loans, letter of credit reimbursement, fees and other obligations under the Senior Credit Facility or such Senior Interest Rate Agreements (including, without limitation any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower or any Subsidiary Guarantor, whether or not allowed or allowable as a claim in such proceeding), (v) all other amounts payable by the Borrower under the Senior Loan Documents and (vi) all increases, renewals, extensions and refinancings of the foregoing; provided, however, that the principal amount of the indebtedness under the Senior Credit Facility included in the Senior Bank Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Senior Bank Parties" means each party to the Senior Credit Facility other than any Obligor, each counterparty to a Senior Interest Rate Agreement, the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Senior Loan Document, and the successors and permitted assigns of each of the foregoing. "Senior Collateral" means all the "Senior Collateral" as defined in any Senior Collateral Document and shall also include the Mortgaged Properties and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral and the Exchange Debt First Priority Collateral. "Senior Collateral Agent" means Citicorp USA, Inc., in its capacity as Senior Collateral Agent under the Senior Collateral Documents, and its successors. "Senior Collateral Disposition" means (i) any sale, transfer or other disposition of Senior Collateral (including any property or assets that would constitute Senior Collateral but for the release of the Senior Lien with respect thereto in connection with such sale, transfer or other disposition), other than a PCS Disposition, or a Permitted Disposition or (ii) a Casualty/Condemnation with respect to Senior Collateral (other than PCS Excluded Assets). "Senior Collateral Documents" means the Senior Mortgages, the Senior Subsidiary Security Agreement, the Senior Subsidiary Guarantee Agreement, the Senior Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing or pursuant to the Senior Credit Facility or for purposes of providing collateral security or credit support for any Senior Obligation or obligation under the Senior Subsidiary Guarantee Agreement. "Senior Credit Facility" means the Senior Credit Agreement, dated as of June 12, 2000, among Rite Aid, as Borrower, the Senior Banks, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents. "Senior Indemnity, Subrogation and Contribution Agreement" means the Senior Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000 among Rite Aid, the Subsidiary Guarantors (including Subsidiary Guarantors becoming party thereto after the Closing Date) and the Senior Collateral Agent. "Senior Interest Rate Agreement" means any Interest Rate Agreement entered into with Rite Aid or any Subsidiary, if the applicable counterparty was a Senior Bank or an Affiliate thereof at the time the Interest Rate Agreement was entered into. "Senior Lien" means the Liens on the Senior Collateral in favor of the Senior Secured Parties under the Senior Collateral Documents. "Senior Loan Documents" means the Senior Credit Facility, the Notes referred to in the Senior Credit Facility, each Senior Interest Rate Agreement, and the Senior Collateral Documents. "Senior Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents delivered pursuant to the Senior Credit Facility, each substantially in the form of Exhibit J to the Senior Credit Facility, with such changes as are approved by the Senior Collateral Agent. "Senior Obligation Payment Date" means the date on which (i) the Senior Obligations have been paid in full, (ii) all lending commitments under the Senior Credit Facility have been terminated and (iii) there are no outstanding Independent Standby Letters of Credit or letters of credit issued under the Senior Credit Facility other than such as have been fully cash collateralized under documents and arrangements satisfactory to the issuer of such letters of credit. "Senior Obligations" means (a) the Senior Bank Obligations and (b) the Independent Standby L/C Obligations. "Senior Secured Parties" means (a) the Senior Bank Parties and (b) the Independent Standby L/C Parties. "Senior Subsidiary Guarantee Agreement" means the Senior Subsidiary Guarantee Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "Senior Subsidiary Security Agreement" means the Senior Subsidiary Security Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "SPV" means Fiona One Corp., a Delaware corporation and a wholly-owned Subsidiary of Rite Aid which is organized for the sole purpose of acquiring Exchange Notes on the Closing Date from Rite Aid and selling such Exchange Notes to SSB and JPM in accordance with the Forward Commitment Agreement. "SSB" means Salomon Smith Barney Inc. "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. "Subsidiary Guarantor" means each Subsidiary that is party to the Senior Subsidiary Guarantee Agreement, the Second Priority Subsidiary Guarantee Agreement or any other Senior Collateral Document or Second Priority Collateral Document. "Synthetic Lease Documents" means the documents governing the Synthetic Leases. "Synthetic Lease Facilities" means certain synthetic leases entered into by the Subsidiary Guarantors and guaranteed by Rite Aid having an aggregate discounted present value of approximately $214,000,000, as amended and restated as of the Closing Date. "Synthetic Lease Obligations" means all rent and supplemental rent, all fees and all other expenses or amounts payable by any Obligors to any Synthetic Lease Parties under any Synthetic Lease Document; provided, however, that the aggregate amount of the Synthetic Lease Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Synthetic Lease Parties" means all parties to the Synthetic Lease Documents other than the Obligors. "Temporary Cash Investment" means any investment by any Person in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by S&P and P-1 by Moody's, (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized or licensed under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $500,000,000, (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, provided in each case that such investment matures within one year from the date of acquisition thereof by such Person or (v) money market mutual funds at least 90% the assets of which are held in investments referred to in clauses (i) through (iv) above (except that the maturities of certain investments held by any such money market funds may exceed one year so long as the dollar-weighted average life of the investments of such money market mutual fund is less than one year). "Uniform Commercial Code" or "UCC" means, unless otherwise specified, the Uniform Commercial Code as from time to time in effect in the State of New York. EX-10 9 0009.txt EXHIBIT 10.5 - SENIOR INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT Exhibit 10.5 EXECUTION COPY SENIOR INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT dated as of June 12, 2000, among RITE AID CORPORATION, a Delaware corporation (the "Borrower"), each Subsidiary of the Borrower listed on Schedule I hereto (the "Subsidiary Guarantors") and CITICORP USA, INC., a Delaware corporation ("Citicorp USA"), as collateral agent (in such capacity, the "Senior Collateral Agent") for the Senior Secured Parties. Reference is made to (a) the Senior Credit Agreement dated as of June 12, 2000 (as amended, supplemented or otherwise modified from time to time, the "Senior Credit Facility"), among Rite Aid, as Borrower, the Senior Banks parties thereto, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents, (b) the Independent Standby L/C Documents pursuant to which Mellon Bank and Citibank have issued and may in the future issue certain standby letters of credit and (c) the Senior Subsidiary Guarantee Agreement dated as of June 12, 2000, among the Subsidiary Guarantors and the Senior Collateral Agent (the "Senior Subsidiary Guarantee Agreement"). Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Definitions Annex, attached as Annex 2 hereto, and if not defined therein, as defined in or by reference to the Senior Credit Facility. The Senior Banks have agreed to make Loans to the Borrower, and the Issuing Banks have agreed to issue Letters of Credit for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Senior Credit Facility. Mellon Bank and Citibank have issued the Independent Standby Letters of Credit. The Subsidiary Guarantors have guaranteed such Loans and the other Senior Obligations of the Borrower pursuant to the Senior Subsidiary Guarantee Agreement and certain Subsidiary Guarantors have granted Liens on and security interests in certain of their assets to secure such guarantees. The obligations of the Senior Banks to make Loans and of the Issuing Banks to issue Letters of Credit are conditioned on, among other things, the execution and delivery by the Borrower and the Subsidiary Guarantors of an agreement in the form hereof. Accordingly, the Borrower, each Subsidiary Guarantor and the Senior Collateral Agent agree as follows: SECTION 1. INDEMNITY AND SUBROGATION. In addition to all such rights of indemnity and subrogation as the Subsidiary Guarantors may have under applicable law (but subject to Section 3), the Borrower agrees that (a) in the event a payment shall be made by any Subsidiary Guarantor under the Senior Subsidiary Guarantee Agreement, the Borrower shall indemnify such Subsidiary Guarantor for the full amount of such payment and such Subsidiary Guarantor shall be subrogated to the rights of the Person to whom such payment shall have been made to the extent of such payment and (b) in the event and to the extent any assets of any Subsidiary Guarantor shall be sold pursuant to any Senior Collateral Document to satisfy a claim of any Senior Secured Party, the Borrower shall indemnify such Subsidiary Guarantor in an amount equal to the greater of the book value or the fair market value of the assets so sold. SECTION 2. CONTRIBUTION AND SUBROGATION. Each Subsidiary Guarantor (a "Contributing Subsidiary Guarantor") agrees (subject to Section 3) that, in the event a payment shall be made by any other Subsidiary Guarantor under the Senior Subsidiary Guarantee Agreement or assets of any other Subsidiary Guarantor shall be sold pursuant to any Senior Collateral Document to satisfy a claim of any Senior Secured Party and such other Subsidiary Guarantor (the "Claiming Subsidiary Guarantor") shall not have been fully indemnified by the Borrower as provided in Section 1, the Contributing Subsidiary Guarantor shall indemnify the Claiming Subsidiary Guarantor in an amount equal to the amount of such payment or the greater of the book value or the fair market value of such assets, as the case may be, in each case multiplied by a fraction of which the numerator shall be the net worth of the Contributing Subsidiary Guarantor on May 27, 2000 (or, in the case of any Subsidiary Guarantor becoming a party hereto pursuant to Section 12 after such date, the date of the Supplement hereto executed and delivery by such Subsidiary Guarantor) and the denominator shall be the aggregate net worth of all the Subsidiary Guarantors on May 27, 2000 (or, in the case of any Subsidiary Guarantor becoming a party hereto pursuant to Section 12 after such date, the date of the Supplement hereto executed and delivered by such Subsidiary Guarantor). Any Contributing Subsidiary Guarantor making any payment to a Claiming Subsidiary Guarantor pursuant to this Section 2 shall be subrogated to the rights of such Claiming Subsidiary Guarantor under Section 1 to the extent of such payment. SECTION 3. SUBORDINATION. Notwithstanding any provision of this Agreement to the contrary, all rights of the Subsidiary Guarantors under Sections 1 and 2 and all other rights of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the indefeasible payment in full in cash of the Senior Obligations. No failure on the part of the Borrower or any Subsidiary Guarantor to make the payments required by Sections 1 and 2 (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of any Subsidiary Guarantor with respect to its obligations hereunder, and each Subsidiary Guarantor shall remain liable for the full amount of the obligations of such Subsidiary Guarantor hereunder. SECTION 4. TERMINATION. This Agreement shall survive and be in full force and effect so long as any Senior Obligation is outstanding and has not been indefeasibly paid in full in cash, and so long as the L/C Exposure has not been reduced to zero and any of the Commitments under the Senior Credit Facility have not been terminated, and shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Senior Obligation is rescinded or must otherwise be restored by any Senior Secured Party or any Subsidiary Guarantor upon the bankruptcy or reorganization of the Borrower, any Subsidiary Guarantor or otherwise. SECTION 5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. NO WAIVER; AMENDMENT. (a) No failure on the part of the Senior Collateral Agent or any Subsidiary Guarantor to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by the Senior Collateral Agent or any Subsidiary Guarantor preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law. None of the Senior Collateral Agent and the Subsidiary Guarantors shall be deemed to have waived any rights hereunder unless such waiver shall be in writing and signed by such parties. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Borrower, the Subsidiary Guarantors and the Senior Collateral Agent, with the prior written consent of the Majority Senior Parties, except (i) as otherwise provided in the Senior Credit Facility and (ii) any amendment or waiver which adversely affects the Independent Standby L/C Parties under this Agreement will require the additional consent of the Independent Standby L/C Parties pursuant to a letter or agreement by the Independent Standby L/C Parties or by telecopy transmission from the Independent Standby L/C Parties. SECTION 7. NOTICES. All communications and notices hereunder shall be in writing and given as provided in the Senior Subsidiary Guarantee Agreement and addressed as specified therein. SECTION 8. BINDING AGREEMENT; ASSIGNMENTS. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the parties that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. Neither the Borrower nor any Subsidiary Guarantor may assign or transfer any of its rights or obligations hereunder (and any such attempted assignment or transfer shall be void) without the prior written consent of the Majority Senior Parties. Notwithstanding the foregoing, at the time any Subsidiary Guarantor is released from its obligations under the Senior Subsidiary Guarantee Agreement in accordance with such Senior Subsidiary Guarantee Agreement and the Senior Credit Facility, such Subsidiary Guarantor will cease to have any rights or obligations under this Agreement. SECTION 9. SURVIVAL OF AGREEMENT; SEVERABILITY. (a) All covenants and agreements made by the Borrower and each other Obligor herein and in the certificates or other instruments prepared or delivered in connection with this Agreement or the other Senior Loan Documents shall be considered to have been relied upon by the Senior Collateral Agent, the other Senior Secured Parties and each Subsidiary Guarantor and shall survive the making by the Senior Banks of the Loans and the issuance of the Letters of Credit by the Issuing Banks, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loans or any other fee or amount payable under the Senior Credit Facility or this Agreement or under any of the other Senior Loan Documents is outstanding and unpaid or the L/C Exposure does not equal zero and as long as the Commitments have not been terminated. (b) In case any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, no party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 10. COUNTERPARTS. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement shall be effective with respect to any Subsidiary Guarantor when a counterpart bearing the signature of such Subsidiary Guarantor shall have been delivered to the Senior Collateral Agent. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement. SECTION 11. RULES OF INTERPRETATION. The rules of interpretation specified in Section 1.02 of the Senior Credit Facility shall be applicable to this Agreement. SECTION 12. ADDITIONAL SUBSIDIARY GUARANTORS. Pursuant to Section 5.08 of the Senior Credit Facility, each Domestic Subsidiary of the Borrower that was not in existence on the date of the Senior Credit Facility is required to enter into the Senior Subsidiary Guarantee Agreement as a Subsidiary Guarantor upon becoming a Domestic Subsidiary. Upon execution and delivery, after the date hereof, by the Senior Collateral Agent and such a Subsidiary of an instrument in the form of Annex 1 hereto, such Subsidiary shall become a Subsidiary Guarantor hereunder with the same force and effect as if originally named as a Subsidiary Guarantor hereunder. The execution and delivery of any instrument adding an additional Subsidiary Guarantor as a party to this Agreement shall not require the consent of any Subsidiary Guarantor hereunder. The rights and obligations of each Subsidiary Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Guarantor as a party to this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date first appearing above. CITICORP USA, INC., as Senior Collateral Agent, By________________________________ Name: Title: THRIFTY PAYLESS, INC., as a Subsidiary Guarantor, By________________________________ Name: Title: PCS HEALTH SYSTEMS, INC., as a Subsidiary Guarantor, By________________________________ Name: Title: EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE I HERETO, as Grantors, By________________________________ Name: Title: Schedule I to the Senior Indemnity, Subrogation and Contribution Agreement Subsidiary Guarantors Rite Aid Hdqtrs. Corp. Rite Aid of Alabama, Inc. Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Florida, Inc. Rite Aid of Georgia, Inc. Rite Aid of Illinois, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Massachusetts, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of North Carolina, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. Rite Aid of South Carolina, Inc. Rite Aid of Tennessee, Inc. Rite Aid of Vermont, Inc. Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Drug Fair of PA. Inc. Drug Fair, Inc. Eagle Managed Care Corp. GDF, Inc. Harco, Inc. The Lane Drug Company Keystone Centers, Inc. Ocean Acquisition Corporation PCS Holding Corporation Perry Drug Stores, Inc. Reed, Inc. Rite Aid Funding LLC Rite Investments Corp. Rite Aid Drug Palace, Inc. Rite Aid Rome Distribution Center, Inc. Rite Aid Transport, Inc. RX Choice, Inc. Script South Thrifty Payless, Inc. W.R.A.C., Inc. 3581 Carter Hill Road - Montgomery Corp. 4042 Warrensville Center Road - Warrensville Ohio, Inc. 5277 Associates, Inc. 537 Elm Street Corporation 5600 Superior Properties, Inc. 657-659 Broad St. Corp. Broadview and Wallings -Broadview Heights Ohio, Inc. Dominion Action One Corporation Dominion Action Two Corporation Dominion Action Three Corporation Dominion Action Four Corporation Dominion Drug Stores Corp. England Street-Asheland Corporation Jaime Nathan Travis Corporation Lakehurst and Broadway Corporation Patton Drive and Navy Boulevard Property Corporation Portfolio Medical Services, Inc. Rack Rite Distributors, Inc. Ram-Utica, INC. Rite Aid Venturer #1, Inc. Rite Fund, Inc. The Muir Company Virginia Corporation K&B, Incorporated K&B Alabama Corporation K&B Florida Corporation K&B Louisiana Corporation K&B Mississippi Corporation K&B Services, Incorporated K&B Tennessee Corporation K&B Texas Corporation K&B Trainees, Inc. Katz & Besthoff, Inc. Super Beverage of Texas #2, Inc. Super Beverage of Texas #3, Inc. Super Beverage of Texas #4, Inc. Super Beverage of Texas #5, Inc. Super Beverage of Texas #6, Inc. Super Distributors, Inc. Super Ice Cream Suppliers, Inc. Super Laboratories, Inc. Super Pharmacy Network, Inc. Super Tobacco Distributors, Inc. PCS Health Systems, Inc. PCS Services, Inc. PCS Mail Services, Inc. PCS Mail Service of Fort Worth, Inc. PCS Mail Service of Birmingham, Inc. PCS Mail Services of Scottsdale, Inc. Clinical Pharmaceuticals, Inc. Apex Drug Stores, Inc. PDS-1 Michigan, Inc. RDS Detroit, Inc. Perry Distributors, Inc. PL Xpress, Inc. Thrifty Corporation P.L.D. Enterprises, Inc. Rite Aid Lease Management Company Rite Aid Realty Corp. Thrifty Wilshire, Inc. Name Rite LLC Sophie One Corp. 112 Burleigh Avenue Norfolk, LLC. 1515 West State Street Boise, Idaho, LLC 1525 Cortyou Road - Brooklyn Inc. 1740 Associates, LLC 764 South Broadway- Geneva, Ohio, LLC 912 Elmwood Avenue- Buffalo, LLC Ann & Government Streets- Mobile, Alabama, LLC Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC Central Avenue and Main Street- Petal, MS, LLC Eighth and Water Streets- Ulrichsville, Ohio, LLC Euclid and Wilders Roads- Bay City, LLC Gettysburg and Hoover-Dayton, Ohio, LLC Gratiot & Center- Saginaw Township, Michigan, LLC Louisville Avenue & North 18th Street- Monroe, Louisiana, LLC Main & McPherson- Clyde, LLC Mayfield & Chillicothe Roads- Chesterland, LLC Munson & Andrews LLC Northline & Dix- Toledo- Southgate, LLC Paw Paw Lake Road & Paw Paw Avenue- Coloma, Michigan, LLC Richmond Road & Monticello Boulevard- Richmond Heights, Ohio, LLC Route 1 and Hood Road- Fredricksburg, LLC Route 202 at Route 124 Jaffrey- New Hampshire, LLC Seven Mile and Evergreen- Detroit, LLC Silver Springs Road- Baltimore, Maryland/ One, LLC Silver Springs Road- Baltimore, Maryland/ Two, LLC State Street and Hill Road- Gerard, Ohio, LLC State & Fortification Streets- Jackson, Mississippi, LLC Tyler and Sanders Roads, Birmingham- Alabama, LLC Annex 1 to the Senior Indemnity, Subrogation and Contribution Agreement SUPPLEMENT NO. [ ] dated as of [ ], to the Senior Indemnity, Subrogation and Contribution Agreement dated as of June 12, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "Senior Indemnity, Subrogation and Contribution Agreement"), among RITE AID CORPORATION, a Delaware corporation (the "Borrower"), each Subsidiary of the Borrower listed on Schedule I thereto (the "Subsidiary Guarantors"), and CITICORP USA, INC., a Delaware corporation ("Citicorp USA"), as collateral agent (the "Senior Collateral Agent") for the Senior Secured Parties. A. Reference is made to (a) the Senior Credit Agreement dated as of June 12, 2000 (as amended, supplemented or otherwise modified from time to time, the "Senior Credit Facility"), among Rite Aid, as Borrower, the Senior Banks parties thereto, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents, (b) the Independent Standby L/C Documents pursuant to which Mellon Bank and Citibank have issued and may in the future issue certain standby letters of credit and (c) the Senior Subsidiary Guarantee Agreement dated as of June 12, 2000, among the Subsidiary Guarantors and the Senior Collateral Agent (the "Senior Subsidiary Guarantee Agreement"). B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Senior Indemnity, Subrogation and Contribution Agreement, including the Definitions Annex and the Senior Credit Facility referred to therein. C. The Borrower and the Subsidiary Guarantors have entered into the Senior Indemnity, Subrogation and Contribution Agreement (a) in order to induce the Senior Banks to make Loans and the Issuing Banks to issue Letters of Credit and (b) in consideration of the issuance of the Independent Standby Letters of Credit by Mellon Bank and Citibank. Pursuant to Section 5.08 of the Senior Credit Facility, each Domestic Subsidiary of the Borrower that was not in existence on the date of the Senior Credit Facility is required to enter into the Senior Subsidiary Guarantee Agreement as a Subsidiary Guarantor upon becoming a Domestic Subsidiary. Section 12 of the Senior Indemnity, Subrogation and Contribution Agreement provides that additional Domestic Subsidiaries of the Borrower may become Subsidiary Guarantors under the Senior Indemnity, Subrogation and Contribution Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary of the Borrower (the "New Subsidiary Guarantor") is executing this Supplement in accordance with the requirements of the Senior Credit Facility to become a Subsidiary Guarantor under the Senior Indemnity, Subrogation and Contribution Agreement in order to induce the Senior Banks to make additional Loans and the Issuing Banks to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued and (b) in consideration of the issuance of the Independent Standby Letters of Credit by Mellon Bank and Citibank. Accordingly, the Senior Collateral Agent and the New Subsidiary Guarantor agree as follows: SECTION 1. In accordance with Section 12 of the Senior Indemnity, Subrogation and Contribution Agreement, the New Subsidiary Guarantor by its signature below becomes a Subsidiary Guarantor under the Senior Indemnity, Subrogation and Contribution Agreement with the same force and effect as if originally named therein as a Subsidiary Guarantor and the New Subsidiary Guarantor hereby agrees to all the terms and provisions of the Senior Indemnity, Subrogation and Contribution Agreement applicable to it as a Subsidiary Guarantor thereunder. Each reference to a "Subsidiary Guarantor" in the Senior Indemnity, Subrogation and Contribution Agreement shall be deemed to include the New Subsidiary Guarantor. The Senior Indemnity, Subrogation and Contribution Agreement is hereby incorporated herein by reference. SECTION 2. The New Subsidiary Guarantor represents and warrants to the Senior Collateral Agent and the other Senior Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Senior Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Subsidiary Guarantor and the Senior Collateral Agent. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement. SECTION 4. Except as expressly supplemented hereby, the Senior Indemnity, Subrogation and Contribution Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Senior Indemnity, Subrogation and Contribution Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 7 of the Senior Indemnity, Subrogation and Contribution Agreement. All communications and notices hereunder to the New Subsidiary Guarantor shall be given to it at the address set forth under its signature. SECTION 8. The New Subsidiary Guarantor agrees to reimburse the Senior Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Senior Collateral Agent. IN WITNESS WHEREOF, the New Subsidiary Guarantor and the Senior Collateral Agent have duly executed this Supplement to the Senior Indemnity, Subrogation and Contribution Agreement as of the day and year first above written. [NAME OF NEW SUBSIDIARY GUARANTOR], By________________________________ Name: Title: CITICORP USA, INC., as Senior Collateral Agent, By________________________________ Name: Title: Schedule I to Supplement No.___ to the Senior Indemnity Subrogation and Contribution Agreement Subsidiary Guarantors Rite Aid Hdqtrs. Corp. Rite Aid of Alabama, Inc. Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Florida, Inc. Rite Aid of Georgia, Inc. Rite Aid of Illinois, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Massachusetts, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of North Carolina, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. Rite Aid of South Carolina, Inc. Rite Aid of Tennessee, Inc. Rite Aid of Vermont, Inc. Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Drug Fair of PA. Inc. Drug Fair, Inc. Eagle Managed Care Corp. GDF, Inc. Harco, Inc. The Lane Drug Company Keystone Centers, Inc. Ocean Acquisition Corporation PCS Holding Corporation Perry Drug Stores, Inc. Reed, Inc. Rite Aid Funding LLC Rite Investments Corp. Rite Aid Drug Palace, Inc. Rite Aid Rome Distribution Center, Inc. Rite Aid Transport, Inc. RX Choice, Inc. Script South Thrifty Payless, Inc. W.R.A.C., Inc. 3581 Carter Hill Road - Montgomery Corp. 4042 Warrensville Center Road - Warrensville Ohio, Inc. 5277 Associates, Inc. 537 Elm Street Corporation 5600 Superior Properties, Inc. 657-659 Broad St. Corp. Broadview and Wallings -Broadview Heights Ohio, Inc. Dominion Action One Corporation Dominion Action Two Corporation Dominion Action Three Corporation Dominion Action Four Corporation Dominion Drug Stores Corp. England Street-Asheland Corporation Jaime Nathan Travis Corporation Lakehurst and Broadway Corporation Patton Drive and Navy Boulevard Property Corporation Portfolio Medical Services, Inc. Rack Rite Distributors, Inc. Ram-Utica, INC. Rite Aid Venturer #1, Inc. Rite Fund, Inc. The Muir Company Virginia Corporation K&B, Incorporated K&B Alabama Corporation K&B Florida Corporation K&B Louisiana Corporation K&B Mississippi Corporation K&B Services, Incorporated K&B Tennessee Corporation K&B Texas Corporation K&B Trainees, Inc. Katz & Besthoff, Inc. Super Beverage of Texas #2, Inc. Super Beverage of Texas #3, Inc. Super Beverage of Texas #4, Inc. Super Beverage of Texas #5, Inc. Super Beverage of Texas #6, Inc. Super Distributors, Inc. Super Ice Cream Suppliers, Inc. Super Laboratories, Inc. Super Pharmacy Network, Inc. Super Tobacco Distributors, Inc. PCS Health Systems, Inc. PCS Services, Inc. PCS Mail Services, Inc. PCS Mail Service of Fort Worth, Inc. PCS Mail Service of Birmingham, Inc. PCS Mail Services of Scottsdale, Inc. Clinical Pharmaceuticals, Inc. Apex Drug Stores, Inc. PDS-1 Michigan, Inc. RDS Detroit, Inc. Perry Distributors, Inc. PL Xpress, Inc. Thrifty Corporation P.L.D. Enterprises, Inc. Rite Aid Lease Management Company Rite Aid Realty Corp. Thrifty Wilshire, Inc. Name Rite LLC Sophie One Corp. 112 Burleigh Avenue Norfolk, LLC. 1515 West State Street Boise, Idaho, LLC 1525 Cortyou Road - Brooklyn Inc. 1740 Associates, LLC 764 South Broadway- Geneva, Ohio, LLC 912 Elmwood Avenue- Buffalo, LLC Ann & Government Streets- Mobile, Alabama, LLC Baltimore/Annapolis Boulevard & Governor Richie Hwy-Glen Burnie, MD, LLC Central Avenue and Main Street- Petal, MS, LLC Eighth and Water Streets- Ulrichsville, Ohio, LLC Euclid and Wilders Roads- Bay City, LLC Gettysburg and Hoover-Dayton, Ohio, LLC Gratiot & Center- Saginaw Township, Michigan, LLC Louisville Avenue & North 18th Street- Monroe, Louisiana, LLC Main & McPherson- Clyde, LLC Mayfield & Chillicothe Roads- Chesterland, LLC Munson & Andrews LLC Northline & Dix- Toledo- Southgate, LLC Paw Paw Lake Road & Paw Paw Avenue- Coloma, Michigan, LLC Richmond Road & Monticello Boulevard- Richmond Heights, Ohio, LLC Route 1 and Hood Road- Fredricksburg, LLC Route 202 at Route 124 Jaffrey- New Hampshire, LLC Seven Mile and Evergreen- Detroit, LLC Silver Springs Road- Baltimore, Maryland/ One, LLC Silver Springs Road- Baltimore, Maryland/ Two, LLC State Street and Hill Road- Gerard, Ohio, LLC State & Fortification Streets- Jackson, Mississippi, LLC Tyler and Sanders Roads, Birmingham- Alabama, LLC Annex 2 to the Senior Indemnity, Subrogation and Contribution Agreement DEFINITIONS ANNEX This is the Definitions Annex referred to in the Senior Loan Documents (such term and each other capitalized term used herein as defined below, and if not defined herein, have the meanings assigned to such terms in the applicable Senior Loan Document or Second Priority Debt Document) and the Second Priority Debt Documents. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 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 thereof and of each Senior Loan Document and Second Priority Debt Document containing restrictions or imposing conditions on the amendment, modification or supplementing of such agreement or contract. "Affiliate" means, when used with respect to a specified Person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Asset Sale" means any sale, transfer or other disposition (including pursuant to a Sale and Leaseback Transaction) of any property or asset of the Borrower or any Subsidiary (including any equity interest in a Subsidiary), other than a Permitted Disposition "Attributable Debt" means, as to any particular Capital Lease or 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 a transaction involving a Capital Lease, the amount on such date of the obligation thereunder that would appear on a balance sheet prepared as of such date in accordance with generally accepted accounting principles, or (ii) in the case of a Sale and Leaseback Transaction not involving a Capital Lease, 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 per annum that would be applicable to a Capital Lease of the Borrower having similar payment terms. 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, whether or not characterized as rent. "Bankruptcy Proceeding" means any proceeding under Title 11 of the U.S. Code or any other Federal, state or foreign bankruptcy, insolvency, reorganization, receivership or similar law. "Basket Asset Sale" means any sale or disposition (including a Sale and Leaseback Transaction not involving any Mortgaged Property) of office locations, stores or other personal or real property (including any improvements thereon), whether or not constituting Mortgaged Property, or leasehold interest therein for fair value in the ordinary course of business consistent with past practice and not inconsistent with the Borrower's business plan delivered to the Representatives on the Closing Date, provided, however, that, (i) the aggregate consideration received therefor (including the fair market value of any non-cash consideration) shall not exceed $75,000,000 in any fiscal year (calculated without regard to Sale and Leaseback Transactions permitted by Section 5.14(a), (b) and (c) of the Senior Credit Facility as in effect on the Closing Date) and (ii) at least 75% of such consideration shall consist of cash. "Borrower" means Rite Aid. "Business Day" means any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Euro-Dollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Markets Transaction" means the receipt by the Borrower or a Subsidiary of proceeds of 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 any proceeds in respect of the issuance of Exchange Notes to SPV and the disposition of such Exchange Notes pursuant to the Forward Commitment Agreement). "Casualty/Condemnation" means any event that gives rise to Casualty/Condemnation Proceeds. "Casualty/Condemnation Proceeds" means (a) any insurance proceeds under any insurance policies or otherwise with respect to any casualty or other insured damage to any assets of the Borrower or its Subsidiaries, and (b) any proceeds received by the Borrower or any Subsidiary of any action or proceeding for the taking of any assets of the Borrower or its Subsidiaries, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any similar public improvement or condemnation proceeding, less, in each case (i) any fees, commissions and expenses (including the costs of adjustment and condemnation proceedings) and other costs paid or incurred by the Borrower or any Subsidiary in connection therewith, (ii) income taxes reasonably estimated to be payable as a result of any gain recognized in connection with the receipt of such payment or proceeds and (iii) payment of the outstanding amount of any Debt (or Attributable Debt), other than the Secured Obligations, together with premium or penalty, if any, and interest thereon (or comparable obligations in respect of Attributable Debt), that is secured by a Lien on (or if Attributable Debt, the lease of) the stock or assets in question and that has priority over both the Senior Lien and the Second Priority Lien and is to be repaid as a result of receipt of such payments or proceeds; provided, however, that no such proceeds shall constitute Casualty/Condemnation Proceeds to the extent that such proceeds are (A) reinvested in other like fixed or capital assets within 180 days of the Casualty/Condemnation that gave rise to such proceeds or (B) committed to be reinvested in other like fixed or capital assets within 180 days of such Casualty/Condemnation, with diligent pursuit of such reinvestment, and reinvested in such assets within 365 days of such Casualty/Condemnation. "Citibank" means Citibank, N.A. "Citibank Standby L/C Documents" means the reimbursement agreements, letter of credit applications and other documents relating to the Citibank Standby Letters of Credit. "Citibank Standby L/C Obligations" means (a) each payment, including payments in respect of reimbursements and cash collateralization, required to be made by Rite Aid under the Citibank Standby L/C Documents in respect of Citibank Standby Letters of Credit in an aggregate amount at any time outstanding not in excess of (i) $8,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied to such obligations as the result of the exercise of remedies under the Senior Collateral Documents and (b) all other monetary obligations, including fees, costs, expenses and indemnities (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) of Rite Aid or any Obligor under the Citibank Standby L/C Documents to the extent attributable to the Citibank Standby Letters of Credit referred to in clause (a). "Citibank Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Citibank outstanding on the Closing Date in an aggregate face amount of approximately $8,000,000, together with any standby letter of credit (other than any letter of credit issued under the Senior Credit Facility) hereafter issued by Citibank for the account of any Obligor, provided that the Citibank Standby Letters of Credit shall be limited to an amount at any time outstanding not in excess of (i) $8,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied as the result of the exercise of remedies under the Senior Collateral Documents to reimbursement and cash collateralization obligations in respect of Citibank Standby Letters of Credit. "Closing Date" means the date on which the Senior Credit Facility, the amendments and restatements giving rise to the Existing Facilities and the exchange offer and other transactions giving rise to the Exchange Notes become effective. "Collateral" means the Senior Collateral and the Second Priority Collateral. "Collateral Documents" means (a) the Senior Collateral Documents and (b) the Second Priority Collateral Documents. "Collateral Trust and Intercreditor Agreement" means the Collateral Trust and Intercreditor Agreement, dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors, the Second Priority Collateral Trustee, the Senior Collateral Agent and each Second Priority Representative. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed by such Person. "Debt Facility" means any of the Senior Credit Facility, the Existing Facilities, the Synthetic Lease Facilities and the Exchange Note Indenture. "Default Rate" means a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) equal to the sum of (a) the rate of interest publicly announced by Citibank in New York, New York, from time to time as its "base rate", plus (b) 2.00%. "Designated Asset Disposition" means any sale, transfer or other disposition of Exchange Debt First Priority Collateral other than a Permitted Disposition. "Domestic Subsidiary" means any Subsidiary incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "Drugstore.com Common Stock" means the common stock of Drugstore.com, Inc., a Delaware corporation, owned by Rite Aid. "Drugstore.com Pledge Agreement" means the Drugstore.com Pledge Agreement dated as of October 25, 1999 and amended and restated as of June 12, 2000, between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "Exchange Debt Facility" means the Exchange Debt Facility dated as of June 12, 2000 among Rite Aid Corporation, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "Exchange Debt Facility Documents" means the collective reference to the "Loan Documents" as defined in the Exchange Debt Facility. "Exchange Debt First Priority Collateral" means the prescription files of Rite Aid's Subsidiaries and the proceeds thereof. "Exchange Debt First Priority Collateral Documents" means the collective reference to the "First Priority Collateral Documents", as defined in the Exchange Debt Facility. "Exchange Debt Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loans made under the Exchange Debt Facility, (ii) all other amounts payable by the Borrower to the Exchange Debt Parties under the Exchange Debt Facility Documents, and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the Exchange Debt Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Exchange Debt Parties" means all parties to the Exchange Debt Facility Documents other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the administrative agent under the Exchange Debt Facility and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Exchange Debt Facility Document. "Exchange Note Documents" means the Exchange Notes and the Exchange Note Indenture, Exchange and Registration Rights Agreement among the State Street Bank and Trust, as trustee, Rite Aid and the Subsidiary Guarantors, and the Forward Commitment Agreement. "Exchange Note Indenture" means the Indenture dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors and State Street Bank and Trust Company, as trustee, relating to the Exchange Notes. "Exchange Note Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the Exchange Notes, (ii) all other amounts payable by the Borrower to the Exchange Note Parties under the Exchange Note Documents, and (iii) any renewals or extensions of any of the foregoing. "Exchange Note Parties" means all parties to the Exchange Note Documents and the holders from time to time of the Exchange Notes, in each case other than the Obligors or any Affiliate thereof, the Senior Bank Parties and the Representatives, but including the trustee under the Exchange Note Indentures and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Exchange Note Document. "Exchange Notes" means the 10.50% Senior Secured Notes Due 2002 of Rite Aid (i) issued in exchange for certain 5.50% Notes Due 2000 of Rite Aid and 6.70% Notes Due 2001 of Rite Aid or (ii) issued on the Closing Date to SPV and to be transferred to SSB, JPM and their respective transferees and assignees pursuant to the Forward Commitment Agreement; provided, however, that the aggregate principal amount of Exchange Notes issued pursuant to the Forward Commitment Agreement shall not exceed $93,158,000. "Existing Facilities" means (a) the PCS Facility; (b) the RCF Facility; (c) the Finco Facility; and (d) the Exchange Debt Facility. "Existing Facilities Documents" means the collective reference to (i) the PCS Facility Documents, (ii) the RCF Facility Documents, (iii) the Finco Facility Documents and (iv) the Exchange Debt Facility Documents. "Existing Facility Obligations" means the PCS Facility Obligations, the RCF Facility Obligations, the Finco Facility Obligations and the Exchange Debt Obligations. "Existing Facility Parties" means the PCS Facility Parties, the RCF Facility Parties, the Finco Facility Parties and the Exchange Debt Parties. "Finco Facility" means the Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, Amendment No. 1 to Put Agreement (the "Omnibus Amendment") dated as of June 12, 2000, relating to the Adjustable Rate Senior Secured Notes due August 15, 2002 originally issued by Finco, Inc. and guaranteed by Rite Aid. The "Finco Facility " shall be deemed to include the Note Agreement dated as of September 30, 1996, among Finco, Inc., and each of the Purchasers listed in Annex 1 thereto, as amended through the Closing Date. "Finco Facility Documents" means (i) the Finco Facility, (ii) the Guaranty Agreement dated as of September 30, 1996 pursuant to which Rite Aid guaranteed the obligations of Finco, Inc. under the Finco Facility; (iii) the Put Agreement dated as of September 30, 1996 entered into by Rite Aid, and (iv) the Security Agreement dated as of September 30, 1996 entered into by Finco, Inc. and The Prudential Insurance Company of America as the Security Agent on behalf of the Finco Facility Parties, in each case as amended through the Closing Date. "Finco Facility Obligations" means (i) all outstanding principal amounts under the Finco Facility Documents, (ii) all interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the principal amounts pursuant to clause (i) of this definition, (iii) any renewals or extensions of any of the foregoing and (iv) any and all other amounts payable by the Borrower in respect of the Finco Facility Documents; provided, however, that the principal amount of indebtedness included in the Finco Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Finco Facility Parties" means The Prudential Insurance Company of America and Pruco Life Insurance Company and their successors and assigns as noteholders and purchasers under the Finco Facility Documents and The Prudential Insurance Company of America, as Security Agent under the Finco Facility Documents and its successor or assignee. "Forward Commitment Agreement" means the Forward Commitment Agreement dated June 12, 2000, among Rite Aid, SPV, SSB and JPM. "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" mean, collectively, (a) the Indenture dated as of December 21, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee, (b) the Indenture dated as of August 1, 1993, between Rite Aid and Morgan Guaranty Trust Company of New York, as trustee, (c) the Indenture dated as September 10, 1997, between Rite Aid and Harris Trust and Savings Bank, as trustee and (d) the Indenture dated as of September 22, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee. "Independent Standby L/C Documents" means the Citibank Standby L/C Documents and the Mellon Standby L/C Documents. "Independent Standby L/C Obligations" means the Citibank Standby L/C Obligations and the Mellon Standby L/C Obligations. "Independent Standby L/C Parties" means Citibank and Mellon Bank in their capacities as issuers of Independent Standby Letters of Credit. "Independent Standby Letters of Credit" means the Citibank Standby Letters of Credit and the Mellon Standby Letters of Credit. "Instructing Group" means, until the Senior Obligation Payment Date, the Majority Senior Parties, and thereafter the Second Priority Instructing Group. "JPM" means J.P. Morgan Securities, Inc. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. "Majority Senior Parties" means the Majority Banks, as defined in the Senior Credit Facility, or with respect to any waiver, amendment or request, Senior Banks having such amount of unused Revolving Credit Commitments, Revolving Credit Exposure, unused Term Loan Commitments and outstanding Term Loans as may be required under the Senior Credit Facility to approve the same. "Mellon Bank" means Mellon Bank, N.A. "Mellon Standby L/C Documents" mean the reimbursement agreements, letter of credit applications and other documents relating to the Mellon Standby Letters of Credit. "Mellon Standby L/C Obligations" means (a) each payment, including payments in respect of reimbursements and cash collateralization, required to be made by Rite Aid under the Mellon Standby L/C Documents in respect of Mellon Standby Letters of Credit in an aggregate amount at any time outstanding not in excess of (i) $26,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied to such obligations as the result of the exercise of remedies under the Senior Collateral Documents and (b) all other monetary obligations, including fees, costs, expenses and indemnities (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable as a claim in such proceeding) of Rite Aid under the Mellon Standby L/C Documents to the extent attributable to the Mellon Standby Letters of Credit referred to in clause (a). "Mellon Standby Letters of Credit" means the standby letters of credit issued for the account of the Borrower by Mellon Bank outstanding on the Closing Date in an aggregate face amount of $26,000,000, together with any standby letter of credit (other than any letter of credit issued under the Senior Credit Facility) hereafter issued by Mellon Bank for the account of any Obligor provided that the Mellon Standby Letters of Credit shall be limited to an amount at any time outstanding not in excess of (i) $26,000,000 minus (ii) the cumulative amount of proceeds of Collateral applied as the result of the exercise of remedies under the Senior Collateral Documents to reimbursement and cash collateralization obligations in respect of Mellon Standby Letters of Credit. "Moody's" means Moody's Investors Service, Inc., or any successor to its business of rating debt securities. "Net Cash Proceeds" means, (a) with respect to any sale, transfer or other disposition of any property or asset (a "Disposition"), an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Disposition (including, when received, any cash proceeds received in respect of any noncash proceeds of any Disposition), less (I) the sum of (i) reasonable costs and expenses paid or incurred in connection with such transaction, including, without limitation, any underwriting brokerage or other customary selling commissions and reasonable legal, advisory and other fees and expenses (including title and recording expenses, associated therewith), payments of unassumed liabilities relating to the assets sold and any severance and termination costs; (ii) the amount of any Debt (or Attributable Debt), together with premium or penalty, if any, and accrued interest thereon (or comparable obligations in respect of Attributable Debt) secured by a Lien on (or if Attributable Debt, the lease of) any asset disposed of in such Disposition and discharged from the proceeds thereof, but only to the extent such Lien has priority over the Senior Lien, the Second Priority Lien and the Liens under the Exchange Debt First Priority Collateral Documents; (iii) 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 Disposition; (iv) the portion of such cash proceeds which the Borrower determines in good faith and reasonably should be reserved for post-closing adjustments, including, without limitation, indemnification payments and purchase price adjustments, provided, that on the date that all such post-closing adjustments have been determined, the amount (if any) by which the reserved amount in respect of such Disposition exceeds the actual post-closing adjustments payable by the Borrower or any of the Subsidiary Guarantors shall constitute Net Cash Proceeds on such date; and (v) in the case of a PCS Divestiture the sum of (1) the PCS Incremental Investment as of the date of consummation of such disposition plus (2) the aggregate Net Cash Proceeds of PCS Dispositions in the form of Sale and Leaseback Transactions theretofore applied to prepayments of the PCS Facility; and plus (II) in the case of a PCS Divestiture, the PCS Investment Reduction as of the date of consummation of such transaction; (b) with respect to any Capital Markets Transaction, an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Capital Markets Transaction, less any reasonable transaction costs; including investment banking and underwriting fees, discounts and commissions and any other expenses (including legal fees and expenses) reasonably incurred by such Person in respect of such Capital Markets Transaction; and (c) with respect to receipt of Casualty/Condemnation Proceeds, the amount thereof. "Obligors" means Rite Aid, the Subsidiary Guarantors and any other Person who is liable for any of the Secured Obligations. "paid in full" means paid in full in cash. "PCS" means PCS Holding Corporation, a Delaware corporation, and its successors. "PCS Common Stock" means the common stock of PCS owned by Rite Aid. "PCS Dispositions" means (i) any sale or other disposition of capital stock of PCS (or of any non-cash proceeds thereof), (ii) any sale, lease or other disposition (including a Casualty/Condemnation) by PCS or any of its Subsidiaries of any asset, other than (y) 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, and (z) dispositions to PCS or a wholly-owned Subsidiary of PCS or (iii) any sale, lease or other disposition (including a Casualty/Condemnation) of PCS Land. "PCS Divestiture" means a PCS Disposition as a result of which the business of PCS is no longer conducted by a Consolidated Subsidiary of the Borrower. "PCS/Drugstore Pledged Collateral" means the capital stock of PCS and Drugstore.com pledged by Rite Aid under the PCS Pledge Agreement and the Drugstore.com Pledge Agreement and all income and profits thereon, dividends and other payments and distributions with respect thereto and all proceeds of the foregoing subject to a Lien under such agreements. "PCS Excluded Assets" means (i) any Collateral consisting of assets of PCS or a Subsidiary of PCS, other than PCS Linked Accounts, (ii) PCS Land and (iii) any proceeds of clauses (i) and (ii). For purposes of Article IV of the Collateral Trust and Intercreditor Agreement, any proceeds of enforcement of the Senior Subsidiary Guarantee Agreement or the Second Priority Guarantee Agreement against PCS or a Subsidiary of PCS (other than with respect to the PCS Linked Accounts and the proceeds thereof) shall be deemed to be proceeds of Collateral consisting of PCS Excluded Assets. "PCS Facility" means the PCS Facility dated as of June 12, 2000, among Rite Aid, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "PCS Facility Documents" means the "Loan Documents" as defined in the PCS Facility. "PCS Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the PCS Facility, (ii) all other amounts payable by the Borrower under the PCS Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the PCS Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "PCS Facility Parties" means the parties to the PCS Facility Documents other than the Obligors, the Senior Bank Parties and the Representatives, but including the administrative agent under the PCS Facility and the beneficiaries of each indemnification obligation by Rite Aid or any other Obligor under any PCS Facility Documents. "PCS Incremental Investment" means, at any date, the amount, if any, by which the inter-company payable owing by Rite Aid Hdqtrs. Corp. to PCS at such date is less than such amount as at May 27, 2000. The Borrower shall promptly notify each of the Representatives following the Closing Date of such latter amount. "PCS Investment Reduction" means, at any date, the excess, if any, of (i) the amount, if any, by which the intercompany payable owing by Rite Aid Hdqtrs. Corp. to PCS at such date is greater than such amount as at May 27, 2000, over (ii) the cumulative PCS EBITDA, as defined in the Senior Credit Facility, for the period from May 27, 2000, to such date. "PCS Land" means the real property described as N.W. 96th Street and Mountainview Road, Scottsdale, Arizona, together with any improvements thereon. "PCS Linked Accounts" means any accounts receivable owed to PCS by third party insurers in respect of claims generated by other Subsidiaries of Rite Aid and giving rise to related accounts payable owed by PCS to such other Subsidiaries of Rite Aid. "PCS Pledge Agreement" means the PCS Pledge Agreement dated as of October 25, 1999 and amended and restated as of June 12, 2000, between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder. "Permitted Disposition" means any of the following: (i) dispositions of inventory at retail, cash, cash equivalents and other cash managing investments and obsolete, unused, uneconomic or unnecessary equipment, in each case in the ordinary course of business; (ii) a disposition to a Subsidiary Guarantor, provided, that (A) if the property subject to such disposition constitutes Collateral immediately before giving effect to such disposition, such property continues to constitute Collateral subject to the Senior Lien and the Second Priority Lien, and (B) no dispositions of property will be made to or by PCS or its Subsidiaries except in the ordinary course of business consistent with past practice; (iii) a sale or discount, in each case without recourse and in the ordinary course of business, of overdue Accounts (as defined in the Senior Credit Facility) arising in the ordinary course of business, but only to the extent such Accounts are no longer Eligible Accounts Receivable (as defined in the Senior Credit Facility) and such sale or discount is in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale); (iv) Basket Asset Sales; and (v) any disposition of Exchange Notes by SPV to SSB or JPM (or their respective successors, assigns and affiliates), pursuant to the Forward Commitment Agreement as in effect on the Closing Date. "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. "RCF Facility" means the RCF Facility dated as of June 12, 2000, among Rite Aid, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "RCF Facility Documents" means the "Loan Documents" as defined in the RCF Facility. "RCF Facility Obligations" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan made under the RCF Facility, (ii) all other amounts payable by the Borrower to the RCF Facility Parties under the RCF Facility Documents and (iii) any renewals or extensions of any of the foregoing; provided, however, that the principal amount of indebtedness included in the RCF Facility Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "RCF Facility Parties" means the parties to the RCF Facility Documents other than the Obligors. "Reduction" means, when applied to any Debt Facility, (i) the permanent repayment of outstanding loans (or obligations in respect of Attributable Debt) under such Debt Facility, (ii) the permanent reduction of outstanding lending commitments under such Debt Facility or (iii) the permanent cash collateralization of outstanding letters of credit under such facility (together with the termination of any lending commitments utilized by such letters of credit). "Reduction Event" is (i) a PCS Disposition, (ii) a Capital Markets Transaction, (iii) a Designated Asset Disposition, (iv) a Senior Collateral Disposition, (v) other Asset Sales or (vi) receipt of other Casualty/Condemnation Proceeds. "Related Exchange Debt" means, with respect to any of the Existing Facilities (other than the Exchange Debt Facility), Debt under the Exchange Debt Facility issued in exchange for Debt under such Existing Facility. "Related Exchange Debt Obligation" shall mean Exchange Debt Obligations in respect of Related Exchange Debt. "Representatives" means each of the Senior Collateral Agent and the Second Priority Representatives. "Required Prepayment Amount" has the meaning assigned to such term in the Senior Credit Facility, as in effect on the Closing Date. "Rite Aid" means Rite Aid Corporation, a Delaware corporation, and its successors. "Rite Aid Hdqtrs. Corp." means Rite Aid Hdqtrs. Corp., a Delaware corporation and a Wholly-Owned Consolidated Subsidiary of the Borrower. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor to its business of rating debt securities. "Sale and Leaseback Transaction" means the sale or transfer by the Borrower or any Subsidiary of any office building (including its headquarters), distribution center, manufacturing plant, warehouse, Store or equipment now or hereafter owned by the Borrower or any Subsidiary with the intention that the Borrower or any Subsidiary take back a lease thereof. "Second Priority Collateral" means all the "Second Priority Collateral" as defined in any Second Priority Collateral Documents and shall also include the Mortgaged Properties and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral or the Exchange Debt First Priority Collateral. "Second Priority Collateral Documents" means the Second Priority Mortgages, the Second Priority Subsidiary Security Agreement, the Second Priority Subsidiary Guarantee Agreement, the Second Priority Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing for purposes of providing collateral security or credit support for any Second Priority Debt Obligation or obligation under the Second Priority Subsidiary Guarantee Agreement but specifically excluding the Drugstore.com Pledge Agreement, the Exchange Debt First Priority Collateral Documents and the PCS Pledge Agreement. "Second Priority Collateral Trustee" means Wilmington Trust Company, in its capacity as collateral trustee under the Collateral Trust and Intercreditor Agreement and the Second Priority Collateral Documents, and its successors. "Second Priority Debt Documents" means the Existing Facility Documents, the Exchange Note Documents, the Synthetic Lease Documents and the Second Priority Collateral Documents. "Second Priority Debt Obligations" means the collective reference to the Exchange Debt Obligations, the Exchange Note Obligations, the Synthetic Lease Obligations, the PCS Facility Obligations, the RCF Facility Obligations and the Finco Facility Obligations. "Second Priority Debt Parties" means the Existing Facility Parties, the Exchange Note Parties, the Synthetic Lease Parties and the Second Priority Collateral Trustee. "Second Priority Facilities" means the Exchange Debt Facility, the Exchange Note Indenture, the Synthetic Lease Facilities, the PCS Facility, the RCF Facility and the Finco Facility. "Second Priority Indemnity, Subrogation and Contribution Agreement" means the Second Priority Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000, among Rite Aid, the Subsidiary Guarantors and the Second Priority Collateral Trustee. "Second Priority Instructing Group" means Second Priority Representatives with respect to Second Priority Facilities under which at least a majority of the then aggregate amount of Second Priority Debt Obligations are outstanding. "Second Priority Lien" means the Liens on the Second Priority Collateral in favor of the Second Priority Debt Parties under the Second Priority Collateral Documents. "Second Priority Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents which create a Lien in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties, delivered pursuant to the Second Priority Debt Documents, each substantially in the form of Exhibit [ ] to the RCF Facility, with such changes as are approved by the Senior Collateral Agent and the Second Priority Representatives. "Second Priority Representative" means, in respect of each Second Priority Facility, the trustee under the Exchange Note Indenture and the administrative agent, security agent or agent under each other Second Priority Facility and each of their successors in such capacities. "Second Priority Subsidiary Guarantee Agreement" means the Second Priority Subsidiary Guarantee Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Second Priority Subsidiary Security Agreement" means the Second Priority Subsidiary Security Agreement, dated as of June 12, 2000, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Closing Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Secured Obligations" means the Senior Obligations and the Second Priority Debt Obligations. "Senior Bank" means a "Bank" as defined in the Senior Credit Facility. "Senior Bank Obligations" means (i) the principal of each loan made under the Senior Credit Facility, (ii) all reimbursement and cash collateralization obligations in respect of letters of credit issued under the Senior Credit Facility, (iii) all monetary obligations of the Borrower or any Subsidiary under each Senior Interest Rate Agreement entered into with any counterparty that was a Senior Bank (or an Affiliate thereof) at the time such Senior Interest Rate Agreement was entered into, (iv) all interest on the loans, letter of credit reimbursement, fees and other obligations under the Senior Credit Facility or such Senior Interest Rate Agreements (including, without limitation any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower or any Subsidiary Guarantor, whether or not allowed or allowable as a claim in such proceeding), (v) all other amounts payable by the Borrower under the Senior Loan Documents and (vi) all increases, renewals, extensions and refinancings of the foregoing; provided, however, that the principal amount of the indebtedness under the Senior Credit Facility included in the Senior Bank Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Senior Bank Parties" means each party to the Senior Credit Facility other than any Obligor, each counterparty to a Senior Interest Rate Agreement, the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Obligor under any Senior Loan Document, and the successors and permitted assigns of each of the foregoing. "Senior Collateral" means all the "Senior Collateral" as defined in any Senior Collateral Document and shall also include the Mortgaged Properties and the proceeds thereof, but shall not in any event include the PCS/Drugstore Pledged Collateral and the Exchange Debt First Priority Collateral. "Senior Collateral Agent" means Citicorp USA, Inc., in its capacity as Senior Collateral Agent under the Senior Collateral Documents, and its successors. "Senior Collateral Disposition" means (i) any sale, transfer or other disposition of Senior Collateral (including any property or assets that would constitute Senior Collateral but for the release of the Senior Lien with respect thereto in connection with such sale, transfer or other disposition), other than a PCS Disposition, or a Permitted Disposition or (ii) a Casualty/Condemnation with respect to Senior Collateral (other than PCS Excluded Assets). "Senior Collateral Documents" means the Senior Mortgages, the Senior Subsidiary Security Agreement, the Senior Subsidiary Guarantee Agreement, the Senior Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the mortgages, security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing or pursuant to the Senior Credit Facility or for purposes of providing collateral security or credit support for any Senior Obligation or obligation under the Senior Subsidiary Guarantee Agreement. "Senior Credit Facility" means the Senior Credit Agreement, dated as of June 12, 2000, among Rite Aid, as Borrower, the Senior Banks, the Swingline Banks, the Issuing Banks, the Senior Administrative Agent, the Senior Collateral Agent and the Syndication Agents. "Senior Indemnity, Subrogation and Contribution Agreement" means the Senior Indemnity, Subrogation and Contribution Agreement, dated as of June 12, 2000 among Rite Aid, the Subsidiary Guarantors (including Subsidiary Guarantors becoming party thereto after the Closing Date) and the Senior Collateral Agent. "Senior Interest Rate Agreement" means any Interest Rate Agreement entered into with Rite Aid or any Subsidiary, if the applicable counterparty was a Senior Bank or an Affiliate thereof at the time the Interest Rate Agreement was entered into. "Senior Lien" means the Liens on the Senior Collateral in favor of the Senior Secured Parties under the Senior Collateral Documents. "Senior Loan Documents" means the Senior Credit Facility, the Notes referred to in the Senior Credit Facility, each Senior Interest Rate Agreement, and the Senior Collateral Documents. "Senior Mortgages" means the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents delivered pursuant to the Senior Credit Facility, each substantially in the form of Exhibit J to the Senior Credit Facility, with such changes as are approved by the Senior Collateral Agent. "Senior Obligation Payment Date" means the date on which (i) the Senior Obligations have been paid in full, (ii) all lending commitments under the Senior Credit Facility have been terminated and (iii) there are no outstanding Independent Standby Letters of Credit or letters of credit issued under the Senior Credit Facility other than such as have been fully cash collateralized under documents and arrangements satisfactory to the issuer of such letters of credit. "Senior Obligations" means (a) the Senior Bank Obligations and (b) the Independent Standby L/C Obligations. "Senior Secured Parties" means (a) the Senior Bank Parties and (b) the Independent Standby L/C Parties. "Senior Subsidiary Guarantee Agreement" means the Senior Subsidiary Guarantee Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "Senior Subsidiary Security Agreement" means the Senior Subsidiary Security Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Closing Date) in favor of the Senior Collateral Agent for the benefit of the Senior Secured Parties. "SPV" means Fiona One Corp., a Delaware corporation and a wholly-owned Subsidiary of Rite Aid which is organized for the sole purpose of acquiring Exchange Notes on the Closing Date from Rite Aid and selling such Exchange Notes to SSB and JPM in accordance with the Forward Commitment Agreement. "SSB" means Salomon Smith Barney Inc. "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. "Subsidiary Guarantor" means each Subsidiary that is party to the Senior Subsidiary Guarantee Agreement, the Second Priority Subsidiary Guarantee Agreement or any other Senior Collateral Document or Second Priority Collateral Document. "Synthetic Lease Documents" means the documents governing the Synthetic Leases. "Synthetic Lease Facilities" means certain synthetic leases entered into by the Subsidiary Guarantors and guaranteed by Rite Aid having an aggregate discounted present value of approximately $214,000,000, as amended and restated as of the Closing Date. "Synthetic Lease Obligations" means all rent and supplemental rent, all fees and all other expenses or amounts payable by any Obligors to any Synthetic Lease Parties under any Synthetic Lease Document; provided, however, that the aggregate amount of the Synthetic Lease Obligations shall not exceed the maximum amount from time to time permitted to be outstanding by the Collateral Trust and Intercreditor Agreement. "Synthetic Lease Parties" means all parties to the Synthetic Lease Documents other than the Obligors. "Temporary Cash Investment" means any investment by any Person in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by S&P and P-1 by Moody's, (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized or licensed under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $500,000,000, (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, provided in each case that such investment matures within one year from the date of acquisition thereof by such Person or (v) money market mutual funds at least 90% the assets of which are held in investments referred to in clauses (i) through (iv) above (except that the maturities of certain investments held by any such money market funds may exceed one year so long as the dollar-weighted average life of the investments of such money market mutual fund is less than one year). "Uniform Commercial Code" or "UCC" means, unless otherwise specified, the Uniform Commercial Code as from time to time in effect in the State of New York. EX-10 10 0010.txt EXHIBIT 10.6 - RCF FACILITY Exhibit 10.6 CONFORMED COPY RCF FACILITY dated as of June 12, 2000 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............................................. 2 SECTION 1.02. Accounting Terms and Determinations..................... 17 SECTION 1.03. Classes and Types of Loans.............................. 17 SECTION 1.04. Other Definitional Provisions........................... 17 ARTICLE 2 THE CREDITS SECTION 2.01. Outstanding Loans....................................... 18 SECTION 2.02. Notes................................................... 18 SECTION 2.03. Maturity of Loans....................................... 19 SECTION 2.04. Interest Rates.......................................... 19 SECTION 2.05. Method of Electing Interest Rates....................... 20 SECTION 2.06. Participation Fees...................................... 22 SECTION 2.07. Reduction Events; Mandatory Prepayments................. 22 SECTION 2.08. Optional Prepayments.................................... 23 SECTION 2.09. General Provisions as to Payments....................... 23 SECTION 2.10. Funding Losses.......................................... 24 SECTION 2.11. Computation of Interest................................. 24 SECTION 2.12. Registry................................................ 24 ARTICLE 3 CONDITIONS SECTION 3.01. Closing Date............................................ 25 SECTION 3.02. Transition.............................................. 28 ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01. Corporate Existence and Power........................... 29 SECTION 4.02. Corporate and Governmental Authorization; No Contravention......................................... 29 SECTION 4.03. Binding Effect.......................................... 30 SECTION 4.04. Financial and Other Information......................... 30 SECTION 4.05. Accuracy of Information................................. 31 SECTION 4.06. Litigation.............................................. 31 SECTION 4.07. Compliance with ERISA................................... 32 SECTION 4.08. Taxes................................................... 32 SECTION 4.09. Subsidiaries............................................ 32 SECTION 4.10. Environmental Matters................................... 33 SECTION 4.11. Year 2000 Compliance.................................... 33 SECTION 4.12. Other Loan Documents.................................... 33 SECTION 4.13. Insurance............................................... 33 SECTION 4.14. Solvency................................................ 34 SECTION 4.15. Title to Properties..................................... 34 SECTION 4.16. Investment Company Act; Public Utility Holding Company Act........................................... 35 SECTION 4.17. Labor Matters........................................... 35 ARTICLE 5 COVENANTS SECTION 5.01. Information............................................. 35 SECTION 5.02. Payment of Obligations.................................. 39 SECTION 5.03. Maintenance of Property; Insurance...................... 39 SECTION 5.04. Conduct of Business and Maintenance of Existence........ 41 SECTION 5.05. Compliance with Laws.................................... 42 SECTION 5.06. Inspection of Property, Books and Records............... 42 SECTION 5.07. Restriction on Other Agreements, Payment Limitations, Debt Prepayments......................... 42 SECTION 5.08. Further Assurances...................................... 43 SECTION 5.09. Subsidiaries............................................ 44 SECTION 5.10. Restriction on Sale and Leaseback Transactions.......... 44 SECTION 5.11. Restriction on Liens.................................... 44 SECTION 5.12. Capital Expenditures.................................... 46 SECTION 5.13. Minimum EBITDA.......................................... 47 SECTION 5.14. Minimum Interest Coverage Ratio......................... 48 SECTION 5.15. Minimum Fixed Charge Coverage Ratio..................... 48 SECTION 5.16. Restriction on Debt..................................... 49 SECTION 5.17. Limitation on Investments and Acquisitions.............. 51 SECTION 5.19. Dispositions of Assets.................................. 53 SECTION 5.20. Use of Proceeds......................................... 54 SECTION 5.21. Restrictions on Asset Holdings by the Borrower.......... 54 SECTION 5.22. Restricted Payments..................................... 55 SECTION 5.23. Business of Borrower and Subsidiaries................... 55 SECTION 5.24. Transactions with Affiliates............................ 55 SECTION 5.25. New Synthetic Leases.................................... 56 SECTION 5.26. Corporate Separateness.................................. 57 SECTION 5.27. Limitation on Derivative Obligations.................... 57 ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default....................................... 57 SECTION 6.02. Notice of Default....................................... 60 ARTICLE 7 THE ADMINISTRATIVE AGENT SECTION 7.01. Appointment and Authorization........................... 60 SECTION 7.02. Administrative Agent and Affiliates..................... 60 SECTION 7.03. Action by Administrative Agent.......................... 61 SECTION 7.04. Consultation with Experts............................... 61 SECTION 7.05. Liability of Administrative Agent....................... 61 SECTION 7.06. Indemnification......................................... 61 SECTION 7.07. Credit Decision......................................... 61 SECTION 7.08. Successor Administrative Agent.......................... 62 SECTION 7.09. Administrative Agent's Fees............................. 63 SECTION 7.10. Steering Committee...................................... 63 ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair................................................ 63 SECTION 8.02. Illegality.............................................. 64 SECTION 8.03. Increased Cost and Reduced Return....................... 64 SECTION 8.04. Taxes................................................... 65 SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans..................................... 67 ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices................................................. 68 SECTION 9.02. No Waivers.............................................. 68 SECTION 9.03. Expenses; Indemnification............................... 68 SECTION 9.04. Sharing of Set-Offs..................................... 69 SECTION 9.05. Amendments and Waivers.................................. 70 SECTION 9.06. Successors and Assigns.................................. 71 SECTION 9.07. Collateral.............................................. 72 SECTION 9.08. Governing Law; Submission to Jurisdiction............... 73 SECTION 9.09. Counterparts............................................ 73 SECTION 9.10. WAIVER OF JURY TRIAL.................................... 73 SECTION 9.11. Collateral Trust and Intercreditor Agreement............ 73 Schedule I - Outstanding Loans Schedule 1.01(a) - Existing Litigation Schedule 1.01(b) - Mortgaged Properties Schedule 1.10(c) - Subsidiary Guarantors Schedule 4.13 - Insurance Schedule 4.15(b)(i) - Leases on Mortgaged Properties Schedule 4.15(b)(ii) - Permitted Liens on Mortgaged Properties Schedule 4.15(c) - Leased Warehouses and Distribution Centers Schedule 5.10 - Permitted Sale and Leaseback Transactions Schedule 5.11(i) - Permitted Liens Schedule 5.11(f) - Permitted Debt Schedule 5.22(b) - Permitted Dividends Payable on Capital Stock Schedule 5.24 - Permitted Affiliate Transactions Definitions Annex Annex 3 - Description of the Transactions Exhibit A - Note Exhibit B-1 - Opinion of Special Counsel for the Borrower Exhibit B-2 - Opinion of General Counsel for the Borrower Exhibit C - Assignment and Assumption Agreement Exhibit D - Form of Senior Subsidiary Guarantee Agreement Exhibit E - Form of Senior Subsidiary Security Agreement Exhibit F - Form of Senior Indemnity, Subrogation and Contribution Agreement Exhibit G - Form of Senior Mortgage Exhibit H - Form of Second Priority Subsidiary Guarantee Agreement Exhibit I - Form of Second Priority Subsidiary Security Agreement Exhibit J - Form of Second Priority Indemnity, Subrogation and Contribution Agreement Exhibit K - Form of Second Priority Mortgage Exhibit L - Form of PCS Pledge Agreement Exhibit M - Form of Drugstore.com Pledge Agreement RCF FACILITY AGREEMENT dated as of June 12, 2000 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 are defined in Section 1.01 below), the Banks listed on the signature pages hereto and Morgan Guaranty Trust Company of New York, as agent for such Banks, are parties to an Amended and Restated Credit Agreement dated as of October 25, 1999 (as heretofore amended, the "EXISTING AGREEMENT"), pursuant to which the Banks have loans outstanding as set forth in Schedule I hereto. B. The Borrower proposes to enter into the Senior Credit Facility, pursuant to which up to an additional $1,000,000,000 of financing will be available to it and its Subsidiaries. The Senior Credit Facility will be guaranteed by the Subsidiaries of the Borrower pursuant to the Senior Subsidiary Guarantee Agreement, and such Senior Subsidiary Guarantee Agreement will be secured by Liens created pursuant to the Senior Collateral Documents. C. The obligations of the Borrower under this Agreement, together with the other Second Priority Debt Obligations, will be guaranteed by the Subsidiaries of the Borrower pursuant to the Second Priority Subsidiary Guarantee Agreement, and such Second Priority Subsidiary Guarantee Agreement will be secured by a second priority lien on the assets securing the Senior Subsidiary Guarantee Agreement. D. Certain outstanding Debt of the Borrower will be exchanged for common stock of the Borrower, and in connection therewith an equal principal amount of debt will be exchanged by the holder thereof for Exchange Debt Obligations (the "Equity Conversion"), which will have the benefit of a first priority lien on certain Exchange Debt First Priority Collateral. E. The parties hereto wish to amend and restate the Existing Agreement in connection with the foregoing transaction to read in its entirety as set forth herein. NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. Terms defined in the Definitions Annex and not otherwise defined in this Section 1.01 have the respective meanings specified therein. The following terms, as used herein, have the following meanings: "ADJUSTED LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.04(b). "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. "ADJUSTED WORKING CAPITAL" means, for any date, current assets (other than cash and cash equivalents) less current liabilities (other than Debt permitted hereunder). "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank. "AFFILIATE TRANSACTION" is defined in Section 5.24. "AGREEMENT" means the Existing Agreement, as amended and restated by this Amended Agreement and as the same may be further amended from time to time. "AMENDED AGREEMENT" means this RCF Facility dated as of June 12, 2000. "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. "APPLICABLE MARGIN" means the sum of (i) with respect to Base Rate Loans, 2.75% and, with respect to Euro-Dollar Loans, 3.75%, plus (ii) at any date on or after November 1, 2000, 0.50% unless the Reduction Condition has been met on or prior to such date plus (iii) (A) for purposes of all calculations hereunder for any date on which an Event of Default shall have occurred and be continuing, but only if the Required Banks shall have so elected by notice to the Borrower through the Administrative Agent, or (B) for purposes of calculating interest on overdue amounts hereunder for any date on which the election contemplated by clause (A) is not in effect, 2.00%. "ASSIGNEE" has the meaning set forth in Section 9.06(c). "BANK" means each Person listed on the signature pages hereof under the heading "BANKS", 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 a Notice of Interest Rate Election, the first or the last sentence of Section 2.05(a) or Article 8. "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. "BUSINESS ACQUISITION" means (i) an Investment by the Borrower or any of its Subsidiaries in any other Person (including an Investment by way of acquisition of securities of any other Person) pursuant to which such Person shall become a Subsidiary or shall be merged into or consolidated with the Borrower or any of its Subsidiaries or (ii) an acquisition by the Borrower or any of its Subsidiaries of the property and assets of any Person (other than the Borrower or any of its Subsidiaries) that constitute substantially all the assets of such Person or any division or other business unit of such Person; provided, that the acquisition of prescription files, Stores and Persons substantially all of whose assets consist of fewer than ten Stores, in each case, in the ordinary course of business and not inconsistent with the Borrower's business plan delivered pursuant to Section 3.01(e), shall not be a Business Acquisition. "CAPITAL LEASE" means any lease of property which, in accordance with generally accepted accounting principles, should be capitalized on the lessee's balance sheet. "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 for the replacement or restoration of assets to the extent financed by Casualty/Condemnation Proceeds relating to the asset or assets being replaced or restored. "CONSOLIDATED DEBT" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "CONSOLIDATED EBITDA" means, for any period (without duplication), Consolidated Net Income for such period, plus (a) to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) consolidated interest expenses, whether cash or non-cash, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments which reduced such Consolidated Net Income, (v) store closing expenses and (vi) any other nonrecurring charge to the extent such nonrecurring charge does not involve any cash expenditure during such period, (vii) all fees, costs, charges and expenses in connection with the Transactions, (viii) all fees, costs, charges and expenses in connection with the restatement of the consolidated financial statements of the Borrower and its Consolidated Subsidiaries for periods before February 26, 2000 and litigation expenses (exclusive of damages or amounts paid in settlement of claims) incurred in connection with litigation, investigation (including internal review) or other proceedings relating to such restatement, (ix) any advisory or other fees payable by the Borrower pursuant to the one-year financial services advisory contract described in the Borrower's quarterly report on Form 10-Q for the fiscal quarter ended as of August 28, 1999, (x) non-cash compensation expenses related to stock option and restricted stock employee benefit plans, and (xi) the non-cash interest component, as adjusted from time to time, in respect of reserves, 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 and added back to Consolidated Net Income pursuant to clause (a) above in calculating Consolidated EBITDA in any prior period and (ii) LIFO Adjustments which increased such Consolidated Net Income. "CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of (i) Consolidated EBITDA plus Consolidated Rent to (ii) Consolidated Interest Charges plus Consolidated Rent, in each case for such period. "CONSOLIDATED INTEREST CHARGES" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Borrower and its Consolidated Subsidiaries, solely to the extent paid or payable in cash, during such period. "CONSOLIDATED INTEREST COVERAGE RATIO" means, with respect to any period, the ratio of Consolidated EBITDA for such period to Consolidated Interest Charges for such period. "CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of the Borrower and its Consolidated Subsidiaries (exclusive of (a) extraordinary items of gain or loss, (b) any gain or loss in connection with any sale of assets other than sales of inventory in the ordinary course of business, but in the case of loss only to the extent that such loss does not involve any cash expenditure during such period and (c) the Borrower's share of the net income (or loss) of Drugstore.com), determined on a consolidated basis for such period. "CONSOLIDATED NET WORTH" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries determined as of such date. Consolidated Net Worth includes the Borrower's 8% Convertible Pay-In-Kind Preferred Stock. "CONSOLIDATED RENT" means, for any period, the consolidated rental expense of the Borrower and its Consolidated Subsidiaries for such period, and including in any event rental costs of closed stores for such period whether or not reflected as an expense in the determination of Consolidated Net Income for such period and including base or basic rent payments under Synthetic Leases. "CONSOLIDATED SUBSIDIARY" means, with respect to any Person, at any date any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "CREDIT EXPOSURE" means, with respect to any Bank, the aggregate outstanding principal amount of such Bank's Loans. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DEFINITIONS ANNEX" means the Definitions Annex annexed hereto and by this reference incorporated herein. "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. "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. "EQUITY CONVERSION" has the meaning set forth in the recitals hereto. "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 or the first sentence of Section 2.05(a). "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 2.04(b). "EVENT OF DEFAULT" has the meaning set forth in Section 6.01. "EXCESS CASH FLOW" means, for any period, the sum (without duplication) of Consolidated EBITDA for such period, plus (a) to the extent not included in Consolidated Net Income in calculating Consolidated EBITDA, the sum of (1) any Casualty/Condemnation Proceeds previously received by the Borrower or any Subsidiary in respect of which the time for reinvestment thereof (in accordance with the proviso to the definition of Casualty/Condemnation in respect of Proceeds) has elapsed during such period without such reinvestment having been effected, and (2) any Net Cash Proceeds received during such period by the Borrower or any Subsidiary in respect of Asset Sales; plus (b) decreases in Adjusted Working Capital for such period (other than any portion of such decrease resulting solely from the reclassification of assets or liabilities as short-term or long-term); plus (c) refunds of Taxes paid in prior periods; and minus (d) Taxes to the extent paid during such period in cash; minus (e) Consolidated Interest Charges to the extent paid during such period in cash; minus (f) increases in Adjusted Working Capital for such period (other than any portion of such increase resulting solely from the reclassification of assets or liabilities as short-term or long-term); minus (g) to the extent paid in cash during such period, costs and expenses referred to in clauses (v), (vii), (viii) and (ix) of the definition of "Consolidated EBITDA" which were added back to Consolidated Net Income to calculate Consolidated EBITDA for such period; minus (h) Consolidated Capital Expenditures for such period (except to the extent attributable to the incurrence of Debt under Capital Leases, Attributable Debt under Synthetic Leases or otherwise financed by the incurrence of Debt and except to the extent made with Casualty/Condemnation Proceeds or Net Cash Proceeds from Basket Asset Sales; minus (i) cash consideration paid by the Borrower or its Subsidiaries for permitted Business Acquisitions or other capital acquisitions (except to the extent financed by the incurrence of Debt and except to the extent made with Casualty/Condemnation Proceeds or Net Cash Proceeds from Basket Asset Sales; minus (j) cash expenditures made during such period in respect of long-term liabilities (other than Debt) or long-term assets to the extent such expenditures were not deducted in determining Consolidated Net Income for such period; minus (k) the aggregate principal amount of Debt (including Attributable Debt in respect of Synthetic Leases) paid or prepaid in cash by the Borrower or its Subsidiaries during such period (or immediately after such period in the case of mandatory prepayment of Debt required to be made with Net Cash Proceeds from Asset Sales received during such period), in each case to the extent permitted or required by this Agreement, but excluding (i) Debt in respect of Revolving Credit Loans and Letters of Credit (as defined in the Senior Credit Facility) that can be reborrowed or otherwise incurred again, (ii) repayments of Debt made with Net Cash Proceeds from Basket Asset Sales, and (iii) repayments or prepayments of Debt financed by incurring other Debt. "EXISTING AGREEMENT" has the meaning set forth in the recitals hereto. "EXISTING LITIGATION" means the bondholders' class actions and shareholders' class actions pending as of April 10, 2000 in the Eastern District of Pennsylvania, identified in Schedule 1.01(a) and the related pending investigation by the SEC. "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. "FINANCIAL OFFICER" of any person means the chief financial officer, principal accounting officer, treasurer or senior vice president finance of such person. "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. "GOVERNMENTAL AUTHORITY" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "HAZARDOUS MATERIALS" means all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBS") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "INDEMNITEE" has the meaning set forth in Section 9.03(b). "INITIAL FINANCIAL STATEMENTS" means the consolidated financial statements of the Borrower and its Consolidated Subsidiaries for the fiscal year ended February 26, 2000, and for the fiscal quarter ended May 27, 2000. "INTEREST PERIOD" means, with respect to each Euro-Dollar Loan, (i) the period in effect on the Closing Date pursuant to Section 3.02 or (ii) 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. "INTEREST RATE AGREEMENT" means, for any person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement designed to protect against fluctuations in interest rates. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "INVESTMENT" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. Any repurchase by the Borrower of its own capital stock shall not constitute an Investment for purposes of this Agreement. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of such transfer or exchange. "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 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 this Agreement, the Notes and the RCF Collateral Documents. "LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.04(b). "MATERIAL ADVERSE EFFECT" means (i) any material adverse effect on the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole, (ii) any material impairment of the legality, validity and enforceability of the Loan Documents (including without limitation, the validity, enforceability or priority of security interests to be granted), or the rights and remedies of the Second Priority Debt Parties or (iii) any material impairment of the Borrower's or the Subsidiary Guarantors' ability to perform its or their obligations under the Loan Documents. "MATERIAL FINANCIAL OBLIGATIONS" means (a) the Senior Obligations, (b) the Second Priority Debt Obligations (other than Debt hereunder), and (c) (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 August 15, 2002. "MORTGAGED PROPERTIES" means the owned real properties of the Subsidiary Guarantors specified on Schedule 1.01(b), together with real properties that are mortgaged pursuant to Section 5.08. Each Mortgaged Property shall include any owned fixtures used in connection with the operation of such Mortgaged Property. "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "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 2.05. "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 EBITDA" means, for any period, Consolidated EBITDA for such period less Retail EBITDA for such period. "PERFECTION CERTIFICATE" means the Perfection Certificate substantially in the form of Schedule 5 to the Second Priority Subsidiary Security Agreement. "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. "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. "QUALIFIED PREFERRED STOCK" means preferred stock of the Borrower that requires no cash payment before the date that is six months after the Maturity Date. "RCF COLLATERAL" means collateral subject to the RCF Collateral Documents. "RCF COLLATERAL DOCUMENTS" means the Second Priority Collateral Documents, the Pledge Agreements and any additional pledge agreements required to be delivered pursuant to the Loan Documents and any other instruments or agreements executed pursuant to the foregoing. The "REDUCTION CONDITION" shall be satisfied at such time as the aggregate amount outstanding under the Existing Facilities is less than or equal to the sum of (i) the aggregate amount outstanding under the Existing Facilities on the Closing Date minus (ii) $500,000,000. "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. "RELEASE" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. "REMEDIAL ACTION" means (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, clause (i) or (ii). "REQUIRED BANKS" means at any time Banks having more than 50% of the aggregate amount of the Credit Exposures. "RESTRICTED PAYMENT" means (a) any dividend or other distribution on any shares of the Borrower's or any Subsidiary's capital stock (except dividends payable solely in shares of the Borrower's capital stock); or (b) any payment on account of the purchase, redemption, retirement or acquisition of (i) any shares of the Borrower's or any Subsidiary's capital stock or (ii) any option, warrant or other right to acquire shares of the Borrower's or any Subsidiary's capital stock (other than such payment in connection with employee benefit plans in the ordinary course of business). "RETAIL CAPITAL EXPENDITURES" means, for any period, Consolidated Capital Expenditures for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Borrower. "RETAIL EBITDA" means, for any period, Consolidated EBITDA for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Borrower. "RETAIL FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of (i) Retail EBITDA plus Retail Rent to (ii) Retail Interest Charges plus Retail Rent, in each case for such period. "RETAIL INTEREST CHARGES" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Borrower and its Consolidated Subsidiaries, solely to the extent paid or payable in cash, during such period; provided, however, that for such period, such interest charges relating to the PCS Facility for such period will be computed as though the aggregate principal amount on which such interest charges are calculated at all times during such period were the lesser of (a) $300,000,000 and (b) the actual principal amount of the PCS Facility from time to time after giving effect to any repayment of the PCS Facility after the consummation of a PCS Disposition. "RETAIL INTEREST COVERAGE RATIO" means, with respect to any period, the ratio of Retail EBITDA for such period to Retail Interest Charges for such periods. "RETAIL RENT" means, for any period, Consolidated Rent for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Borrower. "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. "STORE" means any retail store (which may include any real property, fixtures, equipment, inventory and script files related thereto) operated, or to be operated, by any Subsidiary Guarantor. "SUBSIDIARY" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "SUBSIDIARY GUARANTOR" means, initially, each Subsidiary listed on Schedule 1.01(c), and each other Subsidiary that is or becomes a party to a Second Priority Subsidiary Guarantee Agreement. "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. "TRANCHE A EXPOSURE" means, with respect to each Bank, the aggregate outstanding principal amount of its Tranche A Loans. "TRANCHE A LOAN" means a loan made by a Bank as a Tranche A Loan pursuant to the Existing Agreement which is outstanding at the Closing Date. "TRANCHE B EXPOSURE" means, with respect to each Bank, the aggregate outstanding principal amount of its Tranche B Loans. "TRANCHE B LOAN" means a loan made by a Bank as a Tranche B Loan pursuant to the Existing Agreement which is outstanding at the Closing Date. "TRANSACTIONS" is defined in Annex 3. "TRANSACTION COSTS" is defined in Annex 3. "TRANSACTION DOCUMENTS" means the documents (other than the Second Priority Debt Documents) evidencing the Transactions. "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 (through Wholly-Owned Consolidated Subsidiaries) owned by the Borrower. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied (effective after delivery of the Initial Financial Statements) 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. Classes and Types of Loans. Loans hereunder are distinguished by "CLASS" and by "TYPE". The "CLASS" of a Loan refers to the determination whether such Loan is a Tranche A Loan or a Tranche B Loan, each of which constitutes a Class. The "TYPE" of a Loan refers to the determination whether such Loan is a Euro-Dollar Loan or a Base Rate Loan. Identification of a Loan by both Class and Type (e.g., a "Tranche B Euro-Dollar Loan") indicates that such Loan is both a Tranche B Loan and a Euro-Dollar Loan. SECTION 1.04. 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 to the other Second Priority Debt Documents, the Indentures, the Senior Loan Documents and the other Transaction Documents after the Closing Date shall be effective for purposes of references thereto in this Agreement and the other Second Priority Debt Documents only if such amendments are permitted hereunder and under the Collateral Trust and Intercreditor Agreement or are consented to in writing for such purpose by the Required Banks (or such other percentage of the Banks as may be specified hereunder). References to any Person include the successors and assigns of such Person. References "from" or "through" any date mean, unless otherwise specified, "from and including" or "through and including", respectively. ARTICLE 2 THE CREDITS SECTION 2.01. Outstanding Loans. On the Closing Date, each Bank has outstanding to the Borrower Loans as set forth in Schedule I. 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 Class or 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 Class or 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(b), 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 Applicable 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 the Applicable Margin plus the Base Rate for such day. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin plus the applicable Adjusted 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 "ADJUSTED LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. 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. "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). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (c) All amounts payable by the Borrower hereunder or under any other Loan Document not paid when due 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 the Applicable Margin for overdue Base Rate Loans for such day plus the Base Rate 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 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 applicable thereto at the Closing Date in accordance with the Existing Agreement. 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 2.10 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 $10,000,000 (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 $10,000,000 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. Participation Fees. On the Closing Date, the Borrower shall pay to the Administrative Agent for the account of each Bank a participation fee in an amount equal to 0.50% of the amount of such Bank's Credit Exposure at such date. SECTION 2.07. 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, the Borrower shall apply such Net Cash Proceeds in accordance with Section 4.05 of the Collateral Trust and Intercreditor Agreement. (b) Except as provided in Section 4.05(a)(i) of the Collateral Trust and Intercreditor Agreement, Net Cash Proceeds applied to the Loans pursuant to this Section 2.07 and Section 4.05 of the Collateral Trust and Intercreditor Agreement shall be applied ratably FIRST to the Tranche B Loans, until the Tranche B Loans shall have been prepaid in full, and then SECOND to the Tranche A Loans; and (c) Not later than the earlier of (i) 120 days after the end of each fiscal year of the Borrower, beginning with the fiscal year ending on or about March 3, 2001, and (ii) the date on which the financial statements for such fiscal year are delivered pursuant to Section 5.01(a), the Borrower shall apply an amount equal to 50% of Excess Cash Flow for (i) in the case of the fiscal year ending on March 3, 2001, the three fiscal quarters then most recently ended and (ii) in the case of the fiscal year ending on March 2, 2002, such fiscal year, ratably to (x) reduce the aggregate Revolving Credit Commitments and Term Exposure (each as defined in the Senior Credit Facility) of all the Senior Bank Parties to the extent of the Required Senior Prepayment Amount and in accordance with the terms of Section 2.12 thereof and (y) prepay all loans outstanding under the Existing Facilities. (d) Upon receipt from the Borrower of a notice pursuant to Section 4.05(a) of the Collateral Trust and Intercreditor Agreement, the Administrative Agent will promptly notify each Bank of the contents thereof, and of the date of any related prepayment 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 Group or Groups of outstanding Euro-Dollar Loans as the Borrower may elect in such notice, or failing such election as the Administrative Agent may determine in its discretion. SECTION 2.08. Optional Prepayments. (a) Subject in the case of any Euro-Dollar Loans to Section 2.10, 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 2.09. 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 2.10. 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 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), 2.07(b) or 2.08(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 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 2.11. 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 and fees 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 2.12. Registry. The Administrative Agent shall maintain a register (the "REGISTER") on which it will record the name of each Bank, each Loan made by such Bank and each repayment of any Loan made by such Bank. With respect to any Bank, the assignment or other transfer of the rights to the principal of, and interest on, any Loan made and Note issued pursuant to this Agreement shall not be effective until such assignment or other transfer is recorded on the Register and otherwise complies with Section 9.06(c). The registration of assignment or other transfer of all or part of any Loans and Notes for a Bank shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement referred to in Section 9.06(c). The Register shall be available at the offices where kept by the Administrative Agent for inspection by the Borrower and any Bank at any reasonable time upon reasonable prior notice to the Administrative Agent. Each Bank shall record on its internal records (including computerized systems) the foregoing information as to its own Loans. Failure to make any such recordation, or any error in such recordation, shall not affect the obligations of any Obligor under the Loan Documents. ARTICLE 3 CONDITIONS SECTION 3.01. Closing Date. This Amended 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 Agent of counterparts hereof signed by each of the Borrower and the Banks (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 Closing Date complying with the provisions of Section 2.02; (c) receipt by the Administrative Agent of duly executed counterparts of (i) amendments to each of the Pledge Agreements and (ii) each of the RCF Collateral Documents other than the Pledge Agreements; (d) receipt by the Administrative Agent of opinions of (i) Skadden, Arps, Slate, Meagher & Flom LLP, special counsel for the Borrower, substantially in the form of Exhibit B-1 hereto, and (ii) Elliot S. Gerson, General Counsel of the Borrower, substantially in the form of Exhibit B-2 hereto, and covering in each case such additional matters relating to the transactions contemplated hereby as the Required Banks may be reasonably request; (e) receipt by the Administrative Agent of a copy of the three-year business plan of the Borrower provided to the Senior Bank Parties pursuant to Section 3.01(l) of the Senior Credit Facility; (f) receipt by the Administrative Agent of a Perfection Certificate with respect to each Subsidiary Guarantor dated the Closing Date and duly executed by a Financial Officer of the Borrower; (g) receipt by the Administrative Agent of the results of a search of the Uniform Commercial Code (or equivalent filings) filings made with respect to the Borrower and each Subsidiary Guarantor in the states (or other jurisdictions) in which the chief executive office of each such Person is located, any offices of such Persons in which records have been kept relating to accounts and the other jurisdictions in which Uniform Commercial Code filings (or equivalent filings) are to be made pursuant to the preceding clause, together with copies of the financing statements (or similar documents) disclosed by such search, and accompanied by evidence satisfactory to the Administrative Agent that the Liens indicated in any such financing statement (or similar document) would be permitted under Section 5.11 or have been released (or arrangements shall have been made for the release or discharge thereof reasonably satisfactory to the Administrative Agent); (h) the fact that all requisite material governmental authorities and third parties shall have approved or consented to the transactions contemplated hereby to the extent required, all applicable appeal periods shall have expired and there shall be no governmental or judicial action, actual or threatened, that could reasonably be expected to restrain, prevent or impose burdensome conditions on the transactions contemplated hereby; (i) satisfaction by the Administrative Agent with any proposed changes in the management of the Borrower; (j) receipt by the Administrative Agent of a copy of the Borrowing Base Certificate (as defined in the Senior Credit Facility) delivered pursuant to Section 3.01(n) of the Senior Credit Facility; (k) receipt by the Second Priority Collateral Trustee of a copy of, or a certificate as to coverage under, the insurance policies required by Section 5.03 and the applicable provisions of the Second Priority Collateral Documents, each of which shall be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement and to name the Second Priority Collateral Trustee as additional insured, in form and substance satisfactory to the Second Priority Collateral Trustee; (l) receipt by the Administrative Agent of Phase I desk audits relating to the Mortgaged Properties reasonably satisfactory to the Administrative Agent, from an environmental consulting firm reasonably satisfactory to the Administrative Agent, as to any environmental hazards, liabilities or Remedial Action to which the Borrower or any of the Subsidiaries may be subject; (m) the Administrative Agent shall be reasonably satisfied as to the amount and nature of any environmental and employee health and safety exposures to which the Borrower and the Subsidiaries may be subject and the plans of the Borrower with respect thereto; (n) each of the Senior Mortgages, the Senior Security Agreement and the Senior Subsidiary Guarantee Agreements shall be in form an substance satisfactory to the Administrative Agent, shall have been duly executed by each Subsidiary Guarantor, and by or on behalf of the Senior Bank Parties, shall have been delivered to the Administrative Agent, and shall be in full force and effect; (o) receipt by the Administrative Agent, with a copy for each Bank, of a copy of each Transaction Document reasonably requested by the Administrative Agent, certified by a Financial Officer of the Borrower; (p) there shall have been (i) no development in any Existing Litigation after April 10, 2000, and (ii) no litigation or administrative proceeding commenced, that in case of either clause (i) or (ii) could reasonably be expected to have a Material Adverse Effect. There shall have been no development in any Existing Litigation after April 10, 2000, and there shall have been no litigation or administrative proceeding that, in the Banks' sole judgment, could impair the validity, enforceability or priority of the security interests to be granted in favor of the Banks under the Loan Documents; (q) there shall have been no material adverse change in the revenues, store operations, inventory, accounts receivable, business or prospects of the Borrower and its Subsidiaries considered as a whole, or to the Borrower's knowledge, in any relationship with any vendor or third party insurance payor of the Borrower or any of its Consolidated Subsidiaries, considered as a whole, since November 2, 1999, other than, in each case, as publicly disclosed before April 10, 2000; (r) receipt by the Administrative Agent of copies of all waivers from the lessor of each leased distribution center of the Subsidiary Guarantors of any statutory, common law or contractual landlord's lien with respect to any inventory of any Subsidiary Guarantor delivered to the Senior Administrative Agent (as defined under the Senior Credit Facility) pursuant to Section 3.01(cc) of the Senior Credit Facility; (s) the Administrative Agent shall have received standard flood hazard determination certificates in the form required by 12 CFR 22.6 for each Mortgaged Property; (t) receipt by the Administrative Agent of all documents it may reasonably request relating to the existence of the Obligors, the corporate authority for and the validity of the Loan Documents and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent; (u) receipt by the Administrative Agent of evidence satisfactory to it that the Borrower shall have paid all participation fees payable pursuant to Section 2.06 and all expenses, to the extent invoiced, payable pursuant to Section 9.03; (v) receipt by the Administrative Agent of confirmation that the retention of E&Y Restructuring LLC as financial advisor to Davis Polk & Wardwell has been extended to a date not earlier than May 31, 2001; (w) receipt by the Administrative Agent of a certificate of a duly authorized officer of the Borrower as to (i) absence of Default, (ii) accuracy of representations and warranties and (iii) such other matters relating to the satisfaction of the conditions specified in this Section 3.01 as the Administrative Agent may reasonably request; and (x) receipt by the Administrative Agent of evidence satisfactory to it that the Transactions shall have been consummated in accordance with the Transaction Documents, and the Borrower shall have received not less than $500,000,000 proceeds of the initial borrowing under the Senior Credit Facility. On the Closing Date the Existing Agreement will be automatically amended and restated in its entirety to read as set forth herein. On and after the Closing Date the rights and obligations of the parties hereto shall be governed by this Amended Agreement; provided the rights and obligations of the parties hereto with respect to the period prior to the Closing Date shall continue to be governed by the provisions of the Existing Agreement. The Notes delivered to each Bank under the Existing Agreement shall be canceled and Notes under this Amended Agreement shall be given in substitution therefor (but not as a novation thereof). The Agent shall promptly notify the Borrower and each Bank of the effectiveness of this Amended Agreement, and such notice shall be conclusive and binding on all parties hereto. SECTION 3.02. Transition. Each Loan outstanding under the Existing Agreement on the Closing Date shall remain outstanding under this Amended Agreement, with an Interest Period and, in the case of any Euro-Dollar Loan, a related Adjusted London Interbank Offered Rate as initially established pursuant to the Existing Agreement, but with a Base Rate Margin or Euro-Dollar Margin determined pursuant to this Amended Agreement for any date on or after the Closing Date. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation and each Subsidiary Guarantor is a corporation (or other entity) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and has all corporate (or other organizational) powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. (a) The execution, delivery and performance by the Borrower and each Subsidiary Guarantor of each Loan Document to which it is a party are within the Borrower's corporate powers or such Subsidiary Guarantor's corporate (or other organizational) powers, have been duly authorized by all necessary corporate or other action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws (or other organizational documents) of the Borrower or such Subsidiary Guarantor or of any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary or any other material agreement, instrument, judgment, injunction, order or decree binding upon the Borrower or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary pursuant to any such agreement, instrument, judgment, injunction, order or decree (other than the Liens created by the Collateral Documents). None of the Borrower or any of its Subsidiaries is in default in any manner under any provision of any Material Financial Obligation, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default could reasonably be expected to have a Material Adverse Effect. (b) The execution, delivery and performance by the Borrower and each Subsidiary Guarantor of each Transaction Document (other than the Loan Documents) to which it is a party are within the Borrower's corporate powers or such Subsidiary Guarantor's corporate (or other organizational) powers, have been duly authorized by all necessary corporate or other action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws (or other organizational documents) of the Borrower or such Subsidiary Guarantor or of any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary or any other material agreement, instrument, judgment, injunction, order or decree binding upon the Borrower or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary pursuant to any such agreement, instrument, judgment, injunction, order or decree (other than the Liens permitted by Section 5.11). SECTION 4.03. Binding Effect. This Agreement and each other Loan Document constitutes a valid and binding agreement of the Borrower and the Subsidiary Guarantors, and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms. SECTION 4.04. Financial and Other Information. (a) Effective upon and after delivery by the Borrower of the Initial Financial Statements, (i) the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of February 26, 2000 and each following fiscal year end of the Borrower and its Consolidated Subsidiaries and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by Deloitte & Touche (or other independent public accountants of nationally recognized standing) fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year; (ii) the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of such fiscal quarter end and each following fiscal quarter end of the Borrower and its Consolidated Subsidiaries (other than the fourth fiscal quarter of any fiscal year) and the related consolidated statements of income and cash flows for the fiscal quarter then ended, set forth in the Borrower's quarterly report on Form 10-Q for the fiscal quarter then ended, a copy of which will be delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the Initial Financial Statements, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal period, subject to normal year-end adjustments; and (iii) there has been no material adverse change in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole since May 27, 2000. (b) Since November 2, 1999, and until delivery by the Borrower of the Initial Financial Statements, there has been no material adverse effect on the revenues, store operations, inventory, accounts receivable, business or prospects of the Borrower and its Subsidiaries considered as a whole, or to the Borrower's knowledge, in any relationship with any vendor or third party insurance payor of the Borrower or any of its Consolidated Subsidiaries, considered as a whole, other than, in each case, as publicly disclosed before April 10, 2000. SECTION 4.05. Accuracy of Information. (a) Subject to any disclosure in the Initial Financial Statements for the period on or before May 27, 2000, all information (other than financial projections) that has been or will hereafter be made available to the Administrative Agent or any Bank by or on behalf of the Borrower or any of its representatives in connection with the transactions contemplated hereby is and will be complete and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances under which such statements were or are made. (b) All financial projections, if any, that have been or will be prepared by or on behalf of the Borrower or any of its representatives and made available to the Administrative Agent or any Bank have been or will be prepared in good faith based upon assumptions that are reasonable at the time made and at the time the related financial projections are made available to the Administrative Agent. (c) Subject to any disclosure in the Initial Financial Statements, for the period on or before May 27, 2000, 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. There has been (a) no development in any Existing Litigation after April 10, 2000, and (b) no litigation or administrative proceeding that in case of either clause (a) or (b) could reasonably be expected to have a Material Adverse Effect. There has been no development in any Existing Litigation after April 10, 2000, and there has been no litigation or administrative proceeding that could, in the Required Banks' sole judgment, impair the validity, enforceability or priority of the security interests to be granted in favor of the Banks under the Loan Documents. 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, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA, in each case except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all United States Federal income tax returns, and the Borrower and its Subsidiaries have filed all other material tax returns, which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary Guarantor except where the payment of any such taxes is being contested in good faith by appropriate proceedings. Effective upon delivery by the Borrower of the Initial Financial Statements, the charges, accruals and reserves on the books of the Borrower and its Consolidated Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.09. Subsidiaries. Schedule 1.01(c) sets forth a complete and correct list of the Borrower's Subsidiaries as of the Closing Date, and the percentage ownership interest of the Borrower therein. Each of the Borrower's corporate Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. Each of the Borrower's Subsidiaries is an "Unrestricted Subsidiary" as referred to in Section 5.09. 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. 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 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 substantial 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. SECTION 4.12. Other Loan Documents. The representations and warranties of the Borrower and each Subsidiary Guarantor set forth in each other Loan Document and Transaction Document are true and correct. SECTION 4.13. Insurance. Schedule 4.13 sets forth a true, complete and correct description of all liability, property and casualty insurance maintained by the Borrower or by the Borrower for its Subsidiaries as of the Closing Date. Such insurance is in full force and effect and all premiums have been duly paid. The Borrower and its Subsidiaries have insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice and as required by the Senior Loan Documents. SECTION 4.14. Solvency. Immediately after the consummation of the Transactions to occur on the Closing Date and immediately following the making of each loan made on the Closing Date under the Senior Credit Facility and after giving effect to the application of the proceeds of such loans, (i) the fair value of the assets of the Borrower and the other Obligors, taken as a whole, at a fair valuation, will exceed their debts and liabilities, subordinated, contingent or otherwise; (ii) the present fair saleable value of the property of the Borrower and the other Obligors, taken as a whole will be greater than the amount that will be required to pay the probable liability of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Borrower and the other Obligors, taken as a whole will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Borrower and the other Obligors will not have unreasonably small capital with which to conduct the business in which they are engaged as such business is now conducted and is proposed to be conducted following the Closing Date. SECTION 4.15. Title to Properties. (a) Each of the Borrower and the Subsidiaries has good and marketable title to, or valid leasehold interests in, all its material real properties (including all Mortgaged Properties) and valid title to all other assets, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. All such material properties and assets are free and clear of Liens that secure indebtedness for borrowed money, other than Liens expressly permitted by Section 5.11 and as set forth on Schedule 4.15(b)(ii) (or arrangements reasonably satisfactory to the Administrative Agent have been made for the release or discharge of such Liens). (b) Schedule 1.01(b) sets forth the address of each Mortgaged Property on the Closing Date. As of the Closing Date, none of the Mortgaged Properties are subject to leases, license agreements or subleases under which the Borrower or any Subsidiary is the lessor/licensor except as set forth on Schedule 4.15(b)(i). Each Mortgaged Property is free of Liens which secure indebtedness for borrowed money except for the Second Priority Mortgages and as set forth on Schedule 4.15(b)(ii) (or arrangements reasonably satisfactory to the Administrative Agent have been made for the release of such Liens). (c) Schedule 4.15(c) sets forth the address of every leased warehouse or distribution center in which inventory owned by the Company and or any Subsidiary is located. SECTION 4.16. Investment Company Act; Public Utility Holding Company Act. None of the Borrower or any Subsidiary is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 4.17. Labor Matters. As of the Closing Date, there are no strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending or, to the knowledge of the Borrower, threatened. The hours worked by and payments made to employees of the Borrower and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters. All payments due from the Borrower or any Subsidiary, or for which any claim may be made against the Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Borrower or such Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Borrower or any Subsidiary is bound. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Loan or other amount payable under any Loan Document remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) (i) with respect to the fiscal year of the Borrower ended February 26, 2000 as soon as available but not later than July 11, 2000, and (ii) with respect to each following fiscal year of the Borrower as soon as available and in any event within 90 days (or within such longer period of time, not greater than 120 days, to which the SEC may extend the filing deadline for the Borrower's Annual Report on Form 10-K) after the end of each such fiscal year, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on without material qualification by Deloitte & Touche (or other independent public accountants of nationally recognized standing); (b) with respect to the fiscal quarter of the Borrower ending May 27, 2000 as soon as available but not later then July 11, 2000, and (ii) with respect to each following fiscal quarter of the Borrower (other than the last fiscal quarter of a fiscal year) as soon as available and in any event within 45 days (or within such longer period of time, not greater than 60 days, to which the SEC may extend the filing deadline for the Borrower's Quarterly Report on Form 10-Q) after the end of each such fiscal quarter, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in each case in comparative form 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 a Financial Officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of a Financial Officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower (or, in the case of Section 5.13, PCS) was in compliance with the requirements of Sections 5.12, 5.13, 5.14 and 5.15 on the date of such financial statements, (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto and (iii) in the case of the certificate delivered together with the financial statements referred to in clause (a) above, a calculation of Excess Cash Flow for the applicable period specified in Section 2.07(c) and the amount of the required prepayment of the Loans, if any, in respect thereof; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above; (e) within three Business Days after the end of each fiscal month a certificate of a Financial Officer of the Borrower setting forth in reasonable detail, a description of each disposition of assets not in the ordinary course of business for which the book value or fair market value of the assets of the Borrower or the Subsidiaries disposed or the consideration received therefor was greater than $5,000,000; (f) within five Business Days after the end of each calendar month a report, in form and scope satisfactory to the Administrative Agent, summarizing determinations of the borrowing base and utilization under the Senior Credit Facility during such month; (g) within five days after any officer of the Borrower obtains knowledge of (i) any Default, if such Default is then continuing, a certificate of a Financial Officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto, or (ii) the filing or commencement of any action, suit or proceeding, whether at law or in equity or by or before any court, governmental authority or other tribunal, against the Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect; (h) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (i) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the SEC; (j) within five days, if and when any member of the ERISA Group (i) gives or any Financial Officer becomes aware that such member is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or any Financial Officer knows that the plan administrator of any Plan has given or 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 a Financial Officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; (k) on or prior to the 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 July 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 (or pursuant to the Existing Agreement), no later than the 25th day of the next succeeding month; (iii) a weekly sales report for each week, commencing with the week ending June 17, 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, 2002, no later than March 31, 2001; (v) a monthly reconciliation of actual operating results for each month specified in the operating forecast delivered pursuant to clause (iv) above (or pursuant to the Existing Agreement) to the budget for such month, no later than the 30th day of the next succeeding month; and (l) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries or the Collateral as the Administrative Agent, at the request of any Bank, may reasonably request. Information required to be delivered pursuant to clauses (a), (b), (h) and (i) shall be deemed to have been delivered on the date on which the Borrower provides notice to the Banks that such information has been posted on the Borrower's website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux/searches.htm or at another website identified in such notice and accessible by the Banks without charge; provided that (i) such notice may be included in a certificate delivered pursuant to clause (c), and (ii) the Borrower shall deliver paper copies of the information referred to in clauses (a), (b), (h) and (i) to any Bank which requests such delivery. SECTION 5.02. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge, as the same shall become due and payable, (i) all material claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons prior to the time such claims or demands give rise to a material Lien upon any of its property or assets or a material risk of forfeiture of a Mortgaged Property, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except where any of the items in clause (i) or (ii) above may be contested in good faith by appropriate proceedings, and the Borrower or such Subsidiary, as the case may be, shall have set aside on its books, in accordance with generally accepted accounting principles, appropriate reserves, if any, for the accrual of any such items. SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will, and will cause each of its Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to the Banks, upon request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried. The Borrower will, and will cause each of its Subsidiaries to, maintain such insurance in a coverage amount of not less than 90% of the coverage amount as of the Closing Date, with deductibles, risks covered and other provisions (other than amount of premiums) not materially less favorable to the Borrower and its Subsidiaries as of the Closing Date. (c) The Borrower will, and will cause each of the Subsidiary Guarantors to, cause all such policies to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement, in form and substance satisfactory to the Senior Administrative Agent, the Senior Collateral Agent, the Administrative Agent, and the Second Priority Collateral Trustee which endorsement shall provide that, from and after the Closing Date, if the insurance carrier shall have received written notice from the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee or the Administrative Agent of the occurrence of an Event of Default, the insurance carrier shall pay all proceeds otherwise payable to the Borrower and any other Obligor under such policies directly to the Senior Collateral Agent and the Second Priority Collateral Trustee, as their interests may appear, for application pursuant to the Collateral Trust and Intercreditor Agreement; cause all such policies to provide that none of the Borrower, the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Administrative Agent, nor any other party shall be a coinsurer thereunder and to contain a "Replacement Cost Endorsement", without any deduction for depreciation, and such other provisions as the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee or the Administrative Agent may reasonably require from time to time to protect their interests; deliver broker's certificates to the Senior Collateral Agent and the Second Priority Collateral Trustee; cause each such policy to provide that it shall not be canceled or not renewed by reason of nonpayment of premium upon not less than 10 days prior written notice thereof by the insurer to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent (giving the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent the right to cure defaults in the payment of premiums) or for any other reason upon not less than 30 days' prior written notice thereof by the insurer to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent; deliver to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent, before the cancellation or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent) together with evidence reasonably satisfactory to the Senior Administrative Agent, the Senior Collateral Agent and the Administrative Agent of payment of the premium therefor. (d) [Reserved] (e) The Borrower will, and will cause each of the Subsidiary Guarantors to, with respect to any Mortgaged Property, carry and maintain comprehensive general liability insurance including the "broad form CGL endorsement" and coverage on an occurrence basis against claims made for personal injury (including bodily injury, death and property damage) and umbrella liability insurance against any and all claims, in no event for a combined single limit of less than $10,000,000, naming the Senior Collateral Agent (for the benefit of the Senior Bank Parties) and the Second Priority Collateral Trustee (for the benefit of the Second Priority Debt Parties) as additional insured parties, on forms satisfactory to the Senior Collateral Agent and the Second Priority Collateral Trustee. (f) The Borrower will notify the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent promptly whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section is taken out by the Borrower or its Subsidiaries; and promptly deliver to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent a duplicate original copy of such policy or policies. (g) In connection with the covenants set forth in this Section, it is agreed that: (i) none of the Administrative Agent, the Banks, or their respective agents or employees shall be liable for any loss or damage insured by the insurance policies required to be maintained under this Section, and (A) the Borrower and each other Obligor shall look solely to their insurance companies or any other parties other than the aforesaid parties for the recovery of such loss or damage and (B) such insurance companies shall have no rights of subrogation against the Administrative Agent, the Second Priority Collateral Trustee, the Banks or their agents or employees. If, however, the insurance policies do not provide waiver of subrogation rights against such parties, as required above, then the Borrower hereby agrees, to the extent permitted by law, to waive its right of recovery, if any, against the Administrative Agent, the Second Priority Collateral Trustee, the Banks and their agents and employees; and (ii) the designation of any form, type or amount of insurance coverage by the Administrative Agent, the Second Priority Collateral Trustee or the Required Banks under this Section shall in no event be deemed a representation, warranty or advice by the Administrative Agent, the Second Priority Collateral Trustee or the Banks that such insurance is adequate for the purposes of the business of the Borrower and the Subsidiaries or the protection of their properties. SECTION 5.04. Conduct of Business and Maintenance of Existence. Except as otherwise permitted in this Agreement, the Borrower will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary (except where such Subsidiary merges into a Subsidiary Guarantor) to preserve, renew and keep in full force and effect their respective legal existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that the foregoing will not prohibit any merger or liquidation of, or sale of assets by, a Subsidiary that is permitted by Sections 5.18 and 5.19. SECTION 5.05. Compliance with Laws. The Borrower will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) applicable to it or its property except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply would not have a Material Adverse Effect. SECTION 5.06. Inspection of Property, Books and Records. The Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank (at such Bank's expense, unless a Default has occurred and is continuing, in which case at the Borrower's expense and after such Bank has consulted the Administrative Agent with respect thereto) to visit and inspect any of their properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.07. Restriction on Other Agreements, Payment Limitations, Debt Prepayments. (a) 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 (i) would restrict any Subsidiary from granting Liens on any of its assets (including assets in addition to the then-existing Second Priority Collateral to secure the Second Priority Obligations or (ii) is more restrictive than the limitation on Liens set forth in this Agreement or (iii) which imposes other covenants more restrictive than those set forth in this Agreement except, in each case, (A) agreements with respect to Debt secured by Liens permitted by Section 5.11 containing restrictions on the ability to transfer or grant Liens on the assets securing such Debt, (B) customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, (D) pursuant to applicable law, (E) agreements in effect as of the Closing Date and not entered into in contemplation of the Transactions and (F) the other Existing Facilities Documents and the Forward Commitment Agreement as in effect on the Closing Date. (b) The Borrower will not, and will not permit any Subsidiary to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (i) make Restricted Payments in respect of any capital stock of such Subsidiary held by, or pay any Debt owed to, the Borrower or any other Subsidiary, (ii) make any Investment in the Borrower or any other Subsidiary, or (iii) transfer any of its assets to the Borrower or any other Subsidiary, except for such encumbrances or restrictions existing under or by reason of (A) any restriction existing under the Loan Documents, the Second Priority Debt Documents, the Senior Loan Documents, the Indentures or the Forward Commitment Agreement, (B) any restrictions with respect to PCS imposed pursuant to a PCS Disposition pending the consummation thereof, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, and (D) as required by applicable law. (c) The Borrower will not, and will not permit any Subsidiary to, make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption or, or otherwise voluntarily or optionally defease, debt under the other Existing Facilities, the Exchange Debt Obligations, the Synthetic Lease Facilities, the Existing Notes (as defined in Annex 3) (other than pursuant to the Exchange Offer (as defined in Annex 3)), the Exchange Notes or any other Debt for borrowed money of the Borrower or any Subsidiary, or segregate funds for any such payment, prepayment, repurchase, redemption or defeasance, except for refinancings, refundings and exchanges pursuant to Section 5.16(d), repurchases or redemption of such Debt for consideration consisting solely of common stock of the Borrower or Qualified Preferred Stock or prepayments of Capital Leases in connection with the sale, closing or relocation of Stores. SECTION 5.08. Further Assurances. The Borrower will, and will cause each of the Subsidiary Guarantors to, execute any and all further documents, financing statements, recordations, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements, recordations, mortgages and deeds of trust) that may be required under applicable law, or that the Required Banks, the Administrative Agent or the Second Priority Collateral Trustee may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and priority of the security interests created or intended to be created by the RCF Collateral Documents. The Borrower will cause any subsequently acquired or organized Domestic Subsidiary to execute a Second Priority Subsidiary Guarantee Agreement, Second Priority Indemnity, Subrogation and Contribution Agreement, Second Priority Subsidiary Security Agreement and any applicable financing statement or other recordation from time to time, and to comply with the terms thereof. The Borrower agrees to cause to be provided such evidence as the Second Priority Collateral Trustee or the Administrative Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. SECTION 5.09. Subsidiaries. The Borrower will cause all of its Subsidiaries that own Collateral to be "Unrestricted Subsidiaries" as defined in, and for all purposes of, each of the Indentures and will deliver such documents to the trustees under each of the Indentures and take such actions thereunder as may be necessary to effect the foregoing. SECTION 5.10. Restriction on Sale and Leaseback Transactions. Except for a sale or transfer by a Subsidiary to a Subsidiary Guarantor, the Borrower will not, and will not permit any Subsidiary to, enter into any Sale and Leaseback Transaction after the Closing Date other than (a) a Sale and Leaseback Transaction listed on Schedule 5.10, (b) with respect to any property other than a Mortgaged Property owned by the Borrower or any Subsidiary Guarantor as of the Closing Date, for a lease for a period, including renewals, not exceeding 24 months, by the end of which period it is intended that the use of such property or equipment by the lessee will be discontinued; provided, however, that such Sale and Leaseback Transaction will be subject to Section 5.19(b), (c) with respect to any property other than a Mortgaged Property, if entered into in respect of property acquired, developed or constructed by the Borrower or a Subsidiary after the Closing Date, if such Sale and Leaseback Transaction is entered into within 24 months from the date of completion of such acquisition, development or construction (which, in the case of any Store, shall be deemed to be 24 months from the date of the opening of such Store), or (d) if none of clauses (a) through (c) above are applicable, any other Sale and Leaseback Transaction not involving a Mortgaged Property, subject to Section 5.19(b). SECTION 5.11. Restriction on Liens. The Borrower will not, and will not permit any Subsidiary to, create, issue, incur, assume or guarantee any Secured Debt; provided that the foregoing covenant shall not apply to the following: (a) (i) any Lien on any property in connection with a Sale and Leaseback Transaction permitted by Section 5.10, (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 and not created in anticipation of such acquisition, which acquisition is not otherwise prohibited by this Agreement, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired; provided that the Lien does not attach to other property except unimproved real property previously owned upon which any new construction has taken place and subsequent additions to such acquired or constructed property; (b) any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 5.11 or any Lien securing the Debt of the Borrower or of any Subsidiary on the date of this Agreement or of a corporation at the time such corporation becomes a Subsidiary, or any extensions, renewals or refundings of any such Lien; provided that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding Lien shall be limited to all or that part of the same property which secured the Debt so extended, renewed or refunded; (c) any Lien securing Debt of a Subsidiary owing to a Subsidiary Guarantor; (d) any Lien created by the Loan Documents; (e) any Lien created by the Senior Loan Documents; provided that (i) with respect to any specific Collateral which is also Senior Collateral, a Lien is created simultaneously under the Second Priority Collateral Documents and is subject to the Collateral Trust and Intercreditor Agreement and (ii) the aggregate principal amount of Senior Debt Obligations to be secured by such Lien shall not exceed the amount permitted by Section 6.02 of the Collateral Trust and Intercreditor Agreement; (f) any Lien under the Exchange Debt First Priority Collateral Documents in favor of the Exchange Debt Parties, provided that such Lien is limited to the Exchange Debt First Priority Collateral; (g) any Lien under the PCS Pledge Agreement and the Drugstore.com Pledge Agreement in favor of the Existing Facility Parties and the Synthetic Lease Parties, provided that such Lien is limited to the "Collateral" as such term is defined in each such document; (h) existing Liens under the Synthetic Lease Documents and Liens under Synthetic Leases permitted pursuant to Section 5.25; (i) Liens identified on Schedule 5.11(i); provided, however, that such Liens do not attach to any other property other than that identified in such Schedule; (j) Liens in respect of Debt or Attributable Debt permitted under Sections 5.16(f), (g), (h), (i) and (j) so long as such Liens attach only to (i) the equipment subject to such financing, (ii) the property to which they attach on the Closing Date (or in the case of any operating lease which is reclassified as a Capital Lease, any property subject to such lease on the Closing Date), or (iii) the property or assets constructed, developed or purchased with such financing; and (k) any Lien on Net Cash Proceeds of Reduction Events allocated to the Exchange Note Obligations in accordance with the Collateral Trust and Intercreditor Agreement, which Lien arises pursuant to Section 10.14 of the Exchange Note Indenture. SECTION 5.12. 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:
PERIOD AMOUNT IF NO PCS DIVESTITURE IF A PCS DIVESTITURE HAS BEEN CONSUMMATED HAS BEEN CONSUMMATED ON OR BEFORE THE LAST ON OR BEFORE THE LAST DAY OF SUCH PERIOD, DAY OF SUCH PERIOD, MAXIMUM CONSOLIDATED MAXIMUM RETAIL CAPITAL EXPENDITURES CAPITAL EXPENDITURES Fiscal quarter ending on August 26, 2000 $70,000,000 $64,000,000 Two fiscal quarters ending on November 25, 2000 $138,000,000 $125,000,000 Three fiscal quarters ending on March 3, 2001 $205,000,000 $186,000,000 Four fiscal quarters ending on June 2, 2001 $270,000,000 $245,000,000 Four fiscal quarters ending on September 1, 2001 $265,000,000 $241,000,000 Four fiscal quarters ending on December 1, 2001 $265,000,000 $242,000,000 Four fiscal quarters ending on March 2, 2002 $265,000,000 $243,000,000 Four fiscal quarters ending on June 1, 2002 $265,000,000 $243,000,000
SECTION 5.13. Minimum EBITDA. The aggregate amount of Consolidated EBITDA, Retail EBITDA or PCS EBITDA, as the case may be, for any period set forth below shall not be less than the amount set forth below opposite such period:
PERIOD AMOUNT IF NO PCS DIVESTITURE IF A PCS DIVESTITURE IF NO PCS DIVESTITURE HAS BEEN CONSUMMATED HAS BEEN CONSUMMATED HAS BEEN CONSUMMATED ON OR BEFORE THE LAST ON OR BEFORE THE LAST ON OR BEFORE THE LAST DAY OF SUCH PERIOD, DAY OF SUCH PERIOD, DAY OF SUCH PERIOD, MINIMUM CONSOLIDATED MINIMUM RETAIL EBITDA MINIMUM PCS EBITDA EBITDA Fiscal quarter ending on August 26, 2000 $95,000,000 $75,000,000 N/A Two fiscal quarters ending on November 25, 2000 $232,000,000 $178,000,000 N/A Three fiscal quarters ending on March 3, 2001 $426,000,000 $335,000,000 N/A Four fiscal quarters ending on March 3, 2001 N/A, N/A $100,000,000 Four fiscal quarters ending on June 2, 2001 $569,000,000 $444,000,000 N/A Four fiscal quarters ending on September 1, 2001 $646,000,000 $504,000,000 N/A Four fiscal quarters ending on December 1, 2001 $722,000,000 $563,000,000 N/A Four fiscal quarters ending on March 2, 2002 $860,000,000 $689,000,000 $100,000,000 Four fiscal quarters ending on June 1, 2002 $894,000,000 $720,000,000 N/A
SECTION 5.14. Minimum Interest Coverage Ratio. At no time shall the Consolidated Interest Coverage Ratio or the Retail Interest Coverage Ratio, as the case may be, for any period be less than the amount set forth below opposite such period:
PERIOD AMOUNT IF NO PCS DIVESTITURE IF A PCS DIVESTITURE HAS BEEN CONSUMMATED HAS BEEN CONSUMMATED ON OR BEFORE THE LAST ON OR BEFORE THE LAST DAY OF SUCH PERIOD, THE DAY OF SUCH PERIOD, THE MINIMUM CONSOLIDATED MINIMUM RETAIL INTEREST INTEREST COVERAGE RATIO COVERAGE RATIO Fiscal quarter ending on August 26, 2000 .70 .67 Two fiscal quarters ending on November 25, 2000 .81 .79 Three fiscal quarters ending on March 3, 2001 .96 .95 Four fiscal quarters ending on June 2, 2001 .96 .94 Four fiscal quarters ending on September 1, 2001 1.07 1.04 Four fiscal quarters ending on December 1, 2001 1.18 1.14 Four fiscal quarters ending on March 2, 2002 1.39 1.37 Four fiscal quarters ending on June 1, 2002 1.40 1.40
SECTION 5.15. Minimum Fixed Charge Coverage Ratio. At no time shall the Consolidated Fixed Charge Coverage Ratio or the Retail Fixed Charge Coverage Ratio, as the case may be, for any period set forth below be less than the amount set forth below opposite such period:
PERIOD AMOUNT IF NO PCS DIVESTITURE IF A PCS DIVESTITURE HAS BEEN CONSUMMATED HAS BEEN CONSUMMATED ON OR BEFORE THE LAST ON OR BEFORE THE LAST DAY OF SUCH PERIOD, THE DAY OF SUCH PERIOD, THE MINIMUM CONSOLIDATED MINIMUM RETAIL FIXED CHARGE COVERAGE RATIO CHARGE COVERAGE RATIO Fiscal quarter ending on August 26, 2000 .83 .83 Two fiscal quarters ending on November 25, 2000 .89 .88 Three fiscal quarters ending on March 3, 2001 .96 .95 Four fiscal quarters ending on June 2, 2001 .96 .94 Four fiscal quarters ending on September 1, 2001 1.01 .99 Four fiscal quarters ending on December 1, 2001 1.06 1.04 Four fiscal quarters ending on March 2, 2002 1.19 1.17 Four fiscal quarters ending on June 1, 2002 1.20 1.19
SECTION 5.16. Restriction on Debt. The Borrower will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any Debt or any Attributable Debt in respect of any Sale and Leaseback Transaction except: (a) Debt under the Senior Loan Documents in a principal amount no greater than the amount permitted by Section 6.02 of the Collateral Trust and Intercreditor Agreement; (b) Debt under the Loan Documents, the other Existing Facility Obligations, the Exchange Debt Obligations, the Exchange Note Obligations, and Debt under the Indentures in each case in a principal amount not greater than the principal amount thereof on the Closing Date after giving effect to the Transactions; provided that no Subsidiary Guarantor will have any liability thereon except its obligations under the Second Priority Collateral Documents or the Exchange Debt First Priority Collateral Documents; (c) Attributable Debt of (i) the Synthetic Lease Obligations in a principal amount not greater than the principal amount thereof on the Closing Date, plus amounts permitted pursuant to Section 5.25; provided that no Subsidiary Guarantor will have any liability thereon except its obligations under the Second Priority Collateral Documents and (ii) any Sale and Leaseback Transactions in existence on the Closing Date; (d) unsecured Debt of the Borrower extending, or having the effect of extending the maturity of, or refunding, refinancing or exchanging, in whole or in part, Debt described in clauses (a), (b) and (c), provided that (i) the terms of any such extending, refunding, refinancing or exchanging of Debt, and of any agreement entered into and of any instrument issued in connection therewith, are otherwise permitted by the Loan Documents, (ii) the terms relating to principal amount, amortization, maturity, convertibility and subordination (if any), and other material terms taken as a whole, of any such extending, refunding, refinancing or exchanging of Debt, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Borrower and the Subsidiaries or the Banks than the terms of any agreement or instrument governing the Debt being extended, refunded, refinanced or exchanged and the interest rate applicable to such extending, refunding or refinancing or exchanging of Debt does not exceed the then applicable market interest rate and (iii) the principal amount of such extending, refunding, refinancing or exchanging of Debt shall not be increased above the principal amount of the Debt being extended, refunded, refinanced or exchanged outstanding immediately prior to such extension, refunding, refinancing or exchanging; (e) indorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (f) Debt for borrowed money and Capital Leases existing on the date hereof and set forth in Schedule 5.16(f), but not any extensions, renewals or replacements of such Debt; (g) Debt or Attributable Debt in respect of Capital Leases (whether or not in the form of Sale and Leaseback Transactions or Synthetic Leases) so long as such Capital Leases were leases existing as of the Closing Date, which are reclassified from operating leases to Capital Leases; (h) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions in respect of equipment financing or leasing in the ordinary course of business of the Borrower and its Subsidiaries consistent with past practices; (i) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions entered into to finance the acquisition, development, construction or opening of any Store after the Closing Date which is not inconsistent with the Borrower's business plan delivered pursuant to Section 3.01(e); provided that such Debt or Attributable Debt is (x) incurred within 24 months of the completion of the acquisition, development, construction or opening thereof, and any Lien securing such Debt or Attributable Debt is limited to the Store financed with the proceeds thereof or (y) in the case of a Sale and Leaseback Transaction, permitted under Section 5.10(a), (b) or (c); (j) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions incurred to finance the acquisition after the Closing Date of property or assets provided that (i) such Debt or Attributable Debt is incurred within 24 months of the acquisition of such property or assets, (ii) any Lien securing such Debt or Attributable Debt is limited to the property or assets financed with the proceeds thereof and (iii) the aggregate principal amount of Debt and Attributable Debt incurred pursuant to this clause (j) shall not exceed $50,000,000 at any time outstanding; (k) Debt in respect of the Independent Standby Letters of Credit, or any extension, renewals, replacements or reissuances thereof; provided that the aggregate drawable stated amount and unreimbursed drawings of all Independent Standby Letters of Credit outstanding at any time shall not exceed $34,000,000 less the stated amount of any such letters of credit which expire or are not extended, replaced or renewed; (l) Debt of the Borrower and its Subsidiaries in respect of intercompany Investments permitted under Sections 5.17(a); and (m) unsecured Debt of the Borrower not otherwise permitted by this Section in an aggregate principal amount at any time outstanding not to exceed (i) $100,000,000 less (ii) the aggregate amount of any increases in the amount of Debt permitted under subsection (a) above by reason of clause (i) of the proviso to Section 6.02 of the Collateral Trust and Intercreditor Agreement. SECTION 5.17. Limitation on Investments and Acquisitions. (a) Neither the Borrower nor any Subsidiary will make or acquire any Investment in any Person other than: (i) Investments in Subsidiary Guarantors, other than PCS and its Subsidiaries; (ii) Investments of the Borrower and the Subsidiary Guarantors in existence on the Closing Date; (iii) advances made by Rite Aid Hdqtrs. Corp. to PCS that reduce the intercompany payable due from Rite Aid Hdqtrs. Corp. to PCS; (iv) Temporary Cash Investments; (v) Investments received as consideration for any sale or other disposition permitted by Section 5.19; (vi) Investments in Drugstore.com existing on the date hereof; (vii) Investments of PCS and its Subsidiaries in PCS and its Subsidiaries; (viii) Investments by the Subsidiaries of the Borrower in the Borrower, but only to the extent that the uses of the proceeds of such Investments would be permitted as uses of proceeds of the loans made under the Senior Credit Facility pursuant to Section 5.24(b) thereof; (ix) Exchange Notes issued by the Borrower to and held by SPV pursuant to the Forward Commitment Agreement; and (x) any Investment by a Subsidiary Guarantor in a Person other than a Subsidiary that is not otherwise permitted by the foregoing clauses of this Section if, immediately after such Investment is made or acquired, the aggregate net book value of all Investments permitted by this clause (x) does not exceed at any one time outstanding the greater of (A) $200,000,000 or (B) after the delivery of the Initial Financial Statements, 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 (including Debt assumed or consolidated in accordance with generally accepted accounting principles) in connection with all such Business Acquisitions on or after the Closing Date would exceed $15,000,000. SECTION 5.18. Consolidations and Mergers. (a) Without limiting the restrictions on Business Acquisitions set forth above, the Borrower will not consolidate or merge with or into any other Person; provided that the Borrower may merge with another Person if (i) the Borrower is the corporation surviving such merger, (ii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, and (iii) if such other Person is a Subsidiary Guarantor, such Subsidiary Guarantor shall have no property that constitutes Collateral. (b) No Subsidiary Guarantor will consolidate or merge with or into any other Person, except (i) without limiting the restrictions on Business Acquisitions set forth above, a Subsidiary Guarantor may merge with another Person if (A) either (1) a Subsidiary Guarantor is the corporation surviving such merger, or (2) the Subsidiary Guarantor that merges with such Person shall have no property that constitutes Second Priority Collateral, and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing, (ii) PCS or its Subsidiaries may consolidate with or merge into another Person as part of a PCS Disposition. SECTION 5.19. Dispositions of Assets. (a) The Borrower will not dispose of any capital stock of any Subsidiary Guarantor other than to another Subsidiary Guarantor, or permit any Subsidiary Guarantor to issue capital stock to any Person other than the Borrower or another Subsidiary Guarantor, except in each case for a PCS Disposition; provided that no such issuance or disposition of capital stock of PCS shall be to any Subsidiary Guarantor and no such issuance or disposition of capital stock of a Subsidiary of PCS shall be to the Borrower or any Subsidiary Guarantor other than PCS or a Subsidiary of PCS. (b) The Borrower will not, and will not permit any Subsidiary Guarantor to, dispose of any property or assets except (i) any Permitted Disposition; (ii) any PCS Disposition or sale or other disposition of the capital stock of Drugstore.com; (iii) any other disposition of property or assets of the Borrower or any Subsidiary for fair value not in the ordinary course of business; provided that with respect to such dispositions of Collateral under this clause, (1) at least 75% of the consideration therefor shall consist of cash, and (2) the Net Cash Proceeds of such disposition of Collateral are applied as provided in Section 4.05 of the Collateral Trust and Intercreditor Agreement. (c) The consideration received by the Borrower or the applicable Subsidiary Guarantor for any PCS Disposition or the disposition of the capital stock of Drugstore.com shall be for the fair market value of such disposition and consist solely of a combination of at least 75% cash and no more than 25% of publicly traded securities, in each case payable and deliverable at the closing of such disposition, unless, (i) in the case of a PCS Disposition, the "Required Banks" under the PCS Facility otherwise agree or (ii) in the case of a disposition of the capital stock of Drugstore.com, the Required Banks otherwise agree. Consideration in the form of forgiveness of intercompany obligations shall be disregarded for purposes of determinations of compliance with this Section 5.19(c). SECTION 5.20. Use of Proceeds. The proceeds of the Tranche A Loans made under the Existing Agreement were used by the Borrower solely to repay commercial paper maturing on or prior to the date of the related borrowing thereunder or to extend and renew loans outstanding under the Existing Agreement, the proceeds of which loans were used solely to repay commercial paper (or to refund other 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 Existing Agreement were used by the Borrower for the Borrower's general corporate purposes. No such use of proceeds have 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, other than publicly traded securities issued to the Borrower in connection with the sale of the capital stock of PCS. The Borrower will ensure that no such use of proceeds violates Regulation T, U or X. SECTION 5.21. Restrictions on Asset Holdings by the Borrower. The Borrower will not at any time (i) make or hold any Investments other than investments in the capital stock of Drugstore.com and its Subsidiaries (including any distributions or other assets received in respect thereto), Investments received as consideration in connection with the PCS Disposition or a disposition of Drugstore.com, intercompany advances to Subsidiaries, and Investments permitted by clause (iii) below, (ii) acquire or hold any Stores, other capital assets, inventory or accounts receivable, other than any real estate which the Borrower holds only as lessor, and which is leased and operated by another Person, or (iii) acquire or hold cash, cash equivalents, Temporary Cash Investments or balances in bank accounts other than such amounts as are reasonably anticipated (at the time so acquired or held) to be utilized within five Business Days to pay costs, expenses and other obligations of the Borrower referred to in Section 5.24(b) of the Senior Credit Facility. SECTION 5.22. Restricted Payments. After the date hereof, neither the Borrower nor any Subsidiary will declare or make any Restricted Payment other than (a) payments of dividends to Subsidiary Guarantors, (b) payments of cash dividends required to be made in respect of the capital stock listed on Schedule 5.22(b), and (c) payments of cash dividends to the Borrower to the extent necessary to enable the Borrower to make payments otherwise permitted by the Loan Documents; provided that no such Restricted Payments may be made by PCS or any Subsidiary of PCS to any Person other than PCS or a Subsidiary of PCS. SECTION 5.23. Business of Borrower and Subsidiaries. The Borrower will not, and will not cause or permit any of the Subsidiaries to, engage at any time in any business or business activity other than the business conducted on the Closing Date by it and business activities reasonably incidental thereto. Without limitation of the foregoing, the Borrower will not permit SPV to have any assets or liabilities or conduct any business other than as specifically contemplated by the Forward Commitment Agreement. SECTION 5.24. Transactions with Affiliates. The Borrower will not, and will not cause or permit any of the Subsidiaries to, directly or indirectly enter into or conduct any transactions or series of transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any Affiliate of the Borrower, other than the payment of transaction costs approved by the Administrative Agent before the Closing Date (an "AFFILIATE TRANSACTION"), other than (a) the payment of compensation to directors, officers, and employees of the Borrower and its Subsidiaries in the ordinary course of business; (b) payments in respect of Affiliate Transactions required to be made pursuant to agreements or arrangements in effect on the Closing Date and set forth in Schedule 5.24 hereto; (c) Affiliate Transactions involving the acquisition of inventory in the ordinary course of business, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Borrower or such Subsidiary as the case may be, and (C) no less favorable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Borrower, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000, the board of directors of the Borrower (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (C) of this paragraph; (d) the issuance of Exchange Notes by the Borrower to the SPV as contemplated by the Forward Commitment Agreement; (e) Affiliate Transactions between or among the Borrower and/or one or more Subsidiary Guarantors; provided that any such transaction between PCS or a Subsidiary of PCS (a "PCS ENTITY"), on the one hand, and the Borrower or a Subsidiary Guarantor which is not a PCS Entity, on the other hand, shall be in the ordinary course of business; and (f) any other Affiliate Transaction, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Borrower or such Subsidiary, as the case may be, and (C) no less favorable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Borrower, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $25,000,000 in any 12-month period, the board of directors of the Borrower (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (i)(C) of this paragraph and (iii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000 in any 12-month period, the Borrower obtains a written opinion from an independent investment banking firm or appraiser of national prominence, as appropriate to the effect that such transaction is fair to the Borrower or such Subsidiary, as the case may be, from a financial point of view. SECTION 5.25. New Synthetic Leases. Neither the Borrower nor any Subsidiary will enter into any Synthetic Lease after the Closing Date if, after giving effect thereto, the aggregate amount financed under all Synthetic Leases entered into in any period of twelve consecutive calendar months commencing after the date hereof would exceed $35,000,000 unless such Synthetic Lease is otherwise permitted under Section 5.16(h), (i) or (j). SECTION 5.26. Corporate Separateness. The Borrower will, and will cause each Subsidiary to, take all necessary steps to maintain its identity as a separate legal entity from other Persons and to make it manifest to third parties that it is an entity with assets and liabilities distinct from those of each of other Person. SECTION 5.27. Limitation on Derivative Obligations. The Borrower will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any monetary liability under any Derivative Obligations; unless such Derivative Obligations are entered into for bona fide hedging purposes of the Borrower or its Subsidiary Guarantors (as determined in good faith by the board of directors or senior management of the Borrower) and correspond in terms of notional amount, duration, currencies and interest rates, as applicable, to Debt of the Borrower or its Subsidiary Guarantors incurred without violation of this Agreement or to business transactions of the Borrower or its Subsidiary Guarantors on customary terms entered into in the ordinary course of business, and do not exceed an amount equal to the aggregate principal amount of the Senior Obligations and the Second Priority Debt Obligations. ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within five days of the due date thereof any interest, fees or other amount payable hereunder; (b) the Borrower or any Subsidiary Guarantor shall fail to observe or perform any covenant contained in Sections 5.07, 5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17, 5.18, 5.19, 5.20, 5.21, 5.22, 5.23, 5.24, 5.25, 5.26 and 5.27; (c) the Borrower or any Subsidiary Guarantor 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) in the case of covenants set forth in Section 5.06, for 5 days, and in the case of any other such covenant, for 20 days after written notice thereof has been given to the Borrower by the Administrative Agent at the request of the Required Banks; (d) any representation, warranty, certification or statement made (or deemed made) by the Borrower or any Subsidiary Guarantor 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, including any obligation to reimburse letter of credit obligations or to post cash collateral in respect thereof, when due or within the applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Financial Obligations; (g) any event or condition shall occur (other than in connection with a violation of Section 5.17, 5.18 or 5.19 of the Senior Credit Facility) which 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; (h) the Borrower or any Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (i) an involuntary case or other proceeding shall be commenced against the Borrower or any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (j) 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; (k) judgments or orders, individually or in the aggregate, for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; (l) (i) any Lien created by any Second Priority Collateral Document shall at any time fail to constitute a valid and (to the extent required by such Second Priority Collateral Document) perfected Lien on all of the Second Priority Collateral purported to be subject thereto, securing the obligations purported to be secured thereby, with the priority required by the Second Priority Loan Documents; provided, however, such failure continues uncured for 30 days, or (ii) the Borrower or any Subsidiary shall so assert in writing, or any Second Priority Collateral Document shall become invalid or the Borrower or any Subsidiary shall so assert in writing; or (m) 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 (n) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) (other than Green Equity Investors III, L.P., and its Affiliates) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under said Act) of 20% or more of the outstanding shares of common stock of the Borrower; or, during any period of 12 consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; then, and in every such event, the Administrative Agent shall if requested by Banks holding more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Loans (together with accrued interest thereon) to be, and the Loans (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (h) or (i) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Banks, Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower SECTION 6.02. Notice of Default. The 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 (or any successor Administrative Agent that is a Bank) 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 (or any such successor) 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 Collateral Documents. 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. (a) The Administrative Agent may (i) resign at any time by giving notice thereof to the Banks and the Borrower (ii) be removed at any time with or without cause by the Required Banks. Upon any such resignation or removal, 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 or removed Administrative Agent may (i) 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 $500,000,000 or (ii) by notice to the Banks, declare its resignation immediately effective, in which event the responsibilities of the Administrative Agent under the Loan Documents shall thereafter be discharged by the Required Banks collectively until such time as they shall have appointed a successor Administrative Agent in accordance with the foregoing provisions of this Section. 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 or removed Administrative Agent. The retiring or removed Administrative Agent shall be discharged from its duties and obligations under the Loan Documents upon the acceptance of appointment by a successor Administrative Agent, or if earlier, upon the giving of notice by the retiring or removed Administrative Agent pursuant to clause (ii) of the second preceding sentence. After any retiring or removed Administrative Agent's resignation or removal 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. (b) The parties hereto agree that effective July 31, 2000, (i) Morgan Guaranty Trust Company of New York shall resign as Administrative Agent and (ii) Citicorp USA, Inc. shall be appointed successor Administrative Agent, all without further action or consent by any party hereto. 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. SECTION 7.10. Steering Committee. The Administrative Agent may from time to time as it may deem appropriate consult with members of a Steering Committee with respect to proposed amendments or waivers under the Loan Documents, Defaults thereunder and exercise of rights and remedies in connection therewith. The Administrative Agent may designate the members of such Steering Committee from time to time in its discretion, subject to acceptance by any Bank so appointed. Any member of such Steering Committee may resign at any time. Membership on such Steering Committee shall not impose any duty or obligation whatsoever on any Bank, and the provisions of this Section shall not in any way alter or affect the other provisions of the Loan Documents dealing with requisite consents of or instructions from the Banks for actions on the part of 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 Adjusted 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 make Euro-Dollar Loans, or to continue or convert outstanding Loans as or into Euro-Dollar Loans, shall be suspended, and each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. 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 make Euro-Dollar Loans, or 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 reflected in an applicable Euro-Dollar Reserve Percentage), 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, its Note or its obligation to make Euro-Dollar Loans and the result of any of the foregoing is to increase the cost to such Bank (or its 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 (i)(x) an Internal Revenue Service form W-8BEN (or any successor form), in duplicate, 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 (y) an Internal Revenue Service form W-8ECI (or any successor form), in duplicate, certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States or (ii) solely if such Bank is claiming exemption from United States withholding tax under Section 871(h) or 881(c) of the Internal Revenue Code with respect to payments of "portfolio interest", an Internal Revenue Service form W-8BEN (or any successor form), and a certificate representing that such Bank is not a bank for purposes of Section 881(c) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Internal Revenue Code). 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, all Loans which would otherwise be made by such Bank as (or continued as or converted into) Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks). If such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks. ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, 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 facsimile number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or facsimile number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by facsimile, when such communication is transmitted to the facsimile number specified in this Section and confirmation of receipt 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, (ii) the reasonable fees and disbursements of E&Y Restructuring LLC, financial advisor to the Davis Polk & Wardwell, in connection with the engagement contemplated by Section 3.01(v), (iii) 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 (iv) all costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by the Administrative Agent and the Banks in enforcing any obligations of or in collecting any payments due from the Borrower or any Subsidiary Guarantor hereunder or under the other Loan Documents (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Second Priority Subsidiary Guarantee Agreement) or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. (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 (i) 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 or (ii) to tender a portion of its Credit Exposure in exchange for common stock of the Borrower and debt under the Exchange Debt Facility without being required to share any proportionately greater payment such Bank may receive in connection with the Equity Conversion. 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 this Section 9.05 or (v) change 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 the Loan Documents. (b) Any provision of any RCF Collateral Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the requisite parties specified therein. If any RCF Collateral Document requires the consent of the Administrative Agent for an amendment or waiver thereof but does not specify the requisite consent or instruction of the Banks therefor, the Administrative Agent shall consent to such amendment or waiver only with the consent of the Required Banks; provided that no such amendment or waiver shall, unless consented to by all Banks, (i) alter in a manner adverse to the Banks the priorities specified in the RCF Collateral Documents, (ii) effect or permit a release of (y) any of the RCF Collateral under the PCS Pledge Agreement or the Drugstore.com Pledge Agreement or (z) all or substantially all of the RCF Collateral under the Second Priority Collateral Documents, collectively, or (iii) release all or substantially all Subsidiary Guarantors from their obligations under the Second Priority Subsidiary Guarantee Agreement. Notwithstanding the foregoing, Collateral shall be released from the Lien of any RCF Collateral Document from time to time as necessary to effect any sale of RCF 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 the applicable provisions of the Loan Documents and for the pledge of any non-cash proceeds thereof in accordance with the applicable provisions of the Pledge Agreements or, to the extent required thereby, the other RCF Collateral Documents. If a Subsidiary Guarantor ceases to be a Subsidiary of the Borrower in a transaction permitted by the Loan Documents, or ceases to own any property that constitutes Second Priority Collateral, at the request of and at the expense of the Borrower, such Subsidiary Guarantor shall be released from the Second Priority Subsidiary Guarantee Agreement, the Second Priority Subsidiary Security Agreement and each other Loan Document to which it is a party. SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "PARTICIPANT") participating interests in 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 C 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 or delayed); 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 with a Credit Exposure 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. Collateral. Each of the Banks represents to the Administrative Agent and each of the other Banks that it in good faith is not relying upon any "MARGIN STOCK" (as defined in Regulation U) as collateral in the extension of the credit provided for in this Agreement. SECTION 9.08. 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 9.09. 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 9.10. 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. SECTION 9.11. Collateral Trust and Intercreditor Agreement. Each Bank hereby authorizes the Administrative Agent and the Second Priority Collateral Trustee to enter into the Collateral Trust and Intercreditor Agreement and the other RCF Collateral Documents on its behalf, and agrees that the Second Priority Collateral Trustee may enforce the rights and remedies of the Banks under each Second Priority Collateral Document to the extent provided therein. 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: /s/ Elliot S. Gerson -------------------------------------- Title: Senior Executive Vice President Address: 30 Hunter Lane Camp Hill, PA 17011 Attention: Chief Financial Officer Telephone No.: (717) 975-5750 Facsimile No.: (717) 975-3764 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Anna Marie Fallon -------------------------------------- Title: Vice President BANK OF AMERICA, N.A. By: /s/ Timothy H. Spanos -------------------------------------- Title: Managing Director THE CHASE MANHATTAN BANK By: /s/ Margaret T. Lane -------------------------------------- Title: Vice President CITIBANK, N.A. By: /s/ Gregory W. Frenzel -------------------------------------- Title: Vice President MELLON BANK, N.A. By: /s/ Richard J. Schaich -------------------------------------- Title: Vice President PNC BANK, NATIONAL ASSOCIATION By: /s/ Thomas J. McCool -------------------------------------- Title: Senior Vice President WACHOVIA BANK, N.A. By: /s/ Henry H. Hagan -------------------------------------- Title: Senior Vice President SUNTRUST BANK By: /s/ Janet R. Naifeh -------------------------------------- Title: Vice President BANK ONE, NA (Main Office - Chicago) By: /s/ Dennis Saletta -------------------------------------- Title: First Vice President ABN AMRO BANK N.V. By: /s/ Neil J. Bivona -------------------------------------- Title: Vice President By: /s/ Steven C. Wimpenny -------------------------------------- Title: Group Senior Vice President BANK OF MONTREAL By: /s/ Geoffrey R. McConnell -------------------------------------- Title: Director THE BANK OF NEW YORK By: /s/ Howard F. Bascom, Jr. -------------------------------------- Title: Vice President THE BANK OF NOVA SCOTIA By: /s/ Brian S. Allen -------------------------------------- Title: Managing Director BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ M. O'Connor -------------------------------------- Title: Vice President COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ Andrew P. Lusk -------------------------------------- Title: Assistant Treasurer By: /s/ Sean M. Harrigan -------------------------------------- Title: Senior Vice President FIRST UNION NATIONAL BANK By: /s/ Helen F. Wessling -------------------------------------- Title: Senior Vice President/Director FLEET NATIONAL BANK By: /s/ Thomas J. Bullard -------------------------------------- Title: Director THE FUJI BANK LIMITED By: /s/ Yuji Tanaka -------------------------------------- Title: Vice President & Manager THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY By: /s/ Takuya Honjo -------------------------------------- Title: Deputy General Manager KEYBANK NATIONAL ASSOCIATION By: /s/ Alan J. Ronan -------------------------------------- Title: Vice President ROYAL BANK OF CANADA By: /s/ Lori Ross -------------------------------------- Title: Manager THE SANWA BANK, LIMITED, NEW YORK BRANCH By: /s/ Joseph E. Leo -------------------------------------- Title: Vice President and Area Manager THE SUMITOMO BANK, LIMITED By: /s/ C. Michael Garrido -------------------------------------- Title: Senior Vice President THE TOKAI BANK, LIMITED By: /s/ Shinichi Nakatani -------------------------------------- Title: Assistant General Manager UBS AG, STAMFORD BRANCH By: /s/ Paula Mueller -------------------------------------- Title: Director By: /s/ Dorothy McKinley -------------------------------------- Title: Director Loan Portfolio Support, US ALLFIRST BANK By: /s/ Theodore K. Oswald -------------------------------------- Title: Vice President BEAR, STEARNS & CO. INC. By: /s/ Gregory A. Hanley -------------------------------------- Title: Senior Managing Director MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By: /s/ Anna Marie Fallon -------------------------------------- Title: Vice President Address: Attention: Facsimile No.:
SCHEDULE I OUTSTANDING LOANS TOTAL TRANCHE A TRANCHE B OUTSTANDING BANK LOANS LOANS LOANS - ----- --------------- --------------- --------------- Morgan Guaranty Trust Company of New York $0.00 $0.00 $0.00 Bank of America, N.A. 23,200,000.00 77,809,920.00 101,009,920.00 The Chase Manhattan Bank 9,600,000.00 32,197,208.00 41,797,208.00 Mellon Bank, N.A. 9,600,000.00 32,197,208.00 41,797,208.00 PNC Bank, National Association 321,090.00 22,918,298.00 23,239,388.00 Wachovia Bank, N.A. 9,600,000.00 32,197,208.00 41,797,208.00 SunTrust Bank 8,000,000.00 26,831,007.00 34,831,007.00 Bank One, NA (Main Office - Chicago) 6,000,000.00 20,123,255.00 26,123,255.00 ABN AMRO Bank N.V. 6,000,000.00 20,123,255.00 26,123,255.00 Bank of Montreal 6,000,000.00 20,123,255.00 26,123,255.00 The Bank of New York 6,000,000.00 20,123,255.00 26,123,255.00 The Bank of Nova Scotia 6,000,000.00 20,123,255.00 26,123,255.00 Bank of Tokyo-Mitsubishi Trust Company 0.00 9,223,987.00 9,223,987.00 Commerzbank AG, New York and Grand 6,000,000.00 20,123,255.00 26,123,255.00 Cayman Branches First Union National Bank 0.00 0.00 0.00 Fleet National Bank 6,000,000.00 20,123,255.00 26,123,255.00 The Fuji Bank Limited 6,000,000.00 20,123,255.00 26,123,255.00 The Industrial Bank of Japan Trust Company 6,000,000.00 20,123,255.00 26,123,255.00 KeyBank National Association 6,000,000.00 20,123,255.00 26,123,255.00 Royal Bank of Canada 0.00 14,524,617.00 14,524,617.00 The Sanwa Bank, Limited, New York Branch 6,000,000.00 20,123,255.00 26,123,255.00 The Sumitomo Bank, Limited 6,000,000.00 20,123,255.00 26,123,255.00 The Tokai Bank, Limited 6,000,000.00 20,123,255.00 26,123,255.00 UBS AG, Stamford Branch 6,000,000.00 20,123,255.00 26,123,255.00 Citibank, N.A. 5,600,000.00 18,781,705.00 24,381,705.00 Bear, Stearns & Co. Inc. 0.00 14,524,617.00 14,524,617.00 Allfirst Bank 4,000,000.00 13,415,504.00 17,415,504.00 TOTAL OUTSTANDING LOANS $153,921,090.00 $576,346,850.00 $730,267,940.00
EXHIBIT A NOTE New York, New York June 12, 2000 For value received, Rite Aid Corporation, a Delaware corporation (the "BORROWER"), promises to pay to the order of _____________ (the "BANK"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the last day of the Interest Period relating to such Loan. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the Types thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the RCF Facility dated as of June 12, 2000 among the Borrower, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent (as the same may be amended from time to time, the "CREDIT AGREEMENT"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. Payment of principal and interest on this Note is secured by security interests in certain collateral pursuant to the RCF Collateral Documents. RITE AID CORPORATION By: _____________________________ Name: Title: Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL ______________________________________________________________________________ Amount of Amount of Type of Principal Notation Date Loan Loan Repaid Made By ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ EXHIBIT C ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _____, 20__ among [ASSIGNOR] (the "ASSIGNOR"), [ASSIGNEE] (the "ASSIGNEE"), [RITE AID CORPORATION (the "BORROWER")] and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "AGREEMENT") relates to the RCF Facility dated as of June 12, 2000 among [Rite Aid Corporation (the "BORROWER")] the Borrower, the Assignor and the other Banks parties thereto, as Banks, and the Administrative Agent (as amended from time to time, the "CREDIT AGREEMENT"); WHEREAS, Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $_______ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its outstanding Loans thereunder in an amount equal to $___________ (the "ASSIGNED AMOUNT") and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, the Borrower and the Administrative Agent and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Credit Exposure in an amount equal to the Assigned Amount, and (ii) the Credit Exposure of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds an amount equal to $_______.(1) Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. - ----------- (1) Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. [SECTION 4. Consent of [the Borrower and] the Administrative Agent. This Agreement is conditioned upon the consent of [the Borrower and] the Administrative Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by [the Borrower and] the Administrative Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] SECTION 5. Non-reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. 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. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By_________________________________ Title: [ASSIGNEE] By_________________________________ Title: [RITE AID CORPORATION By_________________________________ Title:] MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By_________________________________ Title: EX-10 11 0011.txt EXHIBIT 10.7 - PCS FACILITY Exhibit 10.7 CONFORMED COPY PCS FACILITY dated as of June 12, 2000 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 CONTENTS1 ------------------ PAGE ---- ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions.......................................2 SECTION 1.02. Accounting Terms and Determinations..............16 SECTION 1.03. Types of Loans...................................17 SECTION 1.04. Other Definitional Provisions....................17 ARTICLE 2 THE CREDITS SECTION 2.01. Outstanding Loans................................18 SECTION 2.02. Notes............................................18 SECTION 2.03. Maturity of Loans................................18 SECTION 2.04. Interest Rates...................................18 SECTION 2.05. Method of Electing Interest Rates................20 SECTION 2.06. Participation Fees...............................21 SECTION 2.07. Reduction Events; Mandatory Prepayments..........22 SECTION 2.08. Optional Prepayments.............................22 SECTION 2.09. General Provisions as to Payments................23 SECTION 2.10. Funding Losses...................................23 SECTION 2.11. Computation of Interest..........................24 SECTION 2.12. Registry.........................................24 ARTICLE 3 CONDITIONS SECTION 3.01. Closing Date.....................................24 SECTION 3.02. Transition.......................................28 ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01. Corporate Existence and Power....................28 SECTION 4.02. Corporate and Governmental Authorization; No Contravention..................................29 SECTION 4.03. Binding Effect...................................29 SECTION 4.04. Financial and Other Information..................30 SECTION 4.05. Accuracy of Information..........................31 SECTION 4.06. Litigation.......................................31 SECTION 4.07. Compliance with ERISA............................31 SECTION 4.08. Taxes............................................32 SECTION 4.09. Subsidiaries.....................................32 SECTION 4.10. Environmental Matters............................32 SECTION 4.11. Year 2000 Compliance.............................33 SECTION 4.12. Other Loan Documents.............................33 SECTION 4.13. Insurance........................................33 SECTION 4.14. Solvency.........................................33 SECTION 4.15. Title to Properties..............................34 SECTION 4.16. Investment Company Act; Public Utility Holding Company Act............................34 SECTION 4.17. Labor Matters....................................34 ARTICLE 5 COVENANTS SECTION 5.01. Information......................................35 SECTION 5.02. Payment of Obligations...........................38 SECTION 5.03. Maintenance of Property; Insurance...............39 SECTION 5.04. Conduct of Business and Maintenance of Existence.41 SECTION 5.05. Compliance with Laws.............................41 SECTION 5.06. Inspection of Property, Books and Records........41 SECTION 5.07. Restriction on Other Agreements, Payment Limitations, Debt Prepayments..................42 SECTION 5.08. Further Assurances...............................43 SECTION 5.09. Subsidiaries.....................................43 SECTION 5.10. Restriction on Sale and Leaseback Transactions...43 SECTION 5.11. Restriction on Liens.............................44 SECTION 5.12. Capital Expenditures.............................46 SECTION 5.13. Minimum EBITDA...................................46 SECTION 5.14. Minimum Interest Coverage Ratio..................47 SECTION 5.15. Minimum Fixed Charge Coverage Ratio..............48 SECTION 5.16. Restriction on Debt..............................49 SECTION 5.17. Limitation on Investments and Acquisitions.......51 SECTION 5.19. Dispositions of Assets...........................53 SECTION 5.20. Use of Proceeds..................................54 SECTION 5.21. Restrictions on Asset Holdings by the Borrower...54 SECTION 5.22. Restricted Payments..............................54 SECTION 5.23. Business of Borrower and Subsidiaries............55 SECTION 5.24. Transactions with Affiliates.....................55 SECTION 5.25. New Synthetic Leases.............................56 SECTION 5.26. Corporate Separateness...........................56 SECTION 5.27. Limitation on Derivative Obligations.............56 ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default................................57 SECTION 6.02. Notice of Default................................60 ARTICLE 7 THE ADMINISTRATIVE AGENT SECTION 7.01. Appointment and Authorization....................60 SECTION 7.02. Administrative Agent and Affiliates..............60 SECTION 7.03. Action by Administrative Agent...................60 SECTION 7.04. Consultation with Experts........................60 SECTION 7.05. Liability of Administrative Agent................60 SECTION 7.06. Indemnification..................................61 SECTION 7.07. Credit Decision..................................61 SECTION 7.08. Successor Administrative Agent...................61 SECTION 7.09. Administrative Agent's Fees......................62 SECTION 7.10. Steering Committee...............................62 ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair...........................63 SECTION 8.02. Illegality.......................................63 SECTION 8.03. Increased Cost and Reduced Return................64 SECTION 8.04. Taxes............................................65 SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans..............................67 ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices..........................................68 SECTION 9.02. No Waivers.......................................68 SECTION 9.03. Expenses; Indemnification........................68 SECTION 9.04. Sharing of Set-Offs..............................69 SECTION 9.05. Amendments and Waivers...........................70 SECTION 9.06. Successors and Assigns...........................71 SECTION 9.07. Collateral.......................................72 SECTION 9.08. Governing Law; Submission to Jurisdiction........72 SECTION 9.09. Counterparts.....................................73 SECTION 9.10. WAIVER OF JURY TRIAL.............................73 SECTION 9.11. Collateral Trust and Intercreditor Agreement.....73 Schedule I - Outstanding Loans Schedule 1.0(a) - Existing Litigation Schedule 1.0(b) - Mortgaged Properties Schedule 1.1(c) - Subsidiary Guarantors Schedule 4.13 - Insurance Schedule 4.15(b)(i) - Leases on Mortgaged Properties Schedule 4.15(b)(ii) - Permitted Liens on Mortgaged Properties Schedule 4.15(c) - Leased Warehouses and Distribution Centers Schedule 5.10 - Permitted Sale and Leaseback Transactions Schedule 5.12(i) - (i)Permitted Liens Schedule 5.22(b) - Permitted Dividends Payable on Capital Stock Schedule 5.16(f) - Permitted Debt Schedule 5.24 - Permitted Affiliate Transactions Definitions Annex Annex 3 - Description of the Transactions Exhibit A - Note Exhibit B-1 - Opinion of Special Counsel for the Borrower Exhibit B-2 - Opinion of General Counsel for the Borrower Exhibit C - Assignment and Assumption Agreement Exhibit D - Form of Senior Subsidiary Guarantee Agreement Exhibit E - Form of Senior Subsidiary Security Agreement Exhibit F - Form of Senior Indemnity, Subrogation and Contribution Agreement Exhibit G - Form of Senior Mortgage Exhibit H - Form of Second Priority Subsidiary Guarantee Agreement Exhibit I - Form of Second Priority Subsidiary Security Agreement Exhibit J - Form of Second Priority Indemnity, Subrogation and Contribution Agreement Exhibit K - Form of Second Priority Mortgage Exhibit L - Form of PCS Pledge Agreement PCS FACILITY AGREEMENT dated as of June 12, 2000 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 are defined in Section 1.01 below), the Banks listed on the signature pages hereto and Morgan Guaranty Trust Company of New York, as agent for such Banks, are parties to a Term Loan Agreement dated as of October 25, 1999 (as heretofore amended, the "EXISTING AGREEMENT"), pursuant to which the Banks have loans outstanding as set forth in Schedule I hereto. B. The Borrower proposes to enter into the Senior Credit Facility, pursuant to which up to an additional $1,000,000,000 of financing will be available to it and its Subsidiaries. The Senior Credit Facility will be guaranteed by the Subsidiaries of the Borrower pursuant to the Senior Subsidiary Guarantee Agreement, and such Senior Subsidiary Guarantee Agreement will be secured by Liens created pursuant to the Senior Collateral Documents. C. The obligations of the Borrower under this Agreement, together with the other Second Priority Debt Obligations, will be guaranteed by the Subsidiaries of the Borrower pursuant to the Second Priority Subsidiary Guarantee Agreement, and such Second Priority Subsidiary Guarantee Agreement will be secured by a second priority lien on the assets securing the Senior Subsidiary Guarantee Agreement. D. Certain outstanding Debt of the Borrower will be exchanged for common stock of the Borrower, and in connection therewith an equal principal amount of debt will be exchanged by the holder thereof for Exchange Debt Obligations (the "Equity Conversion"), which will have the benefit of a first priority lien on certain Exchange Debt First Priority Collateral. E. The parties hereto wish to amend and restate the Existing Agreement in connection with the foregoing transaction to read in its entirety as set forth herein. NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. Terms defined in the Definitions Annex and not otherwise defined in this Section 1.01 have the respective meanings specified therein. The following terms, as used herein, have the following meanings: "ADJUSTED LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.04(b). "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. "ADJUSTED WORKING CAPITAL" means, for any date, current assets (other than cash and cash equivalents) less current liabilities (other than Debt permitted hereunder). "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank. "AFFILIATE TRANSACTION" is defined in Section 5.24. "AGREEMENT" means the Existing Agreement, as amended and restated by this Amended Agreement and as the same may be further amended from time to time. "AMENDED AGREEMENT" means this PCS Facility dated as of June 12, 2000. "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. "APPLICABLE MARGIN" means the sum of (i) with respect to Base Rate Loans, 2.25% and, with respect to Euro-Dollar Loans, 3.25%, plus (ii) at any date on or after November 1, 2000, 0.50% unless the Reduction Condition has been met on or prior to such date plus (iii) (A) for purposes of all calculations hereunder for any date on which an Event of Default shall have occurred and be continuing, but only if the Required Banks shall have so elected by notice to the Borrower through the Administrative Agent, or (B) for purposes of calculating interest on overdue amounts hereunder for any date on which the election contemplated by clause (A) is not in effect, 2.00%. "ASSIGNEE" has the meaning set forth in Section 9.06(c). "BANK" means each Person listed on the signature pages hereof under the heading "BANKS", 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 a Notice of Interest Rate Election, the first or the last sentence of Section 2.05(a) or Article 8. "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. "BUSINESS ACQUISITION" means (i) an Investment by the Borrower or any of its Subsidiaries in any other Person (including an Investment by way of acquisition of securities of any other Person) pursuant to which such Person shall become a Subsidiary or shall be merged into or consolidated with the Borrower or any of its Subsidiaries or (ii) an acquisition by the Borrower or any of its Subsidiaries of the property and assets of any Person (other than the Borrower or any of its Subsidiaries) that constitute substantially all the assets of such Person or any division or other business unit of such Person; provided, that the acquisition of prescription files, Stores and Persons substantially all of whose assets consist of fewer than ten Stores, in each case, in the ordinary course of business and not inconsistent with the Borrower's business plan delivered pursuant to Section 3.01(e), shall not be a Business Acquisition. "CAPITAL LEASE" means any lease of property which, in accordance with generally accepted accounting principles, should be capitalized on the lessee's balance sheet. "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 for the replacement or restoration of assets to the extent financed by Casualty/Condemnation Proceeds relating to the asset or assets being replaced or restored. "CONSOLIDATED DEBT" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "CONSOLIDATED EBITDA" means, for any period (without duplication), Consolidated Net Income for such period, plus (a) to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) consolidated interest expenses, whether cash or non-cash, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments which reduced such Consolidated Net Income, (v) store closing expenses and (vi) any other nonrecurring charge to the extent such nonrecurring charge does not involve any cash expenditure during such period, (vii) all fees, costs, charges and expenses in connection with the Transactions, (viii) all fees, costs, charges and expenses in connection with the restatement of the consolidated financial statements of the Borrower and its Consolidated Subsidiaries for periods before February 26, 2000 and litigation expenses (exclusive of damages or amounts paid in settlement of claims) incurred in connection with litigation, investigation (including internal review) or other proceedings relating to such restatement, (ix) any advisory or other fees payable by the Borrower pursuant to the one-year financial services advisory contract described in the Borrower's quarterly report on Form 10-Q for the fiscal quarter ended as of August 28, 1999, (x) non-cash compensation expenses related to stock option and restricted stock employee benefit plans, and (xi) the non-cash interest component, as adjusted from time to time, in respect of reserves, 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 and added back to Consolidated Net Income pursuant to clause (a) above in calculating Consolidated EBITDA in any prior period and (ii) LIFO Adjustments which increased such Consolidated Net Income. "CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of (i) Consolidated EBITDA plus Consolidated Rent to (ii) Consolidated Interest Charges plus Consolidated Rent, in each case for such period. "CONSOLIDATED INTEREST CHARGES" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Borrower and its Consolidated Subsidiaries, solely to the extent paid or payable in cash, during such period. "CONSOLIDATED INTEREST COVERAGE RATIO" means, with respect to any period, the ratio of Consolidated EBITDA for such period to Consolidated Interest Charges for such period. "CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of the Borrower and its Consolidated Subsidiaries (exclusive of (a) extraordinary items of gain or loss, (b) any gain or loss in connection with any sale of assets other than sales of inventory in the ordinary course of business, but in the case of loss only to the extent that such loss does not involve any cash expenditure during such period and (c) the Borrower's share of the net income (or loss) of Drugstore.com), determined on a consolidated basis for such period. "CONSOLIDATED NET WORTH" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries determined as of such date. Consolidated Net Worth includes the Borrower's 8% Convertible Pay-In-Kind Preferred Stock. "CONSOLIDATED RENT" means, for any period, the consolidated rental expense of the Borrower and its Consolidated Subsidiaries for such period, and including in any event rental costs of closed stores for such period whether or not reflected as an expense in the determination of Consolidated Net Income for such period and including base or basic rent payments under Synthetic Leases. "CONSOLIDATED SUBSIDIARY" means, with respect to any Person, at any date any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "CREDIT EXPOSURE" means, with respect to any Bank, the aggregate outstanding principal amount of such Bank's Loans. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DEFINITIONS ANNEX" means the Definitions Annex annexed hereto and by this reference incorporated herein. "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. "EQUITY CONVERSION" has the meaning set forth in the recitals hereto. "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 or the first sentence of Section 2.05(a). "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 2.04(b). "EVENT OF DEFAULT" has the meaning set forth in Section 6.01. "EXCESS CASH FLOW" means, for any period, the sum (without duplication) of Consolidated EBITDA for such period, plus (a) to the extent not included in Consolidated Net Income in calculating Consolidated EBITDA, the sum of (1) any Casualty/Condemnation Proceeds previously received by the Borrower or any Subsidiary in respect of which the time for reinvestment thereof (in accordance with the proviso to the definition of Casualty/Condemnation in respect of Proceeds) has elapsed during such period without such reinvestment having been effected, and (2) any Net Cash Proceeds received during such period by the Borrower or any Subsidiary in respect of Asset Sales; plus (b) decreases in Adjusted Working Capital for such period (other than any portion of such decrease resulting solely from the reclassification of assets or liabilities as short-term or long-term); plus (c) refunds of Taxes paid in prior periods; and minus (d) Taxes to the extent paid during such period in cash; minus (e) Consolidated Interest Charges to the extent paid during such period in cash; minus (f) increases in Adjusted Working Capital for such period (other than any portion of such increase resulting solely from the reclassification of assets or liabilities as short-term or long-term); minus (g) to the extent paid in cash during such period, costs and expenses referred to in clauses (v), (vii), (viii) and (ix) of the definition of "Consolidated EBITDA" which were added back to Consolidated Net Income to calculate Consolidated EBITDA for such period; minus (h) Consolidated Capital Expenditures for such period (except to the extent attributable to the incurrence of Debt under Capital Leases, Attributable Debt under Synthetic Leases or otherwise financed by the incurrence of Debt and except to the extent made with Casualty/Condemnation Proceeds or Net Cash Proceeds from Basket Asset Sales; minus (i) cash consideration paid by the Borrower or its Subsidiaries for permitted Business Acquisitions or other capital acquisitions (except to the extent financed by the incurrence of Debt and except to the extent made with Casualty/Condemnation Proceeds or Net Cash Proceeds from Basket Asset Sales; minus (j) cash expenditures made during such period in respect of long-term liabilities (other than Debt) or long-term assets to the extent such expenditures were not deducted in determining Consolidated Net Income for such period; minus (k) the aggregate principal amount of Debt (including Attributable Debt in respect of Synthetic Leases) paid or prepaid in cash by the Borrower or its Subsidiaries during such period (or immediately after such period in the case of mandatory prepayment of Debt required to be made with Net Cash Proceeds from Asset Sales received during such period), in each case to the extent permitted or required by this Agreement, but excluding (i) Debt in respect of Revolving Credit Loans and Letters of Credit (as defined in the Senior Credit Facility) that can be reborrowed or otherwise incurred again, (ii) repayments of Debt made with Net Cash Proceeds from Basket Asset Sales, and (iii) repayments or prepayments of Debt financed by incurring other Debt. "EXISTING AGREEMENT" has the meaning set forth in the recitals hereto. "EXISTING LITIGATION" means the bondholders' class actions and shareholders' class actions pending as of April 10, 2000 in the Eastern District of Pennsylvania, identified in Schedule 1.01(a) and the related pending investigation by the SEC. "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. "FINANCIAL OFFICER" of any person means the chief financial officer, principal accounting officer, treasurer or senior vice president finance of such person. "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. "GOVERNMENTAL AUTHORITY" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "HAZARDOUS MATERIALS" means all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBS") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "INDEMNITEE" has the meaning set forth in Section 9.03(b). "INITIAL FINANCIAL STATEMENTS" means the consolidated financial statements of the Borrower and its Consolidated Subsidiaries for the fiscal year ended February 26, 2000, and for the fiscal quarter ended May 27, 2000. "INTEREST PERIOD" means, with respect to each Euro-Dollar Loan, (i) the period in effect on the Closing Date pursuant to Section 3.02 or (ii) 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. "INTEREST RATE AGREEMENT" means, for any person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement designed to protect against fluctuations in interest rates. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "INVESTMENT" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. Any repurchase by the Borrower of its own capital stock shall not constitute an Investment for purposes of this Agreement. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of such transfer or exchange. "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 Euro-Dollar Loan or a Base Rate Loan and "LOANS" means Euro-Dollar Loans or Base Rate Loans or any combination of the foregoing. "LOAN DOCUMENTS" means this Agreement, the Notes and the PCS Collateral Documents. "LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.04(b). "MATERIAL ADVERSE EFFECT" means (i) any material adverse effect on the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole, (ii) any material impairment of the legality, validity and enforceability of the Loan Documents (including without limitation, the validity, enforceability or priority of security interests to be granted), or the rights and remedies of the Second Priority Debt Parties or (iii) any material impairment of the Borrower's or the Subsidiary Guarantors' ability to perform its or their obligations under the Loan Documents. "MATERIAL FINANCIAL OBLIGATIONS" means (a) the Senior Obligations, (b) the Second Priority Debt Obligations (other than Debt hereunder), and (c) (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 August 15, 2002. "MORTGAGED PROPERTIES" means the owned real properties of the Subsidiary Guarantors specified on Schedule 1.01(b), together with real properties that are mortgaged pursuant to Section 5.08. Each Mortgaged Property shall include any owned fixtures used in connection with the operation of such Mortgaged Property. "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "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 2.05. "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 COLLATERAL" means collateral subject to the PCS Collateral Documents. "PCS COLLATERAL DOCUMENTS" means the Second Priority Collateral Documents, the PCS Pledge Agreement and any additional pledge agreements required to be delivered pursuant to the Loan Documents and any other instruments or agreements executed pursuant to the foregoing. "PCS EBITDA" means, for any period, Consolidated EBITDA for such period less Retail EBITDA for such period. "PERFECTION CERTIFICATE" means the Perfection Certificate substantially in the form of Schedule 5 to the Second Priority Subsidiary Security Agreement. "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. "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. "QUALIFIED PREFERRED STOCK" means preferred stock of the Borrower that requires no cash payment before the date that is six months after the Maturity Date. The "REDUCTION CONDITION" shall be satisfied at such time as the aggregate amount outstanding under the Existing Facilities is less than or equal to the sum of (i) the aggregate amount outstanding under the Existing Facilities on the Closing Date minus (ii) $500,000,000. "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. "RELEASE" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. "REMEDIAL ACTION" means (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, clause (i) or (ii). "REQUIRED BANKS" means at any time Banks having more than 50% of the aggregate amount of the Credit Exposures. "RESTRICTED PAYMENT" means (a) any dividend or other distribution on any shares of the Borrower's or any Subsidiary's capital stock (except dividends payable solely in shares of the Borrower's capital stock); or (b) any payment on account of the purchase, redemption, retirement or acquisition of (i) any shares of the Borrower's or any Subsidiary's capital stock or (ii) any option, warrant or other right to acquire shares of the Borrower's or any Subsidiary's capital stock (other than such payment in connection with employee benefit plans in the ordinary course of business). "RETAIL CAPITAL EXPENDITURES" means, for any period, Consolidated Capital Expenditures for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Borrower. "RETAIL EBITDA" means, for any period, Consolidated EBITDA for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Borrower. "RETAIL FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of (i) Retail EBITDA plus Retail Rent to (ii) Retail Interest Charges plus Retail Rent, in each case for such period. "RETAIL INTEREST CHARGES" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Borrower and its Consolidated Subsidiaries, solely to the extent paid or payable in cash, during such period; provided, however, that for such period, such interest charges relating to the PCS Facility for such period will be computed as though the aggregate principal amount on which such interest charges are calculated at all times during such period were the lesser of (a) $300,000,000 and (b) the actual principal amount of the PCS Facility from time to time after giving effect to any repayment of the PCS Facility after the consummation of a PCS Disposition. "RETAIL INTEREST COVERAGE RATIO" means, with respect to any period, the ratio of Retail EBITDA for such period to Retail Interest Charges for such periods. "RETAIL RENT" means, for any period, Consolidated Rent for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Borrower. "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. "STORE" means any retail store (which may include any real property, fixtures, equipment, inventory and script files related thereto) operated, or to be operated, by any Subsidiary Guarantor. "SUBSIDIARY" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "SUBSIDIARY GUARANTOR" means, initially, each Subsidiary listed on Schedule 1.01(c), and each other Subsidiary that is or becomes a party to a Second Priority Subsidiary Guarantee Agreement. "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. "TRANSACTIONS" is defined in Annex 3. "TRANSACTION COSTS" is defined in Annex 3. "TRANSACTION DOCUMENTS" means the documents (other than the Second Priority Debt Documents) evidencing the Transactions. "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 (through Wholly-Owned Consolidated Subsidiaries) owned by the Borrower. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied (effective after delivery of the Initial Financial Statements) 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. Types of Loans. Loans hereunder are distinguished by "TYPE". The "TYPE" of a Loan refers to the determination whether such Loan is a Euro-Dollar Loan or a Base Rate Loan. SECTION 1.04. 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 to the other Second Priority Debt Documents, the Indentures, the Senior Loan Documents and the other Transaction Documents after the Closing Date shall be effective for purposes of references thereto in this Agreement and the other Second Priority Debt Documents only if such amendments are permitted hereunder and under the Collateral Trust and Intercreditor Agreement or are consented to in writing for such purpose by the Required Banks (or such other percentage of the Banks as may be specified hereunder). References to any Person include the successors and assigns of such Person. References "from" or "through" any date mean, unless otherwise specified, "from and including" or "through and including", respectively. ARTICLE 2 THE CREDITS SECTION 2.01. Outstanding Loans. On the Closing Date, each Bank has outstanding to the Borrower Loans as set forth in Schedule I. 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(b), 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 Applicable 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 the Applicable Margin plus the Base Rate for such day. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin plus the applicable Adjusted 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 "ADJUSTED LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. 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. "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). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (c) All amounts payable by the Borrower hereunder or under any other Loan Document not paid when due 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 the Applicable Margin for overdue Base Rate Loans for such day plus the Base Rate 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 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 applicable thereto at the Closing Date in accordance with the Existing Agreement. 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 2.10 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 $10,000,000 (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 $10,000,000 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. Participation Fees. On the Closing Date, the Borrower shall pay to the Administrative Agent for the account of each Bank a participation fee in an amount equal to 0.50% of the amount of such Bank's Credit Exposure at such date. SECTION 2.07. 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, the Borrower shall apply such Net Cash Proceeds in accordance with Section 4.05 of the Collateral Trust and Intercreditor Agreement. (b) [Reserved]. (c) Not later than the earlier of (i) 120 days after the end of each fiscal year of the Borrower, beginning with the fiscal year ending on or about March 3, 2001, and (ii) the date on which the financial statements for such fiscal year are delivered pursuant to Section 5.01(a), the Borrower shall apply an amount equal to 50% of Excess Cash Flow for (i) in the case of the fiscal year ending on March 3, 2001, the three fiscal quarters then most recently ended and (ii) in the case of the fiscal year ending on March 2, 2002, such fiscal year, ratably to (x) reduce the aggregate Revolving Credit Commitments and Term Exposure (each as defined in the Senior Credit Facility) of all the Senior Bank Parties to the extent of the Required Senior Prepayment Amount and in accordance with the terms of Section 2.12 thereof and (y) prepay all loans outstanding under the Existing Facilities. (d) Upon receipt from the Borrower of a notice pursuant to Section 4.05(a) of the Collateral Trust and Intercreditor Agreement, the Administrative Agent will promptly notify each Bank of the contents thereof, and of the date of any related prepayment 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 Group or Groups of outstanding Euro-Dollar Loans as the Borrower may elect in such notice, or failing such election as the Administrative Agent may determine in its discretion. SECTION 2.08. Optional Prepayments. (a) Subject in the case of any Euro-Dollar Loans to Section 2.10, 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 2.09. 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 2.10. 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 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), 2.07(b) or 2.08(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 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 2.11. 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 and fees 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 2.12. Registry. The Administrative Agent shall maintain a register (the "REGISTER") on which it will record the name of each Bank, each Loan made by such Bank and each repayment of any Loan made by such Bank. With respect to any Bank, the assignment or other transfer of the rights to the principal of, and interest on, any Loan made and Note issued pursuant to this Agreement shall not be effective until such assignment or other transfer is recorded on the Register and otherwise complies with Section 9.06(c). The registration of assignment or other transfer of all or part of any Loans and Notes for a Bank shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement referred to in Section 9.06(c). The Register shall be available at the offices where kept by the Administrative Agent for inspection by the Borrower and any Bank at any reasonable time upon reasonable prior notice to the Administrative Agent. Each Bank shall record on its internal records (including computerized systems) the foregoing information as to its own Loans. Failure to make any such recordation, or any error in such recordation, shall not affect the obligations of any Obligor under the Loan Documents. ARTICLE 3 CONDITIONS SECTION 3.01. Closing Date. This Amended 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 Agent of counterparts hereof signed by each of the Borrower and the Banks (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 Closing Date complying with the provisions of Section 2.02; (c) receipt by the Administrative Agent of duly executed counterparts of (i) amendments to the PCS Pledge Agreement and (ii) each of the PCS Collateral Documents other than the PCS Pledge Agreement; (d) receipt by the Administrative Agent of opinions of (i) Skadden, Arps, Slate, Meagher & Flom LLP, special counsel for the Borrower, substantially in the form of Exhibit B-1 hereto, and (ii) Elliot S. Gerson, General Counsel of the Borrower, substantially in the form of Exhibit B-2 hereto, and covering in each case such additional matters relating to the transactions contemplated hereby as the Required Banks may be reasonably request; (e) receipt by the Administrative Agent of a copy of the three-year business plan of the Borrower provided to the Senior Bank Parties pursuant to Section 3.01(l) of the Senior Credit Facility; (f) receipt by the Administrative Agent of a Perfection Certificate with respect to each Subsidiary Guarantor dated the Closing Date and duly executed by a Financial Officer of the Borrower; (g) receipt by the Administrative Agent of the results of a search of the Uniform Commercial Code (or equivalent filings) filings made with respect to the Borrower and each Subsidiary Guarantor in the states (or other jurisdictions) in which the chief executive office of each such Person is located, any offices of such Persons in which records have been kept relating to accounts and the other jurisdictions in which Uniform Commercial Code filings (or equivalent filings) are to be made pursuant to the preceding clause, together with copies of the financing statements (or similar documents) disclosed by such search, and accompanied by evidence satisfactory to the Administrative Agent that the Liens indicated in any such financing statement (or similar document) would be permitted under Section 5.11 or have been released (or arrangements shall have been made for the release or discharge thereof reasonably satisfactory to the Administrative Agent); (h) the fact that all requisite material governmental authorities and third parties shall have approved or consented to the transactions contemplated hereby to the extent required, all applicable appeal periods shall have expired and there shall be no governmental or judicial action, actual or threatened, that could reasonably be expected to restrain, prevent or impose burdensome conditions on the transactions contemplated hereby; (i) satisfaction by the Administrative Agent with any proposed changes in the management of the Borrower; (j) receipt by the Administrative Agent of a copy of the Borrowing Base Certificate (as defined in the Senior Credit Facility) delivered pursuant to Section 3.01(n) of the Senior Credit Facility; (k) receipt by the Second Priority Collateral Trustee of a copy of, or a certificate as to coverage under, the insurance policies required by Section 5.03 and the applicable provisions of the Second Priority Collateral Documents, each of which shall be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement and to name the Second Priority Collateral Trustee as additional insured, in form and substance satisfactory to the Second Priority Collateral Trustee; (l) receipt by the Administrative Agent of Phase I desk audits relating to the Mortgaged Properties reasonably satisfactory to the Administrative Agent, from an environmental consulting firm reasonably satisfactory to the Administrative Agent, as to any environmental hazards, liabilities or Remedial Action to which the Borrower or any of the Subsidiaries may be subject; (m) the Administrative Agent shall be reasonably satisfied as to the amount and nature of any environmental and employee health and safety exposures to which the Borrower and the Subsidiaries may be subject and the plans of the Borrower with respect thereto; (n) each of the Senior Mortgages, the Senior Security Agreement and the Senior Subsidiary Guarantee Agreements shall be in form an substance satisfactory to the Administrative Agent, shall have been duly executed by each Subsidiary Guarantor, and by or on behalf of the Senior Bank Parties, shall have been delivered to the Administrative Agent, and shall be in full force and effect; (o) receipt by the Administrative Agent, with a copy for each Bank, of a copy of each Transaction Document reasonably requested by the Administrative Agent, certified by a Financial Officer of the Borrower; (p) there shall have been (i) no development in any Existing Litigation after April 10, 2000, and (ii) no litigation or administrative proceeding commenced, that in case of either clause (i) or (ii) could reasonably be expected to have a Material Adverse Effect. There shall have been no development in any Existing Litigation after April 10, 2000, and there shall have been no litigation or administrative proceeding that, in the Banks' sole judgment, could impair the validity, enforceability or priority of the security interests to be granted in favor of the Banks under the Loan Documents; (q) there shall have been no material adverse change in the revenues, store operations, inventory, accounts receivable, business or prospects of the Borrower and its Subsidiaries considered as a whole, or to the Borrower's knowledge, in any relationship with any vendor or third party insurance payor of the Borrower or any of its Consolidated Subsidiaries, considered as a whole, since November 2, 1999, other than, in each case, as publicly disclosed before April 10, 2000; (r) receipt by the Administrative Agent of copies of all waivers from the lessor of each leased distribution center of the Subsidiary Guarantors of any statutory, common law or contractual landlord's lien with respect to any inventory of any Subsidiary Guarantor delivered to the Senior Administrative Agent (as defined under the Senior Credit Facility) pursuant to Section 3.01(cc) of the Senior Credit Facility; (s) the Administrative Agent shall have received standard flood hazard determination certificates in the form required by 12 CFR 22.6 for each Mortgaged Property; (t) receipt by the Administrative Agent of all documents it may reasonably request relating to the existence of the Obligors, the corporate authority for and the validity of the Loan Documents and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent; (u) receipt by the Administrative Agent of evidence satisfactory to it that the Borrower shall have paid all participation fees payable pursuant to Section 2.06 and all expenses, to the extent invoiced, payable pursuant to Section 9.03; (v) receipt by the Administrative Agent of confirmation that the retention of E&Y Restructuring LLC as financial advisor to Davis Polk & Wardwell has been extended to a date not earlier than May 31, 2001; (w) receipt by the Administrative Agent of a certificate of a duly authorized officer of the Borrower as to (i) absence of Default, (ii) accuracy of representations and warranties and (iii) such other matters relating to the satisfaction of the conditions specified in this Section 3.01 as the Administrative Agent may reasonably request; and (x) receipt by the Administrative Agent of evidence satisfactory to it that the Transactions shall have been consummated in accordance with the Transaction Documents, and the Borrower shall have received not less than $500,000,000 proceeds of the initial borrowing under the Senior Credit Facility. On the Closing Date the Existing Agreement will be automatically amended and restated in its entirety to read as set forth herein. On and after the Closing Date the rights and obligations of the parties hereto shall be governed by this Amended Agreement; provided the rights and obligations of the parties hereto with respect to the period prior to the Closing Date shall continue to be governed by the provisions of the Existing Agreement. The Notes delivered to each Bank under the Existing Agreement shall be canceled and Notes under this Amended Agreement shall be given in substitution therefor (but not as a novation thereof). The Agent shall promptly notify the Borrower and each Bank of the effectiveness of this Amended Agreement, and such notice shall be conclusive and binding on all parties hereto. SECTION 3.02. Transition. Each Loan outstanding under the Existing Agreement on the Closing Date shall remain outstanding under this Amended Agreement, with an Interest Period and, in the case of any Euro-Dollar Loan, a related Adjusted London Interbank Offered Rate as initially established pursuant to the Existing Agreement, but with a Base Rate Margin or Euro-Dollar Margin determined pursuant to this Amended Agreement for any date on or after the Closing Date. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation and each Subsidiary Guarantor is a corporation (or other entity) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and has all corporate (or other organizational) powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. (a) The execution, delivery and performance by the Borrower and each Subsidiary Guarantor of each Loan Document to which it is a party are within the Borrower's corporate powers or such Subsidiary Guarantor's corporate (or other organizational) powers, have been duly authorized by all necessary corporate or other action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws (or other organizational documents) of the Borrower or such Subsidiary Guarantor or of any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary or any other material agreement, instrument, judgment, injunction, order or decree binding upon the Borrower or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary pursuant to any such agreement, instrument, judgment, injunction, order or decree (other than the Liens created by the Collateral Documents). None of the Borrower or any of its Subsidiaries is in default in any manner under any provision of any Material Financial Obligation, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default could reasonably be expected to have a Material Adverse Effect. (b) The execution, delivery and performance by the Borrower and each Subsidiary Guarantor of each Transaction Document (other than the Loan Documents) to which it is a party are within the Borrower's corporate powers or such Subsidiary Guarantor's corporate (or other organizational) powers, have been duly authorized by all necessary corporate or other action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws (or other organizational documents) of the Borrower or such Subsidiary Guarantor or of any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary or any other material agreement, instrument, judgment, injunction, order or decree binding upon the Borrower or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary pursuant to any such agreement, instrument, judgment, injunction, order or decree (other than the Liens permitted by Section 5.11). SECTION 4.03. Binding Effect. This Agreement and each other Loan Document constitutes a valid and binding agreement of the Borrower and the Subsidiary Guarantors, and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms. SECTION 4.04. Financial and Other Information. (a) Effective upon and after delivery by the Borrower of the Initial Financial Statements, (i) the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of February 26, 2000 and each following fiscal year end of the Borrower and its Consolidated Subsidiaries and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by Deloitte & Touche (or other independent public accountants of nationally recognized standing) fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year; (ii) the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of such fiscal quarter end and each following fiscal quarter end of the Borrower and its Consolidated Subsidiaries (other than the fourth fiscal quarter of any fiscal year) and the related consolidated statements of income and cash flows for the fiscal quarter then ended, set forth in the Borrower's quarterly report on Form 10-Q for the fiscal quarter then ended, a copy of which will be delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the Initial Financial Statements, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal period, subject to normal year-end adjustments; and (iii) there has been no material adverse change in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole since May 27, 2000. (b) Since November 2, 1999, and until delivery by the Borrower of the Initial Financial Statements, there has been no material adverse effect on the revenues, store operations, inventory, accounts receivable, business or prospects of the Borrower and its Subsidiaries considered as a whole, or to the Borrower's knowledge, in any relationship with any vendor or third party insurance payor of the Borrower or any of its Consolidated Subsidiaries, considered as a whole, other than, in each case, as publicly disclosed before April 10, 2000. SECTION 4.05. Accuracy of Information. (a) Subject to any disclosure in the Initial Financial Statements for the period on or before May 27, 2000, all information (other than financial projections) that has been or will hereafter be made available to the Administrative Agent or any Bank by or on behalf of the Borrower or any of its representatives in connection with the transactions contemplated hereby is and will be complete and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances under which such statements were or are made. (b) All financial projections, if any, that have been or will be prepared by or on behalf of the Borrower or any of its representatives and made available to the Administrative Agent or any Bank have been or will be prepared in good faith based upon assumptions that are reasonable at the time made and at the time the related financial projections are made available to the Administrative Agent. (c) Subject to any disclosure in the Initial Financial Statements, for the period on or before May 27, 2000, 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. There has been (a) no development in any Existing Litigation after April 10, 2000, and (b) no litigation or administrative proceeding that in case of either clause (a) or (b) could reasonably be expected to have a Material Adverse Effect. There has been no development in any Existing Litigation after April 10, 2000, and there has been no litigation or administrative proceeding that could, in the Required Banks' sole judgment, impair the validity, enforceability or priority of the security interests to be granted in favor of the Banks under the Loan Documents. 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, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section ->4007 of ERISA, in each case except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all United States Federal income tax returns, and the Borrower and its Subsidiaries have filed all other material tax returns, which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary Guarantor except where the payment of any such taxes is being contested in good faith by appropriate proceedings. Effective upon delivery by the Borrower of the Initial Financial Statements, the charges, accruals and reserves on the books of the Borrower and its Consolidated Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.09. Subsidiaries. Schedule 1.01(c) sets forth a complete and correct list of the Borrower's Subsidiaries as of the Closing Date, and the percentage ownership interest of the Borrower therein. Each of the Borrower's corporate Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. Each of the Borrower's Subsidiaries is an "Unrestricted Subsidiary" as referred to in Section 5.09. 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. 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 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 substantial 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. SECTION 4.12. Other Loan Documents. The representations and warranties of the Borrower and each Subsidiary Guarantor set forth in each other Loan Document and Transaction Document are true and correct. SECTION 4.13. Insurance. Schedule 4.13 sets forth a true, complete and correct description of all liability, property and casualty insurance maintained by the Borrower or by the Borrower for its Subsidiaries as of the Closing Date. Such insurance is in full force and effect and all premiums have been duly paid. The Borrower and its Subsidiaries have insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice and as required by the Senior Loan Documents. SECTION 4.14. Solvency. Immediately after the consummation of the Transactions to occur on the Closing Date and immediately following the making of each loan made on the Closing Date under the Senior Credit Facility and after giving effect to the application of the proceeds of such loans, (i) the fair value of the assets of the Borrower and the other Obligors, taken as a whole, at a fair valuation, will exceed their debts and liabilities, subordinated, contingent or otherwise; (ii) the present fair saleable value of the property of the Borrower and the other Obligors, taken as a whole will be greater than the amount that will be required to pay the probable liability of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Borrower and the other Obligors, taken as a whole will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Borrower and the other Obligors will not have unreasonably small capital with which to conduct the business in which they are engaged as such business is now conducted and is proposed to be conducted following the Closing Date. SECTION 4.15. Title to Properties. (a) Each of the Borrower and the Subsidiaries has good and marketable title to, or valid leasehold interests in, all its material real properties (including all Mortgaged Properties) and valid title to all other assets, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. All such material properties and assets are free and clear of Liens that secure indebtedness for borrowed money, other than Liens expressly permitted by Section 5.11 and as set forth on Schedule 4.15(b)(ii) (or arrangements reasonably satisfactory to the Administrative Agent have been made for the release or discharge of such Liens). (b) Schedule 1.01(b) sets forth the address of each Mortgaged Property on the Closing Date. As of the Closing Date, none of the Mortgaged Properties are subject to leases, license agreements or subleases under which the Borrower or any Subsidiary is the lessor/licensor except as set forth on Schedule 4.15(b)(i). Each Mortgaged Property is free of Liens which secure indebtedness for borrowed money except for the Second Priority Mortgages and as set forth on Schedule 4.15(b)(ii) (or arrangements reasonably satisfactory to the Administrative Agent have been made for the release of such Liens). (c) Schedule 4.15(c) sets forth the address of every leased warehouse or distribution center in which inventory owned by the Company and or any Subsidiary is located. SECTION 4.16. Investment Company Act; Public Utility Holding Company Act. None of the Borrower or any Subsidiary is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 4.17. Labor Matters. As of the Closing Date, there are no strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending or, to the knowledge of the Borrower, threatened. The hours worked by and payments made to employees of the Borrower and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters. All payments due from the Borrower or any Subsidiary, or for which any claim may be made against the Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Borrower or such Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Borrower or any Subsidiary is bound. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Loan or other amount payable under any Loan Document remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) (i) with respect to the fiscal year of the Borrower ended February 26, 2000 as soon as available but not later than July 11, 2000, and (ii) with respect to each following fiscal year of the Borrower as soon as available and in any event within 90 days (or within such longer period of time, not greater than 120 days, to which the SEC may extend the filing deadline for the Borrower's Annual Report on Form 10-K) after the end of each such fiscal year, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on without material qualification by Deloitte & Touche (or other independent public accountants of nationally recognized standing); (b) with respect to the fiscal quarter of the Borrower ending May 27, 2000 as soon as available but not later then July 11, 2000, and (ii) with respect to each following fiscal quarter of the Borrower (other than the last fiscal quarter of a fiscal year) as soon as available and in any event within 45 days (or within such longer period of time, not greater than 60 days, to which the SEC may extend the filing deadline for the Borrower's Quarterly Report on Form 10-Q) after the end of each such fiscal quarter, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in each case in comparative form 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 a Financial Officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of a Financial Officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower (or, in the case of Section 5.13, PCS) was in compliance with the requirements of Sections 5.12, 5.13, 5.14 and 5.15 on the date of such financial statements, (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto, and (iii) in the case of the certificate delivered together with the financial statements referred to in clause (a) above, a calculation of Excess Cash Flow for the applicable period specified in Section 2.07(c) and the amount of the required prepayment of the Loans, if any, in respect thereof; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above; (e) within three Business Days after the end of each fiscal month a certificate of a Financial Officer of the Borrower setting forth in reasonable detail, a description of each disposition of assets not in the ordinary course of business for which the book value or fair market value of the assets of the Borrower or the Subsidiaries disposed or the consideration received therefor was greater than $5,000,000; (f) within five Business Days after the end of each calendar month a report, in form and scope satisfactory to the Administrative Agent, summarizing determinations of the borrowing base and utilization under the Senior Credit Facility during such month; (g) within five days after any officer of the Borrower obtains knowledge of (i) any Default, if such Default is then continuing, a certificate of a Financial Officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto, or (ii) the filing or commencement of any action, suit or proceeding, whether at law or in equity or by or before any court, governmental authority or other tribunal, against the Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect; (h) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (i) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the SEC; (j) within five days, if and when any member of the ERISA Group (i) gives or any Financial Officer becomes aware that such member is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or any Financial Officer knows that the plan administrator of any Plan has given or 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 a Financial Officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; (k) on or prior to the 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 July 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 (or pursuant to the Existing Agreement), no later than the 25th day of the next succeeding month; (iii) a weekly sales report for each week, commencing with the week ending June 17, 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, 2002, no later than March 31, 2001; (v) a monthly reconciliation of actual operating results for each month specified in the operating forecast delivered pursuant to clause (iv) above (or pursuant to the Existing Agreement) to the budget for such month, no later than the 30th day of the next succeeding month; and (l) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries or the Collateral as the Administrative Agent, at the request of any Bank, may reasonably request. Information required to be delivered pursuant to clauses (a), (b), (h) and (i) shall be deemed to have been delivered on the date on which the Borrower provides notice to the Banks that such information has been posted on the Borrower's website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux/searches.htm or at another website identified in such notice and accessible by the Banks without charge; provided that (i) such notice may be included in a certificate delivered pursuant to clause (c), and (ii) the Borrower shall deliver paper copies of the information referred to in clauses (a), (b), (h) and (i) to any Bank which requests such delivery. SECTION 5.02. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge, as the same shall become due and payable, (i) all material claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons prior to the time such claims or demands give rise to a material Lien upon any of its property or assets or a material risk of forfeiture of a Mortgaged Property, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except where any of the items in clause (i) or (ii) above may be contested in good faith by appropriate proceedings, and the Borrower or such Subsidiary, as the case may be, shall have set aside on its books, in accordance with generally accepted accounting principles, appropriate reserves, if any, for the accrual of any such items. SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will, and will cause each of its Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to the Banks, upon request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried. The Borrower will, and will cause each of its Subsidiaries to, maintain such insurance in a coverage amount of not less than 90% of the coverage amount as of the Closing Date, with deductibles, risks covered and other provisions (other than amount of premiums) not materially less favorable to the Borrower and its Subsidiaries as of the Closing Date. (c) The Borrower will, and will cause each of the Subsidiary Guarantors to, cause all such policies to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement, in form and substance satisfactory to the Senior Administrative Agent, the Senior Collateral Agent, the Administrative Agent, and the Second Priority Collateral Trustee which endorsement shall provide that, from and after the Closing Date, if the insurance carrier shall have received written notice from the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee or the Administrative Agent of the occurrence of an Event of Default, the insurance carrier shall pay all proceeds otherwise payable to the Borrower and any other Obligor under such policies directly to the Senior Collateral Agent and the Second Priority Collateral Trustee, as their interests may appear, for application pursuant to the Collateral Trust and Intercreditor Agreement; cause all such policies to provide that none of the Borrower, the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Administrative Agent, nor any other party shall be a coinsurer thereunder and to contain a "Replacement Cost Endorsement", without any deduction for depreciation, and such other provisions as the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee or the Administrative Agent may reasonably require from time to time to protect their interests; deliver broker's certificates to the Senior Collateral Agent and the Second Priority Collateral Trustee; cause each such policy to provide that it shall not be canceled or not renewed by reason of nonpayment of premium upon not less than 10 days prior written notice thereof by the insurer to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent (giving the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent the right to cure defaults in the payment of premiums) or for any other reason upon not less than 30 days' prior written notice thereof by the insurer to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent; deliver to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent, before the cancellation or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent) together with evidence reasonably satisfactory to the Senior Administrative Agent, the Senior Collateral Agent and the Administrative Agent of payment of the premium therefor. (d) [Reserved] (e) The Borrower will, and will cause each of the Subsidiary Guarantors to, with respect to any Mortgaged Property, carry and maintain comprehensive general liability insurance including the "broad form CGL endorsement" and coverage on an occurrence basis against claims made for personal injury (including bodily injury, death and property damage) and umbrella liability insurance against any and all claims, in no event for a combined single limit of less than $10,000,000, naming the Senior Collateral Agent (for the benefit of the Senior Bank Parties) and the Second Priority Collateral Trustee (for the benefit of the Second Priority Debt Parties) as additional insured parties, on forms satisfactory to the Senior Collateral Agent and the Second Priority Collateral Trustee. (f) The Borrower will notify the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent promptly whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section is taken out by the Borrower or its Subsidiaries; and promptly deliver to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent a duplicate original copy of such policy or policies. (g) In connection with the covenants set forth in this Section, it is agreed that: (i) none of the Administrative Agent, the Banks, or their respective agents or employees shall be liable for any loss or damage insured by the insurance policies required to be maintained under this Section, and (A) the Borrower and each other Obligor shall look solely to their insurance companies or any other parties other than the aforesaid parties for the recovery of such loss or damage and (B) such insurance companies shall have no rights of subrogation against the Administrative Agent, the Second Priority Collateral Trustee, the Banks or their agents or employees. If, however, the insurance policies do not provide waiver of subrogation rights against such parties, as required above, then the Borrower hereby agrees, to the extent permitted by law, to waive its right of recovery, if any, against the Administrative Agent, the Second Priority Collateral Trustee, the Banks and their agents and employees; and (ii) the designation of any form, type or amount of insurance coverage by the Administrative Agent, the Second Priority Collateral Trustee or the Required Banks under this Section shall in no event be deemed a representation, warranty or advice by the Administrative Agent, the Second Priority Collateral Trustee or the Banks that such insurance is adequate for the purposes of the business of the Borrower and the Subsidiaries or the protection of their properties. SECTION 5.04. Conduct of Business and Maintenance of Existence. Except as otherwise permitted in this Agreement, the Borrower will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary (except where such Subsidiary merges into a Subsidiary Guarantor) to preserve, renew and keep in full force and effect their respective legal existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that the foregoing will not prohibit any merger or liquidation of, or sale of assets by, a Subsidiary that is permitted by Sections 5.18 and 5.19. SECTION 5.05. Compliance with Laws. The Borrower will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) applicable to it or its property except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply would not have a Material Adverse Effect. SECTION 5.06. Inspection of Property, Books and Records. The Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank (at such Bank's expense, unless a Default has occurred and is continuing, in which case at the Borrower's expense and after such Bank has consulted the Administrative Agent with respect thereto) to visit and inspect any of their properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.07. Restriction on Other Agreements, Payment Limitations, Debt Prepayments. (a) 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 (i) would restrict any Subsidiary from granting Liens on any of its assets (including assets in addition to the then-existing Second Priority Collateral to secure the Second Priority Obligations or (ii) is more restrictive than the limitation on Liens set forth in this Agreement or (iii) which imposes other covenants more restrictive than those set forth in this Agreement except, in each case, (A) agreements with respect to Debt secured by Liens permitted by Section 5.11 containing restrictions on the ability to transfer or grant Liens on the assets securing such Debt, (B) customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, (D) pursuant to applicable law, (E) agreements in effect as of the Closing Date and not entered into in contemplation of the Transactions and (F) the other Existing Facilities Documents and the Forward Commitment Agreement as in effect on the Closing Date. (b) The Borrower will not, and will not permit any Subsidiary to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (i) make Restricted Payments in respect of any capital stock of such Subsidiary held by, or pay any Debt owed to, the Borrower or any other Subsidiary, (ii) make any Investment in the Borrower or any other Subsidiary, or (iii) transfer any of its assets to the Borrower or any other Subsidiary, except for such encumbrances or restrictions existing under or by reason of (A) any restriction existing under the Loan Documents, the Second Priority Debt Documents, the Senior Loan Documents, the Indentures or the Forward Commitment Agreement, (B) any restrictions with respect to PCS imposed pursuant to a PCS Disposition pending the consummation thereof, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, and (D) as required by applicable law. (c) The Borrower will not, and will not permit any Subsidiary to, make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption or, or otherwise voluntarily or optionally defease, debt under the other Existing Facilities, the Exchange Debt Obligations, the Synthetic Lease Facilities, the Existing Notes (as defined in Annex 3) (other than pursuant to the Exchange Offer (as defined in Annex 3)), the Exchange Notes or any other Debt for borrowed money of the Borrower or any Subsidiary, or segregate funds for any such payment, prepayment, repurchase, redemption or defeasance, except for refinancings, refundings and exchanges pursuant to Section 5.16(d), repurchases or redemption of such Debt for consideration consisting solely of common stock of the Borrower or Qualified Preferred Stock or prepayments of Capital Leases in connection with the sale, closing or relocation of Stores. SECTION 5.08. Further Assurances. The Borrower will, and will cause each of the Subsidiary Guarantors to, execute any and all further documents, financing statements, recordations, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements, recordations, mortgages and deeds of trust) that may be required under applicable law, or that the Required Banks, the Administrative Agent or the Second Priority Collateral Trustee may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and priority of the security interests created or intended to be created by the PCS Collateral Documents. The Borrower will cause any subsequently acquired or organized Domestic Subsidiary to execute a Second Priority Subsidiary Guarantee Agreement, Second Priority Indemnity, Subrogation and Contribution Agreement, Second Priority Subsidiary Security Agreement and any applicable financing statement or other recordation from time to time, and to comply with the terms thereof. The Borrower agrees to cause to be provided such evidence as the Second Priority Collateral Trustee or the Administrative Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. SECTION 5.09. Subsidiaries. The Borrower will cause all of its Subsidiaries that own Collateral to be "Unrestricted Subsidiaries" as defined in, and for all purposes of, each of the Indentures and will deliver such documents to the trustees under each of the Indentures and take such actions thereunder as may be necessary to effect the foregoing. SECTION 5.10. Restriction on Sale and Leaseback Transactions. Except for a sale or transfer by a Subsidiary to a Subsidiary Guarantor, the Borrower will not, and will not permit any Subsidiary to, enter into any Sale and Leaseback Transaction after the Closing Date other than (a) a Sale and Leaseback Transaction listed on Schedule 5.10, (b) with respect to any property other than a Mortgaged Property owned by the Borrower or any Subsidiary Guarantor as of the Closing Date, for a lease for a period, including renewals, not exceeding 24 months, by the end of which period it is intended that the use of such property or equipment by the lessee will be discontinued; provided, however, that such Sale and Leaseback Transaction will be subject to Section 5.19(b), (c) with respect to any property other than a Mortgaged Property, if entered into in respect of property acquired, developed or constructed by the Borrower or a Subsidiary after the Closing Date, if such Sale and Leaseback Transaction is entered into within 24 months from the date of completion of such acquisition, development or construction (which, in the case of any Store, shall be deemed to be 24 months from the date of the opening of such Store), or (d) if none of clauses (a) through (c) above are applicable, any other Sale and Leaseback Transaction not involving a Mortgaged Property, subject to Section 5.19(b). SECTION 5.11. Restriction on Liens. The Borrower will not, and will not permit any Subsidiary to, create, issue, incur, assume or guarantee any Secured Debt; provided that the foregoing covenant shall not apply to the following: (a) (i) any Lien on any property in connection with a Sale and Leaseback Transaction permitted by Section 5.10, (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 and not created in anticipation of such acquisition, which acquisition is not otherwise prohibited by this Agreement, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired; provided that the Lien does not attach to other property except unimproved real property previously owned upon which any new construction has taken place and subsequent additions to such acquired or constructed property; (b) any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 5.11 or any Lien securing the Debt of the Borrower or of any Subsidiary on the date of this Agreement or of a corporation at the time such corporation becomes a Subsidiary, or any extensions, renewals or refundings of any such Lien; provided that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding Lien shall be limited to all or that part of the same property which secured the Debt so extended, renewed or refunded; (c) any Lien securing Debt of a Subsidiary owing to a Subsidiary Guarantor; (d) any Lien created by the Loan Documents; (e) any Lien created by the Senior Loan Documents; provided that (i) with respect to any specific Collateral which is also Senior Collateral, a Lien is created simultaneously under the Second Priority Collateral Documents and is subject to the Collateral Trust and Intercreditor Agreement and (ii) the aggregate principal amount of Senior Debt Obligations to be secured by such Lien shall not exceed the amount permitted by Section 6.02 of the Collateral Trust and Intercreditor Agreement; (f) any Lien under the Exchange Debt First Priority Collateral Documents in favor of the Exchange Debt Parties, provided that such Lien is limited to the Exchange Debt First Priority Collateral; (g) any Lien under the PCS Pledge Agreement and the Drugstore.com Pledge Agreement in favor of the Existing Facility Parties and the Synthetic Lease Parties, provided that such Lien is limited to the "Collateral" as such term is defined in each such document; (h) existing Liens under the Synthetic Lease Documents and Liens under Synthetic Leases permitted pursuant to Section 5.25; (i) Liens identified on Schedule 5.11(i); provided, however, that such Liens do not attach to any other property other than that identified in such Schedule; (j) Liens in respect of Debt or Attributable Debt permitted under Sections 5.16(f), (g), (h), (i) and (j) so long as such Liens attach only to (i) the equipment subject to such financing, (ii) the property to which they attach on the Closing Date (or in the case of any operating lease which is reclassified as a Capital Lease, any property subject to such lease on the Closing Date), or (iii) the property or assets constructed, developed or purchased with such financing; and (k) any Lien on Net Cash Proceeds of Reduction Events allocated to the Exchange Note Obligations in accordance with the Collateral Trust and Intercreditor Agreement, which Lien arises pursuant to Section 10.14 of the Exchange Note Indenture. SECTION 5.12. 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:
AMOUNT PERIOD IF NO PCS DIVESTITURE HAS BEEN CONSUMMATED ON OR IF A PCS DIVESTITURE HAS BEFORE THE LAST DAY OF SUCH BEEN CONSUMMATED ON OR PERIOD, MAXIMUM BEFORE THE LAST DAY OF CONSOLIDATED CAPITAL SUCH PERIOD, MAXIMUM RETAIL EXPENDITURES CAPITAL EXPENDITURES Fiscal quarter ending on $70,000,000 $64,000,000 August 26, 2000 Two fiscal quarters ending on $138,000,000 $125,000,000 November 25, 2000 Three fiscal quarters ending $205,000,000 $186,000,000 on March 3, 2001 Four fiscal quarters ending on $270,000,000 $245,000,000 June 2, 2001 Four fiscal quarters ending on $265,000,000 $241,000,000 September 1, 2001 Four fiscal quarters ending on $265,000,000 $242,000,000 December 1, 2001 Four fiscal quarters ending on $265,000,000 $243,000,000 March 2, 2002 Four fiscal quarters ending on $265,000,000 $243,000,000 June 1, 2002
SECTION 5.13. Minimum EBITDA. The aggregate amount of Consolidated EBITDA, Retail EBITDA or PCS EBITDA, as the case may be, for any period set forth below shall not be less than the amount set forth below opposite such period:
AMOUNT PERIOD IF NO PCS IF A PCS IF NO PCS DIVESTITURE HAS DIVESTITURE HAS DIVESTITURE HAS BEEN BEEN BEEN CONSUMMATED ON CONSUMMATED ON CONSUMMATED ON OR BEFORE THE OR BEFORE THE OR BEFORE THE LAST DAY OF SUCH LAST DAY OF SUCH LAST DAY OF SUCH PERIOD, MINIMUM PERIOD, MINIMUM PERIOD, MINIMUM CONSOLIDATED RETAIL EBITDA PCS EBITDA EBITDA Fiscal quarter ending on August 26, 2000 $95,000,000 $75,000,000 N/A Two fiscal quarters ending on November 25, 2000 $232,000,000 $178,000,000 N/A Three fiscal quarters on March 3, 2001 $426,000,000 $335,000,000 N/A Four fiscal quarters ending on March 3, 2001 N/A N/A $100,000,000 Four fiscal quarters ending on June 2, 2001 $569,000,000 $444,000,000 N/A Four fiscal quarters ending on September 1, 2001 $646,000,000 $504,000,000 N/A Four fiscal quarters ending on December 1, 2001 $722,000,000 $563,000,000 N/A Four fiscal quarters ending on March 2, 2002 $860,000,000 $689,000,000 $100,000,000 Four fiscal quarters ending on June 1, 2002 $894,000,000 $720,000,000 N/A
SECTION 5.14. Minimum Interest Coverage Ratio. At no time shall the Consolidated Interest Coverage Ratio or the Retail Interest Coverage Ratio, as the case may be, for any period be less than the amount set forth below opposite such period:
AMOUNT PERIOD IF NO PCS DIVESTITURE HAS BEEN IF A PCS DIVESTITURE HAS BEEN CONSUMMATED ON OR BEFORE THE CONSUMMATED ON OR BEFORE THE LAST DAY OF SUCH PERIOD THE LAST DAY OF SUCH PERIOD, THE MINIMUM CONSOLIDATED MINIMUM RETAIL INTEREST INTEREST COVERAGE RATIO COVERAGE RATIO Fiscal quarter ending on August 26, 2000 .70 .67 Two fiscal quarters ending on November 25, 2000 .81 .79 Three fiscal quarters ending on March 3, 2001 .96 .95 Four fiscal quarters ending on June 2, 2001 .96 .94 Four fiscal quarters ending on September 1, 2001 1.07 1.04 Four fiscal quarters ending on December 1, 2001 1.18 1.14 Four fiscal quarters ending on March 2, 2002 1.39 1.37 Four fiscal quarters ending on June 1, 2002 1.40 1.40
SECTION 5.15. Minimum Fixed Charge Coverage Ratio. At no time shall the Consolidated Fixed Charge Coverage Ratio or the Retail Fixed Charge Coverage Ratio, as the case may be, for any period set forth below be less than the amount set forth below opposite such period:
AMOUNT PERIOD IF NO PCS DIVESTITURE HAS BEEN IF A PCS DIVESTITURE HAS BEEN CONSUMMATED ON OR BEFORE THE CONSUMMATED ON OR BEFORE THE LAST DAY OF SUCH PERIOD THE LAST DAY OF SUCH PERIOD, THE MINIMUM CONSOLIDATED FIXED MINIMUM RETAIL FIXED CHARGE CHARGE COVERAGE RATIO COVERAGE RATIO Fiscal quarter ending on August 26, 2000 .83 .83 Two fiscal quarters ending on November 25, 2000 .89 .88 Three fiscal quarters ending on March 3, 2001 .96 .95 Four fiscal quarters ending on June 2, 2001 .96 .94 Four fiscal quarters ending on September 1, 2001 1.01 .99 Four fiscal quarters ending on December 1, 2001 1.06 1.04 Four fiscal quarters ending on March 2, 2002 1.19 1.17 Four fiscal quarters ending on June 1, 2002 1.20 1.19
SECTION 5.16. Restriction on Debt. The Borrower will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any Debt or any Attributable Debt in respect of any Sale and Leaseback Transaction except: (a) Debt under the Senior Loan Documents in a principal amount no greater than the amount permitted by Section 6.02 of the Collateral Trust and Intercreditor Agreement; (b) Debt under the Loan Documents, the other Existing Facility Obligations, the Exchange Debt Obligations, the Exchange Note Obligations, and Debt under the Indentures in each case in a principal amount not greater than the principal amount thereof on the Closing Date after giving effect to the Transactions; provided that no Subsidiary Guarantor will have any liability thereon except its obligations under the Second Priority Collateral Agreements or the Exchange Debt First Priority Collateral Documents; (c) Attributable Debt of (i) the Synthetic Lease Obligations in a principal amount not greater than the principal amount thereof on the Closing Date, plus amounts permitted pursuant to Section 5.25; provided that no Subsidiary Guarantor will have any liability thereon except its obligations under the Second Priority Collateral Documents and (ii) any Sale and Leaseback Transactions in existence on the Closing Date; (d) unsecured Debt of the Borrower extending, or having the effect of extending the maturity of, or refunding, refinancing or exchanging, in whole or in part, Debt described in clauses (a), (b) and (c), provided that (i) the terms of any such extending, refunding, refinancing or exchanging of Debt, and of any agreement entered into and of any instrument issued in connection therewith, are otherwise permitted by the Loan Documents, (ii) the terms relating to principal amount, amortization, maturity, convertibility and subordination (if any), and other material terms taken as a whole, of any such extending, refunding, refinancing or exchanging of Debt, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Borrower and the Subsidiaries or the Banks than the terms of any agreement or instrument governing the Debt being extended, refunded, refinanced or exchanged and the interest rate applicable to such extending, refunding or refinancing or exchanging of Debt does not exceed the then applicable market interest rate and (iii) the principal amount of such extending, refunding, refinancing or exchanging of Debt shall not be increased above the principal amount of the Debt being extended, refunded, refinanced or exchanged outstanding immediately prior to such extension, refunding, refinancing or exchanging; (e) indorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (f) Debt for borrowed money and Capital Leases existing on the date hereof and set forth in Schedule 5.16(f), but not any extensions, renewals or replacements of such Debt; (g) Debt or Attributable Debt in respect of Capital Leases (whether or not in the form of Sale and Leaseback Transactions or Synthetic Leases) so long as such Capital Leases were leases existing as of the Closing Date, which are reclassified from operating leases to Capital Leases; (h) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions in respect of equipment financing or leasing in the ordinary course of business of the Borrower and its Subsidiaries consistent with past practices; (i) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions entered into to finance the acquisition, development, construction or opening of any Store after the Closing Date which is not inconsistent with the Borrower's business plan delivered pursuant to Section 3.01(e); provided that such Debt or Attributable Debt is (x) incurred within 24 months of the completion of the acquisition, development, construction or opening thereof, and any Lien securing such Debt or Attributable Debt is limited to the Store financed with the proceeds thereof or (y) in the case of a Sale and Leaseback Transaction, permitted under Section 5.10(a), (b) or (c); (j) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions incurred to finance the acquisition after the Closing Date of property or assets provided that (i) such Debt or Attributable Debt is incurred within 24 months of the acquisition of such property or assets, (ii) any Lien securing such Debt or Attributable Debt is limited to the property or assets financed with the proceeds thereof and (iii) the aggregate principal amount of Debt and Attributable Debt incurred pursuant to this clause (j) shall not exceed $50,000,000 at any time outstanding; (k) Debt in respect of the Independent Standby Letters of Credit, or any extension, renewals, replacements or reissuances thereof; provided that the aggregate drawable stated amount and unreimbursed drawings of all Independent Standby Letters of Credit outstanding at any time shall not exceed $34,000,000 less the stated amount of any such letters of credit which expire or are not extended, replaced or renewed; (l) Debt of the Borrower and its Subsidiaries in respect of intercompany Investments permitted under Sections 5.17(a); and (m) unsecured Debt of the Borrower not otherwise permitted by this Section in an aggregate principal amount at any time outstanding not to exceed (i) $100,000,000 less (ii) the aggregate amount of any increases in the amount of Debt permitted under subsection (a) above by reason of clause (i) of the proviso to Section 6.02 of the Collateral Trust and Intercreditor Agreement. SECTION 5.17. Limitation on Investments and Acquisitions. (a) Neither the Borrower nor any Subsidiary will make or acquire any Investment in any Person other than: (i) Investments in Subsidiary Guarantors, other than PCS and its Subsidiaries; (ii) Investments of the Borrower and the Subsidiary Guarantors in existence on the Closing Date; (iii) advances made by Rite Aid Hdqtrs. Corp. to PCS that reduce the intercompany payable due from Rite Aid Hdqtrs. Corp. to PCS; (iv) Temporary Cash Investments; (v) Investments received as consideration for any sale or other disposition permitted by Section 5.19; (vi) Investments in Drugstore.com existing on the date hereof; (vii) Investments of PCS and its Subsidiaries in PCS and its Subsidiaries; (viii) Investments by the Subsidiaries of the Borrower in the Borrower, but only to the extent that the uses of the proceeds of such Investments would be permitted as uses of proceeds of the loans made under the Senior Credit Facility pursuant to Section 5.24(b) thereof; (ix) Exchange Notes issued by the Borrower to and held by SPV pursuant to the Forward Commitment Agreement; and (x) any Investment by a Subsidiary Guarantor in a Person other than a Subsidiary that is not otherwise permitted by the foregoing clauses of this Section if, immediately after such Investment is made or acquired, the aggregate net book value of all Investments permitted by this clause (x) does not exceed at any one time outstanding the greater of (A) $200,000,000 or (B) after the delivery of the Initial Financial Statements, 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 (including Debt assumed or consolidated in accordance with generally accepted accounting principles) in connection with all such Business Acquisitions on or after the Closing Date would exceed $15,000,000. SECTION 5.18. Consolidations and Mergers. (a) Without limiting the restrictions on Business Acquisitions set forth above, the Borrower will not consolidate or merge with or into any other Person; provided that the Borrower may merge with another Person if (i) the Borrower is the corporation surviving such merger, (ii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, and (iii) if such other Person is a Subsidiary Guarantor, such Subsidiary Guarantor shall have no property that constitutes Collateral. (b) No Subsidiary Guarantor will consolidate or merge with or into any other Person, except (i) without limiting the restrictions on Business Acquisitions set forth above, a Subsidiary Guarantor may merge with another Person if (A) either (1) a Subsidiary Guarantor is the corporation surviving such merger, or (2) the Subsidiary Guarantor that merges with such Person shall have no property that constitutes Second Priority Collateral, and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing, (ii) PCS or its Subsidiaries may consolidate with or merge into another Person as part of a PCS Disposition. SECTION 5.19. Dispositions of Assets. (a) The Borrower will not dispose of any capital stock of any Subsidiary Guarantor other than to another Subsidiary Guarantor, or permit any Subsidiary Guarantor to issue capital stock to any Person other than the Borrower or another Subsidiary Guarantor, except in each case for a PCS Disposition; provided that no such issuance or disposition of capital stock of PCS shall be to any Subsidiary Guarantor and no such issuance or disposition of capital stock of a Subsidiary of PCS shall be to the Borrower or any Subsidiary Guarantor other than PCS or a Subsidiary of PCS. (b) The Borrower will not, and will not permit any Subsidiary Guarantor to, dispose of any property or assets except (i) any Permitted Disposition; (ii) any PCS Disposition or sale or other disposition of the capital stock of Drugstore.com; (iii) any other disposition of property or assets of the Borrower or any Subsidiary for fair value not in the ordinary course of business; provided that with respect to such dispositions of Collateral under this clause, (1) at least 75% of the consideration therefor shall consist of cash, and (2) the Net Cash Proceeds of such disposition of Collateral are applied as provided in Section 4.05 of the Collateral Trust and Intercreditor Agreement. (c) The consideration received by the Borrower or the applicable Subsidiary Guarantor for any PCS Disposition or the disposition of the capital stock of Drugstore.com shall be for the fair market value of such disposition and consist solely of a combination of at least 75% cash and no more than 25% of publicly traded securities, in each case payable and deliverable at the closing of such disposition, unless, (i) in the case of a PCS Disposition, the Required Banks otherwise agree or (ii) in the case of a disposition of the capital stock of Drugstore.com, the "Required Banks" under the RCF Facility otherwise agree. Consideration in the form of forgiveness of intercompany obligations shall be disregarded for purposes of determinations of compliance with this Section 5.19(c). SECTION 5.20. Use of Proceeds. The proceeds of the Loans made under the Existing Agreement were used by the Borrower solely to repay commercial paper maturing on or prior to the date of the related borrowing thereunder or to extend and renew loans outstanding under the Existing Agreement, the proceeds of which loans were used solely to repay commercial paper (or to refund other 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. No such use of proceeds have 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, other than publicly traded securities issued to the Borrower in connection with the sale of the capital stock of PCS. The Borrower will ensure that no such use of proceeds violates Regulation T, U or X. SECTION 5.21. Restrictions on Asset Holdings by the Borrower. The Borrower will not at any time (i) make or hold any Investments other than investments in the capital stock of Drugstore.com and its Subsidiaries (including any distributions or other assets received in respect thereto), Investments received as consideration in connection with the PCS Disposition or a disposition of Drugstore.com, intercompany advances to Subsidiaries, and Investments permitted by clause (iii) below, (ii) acquire or hold any Stores, other capital assets, inventory or accounts receivable, other than any real estate which the Borrower holds only as lessor, and which is leased and operated by another Person, or (iii) acquire or hold cash, cash equivalents, Temporary Cash Investments or balances in bank accounts other than such amounts as are reasonably anticipated (at the time so acquired or held) to be utilized within five Business Days to pay costs, expenses and other obligations of the Borrower referred to in Section 5.24(b) of the Senior Credit Facility. SECTION 5.22. Restricted Payments. After the date hereof, neither the Borrower nor any Subsidiary will declare or make any Restricted Payment other than (a) payments of dividends to Subsidiary Guarantors, and (b) payments of cash dividends required to be made in respect of the capital stock listed on Schedule 5.22(b), and (c) payments of cash dividends to the Borrower to the extent necessary to enable the Borrower to make payments otherwise permitted by the Loan Documents; provided that no such Restricted Payments may be made by PCS or any Subsidiary of PCS to any Person other than PCS or a Subsidiary of PCS. SECTION 5.23. Business of Borrower and Subsidiaries. The Borrower will not, and will not cause or permit any of the Subsidiaries to, engage at any time in any business or business activity other than the business conducted on the Closing Date by it and business activities reasonably incidental thereto. Without limitation of the foregoing, the Borrower will not permit SPV to have any assets or liabilities or conduct any business other than as specifically contemplated by the Forward Commitment Agreement. SECTION 5.24. Transactions with Affiliates. The Borrower will not, and will not cause or permit any of the Subsidiaries to, directly or indirectly enter into or conduct any transactions or series of transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any Affiliate of the Borrower, other than the payment of transaction costs approved by the Administrative Agent before the Closing Date (an "AFFILIATE TRANSACTION"), other than (a) the payment of compensation to directors, officers, and employees of the Borrower and its Subsidiaries in the ordinary course of business; (b) payments in respect of Affiliate Transactions required to be made pursuant to agreements or arrangements in effect on the Closing Date and set forth in Schedule 5.24 hereto; (c) Affiliate Transactions involving the acquisition of inventory in the ordinary course of business, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Borrower or such Subsidiary as the case may be, and (C) no less favorable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Borrower, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000, the board of directors of the Borrower (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (C) of this paragraph; (d) the issuance of Exchange Notes by the Borrower to SPV as contemplated by the Forward Commitment Agreement; (e) Affiliate Transactions between or among the Borrower and/or one or more Subsidiary Guarantors; provided that any such transaction between PCS or a Subsidiary of PCS (a "PCS ENTITY"), on the one hand, and the Borrower or a Subsidiary Guarantor which is not a PCS Entity, on the other hand, shall be in the ordinary course of business; and (f) any other Affiliate Transaction, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Borrower or such Subsidiary, as the case may be, and (C) no less favorable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Borrower, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $25,000,000 in any 12-month period, the board of directors of the Borrower (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (i)(C) of this paragraph and (iii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000 in any 12-month period, the Borrower obtains a written opinion from an independent investment banking firm or appraiser of national prominence, as appropriate to the effect that such transaction is fair to the Borrower or such Subsidiary, as the case may be, from a financial point of view. SECTION 5.25. New Synthetic Leases. Neither the Borrower nor any Subsidiary will enter into any Synthetic Lease after the Closing Date if, after giving effect thereto, the aggregate amount financed under all Synthetic Leases entered into in any period of twelve consecutive calendar months commencing after the date hereof would exceed $35,000,000 unless such Synthetic Lease is otherwise permitted under Section 5.16(h), (i) or (j). SECTION 5.26. Corporate Separateness. The Borrower will, and will cause each Subsidiary to, take all necessary steps to maintain its identity as a separate legal entity from other Persons and to make it manifest to third parties that it is an entity with assets and liabilities distinct from those of each of other Person. SECTION 5.27. Limitation on Derivative Obligations. The Borrower will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any monetary liability under any Derivative Obligations; unless such Derivative Obligations are entered into for bona fide hedging purposes of the Borrower or its Subsidiary Guarantors (as determined in good faith by the board of directors or senior management of the Borrower) and correspond in terms of notional amount, duration, currencies and interest rates, as applicable, to Debt of the Borrower or its Subsidiary Guarantors incurred without violation of this Agreement or to business transactions of the Borrower or its Subsidiary Guarantors on customary terms entered into in the ordinary course of business, and do not exceed an amount equal to the aggregate principal amount of the Senior Obligations and the Second Priority Debt Obligations. ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within five days of the due date thereof any interest, fees or other amount payable hereunder; (b) the Borrower or any Subsidiary Guarantor shall fail to observe or perform any covenant contained in Sections 5.07, 5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17, 5.18, 5.19, 5.20, 5.21, 5.22, 5.23, 5.24, 5.25, 5.26 and 5.27; (c) the Borrower or any Subsidiary Guarantor 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) in the case of covenants set forth in Section 5.06, for 5 days, and in the case of any other such covenant, for 20 days after written notice thereof has been given to the Borrower by the Administrative Agent at the request of the Required Banks; (d) any representation, warranty, certification or statement made (or deemed made) by the Borrower or any Subsidiary Guarantor 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, including any obligation to reimburse letter of credit obligations or to post cash collateral in respect thereof, when due or within the applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Financial Obligations; (g) any event or condition shall occur (other than in connection with a violation of Section 5.17, 5.18 or 5.19 of the Senior Credit Facility) which 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; (h) the Borrower or any Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (i) an involuntary case or other proceeding shall be commenced against the Borrower or any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (j) 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; (k) judgments or orders, individually or in the aggregate, for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; (l) (i) any Lien created by any Second Priority Collateral Document shall at any time fail to constitute a valid and (to the extent required by such Second Priority Collateral Document) perfected Lien on all of the Second Priority Collateral purported to be subject thereto, securing the obligations purported to be secured thereby, with the priority required by the Second Priority Loan Documents; provided, however, such failure continues uncured for 30 days, or (ii) the Borrower or any Subsidiary shall so assert in writing, or any Second Priority Collateral Document shall become invalid or the Borrower or any Subsidiary shall so assert in writing; or (m) any Lien created by the PCS Pledge Agreement shall at any time fail to constitute a valid and (to the extent required by the PCS 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 (n) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) (other than Green Equity Investors III, L.P., and its Affiliates) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under said Act) of 20% or more of the outstanding shares of common stock of the Borrower; or, during any period of 12 consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; then, and in every such event, the Administrative Agent shall if requested by Banks holding more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Loans (together with accrued interest thereon) to be, and the Loans (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (h) or (i) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Banks, Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.02. Notice of Default. The 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 (or any successor Administrative Agent that is a Bank) 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 (or any such successor) 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 Collateral Documents. 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. (a) The Administrative Agent may (i) resign at any time by giving notice thereof to the Banks and the Borrower (ii) be removed at any time with or without cause by the Required Banks. Upon any such resignation or removal, 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 or removed Administrative Agent may (i) 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 $500,000,000 or (ii) by notice to the Banks, declare its resignation immediately effective, in which event the responsibilities of the Administrative Agent under the Loan Documents shall thereafter be discharged by the Required Banks collectively until such time as they shall have appointed a successor Administrative Agent in accordance with the foregoing provisions of this Section. 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 or removed Administrative Agent. The retiring or removed Administrative Agent shall be discharged from its duties and obligations under the Loan Documents upon the acceptance of appointment by a successor Administrative Agent, or if earlier, upon the giving of notice by the retiring or removed Administrative Agent pursuant to clause (ii) of the second preceding sentence. After any retiring or removed Administrative Agent's resignation or removal 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. (b) The parties hereto agree that effective July 31, 2000, (i) Morgan Guaranty Trust Company of New York shall resign as Administrative Agent and (ii) Citicorp USA, Inc. shall be appointed successor Administrative Agent, all without further action or consent by any party hereto. 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. SECTION 7.10. Steering Committee. The Administrative Agent may from time to time as it may deem appropriate consult with members of a Steering Committee with respect to proposed amendments or waivers under the Loan Documents, Defaults thereunder and exercise of rights and remedies in connection therewith. The Administrative Agent may designate the members of such Steering Committee from time to time in its discretion, subject to acceptance by any Bank so appointed. Any member of such Steering Committee may resign at any time. Membership on such Steering Committee shall not impose any duty or obligation whatsoever on any Bank, and the provisions of this Section shall not in any way alter or affect the other provisions of the Loan Documents dealing with requisite consents of or instructions from the Banks for actions on the part of 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 Adjusted 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 make Euro-Dollar Loans, or to continue or convert outstanding Loans as or into Euro-Dollar Loans, shall be suspended, and each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. 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 make Euro-Dollar Loans, or 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 reflected in an applicable Euro-Dollar Reserve Percentage), 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, its Note or its obligation to make Euro-Dollar Loans and the result of any of the foregoing is to increase the cost to such Bank (or its 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 (i)(x) an Internal Revenue Service form W-8BEN (or any successor form), in duplicate, 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 (y) an Internal Revenue Service form W-8ECI (or any successor form), in duplicate, certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States or (ii) solely if such Bank is claiming exemption from United States withholding tax under Section 871(h) or 881(c) of the Internal Revenue Code with respect to payments of "portfolio interest", an Internal Revenue Service form W-8BEN (or any successor form), and a certificate representing that such Bank is not a bank for purposes of Section 881(c) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Internal Revenue Code). 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, all Loans which would otherwise be made by such Bank as (or continued as or converted into) Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks). If such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks. ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, 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 facsimile number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or facsimile number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by facsimile, when such communication is transmitted to the facsimile number specified in this Section and confirmation of receipt 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, (ii) the reasonable fees and disbursements of E&Y Restructuring LLC, financial advisor to the Davis Polk & Wardwell, in connection with the engagement contemplated by Section 3.01(v), (iii) 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 (iv) all costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by the Administrative Agent and the Banks in enforcing any obligations of or in collecting any payments due from the Borrower or any Subsidiary Guarantor hereunder or under the other Loan Documents (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Second Priority Subsidiary Guarantee Agreement) or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. (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 (i) 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 or (ii) to tender a portion of its Credit Exposure in exchange for common stock of the Borrower and debt under the Exchange Debt Facility without being required to share any proportionately greater payment such Bank may receive in connection with the Equity Conversion. 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 this Section 9.05 or (v) change 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 the Loan Documents. (b) Any provision of any PCS Collateral Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the requisite parties specified therein. If any PCS Collateral Document requires the consent of the Administrative Agent for an amendment or waiver thereof but does not specify the requisite consent or instruction of the Banks therefor, the Administrative Agent shall consent to such amendment or waiver only with the consent of the Required Banks; provided that no such amendment or waiver shall, unless consented to by all Banks, (i) alter in a manner adverse to the Banks the priorities specified in the PCS Collateral Documents, (ii) effect or permit a release of (y) any of the PCS Collateral under the PCS Pledge Agreement or (z) all or substantially all of the PCS Collateral under the Second Priority Collateral Documents, collectively, or (iii) release all or substantially all Subsidiary Guarantors from their obligations under the Second Priority Subsidiary Guarantee Agreement. Notwithstanding the foregoing, Collateral shall be released from the Lien of any PCS Collateral Document from time to time as necessary to effect any sale of PCS 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 the applicable provisions of the Loan Documents and for the pledge of any non-cash proceeds thereof in accordance with the applicable provisions of the PCS Pledge Agreement or, to the extent required thereby, the other PCS Collateral Documents. If a Subsidiary Guarantor ceases to be a Subsidiary of the Borrower in a transaction permitted by the Loan Documents, or ceases to own any property that constitutes Second Priority Collateral, at the request of and at the expense of the Borrower, such Subsidiary Guarantor shall be released from the Second Priority Subsidiary Guarantee Agreement, the Second Priority Subsidiary Security Agreement and each other Loan Document to which it is a party. SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "PARTICIPANT") participating interests in 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 C 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 or delayed); 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 with a Credit Exposure 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. Collateral. Each of the Banks represents to the Administrative Agent and each of the other Banks that it in good faith is not relying upon any "MARGIN STOCK" (as defined in Regulation U) as collateral in the extension of the credit provided for in this Agreement. SECTION 9.08. 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 9.09. 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 9.10. 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. SECTION 9.11. Collateral Trust and Intercreditor Agreement. Each Bank hereby authorizes the Administrative Agent and the Second Priority Collateral Trustee to enter into the Collateral Trust and Intercreditor Agreement and the other PCS Collateral Documents on its behalf, and agrees that the Second Priority Collateral Trustee may enforce the rights and remedies of the Banks under each Second Priority Collateral Document to the extent provided therein. 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: /s/ Elliot S. Gerson ------------------------------------- Title: Senior Executive Vice President Address: 30 Hunter Lane Camp Hill, PA 17011 Attention: Chief Financial Officer Telephone No.: (717) 975-5750 Facsimile No.: (717) 975-3764 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Anna Marie Fallon ------------------------------------- Title: Vice President BANK OF AMERICA, N.A. By: /s/ Timothy H. Spanos ------------------------------------ Title: Managing Director CITIBANK, N.A. By: /s/ Gregory W. Frenzel ------------------------------------ Title: Vice President BANK ONE, NA (Main Office - Chicago) By: /s/ Dennis Saletta ------------------------------------ Title: First Vice President ABN AMRO BANK N.V. By: /s/ Neil J. Bivona ------------------------------------ Title: Vice President By: /s/ Steven C. Wimpenny ------------------------------------- Title: Group Senior Vice President FIRST UNION NATIONAL BANK By: /s/ Helen F. Wessling ------------------------------------- Title: Senior Vice President/Director WACHOVIA BANK, N.A. By: /s/ Henry H. Hagan ------------------------------------- Title: Senior Vice President BANK OF MONTREAL By: /s/ Geoffrey R. McConnell ------------------------------------- Title: Director THE BANK OF NOVA SCOTIA By: /s/ Brian S. Allen ------------------------------------- Title: Managing Director COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ Andrew P. Lusk ------------------------------------- Title: Assistant Treasurer By: /s/ Sean M. Harrigan ------------------------------------- Title: Senior Vice President FLEET NATIONAL BANK By: /s/ Thomas J. Bullard ------------------------------------- Title: Director KEYBANK NATIONAL ASSOCIATION By: /s/ Alan J. Ronan ------------------------------------- Title: Vice President MELLON BANK, N.A. By: /s/ Richard J. Schaich ------------------------------------- Title: Vice President U.S. BANK NATIONAL ASSOCIATION By: /s/ Kurt D. Egertson ------------------------------------- Title: Senior Vice President UNION BANK OF CALIFORNIA, N.A. By: /s/ Christiana Creekpaum ------------------------------------- Title: Vice President LEHMAN COMMERCIAL PAPER INC. By: /s/ Michele Swanson ------------------------------------- Title: Authorized Signatory AMSOUTH BANK By: /s/ Darlene E. Chandler ------------------------------------- Title: Vice President ARAB BANK, PLC GRAND CAYMAN By: /s/ Nofal S. Barbar ------------------------------------- Title: Executive Vice President & Regional Manager THE BANK OF NEW YORK By: /s/ Howard F. Bascom, Jr. ------------------------------------- Title: Vice President ALLFIRST BANK By: /s/ Theodore K. Oswald ------------------------------------- Title: Vice President HIBERNIA NATIONAL BANK By: /s/ Christopher Pitre ------------------------------------- Title: Vice President THE HUNTINGTON NATIONAL BANK By: /s/ David F. Isler ------------------------------------- Title: Senior Vice President NATIONAL CITY BANK OF PENNSYLVANIA By: /s/ William F. Nicholson ------------------------------------- Title: Vice President NORDDEUTSCHE LANDESBANK GIROZENTRALE By: /s/ Josef Haas ------------------------------------- Title: Vice President By: /s/ Stephen K. Hunter ------------------------------------- Title: Senior Vice President THE NORTHERN TRUST COMPANY By: /s/ David A. Gozdecki ------------------------------------- Title: Vice President THE SUMITOMO BANK, LIMITED By: /s/ C. Michael Garrido ------------------------------------- Title: Senior Vice President SUNTRUST BANK By: /s/ Janet R. Naifeh ------------------------------------- Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ M. O'Connor ------------------------------------- Title: Vice President FIRST TENNESSEE BANK NATIONAL ASSOCIATION By: /s/ Tim J. Miller ------------------------------------- Title: Vice President BANC OF AMERICA SECURITIES LLC as agent for BANK OF AMERICA, N.A. By: /s/ Francis J. Griffin ------------------------------------- Title: Principal CHASE SECURITIES INC. as Agent for THE CHASE MANHATTAN BANK By: /s/ John Abate ------------------------------------- Title: Managing Director SYNDICATED LOAN FUNDING TRUST By: Lehman Commercial Paper Inc. not in its individual capacity but solely as asset manager By: /s/ Michele Swanson ------------------------------------- Title: Authorized Signatory FARALLON CAPITAL PARTNERS, L.P. FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P. FARALLON CAPITAL INSTITUTIONAL PARTNERS II, L.P. FARALLON CAPITAL INSTITUTIONAL PARTNERS III, L.P. TINICUM PARTNERS, L.P. By: Farallon Partners, L.L.C., its General Partner By: /s/ William F. Mellin ------------------------------------- Title: Managing Member FARALLON CAPITAL OFFSHORE INVESTORS, INC. By: Farallon Capital Management, L.L.C., its Agent and Attorney-in-Fact By: /s/ William F. Mellin ------------------------------------- Title: Managing Member SALOMON BROTHERS HOLDING COMPANY, INC. By: /s/ Edward Sutherland ------------------------------------- Title: Managing Director SPECIAL SITUATIONS FUND ADVISORS, INC. as agent for THE CHASE MANHATTAN BANK By: /s/ Michael Cacouris ------------------------------------- Title: Managing Director MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By: /s/ Anna Marie Fallon ------------------------------------- Title: Vice President Address: Attention: Facsimile No.: SCHEDULE I OUTSTANDING LOANS
BANK OUTSTANDING LOANS - ----- ----------------- Morgan Guaranty Trust Company of New York $ 0.00 Bank of America, N.A. 73,000,000.00 Citibank, N.A. 73,000,000.00 Bank One, NA (Main Office - Chicago) 73,000,000.00 ABN AMRO Bank N.V. 61,000,000.00 Wachovia Bank, N.A. 61,000,000.00 Bank of Montreal 52,000,000.00 The Bank of Nova Scotia 52,000,000.00 Commerzbank AG, New York and Grand Cayman Branches 52,000,000.00 Fleet National Bank 52,000,000.00 KeyBank National Association 52,000,000.00 Mellon Bank, N.A. 52,000,000.00 U.S. Bank National Association 52,000,000.00 First Union National Bank 48,579,742.00 Syndicated Loan Funding Trust 34,000,000.00 Union Bank of California, N.A. 27,355,756.00 Banc of America Securities LLC as agent for Bank of America, N.A. 24,564,352.00 AmSouth Bank 22,000,000.00 Arab Bank, PLC Grand Cayman 22,000,000.00 The Bank of New York 22,000,000.00 Allfirst Bank 22,000,000.00 Hibernia National Bank 22,000,000.00 The Huntington National Bank 22,000,000.00 National City Bank of Pennsylvania 22,000,000.00 Norddeutsche Landesbank Girozentrale 22,000,000.00 The Northern Trust Company 22,000,000.00 The Sumitomo Bank, Limited 22,000,000.00 SunTrust Bank 22,000,000.00 Bank of Tokyo-Mitsubishi Trust Company 12,000,000.00 First Tennessee Bank National Association 9,000,000.00 Salomon Brothers Holding Company, Inc. 8,932,491.00 Farallon Capital Partners, L.P. 4,722,608.15 Farallon Capital Institutional Partners, L.P. 3,972,837.16 Farallon Capital Institutional Partners II, L.P. 1,279,356.07 Farallon Capital Institutional Partners III, L.P. 1,211,022.51 Farallon Capital Offshore Investors, Inc. 7,548,960.05 Tinicum Partners, L.P. 246,760.06 Lehman Commercial Paper Inc. 5,582,808.00 Chase Securities Inc. as agent for The Chase Manhattan Bank 3,907,965.00 Special Situations Fund Advisors, Inc. as agent for The Chase 2,233,123.00 Manhattan Bank TOTAL OUTSTANDING LOANS $ 1,142,137,782.00
EXHIBIT A NOTE New York, New York June 12, 2000 For value received, Rite Aid Corporation, a Delaware corporation (the "BORROWER"), promises to pay to the order of _____________ (the "BANK"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the last day of the Interest Period relating to such Loan. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the Types thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the PCS Facility dated as of June 12, 2000 among the Borrower, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent (as the same may be amended from time to time, the "CREDIT AGREEMENT"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. Payment of principal and interest on this Note is secured by security interests in certain collateral pursuant to the PCS Collateral Documents. RITE AID CORPORATION By: ------------------------------------- Name: Title: Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL - ------------------------------------------------------------------------------ Amount of Amount of Type of Principal Notation Date Loan Loan Repaid Made By - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ EXHIBIT C ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _____, 20__ among [ASSIGNOR] (the "ASSIGNOR"), [ASSIGNEE] (the "ASSIGNEE"), [RITE AID CORPORATION (the "BORROWER")] and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "AGREEMENT") relates to the PCS Facility dated as of June 12, 2000 among [Rite Aid Corporation (the "BORROWER")] the Borrower, the Assignor and the other Banks parties thereto, as Banks, and the Administrative Agent (as amended from time to time, the "CREDIT AGREEMENT"); WHEREAS, Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $_______ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its outstanding Loans thereunder in an amount equal to $___________ (the "ASSIGNED AMOUNT") and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, the Borrower and the Administrative Agent and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Credit Exposure in an amount equal to the Assigned Amount, and (ii) the Credit Exposure of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds an amount equal to $_______.1 Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. [SECTION 4. Consent of [the Borrower and] the Administrative Agent. This Agreement is conditioned upon the consent of [the Borrower and] the Administrative Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by [the Borrower and] the Administrative Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] SECTION 5. Non-reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. 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. - -------- 1 Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By ---------------------------------- Title: [ASSIGNEE] By ---------------------------------- Title: [RITE AID CORPORATION By ---------------------------------- Title:] MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By ---------------------------------- Title: EX-10 12 0012.txt EXHIBIT 10.8 - EXCHANGE DEBT FACILITY Exhibit 10.8 CONFORMED COPY EXCHANGE DEBT FACILITY dated as of June 12, 2000 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 CONTENTS1 --------------- PAGE ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions..............................................2 SECTION 1.02. Accounting Terms and Determinations.....................18 SECTION 1.03. Types of Loans..........................................18 SECTION 1.04. Other Definitional Provisions...........................18 ARTICLE 2 THE CREDITS SECTION 2.01. Outstanding Loans.......................................19 SECTION 2.02. Notes...................................................19 SECTION 2.03. Maturity of Loans.......................................20 SECTION 2.04. Interest Rates..........................................20 SECTION 2.05. Method of Electing Interest Rates.......................21 SECTION 2.06. Participation Fees......................................23 SECTION 2.07. Reduction Events; Mandatory Prepayments.................23 SECTION 2.08. Optional Prepayments....................................24 SECTION 2.09. General Provisions as to Payments.......................24 SECTION 2.10. Funding Losses..........................................25 SECTION 2.11. Computation of Interest.................................25 SECTION 2.12. Registry................................................26 ARTICLE 3 CONDITIONS SECTION 3.01. Closing Date............................................26 ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01. Corporate Existence and Power...........................30 SECTION 4.02. Corporate and Governmental Authorization; No Contravention........................................30 SECTION 4.03. Binding Effect..........................................31 SECTION 4.04. Financial and Other Information.........................31 SECTION 4.05. Accuracy of Information.................................32 SECTION 4.06. Litigation..............................................32 SECTION 4.07. Compliance with ERISA...................................33 SECTION 4.08. Taxes...................................................33 SECTION 4.09. Subsidiaries............................................33 SECTION 4.10. Environmental Matters...................................34 SECTION 4.11. Year 2000 Compliance....................................34 SECTION 4.12. Other Loan Documents....................................34 SECTION 4.13. Insurance...............................................34 SECTION 4.14. Solvency................................................35 SECTION 4.15. Title to Properties.....................................35 SECTION 4.16. Investment Company Act; Public Utility Holding Company Act.....................................36 SECTION 4.17. Labor Matters...........................................36 ARTICLE 5 COVENANTS SECTION 5.01. Information.............................................36 SECTION 5.02. Payment of Obligations..................................40 SECTION 5.03. Maintenance of Property; Insurance......................40 SECTION 5.04. Conduct of Business and Maintenance of Existence...............................................42 SECTION 5.05. Compliance with Laws....................................43 SECTION 5.06. Inspection of Property, Books and Records...............43 SECTION 5.07. Restriction on Other Agreements, Payment Limitations, Debt Prepayments...........................43 SECTION 5.08. Further Assurances......................................44 SECTION 5.09. Subsidiaries............................................45 SECTION 5.10. Restriction on Sale and Leaseback Transactions............................................45 SECTION 5.11. Restriction on Liens....................................45 SECTION 5.12. Capital Expenditures....................................47 SECTION 5.13. Minimum EBITDA..........................................48 SECTION 5.14. Minimum Interest Coverage Ratio.........................49 SECTION 5.15. Minimum Fixed Charge Coverage Ratio.....................49 SECTION 5.16. Restriction on Debt.....................................50 SECTION 5.17. Limitation on Investments and Acquisitions..............52 SECTION 5.19. Dispositions of Assets..................................54 SECTION 5.20. Use of Proceeds.........................................55 SECTION 5.21. Restrictions on Asset Holdings by the Borrower..........55 SECTION 5.22. Restricted Payments.....................................56 SECTION 5.23. Business of Borrower and Subsidiaries...................56 SECTION 5.24. Transactions with Affiliates............................56 SECTION 5.25. New Synthetic Leases....................................58 SECTION 5.26. Corporate Separateness..................................58 SECTION 5.27. Limitation on Derivative Obligations....................58 ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default.......................................58 SECTION 6.02. Notice of Default.......................................61 ARTICLE 7 THE ADMINISTRATIVE AGENT SECTION 7.01. Appointment and Authorization...........................61 SECTION 7.02. Administrative Agent and Affiliates.....................61 SECTION 7.03. Action by Administrative Agent..........................62 SECTION 7.04. Consultation with Experts...............................62 SECTION 7.05. Liability of Administrative Agent.......................62 SECTION 7.06. Indemnification.........................................62 SECTION 7.07. Credit Decision.........................................63 SECTION 7.08. Successor Administrative Agent..........................63 SECTION 7.09. Administrative Agent's Fees.............................64 SECTION 7.10. Steering Committee......................................64 ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair....................................64 SECTION 8.02. Illegality..............................................65 SECTION 8.03. Increased Cost and Reduced Return.......................65 SECTION 8.04. Taxes...................................................67 SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans.......................................68 ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices.................................................69 SECTION 9.02. No Waivers..............................................69 SECTION 9.03. Expenses; Indemnification...............................70 SECTION 9.04. Sharing of Set-Offs.....................................70 SECTION 9.05. Amendments and Waivers..................................71 SECTION 9.06. Successors and Assigns..................................72 SECTION 9.07. Collateral..............................................74 SECTION 9.08. Governing Law; Submission to Jurisdiction...............74 SECTION 9.09. Counterparts............................................74 SECTION 9.10. WAIVER OF JURY TRIAL....................................74 SECTION 9.11. Collateral Trust and Intercreditor Agreement............74 Schedule I - Outstanding Loans Schedule 1.1(a) - Existing Litigation Schedule 1.1(b) - Mortgaged Properties Schedule 1.10(c) - Subsidiary Guarantors Schedule 4.13 - Insurance Schedule 4.15(b)(i) - Leases on Mortgaged Properties Schedule 4.15(b)(ii) - Permitted Liens on Mortgaged Properties Schedule 4.15(c) - Leased Warehouses and Distribution Centers Schedule 5.10 - Permitted Sale and Leaseback Transactions Schedule 5.11(h) - Permitted Liens Schedule 5.16(f) - Permitted Debt Schedule 5.22(b) - Permitted Dividends Payable on Capital Stock Schedule 5.24 - Permitted Affiliate Transactions Definitions Annex Annex 3 - Description of the Transactions Exhibit A - Note Exhibit B-1 - Opinion of Special Counsel for the Borrower Exhibit B-2 - Opinion of General Counsel for the Borrower Exhibit C - Assignment and Assumption Agreement Exhibit D - Form of Senior Subsidiary Guarantee Agreement Exhibit E - Form of Senior Subsidiary Security Agreement Exhibit F - Form of Senior Indemnity, Subrogation and Contribution Agreement Exhibit G - Form of Senior Mortgage Exhibit H - Form of Second Priority Subsidiary Guarantee Agreement Exhibit I - Form of Second Priority Subsidiary Security Agreement Exhibit J - Form of Second Priority Indemnity, Subrogation and Contribution Agreement Exhibit K - Form of Second Priority Mortgage Exhibit L - Form of PCS Pledge Agreement Exhibit M - Form of Drugstore.com Pledge Agreement Exhibit N - Form of First Priority Subsidiary Security Agreement EXCHANGE DEBT FACILITY AGREEMENT dated as of June 12, 2000 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 are defined in Section 1.01 below), certain of the Banks listed on the signature pages hereto and Morgan Guaranty Trust Company of New York, as agent for such Banks, are parties to (i) an Amended and Restated Credit Agreement dated as of October 25, 1999 (as heretofore amended, the "EXISTING RCF FACILITY"), (ii) a Term Loan Agreement dated as of October 25, 1999 (as heretofore amended, the "EXISTING PCS FACILITY" and (iii) the Term Loan Agreement dated as of October 27, 1999 (the "EXISTING MGT TERM LOAN AGREEMENT" and, together with the Existing RCF Facility and the Existing PCS Facility, the "EXISTING CREDIT AGREEMENTS"), in each case, pursuant to which the banks party thereto have loans outstanding. B. Each Bank has agreed to convert a portion of its loans outstanding under the Existing Credit Agreements into common stock of the Borrower pursuant to an Equity Conversion Letter dated as of June 12, 2000 (each such letter, an "EQUITY CONVERSION LETTER") between such Bank and the Borrower, in the amounts set forth on Schedule I hereto. C. Whereas, pursuant to the Equity Conversion Letters, a principal amount of loans equal to (or, in the case of Morgan, the remaining portion of its loans outstanding under the Existing Credit Agreements) the principal amount of loans converted to common stock of the Borrower pursuant to such Bank's Equity Conversion Letter shall be exchanged for loans outstanding hereunder in the principal amounts set forth on Schedule I hereto. D. The Borrower proposes to enter into the Senior Credit Facility, pursuant to which up to an additional $1,000,000,000 of financing will be available to it and its Subsidiaries. The Senior Credit Facility will be guaranteed by the Subsidiaries of the Borrower pursuant to the Senior Subsidiary Guarantee Agreement, and such Senior Subsidiary Guarantee Agreement will be secured by Liens created pursuant to the Senior Collateral Documents. E. The obligations of the Borrower under this Agreement (i) together with the other Second Priority Debt Obligations, will be guaranteed by the Subsidiaries of the Borrower pursuant to the Second Priority Subsidiary Guarantee Agreement, and such Second Priority Subsidiary Guarantee Agreement will be secured by a second priority lien on the assets securing the Senior Subsidiary Guarantee Agreement and (ii) will be secured by a first priority lien on the prescription files of Subsidiaries of the Borrower and the proceeds thereof. F. The Related Exchange Debt Obligations will be secured by liens on the PCS common stock or the drugstore.com common stock, as the case may be, with the same priorities applicable to the liens on such capital stock securing the obligations of the Borrower in respect of the Debt under the Existing Credit Agreements for which such Related Exchange Debt was exchanged. NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. Terms defined in the Definitions Annex and not otherwise defined in this Section 1.01 have the respective meanings specified therein. The following terms, as used herein, have the following meanings: "ADJUSTED LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.04(b). "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. "ADJUSTED WORKING CAPITAL" means, for any date, current assets (other than cash and cash equivalents) less current liabilities (other than Debt permitted hereunder). "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank. "AFFILIATE TRANSACTION" is defined in Section 5.24. "AGREEMENT" means this Exchange Debt Facility dated as of June 12, 2000 and as the same may be amended from time to time. "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. "APPLICABLE MARGIN" means the sum of (i) with respect to Base Rate Loans, 2.25% and, with respect to Euro-Dollar Loans, 3.25%, plus (ii) at any date on or after November 1, 2000, 0.50% unless the Reduction Condition has been met on or prior to such date plus (iii) (A) for purposes of all calculations hereunder for any date on which an Event of Default shall have occurred and be continuing, but only if the Required Banks shall have so elected by notice to the Borrower through the Administrative Agent, or (B) for purposes of calculating interest on overdue amounts hereunder for any date on which the election contemplated by clause (A) is not in effect, 2.00%. "ASSIGNEE" has the meaning set forth in Section 9.06(c). "BANK" means each Person listed on the signature pages hereof under the heading "BANKS", 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 a Notice of Interest Rate Election, the first or the last sentence of Section 2.05(a) or Article 8. "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. "BUSINESS ACQUISITION" means (i) an Investment by the Borrower or any of its Subsidiaries in any other Person (including an Investment by way of acquisition of securities of any other Person) pursuant to which such Person shall become a Subsidiary or shall be merged into or consolidated with the Borrower or any of its Subsidiaries or (ii) an acquisition by the Borrower or any of its Subsidiaries of the property and assets of any Person (other than the Borrower or any of its Subsidiaries) that constitute substantially all the assets of such Person or any division or other business unit of such Person; provided, that the acquisition of prescription files, Stores and Persons substantially all of whose assets consist of fewer than ten Stores, in each case, in the ordinary course of business and not inconsistent with the Borrower's business plan delivered pursuant to Section 3.01(e), shall not be a Business Acquisition. "CAPITAL LEASE" means any lease of property which, in accordance with generally accepted accounting principles, should be capitalized on the lessee's balance sheet. "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 for the replacement or restoration of assets to the extent financed by Casualty/Condemnation Proceeds relating to the asset or assets being replaced or restored. "CONSOLIDATED DEBT" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "CONSOLIDATED EBITDA" means, for any period (without duplication), Consolidated Net Income for such period, plus (a) to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) consolidated interest expenses, whether cash or non-cash, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments which reduced such Consolidated Net Income, (v) store closing expenses and (vi) any other nonrecurring charge to the extent such nonrecurring charge does not involve any cash expenditure during such period, (vii) all fees, costs, charges and expenses in connection with the Transactions, (viii) all fees, costs, charges and expenses in connection with the restatement of the consolidated financial statements of the Borrower and its Consolidated Subsidiaries for periods before February 26, 2000 and litigation expenses (exclusive of damages or amounts paid in settlement of claims) incurred in connection with litigation, investigation (including internal review) or other proceedings relating to such restatement, (ix) any advisory or other fees payable by the Borrower pursuant to the one-year financial services advisory contract described in the Borrower's quarterly report on Form 10-Q for the fiscal quarter ended as of August 28, 1999, (x) non-cash compensation expenses related to stock option and restricted stock employee benefit plans, and (xi) the non-cash interest component, as adjusted from time to time, in respect of reserves, 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 and added back to Consolidated Net Income pursuant to clause (a) above in calculating Consolidated EBITDA in any prior period and (ii) LIFO Adjustments which increased such Consolidated Net Income. "CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of (i) Consolidated EBITDA plus Consolidated Rent to (ii) Consolidated Interest Charges plus Consolidated Rent, in each case for such period. "CONSOLIDATED INTEREST CHARGES" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Borrower and its Consolidated Subsidiaries, solely to the extent paid or payable in cash, during such period. "CONSOLIDATED INTEREST COVERAGE RATIO" means, with respect to any period, the ratio of Consolidated EBITDA for such period to Consolidated Interest Charges for such period. "CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of the Borrower and its Consolidated Subsidiaries (exclusive of (a) extraordinary items of gain or loss, (b) any gain or loss in connection with any sale of assets other than sales of inventory in the ordinary course of business, but in the case of loss only to the extent that such loss does not involve any cash expenditure during such period and (c) the Borrower's share of the net income (or loss) of Drugstore.com), determined on a consolidated basis for such period. "CONSOLIDATED NET WORTH" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries determined as of such date. Consolidated Net Worth includes the Borrower's 8% Convertible Pay-In-Kind Preferred Stock. "CONSOLIDATED RENT" means, for any period, the consolidated rental expense of the Borrower and its Consolidated Subsidiaries for such period, and including in any event rental costs of closed stores for such period whether or not reflected as an expense in the determination of Consolidated Net Income for such period and including base or basic rent payments under Synthetic Leases. "CONSOLIDATED SUBSIDIARY" means, with respect to any Person, at any date any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "CREDIT EXPOSURE" means, with respect to any Bank, the aggregate outstanding principal amount of such Bank's Loans. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DEFINITIONS ANNEX" means the Definitions Annex annexed hereto and by this reference incorporated herein. "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. "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. "EQUITY CONVERSION" means the conversion by the Banks on the Closing Date of loans outstanding under the Existing Credit Agreements to Common Stock of the Borrower pursuant to the Equity Conversion Letters. "EQUITY CONVERSION LETTERS" has the meaning set forth in the recitals hereto. "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 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 2.04(b). "EXCHANGE DEBT COLLATERAL" means collateral subject to the Collateral Documents. "EXCHANGE DEBT COLLATERAL DOCUMENTS" means the First Priority Subsidiary Security Agreement, the Second Priority Collateral Documents, the Pledge Agreements and any additional pledge agreements required to be delivered pursuant to the Loan Documents and any other instruments or agreements executed pursuant to the foregoing. "EVENT OF DEFAULT" has the meaning set forth in Section 6.01. "EXCESS CASH FLOW" means, for any period, the sum (without duplication) of Consolidated EBITDA for such period, plus (a) to the extent not included in Consolidated Net Income in calculating Consolidated EBITDA, the sum of (1) any Casualty/Condemnation Proceeds previously received by the Borrower or any Subsidiary in respect of which the time for reinvestment thereof (in accordance with the proviso to the definition of Casualty/Condemnation in respect of Proceeds) has elapsed during such period without such reinvestment having been effected, and (2) any Net Cash Proceeds received during such period by the Borrower or any Subsidiary in respect of Asset Sales; plus (b) decreases in Adjusted Working Capital for such period (other than any portion of such decrease resulting solely from the reclassification of assets or liabilities as short-term or long-term); plus (c) refunds of Taxes paid in prior periods; and minus (d) Taxes to the extent paid during such period in cash; minus (e) Consolidated Interest Charges to the extent paid during such period in cash; minus (f) increases in Adjusted Working Capital for such period (other than any portion of such increase resulting solely from the reclassification of assets or liabilities as short-term or long-term); minus (g) to the extent paid in cash during such period, costs and expenses referred to in clauses (v), (vii), (viii) and (ix) of the definition of "CONSOLIDATED EBITDA" which were added back to Consolidated Net Income to calculate Consolidated EBITDA for such period; minus (h) Consolidated Capital Expenditures for such period (except to the extent attributable to the incurrence of Debt under Capital Leases, Attributable Debt under Synthetic Leases or otherwise financed by the incurrence of Debt and except to the extent made with Casualty/Condemnation Proceeds or Net Cash Proceeds from Basket Asset Sales; minus (i) cash consideration paid by the Borrower or its Subsidiaries for permitted Business Acquisitions or other capital acquisitions (except to the extent financed by the incurrence of Debt and except to the extent made with Casualty/Condemnation Proceeds or Net Cash Proceeds from Basket Asset Sales; minus (j) cash expenditures made during such period in respect of long-term liabilities (other than Debt) or long-term assets to the extent such expenditures were not deducted in determining Consolidated Net Income for such period; minus (k) the aggregate principal amount of Debt (including Attributable Debt in respect of Synthetic Leases) paid or prepaid in cash by the Borrower or its Subsidiaries during such period (or immediately after such period in the case of mandatory prepayment of Debt required to be made with Net Cash Proceeds from Asset Sales received during such period), in each case to the extent permitted or required by this Agreement, but excluding (i) Debt in respect of Revolving Credit Loans and Letters of Credit (as defined in the Senior Credit Facility) that can be reborrowed or otherwise incurred again, (ii) repayments of Debt made with Net Cash Proceeds from Basket Asset Sales, and (iii) repayments or prepayments of Debt financed by incurring other Debt. "EXISTING LITIGATION" means the bondholders' class actions and shareholders' class actions pending as of April 10, 2000 in the Eastern District of Pennsylvania, identified in Schedule 1.01(a) and the related pending investigation by the SEC. "EXISTING MGT TERM LOAN AGREEMENT" has the meaning set forth in the recitals hereto. "EXISTING PCS FACILITY" has the meaning set forth in the recitals hereto. "EXISTING RCF FACILITY" has the meaning set forth in the recitals hereto. "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. "FINANCIAL OFFICER" of any person means the chief financial officer, principal accounting officer, treasurer or senior vice president finance of such person. "FIRST PRIORITY COLLATERAL DOCUMENTS" means the First Priority Subsidiary Security Agreement and each of the security agreements and other instruments and documents delivered pursuant to any of the foregoing for purposes of providing collateral security or credit support for any of the Exchange Debt Obligations, but shall not include the Second Priority Collateral Documents. "FIRST PRIORITY SUBSIDIARY SECURITY AGREEMENT" means the First Priority Subsidiary Security Agreement dated as of June 12, 2000, made by the Subsidiaries party thereto in favor of Morgan Guaranty Trust Company of New York, as first priority collateral agent for the benefit of the Banks. "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. "GOVERNMENTAL AUTHORITY" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "HAZARDOUS MATERIALS" means all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBS") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "INDEMNITEE" has the meaning set forth in Section 9.03(b). "INITIAL FINANCIAL STATEMENTS" means the consolidated financial statements of the Borrower and its Consolidated Subsidiaries for the fiscal year ended February 26, 2000, and for the fiscal quarter ended May 27, 2000. "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. "INTEREST RATE AGREEMENT" means, for any person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement designed to protect against fluctuations in interest rates. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "INVESTMENT" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. Any repurchase by the Borrower of its own capital stock shall not constitute an Investment for purposes of this Agreement. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of such transfer or exchange. "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 Euro-Dollar Loan or a Base Rate Loan and "LOANS" means Euro-Dollar Loans or Base Rate Loans or any combination of the foregoing. "LOAN DOCUMENTS" means this Agreement, the Notes and the Exchange Debt Collateral Documents. "LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.04(b). "MATERIAL ADVERSE EFFECT" means (i) any material adverse effect on the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole, (ii) any material impairment of the legality, validity and enforceability of the Loan Documents (including without limitation, the validity, enforceability or priority of security interests to be granted), or the rights and remedies of the Second Priority Debt Parties or (iii) any material impairment of the Borrower's or the Subsidiary Guarantors' ability to perform its or their obligations under the Loan Documents. "MATERIAL FINANCIAL OBLIGATIONS" means (a) the Senior Obligations, (b) the Second Priority Debt Obligations (other than Debt hereunder), and (c) (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 August 15, 2002. "MORGAN" means Morgan Guaranty Trust Company of New York or its Affiliate, J.P. Morgan Ventures Corporation or, if the context so requires, both of the foregoing. "MORTGAGED PROPERTIES" means the owned real properties of the Subsidiary Guarantors specified on Schedule 1.01(b), together with real properties that are mortgaged pursuant to Section 5.08. Each Mortgaged Property shall include any owned fixtures used in connection with the operation of such Mortgaged Property. "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "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 2.05. "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 EBITDA" means, for any period, Consolidated EBITDA for such period less Retail EBITDA for such period. "PERFECTION CERTIFICATE" means the Perfection Certificate substantially in the form of Schedule 5 to the Second Priority Subsidiary Security Agreement. "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. "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. "QUALIFIED PREFERRED STOCK" means preferred stock of the Borrower that requires no cash payment before the date that is six months after the Maturity Date. The "REDUCTION CONDITION" shall be satisfied at such time as the aggregate amount outstanding under the Existing Facilities is less than or equal to the sum of (i) the aggregate amount outstanding under the Existing Facilities on the Closing Date minus (ii) $500,000,000. "REFERENCE BANKS" means the principal London offices of The Chase Manhattan Bank, 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. "RELEASE" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. "REMEDIAL ACTION" means (a) "REMEDIAL ACTION" as such term is defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, clause (i) or (ii). "REQUIRED BANKS" means at any time at least two Banks (not affiliated with one another) having more than 50% of the aggregate amount of the Credit Exposures. "RESTRICTED PAYMENT" means (a) any dividend or other distribution on any shares of the Borrower's or any Subsidiary's capital stock (except dividends payable solely in shares of the Borrower's capital stock); or (b) any payment on account of the purchase, redemption, retirement or acquisition of (i) any shares of the Borrower's or any Subsidiary's capital stock or (ii) any option, warrant or other right to acquire shares of the Borrower's or any Subsidiary's capital stock (other than such payment in connection with employee benefit plans in the ordinary course of business). "RETAIL CAPITAL EXPENDITURES" means, for any period, Consolidated Capital Expenditures for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Borrower. "RETAIL EBITDA" means, for any period, Consolidated EBITDA for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Borrower. "RETAIL FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of (i) Retail EBITDA plus Retail Rent to (ii) Retail Interest Charges plus Retail Rent, in each case for such period. "RETAIL INTEREST CHARGES" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Borrower and its Consolidated Subsidiaries, solely to the extent paid or payable in cash, during such period; provided, however, that for such period, such interest charges relating to the PCS Facility for such period will be computed as though the aggregate principal amount on which such interest charges are calculated at all times during such period were the lesser of (a) $300,000,000 and (b) the actual principal amount of the PCS Facility from time to time after giving effect to any repayment of the PCS Facility after the consummation of a PCS Disposition. "RETAIL INTEREST COVERAGE RATIO" means, with respect to any period, the ratio of Retail EBITDA for such period to Retail Interest Charges for such period. "RETAIL RENT" means, for any period, Consolidated Rent for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Borrower. "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. "STORE" means any retail store (which may include any real property, fixtures, equipment, inventory and script files related thereto) operated, or to be operated, by any Subsidiary Guarantor. "SUBSIDIARY" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "SUBSIDIARY GRANTOR" means, initially, each Subsidiary listed on Schedule 1.01(d), and each other Subsidiary that is or becomes a party to the First Priority Subsidiary Security Agreement. "SUBSIDIARY GUARANTOR" means, initially, each Subsidiary listed on Schedule 1.01(c), and each other Subsidiary that is or becomes a party to a Second Priority Subsidiary Guarantee Agreement. "SUBSIDIARY OBLIGOR" means a Subsidiary Guarantor or a Subsidiary Grantor, and "SUBSIDIARY OBLIGORS" means any combination of the foregoing. "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. "TRANSACTIONS" is defined in Annex 3. "TRANSACTION COSTS" is defined in Annex 3. "TRANSACTION DOCUMENTS" means the documents (other than the Second Priority Debt Documents) evidencing the Transactions. "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 (through Wholly-Owned Consolidated Subsidiaries) owned by the Borrower. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied (effective after delivery of the Initial Financial Statements) 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. Types of Loans. Loans hereunder are distinguished by "TYPE". The "TYPE" of a Loan refers to the determination whether such Loan is a Euro-Dollar Loan or a Base Rate Loan. SECTION 1.04. 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 to the other Second Priority Debt Documents, the Indentures, the Senior Loan Documents and the other Transaction Documents after the Closing Date shall be effective for purposes of references thereto in this Agreement and the other Second Priority Debt Documents only if such amendments are permitted hereunder and under the Collateral Trust and Intercreditor Agreement or are consented to in writing for such purpose by the Required Banks (or such other percentage of the Banks as may be specified hereunder). References to any Person include the successors and assigns of such Person. References "FROM" or "THROUGH" any date mean, unless otherwise specified, "FROM AND INCLUDING" or "THROUGH AND INCLUDING", respectively. ARTICLE 2 THE CREDITS SECTION 2.01. Outstanding Loans. On the Closing Date: (a) each Bank is converting into shares of common stock of the Borrower loans outstanding under one or more of the Existing Credit Agreements as set forth in Schedule I and (b) automatically and without any further action or consent by any Person, such Bank's loans under each such Existing Credit Agreement shall be further reduced by a principal amount equal to the amount set forth on Schedule I with respect to such Existing Credit Agreement and shall become Loans hereunder, with an Interest Period and Type as specified in Section 2.05(a); provided that the principal amount of Morgan's Loans hereunder (and the corresponding reduction of the loans existing under such facilities) shall be equal to the aggregate principal amount of Morgan's loans outstanding under such Existing Credit Agreements immediately after giving effect to the Equity Conversion. The Borrower shall reimburse each Bank for any loss or expense incurred by such Bank by reason of the foregoing in accordance with Section 2.12 of the Existing PCS Facility, Section 2.13 of the Existing RCF Facility or Section 2.09 of the Existing MGT Term Loan Agreement, as the case may be. 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(b), 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 Applicable 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 the Applicable Margin plus the Base Rate for such day. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin plus the applicable Adjusted 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 "ADJUSTED LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. 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. "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). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (c) All amounts payable by the Borrower hereunder or under any other Loan Document not paid when due 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 the Applicable Margin for overdue Base Rate Loans for such day plus the Base Rate 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 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) Each Loan shall initially be a Base Rate Loan. The Borrower may from time to time after the Closing Date 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 2.10 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 $10,000,000 (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 $10,000,000 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. Participation Fees. On the Closing Date, the Borrower shall pay to the Administrative Agent for the account of each Bank a participation fee in an amount equal to the sum of (i) 0.50% of the amount of such Bank's Credit Exposure at such date and (ii) the principal amount of loans under the Existing Facilities converted by such Bank to Common Stock of the Borrower pursuant to the Equity Conversion Letters. SECTION 2.07. 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, the Borrower shall apply such Net Cash Proceeds in accordance with Section 4.05 of the Collateral Trust and Intercreditor Agreement. (b) Except as provided in Section 4.05(a)(i) of the Collateral Trust and Intercreditor Agreement, Net Cash Proceeds applied to Related Exchange Debt in respect of the Existing RCF Facility pursuant to this Section 2.07 and Section 4.05 of the Collateral Trust and Intercreditor Agreement shall be applied ratably FIRST to Related Exchange Debt in respect of "Tranche B Loans" under the Existing RCF Facility, until such Related Exchange Debt shall have been prepaid in full, and then SECOND ratably to Related Exchange Debt in respect of "Tranche A Loans" under the Existing RCF Facility. (c) Not later than the earlier of (i) 120 days after the end of each fiscal year of the Borrower, beginning with the fiscal year ending on or about March 3, 2001, and (ii) the date on which the financial statements for such fiscal year are delivered pursuant to Section 5.01(a), the Borrower shall apply an amount equal to 50% of Excess Cash Flow for (i) in the case of the fiscal year ending on March 3, 2001, the three fiscal quarters then most recently ended and (ii) in the case of the fiscal year ending on March 2, 2002, such fiscal year, ratably to (x) reduce the aggregate Revolving Credit Commitments and Term Exposure (each as defined in the Senior Credit Facility) of all the Senior Bank Parties to the extent of the Required Senior Prepayment Amount and in accordance with the terms of Section 2.12 thereof and (y) prepay all loans outstanding under the Existing Facilities. (d) Upon receipt from the Borrower of a notice pursuant to Section 4.05(a) of the Collateral Trust and Intercreditor Agreement, the Administrative Agent will promptly notify each Bank of the contents thereof, and of the date of any related prepayment 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 Group or Groups of outstanding Euro-Dollar Loans as the Borrower may elect in such notice, or failing such election as the Administrative Agent may determine in its discretion. SECTION 2.08. Optional Prepayments. (a) Subject in the case of any Euro-Dollar Loans to Section 2.10, the Borrower may (i) upon at least one Domestic Business Day's notice to the Administrative Agent, prepay any Base Rate Loans or (ii) upon at least three Euro-Business Days' notice to the Administrative Agent, prepay any Euro-Dollar Loans, 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 Banks. (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 2.09. 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 2.10. 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 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), 2.07(b) or 2.08(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 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 2.11. 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 and fees 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 2.12. Registry. The Administrative Agent shall maintain a register (the "REGISTER") on which it will record the name of each Bank, each Loan made by such Bank and each repayment of any Loan made by such Bank. With respect to any Bank, the assignment or other transfer of the rights to the principal of, and interest on, any Loan made and Note issued pursuant to this Agreement shall not be effective until such assignment or other transfer is recorded on the Register and otherwise complies with Section 9.06(c). The registration of assignment or other transfer of all or part of any Loans and Notes for a Bank shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement referred to in Section 9.06(c). The Register shall be available at the offices where kept by the Administrative Agent for inspection by the Borrower and any Bank at any reasonable time upon reasonable prior notice to the Administrative Agent. Each Bank shall record on its internal records (including computerized systems) the foregoing information as to its own Loans. Failure to make any such recordation, or any error in such recordation, shall not affect the obligations of any Obligor under the Loan Documents. ARTICLE 3 CONDITIONS SECTION 3.01. Closing Date. 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 Agent of counterparts hereof signed by each of the Borrower and the Banks (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 Closing Date complying with the provisions of Section 2.02; (c) receipt by the Administrative Agent of duly executed counterparts of (i) amendments to each of the Pledge Agreements and (ii) each of the Exchange Debt Collateral Documents other than the Pledge Agreements; (d) receipt by the Administrative Agent of opinions of (i) Skadden, Arps, Slate, Meagher & Flom LLP, special counsel for the Borrower, substantially in the form of Exhibit B-1 hereto, and (ii) Elliot S. Gerson, General Counsel of the Borrower, substantially in the form of Exhibit B-2 hereto, and covering in each case such additional matters relating to the transactions contemplated hereby as the Required Banks may be reasonably request; (e) receipt by the Administrative Agent of a copy of the three-year business plan of the Borrower provided to the Senior Bank Parties pursuant to Section 3.01(l) of the Senior Credit Facility; (f) receipt by the Administrative Agent of a Perfection Certificate with respect to each Subsidiary Guarantor dated the Closing Date and duly executed by a Financial Officer of the Borrower; (g) receipt by the Administrative Agent of the results of a search of the Uniform Commercial Code (or equivalent filings) filings made with respect to the Borrower and each Subsidiary Guarantor in the states (or other jurisdictions) in which the chief executive office of each such Person is located, any offices of such Persons in which records have been kept relating to accounts and the other jurisdictions in which Uniform Commercial Code filings (or equivalent filings) are to be made pursuant to the preceding clause, together with copies of the financing statements (or similar documents) disclosed by such search, and accompanied by evidence satisfactory to the Administrative Agent that the Liens indicated in any such financing statement (or similar document) would be permitted under Section 5.11 or have been released (or arrangements shall have been made for the release or discharge thereof reasonably satisfactory to the Administrative Agent); (h) the fact that all requisite material governmental authorities and third parties shall have approved or consented to the transactions contemplated hereby to the extent required, all applicable appeal periods shall have expired and there shall be no governmental or judicial action, actual or threatened, that could reasonably be expected to restrain, prevent or impose burdensome conditions on the transactions contemplated hereby; (i) satisfaction by the Administrative Agent with any proposed changes in the management of the Borrower; (j) receipt by the Administrative Agent of a copy of the Borrowing Base Certificate (as defined in the Senior Credit Facility) delivered pursuant to Section 3.01(n) of the Senior Credit Facility; (k) receipt by the Second Priority Collateral Trustee of a copy of, or a certificate as to coverage under, the insurance policies required by Section 5.03 and the applicable provisions of the Second Priority Collateral Documents, each of which shall be endorsed or otherwise amended to include a "STANDARD" or "NEW YORK" lender's loss payable endorsement and to name the Second Priority Collateral Trustee as additional insured, in form and substance satisfactory to the Second Priority Collateral Trustee; (l) receipt by the Administrative Agent of Phase I desk audits relating to the Mortgaged Properties reasonably satisfactory to the Administrative Agent, from an environmental consulting firm reasonably satisfactory to the Administrative Agent, as to any environmental hazards, liabilities or Remedial Action to which the Borrower or any of the Subsidiaries may be subject; (m) the Administrative Agent shall be reasonably satisfied as to the amount and nature of any environmental and employee health and safety exposures to which the Borrower and the Subsidiaries may be subject and the plans of the Borrower with respect thereto; (n) each of the Senior Mortgages, the Senior Security Agreement and the Senior Subsidiary Guarantee Agreements shall be in form an substance satisfactory to the Administrative Agent, shall have been duly executed by each Subsidiary Guarantor, and by or on behalf of the Senior Bank Parties, shall have been delivered to the Administrative Agent, and shall be in full force and effect; (o) receipt by the Administrative Agent, with a copy for each Bank, of a copy of each Transaction Document reasonably requested by the Administrative Agent, certified by a Financial Officer of the Borrower; (p) there shall have been (i) no development in any Existing Litigation after April 10, 2000, and (ii) no litigation or administrative proceeding commenced, that in case of either clause (i) or (ii) could reasonably be expected to have a Material Adverse Effect. There shall have been no development in any Existing Litigation after April 10, 2000, and there shall have been no litigation or administrative proceeding that, in the Banks' sole judgment, could impair the validity, enforceability or priority of the security interests to be granted in favor of the Banks under the Loan Documents; (q) there shall have been no material adverse change in the revenues, store operations, inventory, accounts receivable, business or prospects of the Borrower and its Subsidiaries considered as a whole, or to the Borrower's knowledge, in any relationship with any vendor or third party insurance payor of the Borrower or any of its Consolidated Subsidiaries, considered as a whole, since November 2, 1999, other than, in each case, as publicly disclosed before April 10, 2000; (r) receipt by the Administrative Agent of copies of all waivers from the lessor of each leased distribution center of the Subsidiary Guarantors of any statutory, common law or contractual landlord's lien with respect to any inventory of any Subsidiary Guarantor delivered to the Senior Administrative Agent (as defined under the Senior Credit Facility) pursuant to Section 3.01(cc) of the Senior Credit Facility; (s) the Administrative Agent shall have received standard flood hazard determination certificates in the form required by 12 CFR 22.6 for each Mortgaged Property; (t) receipt by the Administrative Agent of all documents it may reasonably request relating to the existence of the Obligors, the corporate authority for and the validity of the Loan Documents and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent; (u) receipt by the Administrative Agent of evidence satisfactory to it that the Borrower shall have paid all participation fees payable pursuant to Section 2.06 and all expenses, to the extent invoiced, payable pursuant to Section 9.03; (v) receipt by the Administrative Agent of confirmation that the retention of E&Y Restructuring LLC as financial advisor to Davis Polk & Wardwell has been extended to a date not earlier than May 31, 2001; (w) receipt by the Administrative Agent of a certificate of a duly authorized officer of the Borrower as to (i) absence of Default, (ii) accuracy of representations and warranties and (iii) such other matters relating to the satisfaction of the conditions specified in this Section 3.01 as the Administrative Agent may reasonably request; and (x) receipt by the Administrative Agent of evidence satisfactory to it that the Transactions shall have been consummated in accordance with the Transaction Documents, and the Borrower shall have received not less than $500,000,000 proceeds of the initial borrowing under the Senior Credit Facility. On and after the Closing Date the rights and obligations of the parties hereto shall be governed by this Agreement; provided the rights and obligations of the parties hereto with respect to any Related Exchange Debt for the period prior to the Closing Date shall continue to be governed by the provisions of the Existing RCF Facility, the Existing PCS Facility or the Existing MGT Term Loan Agreement, as the case may be. The Administrative Agent shall promptly notify the Borrower and each Bank of the effectiveness of this Agreement, and such notice shall be conclusive and binding on all parties hereto. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation and each Subsidiary Obligor is a corporation (or other entity) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and has all corporate (or other organizational) powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. (a) The execution, delivery and performance by the Borrower and each Subsidiary Obligor of each Loan Document to which it is a party are within the Borrower's corporate powers or such Subsidiary Obligor's corporate (or other organizational) powers, have been duly authorized by all necessary corporate or other action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws (or other organizational documents) of the Borrower or such Subsidiary Obligor 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 Collateral Documents). None of the Borrower or any of its Subsidiaries is in default in any manner under any provision of any Material Financial Obligation, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default could reasonably be expected to have a Material Adverse Effect. (b) The execution, delivery and performance by the Borrower and each Subsidiary Obligor of each Transaction Document (other than the Loan Documents) to which it is a party are within the Borrower's corporate powers or such Subsidiary Obligor's corporate (or other organizational) powers, have been duly authorized by all necessary corporate or other action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws (or other organizational documents) of the Borrower or such Subsidiary Obligor or of any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary or any other material agreement, instrument, judgment, injunction, order or decree binding upon the Borrower or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary pursuant to any such agreement, instrument, judgment, injunction, order or decree (other than the Liens permitted by Section 5.11). SECTION 4.03. Binding Effect. This Agreement and each other Loan Document constitutes a valid and binding agreement of the Borrower and the Subsidiary Guarantors, and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms. SECTION 4.04. Financial and Other Information. (a) Effective upon and after delivery by the Borrower of the Initial Financial Statements, (i) the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of February 26, 2000 and each following fiscal year end of the Borrower and its Consolidated Subsidiaries and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by Deloitte & Touche (or other independent public accountants of nationally recognized standing) fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year; (ii) the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of such fiscal quarter end and each following fiscal quarter end of the Borrower and its Consolidated Subsidiaries (other than the fourth fiscal quarter of any fiscal year) and the related consolidated statements of income and cash flows for the fiscal quarter then ended, set forth in the Borrower's quarterly report on Form 10-Q for the fiscal quarter then ended, a copy of which will be delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the Initial Financial Statements, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal period, subject to normal year-end adjustments; and (iii) there has been no material adverse change in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole since May 27, 2000. (b) Since November 2, 1999, and until delivery by the Borrower of the Initial Financial Statements, there has been no material adverse effect on the revenues, store operations, inventory, accounts receivable, business or prospects of the Borrower and its Subsidiaries considered as a whole, or to the Borrower's knowledge, in any relationship with any vendor or third party insurance payor of the Borrower or any of its Consolidated Subsidiaries, considered as a whole, other than, in each case, as publicly disclosed before April 10, 2000. SECTION 4.05. Accuracy of Information. (a) Subject to any disclosure in the Initial Financial Statements for the period on or before May 27, 2000, all information (other than financial projections) that has been or will hereafter be made available to the Administrative Agent or any Bank by or on behalf of the Borrower or any of its representatives in connection with the transactions contemplated hereby is and will be complete and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances under which such statements were or are made. (b) All financial projections, if any, that have been or will be prepared by or on behalf of the Borrower or any of its representatives and made available to the Administrative Agent or any Bank have been or will be prepared in good faith based upon assumptions that are reasonable at the time made and at the time the related financial projections are made available to the Administrative Agent. (c) Subject to any disclosure in the Initial Financial Statements, for the period on or before May 27, 2000, 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. There has been (a) no development in any Existing Litigation after April 10, 2000, and (b) no litigation or administrative proceeding that in case of either clause (a) or (b) could reasonably be expected to have a Material Adverse Effect. There has been no development in any Existing Litigation after April 10, 2000, and there has been no litigation or administrative proceeding that could, in the Required Banks' sole judgment, impair the validity, enforceability or priority of the security interests to be granted in favor of the Banks under the Loan Documents. 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, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA, in each case except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all United States Federal income tax returns, and the Borrower and its Subsidiaries have filed all other material tax returns, which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary Guarantor except where the payment of any such taxes is being contested in good faith by appropriate proceedings. Effective upon delivery by the Borrower of the Initial Financial Statements, the charges, accruals and reserves on the books of the Borrower and its Consolidated Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.09. Subsidiaries. Schedule 1.01(c) sets forth a complete and correct list of the Borrower's Subsidiaries as of the Closing Date, and the percentage ownership interest of the Borrower therein. Each of the Borrower's corporate Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. Each of the Borrower's Subsidiaries is an "UNRESTRICTED SUBSIDIARY" as referred to in Section 5.09. 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. 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 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 substantial 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. SECTION 4.12. Other Loan Documents. The representations and warranties of the Borrower and each Subsidiary Obligor set forth in each other Loan Document and Transaction Document are true and correct. SECTION 4.13. Insurance. Schedule 4.13 sets forth a true, complete and correct description of all liability, property and casualty insurance maintained by the Borrower or by the Borrower for its Subsidiaries as of the Closing Date. Such insurance is in full force and effect and all premiums have been duly paid. The Borrower and its Subsidiaries have insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice and as required by the Senior Loan Documents. SECTION 4.14. Solvency. Immediately after the consummation of the Transactions to occur on the Closing Date and immediately following the making of each loan made on the Closing Date under the Senior Credit Facility and after giving effect to the application of the proceeds of such loans, (i) the fair value of the assets of the Borrower and the other Obligors, taken as a whole, at a fair valuation, will exceed their debts and liabilities, subordinated, contingent or otherwise; (ii) the present fair saleable value of the property of the Borrower and the other Obligors, taken as a whole will be greater than the amount that will be required to pay the probable liability of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Borrower and the other Obligors, taken as a whole will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Borrower and the other Obligors will not have unreasonably small capital with which to conduct the business in which they are engaged as such business is now conducted and is proposed to be conducted following the Closing Date. SECTION 4.15. Title to Properties. (a) Each of the Borrower and the Subsidiaries has good and marketable title to, or valid leasehold interests in, all its material real properties (including all Mortgaged Properties) and valid title to all other assets, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. All such material properties and assets are free and clear of Liens that secure indebtedness for borrowed money, other than Liens expressly permitted by Section 5.11 and as set forth on Schedule 4.15(b)(ii) (or arrangements reasonably satisfactory to the Administrative Agent have been made for the release or discharge of such Liens). (b) Schedule 1.01(b) sets forth the address of each Mortgaged Property on the Closing Date. As of the Closing Date, none of the Mortgaged Properties are subject to leases, license agreements or subleases under which the Borrower or any Subsidiary is the lessor/licensor except as set forth on Schedule 4.15(b)(i). Each Mortgaged Property is free of Liens which secure indebtedness for borrowed money except for the Second Priority Mortgages and as set forth on Schedule 4.15(b)(ii) (or arrangements reasonably satisfactory to the Administrative Agent have been made for the release of such Liens). (c) Schedule 4.15(c) sets forth the address of every leased warehouse or distribution center in which inventory owned by the Company and or any Subsidiary is located. SECTION 4.16. Investment Company Act; Public Utility Holding Company Act. None of the Borrower or any Subsidiary is (a) an "INVESTMENT COMPANY" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "HOLDING COMPANY" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 4.17. Labor Matters. As of the Closing Date, there are no strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending or, to the knowledge of the Borrower, threatened. The hours worked by and payments made to employees of the Borrower and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters. All payments due from the Borrower or any Subsidiary, or for which any claim may be made against the Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Borrower or such Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Borrower or any Subsidiary is bound. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Loan or other amount payable under any Loan Document remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) (i) with respect to the fiscal year of the Borrower ended February 26, 2000 as soon as available but not later than July 11, 2000, and (ii) with respect to each following fiscal year of the Borrower as soon as available and in any event within 90 days (or within such longer period of time, not greater than 120 days, to which the SEC may extend the filing deadline for the Borrower's Annual Report on Form 10-K) after the end of each such fiscal year, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on without material qualification by Deloitte & Touche (or other independent public accountants of nationally recognized standing); (b) with respect to the fiscal quarter of the Borrower ending May 27, 2000 as soon as available but not later then July 11, 2000, and (ii) with respect to each following fiscal quarter of the Borrower (other than the last fiscal quarter of a fiscal year) as soon as available and in any event within 45 days (or within such longer period of time, not greater than 60 days, to which the SEC may extend the filing deadline for the Borrower's Quarterly Report on Form 10-Q) after the end of each such fiscal quarter, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in each case in comparative form 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 a Financial Officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of a Financial Officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower (or, in the case of Section 5.13, PCS) was in compliance with the requirements of Sections 5.12, 5.13, 5.14 and 5.15 on the date of such financial statements, (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto and (iii) in the case of the certificate delivered together with the financial statements referred to in clause (a) above, a calculation of Excess Cash Flow for the applicable period specified in Section 2.07(c) and the amount of the required prepayment of the Loans, if any, in respect thereof; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above; (e) within three Business Days after the end of each fiscal month a certificate of a Financial Officer of the Borrower setting forth in reasonable detail, a description of each disposition of assets not in the ordinary course of business for which the book value or fair market value of the assets of the Borrower or the Subsidiaries disposed or the consideration received therefor was greater than $5,000,000; (f) within five Business Days after the end of each calendar month a report, in form and scope satisfactory to the Administrative Agent, summarizing determinations of the borrowing base and utilization under the Senior Credit Facility during such month; (g) within five days after any officer of the Borrower obtains knowledge of (i) any Default, if such Default is then continuing, a certificate of a Financial Officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto, or (ii) the filing or commencement of any action, suit or proceeding, whether at law or in equity or by or before any court, governmental authority or other tribunal, against the Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect;; (h) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (i) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the SEC; (j) within five days, if and when any member of the ERISA Group (i) gives or any Financial Officer becomes aware that such member is required to give notice to the PBGC of any "REPORTABLE EVENT" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or any Financial Officer knows that the plan administrator of any Plan has given or 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 a Financial Officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; (k) on or prior to the 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 July, 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 (or pursuant to the Existing MGT Term Loan Agreement), no later than the 25th day of the next succeeding month; (iii) a weekly sales report for each week, commencing with the week ending June 17, 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, 2002, no later than March 31, 2001; and (v) a monthly reconciliation of actual operating results for each month specified in the operating forecast delivered pursuant to clause (iv) above (or pursuant to the Existing MGT Term Loan Agreement) to the budget for such month, no later than the 30th day of the next succeeding month; and (l) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries or the Collateral as the Administrative Agent, at the request of any Bank, may reasonably request. Information required to be delivered pursuant to clauses (a), (b), (h) and (i) shall be deemed to have been delivered on the date on which the Borrower provides notice to the Banks that such information has been posted on the Borrower's website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux/searches.htm or at another website identified in such notice and accessible by the Banks without charge; provided that (i) such notice may be included in a certificate delivered pursuant to clause (c), and (ii) the Borrower shall deliver paper copies of the information referred to in clauses (a), (b), (h) and (i) to any Bank which requests such delivery. SECTION 5.02. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge, as the same shall become due and payable, (i) all material claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons prior to the time such claims or demands give rise to a material Lien upon any of its property or assets or a material risk of forfeiture of a Mortgaged Property, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except where any of the items in clause (i) or (ii) above may be contested in good faith by appropriate proceedings, and the Borrower or such Subsidiary, as the case may be, shall have set aside on its books, in accordance with generally accepted accounting principles, appropriate reserves, if any, for the accrual of any such items. SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will, and will cause each of its Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to the Banks, upon request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried. The Borrower will, and will cause each of its Subsidiaries to, maintain such insurance in a coverage amount of not less than 90% of the coverage amount as of the Closing Date, with deductibles, risks covered and other provisions (other than amount of premiums) not materially less favorable to the Borrower and its Subsidiaries as of the Closing Date. (c) The Borrower will, and will cause each of the Subsidiary Guarantors to, cause all such policies to be endorsed or otherwise amended to include a "STANDARD" or "NEW YORK" lender's loss payable endorsement, in form and substance satisfactory to the Senior Administrative Agent, the Senior Collateral Agent, the Administrative Agent, and the Second Priority Collateral Trustee which endorsement shall provide that, from and after the Closing Date, if the insurance carrier shall have received written notice from the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee or the Administrative Agent of the occurrence of an Event of Default, the insurance carrier shall pay all proceeds otherwise payable to the Borrower and any other Obligor under such policies directly to the Senior Collateral Agent and the Second Priority Collateral Trustee, as their interests may appear, for application pursuant to the Collateral Trust and Intercreditor Agreement; cause all such policies to provide that none of the Borrower, the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Administrative Agent, nor any other party shall be a coinsurer thereunder and to contain a "REPLACEMENT COST ENDORSEMENT", without any deduction for depreciation, and such other provisions as the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee or the Administrative Agent may reasonably require from time to time to protect their interests; deliver broker's certificates to the Senior Collateral Agent and the Second Priority Collateral Trustee; cause each such policy to provide that it shall not be canceled or not renewed by reason of nonpayment of premium upon not less than 10 days prior written notice thereof by the insurer to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent (giving the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent the right to cure defaults in the payment of premiums) or for any other reason upon not less than 30 days' prior written notice thereof by the insurer to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent; deliver to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent, before the cancellation or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent) together with evidence reasonably satisfactory to the Senior Administrative Agent, the Senior Collateral Agent and the Administrative Agent of payment of the premium therefor. (d) [Reserved] (e) The Borrower will, and will cause each of the Subsidiary Guarantors to, with respect to any Mortgaged Property, carry and maintain comprehensive general liability insurance including the "BROAD FORM CGL ENDORSEMENT" and coverage on an occurrence basis against claims made for personal injury (including bodily injury, death and property damage) and umbrella liability insurance against any and all claims, in no event for a combined single limit of less than $10,000,000, naming the Senior Collateral Agent (for the benefit of the Senior Bank Parties) and the Second Priority Collateral Trustee (for the benefit of the Second Priority Debt Parties) as additional insured parties, on forms satisfactory to the Senior Collateral Agent and the Second Priority Collateral Trustee. (f) The Borrower will notify the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent promptly whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section is taken out by the Borrower or its Subsidiaries; and promptly deliver to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Administrative Agent a duplicate original copy of such policy or policies. (g) In connection with the covenants set forth in this Section, it is agreed that: (i) none of the Administrative Agent, the Banks, or their respective agents or employees shall be liable for any loss or damage insured by the insurance policies required to be maintained under this Section, and (A) the Borrower and each other Obligor shall look solely to their insurance companies or any other parties other than the aforesaid parties for the recovery of such loss or damage and (B) such insurance companies shall have no rights of subrogation against the Administrative Agent, the Second Priority Collateral Trustee, the Banks or their agents or employees. If, however, the insurance policies do not provide waiver of subrogation rights against such parties, as required above, then the Borrower hereby agrees, to the extent permitted by law, to waive its right of recovery, if any, against the Administrative Agent, the Second Priority Collateral Trustee, the Banks and their agents and employees; and (ii) the designation of any form, type or amount of insurance coverage by the Administrative Agent, the Second Priority Collateral Trustee or the Required Banks under this Section shall in no event be deemed a representation, warranty or advice by the Administrative Agent, the Second Priority Collateral Trustee or the Banks that such insurance is adequate for the purposes of the business of the Borrower and the Subsidiaries or the protection of their properties. SECTION 5.04. Conduct of Business and Maintenance of Existence. Except as otherwise permitted in this Agreement, the Borrower will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary (except where such Subsidiary merges into a Subsidiary Guarantor) to preserve, renew and keep in full force and effect their respective legal existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that the foregoing will not prohibit any merger or liquidation of, or sale of assets by, a Subsidiary that is permitted by Sections 5.18 and 5.19. SECTION 5.05. Compliance with Laws. The Borrower will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) applicable to it or its property except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply would not have a Material Adverse Effect. SECTION 5.06. Inspection of Property, Books and Records. The Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank (at such Bank's expense, unless a Default has occurred and is continuing, in which case at the Borrower's expense and after such Bank has consulted the Administrative Agent with respect thereto) to visit and inspect any of their properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.07. Restriction on Other Agreements, Payment Limitations, Debt Prepayments. (a) 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 (i) would restrict any Subsidiary from granting Liens on any of its assets (including assets in addition to the then-existing Collateral to secure the Second Priority Debt Obligations, the Synthetic Lease Obligations or the Exchange Debt Obligations or (ii) is more restrictive than the limitation on Liens set forth in this Agreement or (iii) which imposes other covenants more restrictive than those set forth in this Agreement except, in each case, (A) agreements with respect to Debt secured by Liens permitted by Section 5.11 containing restrictions on the ability to transfer or grant Liens on the assets securing such Debt, (B) customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, (D) pursuant to applicable law, (E) agreements in effect as of the Closing Date and not entered into in contemplation of the Transactions and (F) the other Existing Facilities Documents and the Forward Commitment Agreement as in effect on the Closing Date. (b) The Borrower will not, and will not permit any Subsidiary to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (i) make Restricted Payments in respect of any capital stock of such Subsidiary held by, or pay any Debt owed to, the Borrower or any other Subsidiary, (ii) make any Investment in the Borrower or any other Subsidiary, or (iii) transfer any of its assets to the Borrower or any other Subsidiary, except for such encumbrances or restrictions existing under or by reason of (A) any restriction existing under the Loan Documents, the Second Priority Debt Documents, the Senior Loan Documents, the Indentures or the Forward Commitment Agreement, (B) any restrictions with respect to PCS imposed pursuant to a PCS Disposition pending the consummation thereof, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, and (D) as required by applicable law. (c) The Borrower will not, and will not permit any Subsidiary to, make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption or, or otherwise voluntarily or optionally defease, debt under the other Existing Facilities, the Synthetic Lease Facilities, the Existing Notes (as defined in Annex 3) (other than pursuant to the Exchange Offer (as defined in Annex 3)), the Exchange Notes or any other Debt for borrowed money of the Borrower or any Subsidiary, or segregate funds for any such payment, prepayment, repurchase, redemption or defeasance, except for refinancings, refundings and exchanges pursuant to Section 5.16(d), repurchases or redemption of such Debt for consideration consisting solely of common stock of the Borrower or Qualified Preferred Stock or prepayments of Capital Leases in connection with the sale, closing or relocation of Stores. SECTION 5.08. Further Assurances. The Borrower will, and will cause each of the Subsidiary Obligors to, execute any and all further documents, financing statements, recordations, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements, recordations, mortgages and deeds of trust) that may be required under applicable law, or that the Required Banks, the Administrative Agent or the Second Priority Collateral Trustee may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and priority of the security interests created or intended to be created by the Exchange Debt Collateral Documents. The Borrower will cause any subsequently acquired or organized Domestic Subsidiary to execute a Second Priority Subsidiary Guarantee Agreement, Second Priority Indemnity, Subrogation and Contribution Agreement, Second Priority Subsidiary Security Agreement, a First Priority Security Agreement and any applicable financing statement or other recordation from time to time, and to comply with the terms thereof. The Borrower agrees to cause to be provided such evidence as the Second Priority Collateral Trustee or the Administrative Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. SECTION 5.09. Subsidiaries. The Borrower will cause all of its Subsidiaries that own Collateral to be "UNRESTRICTED SUBSIDIARIES" as defined in, and for all purposes of, each of the Indentures and will deliver such documents to the trustees under each of the Indentures and take such actions thereunder as may be necessary to effect the foregoing. SECTION 5.10. Restriction on Sale and Leaseback Transactions. Except for a sale or transfer by a Subsidiary to a Subsidiary Guarantor, the Borrower will not, and will not permit any Subsidiary to, enter into any Sale and Leaseback Transaction after the Closing Date other than (a) a Sale and Leaseback Transaction listed on Schedule 5.10, (b) with respect to any property other than a Mortgaged Property owned by the Borrower or any Subsidiary Guarantor as of the Closing Date, for a lease for a period, including renewals, not exceeding 24 months, by the end of which period it is intended that the use of such property or equipment by the lessee will be discontinued; provided, however, that such Sale and Leaseback Transaction will be subject to Section 5.19(b), (c) with respect to any property other than a Mortgaged Property, if entered into in respect of property acquired, developed or constructed by the Borrower or a Subsidiary after the Closing Date, if such Sale and Leaseback Transaction is entered into within 24 months from the date of completion of such acquisition, development or construction (which, in the case of any Store, shall be deemed to be 24 months from the date of the opening of such Store), or (d) if none of clauses (a) through (c) above are applicable, any other Sale and Leaseback Transaction not involving a Mortgaged Property, subject to Section 5.19(b). SECTION 5.11. Restriction on Liens. The Borrower will not, and will not permit any Subsidiary to, create, issue, incur, assume or guarantee any Secured Debt; provided that the foregoing covenant shall not apply to the following: (a) (i) any Lien on any property in connection with a Sale and Leaseback Transaction permitted by Section 5.10, (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 and not created in anticipation of such acquisition, which acquisition is not otherwise prohibited by this Agreement, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired; provided that the Lien does not attach to other property except unimproved real property previously owned upon which any new construction has taken place and subsequent additions to such acquired or constructed property; (b) any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 5.11 or any Lien securing the Debt of the Borrower or of any Subsidiary on the date of this Agreement or of a corporation at the time such corporation becomes a Subsidiary, or any extensions, renewals or refundings of any such Lien; provided that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding Lien shall be limited to all or that part of the same property which secured the Debt so extended, renewed or refunded; (c) any Lien securing Debt of a Subsidiary owing to a Subsidiary Guarantor; (d) any Lien created by the Loan Documents; (e) any Lien created by the Senior Loan Documents; provided that (i) with respect to any specific Collateral which is also Senior Collateral, a Lien is created simultaneously under the Second Priority Collateral Documents and is subject to the Collateral Trust and Intercreditor Agreement and (ii) the aggregate principal amount of Senior Debt Obligations to be secured by such Lien shall not exceed the amount permitted by Section 6.02 of the Collateral Trust and Intercreditor Agreement; and provided further that no such Lien may attach to Exchange Debt First Priority Collateral; (f) any Lien under the PCS Pledge Agreement and the Drugstore.com Pledge Agreement in favor of the Existing Facility Parties and the Synthetic Lease Parties, provided that such Lien is limited to the "COLLATERAL" as such term is defined in each such document; (g) existing Liens under the Synthetic Lease Documents and Liens under Synthetic Leases permitted pursuant to Section 5.25; (h) Liens identified on Schedule 5.11(h); provided, however, that such Liens do not attach to any other property other than that identified in such Schedule; (i) Liens in respect of Debt or Attributable Debt permitted under Sections 5.16(f), (g), (h), (i) and (j) so long as such Liens attach only to (i) the equipment subject to such financing, (ii) the property to which they attach on the Closing Date (or in the case of any operating lease which is reclassified as a Capital Lease, any property subject to such lease on the Closing Date), or (iii) the property or assets constructed, developed or purchased with such financing; and (j) any Lien on Net Cash Proceeds of Reduction Events allocated to the Exchange Note Obligations in accordance with the Collateral Trust and Intercreditor Agreement, which Lien arises pursuant to Section 10.14 of the Exchange Note Indenture. SECTION 5.12. 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:
PERIOD AMOUNT IF NO PCS DIVESTITURE HAS BEEN CONSUMMATED ON OR IF A PCS DIVESTITURE HAS BEFORE THE LAST DAY OF BEEN CONSUMMATED ON OR SUCH PERIOD, MAXIMUM BEFORE THE LAST DAY OF CONSOLIDATED CAPITAL SUCH PERIOD, MAXIMUM RETAIL EXPENDITURES CAPITAL EXPENDITURES Fiscal quarter ending on $70,000,000 $64,000,000 August 26, 2000 Two fiscal quarters ending on $138,000,000 $125,000,000 November 25, 2000 Three fiscal quarters ending $205,000,000 $186,000,000 on March 3, 2001 Four fiscal quarters ending on $270,000,000 $245,000,000 June 2, 2001 Four fiscal quarters ending on $265,000,000 $241,000,000 September 1, 2001 Four fiscal quarters ending on $265,000,000 $242,000,000 December 1, 2001 Four fiscal quarters ending on $265,000,000 $243,000,000 March 2, 2002 Four fiscal quarters ending on $265,000,000 $243,000,000 June 1, 2002
SECTION 5.13. Minimum EBITDA. The aggregate amount of Consolidated EBITDA, Retail EBITDA or PCS EBITDA, as the case may be, for any period set forth below shall not be less than the amount set forth below opposite such period:
PERIOD AMOUNT IF NO PCS DIVESTITURE IF A PCS IF NO PCS HAS BEEN DIVESTITURE DIVESTITURE CONSUMMATED ON HAS BEEN HAS BEEN OR BEFORE THE CONSUMMATED ON CONSUMMATED ON LAST DAY OF SUCH OR BEFORE THE OR BEFORE THE PERIOD, MINIMUM LAST DAY OF SUCH LAST DAY OF SUCH CONSOLIDATED PERIOD, MINIMUM PERIOD, MINIMUM EBITDA RETAIL EBITDA PCS EBITDA Fiscal quarter ending on August $95,000,000 $75,000,000 N/A 26, 2000 Two fiscal quarters ending on $232,000,000 $178,000,000 N/A November 25, 2000 Three fiscal quarters ending on $426,000,000 $335,000,000 N/A March 3, 2001 Four fiscal quarters ending on N/A N/A $100,000,000 March 3, 2001 Four fiscal quarters ending on $569,000,000 $444,000,000 N/A June 2, 2001 Four fiscal quarters ending on $646,000,000 $504,000,000 N/A September 1, 2001 Four fiscal quarters ending on $722,000,000 $563,000,000 N/A December 1, 2001 Four fiscal quarters ending on $860,000,000 $689,000,000 $100,000,000 March 2, 2002 Four fiscal quarters ending on $894,000,000 $720,000,000 N/A June 1, 2002
SECTION 5.14. Minimum Interest Coverage Ratio. At no time shall the Consolidated Interest Coverage Ratio or the Retail Interest Coverage Ratio, as the case may be, for any period be less than the amount set forth below opposite such period:
PERIOD AMOUNT IF NO PCS DIVESTITURE HAS IF A PCS DIVESTITURE HAS BEEN BEEN CONSUMMATED ON OR BEFORE CONSUMMATED ON OR BEFORE THE THE LAST DAY OF SUCH PERIOD, LAST DAY OF SUCH PERIOD, THE THE MINIMUM CONSOLIDATED MINIMUM RETAIL INTEREST INTEREST COVERAGE RATIO COVERAGE RATIO Fiscal quarter ending on August .70 .67 26, 2000 Two fiscal quarters ending on .81 .79 November 25, 2000 Three fiscal quarters ending on .96 .95 March 3, 2001 Four fiscal quarters ending on .96 .94 June 2, 2001 Four fiscal quarters ending on 1.07 1.04 September 1, 2001 Four fiscal quarters ending on 1.18 1.14 December 1, 2001 Four fiscal quarters ending on 1.39 1.37 March 2, 2002 Four fiscal quarters ending on 1.40 1.40 June 1, 2002
SECTION 5.15. Minimum Fixed Charge Coverage Ratio. At no time shall the Consolidated Fixed Charge Coverage Ratio or the Retail Fixed Charge Coverage Ratio, as the case may be, for any period set forth below be less than the amount set forth below opposite such period:
PERIOD AMOUNT IF NO PCS DIVESTITURE HAS IF A PCS DIVESTITURE HAS BEEN BEEN CONSUMMATED ON OR BEFORE CONSUMMATED ON OR BEFORE THE THE LAST DAY OF SUCH PERIOD, LAST DAY OF SUCH PERIOD, THE THE MINIMUM CONSOLIDATED MINIMUM RETAIL FIXED CHARGE FIXED CHARGE COVERAGE RATIO COVERAGE RATIO Fiscal quarter ending on August .83 .83 26, 2000 Two fiscal quarters ending on .89 .88 November 25, 2000 Three fiscal quarters ending on .96 .95 March 3, 2001 Four fiscal quarters ending on .96 .94 June 2, 2001 Four fiscal quarters ending on 1.01 .99 September 1, 2001 Four fiscal quarters ending on 1.06 1.04 December 1, 2001 Four fiscal quarters ending on 1.19 1.17 March 2, 2002 Four fiscal quarters ending on 1.20 1.19 June 1, 2002
SECTION 5.16. Restriction on Debt. The Borrower will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any Debt or any Attributable Debt in respect of any Sale and Leaseback Transaction except: (a) Debt under the Senior Loan Documents in a principal amount no greater than the amount permitted by Section 6.02 of the Collateral Trust and Intercreditor Agreement; (b) Debt under the Loan Documents, the other Existing Facility Obligations, the Exchange Note Obligations, and Debt under the Indentures in each case in a principal amount not greater than the principal amount thereof on the Closing Date after giving effect to the Transactions; provided that no Subsidiary Obligor will have any liability thereon except its obligations under the Second Priority Collateral Documents or the Exchange Debt First Priority Collateral Documents; (c) Attributable Debt of (i) the Synthetic Lease Obligations in a principal amount not greater than the principal amount thereof on the Closing Date, plus amounts permitted pursuant to Section 5.25; provided that no Subsidiary Guarantor will have any liability thereon except its obligations under the Second Priority Collateral Documents and (ii) any Sale and Leaseback Transactions in existence on the Closing Date; (d) unsecured Debt of the Borrower extending, or having the effect of extending the maturity of, or refunding, refinancing or exchanging, in whole or in part, Debt described in clauses (a), (b) and (c), provided that (i) the terms of any such extending, refunding, refinancing or exchanging of Debt, and of any agreement entered into and of any instrument issued in connection therewith, are otherwise permitted by the Loan Documents, (ii) the terms relating to principal amount, amortization, maturity, convertibility and subordination (if any), and other material terms taken as a whole, of any such extending, refunding, refinancing or exchanging of Debt, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Borrower and the Subsidiaries or the Banks than the terms of any agreement or instrument governing the Debt being extended, refunded, refinanced or exchanged and the interest rate applicable to such extending, refunding or refinancing or exchanging of Debt does not exceed the then applicable market interest rate and (iii) the principal amount of such extending, refunding, refinancing or exchanging of Debt shall not be increased above the principal amount of the Debt being extended, refunded, refinanced or exchanged outstanding immediately prior to such extension, refunding, refinancing or exchanging; (e) indorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (f) Debt for borrowed money and Capital Leases existing on the date hereof and set forth in Schedule 5.16(f), but not any extensions, renewals or replacements of such Debt; (g) Debt or Attributable Debt in respect of Capital Leases (whether or not in the form of Sale and Leaseback Transactions or Synthetic Leases) so long as such Capital Leases were leases existing as of the Closing Date, which are reclassified from operating leases to Capital Leases; (h) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions in respect of equipment financing or leasing in the ordinary course of business of the Borrower and its Subsidiaries consistent with past practices; (i) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions entered into to finance the acquisition, development, construction or opening of any Store after the Closing Date which is not inconsistent with the Borrower's business plan delivered pursuant to Section 3.01(e); provided that such Debt or Attributable Debt is (x) incurred within 24 months of the completion of the acquisition, development, construction or opening thereof, and any Lien securing such Debt or Attributable Debt is limited to the Store financed with the proceeds thereof or (y) in the case of a Sale and Leaseback Transaction, permitted under Section 5.10(a), (b) or (c); (j) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions incurred to finance the acquisition after the Closing Date of property or assets provided that (i) such Debt or Attributable Debt is incurred within 24 months of the acquisition of such property or assets, (ii) any Lien securing such Debt or Attributable Debt is limited to the property or assets financed with the proceeds thereof and (iii) the aggregate principal amount of Debt and Attributable Debt incurred pursuant to this clause (j) shall not exceed $50,000,000 at any time outstanding; (k) Debt in respect of the Independent Standby Letters of Credit, or any extension, renewals, replacements or reissuances thereof; provided that the aggregate drawable stated amount and unreimbursed drawings of all Independent Standby Letters of Credit outstanding at any time shall not exceed $34,000,000 less the stated amount of any such letters of credit which expire or are not extended, replaced or renewed; (l) Debt of the Borrower and its Subsidiaries in respect of intercompany Investments permitted under Section 5.17(a); and (m) unsecured Debt of the Borrower not otherwise permitted by this Section in an aggregate principal amount at any time outstanding not to exceed (i) $100,000,000 less (ii) the aggregate amount of any increases in the amount of Debt permitted under subsection (a) above by reason of clause (i) of the proviso to Section 6.02 of the Collateral Trust and Intercreditor Agreement. SECTION 5.17. Limitation on Investments and Acquisitions. (a) Neither the Borrower nor any Subsidiary will make or acquire any Investment in any Person other than: (i) Investments in Subsidiary Guarantors, other than PCS and its Subsidiaries; (ii) Investments of the Borrower and the Subsidiary Guarantors in existence on the Closing Date; (iii) advances made by Rite Aid Hdqtrs. Corp. to PCS that reduce the intercompany payable due from Rite Aid Hdqtrs. Corp. to PCS; (iv) Temporary Cash Investments; (v) Investments received as consideration for any sale or other disposition permitted by Section 5.19; (vi) Investments in Drugstore.com existing on the date hereof; (vii) Investments of PCS and its Subsidiaries in PCS and its Subsidiaries; (viii) Investments by the Subsidiaries of the Borrower in the Borrower, but only to the extent that the uses of the proceeds of such Investments would be permitted as uses of proceeds of the loans made under the Senior Credit Facility pursuant to Section 5.24(b) thereof; (ix) Exchange Notes issued by the Borrower to and held by SPV pursuant to the Forward Commitment Agreement; and (x) any Investment by a Subsidiary Guarantor in a Person other than a Subsidiary that is not otherwise permitted by the foregoing clauses of this Section if, immediately after such Investment is made or acquired, the aggregate net book value of all Investments permitted by this clause (x) does not exceed at any one time outstanding the greater of (A) $200,000,000 or (B) after the delivery of the Initial Financial Statements, 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 (including Debt assumed or consolidated in accordance with generally accepted accounting principles) in connection with all such Business Acquisitions on or after the Closing Date would exceed $15,000,000. SECTION 5.18. Consolidations and Mergers. (a) Without limiting the restrictions on Business Acquisitions set forth above, the Borrower will not consolidate or merge with or into any other Person; provided that the Borrower may merge with another Person if (i) the Borrower is the corporation surviving such merger, (ii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, and (iii) if such other Person is a Subsidiary Guarantor, such Subsidiary Guarantor shall have no property that constitutes Collateral. (b) No Subsidiary Guarantor will consolidate or merge with or into any other Person, except (i) without limiting the restrictions on Business Acquisitions set forth above, a Subsidiary Guarantor may merge with another Person if (A) either (1) a Subsidiary Guarantor is the corporation surviving such merger, or (2) the Subsidiary Guarantor that merges with such Person shall have no property that constitutes Second Priority Collateral, and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing, (ii) PCS or its Subsidiaries may consolidate with or merge into another Person as part of a PCS Disposition. SECTION 5.19. Dispositions of Assets. (a) The Borrower will not dispose of any capital stock of any Subsidiary Guarantor other than to another Subsidiary Guarantor, or permit any Subsidiary Guarantor to issue capital stock to any Person other than the Borrower or another Subsidiary Guarantor, except in each case for a PCS Disposition; provided that no such issuance or disposition of capital stock of PCS shall be to any Subsidiary Guarantor and no such issuance or disposition of capital stock of a Subsidiary of PCS shall be to the Borrower or any Subsidiary Guarantor other than PCS or a Subsidiary of PCS. (b) The Borrower will not, and will not permit any Subsidiary Guarantor to, dispose of any property or assets except (i) any Permitted Disposition; (ii) any PCS Disposition or sale or other disposition of the capital stock of Drugstore.com; (iii) any other disposition of property or assets of the Borrower or any Subsidiary for fair value not in the ordinary course of business; provided that with respect to such dispositions of Collateral under this clause, (1) at least 75% of the consideration therefor shall consist of cash, and (2) the Net Cash Proceeds of such disposition of Collateral are applied as provided in Section 4.05 of the Collateral Trust and Intercreditor Agreement. (c) The consideration received by the Borrower or the applicable Subsidiary Guarantor for any PCS Disposition or the disposition of the capital stock of Drugstore.com shall be for the fair market value of such disposition and consist solely of a combination of at least 75% cash and no more than 25% of publicly traded securities, in each case payable and deliverable at the closing of such disposition, unless, (i) in the case of a PCS Disposition, the "REQUIRED BANKS" under the PCS Facility otherwise agree or (ii) in the case of a disposition of the capital stock of Drugstore.com, the "REQUIRED BANKS" under the RCF Facility otherwise agree. Consideration in the form of forgiveness of intercompany obligations shall be disregarded for purposes of determinations of compliance with this Section 5.19(c). SECTION 5.20. Use of Proceeds. The proceeds of the "Tranche A Loans" made under the Existing RCF Facility and (ii) loans made under the Existing PCS Facility that are in each case Related Exchange Debt, were used by the Borrower solely to repay commercial paper maturing on or prior to the date of the related borrowing thereunder or to extend and renew loans outstanding under the Existing RCF Facility or the Existing PCS Facility, as the case may be, the proceeds of which loans were used solely to repay commercial paper (or to refund other 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 Existing RCF Facility and Loans made under the Existing MGT Term Loan Agreement that are in each case Related Exchange Debt, were used by the Borrower for the Borrower's general corporate purposes. No such use of proceeds have 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, other than publicly traded securities issued to the Borrower in connection with the sale of the capital stock of PCS. The Borrower will ensure that no such use of proceeds violates Regulation T, U or X. SECTION 5.21. Restrictions on Asset Holdings by the Borrower. The Borrower will not at any time (i) make or hold any Investments other than investments in the capital stock of Drugstore.com and its Subsidiaries (including any distributions or other assets received in respect thereto), Investments received as consideration in connection with the PCS Disposition or a disposition of Drugstore.com, intercompany advances to Subsidiaries, and Investments permitted by clause (iii) below, (ii) acquire or hold any Stores, other capital assets, inventory or accounts receivable, other than any real estate which the Borrower holds only as lessor, and which is leased and operated by another Person, or (iii) acquire or hold cash, cash equivalents, Temporary Cash Investments or balances in bank accounts other than such amounts as are reasonably anticipated (at the time so acquired or held) to be utilized within five Business Days to pay costs, expenses and other obligations of the Borrower referred to in Section 5.24(b) of the Senior Credit Facility. SECTION 5.22. Restricted Payments. After the date hereof, neither the Borrower nor any Subsidiary will declare or make any Restricted Payment other than (a) payments of dividends to Subsidiary Guarantors, (b) payments of cash dividends required to be made in respect of the capital stock listed on Schedule 5.22(b), and (c) payments of cash dividends to the Borrower to the extent necessary to enable the Borrower to make payments otherwise permitted by the Loan Documents; provided that no such Restricted Payments may be made by PCS or any Subsidiary of PCS to any Person other than PCS or a Subsidiary of PCS. SECTION 5.23. Business of Borrower and Subsidiaries. The Borrower will not, and will not cause or permit any of the Subsidiaries to, engage at any time in any business or business activity other than the business conducted on the Closing Date by it and business activities reasonably incidental thereto. Without limitation of the foregoing, the Borrower will not permit SPV to have any assets or liabilities or conduct any business other than as specifically contemplated by the Forward Commitment Agreement. SECTION 5.24. Transactions with Affiliates. The Borrower will not, and will not cause or permit any of the Subsidiaries to, directly or indirectly enter into or conduct any transactions or series of transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any Affiliate of the Borrower, other than the payment of transaction costs approved by the Administrative Agent before the Closing Date (an "AFFILIATE TRANSACTION"), other than (a) the payment of compensation to directors, officers, and employees of the Borrower and its Subsidiaries in the ordinary course of business; (b) payments in respect of Affiliate Transactions required to be made pursuant to agreements or arrangements in effect on the Closing Date and set forth in Schedule 5.24 hereto; (c) Affiliate Transactions involving the acquisition of inventory in the ordinary course of business, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Borrower or such Subsidiary as the case may be, and (C) no less favorable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Borrower, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000, the board of directors of the Borrower (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (C) of this paragraph; (d) the issuance of Exchange Notes by the Borrower to SPV as contemplated by the Forward Commitment Agreement; (e) Affiliate Transactions between or among the Borrower and/or one or more Subsidiary Guarantors; provided that any such transaction between PCS or a Subsidiary of PCS (a "PCS ENTITY"), on the one hand, and the Borrower or a Subsidiary Guarantor which is not a PCS Entity, on the other hand, shall be in the ordinary course of business; and (f) any other Affiliate Transaction, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Borrower or such Subsidiary, as the case may be, and (C) no less favorable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Borrower, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $25,000,000 in any 12-month period, the board of directors of the Borrower (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (i)(C) of this paragraph and (iii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000 in any 12-month period, the Borrower obtains a written opinion from an independent investment banking firm or appraiser of national prominence, as appropriate to the effect that such transaction is fair to the Borrower or such Subsidiary, as the case may be, from a financial point of view. SECTION 5.25. New Synthetic Leases. Neither the Borrower nor any Subsidiary will enter into any Synthetic Lease after the Closing Date if, after giving effect thereto, the aggregate amount financed under all Synthetic Leases entered into in any period of twelve consecutive calendar months commencing after the date hereof would exceed $35,000,000 unless such Synthetic Lease is otherwise permitted under Section 5.16(h), (i) or (j). SECTION 5.26. Corporate Separateness. The Borrower will, and will cause each Subsidiary to, take all necessary steps to maintain its identity as a separate legal entity from other Persons and to make it manifest to third parties that it is an entity with assets and liabilities distinct from those of each of other Person. SECTION 5.27. Limitation on Derivative Obligations. The Borrower will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any monetary liability under any Derivative Obligations; unless such Derivative Obligations are entered into for bona fide hedging purposes of the Borrower or its Subsidiary Guarantors (as determined in good faith by the board of directors or senior management of the Borrower) and correspond in terms of notional amount, duration, currencies and interest rates, as applicable, to Debt of the Borrower or its Subsidiary Guarantors incurred without violation of this Agreement or to business transactions of the Borrower or its Subsidiary Guarantors on customary terms entered into in the ordinary course of business, and do not exceed an amount equal to the aggregate principal amount of the Senior Obligations and the Second Priority Debt Obligations. ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("EVENTS OF DEFAULT") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within five days of the due date thereof any interest, fees or other amount payable hereunder; (b) the Borrower or any Subsidiary Guarantor shall fail to observe or perform any covenant contained in Sections 5.07, 5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17, 5.18, 5.19, 5.20, 5.21, 5.22, 5.23, 5.24, 5.25, 5.26 and 5.27; (c) the Borrower or any Subsidiary Guarantor 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) in the case of covenants set forth in Section 5.06, for 5 days, and in the case of any other such covenant, for 20 days after written notice thereof has been given to the Borrower by the Administrative Agent at the request of the Required Banks; (d) any representation, warranty, certification or statement made (or deemed made) by the Borrower or any Subsidiary Guarantor 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, including any obligation to reimburse letter of credit obligations or to post cash collateral in respect thereof, when due or within the applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Financial Obligations; (g) any event or condition shall occur (other than in connection with a violation of Section 5.17, 5.18 or 5.19 of the Senior Credit Facility) which 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; (h) the Borrower or any Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (i) an involuntary case or other proceeding shall be commenced against the Borrower or any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (j) 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; (k) judgments or orders, individually or in the aggregate, for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; (l) (i) any Lien created by any Second Priority Collateral Document shall at any time fail to constitute a valid and (to the extent required by such Collateral Document) perfected Lien on all of the Second Priority Collateral purported to be subject thereto, securing the obligations purported to be secured thereby, with the priority required by the Second Priority Loan Documents; provided, however, such failure continues uncured for 30 days, or (ii) the Borrower or any Subsidiary shall so assert in writing, or any Second Priority Collateral Document shall become invalid or the Borrower or any Subsidiary shall so assert in writing; or (m) any Lien created by the First Priority Subsidiary Security Agreement or either Pledge Agreement shall at any time fail to constitute a valid and (to the extent required thereby) 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 (n) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) (other than Green Equity Investors III, L.P., and its Affiliates) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under said Act) of 20% or more of the outstanding shares of common stock of the Borrower; or, during any period of 12 consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; then, and in every such event, the Administrative Agent shall if requested by Banks holding more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Loans (together with accrued interest thereon) to be, and the Loans (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (h) or (i) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Banks, Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower SECTION 6.02. Notice of Default. The 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 (or any successor Administrative Agent that is a Bank) 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 (or any such successor) 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 Collateral Documents. 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. (a) The Administrative Agent may (i) resign at any time by giving notice thereof to the Banks and the Borrower (ii) be removed at any time with or without cause by the Required Banks. Upon any such resignation or removal, 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 or removed Administrative Agent may (i) 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 $500,000,000 or (ii) by notice to the Banks, declare its resignation immediately effective, in which event the responsibilities of the Administrative Agent under the Loan Documents shall thereafter be discharged by the Required Banks collectively until such time as they shall have appointed a successor Administrative Agent in accordance with the foregoing provisions of this Section. 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 or removed Administrative Agent. The retiring or removed Administrative Agent shall be discharged from its duties and obligations under the Loan Documents upon the acceptance of appointment by a successor Administrative Agent, or if earlier, upon the giving of notice by the retiring or removed Administrative Agent pursuant to clause (ii) of the second preceding sentence. After any retiring or removed Administrative Agent's resignation or removal 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. (b) The parties hereto agree that effective July 31, 2000, (i) Morgan Guaranty Trust Company of New York shall resign as Administrative Agent and (ii) Citicorp USA, Inc. shall be appointed successor Administrative Agent, all without further action or consent by any party hereto. 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. SECTION 7.10. Steering Committee. The Administrative Agent may from time to time as it may deem appropriate consult with members of a Steering Committee with respect to proposed amendments or waivers under the Loan Documents, Defaults thereunder and exercise of rights and remedies in connection therewith. The Administrative Agent may designate the members of such Steering Committee from time to time in its discretion, subject to acceptance by any Bank so appointed. Any member of such Steering Committee may resign at any time. Membership on such Steering Committee shall not impose any duty or obligation whatsoever on any Bank, and the provisions of this Section shall not in any way alter or affect the other provisions of the Loan Documents dealing with requisite consents of or instructions from the Banks for actions on the part of 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 Adjusted 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 make Euro-Dollar Loans, or to continue or convert outstanding Loans as or into Euro-Dollar Loans, shall be suspended, and each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. 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 make Euro-Dollar Loans, or 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 reflected in an applicable Euro-Dollar Reserve Percentage), 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, its Note or its obligation to make Euro-Dollar Loans and the result of any of the foregoing is to increase the cost to such Bank (or its 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 (i)(x) an Internal Revenue Service form W-8BEN (or any successor form), in duplicate, 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 (y) an Internal Revenue Service form W-8ECI (or any successor form), in duplicate, certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States or (ii) solely if such Bank is claiming exemption from United States withholding tax under Section 871(h) or 881(c) of the Internal Revenue Code with respect to payments of "PORTFOLIO INTEREST", an Internal Revenue Service form W-8BEN (or any successor form), and a certificate representing that such Bank is not a bank for purposes of Section 881(c) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Internal Revenue Code). 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, all Loans which would otherwise be made by such Bank as (or continued as or converted into) Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks). If such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks. ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, 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 facsimile number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or facsimile number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by facsimile, when such communication is transmitted to the facsimile number specified in this Section and confirmation of receipt 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, (ii) the reasonable fees and disbursements of E&Y Restructuring LLC, financial advisor to the Davis Polk & Wardwell, in connection with the engagement contemplated by Section 3.01(v), (iii) 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 (iv) all costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by the Administrative Agent and the Banks in enforcing any obligations of or in collecting any payments due from the Borrower or any Subsidiary Guarantor hereunder or under the other Loan Documents (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Second Priority Subsidiary Guarantee Agreement) or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "WORK-OUT" or pursuant to any insolvency or bankruptcy proceedings. (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 this Section 9.05 or (v) change 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 the Loan Documents. (b) Any provision of any Exchange Debt Collateral Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the requisite parties specified therein. If any Exchange Debt Collateral Document requires the consent of the Administrative Agent for an amendment or waiver thereof but does not specify the requisite consent or instruction of the Banks therefor, the Administrative Agent shall consent to such amendment or waiver only with the consent of the Required Banks; provided that no such amendment or waiver shall, unless consented to by all Banks, (i) alter in a manner adverse to the Banks the priorities specified in the Exchange Debt Collateral Documents, (ii) effect or permit a release of (y) any of the Exchange Debt Collateral under the PCS Pledge Agreement or the Drugstore.com Pledge Agreement or (z) all or substantially all of the Exchange Debt Collateral under the Second Priority Collateral Documents, collectively, or (iii) release all or substantially all Subsidiary Guarantors from their obligations under the Second Priority Subsidiary Guarantee Agreement. Notwithstanding the foregoing, Collateral shall be released from the Lien of any Exchange Debt Collateral Document from time to time as necessary to effect any sale of Exchange Debt 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 the applicable provisions of the Loan Documents and for the pledge of any non-cash proceeds thereof in accordance with the applicable provisions of the Pledge Agreements or, to the extent required thereby, the Exchange Debt First Priority Collateral Documents and the Second Priority Collateral Documents. If a Subsidiary Guarantor ceases to be a Subsidiary of the Borrower in a transaction permitted by the Loan Documents, or ceases to own any property that constitutes Second Priority Collateral, at the request of and at the expense of the Borrower, such Subsidiary Guarantor shall be released from the Second Priority Subsidiary Guarantee Agreement, the Second Priority Subsidiary Security Agreement and each other Loan Document to which it is a party. SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "PARTICIPANT") participating interests in 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 C 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 or delayed); 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 with a Credit Exposure 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. Collateral. Each of the Banks represents to the Administrative Agent and each of the other Banks that it in good faith is not relying upon any "MARGIN STOCK" (as defined in Regulation U) as collateral in the extension of the credit provided for in this Agreement. SECTION 9.08. 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 9.09. 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 9.10. 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. SECTION 9.11. Collateral Trust and Intercreditor Agreement. Each Bank hereby authorizes the Administrative Agent and the Second Priority Collateral Trustee to enter into the Collateral Trust and Intercreditor Agreement and the other Exchange Debt Collateral Documents on its behalf, and agrees that the Second Priority Collateral Trustee may enforce the rights and remedies of the Banks under each Second Priority Collateral Document to the extent provided therein. 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: /s/ Elliot S. Gerson ---------------------------- Title: Senior Executive Vice President Address: 30 Hunter Lane Camp Hill, PA 17011 Attention: Chief Financial Officer Telephone No.: (717) 975-5750 Facsimile No.: (717) 975-3764 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Anna Marie Fallon ------------------------------- Title: Vice President J.P. MORGAN VENTURES CORPORATION By: /s/ Grace B. Vogel --------------------------------- Title: Controller SALOMON BROTHERS HOLDING COMPANY, INC. By: /s/ Edward Sutherland ---------------------------------- Title: Managing Director CHASE SECURITIES INC. as Agent for THE CHASE MANHATTAN BANK By: /s/ John Abate --------------------------------- Title: Managing Director PNC BANK, NATIONAL ASSOCIATION By: /s/ Thomas J. McCool -------------------------------- Title: Senior Vice President UNION BANK OF CALIFORNIA, N.A. By: /s/ Christiana Creekpaum -------------------------------- Title: Vice President LEHMAN COMMERCIAL PAPER INC. By: /s/ Michele Swanson -------------------------------- Title: Authorized Signatory ROYAL BANK OF CANADA By: /s/ Lori Ross -------------------------------- Title: Manager BANC OF AMERICA SECURITIES LLC as agent for BANK OF AMERICA, N.A. By: /s/ Francis J. Griffin -------------------------------- Title: Principal FIRST UNION NATIONAL BANK By: /s/ Helen F. Wessling -------------------------------- Title: Senior Vice President/Director BEAR, STEARNS & CO. INC. By: /s/ Gregory A. Hanley ------------------------------ Title: Senior Managing Director BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ M. O'Connor ------------------------------- Title: Vice President FARALLON CAPITAL PARTNERS, L.P. FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P. FARALLON CAPITAL INSTITUTIONAL PARTNERS II, L.P. FARALLON CAPITAL INSTITUTIONAL PARTNERS III, L.P. TINICUM PARTNERS, L.P. By: Farallon Partners, L.L.C., its General Partner By: /s/ William F. Mellin ------------------------------------------ Title: Managing Member FARALLON CAPITAL OFFSHORE INVESTORS, INC. By: Farallon Capital Management, L.L.C., its Agent and Attorney-in-Fact By: /s/ William F. Mellin ------------------------------------ Title: Managing Member SPECIAL SITUATIONS FUND ADVISORS, INC. as agent for THE CHASE MANHATTAN BANK By: /s/ Michael Cacouris ---------------------------------- Title: Managing Director MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By: /s/ Anna Marie Fallon ---------------------------------- Title: Vice President Address: Attention: Facsimile No.:
Schedule I REDUCTION OF TRANCHE A TRANCHE B LOANS TRANCHE B LOANS LOANS LOANS OUTSTANDING REDUCTION OF LOANS OUTSTANDING OUTSTANDING OUTSTANDING UNDER TRANCHE A LOANS OUTSTANDING UNDER UNDER UNDER EXISTING MGT OUTSTANDING UNDER EXISTING RCF EXISTING RCF EXISTING PCS TERM LOAN UNDER EXISTING EXISTING RCF FACILITY FACILITY FACILITY AGREEMENT RCF FACILITY IN FACILITY IN CONVERTED TO CONVERTED TO CONVERTED TO CONVERTED TO EXCHANGE FOR EXCHANGE FOR COMMON COMMON COMMON COMMON LOANS LOANS BANK STOCK STOCK STOCK STOCK HEREUNDER HEREUNDER Morgan Guaranty $0 $0 $0 $0 $ 12,800,000 $ 42,929,611 Trust Company of New York J.P. Morgan 0 0 0 200,000,000 0 0 Ventures Corporation Banc of America 0 0 9,717,824 0 0 0 Securities LLC as agent for Bank of America, N.A. Chase Securities 0 0 1,546,017 0 0 0 Inc. as agent for The Chase Manhattan Bank First Union 6,000,000 13,271,756 0 0 0 6,851,499 National Bank PNC Bank, 9,278,910 0 0 0 0 9,278,910 National Association Union Bank of 0 0 10,822,122 0 0 0 California, N.A. Lehman 0 0 2,208,596 0 0 0 Commercial Paper Inc. Bank of Tokyo- $6,000,000 $2,449,634 $0 $0 $0 $8,449,634 Mitsubishi Trust Company Royal Bank of 5,799,319 0 0 0 200,681 5,598,638 Canada Salomon Brothers 0 0 3,533,754 0 0 0 Holding Company, Inc. Farallon Capital 0 0 1,868,296 0 0 0 Partners, L.P. Farallon Capital 0 0 1,571,681 0 0 0 Institutional Partners, L.P. Farallon Capital 0 0 506,122 0 0 0 Institutional Partners II, L.P. Farallon Capital 0 0 479,089 0 0 0 Institutional Partners III, L.P. Farallon Capital 0 0 2,986,420 0 0 0 Offshore Investors, Inc. Tinicum Partners, 0 0 97,620 0 0 0 L.P. Special Situations $0 $0 $883,439 $0 $0 $0 Fund Advisors as agent for The Chase Manhattan Bank Bear, Stearns & 5,799,319 0 0 0 200,681 5,598,638 Co. Inc. Totals $32,877,548 $15,721,390 $36,220,980 $200,000,000 $13,201,362 $78,706,930 REDUCTION OF REDUCTION OF LOANS LOANS OUTSTANDING OUTSTANDING UNDER UNDER EXISTING MGT EXISTING PCS TERM LOAN FACILITY IN AGREEMENT IN EXCHANGE FOR EXCHANGE FOR TOTAL LOANS LOANS LOANS OUTSTANDING BANK HEREUNDER HEREUNDER HEREUNDER Morgan Guaranty $ 73,000,000 $0 $ 128,729,611 Trust Company of New York J.P. Morgan 0 61,232,552 61,232,552 Ventures Corporation Banc of America 9,717,824 0 9,717,824 Securities LLC as agent for Bank of America, N.A. Chase Securities 1,546,017 0 1,546,017 Inc. as agent for The Chase Manhattan Bank First Union 12,420,257 0 19,271,756 National Bank PNC Bank, 0 0 9,278,910 National Association Union Bank of 10,822,122 0 10,822,122 California, N.A. Lehman 2,208,596 0 2,208,596 Commercial Paper Inc. Bank of Tokyo- 0 $0 $ 8,449,634 Mitsubishi Trust Company Royal Bank of 0 0 5,799,319 Canada Salomon Brothers 3,533,754 0 3,533,754 Holding Company, Inc. Farallon Capital 1,868,296 0 1,868,296 Partners, L.P. Farallon Capital 1,571,681 0 1,571,681 Institutional Partners, L.P. Farallon Capital 506,122 0 506,122 Institutional Partners II, L.P. Farallon Capital 479,089 0 479,089 Institutional Partners III, L.P. Farallon Capital 2,986,420 0 2,986,420 Offshore Investors, Inc. Tinicum Partners, 97,620 0 97,620 L.P. Special Situations $883,439 $0 $883,439 Fund Advisors as agent for The Chase Manhattan Bank Bear, Stearns & 0 0 5,799,319 Co. Inc. Totals $121,641,237 $61,232,552 $274,782,081
EXHIBIT A NOTE New York, New York June 12, 2000 For value received, Rite Aid Corporation, a Delaware corporation (the "BORROWER"), promises to pay to the order of _____________ (the "BANK"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the last day of the Interest Period relating to such Loan. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the Types thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the Exchange Debt Facility dated as of June 12, 2000 among the Borrower, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent (as the same may be amended from time to time, the "CREDIT AGREEMENT"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. Payment of principal and interest on this Note is secured by security interests in certain collateral pursuant to the Exchange Debt Collateral Documents. RITE AID CORPORATION By: ________________________________ Name: Title: Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL - ------------------------------------------------------------------------------ Amount of Amount of Type of Principal Notation Date Loan Loan Repaid Made By - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ EXHIBIT C ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _____, 20__ among [ASSIGNOR] (the "ASSIGNOR"), [ASSIGNEE] (the "ASSIGNEE"), [RITE AID CORPORATION (the "BORROWER")] and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "AGREEMENT") relates to the Exchange Debt Facility dated as of June 12, 2000 among [Rite Aid Corporation (the "BORROWER")] the Borrower, the Assignor and the other Banks parties thereto, as Banks, and the Administrative Agent (as amended from time to time, the "CREDIT AGREEMENT"); WHEREAS, Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $_______ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its outstanding Loans thereunder in an amount equal to $___________ (the "ASSIGNED AMOUNT") and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, the Borrower and the Administrative Agent and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Credit Exposure in an amount equal to the Assigned Amount, and (ii) the Credit Exposure of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds an amount equal to $_______.(1) Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. - ---------- 1 Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. [SECTION 4. Consent of [the Borrower and] the Administrative Agent. This Agreement is conditioned upon the consent of [the Borrower and] the Administrative Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by [the Borrower and] the Administrative Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] SECTION 5. Non-reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. 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. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By ---------------------------------- Title: [ASSIGNEE] By ---------------------------------- Title: [RITE AID CORPORATION By ---------------------------------- Title:] MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By ---------------------------------- Title: EX-10 13 0013.txt EXHIBIT 10.9 - SECOND PRIORITY SUBSIDIARY GUARANTEE AGREEMENT Exhibit 10.9 EXECUTION COPY SECOND PRIORITY SUBSIDIARY GUARANTEE AGREEMENT dated as of June 12, 2000, among each of the subsidiaries listed on Schedule I hereto (each such subsidiary individually, a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors") of RITE AID CORPORATION, a Delaware corporation (the "Borrower"), and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral trustee (in such capacity, the "Second Priority Collateral Trustee") for the holders from time to time of the Second Priority Debt Obligations. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Definitions Annex annexed hereto and by this reference incorporated herein. The Second Priority Debt Parties have extended credit to the Borrower or one or more of its Subsidiaries pursuant to the Second Priority Debt Documents. Each of the Subsidiary Guarantors is a wholly owned Subsidiary of the Borrower and acknowledges that it has and will continue to derive substantial benefit from the credit so extended under the Second Priority Debt Documents. It is a condition precedent, among other conditions, to the effectiveness of pending amendments to and extensions of the Second Priority Debt Documents that the Subsidiary Guarantors execute and deliver a Second Priority Subsidiary Guarantee Agreement in the form hereof. As consideration therefor and in order to induce the lenders party to the Second Priority Debt Documents to enter into such amendments and extensions, the Subsidiary Guarantors are willing to execute this Agreement. Accordingly, the parties hereto agree as follows: SECTION 1. GUARANTEE. (a) Each Subsidiary Guarantor unconditionally guarantees, jointly with the other Subsidiary Guarantors and severally, as a primary obligor and not merely as a surety, the due and punctual payment of, and the due and punctual performance of, the Second Priority Debt Obligations. Each Subsidiary Guarantor agrees that the Second Priority Debt Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guarantee notwithstanding any extension or renewal of any Second Priority Debt Obligation. (b) Anything contained in this Agreement to the contrary notwithstanding, the obligations of each Subsidiary Guarantor hereunder shall be limited to a maximum aggregate amount equal to the greatest amount that would not render such Subsidiary Guarantor's obligations hereunder subject to avoidance under Section 548 of Title 11 of the United States Code or any comparable provisions of any applicable state law, in each case after giving effect to all other liabilities of such Subsidiary Guarantor, contingent or otherwise, that are relevant under such laws (specifically excluding, however, any liabilities of such Subsidiary Guarantor (a) in respect of intercompany indebtedness to the Borrower or Affiliates of the Borrower to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Subsidiary Guarantor hereunder and (b) under any Guarantee of the Senior Obligations) and after giving effect as assets to the value of any rights to subrogation, contribution, reimbursement, indemnity or similar rights of such Subsidiary Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an equitable allocation among such Subsidiary Guarantor and other Affiliates of the Borrower of obligations arising under Guarantees by such parties (including the Second Priority Indemnity, Subrogation and Contribution Agreement). To the extent the provisions of this subsection (b) are applicable, any such reduction shall be applied to the obligations of such Subsidiary Guarantor hereunder before any reduction in the obligations of such Subsidiary Guarantor under the Senior Subsidiary Guarantee Agreement. SECTION 2. OBLIGATIONS NOT WAIVED. To the fullest extent permitted by applicable law, each Subsidiary Guarantor waives presentment to, demand of payment from and protest to the Borrower of any of the Second Priority Debt Obligations, and also waives notice of acceptance of its guarantee and notice of protest for nonpayment. To the fullest extent permitted by applicable law, the obligations of each Subsidiary Guarantor hereunder shall not be affected by (a) the failure of the Second Priority Collateral Trustee or any other Second Priority Debt Party to assert any claim or demand or to enforce or exercise any right or remedy against the Borrower or any other Subsidiary Guarantor under the provisions of the Second Priority Debt Documents or otherwise, (b) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of this Agreement, any other Second Priority Debt Document, any Guarantee or any other agreement, including with respect to any other Subsidiary Guarantor under this Agreement or (c) the failure to perfect any security interest in, or the release of, any of the security held by or on behalf of the Second Priority Collateral Trustee or any other Second Priority Debt Party. SECTION 3. SECURITY. Each of the Subsidiary Guarantors authorizes the Second Priority Collateral Trustee and each of the other Second Priority Debt Parties to (a) take and hold security for the payment of this guarantee and the Second Priority Debt Obligations and exchange, enforce, waive and release any such security, (b) apply such security and direct the order or manner of sale thereof as they in their sole discretion may determine and (c) release or substitute any one or more endorsees, other Subsidiary Guarantors or other obligors. SECTION 4. GUARANTEE OF PAYMENT. Each Subsidiary Guarantor agrees that its guarantee constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Second Priority Collateral Trustee or any other Second Priority Debt Party to any of the security held for payment of the Second Priority Debt Obligations or to any balance of any deposit account or credit on the books of the Second Priority Collateral Trustee or any other Second Priority Debt Party in favor of the Borrower, any other Obligor or any other person. SECTION 5. NO DISCHARGE OR DIMINISHMENT OF GUARANTEE. Except as contemplated by Sections 1(b) and 11 hereof, the obligations of each Subsidiary Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Second Priority Debt Obligations), including any claim of waiver, release, surrender, alteration or compromise of any of the Second Priority Debt Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Second Priority Debt Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of the Second Priority Collateral Trustee or any other Second Priority Debt Party to assert any claim or demand or to enforce any remedy under the Second Priority Debt Documents or any other agreement, by any waiver or modification of any provision of any thereof, by any default, failure or delay, wilful or otherwise, in the performance of the Second Priority Debt Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of any Subsidiary Guarantor or that would otherwise operate as a discharge of each Subsidiary Guarantor as a matter of law or equity (other than the indefeasible payment in full in cash of all the Second Priority Debt Obligations). SECTION 6. DEFENSES OF BORROWER WAIVED. To the fullest extent permitted by applicable law, each of the Subsidiary Guarantors waives any defense based on or arising out of any defense of the Borrower or the unenforceability of the Second Priority Debt Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower, other than the final and indefeasible payment in full in cash of the Second Priority Debt Obligations. The Second Priority Collateral Trustee and the other Second Priority Debt Parties may, at their election, foreclose on any security held by one or more of them by one or more judicial or nonjudicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Second Priority Debt Obligations, make any other accommodation with the Borrower or any other guarantor or exercise any other right or remedy available to them against the Borrower or any other guarantor, without affecting or impairing in any way the liability of any Subsidiary Guarantor hereunder except to the extent the Second Priority Debt Obligations have been fully, finally and indefeasibly paid in cash. Pursuant to applicable law, each of the Subsidiary Guarantors waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Subsidiary Guarantor against the Borrower or any other Subsidiary Guarantor or guarantor, as the case may be, or any security. SECTION 7. AGREEMENT TO PAY. In furtherance of the foregoing and not in limitation of any other right that the Second Priority Collateral Trustee or any other Second Priority Debt Party has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the failure of the Borrower or any other guarantor under the Second Priority Debt Documents to pay any Second Priority Debt Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Subsidiary Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the Second Priority Collateral Trustee or such other Second Priority Debt Party as designated thereby in cash the amount of such unpaid Second Priority Debt Obligations. Upon payment by any Subsidiary Guarantor of any sums to the Second Priority Collateral Trustee or any Second Priority Debt Party as provided above, all rights of such Subsidiary Guarantor against the Borrower arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise, including pursuant to the Second Priority Indemnity, Subrogation and Contribution Agreement, shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full in cash of all the Second Priority Debt Obligations. In addition, any indebtedness of the Borrower now or hereafter held by any Subsidiary Guarantor is hereby subordinated in right of payment to the prior payment in full of the Second Priority Debt Obligations. If any amount shall erroneously be paid to any Subsidiary Guarantor on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such indebtedness of the Borrower, such amount shall, subject to the provision of Section 8 hereof, be held in trust for the benefit of the Second Priority Debt Parties and shall forthwith be paid to the Second Priority Collateral Trustee to be credited against the payment of the Second Priority Debt Obligations, whether matured or unmatured, in accordance with the terms of the Second Priority Debt Documents and the Collateral Trust and Intercreditor Agreement. SECTION 8. SUBORDINATION. (a) Second Priority Guarantee Obligations Subordinated to Senior Guarantee Obligations. The obligations of each Subsidiary Guarantor under this Agreement (the "SECOND PRIORITY GUARANTEE OBLIGATIONS" of such Subsidiary Guarantor) shall be subordinated, to the extent and in the manner provided in this Section 8, to the prior payment by such Subsidiary Guarantor of its obligations under the Senior Subsidiary Guarantee Agreement (the "SENIOR GUARANTEE OBLIGATIONS" of such Subsidiary Guarantor). This Section 8 will constitute a continuing offer to all persons who, in reliance upon its provisions, become holders of, or continue to hold, Senior Secured Obligations, and such provisions are made for the benefit of the holders of Senior Secured Obligations, and such holders made obligees under this Section and they and/or each of them may enforce its provisions. (b) No Payment on Second Priority Guarantee Obligations in Certain Circumstances. (i) No payment will be made on account of the Second Priority Guarantee Obligations of any Subsidiary Guarantor until the Senior Obligation Payment Date. (ii) If any payment or distribution of assets of any Subsidiary Guarantor is received by any Second Priority Debt Party in respect of the Second Priority Guarantee Obligations of such Subsidiary Guarantor at a time when that payment or distribution should not have been made as a result of clause (i) above, such payment or distribution will be received and held in trust for and will be paid over to the Senior Debt Parties in respect of Senior Guarantee Obligations of such Subsidiary Guarantor which are due and payable and remain unpaid or unprovided for in cash or cash equivalents until all such Senior Guarantee Obligations have been paid in full or provided for in cash or cash equivalents (as allocated by the Senior Collateral Agent), after giving effect to any concurrent payment or distribution or provision therefor to the Senior Secured Parties. (c) Second Priority Guarantee Obligations Subordinated to Prior Payment of all Senior Guarantee Obligations on Dissolution, Liquidation or Reorganization. Upon any distribution of assets of any Subsidiary Guarantor upon dissolution, winding up, liquidation or reorganization of such Subsidiary Guarantor (whether in bankruptcy, insolvency, receivership or similar proceeding related to such Subsidiary Guarantor or its property or upon an assignment for the benefit of creditors or otherwise): (i) the Senior Secured Parties shall be entitled to receive payment in full in cash or cash equivalents of all amounts then due in respect of the Senior Guarantee Obligations of such Subsidiary Guarantor (including all such obligations in respect of interest accruing subsequent to the commencement of a bankruptcy proceeding in respect of either the Borrower or such Subsidiary Guarantor, whether or not allowed or allowable as a claim in such bankruptcy proceeding) before the Second Priority Debt Parties are entitled to receive any direct or indirect payment or distribution on account of the Second Priority Guarantee Obligations of such Subsidiary Guarantor; (ii) any payment or distribution of cash, properties or securities of any kind or character to which the Second Priority Debt Parties would be entitled in respect of the Second Priority Guarantee Obligations of such Subsidiary Guarantor except for the provisions of this Section 8 will be paid by the liquidating trustee or agent or other person making such a payment or distribution directly to the Senior Secured Parties or their representatives to the extent necessary to make payment in full in or provision for payment in full in cash or cash equivalents of all Senior Guarantee Obligations of such Subsidiary Guarantor remaining unpaid, after giving effect to any concurrent payment or distribution to the Senior Secured Parties; and (iii) if, notwithstanding the foregoing, any payment or distribution of any kind or character, whether in cash, property or securities is received by the Second Priority Debt Parties on account of the Second Priority Guarantee Obligations of any Subsidiary Guarantor before all Senior Guarantee Obligations of such Subsidiary Guarantor are paid in full in cash or cash equivalents, such payment or distribution will be received in trust and held for and will be paid over to the Senior Secured Parties or their representatives for application to the payment of such Senior Guarantee Obligations of such Subsidiary Guarantor until all such Senior Guarantee Obligations of such Subsidiary Guarantor have been paid in full or provided for in cash or cash equivalents after giving effect to any concurrent payment or distribution to the Senior Secured Parties. (d) For purposes of this Section 8, the words "cash, property or securities" shall (so long as the effect of this paragraph (d) is not to cause the Second Priority Guarantee Obligations of any Subsidiary Guarantor to be treated in any bankruptcy proceeding as part of the same class of claims as the Senior Guarantee Obligations of such Subsidiary Guarantor or any class of claims on a parity with or senior to the Senior Guarantee Obligations of any Subsidiary Guarantor for any payment or distribution) not be deemed to include any payment or distribution of securities (subordinated at least to the same extent as the Second Priority Guarantee Obligations of such Subsidiary Guarantor to the payment of all Senior Guarantee Obligations of such Subsidiary Guarantor then outstanding) of such Subsidiary Guarantor or any other corporation authorized by an order or decree giving effect, and stating in such order or decree that effect has been given, to subordination provided for in this Section 8 and made by a court of competent jurisdiction in a bankruptcy proceeding; provided that (i) the Senior Guarantee Obligations of such Subsidiary Guarantor are assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the Senior Secured Parties are not, without their consent, altered by such bankruptcy proceeding. (e) Second Priority Debt Parties to be Subrogated to Rights of Senior Secured Parties. Following the payment in full in cash or cash equivalents or provision for payment in full in cash or cash equivalents of all Senior Guarantee Obligations of any Subsidiary Guarantor, the Second Priority Debt Parties will be subrogated to the rights of the Senior Secured Parties to receive payments or distributions of assets in respect of the Senior Subsidiary Guarantee Obligations of such Subsidiary Guarantor until all amounts owing in respect of the Second Priority Guarantee Obligations of such Subsidiary Guarantor have been paid in full, and for the purpose of such subrogation no such payments or distributions to the Senior Secured Parties by or on behalf of such Subsidiary Guarantor or by or on behalf of the Second Priority Debt Parties by virtue of this Section which otherwise would have been made to the Second Priority Debt Parties will, as between such Subsidiary Guarantor and the Second Priority Debt Parties, be deemed to be payment by such Subsidiary Guarantor to or on account of its Senior Guarantee Obligations, it being understood that the provisions of this Section are and are intended sole for the purpose of defining the relative rights of the Second Priority Debt Parties, on the one hand, and the Senior Secured Parties, on the other hand. (f) Obligations of the Subsidiary Guarantors Unconditional. Nothing contained in this Section 8 or elsewhere in this Agreement is intended to or will impair, as between the Subsidiary Guarantors and the Second Priority Debt Parties, the obligations of the Subsidiary Guarantors, which are absolute and unconditional, to pay to the Second Priority Debt Parties the Second Priority Guarantee Obligations as and when they become due and payable in accordance with their terms, or is intended to or will affect the relative rights of the Second Priority Debt Parties and creditors of the Subsidiary Guarantors other than the Senior Secured Parties, nor will anything herein or therein prevent any Second Priority Debt Party from exercising all remedies otherwise permitted by applicable law upon default under the Second Priority Debt Documents, subject to the rights of the Senior Secured Parties, if any, under this Section, and under the Collateral Trust and Intercreditor Agreement. (g) Subordination Rights not Impaired by Acts or Omissions of the Subsidiary Guarantors or Senior Secured Parties. No right of any present or future Senior Secured Parties to enforce subordination as provided herein will at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Subsidiary Guarantor or by any act or failure to act by any such Senior Secured Parties, or by any noncompliance by any Subsidiary Guarantor with the terms of this Agreement, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. SECTION 9. INFORMATION. Each of the Subsidiary Guarantors assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Second Priority Debt Obligations and the nature, scope and extent of the risks that such Subsidiary Guarantor assumes and incurs hereunder, and agrees that none of the Second Priority Collateral Trustee or the other Second Priority Debt Parties will have any duty to advise any of the Subsidiary Guarantors of information known to it or any of them regarding such circumstances or risks. SECTION 10. REPRESENTATIONS AND WARRANTIES. Each of the Subsidiary Guarantors represents and warrants as to itself that all representations and warranties relating to it contained in the Second Priority Debt Documents are true and correct. SECTION 11. TERMINATION. The Guarantees made hereunder (a) shall terminate when all the Second Priority Debt Obligations have been indefeasibly paid in full and (b) shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Second Priority Debt Obligation is rescinded or must otherwise be restored by any Second Priority Debt Party upon the bankruptcy or reorganization of the Borrower, any Subsidiary Guarantor or otherwise. SECTION 12. BINDING EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Subsidiary Guarantors that are contained in this Agreement shall bind and inure to the benefit of each party hereto and their respective successors and assigns. This Agreement shall become effective as to any Subsidiary Guarantor when a counterpart hereof executed on behalf of such Subsidiary Guarantor shall have been delivered to the Second Priority Collateral Trustee, and a counterpart hereof shall have been executed on behalf of the Second Priority Collateral Trustee, and thereafter shall be binding upon such Subsidiary Guarantor and the Second Priority Collateral Trustee and their respective successors and assigns, and shall inure to the benefit of such Subsidiary Guarantor, the Second Priority Collateral Trustee and the other Second Priority Debt Parties, and their respective successors and assigns, except that no Subsidiary Guarantor shall have the right to assign its rights or obligations hereunder or any interest herein (and any such attempted assignment shall be void). If all of the capital stock of a Subsidiary Guarantor is sold, transferred or otherwise disposed of (including, without limitation, any such disposition by way of merger or consolidation) pursuant to a transaction permitted by the Second Priority Debt Documents, such Subsidiary Guarantor shall be released from its obligations under this Agreement without further action. This Agreement shall be construed as a separate agreement with respect to each Subsidiary Guarantor and may be amended, modified, supplemented, waived or released with respect to any Subsidiary Guarantor without the approval of any other Subsidiary Guarantor and without affecting the obligations of any other Subsidiary Guarantor hereunder. SECTION 13. WAIVERS; AMENDMENT. (a) No failure or delay of the Second Priority Collateral Trustee in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Second Priority Collateral Trustee hereunder and of the other Second Priority Debt Parties under the Second Priority Debt Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Subsidiary Guarantor therefrom shall in any event be effective unless the same shall be permitted by clause (b), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any Subsidiary Guarantor in any case shall entitle such Subsidiary Guarantor to any other or further notice or demand in similar or other circumstances. (b) None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by each Subsidiary Guarantor affected thereby and by the Second Priority Collateral Trustee with the written consent of the Second Priority Instructing Group, provided that (i) any provision of this Agreement may be waived by the Second Priority Instructing Group pursuant to a letter or agreement executed by the Second Priority Collateral Trustee or by telecopy transmission from the Second Priority Collateral Trustee, in either case with the prior written consent of the Second Priority Instructing Group and (ii) any amendment, waiver, supplement or other modification which by its terms adversely affects the rights of the Second Priority Debt Parties under a particular Second Priority Facility in a manner different from its effect on the other Second Priority Facilities shall only be effective with the consent of the Second Priority Representative for each Second Priority Facility so adversely affected. SECTION 14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 15. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Second Priority Collateral Trustee, at its address or facsimile number set forth on the signature pages hereof, (y) in the case of each Subsidiary Guarantor, in care of the Borrower, at the address of the Borrower or facsimile number set forth on the signature pages of the Collateral Trust and Intercreditor Agreement or (z) in the case of any party, such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Second Priority Collateral Trustee and the Borrower. Each such notice, request or other communication shall be effective if given by facsimile, when such communication is transmitted to the facsimile number specified in this Section and confirmation of receipt is received, if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or if given by any other means, when delivered at the address specified in this Section. SECTION 16. SURVIVAL OF AGREEMENT; SEVERABILITY. (a) All covenants, agreements, representations and warranties made by the Subsidiary Guarantors herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any Second Priority Debt Document shall be considered to have been relied upon by the Second Priority Collateral Trustee and the other Second Priority Debt Parties and shall survive the effectiveness of the Second Priority Debt Documents regardless of any investigation made by the Second Priority Debt Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any loan under any Second Priority Debt Document or any other fee or amount payable under this Agreement or any other Second Priority Debt Document remain outstanding and unpaid. (b) In the event any one or more of the provisions contained in this Agreement or in any other Second Priority Debt Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 17. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 12. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Agreement. SECTION 18. RULES OF INTERPRETATION. References in this Agreement to "Articles", "Sections", "Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to this Agreement unless otherwise specifically provided. Any defined terms may, unless the context otherwise requires, be used in the singular or plural depending on the reference. "Include" or "includes" 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. References to any Person include the successors and assigns of such Person. References "from" or "through" any date mean, unless otherwise specified, "from and including" or "through and including", respectively. SECTION 19. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each Subsidiary Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Second Priority Debt Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Second Priority Collateral Trustee or any other Second Priority Debt Party may otherwise have to bring any action or proceeding relating to this Agreement or any other Second Priority Debt Document against any Subsidiary Guarantor or its properties in the courts of any jurisdiction. (b) Each Subsidiary Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Second Priority Debt Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 15. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 20. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER SECOND PRIORITY DEBT DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER SECOND PRIORITY DEBT DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 20. SECTION 21. ADDITIONAL SUBSIDIARY GUARANTORS. Pursuant to the Second Priority Debt Documents, each Domestic Subsidiary of the Borrower that was not in existence on the date hereof is required to enter into this Agreement as a Subsidiary Guarantor upon becoming a Subsidiary. Upon execution and delivery after the date hereof by the Second Priority Collateral Trustee and such a Subsidiary of an instrument in the form of Annex 1, such Subsidiary shall become a Subsidiary Guarantor hereunder with the same force and effect as if originally named as a Subsidiary Guarantor herein. The execution and delivery of any instrument adding an additional Subsidiary Guarantor as a party to this Agreement shall not require the consent of any other Subsidiary Guarantor hereunder. The rights and obligations of each Subsidiary Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Guarantor as a party to this Agreement. SECTION 22. RIGHT OF SETOFF. If an Event of Default (as defined in any Second Priority Debt Document) shall have occurred and be continuing, each Second Priority Debt Party is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Second Priority Debt Party to or for the credit or the account of any Subsidiary Guarantor against any or all the obligations of such Subsidiary Guarantor now or hereafter existing under this Agreement and the other Second Priority Debt Documents held by such Second Priority Debt Party, irrespective of whether or not such Second Priority Debt Party shall have made any demand under this Agreement or the other Second Priority Debt Documents and although such obligations may be unmatured and regardless of the adequacy of any Collateral. The rights of each Second Priority Debt Party under this Section 22 are in addition to other rights and remedies (including other rights of setoff) which such Second Priority Debt Party may have. SECTION 23. COLLATERAL TRUST AND INTERCREDITOR AGREEMENT. Each of the parties to this Agreement acknowledges and agrees, for the benefit of each other party to the Collateral Trust and Intercreditor Agreement, that notwithstanding anything herein to the contrary, the terms of this Agreement and the rights and remedies of the parties hereto are subject to the Collateral Trust and Intercreditor Agreement and subordinated as provided therein. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE I HERETO, as a Subsidiary Guarantor By: ------------------------------------- Name: Title: WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee By: ------------------------------------- Name: Title: THRIFTY PAYLESS, INC., as a Subsidiary Guarantor By: ------------------------------------- Name: Title: PCS HEALTH SYSTEMS, INC., as a Subsidiary Guarantor By: ------------------------------------- Name: Title: Schedule I to the Second Priority Subsidiary Guarantee Agreement Subsidiary Guarantor -------------------- Annex 1 to the Second Priority Subsidiary Guarantee Agreement SUPPLEMENT NO. dated as of , to the Second Priority Subsidiary Guarantee Agreement dated as of June 12, 2000, among each of the subsidiaries listed on Schedule I thereto (each such subsidiary individually, a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors") of RITE AID CORPORATION, a Delaware corporation (the "Borrower"), and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral trustee (in such capacity, the "Second Priority Collateral Trustee") for the holders from time to time of the Second Priority Debt Obligations. A. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Second Priority Subsidiary Guarantee Agreement. B. The Subsidiary Guarantors have entered into the Second Priority Guarantee Agreement as a condition precedent to the effectiveness of the Second Priority Debt Documents. Pursuant to the Second Priority Debt Documents, each Domestic Subsidiary (as defined therein) of the Borrower is required to enter into the Second Priority Guarantee Agreement as a Subsidiary Guarantor upon becoming a Domestic Subsidiary. Section 21 of the Second Priority Subsidiary Guarantee Agreement provides that additional Subsidiaries of the Borrower may become Subsidiary Guarantors under the Second Priority Subsidiary Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary of the Borrower (the "New Subsidiary Guarantor") is executing this Supplement in accordance with the requirements of the Second Priority Debt Documents to become a Subsidiary Guarantor under the Second Priority Subsidiary Guarantee Agreement. Accordingly, the Second Priority Collateral Trustee and the New Subsidiary Guarantor agree as follows: SECTION 1. In accordance with Section 21 of the Second Priority Subsidiary Guarantee Agreement, the New Subsidiary Guarantor by its signature below becomes a Subsidiary Guarantor under the Second Priority Subsidiary Guarantee Agreement with the same force and effect as if originally named therein as a Subsidiary Guarantor and the New Subsidiary Guarantor hereby (a) agrees to all the terms and provisions of the Second Priority Subsidiary Guarantee Agreement applicable to it as a Subsidiary Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Subsidiary Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a "Subsidiary Guarantor" in the Second Priority Subsidiary Guarantee Agreement shall be deemed to include the New Subsidiary Guarantor. The Second Priority Subsidiary Guarantee Agreement is hereby incorporated herein by reference. SECTION 2. The New Subsidiary Guarantor represents and warrants to the Second Priority Collateral Trustee and the other Second Priority Debt Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. SECTION 3. This Supplement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Second Priority Collateral Trustee shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Subsidiary Guarantor and the Second Priority Collateral Trustee. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Supplement. SECTION 4. Except as expressly supplemented hereby, the Second Priority Subsidiary Guarantee Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Second Priority Subsidiary Guarantee Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision hereof in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 15 of the Second Priority Subsidiary Guarantee Agreement. All communications and notices hereunder to the New Subsidiary Guarantor shall be given to it at the address set forth under its signature below, with a copy to the Borrower. SECTION 8. The New Subsidiary Guarantor agrees to reimburse the Second Priority Collateral Trustee for its out-of-pocket expenses in connection with this Supplement, including the fees, disbursements and other charges of counsel for the Second Priority Collateral Trustee. IN WITNESS WHEREOF, the New Subsidiary Guarantor and the Second Priority Collateral Trustee have duly executed this Supplement to the Senior Subsidiary Guarantee Agreement as of the day and year first above written. [NAME OF NEW SUBSIDIARY GUARANTOR], By: ------------------------------------- Name: Title: WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee By: ------------------------------------- Name: Title: EX-10 14 0014.txt EXHIBIT 10.10 - SECOND PRIORITY SUBSIDIARY SECURITY AGREEMENT Exhibit 10.10 EXECUTION COPY SECOND PRIORITY SUBSIDIARY SECURITY AGREEMENT SECOND PRIORITY SUBSIDIARY SECURITY AGREEMENT, dated as of June 12, 2000, made by the SUBSIDIARY GUARANTORS identified on the signature pages hereto and any other person that becomes a Subsidiary Guarantor pursuant to the Second Priority Debt Documents (as such term is defined below) (the "Grantors"), in favor of WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral trustee (in such capacity, the "Second Priority Collateral Trustee") for the Second Priority Debt Parties. The Second Priority Debt Parties have extended credit to the Borrower or one or more of its Subsidiaries pursuant to the Second Priority Debt Documents. Each of the Subsidiary Guarantors has agreed to guarantee, among other things, all the obligations of the Borrower under the Second Priority Debt Documents. It is a condition precedent, among other conditions, to the effectiveness of pending amendments to and extensions of the Second Priority Debt Documents that the Grantors execute and deliver an agreement in the form hereof to secure the Second Priority Debt Obligations. Accordingly, the Grantors and the Second Priority Collateral Trustee, on behalf of itself and each Second Priority Debt Party (and each of their respective successors or assigns), hereby agree as follows: SECTION 1. Defined Terms. SECTION 1.01. Definitions. (a) Unless otherwise defined herein, terms used herein shall have the meanings given in the Definitions Annex annexed hereto and by this reference incorporated herein and the following terms which are defined in the Uniform Commercial Code in effect in the State of New York on the date hereof are used herein as so defined: Chattel Paper and Farm Products. (b) The following terms shall have the following meanings: "Account Debtor" means any person who is or may become obligated to any Grantor, with respect to or on account of an Account. "Accounts" means with respect to each Grantor, any and all right, title and interest of such Grantor to payment for goods and services sold, leased or rendered, including any such right evidenced by Chattel Paper, whether due or to become due, whether or not it has been earned or performed, and whether now or hereafter acquired or arising in the future, including, without limitation, accounts receivable from affiliates of such person, except that "Accounts" shall not include Accounts owned by affiliates not incorporated or otherwise organized in a state of the United States of America. "Accounts Receivable" means with respect to each Grantor, all right, title and interest of such Grantor to Accounts and all of its right, title and interest in any returned goods, together with all rights, titles, securities and guaranties with respect thereto, including any rights to stoppage in transit, replevin, reclamation and resales, and all related security interests, liens and pledges, whether voluntary or involuntary in each case whether due or become due, whether now or hereafter arising in the future. "Agreement" means this Second Priority Subsidiary Security Agreement, as the same may be amended, modified or otherwise supplemented from time to time. "Contracts" means with respect to each Grantor, all rights of such Grantor under contracts and agreements to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same may from time to time be amended, supplemented or otherwise modified, including, without limitation, (a) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of such Grantor to damages arising out of, or for, breach or default in respect thereof and (c) all rights of such Grantor to exercise all remedies thereunder, in each case to the extent the grant by such Grantor of a security interest pursuant to this Agreement in its rights under such contract or agreement is not validly prohibited without the consent of any other person, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from all such other persons (it being understood that the foregoing shall not be deemed to obligate such Grantor to obtain such consents) in each case, to the extent that such Contract relates to any Accounts, Inventory or Intercompany Advances, provided, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any such Contract to the extent that an otherwise applicable prohibition on such grant is rendered ineffective by the Uniform Commercial Code. "Copyrights" means (a) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished (including, without limitation, those listed in Schedule 4), all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (b) the right to obtain all renewals thereof. "Copyright Licenses" means any written agreement naming any Grantor as licensor or licensee (including, without limitation, those listed in Schedule 4), granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright, and all rights of such Grantor under any such Agreement. "Documents" means with respect to each Grantor, all Instruments, files, records, ledger sheets, and documents covering or relating to any of the Accounts, General Intangibles, Inventory or Proceeds. "Event of Default" means an "Event of Default" as defined in any Second Priority Debt Document. "General Intangibles" means with respect to each Grantor, as defined in the Uniform Commercial Code in effect on the date hereof to the extent, in the case of any General Intangibles arising under any contract or agreement, that the grant by such Grantor of a security interest pursuant to this Agreement in its rights under such contract or agreement is not validly prohibited without the consent of any other person, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from all such other persons (it being understood that the foregoing shall not be deemed to obligate such Grantor to obtain such consents) in each case to the extent that such General Intangibles relate to the Accounts, Inventory or Intercompany Advances, provided, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any such General Intangible to the extent that an otherwise applicable prohibition on such grant is rendered ineffective by the Uniform Commercial Code, and provided, further, that "General Intangibles" shall not include any General Intangibles owned by an Affiliate not incorporated or otherwise organized in a state of the United States of America. "Indemnitee" means the Second Priority Debt Parties and their respective officers, directors, trustees, affiliates and controlling persons. "Instrument" means an Instrument as defined in the Uniform Commercial Code, insofar as such Instruments evidence Intercompany Advances, Accounts Receivable or proceeds of Inventory. "Intellectual Property" means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks, the Trademark Licenses, inventions, designs, trade secrets, confidential or proprietary technical and business information, know-how, show- how or other data or information, software and databases and all embodiments or fixations thereof, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "Intercompany Advances" means any advances or open accounts owing by the Borrower or any Subsidiary of the Borrower to any Grantor. "Inventory" means with respect to each Grantor, all right, title and interest of such Grantor in and to goods intended for sale or lease by such Grantor, or consumed in such Grantor's business (including, without limitation, all operating parts and supplies), together with all raw materials and finished goods, whether now owned or hereafter acquired or arising. "License" means any Patent License, Trademark License, Copyright License or other license or sublicense to which any Grantor is a party, including those listed on Schedule 4 (other than those license agreements in existence on the date hereof and listed on Schedule 4 and those license agreements entered into after the date hereof, which by their terms prohibit assignment or a grant of a security interest by such Grantor as licensee thereunder). "Patents" means (a) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, including, without limitation, any of the foregoing referred to in Schedule 4, (b) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including, without limitation, any of the foregoing referred to in Schedule 4, and (c) all rights to obtain any reissues or extensions of the foregoing. "Patent License" means all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent, including, without limitation, any of the foregoing referred to in Schedule 4. "Proceeds" means with respect to each Grantor, any consideration received from the sale, exchange, collection or other disposition of any asset or property which constitutes Second Priority Collateral, any value received as a consequence of the possession of any Second Priority Collateral and any payment received from any insurer or other person or entity as a result of the destruction, loss, theft, damage or other involuntary conversion of whatever nature of any asset or property which constitutes Second Priority Collateral, and shall include, without limitation, (a) all cash and negotiable instruments received or held on behalf of the Second Priority Collateral Trustee pursuant to Section 5.03, (b) any claim of such Grantor against a third party for (and the right to sue and recover for and the rights to damages or profits due or accrued arising out of or in connection with) (i) past, present or future infringement of any Patent now or hereafter owned by any Grantor, or licensed under a Patent License, (ii) past, present or future infringement or dilution of any Trademark now or hereafter owned by any Grantor or licensed under a Trademark License or injury to the goodwill associated with or symbolized by any Trademark now or hereafter owned by any Grantor and (iii) past, present or future infringement of any Copyright now or hereafter owned by any Grantor or licensed under a Copyright License and (c) any and all amounts from time to time paid or payable under or in connection with any of the Second Priority Collateral. "Second Priority Collateral" is defined in Section 2 of this Agreement. "Second Priority Collateral Account" means any collateral account established by the Second Priority Collateral Trustee as provided in Section 5.03 or Section 7.02. "Trademarks" means (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, including, without limitation, any of the foregoing referred to in Schedule 4, and (b) the right to obtain all renewals thereof. "Trademark License" means any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including, without limitation, any of the foregoing referred to in Schedule 4. SECTION 1.02. Other Definitional Provisions. (a) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. Grant of Security Interest. As collateral security for the prompt and complete payment and performance when due, whether at the stated maturity, by acceleration, upon one or more dates set for prepayment or otherwise of the obligations of each Grantor under the Second Priority Subsidiary Guarantee Agreement, such Grantor hereby grants to the Second Priority Collateral Trustee, for the ratable benefit of the Second Priority Debt Parties, a security interest in all of the following property now owned or at any time hereafter acquired by such Grantor (collectively, with respect to each Grantor, the "Second Priority Collateral"): (a) the Accounts Receivable and Chattel Paper; (b) the Cash Management Accounts (as defined in the Senior Subsidiary Security Agreement) and the cash on deposit therein; (c) all Contracts; (d) all Documents; (e) all General Intangibles; (f) all Instruments; (g) all Intellectual Property; (h) all Inventory; (i) all books and records pertaining to any and all of the foregoing and item (j) herein; and (j) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. Nothing contained in this Section 2 is intended to limit the Grantor's rights to create Permitted Liens (as defined below). "Second Priority Collateral" shall not include (i) any contract, lease or license, which, by its terms, validly prohibits the granting of a security interest therein unless a consent to the pledge hereunder has been obtained or such prohibition was created in anticipation of this provision; provided that each Grantor will use commercially reasonable efforts to obtain any consent necessary hereunder to permit the pledge hereunder, and provided, further, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any such Second Priority Collateral to the extent that an otherwise applicable prohibition on such grant is rendered ineffective by the Uniform Commercial Code or (ii) the Exchange Debt First Priority Collateral. Furthermore, Second Priority Collateral shall not include any property specified in Section 2(g) above if the granting of a security interest therein would jeopardize the Grantor's rights in any pending applications for Federal Trademark registration. Such security interests are granted as security only and shall not subject any Second Priority Debt Party to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of the Second Priority Collateral. SECTION 3. Representations and Warranties. Each Grantor hereby represents and warrants, as to itself and the Second Priority Collateral in which the security interest is created hereunder, that: SECTION 3.01. Title; No Other Liens. Except for the security interest granted to the Second Priority Collateral Trustee for the ratable benefit of the Second Priority Debt Parties pursuant to this Agreement and the other Liens permitted to exist pursuant to the Second Priority Debt Documents (the "Permitted Liens"), each Grantor owns each item of the Second Priority Collateral free and clear of any and all Liens or claims of others (or arrangements reasonably satisfactory to the Second Priority Collateral Trustee have been made for the timely release or discharge of such Liens). No security agreement, financing statement or other public notice with respect to all or any part of such Second Priority Collateral is on file or of record in any public office, except such as have been filed or will be filed, pursuant to this Agreement, in favor of the Second Priority Collateral Trustee, for the ratable benefit of the Second Priority Debt Parties, or in respect of Permitted Liens (or arrangements reasonably satisfactory to the Second Priority Collateral Trustee have been made for the timely termination of such agreement or financing statement). Furthermore, no Grantor has intentionally entered into any contract, lease or license in anticipation of this Agreement, which by its terms, validly prohibits the granting of a security interest herein. SECTION 3.02. Enforceable Obligation; Perfected, Second Priority Security Interests. This Agreement constitutes a legal, valid and binding obligation of each Grantor, enforceable against such Grantor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), and the security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified in Schedule 1 hereto (or in the case of Instruments, delivery to the Second Priority Collateral Trustee or its designee) shall constitute fully perfected security interests in the Second Priority Collateral in favor of the Second Priority Collateral Trustee for the ratable benefit of the Second Priority Debt Parties, and (b) are prior and superior in right to all other Liens (other than Permitted Liens, to the extent that such Permitted Liens are expressly permitted by the Second Priority Debt Documents to have priority) on the Second Priority Collateral in existence on the date hereof. SECTION 3.03. Inventory. The Inventory owned by such Grantor are kept at the locations listed in Schedule 2 hereto, which shall be updated from time to time in accordance with Section 4.05 of this Agreement, or at such other locations as shall be permitted by Section 4.04. SECTION 3.04. Chief Executive Office; Jurisdiction of Organization. As of the Closing Date, each Grantor's chief executive office, principal place of business and jurisdiction of incorporation is located at the locations listed in Schedule 6 hereto. SECTION 3.05. Farm Products. None of the Second Priority Collateral constitutes, or is the Proceeds of, Farm Products (as such term is defined in the Uniform Commercial Code). SECTION 3.06. Intellectual Property. (a) Schedule 4 lists all Intellectual Property owned (and registered with the U.S. Copyright Office or the U.S. Patent and Trademark Office) or licensed by such Grantor in its own name on the date hereof. (b) On the date hereof, based on information known, or reasonably available to such Grantor, all Intellectual Property material to the conduct of such Grantor's business is valid, subsisting, unexpired and enforceable, has not been abandoned and does not infringe the intellectual property rights of any other person. (c) Except as set forth in Schedule 4, on the date hereof, none of the Intellectual Property is the subject of any licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor. (d) On the date hereof, based on information known, or reasonably available to such Grantor, no holding, decision or judgment has been rendered by any Governmental Authority which would materially limit, cancel or question the validity of, or such Grantor's rights in, any Intellectual Property in any respect that could reasonably be expected to have a Material Adverse Effect. (e) Except as set forth on Schedule 4, on the date hereof, no action or proceeding is pending, or, to the knowledge of such Grantor, threatened, on the date hereof (i) seeking to materially limit, cancel or question the validity of any Intellectual Property material to the conduct of such Grantor's business or such Grantor's ownership interest therein, or (ii) which, if adversely determined, would have a material adverse effect on the value of any Intellectual Property. SECTION 4. Covenants. Each Grantor covenants and agrees with the Second Priority Debt Parties that, from and after the date of this Agreement until this Agreement is terminated and the security interests created hereby are released: SECTION 4.01. Delivery of Instruments. If an Intercompany Advance owned by such Grantor shall be or become evidenced by any promissory note, or other Instrument, upon the request of the Second Priority Collateral Trustee, such promissory note, or other Instrument shall be immediately delivered to the Second Priority Collateral Trustee, duly indorsed in a manner reasonably satisfactory to the Second Priority Collateral Trustee, to be held as Second Priority Collateral pursuant to this Agreement. SECTION 4.02. Maintenance of Insurance. Each Grantor shall maintain insurance policies in accordance with the requirements of the Second Priority Debt Documents. SECTION 4.03. Maintenance of Perfected Security Interest; Further Documentation. (a) Each Grantor shall cause all filings and other actions listed in Schedule 1 to be taken. Each Grantor shall maintain the security interests created by this Agreement as first priority perfected security interests subject only to Liens, to the extent such Permitted Liens are expressly permitted by the Second Priority Debt Documents to have priority, and shall defend such security interests against all claims and demands of all persons whomsoever (other than those pursuant to Permitted Liens). (b) At any time and from time to time, upon the written request of the Second Priority Collateral Trustee, and at the sole expense of a Grantor, such Grantor shall promptly and duly execute and deliver such further instruments and documents and take such further action as the Second Priority Collateral Trustee may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the security interests created hereby. (c) No Grantor shall intentionally enter into any contract, lease or license in contemplation of this Agreement which by its terms would validly prohibit the granting of a security interest herein. SECTION 4.04. Changes in Locations, Name, etc. A Grantor shall not, except (x) upon prior written notice to the Second Priority Collateral Trustee and delivery to the Second Priority Collateral Trustee of a written supplement to Schedule 2 showing the additional location or locations at which Inventory shall be kept, and (y) if filings under the Uniform Commercial Code or otherwise have been made which maintain in favor of the Second Priority Collateral Trustee a valid, legal and perfected security interest in the Second Priority Collateral subject to no liens, other than Permitted Liens, (a) permit any of the Inventory to be kept at a location other than those listed in Schedule 2 hereto, except for Inventory in transit between locations described in this paragraph (a); (b) change the location of its chief executive office, principal place of business or jurisdiction of incorporation from that specified in Schedule 6 hereto; or (c) change its (i) corporate name or any trade name used to identify it in its conduct of business or in the ownership of its properties, (ii) identity or (iii) corporate structure to such an extent that any financing statement filed in favor of the Second Priority Collateral Trustee in connection with this Agreement would become seriously misleading. SECTION 4.05. Further Identification of Second Priority Collateral. Each Grantor shall furnish to the Second Priority Collateral Trustee from time to time statements and schedules further identifying and describing the Second Priority Collateral and such other reports in connection with such Second Priority Collateral as the Second Priority Collateral Trustee may reasonably request, all in reasonable detail. SECTION 4.06. Notices. A Grantor shall advise the Second Priority Collateral Trustee promptly, in reasonable detail, in accordance with Section 13 hereto, of: (a) any Lien (other than security interests created hereby or Permitted Liens) on any material portion of the Second Priority Collateral; and (b) the occurrence of any other event which could reasonably be expected to have a material adverse effect on the security interests created hereby or on the aggregate value of the Second Priority Collateral. SECTION 4.07. Second Priority Collateral Trustee's Liabilities and Expenses; Indemnification. (a) Notwithstanding anything to the contrary provided herein, neither the Second Priority Collateral Trustee nor any other Second Priority Debt Party assumes any liabilities with respect to any claims regarding each Grantor's ownership (or purported ownership) of, or rights or obligations (or purported rights or obligations) arising from, the Second Priority Collateral or any use (or actual or alleged misuse) whether arising out of any past, current or future event, circumstance, act or omission or otherwise, or any claim, suit, loss, damage, expense or liability of any kind or nature arising out of or in connection with the Second Priority Collateral or the production, marketing, delivery, sale or provision of goods or services under or in connection with any of the Second Priority Collateral. All of such liabilities shall, as between the Second Priority Collateral Trustee, the Second Priority Debt Parties and the Grantors, be borne exclusively by the Grantors unless such liability arises from the gross negligence or willful misconduct of the Second Priority Collateral Trustee or any Second Priority Debt Party. (b) Each Grantor hereby agrees to pay all reasonable expenses of the Second Priority Collateral Trustee and the other Second Priority Debt Parties and to indemnify the Second Priority Collateral Trustee and the other Second Priority Debt Parties with respect to any and all losses, claims, damages, liabilities and related expenses in respect of this Agreement or the Second Priority Collateral in each case to the extent and under the circumstances the Borrower is required to do so pursuant to the Second Priority Debt Documents. (c) Any amounts payable as provided hereunder shall be additional Second Priority Debt Obligations secured hereby and by the other Second Priority Collateral Documents. Without prejudice to the survival of any other agreements contained herein, all indemnification and reimbursement obligations contained herein shall survive the payment in full of the principal and interest and other amounts due under the Second Priority Debt Documents and the termination of this Agreement. SECTION 4.08. Intellectual Property. (a) Each relevant Grantor (either itself or through licensees) will (i) continue to use each Trademark material to the conduct of such Grantor's business, to the extent that such Grantor's business operations continue as to the said goods and/or services (subject to such Grantor's reasonable business judgment), sufficient to avoid unintentional abandonment of any rights in such Trademarks, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable law, (iv) not knowingly adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Second Priority Collateral Trustee, for the ratable benefit of the Second Priority Debt Parties, shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not knowingly (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark material to the conduct of the Grantor's business may become invalidated or impaired in any way. (b) Such Grantor (either itself or through licensees) will not do any act, or omit to do any act, whereby any Patent material to the conduct of Grantor's business may become forfeited, abandoned or dedicated to the public. (c) Such Grantor (either itself or through licensees) will not knowingly (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any portion of the Copyrights material to the conduct of Grantor's business may become invalidated or otherwise impaired or fall into the public domain. (d) Such Grantor (either itself or through licensees) will not do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other person. (e) In a status report provided to the Second Priority Collateral Trustee on a quarterly basis ("Quarterly Status Report"), such Grantor will indicate whether any application or registration relating to any material Intellectual Property has been forfeited, abandoned or dedicated to the public, or of any such determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor's ownership of, or the validity of, any material Intellectual Property or such Grantor's right to register the same or to own and maintain the same. (f) In the Quarterly Status Report provided to the Second Priority Collateral Trustee pursuant to Section 4.08(e), such Grantor will report whenever such Grantor, either by itself or through any agent, employee, licensee or designee, has filed an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof. Upon request of the Second Priority Collateral Trustee, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as the Second Priority Collateral Trustee may request to evidence the Second Priority Collateral Trustee's and the Second Priority Debt Parties' security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. (g) Such Grantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the Intellectual Property material to the conduct of the Grantor's business, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability. (h) In the event that any Intellectual Property material to the conduct of the Grantor's business is infringed, misappropriated or diluted by a third party, such Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Second Priority Collateral Trustee after it learns thereof and take all reasonable steps to protect its interests, which may include bringing suit for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution. SECTION 5. Provisions Relating to Accounts. SECTION 5.01. Grantors Remain Liable under Accounts. Anything herein to the contrary notwithstanding, a Grantor shall remain liable under each of the Accounts to observe and perform all the material conditions and material obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account. No Second Priority Debt Party shall have any obligation or liability under any Account (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Second Priority Collateral Trustee or any Second Priority Debt Party of any payment relating to such Account pursuant hereto, nor shall any Second Priority Debt Party be obligated in any manner to perform any of the obligations of a Grantor under or pursuant to any Account (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. SECTION 5.02. Analysis of Accounts. In addition to its right under the Second Priority Debt Documents, the Second Priority Collateral Trustee shall have the right upon the occurrence and during the continuance of an Event of Default to make test verifications of the Accounts in any manner and through any medium that it considers reasonably advisable, and each Grantor shall immediately request and use commercially reasonable efforts to furnish all such assistance and information as the Second Priority Collateral Trustee may reasonably require in connection with such test verifications. At any time and from time to time upon the occurrence and during the continuance of an Event of Default, upon the Second Priority Collateral Trustee's reasonable request and at the expense of each Grantor, each Grantor shall cause independent public accountants or others reasonably satisfactory to the Second Priority Collateral Trustee to furnish to the Second Priority Collateral Trustee reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts. Upon the occurrence and during the continuance of an Event of Default, the Second Priority Collateral Trustee in its own name or in the name of others may communicate with account debtors on the Accounts to verify with them to the Second Priority Collateral Trustee's reasonable satisfaction the existence, amount and terms of any Accounts and to direct all payments to the Second Priority Collateral Trustee. To the extent reasonably practicable the Second Priority Collateral Trustee will seek to take such actions through third parties. SECTION 5.03. Collections on Accounts. (a) The Second Priority Collateral Trustee hereby authorizes each Grantor to collect the Accounts, and the Second Priority Collateral Trustee may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default. If required by the Second Priority Collateral Trustee at any time after the occurrence and during the continuance of an Event of Default, any payments of Accounts, when collected by a Grantor during the continuance of such an Event of Default, (i) shall be forthwith (and, in any event, within two Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Second Priority Collateral Trustee if required, in a Second Priority Collateral Account maintained under the sole dominion and control of and on terms and conditions reasonably satisfactory to the Second Priority Collateral Trustee, subject to withdrawal by the Second Priority Collateral Trustee as provided in Section 7.03, and (ii) until so turned over, shall be held by such Grantor in trust for the Second Priority Debt Parties, segregated from other funds of such Grantor. (b) At the Second Priority Collateral Trustee's request after the occurrence and during the continuance of an Event of Default, each Grantor shall deliver to the Second Priority Collateral Trustee all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Accounts, including, without limitation, all original orders, invoices and shipping receipts. SECTION 5.04. Representations and Warranties. As of the Closing Date, the place where each Grantor keeps its records concerning the Accounts is at the location listed in Schedule 3 hereto. SECTION 5.05. Covenants. (a) The amount represented by each Grantor to the Second Priority Debt Parties from time to time as owing by each account debtor or by all Account Debtors in respect of the Accounts shall at such time be in all material respects the correct amount actually owing by such Account Debtor or debtors thereunder. (b) Upon the occurrence and during the continuance of an Event of Default, a Grantor shall not grant any extension of the time of payment of any of the Accounts Receivable, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any person liable for the payment thereof, or allow any credit or discount whatsoever thereon other than extensions, credits, discounts, compromises or settlements granted or made in the ordinary course of business. (c) Unless a Grantor shall deliver prior written notice, identifying the change of location for its books and records, such Grantor shall not remove its books and records from the location specified in Schedule 3. SECTION 6. Provisions Relating to Contracts. SECTION 6.01. Grantors Remain Liable under Contracts. Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each Contract to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with and pursuant to the terms and provisions of such Contract. No Second Priority Debt Party shall have any obligation or liability under any Contract by reason of or arising out of this Agreement or the receipt by any such Second Priority Debt Party of any payment relating to such Contract pursuant hereto, nor shall any Second Priority Debt Party be obligated in any manner to perform any of the obligations of a Grantor under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. SECTION 6.02. Communication With Contracting Parties. Upon the occurrence and during the continuance of an Event of Default, the Second Priority Collateral Trustee in its own name or in the name of its nominee may communicate with parties to the Contracts to verify with them to the Second Priority Collateral Trustee's reasonable satisfaction the existence, amount and terms of any Contracts. To the extent reasonably practicable the Second Priority Collateral Trustee will seek to take such actions through third parties. SECTION 7. Remedies. SECTION 7.01. Notice to Account Debtors and Contract Parties. Upon the request of the Second Priority Collateral Trustee at any time after the occurrence and during the continuance of an Event of Default, a Grantor shall notify Account Debtors on the Accounts and parties to the Contracts that the Accounts and the Contracts have been assigned to the Second Priority Collateral Trustee for the ratable benefit of the Second Priority Debt Parties and that payments in respect thereof during the continuance of such an Event of Default shall be made directly to the Second Priority Collateral Trustee. SECTION 7.02. Proceeds to be Turned Over To Second Priority Collateral Trustee. In addition to the rights of the Second Priority Collateral Trustee and the Second Priority Debt Parties specified in Section 5.03 with respect to payments of Accounts, if an Event of Default shall occur and be continuing all Proceeds received by a Grantor consisting of cash, checks and other near-cash items shall upon the Second Priority Collateral Trustee's request be held by such Grantor in trust for the Second Priority Debt Parties, segregated from other funds of such Grantor, and shall, upon the Second Priority Collateral Trustee's request (it being understood that the exercise of remedies by the Second Priority Debt Parties in connection with an Event of Default under Section 6.01(a) or 6.01(i) of the PCS Facility (or under the comparable provisions of any other Second Priority Debt Document) shall be deemed to constitute a request by the Second Priority Collateral Trustee for the purposes of this sentence) forthwith upon receipt by such Grantor, be turned over to the Second Priority Collateral Trustee in the exact form received by such Grantor (duly indorsed by such Grantor to the Second Priority Collateral Trustee, if required) and held by the Second Priority Collateral Trustee in a Second Priority Collateral Account maintained under the sole dominion and control of the Second Priority Collateral Trustee and on terms and conditions reasonably satisfactory to the Second Priority Collateral Trustee. All Proceeds while held by the Second Priority Collateral Trustee in a Second Priority Collateral Account (or by such Grantor in trust for the Second Priority Collateral Trustee and the Second Priority Debt Parties) shall subject to Section 7.03 continue to be held as collateral security for all the Second Priority Debt Obligations and shall not constitute payment thereof until applied as provided in Section 7.03. SECTION 7.03. Application of Proceeds. (a) So long as the Collateral Trust and Intercreditor Agreement is in effect, following a Triggering Event (as defined therein), the proceeds of any sale or other realization upon any Collateral will be applied as set forth in the Collateral Trust and Intercreditor Agreement. (b) At all times when the Collateral Trust and Intercreditor Agreement is not in effect, the proceeds of any sale or other realization upon any Collateral following an Event of Default will be applied as soon as practicable after receipt as follows: FIRST: to the Second Priority Collateral Trustee in an amount equal to the fees and expenses of the Second Priority Collateral Trustee pursuant to this Agreement and the Second Priority Debt Document that are unpaid as of the applicable date of receipt of such proceeds, and to any Second Priority Debt Party which has theretofore advanced or paid any such fees and expenses of the Second Priority Collateral Trustee in an amount equal to the amount thereof so advanced or paid by such Second Priority Debt Party pro rata based on the amount of such fees and expenses (or such advances or payment); SECOND: to the Second Priority Collateral Trustee to reimburse any amounts owing to the Second Priority Collateral Trustee pursuant to Section 8.03; THIRD: to the Second Priority Collateral Trustee, for distribution to the Second Priority Debt Parties to be applied to the payment of the Second Priority Debt Obligations then due and owing, pro rata based on the amount of Second Priority Debt Obligations then due and owing (after giving effect to any payments previously made under this Section), until all of the Second Priority Debt Obligations then due and owing have been paid in full; and FOURTH: after payment in full of all Second Priority Debt Obligations, to Rite Aid and the Grantors or their successors or assigns, as their interests may appear, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. SECTION 7.04. Uniform Commercial Code Remedies. If an Event of Default shall have occurred and be continuing, the Second Priority Collateral Trustee, on behalf of the Second Priority Debt Parties may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Second Priority Debt Obligations, all rights and remedies of a senior secured party under the Uniform Commercial Code. Without limiting the generality of the foregoing, the Second Priority Collateral Trustee, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon a Grantor or any other person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Second Priority Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Second Priority Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of any Second Priority Debt Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Any Second Priority Debt Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Second Priority Collateral so sold, free of (to the extent permitted by law) any right or equity of redemption in a Grantor, which right or equity is hereby, to the extent permitted by law, waived or released. Each Grantor further agrees, at the Second Priority Collateral Trustee's request, to assemble the Second Priority Collateral and make it available to the Second Priority Collateral Trustee at places which the Second Priority Collateral Trustee shall reasonably select, whether at such Grantor's premises or elsewhere. The Second Priority Collateral Trustee shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses incurred therein or incidental to the care or safekeeping of any of such Second Priority Collateral or reasonably relating to such Second Priority Collateral or the rights of the Second Priority Collateral Trustee and the Second Priority Debt Parties hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Second Priority Debt Obligations, in accordance with Section 7.03, and only after such application and after the payment by the Second Priority Collateral Trustee of any other amount required by any provision of law, need the Second Priority Collateral Trustee account for the surplus, if any, to such Grantor. If any notice of a proposed sale or other disposition of such Second Priority Collateral shall be required by law, such notice shall be in writing and deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Second Priority Collateral Trustee shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of the Second Priority Collateral by the Second Priority Collateral Trustee (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Second Priority Collateral Trustee or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Second Priority Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Second Priority Collateral Trustee or such officer or be answerable in any way for the misapplication thereof. SECTION 7.05. Grant of License to Use Intellectual Property. For the purpose of enabling the Second Priority Collateral Trustee to exercise rights and remedies under this Article at such time as the Second Priority Collateral Trustee shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Second Priority Collateral Trustee an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Grantors) to use, license or sub-license any of the Second Priority Collateral consisting of Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. The use of such license by the Second Priority Collateral Trustee shall be exercised, at the option of the Second Priority Collateral Trustee, solely upon the occurrence and during the continuation of an Event of Default; provided that any license, sub- license or other transaction entered into by the Second Priority Collateral Trustee in accordance herewith shall be binding upon the Grantors notwithstanding any subsequent cure of an Event of Default. SECTION 7.06. Waiver; Deficiency. Each Grantor waives and agrees not to assert any rights or privileges it may acquire under Section 9-112 of the Uniform Commercial Code. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Second Priority Collateral are insufficient to pay the Second Priority Obligations and the reasonable fees and disbursements of any attorneys employed by any Second Priority Debt SECTION 8. Second Priority Collateral Trustee's Appointment as Attorney-in-Fact; Second Priority Collateral Trustee's Performance of Grantors' Obligations. SECTION 8.01. Powers. Each Grantor hereby irrevocably constitutes and appoints the Second Priority Collateral Trustee and any officer or agent thereof, with full power of substitution, during the continuance of an Event of Default, as its true and lawful attorney-in-fact, with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name from time to time in the Second Priority Collateral Trustee's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, such Grantor hereby gives the Second Priority Collateral Trustee the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do the following upon the occurrence and during the continuance of an Event of Default: (a) in the name of such Grantor or its own name, or otherwise, to take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account, Instrument, General Intangible or Contract or with respect to any other Second Priority Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Second Priority Collateral Trustee for the purpose of collecting any and all such moneys due under any Account, Instrument, General Intangible or Contract or with respect to any other Second Priority Collateral whenever payable; (b) in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Second Priority Collateral Trustee may request to evidence the Second Priority Collateral Trustee's and the Second Priority Debt Parties' security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby; (c) to pay or discharge taxes and Liens levied or placed on or threatened against the Second Priority Collateral (other than Permitted Liens), to effect any repairs or any insurance called for by the terms of this Agreement and to pay all or any part of the premiums therefor and the costs thereof; (d) to execute, in connection with any sale provided for in Section 7.04 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Second Priority Collateral; (e)(i) to direct any party liable for any payment under any of the Second Priority Collateral to make payment of any and all moneys due or to become due thereunder directly to the Second Priority Collateral Trustee or as the Second Priority Collateral Trustee shall direct; (ii) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Second Priority Collateral; (iii) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Second Priority Collateral; (iv) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Second Priority Collateral or any thereof and to enforce any other right in respect of any Second Priority Collateral; (v) to defend any suit, action or proceeding brought against any Grantor with respect to any Second Priority Collateral; (vi) to settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, to give such discharges or releases as the Second Priority Collateral Trustee may deem appropriate; (vii) to the extent permitted by applicable law, assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains); and (viii) generally, to use, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Second Priority Collateral as fully and completely as though the Second Priority Collateral Trustee were the absolute owner thereof for all purposes, and to do, at the Second Priority Collateral Trustee's option and at the expense of such Grantor, at any time, or from time to time, all acts and things which the Second Priority Collateral Trustee reasonably deems necessary to protect, preserve or realize upon such Senior Collateral and the Second Priority Collateral Trustee's and the Second Priority Debt Parties' security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do; and (f) to file any financing statement, or to take such other steps, required to perfect any security interest described herein. SECTION 8.02. Performance by Second Priority Collateral Trustee of Grantor's Obligations. If any Grantor fails to perform or comply with any of its agreements contained herein, the Second Priority Collateral Trustee, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. SECTION 8.03. Grantor's Reimbursement Obligation. The expenses of the Second Priority Collateral Trustee and any Second Priority Debt Party, as applicable, reasonably incurred in connection with actions undertaken as provided in this Section 8, together with interest thereon at a rate per annum equal to the default rate of interest set forth in Section 2.04(c) of the PCS Facility, from the date payment is demanded by the Second Priority Collateral Trustee to the date reimbursed by such Grantor, shall be payable by the Borrower to the Second Priority Collateral Trustee on demand. SECTION 8.04. Ratification; Power Coupled With An Interest. Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. SECTION 9. Duty of Second Priority Collateral Trustee. The Second Priority Collateral Trustee's sole duty with respect to the custody, safekeeping and physical preservation of the Second Priority Collateral in its possession, under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to deal with it in the same manner as the Second Priority Collateral Trustee deals with similar property for its own account. No Second Priority Debt Party nor any of its respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Second Priority Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Second Priority Collateral upon the request of a Grantor or any other person or to take any other action whatsoever with regard to the Second Priority Collateral or any part thereof. The powers conferred on the Second Priority Debt Parties hereunder are solely to protect the Second Priority Debt Parties' interests in the Second Priority Collateral and shall not impose any duty upon any Second Priority Debt Party to exercise any such powers. The Second Priority Debt Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or wilful misconduct. SECTION 10. Execution of Financing Statements. Pursuant to Section 9-402 of the Uniform Commercial Code, each Grantor authorizes the Second Priority Collateral Trustee to file financing statements with respect to the Second Priority Collateral without the signature of such Grantor in such form and in such filing offices as the Second Priority Collateral Trustee reasonably determines appropriate to perfect the security interests of the Second Priority Collateral Trustee under this Agreement. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. SECTION 11. Authority of Second Priority Collateral Trustee. Each Grantor acknowledges that the rights and responsibilities of the Second Priority Collateral Trustee under this Agreement with respect to any action taken by the Second Priority Collateral Trustee or the exercise or non-exercise by the Second Priority Collateral Trustee of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Second Priority Collateral Trustee and the other Second Priority Debt Parties, be governed by the Second Priority Debt Documents and by such other agreements with respect thereto as may exist from time to time among them but, as between the Second Priority Collateral Trustee and the Grantors, the Second Priority Collateral Trustee shall be conclusively presumed to be acting as agent for the other Second Priority Debt Parties with full and valid authority so to act or refrain from acting. SECTION 12. Notices. All notices, requests and demands to or upon the Second Priority Debt Parties or the Grantors under this Agreement shall be given or made in accordance with Section 15 of the Second Priority Subsidiary Guarantee Agreement and addressed as follows: (a) if to the Second Priority Collateral Trustee, in accordance with Section 8.02 of the Collateral Trust and Intercreditor Agreement; (b) if to any Grantor, c/o the Borrower in accordance with Section 8.02 of the Collateral Trust and Intercreditor Agreement; SECTION 13. Security Interest Absolute. Subject to Section 19 hereof, all rights of the Second Priority Collateral Trustee hereunder, the security interest and all obligations of the Grantors hereunder shall be absolute and unconditional. SECTION 14. Survival of Agreement. All covenants, agreements, representations and warranties made by any Grantor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Second Priority Debt Document shall be considered to have been relied upon by the Second Priority Debt Parties and shall survive the execution and delivery to the Second Priority Debt Parties of the amendments to the Second Priority Debt Documents, regardless of any investigation made by the Second Priority Debt Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any loan, or any fee or any other amount payable under or in respect of this Agreement or any other Second Priority Debt Document is outstanding and unpaid. SECTION 15. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER SECOND PRIORITY DEBT DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 15. SECTION 16. Jurisdiction; Consent to Service of Process. (a) Each Grantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Second Priority Debt Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any obligor or any Second Priority Debt Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Second Priority Debt Documents against any Grantor or any Second Priority Debt Party or its properties in the courts of any jurisdiction. (b) Each Grantor and each Second Priority Debt Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Second Priority Debt Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 17. Release. (a) This Agreement and the security interest created hereunder shall terminate when all Second Priority Debt Obligations have been fully and indefeasibly paid, at which time the Second Priority Collateral Trustee shall execute and deliver to each Grantor, or to such person or persons as such Grantor shall reasonably designate, all Uniform Commercial Code termination statements and similar documents prepared by such Grantor at its expense which such Grantor shall reasonably request to evidence such termination. Any execution and delivery of termination statements or documents pursuant to this Section 17(a) shall be without recourse to or warranty by the Second Priority Collateral Trustee. (b) All Second Priority Collateral used, sold, transferred or otherwise disposed of in accordance with the terms of the Second Priority Debt Document (including pursuant to a waiver or amendment of the terms thereof) shall be used, sold, transferred or otherwise disposed of free and clear of the Lien and the security interest created hereunder. In connection with the foregoing, (i) the Second Priority Collateral Trustee shall execute and deliver to each Grantor, or to such person or persons as such Grantor shall reasonably designate, all Uniform Commercial Code termination statements and similar documents prepared by such Grantor at its expense which such Grantor shall reasonably request to evidence the release of the Lien and security interest created hereunder with respect to such Second Priority Collateral and (ii) any representation, warranty or covenant contained herein relating to such Second Priority Collateral shall no longer be deemed to be made with respect to such used, sold, transferred or otherwise disposed Second Priority Collateral. SECTION 18. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties hereunder shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 19. Collateral Trust and Intercreditor Agreement. Notwithstanding any provision to the contrary contained herein, the terms of this Agreement, the Liens created hereby, and the rights and remedies of the Second Priority Collateral Trustee and the Second Priority Debt Parties hereunder, are subject to the Collateral Trust and Intercreditor Agreement and subordinated as provided therein. SECTION 20. Amendments in Writing; No Waiver. (a) None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Grantors and the Second Priority Collateral Trustee, provided that (i) any provision of this Agreement may be waived by the Second Priority Instructing Group pursuant to a letter or agreement executed by the Second Priority Collateral Trustee or by telecopy transmission from the Second Priority Collateral Trustee, in either case with the prior written consent of the Second Priority Instructing Group and (ii) any amendment, waiver, supplement or other modification which by its terms adversely affects the rights of the Second Priority Debt Parties under a particular Second Priority Facility in a manner different from its effect on the other Second Priority Facilities shall only be effective with the consent of the Second Priority Representative for each Second Priority Facility so adversely affected. (b) No Second Priority Debt Party shall by any act (except by a written instrument pursuant to Section 20 hereof) or delay be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of any Second Priority Debt Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by any Second Priority Debt Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such Second Priority Debt Party would otherwise have on any future occasion. SECTION 21. Remedies Cumulative. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. SECTION 22. Section Headings. The section and Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. SECTION 23. Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of each Grantor and the Second Priority Debt Parties and their successors and assigns, provided that this Agreement may not be assigned by any Grantor without the prior written consent of the Second Priority Collateral Trustee. SECTION 24. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. SECTION 25. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract. SECTION 26. Additional Grantors. Pursuant to the Second Priority Debt Documents, each Domestic Subsidiary that was not in existence or not a Domestic Subsidiary on the date thereof is required to enter into this Agreement as a Grantor upon becoming a Domestic Subsidiary. Upon execution and delivery, after the date hereof, by the Second Priority Collateral Trustee and such Domestic Subsidiary of an instrument in the form of Annex 1, such Domestic Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor hereunder. The execution and delivery of any such instrument shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement. SECTION 27. Patient Confidentiality. The Second Priority Collateral Trustee hereby agrees on behalf of itself and each Second Priority Debt Party and any of their designees and assigns to, and shall take all reasonable steps to, comply with all applicable state or federal laws or administrative regulations regarding the confidentiality of patient records and patient medical information it receives in connection with the transactions described in this Agreement. IN WITNESS WHEREOF, the undersigned has caused this Second Priority Subsidiary Security Agreement to be duly executed and delivered as of the date first above written. EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE A HERETO, as a Grantor By: ------------------------------------- Name: Title: WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee By: ------------------------------------- Name: Title: THRIFTY PAYLESS, INC., as a Grantor By: ------------------------------------- Name: Title: PCS HEALTH SYSTEMS, INC., as a Grantor By: ------------------------------------- Name: Title: Schedules: - --------- Annex 1 Supplement Schedule A Subsidiary Guarantors Schedule 1 Filings and Other Actions Required to Perfect Security Interests Schedule 2 Inventory Schedule 3 Records of Accounts Schedule 4 Copyrights and Copyright Licenses; Patents and Patent Licenses; and Trademarks and Trademark Licenses Schedule 5 Perfection Certificate Schedule 6 Chief Executive Offices, Principal Places of Business and Jurisdictions of Incorporation or Organization Annex 1 to the Second Priority Subsidiary Security Agreement SUPPLEMENT NO. dated as of [ ] (this "Supplement") to the Second Priority Subsidiary Security Agreement dated as of June 12, 2000 (the "Second Priority Subsidiary Security Agreement"), between the SUBSIDIARIES GUARANTORS identified on the signature pages thereto and any other person that becomes a Subsidiary Guarantor (the "Grantors"), in favor of WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral trustee (the "Second Priority Collateral Trustee") for the Second Priority Debt Parties. A. Reference is made to the (a) the Second Priority Debt Documents and (b) the Second Priority Subsidiary Security Agreement dated as of June 12, 2000, among the Subsidiary Guarantors and the Second Priority Collateral Trustee. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in or be reference to the Second Priority Subsidiary Security Agreement. C. The Grantors have entered into the Second Priority Subsidiary Security Agreement in order to induce the Second Priority Debt Parties to amend and/or extend the Second Priority Debt Documents. Pursuant to the Second Priority Debt Documents, each Domestic Subsidiary that was not in existence or not a Domestic Subsidiary on the date thereof is required to enter into the Second Priority Subsidiary Security Agreement as a Grantor upon becoming a Domestic Subsidiary. Section 26 of the Second Priority Subsidiary Security Agreement provides that additional Domestic Subsidiaries may become Grantors under the Second Priority Subsidiary Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "New Grantor") is a Domestic Subsidiary and is executing this Supplement in accordance with the requirements of the Second Priority Debt Documents to become a Grantor under the Senior Priority Subsidiary Security Agreement as consideration for credit previously extended to the Borrower. Accordingly, the Second Priority Collateral Trustee and the New Grantor agree as follows: SECTION 1. In accordance with Section 26 of the Second Priority Subsidiary Security Agreement, the New Grantor by its signature below becomes a Grantor under the Second Priority Subsidiary Security Agreement with the same force and effect as if originally named therein as a Grantor and the New Grantor hereby agrees to all the terms and provisions of the Second Priority Subsidiary Security Agreement applicable to it as a Grantor thereunder. Each reference to a "Grantor" in the Second Priority Subsidiary Security Agreement shall be deemed to include the New Grantor. The Security Agreement is hereby incorporated herein by reference. SECTION 2. The New Grantor represents and warrants to the Second Priority Debt Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to the effects of applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and equitable principles of general applicability. SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Second Priority Collateral Trustee shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Grantor and the Second Priority Collateral Trustee. SECTION 4. Except as expressly supplemented hereby, the Second Priority Subsidiary Security Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Second Priority Subsidiary Security Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 6. All communications and notices hereunder shall be in writing and given as provided in the Collateral Trust and Intercreditor Agreement. All communications and notices hereunder to the New Grantor shall be given to it c/o the Borrower as set forth in Section 8.02 of the Collateral Trust and Intercreditor Agreement. IN WITNESS WHEREOF, the New Grantor and the Second Priority Collateral Trustee have duly executed this Supplement to the Senior Priority Subsidiary Security Agreement as of the day and year first above written. [NAME OF NEW GRANTOR], By: ------------------------------------- Name: Title: WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee, By: ------------------------------------- Name: Title: Schedule A to the Second Priority Subsidiary Security Agreement SUBSIDIARY GUARANTORS Schedule 1 to the Second Priority Subsidiary Security Agreement FILINGS AND OTHER ACTIONS REQUIRED TO PERFECT SECURITY INTERESTS Uniform Commercial Code Filings Patent and Trademark Filings Copyright Filings Schedule 2 to the Second Priority Subsidiary Security Agreement INVENTORY LOCATIONS Schedule 3 to the Second Priority Subsidiary Security Agreement RECORDS OF ACCOUNTS Description Schedule 4 to the Second Priority Subsidiary Security Agreement COPYRIGHTS REGISTRATIONS AND COPYRIGHT LICENSES PATENTS AND PATENT LICENSES TRADEMARK REGISTRATIONS AND TRADEMARK LICENSES PENDING ACTIONS Schedule 5 to the Second Priority Subsidiary Security Agreement PERFECTION CERTIFICATE Schedule 6 to the Second Priority Subsidiary Security Agreement CHIEF EXECUTIVE OFFICES, PRINCIPAL PLACES OF BUSINESS AND JURISDICTIONS OF INCORPORATION OR ORGANIZATION EX-10 15 0015.txt EXHIBIT 10.11 - SECOND PRIORITY INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT Exhibit 10.11 EXECUTION COPY SECOND PRIORITY INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT dated as of JUNE 12, 2000, among RITE AID CORPORATION, a Delaware corporation (the "Borrower"), each Subsidiary of the Borrower listed on Schedule I hereto (the "Subsidiary Guarantors") and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral trustee (in such capacity, the "Second Priority Collateral Trustee") for the holders from time to time of the Second Priority Debt Obligations. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Definitions Annex annexed hereto and by this reference incorporated herein. The Second Priority Debt Parties have extended credit to the Borrower or one or more of its Subsidiaries pursuant to the Second Priority Debt Documents. Each of the Subsidiary Guarantors is a wholly owned Subsidiary of the Borrower and acknowledges that it has and will continue to derive substantial benefit from the credit so extended under the Second Priority Debt Documents. It is a condition precedent, among other conditions, to the effectiveness of pending amendments to and extensions of the Second Priority Debt Documents that the Subsidiary Guarantors execute and deliver an agreement in the form hereof. Accordingly, the Borrower, each Subsidiary Guarantor and the Second Priority Collateral Trustee agree as follows: SECTION 1. INDEMNITY AND SUBROGATION. In addition to all such rights of indemnity and subrogation as the Subsidiary Guarantors may have under applicable law (but subject to Section 3), the Borrower agrees that (a) in the event a payment shall be made by any Subsidiary Guarantor under the Second Priority Subsidiary Guarantee Agreement, the Borrower shall indemnify such Subsidiary Guarantor for the full amount of such payment and such Subsidiary Guarantor shall be subrogated to the rights of the person to whom such payment shall have been made to the extent of such payment and (b) in the event and to the extent any assets of any Subsidiary Guarantor shall be sold pursuant to any Second Priority Collateral Document to satisfy a claim of any Second Priority Debt Party, the Borrower shall indemnify such Subsidiary Guarantor in an amount equal to the greater of the book value or the fair market value of the assets so sold. SECTION 2. CONTRIBUTION AND SUBROGATION. Each Subsidiary Guarantor (a "Contributing Subsidiary Guarantor") agrees (subject to Section 3) that, in the event a payment shall be made by any other Subsidiary Guarantor under the Second Priority Subsidiary Guarantee Agreement or assets of any other Subsidiary Guarantor shall be sold pursuant to any Second Priority Collateral Document to satisfy a claim of any Second Priority Debt Party and such other Subsidiary Guarantor (the "Claiming Subsidiary Guarantor") shall not have been fully indemnified by the Borrower as provided in Section 1, the Contributing Subsidiary Guarantor shall indemnify the Claiming Subsidiary Guarantor in an amount equal to the amount of such payment or the greater of the book value or the fair market value of such assets, as the case may be, in each case multiplied by a fraction of which the numerator shall be the net worth of the Contributing Subsidiary Guarantor on May 27, 2000 (or, in the case of any Subsidiary Guarantor becoming a party hereto pursuant to Section 12 after such date, the date of the Supplement hereto executed and delivery by such Subsidiary Guarantor) and the denominator shall be the aggregate net worth of all the Subsidiary Guarantors on May 27, 2000 (or, in the case of any Subsidiary Guarantor becoming a party hereto pursuant to Section 12 after such date, the date of the Supplement hereto executed and delivered by such Subsidiary Guarantor). Any Contributing Subsidiary Guarantor making any payment to a Claiming Subsidiary Guarantor pursuant to this Section 2 shall be subrogated to the rights of such Claiming Subsidiary Guarantor under Section 1 to the extent of such payment. SECTION 3. SUBORDINATION. Notwithstanding any provision of this Agreement to the contrary, all rights of the Subsidiary Guarantors under Sections 1 and 2 and all other rights of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the indefeasible payment in full in cash of the Second Priority Debt Obligations. No failure on the part of the Borrower or any Subsidiary Guarantor to make the payments required by Sections 1 and 2 (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of any Subsidiary Guarantor with respect to its obligations hereunder, and each Subsidiary Guarantor shall remain liable for the full amount of the obligations of such Subsidiary Guarantor hereunder. SECTION 4. TERMINATION. This Agreement shall survive and be in full force and effect (a) so long as any Second Priority Debt Obligation is outstanding and has not been indefeasibly paid in full in cash and (b) if at any time payment, or any part thereof, of any Second Priority Debt Obligation is rescinded or must otherwise be restored by any Second Priority Debt Party or any Subsidiary Guarantor upon the bankruptcy or reorganization of the Borrower, any Subsidiary Guarantor or otherwise. SECTION 5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. NO WAIVER; AMENDMENT. (a) No failure on the part of the Second Priority Collateral Trustee or any Subsidiary Guarantor to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by the Second Priority Collateral Trustee or any Subsidiary Guarantor preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law. None of the Second Priority Collateral Trustee and the Subsidiary Guarantors shall be deemed to have waived any rights hereunder unless such waiver shall be in writing and signed by such parties. (b) None of the provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by each Subsidiary Guarantor affected thereby and by the Second Priority Collateral Trustee with the prior written consent of the Second Priority Instructing Group, provided that (i) any provision of this Agreement may be waived by the Second Priority Instructing Group pursuant to a letter or agreement executed by the Second Priority Collateral Trustee or by telecopy transmission from the Second Priority Collateral Trustee, in either case with the prior written consent of the Second Priority Instructing Group and (ii) any amendment, waiver, supplement or other modification which by its terms adversely affects the Second Priority Debt Parties under a particular Second Priority Facility in a manner different from its effect on the other Second Priority Facilities shall only be effective with the consent of the Second Priority Representative for each Second Priority Facility so adversely affected. SECTION 7. NOTICES. All communications and notices hereunder shall be in writing and given as provided in the Second Priority Subsidiary Guarantee Agreement and addressed as specified therein. SECTION 8. BINDING AGREEMENT; ASSIGNMENTS. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the parties that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. Neither the Borrower nor any Subsidiary Guarantor may assign or transfer any of its rights or obligations hereunder (and any such attempted assignment or transfer shall be void) without the prior written consent of the Second Priority Instructing Group. Notwithstanding the foregoing, at the time any Subsidiary Guarantor is released from its obligations under the Second Priority Subsidiary Guarantee Agreement in accordance with such Second Priority Subsidiary Guarantee Agreement and the Second Priority Debt Documents, such Subsidiary Guarantor will cease to have any rights or obligations under this Agreement. SECTION 9. SURVIVAL OF AGREEMENT; SEVERABILITY. (a) All covenants, agreements, representations and warranties made by the Borrower and each other Obligor herein and in the certificates or other instruments prepared or delivered in connection with this Agreement or any other Second Priority Debt Document shall be considered to have been relied upon by the Second Priority Collateral Trustee, other Second Priority Debt Parties and each Subsidiary Guarantor and shall survive the effectiveness of the Second Priority Debt Documents and shall continue in full force and effect as long as the principal of or any accrued interest on any loans under any Second Priority Debt Document or any other fee or amount payable under this Agreement or under any of the other Second Priority Debt Document remain outstanding and unpaid. (b) In case any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, no party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 10. COUNTERPARTS. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement shall be effective with respect to any Subsidiary Guarantor when a counterpart bearing the signature of such Subsidiary Guarantor shall have been delivered to the Second Priority Collateral Trustee. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement. SECTION 11. RULES OF INTERPRETATION. References in this Agreement to "Articles", "Sections", "Schedules" or Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to this Agreement unless otherwise specifically provided. Any defined terms may, unless the context otherwise requires, be used in the singular or plural depending on the reference. "Include" or "includes" 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. References to any Person include the successors and assigns of such Person. References "from" or "through" any date mean, unless otherwise specified, "from and including" or "through and including", respectively. SECTION 12. ADDITIONAL SUBSIDIARY GUARANTORS. Pursuant to the Second Priority Debt Documents, each Domestic Subsidiary of the Borrower that was not in existence on the date of the Second Priority Debt Documents is required to enter into the Second Priority Subsidiary Guarantee Agreement as a Subsidiary Guarantor upon becoming a Domestic Subsidiary. Upon execution and delivery, after the date hereof, by the Second Priority Collateral Trustee and such a Subsidiary of an instrument in the form of Annex 1 hereto, such Subsidiary shall become a Subsidiary Guarantor hereunder with the same force and effect as if originally named as a Subsidiary Guarantor hereunder. The execution and delivery of any instrument adding an additional Subsidiary Guarantor as a party to this Agreement shall not require the consent of any Subsidiary Guarantor hereunder. The rights and obligations of each Subsidiary Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Guarantor as a party to this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date first appearing above. EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE I HERETO, as a Subsidiary Guarantor By: ------------------------------------- Name: Title: WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee By: ------------------------------------- Name: Title: RITE AID CORPORATION, as Borrower By: ------------------------------------- Name: Title: THRIFTY PAYLESS, INC., as a Subsidiary Guarantor By: ------------------------------------- Name: Title: PCS HEALTH SYSTEMS, INC., as a Subsidiary Guarantor By: ------------------------------------- Name: Title: Schedule I to the Second Priority Indemnity, Subrogation and Contribution Agreement Subsidiary Guarantors --------------------- Annex 1 to the Second Priority Indemnity, Subrogation and Contribution Agreement SUPPLEMENT NO. [ ] dated as of [ ], to the Second Priority Indemnity, Subrogation and Contribution Agreement dated as of June 12, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "Second Priority Indemnity, Subrogation and Contribution Agreement"), among RITE AID CORPORATION, a Delaware corporation (the "Borrower"), each Subsidiary of the Borrower listed on Schedule I thereto (the "Subsidiary Guarantors"), and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral trustee (the "Second Priority Collateral Trustee") for the holders from time to time of the Second Priority Debt Obligations. A. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in or by reference to the Second Priority Indemnity, Subrogation and Contribution Agreement. B. The Borrower and the Subsidiary Guarantors have entered into the Second Priority Indemnity, Subrogation and Contribution Agreement as a condition precedent to the effectiveness of the Second Priority Debt Documents. Pursuant to the Second Priority Debt Documents, each Domestic Subsidiary of the Borrower that was not in existence on the date of the Second Priority Debt Documents is required to enter into the Second Priority Subsidiary Guarantee Agreement as a Subsidiary Guarantor upon becoming a Domestic Subsidiary. Section 12 of the Second Priority Indemnity, Subrogation and Contribution Agreement provides that additional Domestic Subsidiaries of the Borrower may become Subsidiary Guarantors under the Second Priority Indemnity, Subrogation and Contribution Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary of the Borrower (the "New Subsidiary Guarantor") is executing this Supplement in accordance with the requirements of the Second Priority Debt Documents to become a Subsidiary Guarantor under the Second Priority Indemnity, Subrogation and Contribution Agreement. Accordingly, the Second Priority Collateral Trustee and the New Subsidiary Guarantor agree as follows: SECTION 1. In accordance with Section 12 of the Second Priority Indemnity, Subrogation and Contribution Agreement, the New Subsidiary Guarantor by its signature below becomes a Subsidiary Guarantor under the Second Priority Indemnity, Subrogation and Contribution Agreement with the same force and effect as if originally named therein as a Subsidiary Guarantor and the New Subsidiary Guarantor hereby agrees to all the terms and provisions of the Second Priority Indemnity, Subrogation and Contribution Agreement applicable to it as a Subsidiary Guarantor thereunder. Each reference to a "Subsidiary Guarantor" in the Second Priority Indemnity, Subrogation and Contribution Agreement shall be deemed to include the New Subsidiary Guarantor. The Second Priority Indemnity, Subrogation and Contribution Agreement is hereby incorporated herein by reference. SECTION 2. The New Subsidiary Guarantor represents and warrants to the Second Priority Collateral Trustee and the other Second Priority Debt Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Second Priority Collateral Trustee shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Subsidiary Guarantor and the Second Priority Collateral Trustee. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement. SECTION 4. Except as expressly supplemented hereby, the Second Priority Indemnity, Subrogation and Contribution Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Second Priority Indemnity, Subrogation and Contribution Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 7 of the Second Priority Indemnity, Subrogation and Contribution Agreement. All communications and notices hereunder to the New Subsidiary Guarantor shall be given to it at the address set forth under its signature. SECTION 8. The New Subsidiary Guarantor agrees to reimburse the Second Priority Collateral Trustee for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Second Priority Collateral Trustee. IN WITNESS WHEREOF, the New Subsidiary Guarantor and the Second Priority Collateral Trustee have duly executed this Supplement to the Second Priority Indemnity, Subrogation and Contribution Agreement as of the day and year first above written. [NAME OF NEW SUBSIDIARY GUARANTOR], By: ------------------------------------- Name: Title: WILMINGTON TRUST COMPANY, as Second Priority Collateral Trustee, By: ------------------------------------- Name: Title: RITE AID CORPORATION, as Borrower By: ------------------------------------- Name: Title: Schedule I to Supplement No.___ to the Second Priority Indemnity Subrogation and Contribution Agreement Subsidiary Guarantors --------------------- EX-10 16 0016.txt EXHIBIT 10.12 - FIRST PRIORITY SUBSIDIARY SECURITY AGREEMENT Exhibit 10.12 EXECUTION COPY FIRST PRIORITY SUBSIDIARY SECURITY AGREEMENT FIRST PRIORITY SUBSIDIARY SECURITY AGREEMENT, dated as of June 12, 2000, made by the DOMESTIC SUBSIDIARIES identified on the signature pages hereto and any other person that becomes a Domestic Subsidiary pursuant to the Exchange Debt Facility Documents (as such term is defined below) (the "Grantors"), in favor of Morgan Guaranty Trust Company of New York, as agent (in such capacity, the "Agent" for the Exchange Debt Parties. The Exchange Debt Parties have extended credit to the Borrower pursuant to the Exchange Debt Facility Documents. It is a condition precedent, among other conditions, to the effectiveness of the Exchange Debt Facility Documents that the Grantors execute and deliver an agreement in the form hereof to secure the Exchange Debt Obligations. Accordingly, the Grantors and the Agent, on behalf of itself and each Exchange Debt Party (and each of their respective successors or assigns), hereby agree as follows: SECTION 1. Defined Terms. SECTION 1.01. Definitions. (a) Unless otherwise defined herein, terms used herein shall have the meanings given in the Definitions Annex annexed hereto and by this reference incorporated herein, or if not defined therein, in the Exchange Debt Facility. (b) The following terms shall have the following meanings: "Agreement" means this First Priority Subsidiary Security Agreement, as the same may be amended, modified or otherwise supplemented from time to time. "Event of Default" means an "Event of Default" as defined in the Exchange Debt Facility. "Exchange Debt First Priority Collateral" is defined in Section 2 of this Agreement. "Indemnitee" means the Exchange Debt Parties and their respective officers, directors, trustees, affiliates and controlling persons. "Prescription Files" means, as to any Grantor, all right, title and interest of such Grantor in and to all prescription files maintained by it or on its behalf, including without limitation all patient profiles, customer lists, customer information and other records of prescriptions filled by it, in whatever form and wherever maintained by it or on its behalf, and all goodwill and other intangible assets arising from the maintenance of such records and the possession of the information contained therein. "Proceeds" means with respect to each Grantor, any consideration received from the sale, exchange, collection or other disposition of any asset or property which constitutes Exchange Debt First Priority Collateral. "Records" means with respect to each Grantor, all files, records, ledger sheets, and documents covering or relating to any of the Prescription Files or Proceeds, including all such files, records, ledger sheets, and documents covering or relating to any of the Prescription Files stored in electronic form. SECTION 1.02. Other Definitional Provisions. (a) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. Grant of Security Interest. As collateral security for the prompt and complete payment and performance when due, whether at the stated maturity, by acceleration, upon one or more dates set for prepayment or otherwise of the Exchange Debt Obligations, each Grantor hereby grants to the Agent, for the ratable benefit of the Exchange Debt Parties, a first priority security interest in all of the following property now owned or at any time hereafter acquired by such Grantor (collectively, with respect to each Grantor, the "Exchange Debt First Priority Collateral"): (a) all Prescription Files; (b) all Records; and (c) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. Such security interests are granted as security only and shall not subject any Exchange Debt Party to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of the Exchange Debt First Priority Collateral. No recourse may be had pursuant to or by reason of this Agreement to any asset of any Grantor other than Exchange Debt First Priority Collateral, it being understood that any such recourse afforded by any other Exchange Debt Facility Document is unaffected by this or any other provision of this Agreement. Nothing contained in this Section 2 is intended to limit any Grantor's right to create Permitted Liens (as defined below). SECTION 3. Representations and Warranties. Each Grantor hereby represents and warrants, as to itself and the Exchange Debt First Priority Collateral in which the security interest is created hereunder, that: SECTION 3.01. Title; No Other Liens. Except for the security interest granted to the Agent for the ratable benefit of the Exchange Debt Parties pursuant to this Agreement and the other Liens permitted to exist pursuant to the Exchange Debt Facility Documents (the "Permitted Liens"), each Grantor owns each item of the Exchange Debt First Priority Collateral free and clear of any and all Liens or claims of others (or arrangements reasonably satisfactory to the Agent have been made for the timely release or discharge of such Liens), it being understood that the right, title and interest of such Grantor is in all cases subject to the right of the patient to direct that a prescription be delivered or otherwise transmitted to, and filled by, another affiliated or unaffilliated pharmacy. No security agreement, financing statement or other public notice with respect to all or any part of such Exchange Debt First Priority Collateral is on file or of record in any public office, except such as have been filed or will be filed, pursuant to this Agreement, in favor of the Agent, for the ratable benefit of the Exchange Debt Parties, or in respect of Permitted Liens (or arrangements reasonably satisfactory to the Agent have been made for the timely termination of such agreement or financing statement). SECTION 3.02. Enforceable Obligation; Perfected, First Priority Security Interests. This Agreement constitutes a legal, valid and binding obligation of each Grantor, enforceable against such Grantor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), and the security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified in Schedule 1 hereto (or in the case of Instruments, delivery to the Agent or its designee) shall constitute fully perfected security interests in the Exchange Debt First Priority Collateral in favor of the Agent for the ratable benefit of the Exchange Debt Parties, and (b) are prior and superior in right to all other Liens (other than Permitted Liens, to the extent that such Permitted Liens are expressly permitted by the Exchange Debt Facility Documents to have priority) on the Exchange Debt First Priority Collateral in existence on the date hereof. SECTION 3.03. Prescription Files. The Prescription Files owned by such Grantor, including all related Documents, are kept at the locations listed in Schedule 2 hereto, which shall be updated from time to time in accordance with Section 4.03 of this Agreement, or at such other locations as shall be permitted by Section 4.02. SECTION 3.04. Chief Executive Office; Jurisdiction of Organization. As of the Closing Date, each Grantor's chief executive office, principal place of business and jurisdiction of incorporation or organization is located at the locations listed in Schedule 4 hereto. SECTION 4. Covenants. Each Grantor covenants and agrees with the Exchange Debt Parties that, from and after the date of this Agreement until this Agreement is terminated and the security interests created hereby are released: SECTION 4.01. Maintenance of Perfected Security Interest; Further Documentation. (a) Each Grantor shall cause all filings and other actions listed in Schedule 1 to be taken. Each Grantor shall maintain the security interests created by this Agreement as first priority perfected security interests subject only to Liens, to the extent such Permitted Liens are expressly permitted by the Exchange Debt Facility Documents to have priority, and shall defend such security interests against all claims and demands of all persons whomsoever (other than those pursuant to Permitted Liens). (b) At any time and from time to time, upon the written request of the Agent, and at the sole expense of a Grantor, such Grantor shall promptly and duly execute and deliver such further instruments and documents and take such further action as the Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the security interests created hereby. SECTION 4.02. Changes in Locations, Name, etc. A Grantor shall not, except (x) upon prior written notice to the Agent and delivery to the Agent of a written supplement to Schedule 2 showing the additional location or locations at which Prescription Files, including all related Documents, shall be kept, and (y) if filings under the Uniform Commercial Code or otherwise have been made which maintain in favor of the Agent a valid, legal and perfected security interest in the Exchange Debt First Priority Collateral subject to no liens, other than Permitted Liens, (a) permit any of the Prescription Files, including all related Documents, to be kept at a location other than those listed in Schedule 2 hereto; (b) change the location of its chief executive office, principal place of business and jurisdiction of incorporation or organization from that specified in Schedule 4 hereto; or (c) change its (i) corporate name or any trade name used to identify it in its conduct of business or in the ownership of its properties, (ii) identity or (iii) corporate structure to such an extent that any financing statement filed in favor of the Agent in connection with this Agreement would become seriously misleading. SECTION 4.03. Further Identification of Exchange Debt First Priority Collateral. Each Grantor shall furnish to the Agent from time to time statements and schedules further identifying and describing the Exchange Debt First Priority Collateral and such other reports in connection with such Exchange Debt First Priority Collateral as the Agent may reasonably request, all in reasonable detail. SECTION 4.04. Notices. A Grantor shall advise the Agent promptly, in reasonable detail, in accordance with Section 11 hereto, of: (a) any Lien (other than security interests created hereby or Permitted Liens) on any material portion of the Exchange Debt First Priority Collateral; and (b) the occurrence of any other event which could reasonably be expected to have a material adverse effect on the security interests created hereby or on the aggregate value of the Exchange Debt First Priority Collateral. SECTION 4.05. Agent's Liabilities and Expenses; Indemnification. (a) Notwithstanding anything to the contrary provided herein, the Agent assumes no liabilities with respect to any claims regarding each Grantor's ownership (or purported ownership) of, or rights or obligations (or purported rights or obligations) arising from, the Exchange Debt First Priority Collateral or any use (or actual or alleged misuse) whether arising out of any past, current or future event, circumstance, act or omission or otherwise, or any claim, suit, loss, damage, expense or liability of any kind or nature arising out of or in connection with the Exchange Debt First Priority Collateral or the production, marketing, delivery, sale or provision of goods or services under or in connection with any of the Exchange Debt First Priority Collateral. All of such liabilities shall, as between the Agent, the Exchange Debt Parties and the Grantors, be borne exclusively by the Grantors unless such liability arises from the gross negligence or willful misconduct of the Agent or any Exchange Debt Party. (b) Each Grantor hereby agrees to pay all reasonable expenses of the Agent and the other Exchange Debt Parties and to indemnify the Agent and the other Exchange Debt Parties with respect to any and all losses, claims, damages, liabilities and related expenses in respect of this Agreement or the Exchange Debt First Priority Collateral in each case to the extent and under the circumstances the Borrower is required to do so pursuant to the Exchange Debt Facility Documents. (c) Any amounts payable as provided hereunder shall be additional Exchange Debt Obligations secured hereby and by the other Exchange Debt First Priority Collateral Documents. Without prejudice to the survival of any other agreements contained herein, all indemnification and reimbursement obligations contained herein shall survive the payment in full of the principal and interest and other amounts due under the Exchange Debt Facility Documents and the termination of this Agreement. SECTION 5. Provisions Relating to Prescription Files. SECTION 5.01. Appraisal of Prescription Files. In addition to its right under the Exchange Debt Facility Documents, the Agent shall have the right upon the occurrence and during the continuance of an Event of Default to receive appraisal reports of the Prescription Files in any manner and through any medium that it considers reasonably advisable, and each Grantor shall furnish all such assistance and information as the Agent may reasonably require in connection with such appraisal reports. At any time and from time to time upon the occurrence and during the continuance of an Event of Default, upon the Agent's reasonable request and at the expense of each Grantor, each Grantor shall cause independent appraisers such as Hilco/Great American Group or others reasonably satisfactory to the Agent to furnish to the Agent appraisal reports showing a valuation for the Prescription Files. SECTION 5.02. Access to Prescription Files and Related Documents. Subject to Section 25, in addition to its right under the Exchange Debt Facility Documents, the Agent shall have the right upon the occurrence and during the continuance of an Event of Default to access the Prescription Files and related Documents. Each Grantor hereby agrees that the Agent, or a person at the direction of the Agent, as necessary for the Agent, or such person at the direction of the Agent, shall have the right to use, without charge, all data processing equipment, computers and related programs and other software, necessary or desirable in order to access the Exchange Debt First Priority Collateral in furtherance of the Agent's rights under this Agreement and the other Exchange Debt Facility Documents. SECTION 6. Remedies. SECTION 6.01. Application of Proceeds. Upon the occurrence and during the continuance of an Event of Default, the proceeds of any sale or other realization upon any Exchange Debt First Priority Collateral will be applied as soon as practicable after receipt as follows: FIRST: to the Agent in an amount equal to the fees and expenses of the Agent pursuant to this Agreement and the Exchange Debt Facility Documents that are unpaid as of the applicable date of receipt of such proceeds, and to any Exchange Debt Party which has theretofore advanced or paid any such fees and expenses of the Agent in an amount equal to the amount thereof so advanced or paid by such Exchange Debt Party pro rata based on the amount of such fees and expenses (or such advances or payment); SECOND: to the Agent to reimburse any amounts owing to the Agent pursuant to Section 7.03; THIRD: to the Agent, for distribution to the Exchange Debt Parties to be applied to the payment of the Exchange Debt Obligations then due and owing, pro rata based on the amount of Exchange Debt Obligations then due and owing (after giving effect to any payments previously made under this Section), until all of the Exchange Debt Obligations then due and owing have been paid in full; and FOURTH: after payment in full of all Exchange Debt Obligations, to Rite Aid and the Grantors or their successors or assigns, as their interests may appear, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. SECTION 6.02. Uniform Commercial Code Remedies. Subject in all respects to Section 25 hereof, if an Event of Default shall have occurred and be continuing, the Agent, on behalf of the Exchange Debt Parties may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Exchange Debt Obligations, all rights and remedies of a senior secured party under the Uniform Commercial Code. Without limiting the generality of the foregoing, the Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon a Grantor or any other person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Exchange Debt First Priority Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Exchange Debt First Priority Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of any Exchange Debt Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Any Exchange Debt Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Exchange Debt First Priority Collateral so sold, free of (to the extent permitted by law) any right or equity of redemption in a Grantor, which right or equity is hereby, to the extent permitted by law, waived or released. Each Grantor further agrees, at the Agent's request, to assemble the Exchange Debt First Priority Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Grantor's premises or elsewhere. The Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses incurred therein or incidental to the care or safekeeping of any of such Exchange Debt First Priority Collateral or reasonably relating to such Exchange Debt First Priority Collateral or the rights of the Agent and the Exchange Debt Parties hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Exchange Debt Obligations, in accordance with Section 6.01, and only after such application and after the payment by the Agent of any other amount required by any provision of law, need the Agent account for the surplus, if any, to such Grantor. If any notice of a proposed sale or other disposition of such Exchange Debt First Priority Collateral shall be required by law, such notice shall be in writing and deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of the Exchange Debt First Priority Collateral by the Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Exchange Debt First Priority Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Agent or such officer or be answerable in any way for the misapplication thereof. SECTION 6.03. Waiver. Each Grantor waives and agrees not to assert any rights or privileges it may acquire under Section 9-112 of the Uniform Commercial Code. SECTION 7. Agent's Appointment as Attorney-in-Fact; Agent's Performance of Grantors' Obligations. SECTION 7.01. Powers. Each Grantor hereby irrevocably constitutes and appoints the Agent and any officer or agent thereof, with full power of substitution, during the continuance of an Event of Default, as its true and lawful attorney-in-fact, with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name from time to time in the Agent's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, such Grantor hereby gives the Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do the following upon the occurrence and during the continuance of an Event of Default: (a) to pay or discharge taxes and Liens levied or placed on or threatened against the Exchange Debt First Priority Collateral (other than Permitted Liens); (b) to execute, in connection with any sale provided for in Section 6.02 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Exchange Debt First Priority Collateral; (c)(i) to sign and indorse any documents in connection with any of the Exchange Debt First Priority Collateral; (ii) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Exchange Debt First Priority Collateral or any thereof and to enforce any other right in respect of any Exchange Debt First Priority Collateral; (iii) to defend any suit, action or proceeding brought against any Grantor with respect to any Exchange Debt First Priority Collateral; (iv) to settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, to give such discharges or releases as the Agent may deem appropriate; and (v) generally, to use, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Exchange Debt First Priority Collateral as fully and completely as though the Agent were the absolute owner thereof for all purposes, and to do, at the Agent's option and at the expense of such Grantor, at any time, or from time to time, all acts and things which the Agent reasonably deems necessary to protect, preserve or realize upon such Exchange Debt First Priority Collateral and the Agent's and the Exchange Debt Parties' security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do; and (d) to file any financing statement, or to take such other steps, required to perfect any security interest described herein. SECTION 7.02. Performance by Agent of Grantor's Obligations. If any Grantor fails to perform or comply with any of its agreements contained herein, the Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. SECTION 7.03. Grantor's Reimbursement Obligation. The expenses of the Agent and any Exchange Debt Party, as applicable, reasonably incurred in connection with actions undertaken as provided in this Section 7, together with interest thereon at a rate per annum equal to the default rate of interest set forth in Section 2.04(c) of the Exchange Debt Facility, from the date payment is demanded by the Agent to the date reimbursed by such Grantor, shall be payable by the Borrower to the Agent on demand. SECTION 7.04. Ratification; Power Coupled With An Interest. Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. SECTION 8. Duties of Exchange Debt Parties. No Exchange Debt Party nor any of its respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Exchange Debt First Priority Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Exchange Debt First Priority Collateral upon the request of a Grantor or any other person or to take any other action whatsoever with regard to the Exchange Debt First Priority Collateral or any part thereof. The powers conferred on the Exchange Debt Parties hereunder are solely to protect the Exchange Debt Parties' interests in the Exchange Debt First Priority Collateral and shall not impose any duty upon any Exchange Debt Party to exercise any such powers. The Exchange Debt Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or wilful misconduct. SECTION 9. Execution of Financing Statements. Pursuant to Section 9-402 of the Uniform Commercial Code, each Grantor authorizes the Agent to file financing statements with respect to the Exchange Debt First Priority Collateral without the signature of such Grantor in such form and in such filing offices as the Agent reasonably determines appropriate to perfect the security interests of the Agent under this Agreement. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. SECTION 10. Authority of Agent. Each Grantor acknowledges that the rights and responsibilities of the Agent under this Agreement with respect to any action taken by the Agent or the exercise or non-exercise by the Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Agent and the other Exchange Debt Parties, be governed by the Exchange Debt Facility Documents and by such other agreements with respect thereto as may exist from time to time among them but, as between the Agent and the Grantors, the Agent shall be conclusively presumed to be acting as agent for the other Exchange Debt Parties with full and valid authority so to act or refrain from acting. SECTION 11. Notices. All notices, requests and demands to or upon the Exchange Debt Parties or the Grantors under this Agreement shall be given or made in accordance with Section 9.01 of the Exchange Debt Facility and addressed as follows: (a) if to the Agent, in accordance with Section 9.01 of the Exchange Debt Facility; (b) if to any Grantor, c/o the Borrower in accordance with Section 9.01 of the Exchange Debt Facility; SECTION 12. Security Interest Absolute. All rights of the Agent hereunder, the security interest and all obligations of the Grantors hereunder shall be absolute and unconditional. SECTION 13. Survival of Agreement. All covenants, agreements, representations and warranties made by any Grantor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Exchange Debt Facility Document shall be considered to have been relied upon by the Exchange Debt Parties and shall survive the execution and delivery to the Exchange Debt Parties of the amendments to the Exchange Debt Facility Documents, regardless of any investigation made by the Exchange Debt Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any loan, or any fee or any other amount payable under or in respect of this Agreement or any other Exchange Debt Facility Document is outstanding and unpaid. SECTION 14. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER EXCHANGE DEBT FACILITY DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER SECOND PRIORITY DEBT DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 15. SECTION 15. Jurisdiction; Consent to Service of Process. (a) Each Grantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Exchange Debt Facility Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any obligor or any Exchange Debt Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Exchange Debt Facility Documents against any Grantor or any Exchange Debt Party or its properties in the courts of any jurisdiction. (b) Each Grantor and each Exchange Debt Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Exchange Debt Facility Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 11. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 16 Release. (a) This Agreement and the security interest created hereunder shall terminate when all Exchange Debt Obligations have been fully and indefeasibly paid, at which time the Agent shall execute and deliver to each Grantor, or to such person or persons as such Grantor shall reasonably designate, all Uniform Commercial Code termination statements and similar documents prepared by such Grantor at its expense which such Grantor shall reasonably request to evidence such termination. Any execution and delivery of termination statements or documents pursuant to this Section 16(a) shall be without recourse to or warranty by the Agent. (b) All Exchange Debt First Priority Collateral used, sold, transferred or otherwise disposed of in accordance with the terms of the Exchange Debt Facility Document (including pursuant to a waiver or amendment of the terms thereof) shall be used, sold, transferred or otherwise disposed of free and clear of the Lien and the security interest created hereunder. In connection with the foregoing, (i) the Agent shall execute and deliver to each Grantor, or to such person or persons as such Grantor shall reasonably designate, all Uniform Commercial Code termination statements and similar documents prepared by such Grantor at its expense which such Grantor shall reasonably request to evidence the release of the Lien and security interest created hereunder with respect to such Exchange Debt First Priority Collateral and (ii) any representation, warranty or covenant contained herein relating to such Exchange Debt First Priority Collateral shall no longer be deemed to be made with respect to such used, sold, transferred or otherwise disposed Exchange Debt First Priority Collateral. SECTION 17. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties hereunder shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 18. Amendments in Writing; No Waiver. (a) None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Grantors and the Agent, provided that any provision of this Agreement may be waived by the Required Banks (as defined in the Exchange Debt Facility) pursuant to a letter or agreement executed by the Agent or by telecopy transmission from the Agent, in either case with the prior written consent of the Required Banks. (b) No Exchange Debt Party shall by any act (except by a written instrument pursuant to Section 18 hereof) or delay be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of any Exchange Debt Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by any Exchange Debt Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such Exchange Debt Party would otherwise have on any future occasion. SECTION 19. Remedies Cumulative. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. SECTION 20. Section Headings. The section and Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. SECTION 21. Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of each Grantor and the Exchange Debt Parties and their successors and assigns, provided that this Agreement may not be assigned by any Grantor without the prior written consent of the Agent. SECTION 22. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. SECTION 23. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract. SECTION 24. Additional Grantors. Pursuant to the Exchange Debt Facility Documents, each Domestic Subsidiary that was not in existence or not a Domestic Subsidiary on the date thereof is required to enter into this Agreement as a Grantor upon becoming a Domestic Subsidiary. Upon execution and delivery, after the date hereof, by the Agent and such Domestic Subsidiary of an instrument in the form of Annex 1, such Domestic Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor hereunder. The execution and delivery of any such instrument shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement. SECTION 25. Patient Confidentiality. Notwithstanding any other provision of this Agreement, the Agent hereby agrees on behalf of itself and each Exchange Debt Party and any of their designees and assigns to, and shall take all reasonable steps to, comply with all applicable state or federal laws or administrative regulations regarding the confidentiality of patient records and patient medical information it receives in connection with the transactions described in this Agreement. Notwithstanding any other provision of this Agreement, enforcement hereof is limited as set forth in Section 5.02(e) of the Collateral Trust and Intercreditor Agreement. IN WITNESS WHEREOF, the undersigned has caused this First Priority Subsidiary Security Agreement to be duly executed and delivered as of the date first above written. EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE A HERETO, as a Grantor By: ------------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: ------------------------------------- Name: Title: THRIFTY PAYLESS, INC., as a Grantor By: ------------------------------------- Name: Title: PCS HEALTH SYSTEMS, INC., as a Grantor By: ------------------------------------- Name: Title:
Schedules: - --------- Annex 1 Supplement Schedule A Grantors Schedule 1 Filings and Other Actions Required to Perfect Security Interests Schedule 2 Prescription Files Schedule 3 Perfection Certificate Schedule 4 Chief Executive Office, Principal Place of Business and Jurisdiction of Incorporation or Organization
Annex 1 to the First Priority Subsidiary Security Agreement SUPPLEMENT NO. dated as of [ ] (this "Supplement") to the First Priority Subsidiary Security Agreement dated as of June 12, 2000 (the "First Priority Subsidiary Security Agreement"), between the DOMESTIC SUBSIDIARIES identified on the signature pages thereto and any other person that becomes a Domestic Subsidiary (the "Grantors"), in favor of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as agent (the "Agent") for the Second Priority Secured Parties. A. Reference is made to the (a) the Exchange Debt Facility Documents and (b) the First Priority Subsidiary Security Agreement dated as of June 12, 2000, among the Subsidiary Guarantors and the Agent. B. The Grantors have entered into the First Priority Subsidiary Security Agreement in order to induce the Exchange Parties to enter into the Exchange Debt Facility Documents. Pursuant to the Exchange Debt Facility Documents, each Domestic Subsidiary that was not in existence or not a Domestic Subsidiary on the date thereof is required to enter into the First Priority Subsidiary Security Agreement as a Grantor upon becoming a Domestic Subsidiary. Section 24 of the First Priority Subsidiary Security Agreement provides that additional Domestic Subsidiaries may become Grantors under the First Priority Subsidiary Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "New Grantor") is a Domestic Subsidiary and is executing this Supplement in accordance with the requirements of the Exchange Debt Facility Documents to become a Grantor under the First Priority Subsidiary Security Agreement as consideration for credit previously extended to the Borrower. Accordingly, the Agent and the New Grantor agree as follows: SECTION 1. In accordance with Section 24 of the First Priority Subsidiary Security Agreement, the New Grantor by its signature below becomes a Grantor under the First Priority Subsidiary Security Agreement with the same force and effect as if originally named therein as a Grantor and the New Grantor hereby agrees to all the terms and provisions of the First Priority Subsidiary Security Agreement applicable to it as a Grantor thereunder. Each reference to a "Grantor" in the First Priority Subsidiary Security Agreement shall be deemed to include the New Grantor. The First Priority Subsidiary Security Agreement is hereby incorporated herein by reference. SECTION 2. The New Grantor represents and warrants to the Exchange Debt Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to the effects of applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and equitable principles of general applicability. SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Grantor and the Agent. SECTION 4. Except as expressly supplemented hereby, the First Priority Subsidiary Security Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the First Priority Subsidiary Security Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in the Exchange Debt Facility. All communications and notices hereunder to the New Grantor shall be given to it c/o the Borrower as set forth in Section 9.01 of the Exchange Debt Facility. IN WITNESS WHEREOF, the New Grantor and the Agent have duly executed this Supplement to the Senior Priority Subsidiary Security Agreement as of the day and year first above written. [NAME OF NEW GRANTOR], By: ------------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: ------------------------------------- Name: Title: Schedule A to the First Priority Subsidiary Security Agreement DOMESTIC SUBSIDIARIES Schedule 1 to the First Priority Subsidiary Security Agreement FILINGS AND OTHER ACTIONS REQUIRED TO PERFECT SECURITY INTERESTS Uniform Commercial Code Filings Schedule 2 to the First Priority Subsidiary Security Agreement PRESCRIPTION FILES LOCATIONS Schedule 3 to the First Priority Subsidiary Security Agreement PERFECTION CERTIFICATE Schedule 4 to the First Priority Subsidiary Security Agreement CHIEF EXECUTIVE OFFICE, PRINCIPAL PLACE OF BUSINESS AND JURISDICTION OF INCORPORATION OR ORGANIZATION EX-10 17 0017.txt EXHIBIT 10.13 - AMENDED AND RESTATED DRUGSTORE.COM PLEDGE AGREEMENT Exhibit 10.13 EXECUTION COPY AMENDED AND RESTATED DRUGSTORE.COM PLEDGE AGREEMENT AGREEMENT dated as of October 25, 1999 and amended and restated as of June 12, 2000 between RITE AID CORPORATION (with its successors, the "BORROWER") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN"), as agent hereunder (the "AGENT"). W I T N E S S E T H : WHEREAS, the Borrower, certain banks and Morgan, as agent for such banks are parties to an Amended and Restated Credit Agreement dated as of October 25, 1999 (as heretofore amended, the "ORIGINAL CREDIT AGREEMENT"); and WHEREAS, the Borrower proposes to enter into the RCF Facility of even date amending and restating the Original Credit Agreement (as the same may be amended from time to time, the "CREDIT AGREEMENT"); and WHEREAS, the Borrower granted a continuing security interest in and to the Collateral (i) on a first priority basis, to secure certain of its obligations under the Credit Agreement as well as the Finco Facility (as this and other capitalized terms are defined below) and the Independent Standby Letters of Credit and (ii) on a second priority basis, to secure the Synthetic Lease Obligations; WHEREAS, certain of the Existing Facility Parties have converted a portion of their loans under the Existing Facilities to Common Stock of the Borrower and exchanged a portion of such loans for loans under the Exchange Debt Facility; WHEREAS, the Borrower has agreed that its obligations under the Exchange Debt Facility will continue to be secured by a continuing security interest in and to the Collateral on a first priority basis, to the extent the obligations for which such Exchange Debt Obligations were exchanged were so secured; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Definitions. (a) Terms defined in the heading and recitals hereto have the respective meanings provided for therein. (b) The following terms have the meanings provided for in the Credit Agreement or the Definitions Annex referred to therein: Base Rate Base Rate Margin Default Event of Default Exchange Debt Facility Exchange Debt Obligations Existing Facilities Documents Existing Facility Parties Finco Facility Finco Facility Obligations Independent Standby Letters of Credit Independent Standby L/C Obligations Lien PCS Pledge Agreement Related Exchange Debt Related Exchange Debt Obligations Synthetic Lease Obligations Tranche B Loans (c) The following additional terms, as used herein, have the following respective meanings: "COLLATERAL" has the meaning assigned to such term in Section 3(a). "FIRST PRIORITY SECURED OBLIGATIONS" means (i) all outstanding principal amounts of the Partially Secured Obligations, provided that the principal amount secured pursuant to this clause (i) shall not exceed the Maximum Principal Amount, (ii) all interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the principal amounts secured pursuant to clause (i) of this definition, (iii) any renewals or extensions of any of the foregoing and (iv) to the extent the same may be secured hereunder and under the PCS Pledge Agreement without contravention of the Indentures, any and all other amounts payable by the Borrower in respect of the Partially Secured Obligations. The amounts specified in clauses (i) and (iii) shall be allocated among the Partially Secured Obligations ratably based on the unpaid principal amount thereof at the time of determination. "INSTRUCTING BANKS" means the "Required Banks" as defined in the Credit Agreement. "ISSUER" means drugstore.com, inc., and its successors. "LETTER OF CREDIT EXPOSURE" means the Independent Standby L/C Obligations; provided that each issuer of such letters of credit shall have entered into an agreement with the Borrower and the Agent satisfactory to the Agent pursuant to which such issuer has agreed to accept the benefits of and be bound by the terms of this Agreement; provided further that the Letter of Credit Exposure may not for purposes of this Agreement exceed $34,000,000; and provided further that the outstanding principal amount of any such letters of credit which are undrawn shall be deemed to be the face amount thereof for purposes of this Agreement, subject to the last sentence of Section 13. "LIMITED SHARES" means certificate numbers DS0004, DS0005, DS0006, DS0007, DS0008 and DS0009 representing 9,334,746 shares of common stock, par value $0.001 per share, of the Issuer and proceeds thereof and replacements therefor. "MAXIMUM PRINCIPAL AMOUNT" shall mean that portion of the outstanding principal amounts of the Partially Secured Obligations secured both hereunder and under the PCS Pledge Agreement, which principal amount shall not exceed $447,000,000, it being understood that this Agreement and the PCS Pledge Agreement each individually, but also collectively, secure the Partially Secured Obligations to the extent of such Maximum Principal Amount, and that therefore the Maximum Principal Amount for purposes of this Agreement shall be reduced by the amount of any proceeds of Collateral applied to principal of the Partially Secured Obligations pursuant to Section 13 of the PCS Pledge Agreement. "PARTIALLY SECURED OBLIGATIONS" means the Tranche B Loans, loans under the Exchange Debt Facility (other than any such loans which constitute Related Exchange Debt with respect to the PCS Facility or the Tranche A Loans), the Finco Facility and the Letter of Credit Exposure. "PLEDGED STOCK" means (i) the Limited Shares and (ii) any other capital stock required to be pledged to the Agent pursuant to Section 3(b). "SECOND PRIORITY SECURED OBLIGATIONS" means (i) the Synthetic Lease Obligations and (ii) any renewals or extensions of the foregoing. "SECURED OBLIGATIONS" means the First Priority Secured Obligations, the Second Priority Secured Obligations and any amount payable by the Borrower under this Agreement. "SECURED PARTIES" means the Agent and the holders from time to time of the Secured Obligations. "SECURITY INTERESTS" means the security interests in the Collateral granted hereunder securing the Secured Obligations. Unless otherwise defined herein, or unless the context otherwise requires, all terms used herein which are defined in the New York Uniform Commercial Code as in effect on the date hereof shall have the meanings therein stated. SECTION 2. Representations and Warranties. The Borrower represents and warrants as follows: (a) Title to Pledged Stock. The Borrower owns all of the Pledged Stock, free and clear of any Liens other than the Security Interests. The Pledged Stock includes 21.5% of the issued and outstanding capital stock of the Issuer. All of the Pledged Stock has been duly authorized and validly issued, and is fully paid and non-assessable, and is subject to no options to purchase or similar rights of any Person. The Borrower is not and will not become a party to or otherwise bound by any agreement, other than this Agreement and the Governance Agreement dated June 17, 1999 between the Issuer and the Borrower, which restricts in any manner the rights of any present or future holder of any of the Pledged Stock with respect thereto. (b) Validity, Perfection and Priority of Security Interests. The Agent has valid and perfected security interests in the Collateral subject to no prior Lien. No registration, recordation or filing with any governmental body, agency or official is required in connection with the execution or delivery of this Agreement or necessary for the validity or enforceability hereof or for the perfection or enforcement of the Security Interests. Neither the Borrower nor any of its Subsidiaries has performed or will perform any acts which might prevent the Agent from enforcing any of the terms and conditions of this Agreement or which would limit the Agent in any such enforcement. (c) UCC Filing Locations. The chief executive office of the Borrower is located at its address set forth on the signature pages of the Credit Agreement. SECTION 3. The Security Interests. In order to secure the full and punctual payment of the Secured Obligations in accordance with the terms thereof, and to secure the performance of all the obligations of the Borrower hereunder: (a) The Borrower hereby assigns and pledges to and with the Agent for the benefit of the Secured Parties and grants to the Agent for the benefit of the Secured Parties security interests in the Pledged Stock, and all of its rights and privileges with respect to the Pledged Stock, and all income and profits thereon, and all dividends and other payments and distributions with respect thereto, and all proceeds of the foregoing (the "COLLATERAL"). Prior to the execution and delivery hereof, the Borrower has delivered the certificate representing the Limited Shares in pledge hereunder. (b) In the event that the Issuer at any time issues any additional or substitute shares of capital stock of any class to the Borrower or any Subsidiary, the Borrower will immediately pledge and deposit with the Agent certificates representing all such shares as additional security for the Secured Obligations. All such shares constitute Pledged Stock and are subject to all provisions of this Agreement. (c) The Security Interests are granted as security only and shall not subject the Agent or any Secured Party to, or transfer or in any way affect or modify, any obligation or liability of the Borrower with respect to any of the Collateral or any transaction in connection therewith. SECTION 4. Delivery of Pledged Stock. All certificates representing Pledged Stock delivered to the Agent by the Borrower pursuant hereto shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, with signatures appropriately guaranteed, and accompanied by any required transfer tax stamps, all in form and substance satisfactory to the Agent. SECTION 5. Further Assurances. (a) The Borrower agrees that it will, at its expense and in such manner and form as the Agent may require, execute, deliver, file and record any financing statement, specific assignment or other paper and take any other action that may be necessary or desirable, or that the Agent may request, in order to create, preserve, perfect or validate any Security Interest or to enable the Agent to exercise and enforce its rights hereunder with respect to any of the Collateral. To the extent permitted by applicable law, the Borrower hereby authorizes the Agent to execute and file, in the name of the Borrower or otherwise, Uniform Commercial Code financing statements (which may be carbon, photographic, photostatic or other reproductions of this Agreement or of a financing statement relating to this Agreement) which the Agent in its sole discretion may deem necessary or appropriate to further perfect the Security Interests. (b) The Borrower agrees that it will not change (i) its name, identity or corporate structure in any manner, (ii) the location of its chief executive office or (iii) its jurisdiction of incorporation unless it shall have given the Agent not less than 30 days' prior notice thereof. SECTION 6. Record Ownership of Pledged Stock. The Agent may at any time or from time to time, in its sole discretion, cause any or all of the Pledged Stock to be transferred of record into the name of the Agent or its nominee. The Borrower will promptly give to the Agent copies of any notices or other communications received by it in its capacity as a shareholder of the Issuer with respect to Pledged Stock registered in the name of the Borrower and the Agent will promptly give to the Borrower copies of any notices and communications received by the Agent with respect to Pledged Stock registered in the name of the Agent or its nominee. SECTION 7. Right to Receive Distributions on Collateral. During the continuance of any Default the Agent shall have the right to receive and to retain as Collateral hereunder all dividends and other payments and distributions made upon or with respect to the Collateral and the Borrower shall take all such action as the Agent may deem necessary or appropriate to give effect to such right. All such dividends and other payments and distributions which are received by the Borrower shall be received in trust for the benefit of the Agent and the Secured Parties and, if the Agent so directs during the continuance of a Default, shall be segregated from other funds of the Borrower and shall, forthwith upon demand by the Agent during the continuance of a Default, be paid over to the Agent as Collateral in the same form as received (with any necessary endorsement). After all Defaults have been cured, the Agent's right to retain dividends and other payments and distributions under this Section 7 shall cease and the Agent shall pay over to the Borrower any such Collateral retained by it during the continuance of a Default. SECTION 8. Right to Vote Pledged Stock. Unless a Default shall have occurred and be continuing, the Borrower shall have the right, from time to time, to vote and to give consents, ratifications and waivers with respect to the Pledged Stock, and the Agent shall, upon receiving a written request from the Borrower accompanied by a certificate signed by its principal financial officer stating that no Default has occurred and is continuing, deliver to the Borrower or as specified in such request such proxies, powers of attorney, consents, ratifications and waivers in respect of any of the Pledged Stock which is registered in the name of the Agent or its nominee as shall be specified in such request and be in form and substance satisfactory to the Agent. If a Default shall have occurred and be continuing, the Agent shall have the right to the extent permitted by law, and the Borrower shall take all such action as may be necessary or appropriate to give effect to such right, to vote and to give consents, ratifications and waivers, and take any other action with respect to any or all of the Pledged Stock with the same force and effect as if the Agent were the absolute and sole owner thereof. SECTION 9. General Authority. The Borrower hereby irrevocably appoints the Agent its true and lawful attorney, with full power of substitution, in the name of the Borrower, the Agent, the Secured Parties or otherwise, for the sole use and benefit of the Agent and Secured Parties, but at the expense of the Borrower, to the extent permitted by law to exercise, at any time and from time to time while an Event of Default has occurred and is continuing, all or any of the following powers with respect to all or any of the Collateral: (a) to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due upon or by virtue thereof, (b) to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto, (c) to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof, as fully and effectually as if the Agent were the absolute owner thereof, and (d) to extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto; provided that the Agent shall give the Borrower not less than ten days' prior notice of the time and place of any sale or other intended disposition of any of the Collateral except any Collateral which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. The Agent and the Borrower agree that such notice constitutes "reasonable notification" within the meaning of Section 9-504(3) of the Uniform Commercial Code. SECTION 10. Remedies upon Event of Default. If any Event of Default shall have occurred and be continuing, the Agent may exercise on behalf of the Secured Parties all the rights of a secured party under the Uniform Commercial Code (whether or not in effect in the jurisdiction where such rights are exercised) and, in addition, the Agent may, without being required to give any notice, except as herein provided or as may be required by mandatory provisions of law, (i) apply the cash, if any, then held by it as Collateral as specified in Section 13 and (ii) if there shall be no such cash or if such cash shall be insufficient to pay all the Secured Obligations in full, sell the Collateral or any part thereof at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as the Agent may deem satisfactory. Any Secured Party may be the purchaser of any or all of the Collateral so sold at any public sale (or, if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, at any private sale). The Agent is authorized, in connection with any such sale, if it deems it advisable so to do, (A) to restrict the prospective bidders on or purchasers of any of the Pledged Stock to a limited number of sophisticated investors who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or sale of any of such Pledged Stock, (B) to cause to be placed on certificates for any or all of the Pledged Stock or on any other securities pledged hereunder a legend to the effect that such security has not been registered under the Securities Act of 1933 and may not be disposed of in violation of the provision of said Act, and (C) to impose such other limitations or conditions in connection with any such sale as the Agent deems necessary or advisable in order to comply with said Act or any other law. The Borrower will execute and deliver such documents and take such other action as the Agent deems necessary or advisable in order that any such sale may be made in compliance with law. Upon any such sale the Agent shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold. Each purchaser at any such sale shall hold the Collateral so sold absolutely and free from any claim or right of whatsoever kind, including any equity or right of redemption of the Borrower which may be waived, and the Borrower, to the extent permitted by law, hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter adopted. The notice (if any) of such sale required by Section 9 shall (1) in the case of a public sale, state the time and place fixed for such sale, (2) in the case of a sale at a broker's board or on a securities exchange, state the board or exchange at which such sale is to be made and the day on which the Collateral, or the portion thereof so being sold, will first be offered for sale at such board or exchange, and (3) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Agent may fix in the notice of such sale. At any such sale the Collateral may be sold in one lot as an entirety or in separate parcels, as the Agent may determine. The Agent shall not be obligated to make any such sale pursuant to any such notice. The Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In the case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by the Agent until the selling price is paid by the purchaser thereof, but the Agent shall not incur any liability in the case of the failure of such purchaser to take up and pay for the Collateral so sold and, in the case of any such failure, such Collateral may again be sold upon like notice. The Agent, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose the Security Interests and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. SECTION 11. Expenses. The Borrower agrees that it will forthwith upon demand pay to the Agent: (a) the amount of any taxes which the Agent may have been required to pay by reason of the Security Interests or to free any of the Collateral from any Lien thereon, and (b) the amount of any and all out-of-pocket expenses, including the fees and disbursements of counsel, which the Agent may incur in connection with (i) the administration or enforcement of this Agreement, including such expenses as are incurred to preserve the value of the Collateral and the validity, perfection, rank and value of any Security Interest, (ii) the collection, sale or other disposition of any of the Collateral, (iii) the exercise by the Agent of any of the rights conferred upon it hereunder or (iv) any Default. Any such amount not paid on demand shall bear interest at a rate per annum equal to the rate applicable to overdue Base Rate Loans under the Credit Agreement and shall be an additional Secured Obligation hereunder. SECTION 12. Limitation on Duty of Agent in Respect of Collateral. Beyond the exercise of reasonable care in the custody thereof, the Agent shall have no duty as to any Collateral in its possession or control or in the possession or control of any agent or bailee or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property, and shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any agent or bailee selected by the Agent in good faith. SECTION 13. Application of Proceeds. Upon the occurrence and during the continuance of an Event of Default, the proceeds of any sale of, or other realization upon, all or any part of the Collateral and any cash held shall be applied by the Agent in the following order of priorities: FIRST, to payment of the expenses of such sale or other realization, including reasonable compensation to agents and counsel for the Agent, and all expenses, liabilities and advances incurred or made by the Agent in connection therewith, and any other unreimbursed expenses for which the Agent is to be reimbursed pursuant to Section 11 hereof; SECOND, to the ratable payment of unpaid principal of the First Priority Secured Obligations; THIRD, to the ratable payment of accrued but unpaid interest on the First Priority Secured Obligations in accordance with the terms thereof; FOURTH, to the ratable payment of all other First Priority Secured Obligations, until all First Priority Secured Obligations shall have been paid in full; FIFTH, to the ratable payment of all Second Priority Secured Obligations, until all Second Priority Secured Obligations have been paid in full; FINALLY, to payment to the Borrower or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. The Agent may make distributions hereunder in cash or in kind or, on a ratable basis, in any combination thereof. Any amount distributable pursuant to this Section 13 in respect of any Independent Standby L/C Obligations consisting of undrawn letters of credit shall be retained by the Agent for payment to the Secured Parties that are issuers thereof at such time as such letters of credit are drawn and then only to the extent of any such draw. To the extent that any such letter of credit expires undrawn, any amount then held by the Agent pursuant to the preceding sentence in respect thereof shall be distributed in accordance with the priorities established by this Section 13, it being understood that any reimbursement obligations in respect of such expired letter of credit shall not be included in Secured Obligations for purposes of such distribution. SECTION 14. Concerning the Agent. The provisions of Article 7 of the Credit Agreement shall inure to the benefit of the Agent in respect of this Agreement and shall be binding upon the Secured Parties in such respect. In furtherance and not in derogation of the rights, privileges and immunities of the Agent therein set forth: (a) The Agent is authorized to take all such action as is provided to be taken by it as Agent hereunder and all other action reasonably incidental thereto. As to any matters not expressly provided for herein (including, without limitation, the timing and methods of realization upon the Collateral) the Agent shall act or refrain from acting in accordance with written instructions from the Instructing Banks or, in the absence of such instructions, in accordance with its discretion. (b) The Agent shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of the Security Interests in any of the Collateral, whether impaired by operation of law or by reason of any action or omission to act on its part hereunder. The Agent shall have no duty to ascertain or inquire as to the performance or observance of any of the terms of this Agreement by the Borrower. SECTION 15. Appointment of Co-Agents. At any time or times, in order to comply with any legal requirement in any jurisdiction, the Agent may appoint another bank or trust company or one or more other persons, either to act as co-agent or co-agents, jointly with the Agent, or to act as separate agent or agents on behalf of the Secured Parties with such power and authority as may be necessary for the effectual operation of the provisions hereof and may be specified in the instrument of appointment (which may, in the discretion of the Agent, include provisions for the protection of such co-agent or separate agent similar to the provisions of Section 14). SECTION 16. Termination of Security Interests; Release of Collateral. Upon the repayment in full of all Secured Obligations, the Security Interests shall terminate and all rights to the Collateral shall revert to the Borrower. At any time and from time to time prior to such termination of the Security Interests, the Agent may release any of the Collateral in accordance with the applicable provisions of the Credit Agreement. Upon any such termination of the Security Interests or release of Collateral, the Agent will, at the expense of the Borrower, execute and deliver to the Borrower such documents as the Borrower shall reasonably request to evidence the termination of the Security Interests or the release of such Collateral, as the case may be. SECTION 17. Notices. All notices hereunder shall be given in accordance with Section 9.01 of the Credit Agreement. SECTION 18. Waivers, Non-Exclusive Remedies. No failure on the part of the Agent to exercise, and no delay in exercising and no course of dealing with respect to, any right under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise by the Agent or any Secured Party of any right under any Loan Document or any other document relating to the Secured Obligations owing to such Secured Party preclude any other or further exercise thereof or the exercise of any other right. The rights under the Existing Facilities Documents and such other documents are cumulative and are not exclusive of any other remedies provided by law. SECTION 19. Successors and Assigns. This Agreement is for the benefit of the Secured Parties and their successors and assigns, and in the event of an assignment of all or any of the Secured Obligations, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Agreement shall be binding on the Borrower and its successors and assigns. SECTION 20. Changes in Writing. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only in writing signed by the Borrower and the Agent with the consent of the Required Banks under the Credit Agreement. No such amendment shall by its terms materially adversely affect the rights of holders of any of the Finco Facility Obligations, the Letter of Credit Exposure, the Exchange Debt Obligations or the Second Priority Secured Obligations, in a manner different from its effect on the rights of holders of any other Secured Obligations, except with the written consent of such affected holder (or of the requisite majority of the affected holders specified in the documents governing such affected holders' Secured Obligations). SECTION 21. New York Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York, except as otherwise required by mandatory provisions of law and except to the extent that remedies provided by the laws of any jurisdiction other than New York are governed by the laws of such jurisdiction. SECTION 22. Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Agent and the Secured Parties in order to carry out the intentions of the parties hereto as nearly as may be possible; and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. SECTION 23. Acceptance of Appointment. Morgan hereby accepts its appointment as agent for each of the Secured Parties; provided that neither such appointment or such acceptance shall impose on Morgan any duties other than the express duties of the Agent hereunder and subject in any case to the provisions of Section 7 hereof and Article 7 of the Credit Agreement, which shall be binding on all Secured Parties. 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: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: ------------------------------------- Name: Title: EX-10 18 0018.txt EXHIBIT 10.14 - AMENDED AND RESTATED PCS PLEDGE AGREEMENT Exhibit 10.14 EXECUTION COPY AMENDED AND RESTATED PCS PLEDGE AGREEMENT AGREEMENT dated as of October 25, 1999 and amended and restated as of June 12, 2000 between RITE AID CORPORATION (with its successors, the "BORROWER") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN"), as agent hereunder (the "AGENT"). W I T N E S S E T H : WHEREAS, the Borrower, certain banks and Morgan, as agent for such banks are parties to a Term Loan Agreement dated as of October 25, 1999 (as heretofore amended, the "ORIGINAL LOAN AGREEMENT"); and WHEREAS, the Borrower proposes to enter into the PCS Facility of even date herewith amending and restating the Original Loan Agreement (as the same may be amended from time to time, the "LOAN AGREEMENT"); and WHEREAS, the Borrower granted a continuing security interest in and to the Collateral (i) on a first priority basis, to secure its obligations under the Loan Agreement, (ii) on a second priority basis, to secure certain of its obligations under the RCF Facility (as this and other capitalized terms are defined below), (iii) on a third priority basis, to secure certain other obligations under the RCF Facility as well as the Finco Facility and the Independent Standby Letters of Credit and (iv) on a fourth priority basis, to secure the Synthetic Lease Obligations; and WHEREAS, certain of the Existing Facility Parties have converted a portion of their loans under the Existing Facilities to Common Stock of the Borrower and exchanged a portion of such loans for loans under the Exchange Debt Facility; and WHEREAS, the Borrower has agreed that its obligations under the Exchange Debt Facility will continue to be secured by a continuing security interest in and to the Collateral, to the extent the obligations for which such Exchange Debt Obligations were exchanged were so secured; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Definitions. (a) Terms defined in the heading and recitals hereto have the respective meanings provided for therein. (b) The following terms have the meanings provided for in the RCF Facility: Tranche A Loans Tranche B Loans (c) The following terms have the meanings provided for in the Loan Agreement or the Definitions Annex referred to therein and in the RCF Facility: Base Rate Base Rate Margin Default Drugstore.com Pledge Agreement Event of Default Exchange Debt Facility Exchange Debt Obligations Existing Facilities Documents Existing Facility Parties Finco Facility Finco Facility Obligations Independent Standby Letters of Credit Independent Standby L/C Obligations Lien RCF Facility RCF Facility Documents Related Exchange Debt Related Exchange Debt Obligations Synthetic Lease Obligations (d) The following additional terms, as used herein, have the following respective meanings: "COLLATERAL" has the meaning assigned to such term in Section 3(a). "FIRST PRIORITY SECURED OBLIGATIONS" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any loan under the Loan Agreement, (ii) all other amounts payable by the Borrower under the Loan Agreement and (iii) any renewals or extensions of any of the foregoing. "FOURTH PRIORITY SECURED OBLIGATIONS" means (i) the obligations of the Borrower in respect of the Synthetic Lease Obligations and (ii) any renewals or extensions of the foregoing. "INSTRUCTING BANKS" means (i) until all First Priority Secured Obligations shall have been paid in full, the "Required Banks" as defined in the Loan Agreement and (ii) thereafter, the "Required Banks" as defined in the RCF Facility. "ISSUER" means PCS Holding Corporation, and its successors. "LETTER OF CREDIT EXPOSURE" means the Independent Standby L/C Obligations; provided that each issuer of such letters of credit shall have entered into an agreement with the Borrower and the Agent satisfactory to the Agent pursuant to which such issuer has agreed to accept the benefits of and be bound by the terms of this Agreement; provided further that the Letter of Credit Exposure may not for purposes of this Agreement exceed $34,000,000; and provided further that the outstanding principal amount of any such letters of credit which are undrawn shall be deemed to be the face amount thereof for purposes of this Agreement, subject to the last sentence of Section 13. "MAXIMUM PRINCIPAL AMOUNT" shall mean that portion of the outstanding principal amounts of the Partially Secured Obligations secured both hereunder and under the drugstore.com Pledge Agreement, which principal amount shall not exceed $447,000,000, it being understood that this Agreement and the drugstore.com Pledge Agreement each individually, but also collectively, secure the Partially Secured Obligations to the extent of such Maximum Principal Amount, and that therefore the Maximum Principal Amount for purposes of this Agreement shall be reduced by the amount of any proceeds of Collateral applied to principal of the Partially Secured Obligations pursuant to Section 13 of the drugstore.com Pledge Agreement. "PARTIALLY SECURED OBLIGATIONS" means the Tranche B Loans, loans under the Exchange Debt Facility (other than any such loans which constitute Related Exchange Debt with respect to the Loan Agreement or the Tranche A Loans), the Finco Facility and the Letter of Credit Exposure. "PLEDGED STOCK" means (i) the Subsidiary Shares and (ii) any other capital stock required to be pledged to the Agent pursuant to Section 3(b). "SECOND PRIORITY SECURED OBLIGATIONS" means (i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any Tranche A Loan, (ii) all other amounts payable by the Borrower hereunder or under the RCF Facility Documents, to the extent properly allocable to the Tranche A Loans, and (iii) any renewals or extensions of any of the foregoing. "SECURED OBLIGATIONS" means the First Priority Secured Obligations, the Second Priority Secured Obligations, the Third Priority Secured Obligations, the Fourth Priority Secured Obligations and any amount payable by the Borrower under this Agreement. "SECURED PARTIES" means the Agent and the holders from time to time of the Secured Obligations. "SECURITY INTERESTS" means the security interests in the Collateral granted hereunder securing the Secured Obligations. "SUBSIDIARY SHARES" means certificate number A 2 representing 565 shares of Class A Stock, par value $1.00 per share, of the Issuer and proceeds thereof and replacements therefor. "THIRD PRIORITY SECURED OBLIGATIONS" means (i) all outstanding principal amounts of Partially Secured Obligations, provided that the principal amount secured pursuant to this clause (i) shall not exceed the Maximum Principal Amount; (ii) all interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the principal amounts secured pursuant to clause (i) of this definition, (iii) any renewals or extensions of any of the foregoing and (iv) to the extent the same may be secured hereunder and under the Drugstore.com Pledge Agreement without contravention of the Indentures, any and all other amounts payable by the Borrower in respect of the Partially Secured Obligations. The amounts specified in clauses (i) and (iii) shall be allocated among the Partially Secured Obligations ratably based on the unpaid principal amount thereof at the time of determination. Unless otherwise defined herein, or unless the context otherwise requires, all terms used herein which are defined in the New York Uniform Commercial Code as in effect on the date hereof shall have the meanings therein stated. SECTION 2. Representations and Warranties. The Borrower represents and warrants as follows: (a) Title to Pledged Stock. The Borrower owns all of the Pledged Stock, free and clear of any Liens other than the Security Interests. The Pledged Stock includes all of the issued and outstanding capital stock of the Issuer. All of the Pledged Stock has been duly authorized and validly issued, and is fully paid and non-assessable, and is subject to no options to purchase or similar rights of any Person. The Borrower is not and will not become a party to or otherwise bound by any agreement, other than this Agreement, which restricts in any manner the rights of any present or future holder of any of the Pledged Stock with respect thereto. (b) Validity, Perfection and Priority of Security Interests. The Agent has valid and perfected security interests in the Collateral subject to no prior Lien. No registration, recordation or filing with any governmental body, agency or official is required in connection with the execution or delivery of this Agreement or necessary for the validity or enforceability hereof or for the perfection or enforcement of the Security Interests. Neither the Borrower nor any of its Subsidiaries has performed or will perform any acts which might prevent the Agent from enforcing any of the terms and conditions of this Agreement or which would limit the Agent in any such enforcement. (c) UCC Filing Locations. The chief executive office of the Borrower is located at its address set forth on the signature pages of the Loan Agreement. SECTION 3. The Security Interests. In order to secure the full and punctual payment of the Secured Obligations in accordance with the terms thereof, and to secure the performance of all the obligations of the Borrower hereunder: (a) The Borrower hereby assigns and pledges to and with the Agent for the benefit of the Secured Parties and grants to the Agent for the benefit of the Secured Parties security interests in the Pledged Stock, and all of its rights and privileges with respect to the Pledged Stock, and all income and profits thereon, and all dividends and other payments and distributions with respect thereto, and all proceeds of the foregoing (the "COLLATERAL"). Prior to the execution and delivery hereof, the Borrower has delivered the certificate representing the Subsidiary Shares in pledge hereunder. (b) In the event that the Issuer at any time issues any additional or substitute shares of capital stock of any class, the Borrower will immediately pledge and deposit with the Agent certificates representing all such shares as additional security for the Secured Obligations. All such shares constitute Pledged Stock and are subject to all provisions of this Agreement. (c) The Security Interests are granted as security only and shall not subject the Agent or any Secured Party to, or transfer or in any way affect or modify, any obligation or liability of the Borrower with respect to any of the Collateral or any transaction in connection therewith. SECTION 4. Delivery of Pledged Stock. All certificates representing Pledged Stock delivered to the Agent by the Borrower pursuant hereto shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, with signatures appropriately guaranteed, and accompanied by any required transfer tax stamps, all in form and substance satisfactory to the Agent. SECTION 5. Further Assurances. (a) The Borrower agrees that it will, at its expense and in such manner and form as the Agent may require, execute, deliver, file and record any financing statement, specific assignment or other paper and take any other action that may be necessary or desirable, or that the Agent may request, in order to create, preserve, perfect or validate any Security Interest or to enable the Agent to exercise and enforce its rights hereunder with respect to any of the Collateral. To the extent permitted by applicable law, the Borrower hereby authorizes the Agent to execute and file, in the name of the Borrower or otherwise, Uniform Commercial Code financing statements (which may be carbon, photographic, photostatic or other reproductions of this Agreement or of a financing statement relating to this Agreement) which the Agent in its sole discretion may deem necessary or appropriate to further perfect the Security Interests. (b) The Borrower agrees that it will not change (i) its name, identity or corporate structure in any manner, (ii) the location of its chief executive office or (iii) its jurisdiction of incorporation unless it shall have given the Agent not less than 30 days' prior notice thereof. SECTION 6. Record Ownership of Pledged Stock. The Agent may at any time or from time to time, in its sole discretion, cause any or all of the Pledged Stock to be transferred of record into the name of the Agent or its nominee. The Borrower will promptly give to the Agent copies of any notices or other communications received by it with respect to Pledged Stock registered in the name of the Borrower and the Agent will promptly give to the Borrower copies of any notices and communications received by the Agent with respect to Pledged Stock registered in the name of the Agent or its nominee. SECTION 7. Right to Receive Distributions on Collateral. During the continuance of any Default the Agent shall have the right to receive and to retain as Collateral hereunder all dividends and other payments and distributions made upon or with respect to the Collateral and the Borrower shall take all such action as the Agent may deem necessary or appropriate to give effect to such right. All such dividends and other payments and distributions which are received by the Borrower shall be received in trust for the benefit of the Agent and the Secured Parties and, if the Agent so directs during the continuance of a Default, shall be segregated from other funds of the Borrower and shall, forthwith upon demand by the Agent during the continuance of a Default, be paid over to the Agent as Collateral in the same form as received (with any necessary endorsement). After all Defaults have been cured, the Agent's right to retain dividends and other payments and distributions under this Section 7 shall cease and the Agent shall pay over to the Borrower any such Collateral retained by it during the continuance of a Default. SECTION 8. Right to Vote Pledged Stock. Unless a Default shall have occurred and be continuing, the Borrower shall have the right, from time to time, to vote and to give consents, ratifications and waivers with respect to the Pledged Stock, and the Agent shall, upon receiving a written request from the Borrower accompanied by a certificate signed by its principal financial officer stating that no Default has occurred and is continuing, deliver to the Borrower or as specified in such request such proxies, powers of attorney, consents, ratifications and waivers in respect of any of the Pledged Stock which is registered in the name of the Agent or its nominee as shall be specified in such request and be in form and substance satisfactory to the Agent. If a Default shall have occurred and be continuing, the Agent shall have the right to the extent permitted by law, and the Borrower shall take all such action as may be necessary or appropriate to give effect to such right, to vote and to give consents, ratifications and waivers, and take any other action with respect to any or all of the Pledged Stock with the same force and effect as if the Agent were the absolute and sole owner thereof. SECTION 9. General Authority. The Borrower hereby irrevocably appoints the Agent its true and lawful attorney, with full power of substitution, in the name of the Borrower, the Agent, the Secured Parties or otherwise, for the sole use and benefit of the Agent and Secured Parties, but at the expense of the Borrower, to the extent permitted by law to exercise, at any time and from time to time while an Event of Default has occurred and is continuing, all or any of the following powers with respect to all or any of the Collateral: (a) to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due upon or by virtue thereof, (b) to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto, (c) to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof, as fully and effectually as if the Agent were the absolute owner thereof, and (d) to extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto; provided that the Agent shall give the Borrower not less than ten days' prior notice of the time and place of any sale or other intended disposition of any of the Collateral except any Collateral which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. The Agent and the Borrower agree that such notice constitutes "reasonable notification" within the meaning of Section 9-504(3) of the Uniform Commercial Code. SECTION 10. Remedies upon Event of Default. If any Event of Default shall have occurred and be continuing, the Agent may exercise on behalf of the Secured Parties all the rights of a secured party under the Uniform Commercial Code (whether or not in effect in the jurisdiction where such rights are exercised) and, in addition, the Agent may, without being required to give any notice, except as herein provided or as may be required by mandatory provisions of law, (i) apply the cash, if any, then held by it as Collateral as specified in Section 13 and (ii) if there shall be no such cash or if such cash shall be insufficient to pay all the Secured Obligations in full, sell the Collateral or any part thereof at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as the Agent may deem satisfactory. Any Secured Party may be the purchaser of any or all of the Collateral so sold at any public sale (or, if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, at any private sale). The Agent is authorized, in connection with any such sale, if it deems it advisable so to do, (A) to restrict the prospective bidders on or purchasers of any of the Pledged Stock to a limited number of sophisticated investors who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or sale of any of such Pledged Stock, (B) to cause to be placed on certificates for any or all of the Pledged Stock or on any other securities pledged hereunder a legend to the effect that such security has not been registered under the Securities Act of 1933 and may not be disposed of in violation of the provision of said Act, and (C) to impose such other limitations or conditions in connection with any such sale as the Agent deems necessary or advisable in order to comply with said Act or any other law. The Borrower will execute and deliver such documents and take such other action as the Agent deems necessary or advisable in order that any such sale may be made in compliance with law. Upon any such sale the Agent shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold. Each purchaser at any such sale shall hold the Collateral so sold absolutely and free from any claim or right of whatsoever kind, including any equity or right of redemption of the Borrower which may be waived, and the Borrower, to the extent permitted by law, hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter adopted. The notice (if any) of such sale required by Section 9 shall (1) in the case of a public sale, state the time and place fixed for such sale, (2) in the case of a sale at a broker's board or on a securities exchange, state the board or exchange at which such sale is to be made and the day on which the Collateral, or the portion thereof so being sold, will first be offered for sale at such board or exchange, and (3) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Agent may fix in the notice of such sale. At any such sale the Collateral may be sold in one lot as an entirety or in separate parcels, as the Agent may determine. The Agent shall not be obligated to make any such sale pursuant to any such notice. The Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In the case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by the Agent until the selling price is paid by the purchaser thereof, but the Agent shall not incur any liability in the case of the failure of such purchaser to take up and pay for the Collateral so sold and, in the case of any such failure, such Collateral may again be sold upon like notice. The Agent, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose the Security Interests and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. SECTION 11. Expenses. The Borrower agrees that it will forthwith upon demand pay to the Agent: (a) the amount of any taxes which the Agent may have been required to pay by reason of the Security Interests or to free any of the Collateral from any Lien thereon, and (b) the amount of any and all out-of-pocket expenses, including the fees and disbursements of counsel, which the Agent may incur in connection with (i) the administration or enforcement of this Agreement, including such expenses as are incurred to preserve the value of the Collateral and the validity, perfection, rank and value of any Security Interest, (ii) the collection, sale or other disposition of any of the Collateral, (iii) the exercise by the Agent of any of the rights conferred upon it hereunder or (iv) any Default. Any such amount not paid on demand shall bear interest at a rate per annum equal to the rate applicable to overdue Base Rate Loans under the Loan Agreement and shall be an additional Secured Obligation hereunder. SECTION 12. Limitation on Duty of Agent in Respect of Collateral. Beyond the exercise of reasonable care in the custody thereof, the Agent shall have no duty as to any Collateral in its possession or control or in the possession or control of any agent or bailee or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property, and shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any agent or bailee selected by the Agent in good faith. SECTION 13. Application of Proceeds. Upon the occurrence and during the continuance of an Event of Default, the proceeds of any sale of, or other realization upon, all or any part of the Collateral and any cash held shall be applied by the Agent in the following order of priorities: FIRST, to payment of the expenses of such sale or other realization, including reasonable compensation to agents and counsel for the Agent, and all expenses, liabilities and advances incurred or made by the Agent in connection therewith, and any other unreimbursed expenses for which the Agent is to be reimbursed pursuant to Section 11 hereof; SECOND, to the ratable payment of unpaid principal of the First Priority Secured Obligations; THIRD, to the ratable payment of accrued but unpaid interest on the First Priority Secured Obligations in accordance with the terms thereof; FOURTH, to the ratable payment of all other First Priority Secured Obligations, until all First Priority Secured Obligations shall have been paid in full; FIFTH, to the ratable payment of unpaid principal of the Second Priority Secured Obligations; SIXTH, to the ratable payment of accrued but unpaid interest on the Second Priority Secured Obligations in accordance with the terms thereof; SEVENTH, to the ratable payment of all other Second Priority Secured Obligations, until all Second Priority Secured Obligations shall have been paid in full; EIGHTH, to the ratable payment of unpaid principal of the Third Priority Secured Obligations; NINTH, to the ratable payment of accrued but unpaid interest on Third Priority Secured Obligations in accordance with the terms thereof; TENTH, to the ratable payment of all other Third Priority Secured Obligations, until all Third Priority Secured Obligations shall have been paid in full; ELEVENTH, to the ratable payment of all Fourth Priority Secured Obligations, until all Fourth Priority Secured Obligations have been paid in full; FINALLY, to payment to the Borrower or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. The Agent may make distributions hereunder in cash or in kind or, on a ratable basis, in any combination thereof. Any amount distributable pursuant to this Section 13 in respect of any Independent Standby L/C Obligations consisting of undrawn letters of credit shall be retained by the Agent for payment to the Secured Parties that are issuers thereof at such time as such letters of credit are drawn and then only to the extent of any such draw. To the extent that any such letter of credit expires undrawn, any amount then held by the Agent pursuant to the preceding sentence in respect thereof shall be distributed in accordance with the priorities established by this Section 13, it being understood that any reimbursement obligations in respect of such expired letter of credit shall not be included in Secured Obligations for purposes of such distribution. SECTION 14. Concerning the Agent. The provisions of Article 7 of each Loan Agreement shall inure to the benefit of the Agent in respect of this Agreement and shall be binding upon the Secured Parties in such respect. In furtherance and not in derogation of the rights, privileges and immunities of the Agent therein set forth: (a) The Agent is authorized to take all such action as is provided to be taken by it as Agent hereunder and all other action reasonably incidental thereto. As to any matters not expressly provided for herein (including, without limitation, the timing and methods of realization upon the Collateral) the Agent shall act or refrain from acting in accordance with written instructions from the Instructing Banks or, in the absence of such instructions, in accordance with its discretion. (b) The Agent shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of the Security Interests in any of the Collateral, whether impaired by operation of law or by reason of any action or omission to act on its part hereunder. The Agent shall have no duty to ascertain or inquire as to the performance or observance of any of the terms of this Agreement by the Borrower. SECTION 15. Appointment of Co-Agents. At any time or times, in order to comply with any legal requirement in any jurisdiction, the Agent may appoint another bank or trust company or one or more other persons, either to act as co-agent or co-agents, jointly with the Agent, or to act as separate agent or agents on behalf of the Secured Parties with such power and authority as may be necessary for the effectual operation of the provisions hereof and may be specified in the instrument of appointment (which may, in the discretion of the Agent, include provisions for the protection of such co-agent or separate agent similar to the provisions of Section 14). SECTION 16. Termination of Security Interests; Release of Collateral. Upon the repayment in full of all Secured Obligations, the Security Interests shall terminate and all rights to the Collateral shall revert to the Borrower. At any time and from time to time prior to such termination of the Security Interests, the Agent may release any of the Collateral in accordance with the applicable provisions of each of the Loan Agreement and the RCF Facility. Upon any such termination of the Security Interests or release of Collateral, the Agent will, at the expense of the Borrower, execute and deliver to the Borrower such documents as the Borrower shall reasonably request to evidence the termination of the Security Interests or the release of such Collateral, as the case may be. SECTION 17. Notices. All notices hereunder shall be given in accordance with Section 9.01 of each of the Loan Agreement and the RCF Facility. SECTION 18. Waivers, Non-Exclusive Remedies. No failure on the part of the Agent to exercise, and no delay in exercising and no course of dealing with respect to, any right under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise by the Agent or any Secured Party of any right under any Loan Document or any other document relating to the Secured Obligations owing to such Secured Party preclude any other or further exercise thereof or the exercise of any other right. The rights under the Existing Facility Documents and such other documents are cumulative and are not exclusive of any other remedies provided by law. SECTION 19. Successors and Assigns. This Agreement is for the benefit of the Secured Parties and their successors and assigns, and in the event of an assignment of all or any of the Secured Obligations, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Agreement shall be binding on the Borrower and its successors and assigns. SECTION 20. Changes in Writing. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only in writing signed by the Borrower and the Agent with the consent of the Required Banks under each of the Loan Agreement and the RCF Facility. No such amendment shall by its terms materially adversely affect the rights of holders of any of the Finco Facility Obligations, the Letter of Credit Exposure, the Exchange Debt Obligations or the Synthetic Obligations, in a manner different from its effect on the rights of holders of any other Secured Obligations, except with the written consent of such affected holder (or of the requisite majority of the affected holders specified in the documents governing such affected holders' Secured Obligations). SECTION 21. New York Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York, except as otherwise required by mandatory provisions of law and except to the extent that remedies provided by the laws of any jurisdiction other than New York are governed by the laws of such jurisdiction. SECTION 22. Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Agent and the Secured Parties in order to carry out the intentions of the parties hereto as nearly as may be possible; and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. SECTION 23. Acceptance of Appointment. Morgan hereby accepts its appointment as agent for each of the Secured Parties; provided that neither such appointment or such acceptance shall impose on Morgan any duties other than the express duties of the Agent hereunder and subject in any case to the provisions of Section 7 hereof and Article 7 of the Loan Agreement, which shall be binding on all Secured Parties. 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: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: ------------------------------------- Name: Title: EX-10 19 0019.txt EXHIBIT 10.15 - SECOND PRIORITY MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT Exhibit 10.15 ======================================================== [FORM OF] SECOND PRIORITY MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT FROM [ ] AS SUBSIDIARY GUARANTOR, THE MORTGAGOR, TO WILMINGTON TRUST COMPANY, AS COLLATERAL TRUSTEE FOR THE SECOND PRIORITY DEBT PARTIES, THE MORTGAGEE, ---------------------------------------- DATED: PREMISES: ---------------------------------------- ======================================================== TABLE OF CONTENTS ----------------- PAGE ---- ARTICLE 1 SECTION 1.01. Title.............................................4 SECTION 1.02. Senior Loan Documents.............................5 SECTION 1.03. Second Priority Debt Documents; Second Priority Subsidiary Guarantee Agreement....................6 SECTION 1.04. Payment of Taxes, Liens and Charges...............6 SECTION 1.05. Payment of Closing Costs..........................7 SECTION 1.06. Plans, Alterations and Waste; Repairs.............7 SECTION 1.07. Insurance.........................................8 SECTION 1.08. Casualty Condemnation/Eminent Domain..............8 SECTION 1.09. Assignment of Leases and Rents....................8 SECTION 1.10. Restrictions on Transfers and Encumbrances........9 SECTION 1.11. Security Agreement...............................10 SECTION 1.12. Filing and Recording.............................10 SECTION 1.13. Further Assurances...............................10 SECTION 1.14. Additions to Mortgaged Property..................11 SECTION 1.15. No Claims Against Mortgagee......................11 SECTION 1.16. Fixture Filing...................................11 SECTION 1.17. Notice Regarding Special Flood Hazards...........11 ARTICLE 2 DEFAULTS AND REMEDIES SECTION 2.01. Events of Default................................12 SECTION 2.02. Demand for Payment...............................12 SECTION 2.03. Rights to Take Possession, Operate and Apply Revenues.......................................12 SECTION 2.04. Right to Cure Mortgagor's Failure to Perform.....13 SECTION 2.05. Right to a Receiver..............................13 SECTION 2.06. Foreclosure and Sale.............................14 SECTION 2.07. Other Remedies...................................14 SECTION 2.08. Application of Sale Proceeds and Rents...........15 SECTION 2.09. Mortgagor as Tenant Holding Over.................15 SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws..................16 SECTION 2.11. Discontinuance of Proceedings....................16 SECTION 2.12. Suits to Protect the Mortgaged Property..........16 SECTION 2.13. Filing Proofs of Claim...........................16 SECTION 2.14. Possession by Mortgagee..........................16 SECTION 2.15. Waiver...........................................17 SECTION 2.16. Remedies Cumulative..............................17 ARTICLE 3 MISCELLANEOUS SECTION 3.01. Partial Invalidity...............................18 SECTION 3.02. Notices..........................................18 SECTION 3.03. Successors and Assigns...........................18 SECTION 3.04. Satisfaction and Cancellation....................18 SECTION 3.05. Definitions......................................19 SECTION 3.06. Rules of Interpretation..........................19 SECTION 3.07. Multistate Real Estate Transaction...............19 SECTION 3.08. Subordination; Intercreditor Agreement...........20 SECTION 3.09. Collateral Trust and Intercreditor Agreement.....20 SECTION 3.10. Amendments in Writing............................20 ARTICLE 4 PARTICULAR PROVISIONS SECTION 4.01. Applicable Law; Certain Particular Provisions....21 Exhibit A Description of Land Exhibit B Premises Located in a Special Flood Hazard Area Appendix A Local Law Provisions Appendix B Definitions Annex THIS SECOND PRIORITY MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT dated as of June ___, 2000 (this "SECOND PRIORITY MORTGAGE"), by the Subsidiary Guarantor listed on the cover page hereof, having an office, care of Rite Aid Corporation, at 30 Hunter Lane, Camp Hill, Pennsylvania 17011 (the "MORTGAGOR"), to WILMINGTON TRUST COMPANY, a Delaware banking corporation, having an office at Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001 ( the "MORTGAGEE"), as Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. Unless otherwise specifically defined herein, each capitalized term used herein that is defined in the Definitions Annex shall have the meaning assigned to such term in the Definitions Annex attached hereto as Appendix B. WITNESSETH THAT: (A) Reference is made to the Senior Credit Agreement dated as of the date hereof (the "SENIOR CREDIT AGREEMENT"), among Rite Aid Corporation, a Delaware Corporation (the "BORROWER"), the banks from time to time party thereto and Citicorp USA, Inc., as Senior Administrative Agent and Senior Collateral Agent for the banks and the Collateral Trust and Intercreditor Agreement dated as of the date hereof (the "COLLATERAL TRUST AND INTERCREDITOR AGREEMENT"), among Rite Aid Corporation, certain subsidiaries of Rite Aid Corporation, Wilmington Trust Company as Second Priority Collateral Trustee and Citicorp USA, Inc., as Senior Collateral Agent, and each Second Priority Representative, as amended from time to time. (B) Reference is made to the Senior Mortgage dated as of the date hereof (the "SENIOR MORTGAGE"), with Citicorp USA, Inc., as Senior Collateral Agent pursuant to which the Mortgagor has granted to the Senior Collateral Agent a first mortgage lien on the property described herein. The lien of this Second Priority Mortgage is intended by the Mortgagor and the Mortgagee to be junior and subordinate to the lien of the Senior Mortgage. (C) Reference is also made to Second Priority Debt Documents, including (i) the RCF Facility dated as of June 12, 2000, among Rite Aid Corporation, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent (the "RCF FACILITY"), (ii) the PCS Facility dated as of June 12, 2000, among Rite Aid Corporation, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent (the "PCS FACILITY"), (iii) the Exchange Debt Facility dated as of June 12, 2000, among Rite Aid Corporation, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent (the "EXCHANGE DEBT FACILITY"), (iv) the 10.50% Senior Secured Notes Due 2002 of Rite Aid (i) issued in exchange for certain 5.50% Notes Due 2000 of Rite Aid and 6.70% Notes Due 2001 of Rite Aid or (ii) issued on the Closing Date to SPV and to be transferred to SSB, JPM and their respective transferees and assignees pursuant to the Forward Commitment Agreement (the "EXCHANGE NOTES"), (v) the Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, Amendment No. 1 to Put Agreement (the "Omnibus Agreement") dated as of June 12, 2000 relating to the Adjustable Rate Senior Secured Notes due August 15, 2002 originally issued by Finco, Inc. and guaranteed by Rite Aid Corporation pursuant to separate Note Agreements dated as of September 30, 1996 (the "FINCO FACILITY"), and (vi) certain synthetic leases entered into by Subsidiary Guarantors and guaranteed by Rite Aid having an aggregate discounted present value of approximately $214,000,000, as amended and restated as of the Closing Date (the "SYNTHETIC LEASE FACILITIES"). (D) Mortgagor is a wholly owned subsidiary of the Borrower and will derive substantial benefit from the amendment to and extensions of the Second Priority Debt Documents. In order to induce the Second Priority Debt Parties to among other things amend and extend the Second Priority Debt Documents, the Mortgagor has agreed to (i) guarantee, among other things, the due and punctual payment and performance of all of the Second Priority Debt Obligations of the Borrower under the Second Priority Debt Documents pursuant to the terms of the Second Priority Subsidiary Guarantee Agreement dated as of even date herewith (the "SECOND PRIORITY SUBSIDIARY GUARANTEE AGREEMENT") made by Mortgagor and certain other subsidiaries of Borrower (each, a "SUBSIDIARY GUARANTOR") in favor of Mortgagee in its capacity as Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties, and (ii) execute and deliver this Second Priority Mortgage in the form hereof to secure all of the Second Priority Debt Obligations guaranteed by Mortgagor pursuant to the Second Priority Subsidiary Guarantee Agreement. (E) Pursuant to the requirements of the Second Priority Debt Documents the Mortgagor therefore grants this Second Priority Mortgage to create a second lien on and a security interest in the Mortgaged Property (as defined herein) to secure the payment and performance by the Mortgagor of the Second Priority Debt Obligations. The Second Priority Debt Documents also requires the granting by the other Subsidiary Guarantors of mortgages, deeds of trust and deeds to secure debt (the "OTHER MORTGAGES") that create liens on and security interests in certain parcels of real property and related fixtures (each, an "OTHER MORTGAGED PROPERTY") to secure the payment and performance of the Second Priority Debt Obligations. GRANTING CLAUSES NOW, THEREFORE, IN CONSIDERATION OF the foregoing and in order to secure the due and punctual payment and performance of the Second Priority Debt Obligations for the benefit of the Second Priority Debt Parties, Mortgagor hereby grants, conveys, mortgages, assigns and pledges to the Mortgagee and its successors and assigns forever, a security interest in, all the following described property (the "MORTGAGED PROPERTY") whether now owned or held or hereafter acquired: (1) the land more particularly described on Exhibit A hereto (the "LAND"), together with all rights appurtenant thereto which may, by their terms or as a matter of law, be conveyed or assigned along with the Land, including the easements over certain other adjoining land granted by any easement agreements, covenant or restrictive agreements and all air rights, mineral rights, water rights, oil and gas rights and development rights, if any, relating thereto, and also together with all of the other easements, rights, privileges, interests, hereditaments and appurtenances thereunto belonging or in any way appertaining and all of the estate, right, title, interest, claim or demand whatsoever of Mortgagor therein and in the streets and ways adjacent thereto, either in law or in equity, in possession or expectancy, now or hereafter acquired (the "PREMISES"); (2) all buildings, improvements, structures, paving, parking areas, walkways and landscaping now or hereafter erected or located upon the Land, and all fixtures of every kind and type affixed to the Premises or attached to or forming part of any structures, buildings or improvements and replacements thereof now or hereafter erected or located upon the Land (the "IMPROVEMENTS"); (3) all apparatus, appliances, building materials, equipment, fittings, machinery and other articles of tangible personal property of every kind and nature, and replacements thereof owned by Mortgagor and now or at any time hereafter affixed to the Improvements or the Premises, including all pumps, tanks, machinery, apparatus, equipment, lifts, fire sprinklers and alarm systems, fire prevention or control systems, cleaning rigs, air conditioning, heating, boilers, refrigerating, electronic monitoring, water, loading, unloading, lighting, power, sanitation, waste removal, communications, partitions, lighting fixtures, freezers, refrigerators, walk- in coolers, signs (indoor and outdoor), and all other items of tangible personal property of any kind affixed to the Improvements or the Premises, it being understood that the enumeration of any specific articles of property shall in no way result in or be held to exclude any items of property not specifically mentioned (the property referred to in this subparagraph (3), the "FIXTURES"); (4) all general intangibles owned by Mortgagor and relating to design, development, operation, management and use of the Premises or the Improvements, all certificates of occupancy, zoning variances, building, use or other permits, approvals, authorizations and consents ob tained from and all materials prepared for filing or filed with any governmental agency in connection with the development, use, operation or management of the Premises and Improvements, all construction, service, engineering, consulting, leasing, architectural and other similar contracts concerning the design, construction, management, operation, occupancy and/or use of the Premises and Improvements, all architectural drawings, plans, specifications, soil tests, feasibility studies, appraisals, environmental studies, engineering reports and similar materials relating to any portion of or all of the Premises and Improvements, and all payment and performance bonds or warranties or guarantees relating to the Premises or the Improvements, all to the extent assignable (the "PERMITS, PLANS AND WARRANTIES"); (5) all now or hereafter existing leases or licenses (under which Mortgagor is landlord or licensor) and subleases (under which Mortgagor is sublandlord), concession, management, mineral or other agreements of a similar kind that permit the use or occupancy of the Premises or the Improvements for any purpose in return for any payment, or the extraction or taking of any gas, oil, water or other minerals from the Premises in return for payment of any fee, rent or royalty (collectively, "LEASES"), and all agreements or contracts for the sale or other disposition of all or any part of the Premises or the Improvements, now or hereafter entered into by Mortgagor, together with all charges, fees, income, issues, profits, receipts, rents, revenues or royalties payable thereunder ("RENTS"); (6) all real estate tax refunds and all proceeds of the conversion, voluntary or involuntary, of any of the Mortgaged Property into cash or liquidated claims ("PROCEEDS"), including Proceeds of insurance maintained by the Mortgagor and condemnation awards, any awards that may become due by reason of the taking by eminent domain or any transfer in lieu thereof of the whole or any part of the Premises or Improvements or any rights appurtenant thereto, and any awards for change of grade of streets, together with any and all moneys now or hereafter on deposit for the payment of real estate taxes, assessments or common area charges levied against the Mortgaged Property, unearned premiums on policies of fire and other insurance maintained by the Mortgagor covering any interest in the Mortgaged Property or required by the Second Priority Debt Documents; and (7) all extensions, improvements, betterments, renewals, substitutes and replacements of and all additions and appurtenances to, the Land, the Premises, the Improvements, the Fixtures, the Permits, Plans and Warranties and the Leases, hereinafter acquired by or released to the Mortgagor or constructed, assembled or placed by the Mortgagor on the Land, the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case, without any further mortgage, deed of trust, conveyance, assignment or other act by the Mortgagor, all of which shall become subject to the lien of this Second Priority Mortgage as fully and completely, and with the same effect, as though now owned by the Mortgagor and specifically described herein. TO HAVE AND TO HOLD the Mortgaged Property unto the Mortgagee, its successors and assigns, for the ratable benefit of the Second Priority Debt Parties, forever, subject only to the Permitted Encumbrances (as hereinafter defined) and to satisfaction and cancellation as provided in Section 3.04. ARTICLE 1 REPRESENTATIONS, WARRANITES AND COVENANTS OF MORTGAGOR Mortgagor agrees, covenants, represents and/or warrants as follows: SECTION 1.01. Title. (a) Mortgagor has good and marketable title to: (i) an indefeasible fee estate in the Land and Improvements; and (ii) all of the Fixtures; subject only to (A) the Senior Mortgage, (B) liens, pledges, charges and other encumbrances which (x) do not secure indebtedness for borrowed money or (y) are identified in Section 4.16(a) of the Senior Credit Agreement or in the Second Priority Debt Documents and (C) minor defects in title that do not interfere with the ability of Mortgagor or any other subsidiary of the Borrower to conduct its business as presently conducted or to utilize the Mortgaged Property for its intended purpose (collectively, the "PERMITTED ENCUMBRANCES"). (b) There are no Leases affecting the Land or the Improvements except as disclosed in the Second Priority Debt Documents. (c) Mortgagor is not obligated under, and the Mortgaged Property is not bound by or subject to, any right of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Mortgaged Property or any interest therein. (d) The granting of this Second Priority Mortgage is within Mortgagor's corporate powers and has been duly authorized by all necessary corporate, and, if required, stockholder action. This Mortgage has been duly executed and delivered by Mortgagor and constitutes a legal, valid and binding obligation of Mortgagor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (e) This Mortgage, when duly recorded in the appropriate public records and when financing statements are duly filed in the appropriate public records, will create a valid, perfected and enforceable second-priority lien upon and security interest in all the Mortgaged Property subject only to the Permitted Encumbrances. As of the date hereof, there are no defenses or offsets to this Second Priority Mortgage that will be asserted by Mortgagor or its affiliates (or any third party defense or offset now known to Mortgagor or its affiliates) or to any of the Second Priority Debt Obligations secured hereby for so long as any portion of the Second Priority Debt Obligations remains outstanding. Mortgagor will forever warrant and defend its title to the Mortgaged Property, the rights of Mortgagee therein under this Second Priority Mortgage and the validity and priority of the lien of this Second Priority Mortgage against the claims of all persons and parties except those having rights under Permitted Encumbrances, to the extent of those rights. SECTION 1.02. Senior Loan Documents. The Mortgagor hereby covenants that (i) the Mortgagor shall promptly pay when due and payable the principal, interest and other charges mentioned in and made payable by the Senior Loan Documents; (ii) the Mortgagor shall promptly perform and observe all of the terms, covenants and conditions required to be performed and observed by the Mortgagor under the Senior Loan Documents within the grace and cure periods provided in the Senior Loan Documents; (iii) the Mortgagor shall notify the Mortgagee (A) promptly prior to the expiration of any applicable grace and cure period for which provision is made in the Senior Loan Documents of any monetary default, and (B) promptly after the expiration of any applicable grace and cure period for which provision is made in the Senior Loan Documents of any non-monetary default by the Mortgagor in the performance or observance of any of the terms, covenants or conditions on the part of the Mortgagor to be performed or observed under the Senior Loan Documents; and (iv) the Mortgagor shall (A) promptly notify the Mortgagee of the receipt by the Mortgagor of any notice from the holders of the Senior Obligations asserting or claiming a default by the Mortgagor in the performance or observance of any of the terms, covenants or conditions on the part of the Mortgagor to be performed or observed under the Senior Loan Documents, and (B) promptly cause a copy of each such notice to be delivered to the Mortgagee. SECTION 1.03. Second Priority Debt Documents; Second Priority Subsidiary Guarantee Agreement. (a) This Mortgage is given pursuant to the Second Priority Debt Documents and the Second Priority Subsidiary Guarantee Agreement. Each and every term and provision of the Second Priority Debt Documents and the Second Priority Subsidiary Guarantee Agreement (excluding the governing law provisions thereof), including the rights, remedies, obligations, covenants, conditions, agreements, indemnities, representations and warranties of the parties thereto shall be considered as if a part of this Second Priority Mortgage. (b) If Mortgagee exercises any of its rights or remedies under this Second Priority Mortgage, or if any actions or proceedings (including any bankruptcy, insolvency or reorganization proceedings) are commenced in which Mortgagee is made a party and is obliged to defend or uphold or enforce this Second Priority Mortgage or the rights of Mortgagee hereunder or the terms of any Lease, or if a condemnation proceeding is instituted affecting the Mortgaged Property, Mortgagor will pay all reasonable sums, including reasonable attorneys' fees and disbursements, incurred by Mortgagee related to the exercise of any remedy or right of Mortgagee pursuant hereto and the reasonable expenses of any such action or proceeding together with all statutory or other costs, disbursements and allowances, interest thereon from the date of demand for payment thereof at the lesser of (i) the rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) equal to the sum of (A) the rate of interest publically announced by Citibank in New York, New York, from time to time as its "base rate", plus (B) 2.00% and (ii) the rate which, together with all fees, charges and other amounts which are treated as interest on such amounts under applicable law, constitutes the maximum lawful rate which may be contracted for, charged, taken, received or reserved by Mortgagee in accordance with applicable law (the "DEFAULT INTEREST RATE"), and such sums and the interest thereon shall, to the extent permissible by law, be a lien on the Mortgaged Property prior to any right, title to, interest in or claim upon the Mortgaged Property attaching or accruing subsequent to the recording of this Second Priority Mortgage and shall be secured by this Second Priority Mortgage to the extent permitted by law. Any payment of amounts due under this Second Priority Mortgage not made on or before the due date for such payments shall accrue interest daily without notice from the due date until paid at the Default Interest Rate, and such interest at the Default Interest Rate shall be paid by Mortgagor to Mortgagee within 10 days after Mortgagor's receipt of notice from the Mortgagee that it is due. SECTION 1.04. Payment of Taxes, Liens and Charges. (a) Except to the extent they are being contested in the manner permitted by the Second Priority Debt Documents, Mortgagor will pay and discharge from time to time prior to the time when the same shall become delinquent, and before any interest or penalty accrues thereon or attaches thereto, (i) all taxes and assessments (general and special), water and sewer rents and/or charges, public or private impositions, levies, dues, permit, inspection and license fees, vault charges, service charges, public or private common area charges or maintenance charges, utility charges of every kind and nature which may become liens on the Mortgaged Property with priority over the lien of this Second Priority Mortgage and (ii) all other material public or private charges, whether created or evidenced by recorded or unrecorded documents or of a like or different nature, imposed upon or assessed against the Mortgaged Property or any part thereof or upon the Rents from the Mortgaged Property or arising in respect of the occupancy, use, operation or possession thereof. (b) In the event of the passage of any state, Federal, municipal or other governmental law, order, rule or regulation subsequent to the date hereof (i) deducting from the value of real property for the purpose of taxation any lien or encumbrance thereon or in any manner changing or modifying the laws now in force governing the taxation of this Second Priority Mortgage or debts secured by mortgages or deeds of trust (other than laws governing income, franchise and similar taxes generally) or the manner of collecting taxes thereon and (ii) imposing a tax to be paid by Mortgagee, either directly or indirectly, on this Second Priority Mortgage or any of the Second Priority Debt Documents, or requiring an amount of taxes to be withheld or deducted therefrom, Mortgagor will promptly notify Mortgagee of such event. In such event, (A) Mortgagor shall at the request of Mortgagee, execute an instrument or agreement which obligates Mortgagor to make such additional payments as may be necessary to place Mortgagor and the Second Priority Debt Parties in the same economic position they would have been in with respect to the Second Priority Debt Obligations if such law, order, rule or regulation had not been passed and (B) Mortgagor shall make such additional payments. (c) At any time that an Event of Default (as hereinafter defined) shall occur and be continuing, or if required by any law applicable to Mortgagor or to Mortgagee, then in accordance with the terms of the Collateral Trust and Intercreditor Agreement, Mortgagee shall have the right to direct Mortgagor to make an initial deposit on account of real estate taxes and assessments, insurance premiums and common area charges, levied against or payable in respect of the Mortgaged Property in advance and thereafter on a quarterly basis, each such deposit to be equal to one-quarter of any such annual charges estimated in a reasonable manner by Mortgagee in order to accumulate with Mortgagee sufficient funds to pay such taxes, assessments, insurance premiums and charges. Any such deposits held by Mortgagee shall be returned to Mortgagor within 30 days after this Second Priority Mortgage is released or satisfied as provided in Section 3.04. SECTION 1.05. Payment of Closing Costs. Mortgagor shall pay all reasonable costs incurred by or on behalf of the Mortgagee in connection with, relating to or arising out of the preparation, execution and recording of this Second Priority Mortgage, including title company charges, inspection costs, recording fees and taxes, attorneys', engineers' and consultants' fees and disbursements and all other, similar expenses of every kind. SECTION 1.06. Plans, Alterations and Waste; Repairs. (a) To the extent the same exist on the date hereof or are obtained in connection with future permitted alterations, Mortgagor shall maintain a complete set of final plans, specifications, blueprints and drawings for the Mortgaged Property either at the Mortgaged Property or in a particular office at the headquarters of Mortgagor to which Mortgagee shall have access upon reasonable advance notice and at reasonable times. (b) Mortgagor shall not: (i) demolish or remove all or any material portion of the Improvements; (ii) commit any waste on the Mortgaged Property or make any alterations to the Mortgaged Property which would materially diminish the utility of Mortgaged Property in the conduct of the business of the Mortgagor or its affiliates as conducted thereon on the date hereof; (iii) change the use of the Mortgaged Property or take any other action with respect to the Mortgaged Property if it would materially increase the risk of fire or any other hazard or violate the terms of any insurance policy required by Section 1.07 hereof; without the consent of the Mortgagee in each instance, such consent not to be unreasonably withheld or delayed. (c) Mortgagor will keep and maintain the Improvements and the Fixtures in good repair, working order and condition, reasonable wear and tear excepted. SECTION 1.07. Insurance. Mortgagor will purchase and maintain liability insurance, insurance on the Improvements and Fixtures and other insurance in accordance with the terms of the Second Priority Debt Documents. SECTION 1.08. Casualty Condemnation/Eminent Domain. Mortgagor shall give Mortgagee prompt written notice of any casualty or other damage to the Mortgaged Property or any proceeding for the taking of the Mortgaged Property or any portion thereof or interest therein under power of eminent domain or by condemnation or any similar proceeding. The proceeds received by or on behalf of the Mortgagor in respect of any such casualty, damage or taking shall constitute trust funds held by the Mortgagor for the benefit of the Second Priority Debt Parties to be applied in accordance with the terms of the Collateral Trust and Intercreditor Agreement. SECTION 1.09. Assignment of Leases and Rents. (a) Mortgagor hereby irrevocably and absolutely grants, transfers and assigns all of its right title and interest in all Leases, together with any and all extensions and renewals thereof for purposes of securing and discharging the performance by Mortgagor of the Second Priority Debt Obligations. Mortgagor has not assigned or executed any assignment of, and will not assign or execute any assignment of, any other Lease or their respective Rents to anyone other than Mortgagee and the Senior Collateral Agent. (b) Without Mortgagee's prior written consent, which shall not be unreasonably withheld or delayed, Mortgagor will not enter into, modify, amend, terminate or consent to the cancellation or surrender of any Lease. (c) Subject to Section 1.09(d), Mortgagor has assigned and transferred to Mortgagee all of Mortgagor's right, title and interest in and to the Rents now or hereafter arising from each Lease heretofore or hereafter made or agreed to by Mortgagor, it being intended that this assignment establish, subject to Section 1.09(d), an absolute transfer and assignment of all Rents and all Leases to Mortgagee and not merely to grant a security interest therein. Subject to Section 1.09(d), Mortgagee may in Mortgagor's name and stead (with or without first taking possession of any of the Mortgaged Property personally or by receiver as provided herein) operate the Mortgaged Property and rent, lease or let all or any portion of any of the Mortgaged Property to any party or parties at such rental and upon such terms as Mortgagee shall, in its sole discretion, determine, and may collect and have the benefit of all of said Rents arising from or accruing at any time thereafter or that may thereafter become due under any Lease. (d) So long as an Event of Default shall not have occurred and be continuing, Mortgagee will not exercise any of its rights under Section 1.09(c), and Mortgagor shall receive and collect the Rents accruing under any Lease; but after the happening and during the continuance of any Event of Default, subject to prior rights under the Senior Loan Documents, the Mortgagee may, at its option, receive and collect all Rents and enter upon the Premises and Improvements through its officers, agents, employees or attorneys for such purpose and for the operation and maintenance thereof. Mortgagor hereby irrevocably authorizes and directs each tenant, if any, and each successor, if any, to the interest of any tenant under any Lease, respectively, to rely upon any notice of a claimed Event of Default sent by Mortgagee to any such tenant or any of such tenant's successors in interest, and thereafter to pay Rents to Mortgagee without any obligation or right to inquire as to whether an Event of Default actually exists and even if some notice to the contrary is received from the Mortgagor, who shall have no right or claim against any such tenant or successor in interest for any such Rents so paid to Mortgagee. Each tenant or any of such tenant's successors in interest from whom Mortgagee or any officer, agent, attorney or employee of Mortgagee shall have collected any Rents, shall be authorized to pay Rents to Mortgagor only after such tenant or any of their successors in interest shall have received written notice from Mortgagee that the Event of Default is no longer continuing, unless and until a further notice of an Event of Default is given by Mortgagee to such tenant or any of its successors in interest. (e) Mortgagee will not become a mortgagee in possession so long as it does not enter or take actual possession of the Mortgaged Property. In addition, Mortgagee shall not be responsible or liable for performing any of the obligations of the landlord under any Lease, for any waste by any tenant, or others, for any dangerous or defective conditions of any of the Mortgaged Property, for negligence in the management, upkeep, repair or control of any of the Mortgaged Property or any other act or omission by any other person. (f) Mortgagor shall furnish to Mortgagee, within 45 days after a request by Mortgagee to do so (but no more frequently than twice annually), a written statement containing the names of all tenants, subtenants and concessionaires of the Premises or Improvements, the terms of any Lease, the space occupied and the rentals or license fees payable thereunder. SECTION 1.10. Restrictions on Transfers and Encumbrances. Except as expressly permitted by the Senior Loan Documents, Second Priority Debt Documents and this Second Priority Mortgage, Mortgagor shall not directly or indirectly sell, convey, alienate, assign, lease, sublease, license, mortgage, pledge, encumber or otherwise transfer, create, consent to or suffer the creation of any lien, charges or any form of encumbrance upon any interest in or any part of the Mortgaged Property, or be divested of its title to the Mortgaged Property or any interest therein in any manner or way, whether voluntarily or involuntarily (other than resulting from a condemnation), or engage in any common, cooperative, joint, time-sharing or other congregate ownership of all or part thereof. SECTION 1.11. Security Agreement. This Mortgage is both a mortgage of real property and a grant of a security interest in personal property, and shall constitute and serve as a "Security Agreement" within the meaning of the uniform commercial code as adopted in the state wherein the Premises are located ("UCC"). Mortgagor has hereby granted unto Mortgagee a security interest in and to all the Mortgaged Property described in this Second Priority Mortgage that is not real property, and simultaneously with the recording of this Second Priority Mortgage, Mortgagor has filed or will file UCC financing statements, and will file continuation statements prior to the lapse thereof, at the appropriate offices in the state in which the Premises are located to perfect the security interest granted by this Second Priority Mortgage in all the Mortgaged Property that is not real property. Mortgagor hereby appoints Mortgagee as its true and lawful attorney-in- fact and agent, for Mortgagor and in its name, place and stead, in any and all capacities, to execute any document and to file the same in the appropriate offices (to the extent it may lawfully do so), and to perform each and every act and thing reasonably requisite and necessary to be done to perfect the security interest contemplated by the preceding sentence. Mortgagee shall have all rights with respect to the part of the Mortgaged Property that is the subject of a security interest afforded by the UCC in addition to, but not in limitation of, the other rights afforded Mortgagee hereunder and under the Security Agreement. SECTION 1.12. Filing and Recording. Mortgagor will cause this Second Priority Mortgage, any other security instrument creating a security interest in or evidencing the lien hereof upon the Mortgaged Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien hereof upon, and the security interest of Mortgagee in, the Mortgaged Property. Mortgagor will pay all filing, registration and recording fees, all Federal, state, county and municipal recording, documentary or intangible taxes and other taxes, duties, imposts, assessments and charges, and all reasonable expenses incidental to or arising out of or in connection with the execution, delivery and recording of this Second Priority Mortgage, any mortgage supplemental hereto, any security instrument with respect to the Fixtures or any instrument of further assurance. SECTION 1.13. Further Assurances. Upon demand by Mortgagee, Mortgagor will, at the cost of Mortgagor and without expense to Mortgagee, do, execute, acknowledge and deliver all such further acts, deeds, conveyances, mortgages, assignments, notices of assignment, transfers and assurances as Mortgagee shall from time to time reasonably require for the better conveying, assigning, transferring and confirming unto Mortgagee the property and rights hereby conveyed or assigned or intended now or hereafter so to be, or which Mortgagor may be or may hereafter become bound to convey or assign to Mortgagee, or for carrying out the intention or facilitating the performance of the terms of this Second Priority Mortgage, or for filing, registering or recording this Second Priority Mortgage, and on demand, Mortgagor will also execute and deliver and hereby appoints Mortgagee as its true and lawful attorney-in-fact and agent, for Mortgagor and in its name, place and stead, in any and all capacities, to execute and file to the extent it may lawfully do so, one or more financing statements, chattel mortgages or comparable security instruments reasonably requested by Mortgagee to evidence more effectively the lien hereof upon the Fixtures and to perform each and every act and thing requisite and necessary to be done to accomplish the same. SECTION 1.14. Additions to Mortgaged Property. All right, title and interest of Mortgagor in and to all extensions, improvements, betterments, renewals, substitutes and replacements of, and all additions and appurtenances to, the Mortgaged Property hereafter acquired by or released to Mortgagor or constructed, assembled or placed by Mortgagor upon the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case without any further mortgage, conveyance, assignment or other act by Mortgagor, shall become subject to the lien and security interest of this Second Priority Mortgage as fully and completely and with the same effect as though now owned by Mortgagor and specifically described in the grant of the Mortgaged Property above, but at any and all times Mortgagor will execute and deliver to Mortgagee any and all such further assurances, mortgages, conveyances or assignments thereof as Mortgagee may reasonably require for the purpose of expressly and specifically subjecting the same to the lien and security interest of this Second Priority Mortgage. SECTION 1.15. No Claims Against Mortgagee. Nothing contained in this Second Priority Mortgage shall constitute any consent or request by Mortgagee, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Mortgaged Property or any part thereof, nor as giving Mortgagor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Mortgagee in respect thereof. SECTION 1.16. Fixture Filing. Certain portions of the Mortgaged Property are or will become "fixtures" (as that term is defined in the UCC) on the Land, and this Second Priority Mortgage, upon being filed for record in the real estate records of the county wherein such fixtures are situated, shall operate also as a financing statement filed as a fixture filing in accordance with the applicable provisions of said UCC upon such portions of the Mortgaged Property that are or become fixtures. The addresses of the Mortgagor, as debtor, and Mortgagee, as secured party, are set forth in the cover page of this Second Priority Mortgage. SECTION 1.17. Notice Regarding Special Flood Hazards. Mortgagee has informed Mortgagor, and Mortgagor hereby acknowledges that it realizes, that the Premises listed on Exhibit B is in an area identified by the Director of the Federal Emergency Management Agency as a "special flood hazard area" described in 12 C.F.R. ss.22.2, and Mortgagor hereby acknowledges that it has received, as of the date hereof, the notice regarding Federal disaster relief assistance referred to in the Appendix to 12 C.F.R. Part 22. ARTICLE 2 DEFAULTS AND REMEDIES SECTION 2.01. Events of Default. Any event of default under the Second Priority Debt Documents shall constitute an Event of Default under this Second Priority Mortgage. SECTION 2.02. Demand for Payment. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, if an Event of Default shall occur and be continuing, then, upon written demand of Mortgagee, Mortgagor will pay to Mortgagee all amounts due hereunder and under the Second Priority Debt Documents and such further amount as shall be sufficient to cover the costs and expenses of collection, including attorneys' fees, disbursements and expenses incurred by Mortgagee, and Mortgagee shall be entitled and empowered to institute an action or proceedings at law or in equity for the collection of the sums so due and unpaid, to prosecute any such action or proceedings to judgment or final decree, to enforce any such judgment or final decree against Mortgagor and to collect, in any manner provided by law, all moneys adjudged or decreed to be payable. SECTION 2.03. Rights to Take Possession, Operate and Apply Revenues. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, (a) if an Event of Default shall occur and be continuing, Mortgagor shall, upon demand of Mortgagee, forthwith surrender to Mortgagee actual possession of the Mortgaged Property and, if and to the extent not prohibited by applicable law, Mortgagee itself, or by such officers or agents as it may appoint, may then enter and take possession of all the Mortgaged Property without the appointment of a receiver or an application therefor, and exclude Mortgagor and its agents and employees wholly therefrom. (b) If Mortgagor shall for any reason fail to surrender or deliver the Mortgaged Property or any part thereof after such demand by Mortgagee, Mortgagee may to the extent not prohibited by applicable law, obtain a judgment or decree conferring upon Mortgagee the right to immediate possession or requiring Mortgagor to deliver immediate possession of the Mortgaged Property to Mortgagee, to the entry of which judgment or decree Mortgagor hereby specifi cally consents. Mortgagor will pay to Mortgagee, upon demand, all reasonable expenses of obtaining such judgment or decree, including reasonable compensation to Mortgagee's attorneys and agents with interest thereon at the Default Interest Rate; and all such expenses and compensation shall, until paid, be secured by this Second Priority Mortgage. (c) Upon every such entry or taking of possession, Mortgagee may, to the extent not prohibited by applicable law, hold, store, use, operate, manage and control the Mortgaged Property, conduct the business thereof and, from time to time, (i) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon, (ii) purchase or otherwise acquire additional fixtures, personalty and other property, (iii) insure or keep the Mortgaged Property insured, (iv) manage and operate the Mortgaged Property and exercise all the rights and powers of Mortgagor to the same extent as Mortgagor could in its own name or otherwise with respect to the same, or (v) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted Mortgagee, all as may from time to time be directed or determined by Mortgagee to be in its best interest and Mortgagor hereby appoints Mortgagee as its true and lawful attorney-in-fact and agent, for Mortgagor and in its name, place and stead, in any and all capacities, to perform any of the foregoing acts. Mortgagee may collect and receive all the Rents, issues, profits and revenues from the Mortgaged Property, including those past due as well as those accruing thereafter, and, after deducting (i) all expenses of taking, holding, managing and operating the Mortgaged Property (including compensation for the services of all persons employed for such purposes), (ii) the costs of all such maintenance, repairs, renewals, replacements, additions, betterments, improvements, purchases and acquisitions, (iii) the costs of insurance, (iv) such taxes, assessments and other similar charges as Mortgagee may at its option pay, (v) other proper charges upon the Mortgaged Property or any part thereof and (vi) the compensation, expenses and disbursements of the attorneys and agents of Mortgagee, Mortgagee shall apply the remainder of the moneys and proceeds so received in accordance with Section 2.08 hereof. (d) Whenever, before any sale of the Mortgaged Property under Section 2.06, all Second Priority Debt Obligations that are then due shall have been paid and all Events of Default fully cured, Mortgagee will surrender possession of the Mortgaged Property back to Mortgagor, its successors or assigns. The same right of taking possession shall, however, arise again if any subsequent Event of Default shall occur and be continuing. SECTION 2.04. Right to Cure Mortgagor's Failure to Perform. Should Mortgagor fail in the payment, performance or observance of any term, covenant or condition (with respect to the Mortgaged Property) set forth in this Second Priority Mortgage or under the Senior Loan Documents or the Second Priority Debt Documents for 10 days after notice of such failure from Mortgagee (in the case of a monetary default) or 20 days after notice of such failure from Mortgagee (in the case of a non-monetary default), Mortgagee may pay, perform or observe the same, and all payments made or costs or expenses incurred by Mortgagee in connection therewith shall be secured hereby and shall be repaid by Mortgagor to Mortgagee with interest thereon at the Default Interest Rate from the date incurred within 10 days after demand made by Mortgagee. Mortgagee shall be the judge using reasonable discretion of the necessity for any such actions and of the amounts to be paid. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, Mortgagee is hereby empowered to enter and to authorize others to enter upon the Premises or the Improvements or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without having any obligation to so perform or observe and without thereby becoming liable to Mortgagor, to any person in possession holding under Mortgagor or to any other person. SECTION 2.05. Right to a Receiver. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, if an Event of Default shall occur and be continuing, Mortgagee, upon application to a court of competent jurisdiction, shall be entitled as a matter of right to the appointment of a receiver (which may be Mortgagee or an employee of Mortgagee) to take possession of and to operate the Mortgaged Property and to collect and apply the Rents. The receiver shall have all of the rights and powers permitted under the laws of the state wherein the Mortgaged Property is located. Mortgagor shall pay to Mortgagee upon demand all reasonable expenses, including receiver's fees, reasonable attorney's fees and disbursements, costs and agent's compensation incurred pursuant to the provisions of this Section 2.05; and all such expenses shall be secured by this Second Priority Mortgage and shall be, without demand, immediately repaid by Mortgagor to Mortgagee with interest thereon at the Default Interest Rate. SECTION 2.06. Foreclosure and Sale. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, (a) if an Event of Default shall occur and be continuing, Mortgagee may elect to sell the Mortgaged Property or any part of the Mortgaged Property by exercise of the power of foreclosure or of sale granted to Mortgagee by applicable law or this Second Priority Mortgage. In such case, Mortgagee may commence a civil action to foreclose this Second Priority Mortgage, or it may proceed and sell the Mortgaged Property to satisfy any Second Priority Debt Obligation. Mortgagee or an officer appointed by a judgment of foreclosure to sell the Mortgaged Property, may sell all or such parts of the Mortgaged Property as may be chosen by Mortgagee at the time and place of sale fixed by it in a notice of sale, either as a whole or in separate lots, parcels or items as Mortgagee shall deem expedient, and in such order as it may determine, at public auction to the highest bidder. Mortgagee or an officer appointed by a judgment of foreclosure to sell the Mortgaged Property may postpone any foreclosure or other sale of all or any portion of the Mortgaged Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement or subsequently noticed sale. Without further notice, Mortgagee or an officer appointed to sell the Mortgaged Property may make such sale at the time fixed by the last postponement, or may, in its discretion, give a new notice of sale. Any person, including Mortgagor or Mortgagee or any designee or affiliate thereof, may purchase at such sale. (b) The Mortgaged Property may be sold subject to unpaid taxes and Permitted Encumbrances, and, after deducting all costs, fees and expenses of Mortgagee (including costs of evidence of title in connection with the sale), Mortgagee or an officer that makes any sale shall apply the proceeds of sale in the manner set forth in Section 2.08. (c) Any foreclosure or other sale of less than the whole of the Mortgaged Property or any defective or irregular sale made hereunder shall not exhaust the power of foreclosure or of sale provided for herein; and subsequent sales may be made hereunder until the Second Priority Debt Obligations have been satisfied, or the entirety of the Mortgaged Property has been sold. (d) If an Event of Default shall occur and be continuing, Mortgagee may instead of, or in addition to, exercising the rights described in Section 2.06(a) above and either with or without entry or taking possession as herein permitted, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (i) to specifically enforce payment of some or all of the Second Priority Debt Obligations, or the performance of any term, covenant, condition or agreement of this Second Priority Mortgage or any other Second Priority Debt Document or any other right, or (ii) to pursue any other remedy available to Mortgagee, all as Mortgagee shall determine most effectual for such purposes. SECTION 2.07. Other Remedies. Subject to the provisions of the Collateral Trust and Intercreditor Agreement, (a) in case an Event of Default shall occur and be continuing, Mortgagee may also exercise, to the extent not prohibited by law, any or all of the remedies available to a secured party under the UCC. (b) In connection with a sale of the Mortgaged Property or any Fixtures and the application of the proceeds of sale as provided in Section 2.08, Mortgagee shall be entitled to enforce payment of and to receive up to the principal amount of the Second Priority Debt Obligations, plus all other charges, payments and costs due under this Second Priority Mortgage, and to recover a deficiency judgment for any portion of the aggregate principal amount of the Second Priority Debt Obligations remaining unpaid, with interest. SECTION 2.08. Application of Sale Proceeds and Rents. After any foreclosure sale of all or any portion of the Mortgaged Property, Mortgagee shall receive and apply the proceeds of the sale together with any Rents that may have been collected and any other sums that may then be held by Mortgagee under this Second Priority Mortgage as follows: FIRST, to the payment of the costs and expenses of such sale, including compensation to Mortgagee's attorneys and agents, and of any judicial proceedings wherein the same may be made, and of all expenses, liabilities and advances made or incurred by Mortgagee under this Second Priority Mortgage, together with interest at the Default Interest Rate on all advances made by Mortgagee, including all taxes, assessments (or other charges) (except any taxes, assessments or other charges subject to which the Mortgaged Property shall have been sold) and the cost of removing any liens or encumbrances (except any liens or encumbrances subject to which the Mortgaged Property was sold); SECOND, to the Mortgagee for the distribution to the Second Priority Debt Parties for the satisfaction of the Second Priority Debt Obligations owed to the Second Priority Debt Parties; and THIRD, to the Mortgagor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Mortgagee shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Second Priority Mortgage. In the event of any inconsistency between this Section 2.08 and the Collateral Trust and Intercreditor Agreement, the Collateral Trust and Intercreditor Agreement shall control. Upon any sale of the Mortgaged Property by the Mortgagee (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Mortgagee or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Mortgaged Property so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Mortgagee or such officer or be answerable in any way for the misapplication thereof. SECTION 2.09. Mortgagor as Tenant Holding Over. If Mortgagor remains in possession of any of the Mortgaged Property after any foreclosure sale by Mortgagee, at Mortgagee's election Mortgagor shall be deemed a tenant holding over and shall forthwith surrender possession to the purchaser or purchasers at such sale or be summarily dispossessed or evicted according to provisions of law applicable to tenants holding over. SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws. Mortgagor waives, to the extent not prohibited by law, (i) the benefit of all laws now existing or that hereafter may be enacted (x) providing for any appraisement or valuation of any portion of the Mortgaged Property and/or (y) in any way extending the time for the enforcement or the collection of amounts due under any of the Second Priority Debt Obligations or creating or extending a period of redemption from any sale made in collecting said debt or any other amounts due Mortgagee, (ii) any right to at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any homestead exemption, stay, statute of limitations, extension or redemption, or sale of the Mortgaged Property as separate tracts, units or estates or as a single parcel in the event of foreclosure or notice of deficiency, and (iii) all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of or each of the Second Priority Debt Obligations and marshaling in the event of foreclosure of this Second Priority Mortgage. SECTION 2.11. Discontinuance of Proceedings. In case Mortgagee shall proceed to enforce any right, power or remedy under this Second Priority Mortgage by foreclosure, entry or otherwise, and such proceedings shall be discontinued or abandoned for any reason, or shall be determined adversely to Mortgagee, then and in every such case Mortgagor and Mortgagee shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Mortgagee shall continue as if no such proceeding had been taken. SECTION 2.12. Suits to Protect the Mortgaged Property. Mortgagee shall have power (a) to institute and maintain suits and proceedings to prevent any impairment of the Mortgaged Property by any acts that may be unlawful or in violation of this Second Priority Mortgage, (b) to preserve or protect its interest in the Mortgaged Property and in the Rents arising therefrom and (c) to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of or compliance with such enactment, rule or order would impair the security or be prejudicial to the interest of Mortgagee hereunder. SECTION 2.13. Filing Proofs of Claim. In case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Mortgagor, Mortgagee shall, to the extent permitted by law, be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Mortgagee allowed in such proceedings for the Second Priority Debt Obligations secured by this Second Priority Mortgage at the date of the institution of such proceedings and for any interest accrued, late charges and additional interest or other amounts due or that may become due and payable hereunder after such date. SECTION 2.14. Possession by Mortgagee. Notwithstanding the appointment of any receiver, liquidator or trustee of Mortgagor, any of its property or the Mortgaged Property, Mortgagee shall be entitled, to the extent not prohibited by law, to remain in possession and control of all parts of the Mortgaged Property now or hereafter granted under this Second Priority Mortgage to Mortgagee in accordance with the terms hereof and applicable law. SECTION 2.15. Waiver. (a) No delay or failure by Mortgagee to exercise any right, power or remedy accruing upon any breach or Event of Default shall exhaust or impair any such right, power or remedy or be construed to be a waiver of any such breach or Event of Default or acquiescence therein; and every right, power and remedy given by this Second Priority Mortgage to Mortgagee may be exercised from time to time and as often as may be deemed expedient by Mortgagee. No consent or waiver by Mortgagee to or of any breach or Event of Default by Mortgagor in the performance of the Second Priority Debt Obligations shall be deemed or construed to be a consent or waiver to or of any other breach or Event of Default in the performance of the same or of any other Second Priority Debt Obligations by Mortgagor hereunder. No failure on the part of Mortgagee to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall constitute a waiver by Mortgagee of its rights hereunder or impair any rights, powers or remedies consequent on any future Event of Default by Mortgagor. (b) Even if Mortgagee (i) grants some forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security for the payment of any sums secured hereby, (iii) waives or does not exercise some right granted herein or under the Second Priority Debt Documents, (iv) releases a part of the Mortgaged Property from this Second Priority Mortgage, (v) agrees to change some of the terms, covenants, conditions or agreements of any of the Second Priority Debt Documents, (vi) consents to the filing of a map, plat or replat affecting the Premises, (vii) consents to the granting of an easement or other right affecting the Premises or (viii) makes or consents to an agreement subordinating Mortgagee's lien on the Mortgaged Property hereunder; no such act or omission shall preclude Mortgagee from exercising any other right, power or privilege herein granted or intended to be granted in the event of any breach or Event of Default then made or of any subsequent default; nor, except as otherwise expressly provided in an instrument executed by Mortgagee, shall this Second Priority Mortgage be altered thereby. In the event of the sale or transfer by opera tion of law or otherwise of all or part of the Mortgaged Property, Mortgagee is hereby authorized and empowered to deal with any vendee or transferee with reference to the Mortgaged Property secured hereby, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any liabilities, obligations or undertakings. SECTION 2.16. Remedies Cumulative. No right, power or remedy conferred upon or reserved to Mortgagee by this Second Priority Mortgage is intended to be exclusive of any other right, power or remedy, and each and every such right, power and remedy shall be cumulative and concurrent and in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity or by statute. ARTICLE 3 MISCELLANEOUS SECTION 3.01. Partial Invalidity. In the event any one or more of the provisions contained in this Second Priority Mortgage shall for any reason be held to be invalid, illegal or unenforceable in any respect, such validity, illegality or unenforceability shall, at the option of Mortgagee, not affect any other provision of this Second Priority Mortgage, and this Second Priority Mortgage shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein or therein. SECTION 3.02. Notices. All notices, requests, demands and other communications to any party hereunder shall be in writing (including bank wire, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Mortgagee, at its address at Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001 or facsimile number (302) 651 8882 and (y) in the case of the Mortgagor, at the addresses, in care of Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011 or facsimile number (717) 975 3764. Each such notice, request or other communication shall be effective if given by facsimile, when such communication is transmitted to the facsimile number specified in this Section and confirmation of receipt is received, if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or if given by any other means, when delivered at the address specified in this Section. SECTION 3.03. Successors and Assigns. All of the grants, covenants, terms, provisions and conditions herein shall run with the Premises and the Improvements and shall apply to, bind and inure to, the benefit of the permitted successors and assigns of Mortgagor and the successors and assigns of Mortgagee. SECTION 3.04. Satisfaction and Cancellation. (a) The conveyance to Mortgagee of the Mortgaged Property as security created and consummated by this Second Priority Mortgage shall be null and void when all the Second Priority Debt Obligations have been indefeasibly paid in full in accordance with the terms of the Second Priority Debt Documents and no further Second Priority Debt Obligations are outstanding. (b) Upon a sale or financing by Mortgagor of all or any portion of the Mortgaged Property that is permitted by the Senior Loan Documents and the Second Priority Debt Documents and the application of the Net Proceeds of such sale or financing in accordance with the Collateral Trust and Intercreditor Agreement or Second Priority Debt Documents, as applicable, the lien of this Second Priority Mortgage shall be released from the applicable portion of the Mortgaged Property. Mortgagor shall give the Mortgagee reasonable written notice of any sale or financing of the Mortgaged Property prior to the closing of such sale or financing. (c) In connection with any termination or release pursuant to paragraph (a), the Mortgage shall be marked "satisfied" by the Mortgagee, and this Second Priority Mortgage shall be cancelled of record at the request and at the expense of the Mortgagor. Mortgagee shall execute any documents reasonably requested by Mortgagor to accomplish the foregoing or to accomplish any release contemplated by this Section 3.04 and Mortgagor will pay all costs and expenses, including reasonable attorneys' fees, disbursements and other charges, incurred by Mortgagee in connection with the preparation and execution of such documents. SECTION 3.05. Definitions. As used in this Second Priority Mortgage, the singular shall include the plural as the context requires and the following words and phrases shall have the following meanings: (a) "INCLUDING" shall mean "including but not limited to"; (b) "PROVISIONS" shall mean "provisions, terms, covenants and/or conditions"; (c) "LIEN" shall mean "lien, charge, encumbrance, security interest, mortgage or deed of trust"; (d) "OBLIGATION" shall mean "obligation, duty, covenant and/or condition"; and (e) "any of the Mortgaged Property" shall mean "the Mortgaged Property or any part thereof or interest therein". Any act that Mortgagee is permitted to perform hereunder may be performed at any time and from time to time by Mortgagee or any person or entity designated by Mortgagee. Any act that is prohibited to Mortgagor hereunder is also prohibited to all lessees of any of the Mortgaged Property, except to the extent that a Lease executed prior to the date hereof expressly permits such act without the consent of the Mortgagor or the holder of any mortgage. Each ap pointment of Mortgagee as attorney-in-fact for Mortgagor under the Mortgage is irrevocable, with power of substitution and coupled with an interest. Subject to express provisions to the contrary contained in this Second Priority Mortgage, Mortgagee has the right to refuse to grant its consent, approval or acceptance or to indicate its satisfaction, in its sole discretion, whenever such consent, approval, acceptance or satisfaction is required hereunder. To the extent that this Second Priority Mortgage provides that any particular consent, approval, acceptance or satisfaction is subject to the terms of the Second Priority Debt Documents, it shall be granted or withheld as provided in the Second Priority Debt Documents. SECTION 3.06. Rules of Interpretation. References in this Second Priority Mortgage to "Articles", "Sections", "Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to this Second Priority Mortgage unless otherwise specifically provided. Any defined terms may, unless the context otherwise requires, be used in the singular or plural depending on the reference. "Include" or "includes" 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. References to any Person include the successors and assigns of such Person. References "from" or "through" any date mean, unless otherwise specified, "from and including" or "through and including", respectively. SECTION 3.07. Multistate Real Estate Transaction. Mortgagor acknowledges that this Second Priority Mortgage is one of a number of Other Mortgages that secure the Second Priority Debt Obligations. Mortgagor agrees that the lien of this Second Priority Mortgage shall be absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of Mortgagee, and without limiting the generality of the foregoing, the lien hereof shall not be impaired by any acceptance by the Mortgagee of any security for or guarantees of any of the Second Priority Debt Obligations hereby secured, or by any failure, neglect or omission on the part of Mortgagee to realize upon or protect any Second Priority Debt Obligation or indebtedness hereby secured or any collateral security therefor including the Other Mortgages and other Second Priority Debt Documents. The lien hereof shall not in any manner be impaired or affected by any release (except as to the property released), sale, pledge, surrender, compromise, settlement, renewal, extension, indulgence, alteration, changing, modification or disposition of any of the Second Priority Debt Obligations secured or of any of the collateral security therefor, including the Other Mortgages and other Second Priority Debt Documents or of any guarantee thereof, and Mortgagee may at its discretion foreclose, exercise any power of sale, or exercise any other remedy available to it under any or all of the Other Mortgages and other Second Priority Debt Documents without first exercising or enforcing any of its rights and remedies hereunder. Such exercise of Mortgagee's rights and remedies under any or all of the Other Mortgages and other Second Priority Debt Documents shall not in any manner impair the indebtedness hereby secured or the lien of this Second Priority Mortgage and any exercise of the rights or remedies of Mortgagee hereunder shall not impair the lien of any of the Other Mortgages and other Second Priority Debt Documents or any of Mortgagee's rights and remedies thereunder. Mortgagor specifically consents and agrees that Mortgagee may exercise its rights and remedies hereunder and under the Other Mortgages and other Second Priority Debt Documents separately or concurrently and in any order that it may deem appropriate and waives any rights of subrogation. SECTION 3.08. Subordination; Intercreditor Agreement. The lien of this Second Priority Mortgage is junior and subordinate to the lien of any mortgage now or hereafter granted to Citicorp USA, Inc. and its successors and assigns, as collateral agent for certain secured parties, including the lenders from time to time party to that certain Senior Credit Agreement dated as of the date hereof, as amended, replaced or refinanced from time to time, with Rite Aid Corporation and its successors and assigns in accordance with the provisions of the Collateral Trust and Intercreditor Agreement. SECTION 3.09. Collateral Trust and Intercreditor Agreement. Notwithstanding any provision to the contrary contained herein, the terms of this Second Priority Mortgage, the Liens created hereby, and the rights and remedies of the Second Priority Collateral Trustee and the Second Priority Debt Parties hereunder, are subject to the Collateral Trust and Intercreditor Agreement. SECTION 3.10. Amendments in Writing. None of the terms or provisions of this Second Priority Mortgage may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Mortgagor and the Second Priority Collateral Trustee with the written consent of the Second Priority Instructing Group, provided that (i) any provision of this Second Priority Mortgage may be waived by the Second Priority Instructing Group pursuant to a letter or agreement executed by the Second Priority Collateral Trustee or by telecopy transmission from the Second Priority Collateral Trustee, in either case with the prior written consent of the Second Priority Instructing Group and (ii) any amendment, waiver, supplement or other modification which by its terms adversely affects the rights of the Second Priority Debt Parties under a particular Second Priority Facility in a manner different from its effect on the other Second Priority Facilities shall only be effective with the consent of the Second Priority Representative for each Second Priority Facility so adversely affected. ARTICLE 4 PARTICULAR PROVISIONS This Mortgage is subject to the following provisions relating to the particular laws of the state wherein the Premises are located: SECTION 4.01. Applicable Law; Certain Particular Provisions. This Mortgage shall be governed by and construed in accordance with the internal law of the State in which the Mortgaged Property is located without regard to principles of conflicts of laws and Mortgagor and Mortgagee agree to submit to jurisdiction and the laying of venue for any suit on this Second Priority Mortgage in such state, except that the internal laws of the State of New York (without regard to principles of conflicts of laws) shall govern (i) those terms and conditions contained in the Second Priority Debt Documents and/or the Second Priority Subsidiary Guarantee Agreement which are incorporated by reference herein and (ii) the resolution of issues arising under the Second Priority Debt Documents and/or the Second Priority Subsidiary Guarantee Agreement to the extent that such resolution is necessary to the interpretation of this Second Priority Mortgage. The terms and provisions set forth in Appendix A attached hereto are hereby incorporated by reference as though fully set forth herein. In the event of any conflict between the terms and provisions contained in the body of this Second Priority Mortgage and the terms and provisions set forth in Appendix A, the terms and provisions set forth in Appendix A shall govern and control. [The balance of this page intentionally left blank] IN WITNESS WHEREOF, this Second Priority Mortgage has been duly executed and delivered to Mortgagee by Mortgagor on the date of the acknowledgment attached hereto. [NAME OF Mortgagor], a [ ], By: ---------------------------------- Name: Title: Attest: By: ---------------------- Name: Title: [Corporate Seal] [NEED LOCAL FORM OF ACKNOWLEDGMENT] EXHIBIT A TO MORTGAGE Description of the Land EXHIBIT B Premises in Special Flood Hazard Area APPENDIX A TO MORTGAGE Local Law Provisions APPENDIX B TO THE MORTGAGE Definitions Annex EX-10 20 0020.txt EXHIBIT 10.16 - AMENDMENT NO. 3 TO NOTE AGREEMENT Exhibit 10.16 Execution Copy FINCO, INC. ADJUSTABLE RATE SENIOR SECURED NOTES DUE AUGUST 15, 2002 AMENDMENT NO. 3 TO NOTE AGREEMENT RITE AID CORPORATION AMENDMENT NO. 4 TO GUARANTY AGREEMENT AMENDMENT NO. 1 TO PUT AGREEMENT As of June 12, 2000 TO EACH OF THE CURRENT NOTEHOLDERS NAMED IN ANNEX 1 HERETO: Ladies and Gentlemen: FINCO, INC., a Delaware corporation (hereinafter "FINCO"), and RITE AID CORPORATION, a Delaware corporation (hereinafter "RITE AID", and, together with Finco, collectively, with their successors and assigns, the "COMPANIES"), agree with you as follows: 1. PRELIMINARY STATEMENTS. 1.1. NOTE ISSUANCE, ETC. (a) Finco issued and sold $79,560,908.91 aggregate principal amount of its 7.30% Senior Secured Notes due February 28, 2002 (collectively, the "EXISTING NOTES"; and, as amended by this Amendment No. 3 to Note Agreement, the "NOTES") pursuant to the Note Agreement among Finco and each of the Purchasers listed in Annex 1 thereto (the "NOTEHOLDERS") dated September 30, 1996 (as previously amended pursuant to Amendment No. 1 to Note Agreement dated as of October 25, 1999 (the "FIRST AMENDMENT"), and Amendment No. 2 to Note Agreement dated as of December 2, 1999, and as in effect immediately prior to giving effect to the Amendments provided for by this Amendment No. 3 to Note Agreement, collectively, the "EXISTING NOTE AGREEMENT"). (b) Rite Aid has entered into a Guaranty Agreement, dated as of September 30, 1996 (as previously amended pursuant to Amendment No. 1 to Guaranty Agreement dated as of October 25, 1999, Amendment No. 2 to Guaranty Agreement dated as of December 2, 1999, and Amendment No. 3 to Guaranty Agreement dated as of February 28, 2000, as in effect immediately prior to giving effect to the Amendments provided for by this Amendment No. 4 to Guaranty 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. Rite Aid has also entered into a Put Agreement, dated as of September 30, 1996 (as in effect immediately prior to giving effect to the Amendments provided for by this Amendment No. 1 to Put Agreement, the "EXISTING PUT AGREEMENT," and together with the Existing Note Agreement and the Existing Rite Aid Guaranty, the "EXISTING AGREEMENTS") with the Noteholders, whereby it has agreed to purchase the Notes from the Noteholders during the existence of an Event of Default upon receipt of written notice from the Noteholders. (c) Certain provisions of the Existing Note Agreement and the Existing Rite Aid Guaranty have been waived for a limited period ending on July 11, 2000 pursuant to Waiver No. 1 to Note Agreement and Waiver No. 1 to Guaranty Agreement, dated as of January 10, 2000. (d) 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 or in Exhibit A hereto. 3. AMENDMENTS. 3.1 AMENDMENTS TO THE EXISTING AGREEMENTS. (a) Subject to Section 5, the Existing Note Agreement, the Existing Rite Aid Guaranty and the Existing Put Agreement are amended as provided for by this Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement and Amendment No. 1 to Put Agreement (collectively, this "OMNIBUS AMENDMENT") in the manner specified in Exhibit A. Such amendments are referred to herein, collectively, as the "AMENDMENTS." 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES. To induce you to enter into this Omnibus Amendment 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 Omnibus Amendment. 4.2. LEGAL VALIDITY. The execution and delivery of this Omnibus Amendment 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, including any of the Transaction Documents as defined in Section 5(b)(iii) hereof, 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 Omnibus Amendment 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 Omnibus Amendment, would constitute a Default or an Event of Default. 5. EFFECTIVENESS OF AMENDMENTS. (a) The Amendments shall become effective on such date (the "EFFECTIVE DATE OF THE OMNIBUS AMENDMENT") as 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 Omnibus Amendment. (b) The willingness of the Current Noteholders to execute and deliver this Omnibus Amendment is conditioned upon the following: (i) the RCF Facility (as in effect on the Effective Date of the Omnibus Amendment, the "AMENDED MORGAN CREDIT AGREEMENT"), dated as of June 12, 2000, among Rite Aid, the banks from time to time parties thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent, shall have been executed and delivered by the parties thereto in the form attached hereto as Exhibit C, (ii) the Second Priority Subsidiary Guarantee, dated as of June 12, 2000, among each of the Subsidiaries of Rite Aid parties thereto and Wilmington Trust Company, as collateral trustee, shall have been executed and delivered by the parties thereto in the form attached hereto as Exhibit D, (iii) the other Transaction Documents (as that term is defined in the Amended Morgan Credit Agreement) shall have been executed and delivered by the parties thereto, (iv) the Companies shall have made payment of the fee payable to the Noteholders pursuant to Section 6 of this Omnibus Amendment and the expenses to be paid on behalf of the Noteholders pursuant to Section 7 of this Omnibus Amendment (to the extent a statement therefor has been presented to the Companies on or prior to the Effective Date of the Omnibus Amendment), (v) the Current Noteholders (or their special counsel) shall have received a favorable opinion of the Chief Counsel or Assistant Chief Counsel for Rite Aid and the Operating Subsidiaries and Skadden, Arps, Slate, Meagher & Flom LLP, special counsel for the Companies, in form and substance satisfactory to the Current Noteholders, and (vi) all proceedings taken in connection with this Omnibus Amendment and all documents and papers relating hereto shall be reasonably satisfactory to the Current Noteholders and their special counsel. The Current Noteholders and their special counsel shall have received copies of such documents and papers (whether or not specifically referred to above in this Section 5) as they may reasonably request in connection therewith, in form and substance satisfactory to them. 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 of the Omnibus Amendment in an aggregate amount equal to $158,797.12. 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 the Omnibus 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 Omnibus Amendment 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 Omnibus Amendment shall be construed in connection with and as a part of the Existing Note Agreement, the Notes, the Existing Rite Aid Guaranty and the Existing Put Agreement and, except as expressly amended by this Omnibus Amendment, all terms, conditions and covenants contained in the Existing Note Agreement, the Notes, the Existing Rite Aid Guaranty and the Existing Put Agreement 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 Omnibus Amendment may refer to the Existing Note Agreement, the Notes, the Existing Rite Aid Guaranty and the Existing Put Agreement without making specific reference to this Omnibus Amendment, but nevertheless all such references shall include this Omnibus Amendment unless the context otherwise requires. 8.2. COUNTERPARTS. This Omnibus Amendment 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 OMNIBUS AMENDMENT 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. 8.4. COLLATERAL TRUST AND INTERCREDITOR AGREEMENT. Each Current Noteholder hereby authorizes The Prudential Insurance Company of America ("PRUDENTIAL") as Security Agent and the Second Priority Collateral Trustee (as defined in the Collateral Trust and Intercreditor Agreement (the "INTERCREDITOR AGREEMENT") dated as of June 12, 2000 among Rite Aid, Subsidiaries of Rite Aid party thereto and various other parties listed on the signature pages thereto) to enter into the Intercreditor Agreement and the other Second Priority Collateral Documents (as defined in the Intercreditor Agreement) on its behalf, and agrees that the Second Priority Collateral Trustee may enforce the rights and remedies of the Current Noteholders under each Second Priority Collateral Document to the extent provided therein. Each Current Noteholder acknowledges Prudential is acting for it as security agent under the Finco Facility (as defined in the Intercreditor Agreement). 8.5. ACCEPTANCE OF APPOINTMENT. Prudential hereby accepts its appointment under the Intercreditor Agreement to act as Security Agent for each of the Current Noteholders; provided that neither such appointment or acceptance shall impose on Prudential any duties other than the express duties stated in the Intercreditor Agreement, which shall be binding on all Current Noteholders. [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 Omnibus Amendment and returning it to the Companies, whereupon it will become a binding agreement among you and the Companies. FINCO, INC. BY:__________________________ NAME: JOHN COSTELLO TITLE: PRESIDENT RITE AID CORPORATION BY:___________________________ NAME: ELLIOT S. GERSON TITLE: SENIOR EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL The foregoing Omnibus Amendment 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: ANNEX 1 CURRENT NOTEHOLDERS The Prudential Insurance Company of America Pruco Life Insurance Company EXHIBIT A AMENDMENTS 1. AMENDMENTS TO EXISTING PUT AGREEMENT. (a) A new Section 3A is hereby added to the Existing Put Agreement containing the provisions set forth in Section 2.07(a) and Section 2.07(c) of the Amended Morgan Credit Agreement, together with the definitions of the defined terms used therein, mutatis mutandis, as if set forth in full herein. References to "prepay," "prepayment" or "apply" shall be deemed to mean the acquisition of the Notes by Rite Aid. (b) A new Section 3B is hereby added to the Existing Put Agreement to read as follows: "3B. PRO RATA PREPAYMENT. Upon any partial acquisition of the Notes pursuant to Section 3A, the principal amounts to be so acquired shall be allocated to all Notes at the time outstanding in proportion to the respective aggregate principal amounts of the Notes then outstanding." (c) Each reference in the Existing Put Agreement to "February 28, 2002" with respect to the maturity date of the Notes is hereby deleted and there is inserted in lieu thereof "August 15, 2002." 2. AMENDMENTS TO EXISTING NOTE AGREEMENT. (a) Each reference in the Existing Note Agreement to a fixed rate of interest with respect to the Notes is hereby deleted and there is substituted therefor "Adjustable Rate" (except when provisions of this Section 2(d) apply). (b) Interest on the Notes shall accrue at the rate provided for in the First Amendment to, but not including, the Effective Date of the Omnibus Amendment. (c) Commencing on and including the Effective Date of the Omnibus Amendment, interest on the Notes shall accrue at the Adjustable Rate applicable to an Interest Period of one month and shall be payable on the last day of such Interest Period. (d) (i) For any date on which an Event of Default shall have occurred and be continuing, but only if the Required Holders shall have so elected by providing notice to the Issuer, interest shall accrue on the Notes at the Default Rate; and (ii) interest on overdue amounts for any date on which the election contemplated by clause (i) is not in effect shall accrue at the Default Rate. (e) The Notes that are currently outstanding shall bear interest at the Adjustable Rate, payable as provided in this Section 2, without any need to surrender or exchange such Notes for new Notes reflecting the Amendments; provided, however, that any Note issued after the Effective Date of the Omnibus Amendment shall be in the form of Exhibit B hereto. The Existing Notes outstanding on the Effective Date of the Omnibus Amendment are hereby, without any further action required on the part of any other Person, deemed to be automatically amended to conform to and have the terms provided in Exhibit B hereto (except that the principal amount and the payee of each Note shall remain unchanged). (f) Each reference in the Existing Note Agreement to "February 28, 2002" with respect to the maturity date of the Notes is hereby deleted and there is inserted in lieu thereof "August 15, 2002." (g) Each reference in the Existing Note Agreement to "Put Agreement," the "Rite Aid Guaranty" and the "Notes" shall be deemed to mean such documents as amended from time to time. (h) The provisions of paragraph 4B of the Existing Note Agreement, captioned "Put Option Following a Rating Decline" (and the defined terms used therein if not used elsewhere in the Existing Note Agreement), are hereby deleted in their entirety and there is substituted therefor "[intentionally omitted]". (i) The provisions of paragraph 4H of the Existing Note Agreement, captioned "Sale of Assets" (and the defined terms used therein if not used elsewhere in the Existing Note Agreement), are hereby deleted in their entirety and there is substituted therefor "[intentionally omitted]". (j) Paragraph 6 of the Existing Note Agreement, captioned "Events of Default", is hereby amended as follows: (i) Subparagraph (iv) is hereby amended and restated in its entirety as follows: "(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 Sections 5.07, 5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17, 5.18, 5.19, 5.20, 5.21, 5.22, 5.23, 5.24, 5.25, 5.26 and 5.27 of the Rite Aid Guaranty; or" (ii) The word "or" shall be added immediately after subparagraph (xv) thereof and the following subparagraph (xvi) shall be added: "(xvi) an Event of Default shall occur under and as defined in Articles 6.01(l), 6.01(m) and 6.01(n) of the Amended Morgan Credit Agreement." (iii) The following sentence shall be added as the last sentence of such paragraph 6: "Any Event of Default arising under subparagaph (xvi) of this paragraph 6 shall remain in existence, regardless of any waiver of, amendment to, or other action in respect of, any provision of the Amended Morgan Credit Agreement, until such time as such Event of Default has been cured (without giving effect to any such waiver, amendment or other action) or waived by the Required Holders." (i) The provisions of paragraph 9A of the Existing Note Agreement, captioned "Yield-Maintenance Terms," are hereby deleted in their entirety; there is substituted therefor "[intentionally omitted]"; and all references to "Yield-Maintenance Amount" and its related definitions throughout the Existing Note Agreement are hereby deleted. (j) The definition of "Morgan Credit Agreement" in paragraph 9B of the Existing Note Agreement, captioned "Other Terms," is hereby amended and restated in its entirety as follows: "AMENDED MORGAN CREDIT AGREEMENT" means the RCF Facility dated as of June 12, 2000, among the Guarantor, the banks from time to time parties thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent, as in effect on the Effective Date of the Omnibus Amendment. (k) The following definitions are hereby added to paragraph 9B of the Existing Note Agreement: "ADJUSTABLE RATE" means a rate of interest equal to the sum of 3.50% plus the London Interbank Offered Rate applicable on such date plus at any date on or after November 1, 2000, .50% unless the Reduction Condition has been met on or prior to such date. "DEFAULT RATE" means with respect to each Note, interest on the outstanding principal amount of such Note at a rate per annum equal to the sum of 2.0% plus the Adjustable Rate as in effect on such date. "EFFECTIVE DATE OF THE OMNIBUS AMENDMENT" means the date on which the Companies and the Current Noteholders shall have executed and delivered the Omnibus Amendment. "INTEREST PERIOD" shall have the meaning ascribed to such term in the Amended Morgan Credit Agreement, except that the Notice of Interest Rate Election as therein provided is inapplicable and the Interest Period always shall be one month in duration. "LONDON INTERBANK OFFERED RATE" means, with respect to the applicable Interest Period, (i) the rate per annum (rounded upwards, if necessary, to the next higher 1/16th of 1%), as determined on the basis of offered rates for deposits in U.S. dollars, for a period of time comparable to such Interest Period, which appears on the Bloomberg page "Currency BBAM 1" as of 11:00 a.m. London time on the day that is two (2) Business Days prior to the first day of such Interest Period, or (ii) if such rate ceases to be reported in accordance with the above definition on Bloomberg Page "Currency BBAM 1," the rate per annum quoted by Morgan Guaranty Trust Company of New York at approximately 11:00 a.m. (New York City time) on the first day of such Interest Period, commencing on the first day of such Interest Period, and in an amount comparable to the aggregate principal amount of the Notes then outstanding. "OMNIBUS AMENDMENT" means Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, and Amendment No. 1 to Put Agreement, dated as of June 12, 2000, among the Company, the Guarantor and the holders of the Notes. "REDUCTION CONDITION" shall have the meaning ascribed to such term in the Amended Morgan Credit Agreement. (l) Annex 3 to the Existing Note Agreement is hereby deleted and replaced with the Annex 3 attached hereto. 3. AMENDMENTS TO EXISTING RITE AID GUARANTY. (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: "AMENDED MORGAN CREDIT AGREEMENT" means the RCF Facility dated as of June 12, 2000, among the Guarantor, the banks from time to time parties thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent, as in effect on the Effective Date of the Omnibus Amendment. (b) The following definitions are added to Section 3.1 as follows: "EFFECTIVE DATE OF THE OMNIBUS AMENDMENT" means the date on which the Companies and the Current Noteholders shall have executed and delivered the Omnibus Amendment. "OMNIBUS AMENDMENT" means Amendment No. 3 to Note Agreement, Amendment No. 4 to Guaranty Agreement, and Amendment No. 1 to Put Agreement, dated as of June 12, 2000, among the Issuer, the Guarantor and the holders of the Notes. (c) A new Section 4A is hereby added to the Existing Rite Aid Guaranty containing the provisions of Article 4 of the Amended Morgan Credit Agreement, together with the definitions of the defined terms used therein, mutatis mutandis, as if set forth in full herein, except that (i) references to "Loan Document" shall be deemed to mean the "Omnibus Amendment," except that in Section 4.03 it shall be deemed to mean the "Omnibus Amendment and the Existing Note Agreement, the Existing Rite Aid Guaranty and the Existing Put Agreement, as amended by the Amendments (as such terms are defined in the Omnibus Amendment);" (ii) references to "Note" or "Notes" shall be deemed to mean the "Notes" as defined in the Omnibus Amendment; (iii) references to "Bank" or "Banks" shall be deemed to mean "Noteholder" or "Noteholders"; (iv) references to "Administrative Agent" shall be deemed to mean "each Noteholder"; (v) references to "Required Banks" shall be deemed to mean "Required Holders"; and (vi) references to "Closing Date" shall be deemed to mean the "Effective Date of the Omnibus Amendment." The representations and warranties set forth in such Section 4A shall be deemed to have been made to the Noteholders as of the Effective Date of the Omnibus Amendment. (d) Section 5 of the Existing Rite Aid Guaranty (and the defined terms used therein if not used elsewhere in the Existing Rite Aid Guaranty) is hereby deleted in its entirety and there is substituted therefor Article 5 of the Amended Morgan Credit Agreement, together with the definitions of the defined terms used therein, mutatis mutandis, as if set forth in full herein, except that (i) references to "Bank" or "Banks" shall be deemed to mean "Noteholder" or "Noteholders"; (ii) references to "Administrative Agent" in Section 5.01(f), Section 5.01(k) and Section 5.03(b) shall be deemed to mean "each Noteholder"; and (iii) references to "Default" shall be deemed to mean both "Default" under the Note Agreement and "Default" under the Amended Morgan Credit Agreement; and references to "Event of Default" shall be deemed to mean both "Event of Default" under the Note Agreement and "Event of Default" under the Amended Morgan Credit Agreement. (e) Each reference in the Existing Rite Aid Guaranty to "February 28, 2002" with respect to the maturity date of the Notes is hereby deleted and there is inserted in lieu thereof "August 15, 2002." (f) All references to "Yield Maintenance Amount" and its related definitions in the Existing Rite Aid Guaranty are hereby deleted. ANNEX 3 REQUIRED AMORTIZATION PAYMENTS EXHIBIT B FORM OF NOTE FINCO, INC. ADJUSTABLE RATE SENIOR SECURED NOTES DUE AUGUST 15, 2002 No. R-__________________ PPN: 31771 @ AA 8 $__________________ FOR VALUE RECEIVED, the undersigned, FINCO, INC. (herein called the "COMPANY"), a corporation organized and existing under the laws of the State of Delaware, hereby promises to pay to___________ or registered assigns, the principal sum of ________DOLLARS ($_______) on August 15, 2002 with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) except as provided in clause (b) of this paragraph, on the unpaid balance thereof at the Adjustable Rate from the later of (i) the date hereof or (ii) the Effective Date of the Omnibus Amendment, payable monthly on the last day of each Interest Period, until the principal hereof shall have become due and payable and (b) at any time when an Event of Default shall have occurred and be continuing and the Required Holders have so elected by providing notice to the Company, at the Default Rate. In addition, overdue payments of principal (including, without limitation, prepayments of principal) and, to the extent permitted by law, interest shall bear interest automatically (without any such notice to the Company), payable on demand, at the Default Rate. Capitalized terms used and not defined herein have the respective meanings ascribed thereto in the Note Agreement referred to below. Payments of principal are to be made as provided in the Purchasers' Schedule attached as Annex 1 to the Note Agreement referred to below or at such other place as the holder hereof shall designate to the Company, in writing, in lawful money of the United States of America. This Note is one of an issue of Senior Secured Notes issued pursuant to the Note Agreement, dated as of September 30, 1996, as amended (the "NOTE AGREEMENT"), among the Company and the Purchasers of the Notes named in the Purchasers' Schedule attached as Annex 1 to the Note Agreement, and the holder hereof is entitled to the benefits and subject to the provisions thereof. As provided in the Note Agreement, this Note is subject to prepayment, in whole or from time to time in part, as specified in the Note Agreement. This Note is a registered note and, as provided in the Note Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary. The Company agrees to make prepayments of principal on the dates and in the amounts specified in the Note Agreement. In case an Event of Default shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Note Agreement. Full and prompt payment of the principal and interest on this Note, whether at maturity or by acceleration or otherwise, is unconditionally guarantied pursuant to a certain guaranty agreement executed and delivered by Rite Aid Corporation, a Delaware corporation, as further described in the Note Agreement. The holder of this Note is entitled to all of the benefits of such guaranty agreement. This Note is secured by certain collateral pursuant to the terms of a certain security agreement, between the Company and the Security Agent (as defined in the Note Agreement), dated as of September 30, 1996, and certain other collateral pursuant to the terms of the Collateral Documents (as defined in the Amended Morgan Credit Agreement). ANY TRANSFEREE OF THIS NOTE SHALL BE DEEMED TO HAVE MADE THE REPRESENTATIONS SET FORTH IN PARAGRAPH 8B OF THE NOTE AGREEMENT OR SHALL BE DEEMED TO HAVE REPRESENTED THAT ITS ACQUISITION AND HOLDING OF THIS NOTE WILL NOT CONSTITUTE A "PROHIBITED TRANSACTION" (AS SUCH TERM IS DEFINED IN SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED). THIS NOTE IS GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL NEW YORK LAW, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. FINCO, INC. By:____________________ Name: Title: EXHIBIT C [Copy of Amended Morgan Credit Agreement] EXHIBIT D [Copy of Second Priority Subsidiary Guarantee] EX-10 21 0021.txt EXHIBIT 10.17 - AMENDMENT NO. 5 TO GUARANTY Exhibit 10.17 EXECUTION AMENDMENT NO. 5 Dated as of June 12, 2000 to GUARANTY between Rite Aid Corporation and RAC Leasing LLC AMENDMENT NO. 5 TO GUARANTY AMENDMENT NO. 5 TO GUARANTY ("Amendment No. 5"), dated as of June 12, 2000, 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, and as further amended by Amendment No. 3, dated as of December 23, 1999, and as further amended by Amendment No. 4 dated as of the date hereof (as so amended and as further amended from time to time, 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 ("Amendment No. 2"), and as further amended by Amendment No. 3, dated as of December 2, 1999, and as further amended by Amendment No. 4 dated as of February 28, 2000 (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, the Drugstore.com Pledge Agreement and the Second Priority Collateral Documents (as such terms are defined in the Definitions Annex attached hereto as Attachment I to Annex A attached to this Amendment No. 5 to Guaranty); and WHEREAS, the Guarantor and the Lessor now desire to amend further the Guaranty. 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. Annex A to the Guaranty is hereby amended in its entirety by deleting Annex A attached to Amendment No. 2 and inserting in lieu thereof Annex A attached hereto and made a part of the Guaranty. Section 2. Second Priority Collateral Documents. The Lessor and each Lender hereby accepts the benefits of and acknowledges and agrees to the terms of each of the Second Priority Collateral Documents and confirms its appointment of Wilmington Trust Company as the trustee thereunder in accordance with the terms thereof and of The Sumitomo Bank Limited, New York Branch as collateral agent (in such capacity, "Sumitomo") as the Second Priority Representative under and as defined in the Definitions Annex attached hereto as Attachment I to Annex A, and agree that the provisions of Section 5 of the Intercreditor Agreement (as defined in the Lease) apply to Sumitomo in its capacity as the Second Priority Representative. Section 3. Amendments to Pledge Agreements. The Lessor and each Lender hereby consents to the execution and delivery of the Amended and Restated PCS Pledge Agreement and the Amended and Restated Drugstore.com Pledge Agreement. Section 4. 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. 5, 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. 5, (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. 5 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. 5 and the transactions contemplated hereby. Section 5. 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. 5, 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 each 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 subject to the disclosure in the Initial Financial Statements (as defined in Annex A hereto) for the period on or before May 27, 2000 and (iii) in lieu of the representation set forth in Section 4(f) of the Guaranty, the Guarantor hereby represents and warrants to the Lessor and each Lender that on and as of the date hereof, there has been (x) no development in any Existing Litigation after April 10, 2000 and (y) no litigation or administrative proceeding that in case of either clause (x) or (y), could reasonably be expected to have a Material Adverse Effect, and that on and as of the date hereof, there has been no development in any Existing Litigation after April 10, 2000, and there has been no litigation or administrative proceeding that could, in the Required Participants' sole judgment, impair the validity, enforceability or priority of the security interests granted in favor of the Lenders under the Operative Documents, the Pledge Agreements or the Second Priority Collateral Documents and (B) no Default or Event of Default has occurred and is continuing. Section 6. 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 7. Governing Law. THIS AMENDMENT NO. 5 SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 8. Counterparts. This Amendment No. 5 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. 5. [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. 5 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: Acknowledged and Consented to: THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH By:_______________________________ Name: Title: SUMITOMO BANK LEASING AND FINANCE, INC. By:________________________________ Name: Title: CITIBANK, N.A. By:_________________________________ Name: Title: ABN AMRO BANK, N.V. By:______________________________ Name: Title: ANNEX A TO GUARANTY DEFINITIONS Capitalized terms used but not otherwise defined below or in the Guaranty shall have the respective meanings given to such terms in the Definitions Annex attached to and made a part of this Annex A as Attachment 1; provided, that for purposes of this Annex A the term "Borrower" used in the Definitions Annex attached as Attachment 1 shall be deemed to be "Guarantor" as defined in this Guaranty. Unless otherwise indicated, section references herein are to sections of this Annex A. The following terms, as used in this Annex A, have the following definitions: "ADMINISTRATIVE AGENT" means Morgan Guaranty Trust Company of New York in its capacity as agent for the Banks under the Credit Agreement and related documents thereto, and its successors in such capacity. "ADJUSTED WORKING CAPITAL" means, for any date, current assets (other than cash and cash equivalents) less current liabilities (other than Debt permitted hereunder). "AFFILIATE TRANSACTION" is defined in Section 1.24. "ASSIGNEE" has the meaning set forth in Section 9.06(c) of the Credit Agreement. "BANK" means each Person listed on the signature pages to the Credit Agreement under the heading "BANKS", each Assignee 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. "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; provided, that the acquisition of prescription files, Stores and Persons substantially all of whose assets consist of fewer than ten Stores, in each case, in the ordinary course of business and not inconsistent with the Guarantor's business plan delivered pursuant to Section 3.01(e) of the Credit Agreement, shall not be a Business Acquisition. "CAPITAL LEASE" means any lease of property which, in accordance with generally accepted accounting principles, should be capitalized on the lessee's balance sheet. "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 for the replacement or restoration of assets to the extent financed by Casualty/Condemnation Proceeds relating to the asset or assets being replaced or restored. "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" means, for any period (without duplication), Consolidated Net Income for such period, plus (without duplication) (A) to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) consolidated interest expenses, whether cash or non-cash, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments which reduced such Consolidated Net Income, (v) store closing expenses and (vi) any other nonrecurring charge to the extent such nonrecurring charge does not involve any cash expenditure during such period, (vii) all fees, costs, charges and expenses in connection with the Transactions, (viii) all fees, costs, charges and expenses in connection with the restatement of the consolidated financial statements of the Guarantor and its Consolidated Subsidiaries for periods before February 26, 2000 and litigation expenses (exclusive of damages or amounts paid in settlement of claims) incurred in connection with litigation, investigation (including internal review) or other proceedings relating to such restatement, (ix) any advisory or other fees payable by the Guarantor pursuant to the one-year financial services advisory contract described in the Guarantor's quarterly report on Form 10-Q for the fiscal quarter ended as of August 28, 1999, (x) non-cash compensation expenses related to stock option and restricted stock employee benefit plans, and (xi) the non-cash interest component, as adjusted from time to time, in respect of reserves, 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 and added back to Consolidated Net Income pursuant to clause (A) above in calculating Consolidated EBITDA in any prior period and (ii) LIFO Adjustments which increased such Consolidated Net Income. "CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of (i) Consolidated EBITDA plus Consolidated Rent to (ii) Consolidated Interest Charges plus Consolidated Rent, in each case for such period. "CONSOLIDATED INTEREST CHARGES" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Guarantor and its Consolidated Subsidiaries, solely to the extent paid or payable in cash, during such period. "CONSOLIDATED INTEREST COVERAGE RATIO" means, with respect to any period, the ratio of Consolidated EBITDA for such period to Consolidated Interest Charges for such period. "CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of the 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. 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 and including base or basic rent payments under Synthetic Leases. "CONSOLIDATED SUBSIDIARY" means, with respect to any Person, at any date any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "CREDIT AGREEMENT" means the RCF Facility Agreement dated as of June 12, 2000 among the Guarantor, the banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as administrative agent, without giving effect to any amendments or waivers thereof made by the requisite parties thereto after June 12, 2000, unless expressly consented to by the Required Participants. "CREDIT EXPOSURE" means, with respect to any Bank, the aggregate outstanding principal amount of such Bank's Loans. "DEFAULT" means any condition or event which constitutes an Event of Default (as defined in Appendix I to the Lease) or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DEFINITIONS ANNEX" means the Definitions Annex, dated as of June 12, 2000, among the Guarantor, the Senior Collateral Agent and the Second Priority Collateral Trustee and attached to this Annex as Attachment No. 1, without giving effect to any amendments or waivers thereto made after June 12, 2000 unless expressly consented to by the Required Participants. "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. "DRUGSTORE.COM" means drugstore.com, inc., a Delaware corporation, and its successors. "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. "EXISTING CREDIT AGREEMENT" means 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 administrative agent. "EXISTING LITIGATION" means the bondholders' class actions and shareholders' class actions pending as of April 10, 2000 in the Eastern District of Pennsylvania, identified in Schedule 1.01(A) to the Credit Agreement and the related pending investigation by the SEC. "FINANCIAL OFFICER" of any person means the chief financial officer, principal accounting officer, treasurer or senior vice president finance of such person. "GOVERNMENTAL AUTHORITY" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "HAZARDOUS MATERIALS" means all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBS") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "INITIAL FINANCIAL STATEMENTS" means the consolidated financial statements of the Guarantor and its Consolidated Subsidiaries for the fiscal year ended February 26, 2000, and for the fiscal quarter ended May 27, 2000. "INTEREST RATE AGREEMENT" means, for any person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement designed to protect against fluctuations in interest rates. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "INVESTMENT" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. Any repurchase by the Guarantor 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 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. "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. "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. "MATERIAL ADVERSE EFFECT" means (i) any material adverse effect on the business, financial position, results of operations or prospects of the Guarantor and its Consolidated Subsidiaries, considered as a whole, (ii) any material impairment of the legality, validity and enforceability of the Guaranty or the other Operative Documents (including without limitation, the validity, enforceability or priority of security interests to be granted), or the rights and remedies of the Second Priority Debt Parties or (iii) any material impairment of the Guarantor's or the Subsidiary Guarantors' ability to perform its or their obligations under the Guaranty or the other Operative Documents. "MATERIAL FINANCIAL OBLIGATIONS" means (a) the Senior Obligations, (b) the Second Priority Debt Obligations (other than Debt hereunder), and (c) (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. "MATERIAL PLAN" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000. "MORTGAGED PROPERTIES" means the owned real properties of the Subsidiary Guarantors specified on Schedule 1.01(B) to the Credit Agreement, together with real properties that are mortgaged pursuant to Section 1.08. Each Mortgaged Property shall include any owned fixtures used in connection with the operation of such Mortgaged Property. "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "1997 LEASE" means the Master Lease and Security Agreement dated as of May 30, 1997, between Rite Aid Realty Corp., as lessee, and Sumitomo Bank Leasing and Finance, Inc., as amended. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PCS EBITDA" means, for any period, Consolidated EBITDA for such period less Retail EBITDA for such period. "PERFECTION CERTIFICATE" means the Perfection Certificate substantially in the form of Schedule 5 to the Second Priority Subsidiary Security Agreement. "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. "QUALIFIED PREFERRED STOCK" means preferred stock of the Guarantor that requires no cash payment before the date that is six months after the Expiration Date. The "REDUCTION CONDITION" shall be satisfied at such time as the aggregate amount outstanding under the Existing Facilities is less than or equal to the sum of (i) the aggregate amount outstanding under the Existing Facilities on the Closing Date minus (ii) $500,000,000. "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 (a) any dividend or other distribution on any shares of the Guarantor's or any Subsidiary's capital stock (except dividends payable solely in shares of the Guarantor's capital stock); or (b) any payment on account of the purchase, redemption, retirement or acquisition of (i) any shares of the Guarantor's or any Subsidiary's capital stock or (ii) any option, warrant or other right to acquire shares of the Guarantor's or any Subsidiary's capital stock (other than such payment in connection with employee benefit plans in the ordinary course of business). "RETAIL CAPITAL EXPENDITURES" means, for any period, Consolidated Capital Expenditures for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Guarantor. "RETAIL EBITDA" means, for any period, Consolidated EBITDA for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Guarantor. "RETAIL FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of (i) Retail EBITDA plus Retail Rent to (ii) Retail Interest Charges plus Retail Rent, in each case for such period. "RETAIL INTEREST CHARGE COVERAGE RATIO" means, with respect to any period, the ratio of Retail EBITDA for such period to Retail Interest Charges for such periods. "RETAIL 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, solely to the extent paid or payable in cash, during such period; provided, however, that for such period, such interest charges relating to the PCS Facility for such period will be computed as though the aggregate principal amount on which such interest charges are calculated at all times during such period were the lesser of (A) $300,000,000 and (B) the actual principal amount of the PCS Facility from time to time after giving effect to any repayment of the PCS Facility after the consummation of a PCS Disposition. "RETAIL RENT" means, for any period, Consolidated Rent for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Guarantor. "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. "STORE" means any retail store (which may include any real property, fixtures, equipment, inventory and script files related thereto) operated, or to be operated, by any Subsidiary Guarantor. "SUBSIDIARY" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Guarantor. "SUBSIDIARY GUARANTOR" means, initially, each Subsidiary listed on Schedule 1.01(C) to the Credit Agreement, and each other Subsidiary that is or becomes a party to a Second Priority Subsidiary Guarantee Agreement. "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. "TRANCHE A EXPOSURE" means, with respect to each Bank, the aggregate outstanding principal amount of its Tranche A Loans. "TRANCHE A LOAN" means a loan made by a Bank as a Tranche A Loan pursuant to the Existing Credit Agreement which is outstanding at the Closing Date. "TRANCHE B EXPOSURE" means, with respect to each Bank, the aggregate outstanding principal amount of its Tranche B Loans. "TRANCHE B LOAN" means a loan made by a Bank as a Tranche B Loan pursuant to the Existing Credit Agreement which is outstanding at the Closing Date. "TRANSACTIONS" is defined in Annex 3 to the Credit Agreement. "TRANSACTION COSTS" is defined in Annex 3 to the Credit Agreement. "TRANSACTION DOCUMENTS" means the documents (other than the Second Priority Debt Documents) evidencing the Transactions. "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 (through Wholly-Owned Consolidated Subsidiaries) owned by the Guarantor. ARTICLE 1 COVENANTS The Guarantor agrees that, until the Commitments (as defined in the Committed Loan Agreement) of 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 1.1. Information. The Guarantor will deliver to the Collateral Agent and each of the Lenders: (a) (i) with respect to the fiscal year of the Guarantor ended February 26, 2000 as soon as available but not later than July 11, 2000, and (ii) with respect to each following fiscal year of the Guarantor 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 such fiscal year, 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 without material qualification by Deloitte & Touche (or other independent public accountants of nationally recognized standing); (b) with respect to the fiscal quarter of the Guarantor ending May 27, 2000 as soon as available but not later then July 11, 2000, and (ii) with respect to each following fiscal quarter of the Guarantor (other than the last fiscal quarter of a fiscal year) as soon as available and in any event within 45 days (or within such longer period of time, not greater than 60 days, to which the SEC may extend the filing deadline for the Guarantor's Quarterly Report on Form 10-Q) after the end of each such fiscal quarter, 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 a 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 a Financial Officer of the Guarantor (i) setting forth in reasonable detail the calculations required to establish whether the Guarantor (or, in the case of Section 1.13, PCS) was in compliance with the requirements of Sections 1.12, 1.13, 1.14 and 1.15 on the date of such financial statements, (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Guarantor is taking or proposes to take with respect thereto and (iii) in the case of the certificate delivered together with the financial statements referred to in clause (a) above, a calculation of Excess Cash Flow (as defined in the Credit Agreement) for the applicable period specified in Section 2.07 of the Credit Agreement and the amount of the required prepayment of the Loans under the Credit Agreement, if any, in respect thereof; (d) simultaneously with the delivery of each set of financial statements referred to in clause (A) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (C) above; (e) within three Business Days after the end of each fiscal month a certificate of a Financial Officer of the Guarantor setting forth in reasonable detail, a description of each disposition of assets not in the ordinary course of business for which the book value or fair market value of the assets of the Guarantor or the Subsidiaries disposed or the consideration received therefor was greater than $5,000,000; (f) within five Business Days after the end of each calendar month a report, in form and scope satisfactory to the Collateral Agent, summarizing determinations of the borrowing base and utilization under the Senior Credit Facility during such month; (g) within five days after any officer of the Guarantor obtains knowledge of (i) any Default, if such Default is then continuing, a certificate of a Financial Officer of the Guarantor setting forth the details thereof and the action which the Guarantor is taking or proposes to take with respect thereto, or (ii) the filing or commencement of any action, suit or proceeding, whether at law or in equity or by or before any court, Governmental Authority or other tribunal, against the Guarantor or any Affiliate thereof that could reasonably be expected to have a Material Adverse Effect; (h) promptly upon the mailing thereof to the shareholders of the Guarantor generally, copies of all financial statements, reports and proxy statements so mailed; (i) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Guarantor shall have filed with the SEC; (j) within five days, if and when any member of the ERISA Group (i) gives or any Financial Officer becomes aware that such member is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or any Financial Officer knows that the plan administrator of any Plan has given 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 a Financial 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; (k) on or prior to the dates specified below (or, in the reasonable discretion of the Collateral Agent, no later than 5 days thereafter); (i) a monthly forecast of cash receipts and disbursements, commencing with July, 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 June 17, 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, 2002, no later than March 31, 2001; 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; (l) from time to time such additional information regarding the financial position or business of the Guarantor and its Subsidiaries or the Collateral as the Collateral Agent, at the request of any Lender, may reasonably request. Information required to be delivered pursuant to clauses (a), (b), (h) and (i) shall be deemed to have been delivered on the date on which the Guarantor provides notice to the Banks 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 Banks without charge; provided that (i) such notice may be included in a certificate delivered pursuant to clause (c), and (ii) the Guarantor shall deliver paper copies of the information referred to in clauses (a), (b), (h) and (i) to any Bank which requests such delivery. SECTION 1.2. 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 material Lien upon any of its property or assets or a material risk of forfeiture of a Mortgaged Property, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except 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 1.3. Maintenance of Property; Insurance. (a) The Guarantor will keep, and will cause each Subsidiary to keep, all property useful in its business in good working order and condition, ordinary wear and tear excepted. (b) The 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 Lenders, upon request from the Collateral Agent, information presented in reasonable detail as to the insurance so carried. The Guarantor will, and will cause each of its Subsidiaries to, maintain such insurance in a coverage amount of not less than 90% of the coverage amount as of June 12, 2000, with deductibles, risks covered and other provisions (other than amount of premiums) not materially less favorable to the Guarantor and its Subsidiaries as of the June 12, 2000. (c) The Guarantor will, and will cause each of the Subsidiary Guarantors to, cause all such policies to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement, in form and substance satisfactory to the Senior Administrative Agent, the Senior Collateral Agent, the Administrative Agent, the Collateral Agent and the Second Priority Collateral Trustee which endorsement shall provide that, from and after the Closing Date, if the insurance carrier shall have received written notice from the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent or the Administrative Agent of the occurrence of an Event of Default, the insurance carrier shall pay all proceeds otherwise payable to the Guarantor and any other Obligor under such policies directly to the Senior Collateral Agent and the Second Priority Collateral Trustee, as their interests may appear, for application pursuant to the Collateral Trust and Intercreditor Agreement; cause all such policies to provide that none of the Guarantor, the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent, the Administrative Agent, nor any other party shall be a coinsurer thereunder and to contain a "Replacement Cost Endorsement", without any deduction for depreciation, and such other provisions as the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent or the Administrative Agent may reasonably require from time to time to protect their interests; deliver broker's certificates to the Senior Collateral Agent and the Second Priority Collateral Trustee; cause each such policy to provide that it shall not be canceled or not renewed by reason of nonpayment of premium upon not less than 10 days prior written notice thereof by the insurer to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent and the Administrative Agent (giving the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent and the Administrative Agent the right to cure defaults in the payment of premiums) or for any other reason upon not less than 30 days' prior written notice thereof by the insurer to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent and the Administrative Agent; deliver to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent and the Administrative Agent, before the cancellation or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent and the Administrative Agent) together with evidence reasonably satisfactory to the Senior Administrative Agent, the Senior Collateral Agent, the Collateral Agent and the Administrative Agent of payment of the premium therefor. (d) [Reserved] (e) The Guarantor will, and will cause each of the Subsidiary Guarantors to, with respect to any Mortgaged Property, carry and maintain comprehensive general liability insurance including the "broad form CGL endorsement" and coverage on an occurrence basis against claims made for personal injury (including bodily injury, death and property damage) and umbrella liability insurance against any and all claims, in no event for a combined single limit of less than $10,000,000, naming the Senior Collateral Agent (for the benefit of the Senior Bank Parties) and the Second Priority Collateral Trustee (for the benefit of the Second Priority Debt Parties) as additional insured parties, on forms satisfactory to the Senior Collateral Agent and the Second Priority Collateral Trustee. (f) The Guarantor will notify the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Collateral Agent promptly whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section is taken out by the Guarantor or its Subsidiaries; and promptly deliver to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent and the Administrative Agent a duplicate original copy of such policy or policies. (g) In connection with the covenants set forth in this Section, it is agreed that: (i) none of the Collateral Agent, the Lessor, the Lenders or their respective agents or employees shall be liable for any loss or damage insured by the insurance policies required to be maintained under this Section, and (A) the Guarantor and each other Obligor shall look solely to their insurance companies or any other parties other than the aforesaid parties for the recovery of such loss or damage and (B) such insurance companies shall have no rights of subrogation against the Collateral Agent, the Second Priority Collateral Trustee, the Lessor, the Lenders or their agents or employees. If, however, the insurance policies do not provide waiver of subrogation rights against such parties, as required above, then the Guarantor hereby agrees, to the extent permitted by law, to waive its right of recovery, if any, against the Collateral Agent, the Second Priority Collateral Trustee, the Lessor, the Lenders and their agents and employees; and (ii) the designation of any form, type or amount of insurance coverage by the Collateral Agent, the Second Priority Collateral Trustee or the Lenders under this Section shall in no event be deemed a representation, warranty or advice by the Administrative Agent, the Second Priority Collateral Trustee or the Banks that such insurance is adequate for the purposes of the business of the Guarantor and the Subsidiaries or the protection of their properties. SECTION 1.4. Conduct of Business and Maintenance of Existence. Except as otherwise permitted in this Agreement, the Guarantor will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Guarantor and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary (except where such Subsidiary merges into a Subsidiary Guarantor) to preserve, renew and keep in full force and effect their respective legal existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that the foregoing will not prohibit any merger or liquidation of, or sale of assets by, a Subsidiary that is permitted by Sections 1.18 and 1.19. SECTION 1.5. 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) applicable to it or its property except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply would not have a Material Adverse Effect. SECTION 1.6. 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 Lender (at such Lender's expense, unless a Default has occurred and is continuing, in which case at the Guarantor's expense and after such Lender has consulted the Collateral Agent with respect thereto) to visit and inspect any of their properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 1.7. Restriction on Other Agreements, Payment Limitations, Debt Prepayments. (a) The Guarantor will not, and will not permit any Subsidiary to, enter into any agreement which imposes a limitation on incurrence by the Guarantor and its Subsidiaries of Liens that (i) would restrict any Subsidiary from granting Liens on any of its assets (including assets in addition to the then-existing Second Priority Collateral to secure the Second Priority Obligations or (ii) is more restrictive than the limitation on Liens set forth in this Annex A or (iii) which imposes other covenants more restrictive than those set forth in this Annex A except, in each case, (A) agreements with respect to Debt secured by Liens permitted by Section 1.11 containing restrictions on the ability to transfer or grant Liens on the assets securing such Debt, (B) customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, (D) pursuant to applicable law, (E) agreements in effect as of June 12, 2000 and not entered into in contemplation of the Transactions and (F) the other Existing Facility Documents and the Forward Commitment Agreement as in effect on June 12, 2000. (b) The Guarantor will not, and will not permit any Subsidiary to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (i) make Restricted Payments in respect of any capital stock of such Subsidiary held by, or pay any Debt owed to, the Guarantor or any other Subsidiary, (ii) make any Investment in the Guarantor or any other Subsidiary, or (iii) transfer any of its assets to the Guarantor or any other Subsidiary, except for such encumbrances or restrictions existing under or by reason of (A) any restriction existing under the Guaranty and other Operative Documents, the Second Priority Debt Documents, the Senior Loan Documents, the Indentures or the Forward Commitment Agreement, (B) any restrictions with respect to PCS imposed pursuant to a PCS Disposition pending the consummation thereof, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, and (D) as required by applicable law. (c) The Guarantor will not, and will not permit any Subsidiary to, make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption or, or otherwise voluntarily or optionally defease, debt under the Existing Facilities, the Exchange Debt Obligations, the Existing Notes (as defined in Annex 3 to the Credit Agreement) (other than pursuant to the Exchange Offer (as defined in Annex 3 to the Credit Agreement)), the Exchange Notes or any other Debt for borrowed money of the Guarantor or any Subsidiary, or segregate funds for any such payment, prepayment, repurchase, redemption or defeasance, except for refinancings, refundings and exchanges pursuant to Section 1.16(d) repurchases or redemption of such Debt for consideration consisting solely of common stock of the Guarantor or Qualified Preferred Stock or prepayments of Capital Leases in connection with the sale, closing or relocation of Stores. SECTION 1.8. Further Assurances. The Guarantor will, and will cause each of the Subsidiary Guarantors to, execute any and all further documents, financing statements, recordations, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements, recordations, mortgages and deeds of trust) that may be required under applicable law, or that the Required Participants, the Collateral Agent or the Second Priority Collateral Agent may reasonably request, in order to effectuate the transactions contemplated by the Operative Documents and in order to grant, preserve, protect and perfect the validity and priority of the security interests created or intended to be created by the Operative Documents and the Second Priority Collateral Documents. The Guarantor will cause any subsequently acquired or organized Domestic Subsidiary to execute a Second Priority Subsidiary Guarantee Agreement, Second Priority Indemnity, Subrogation and Contribution Agreement, Second Priority Subsidiary Security Agreement and any applicable financing statement or other recordation from time to time, and to comply with the terms thereof. The Guarantor agrees to cause to be provided such evidence as the Second Priority Collateral Trustee and the Administrative Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. SECTION 1.9. Subsidiaries. The Guarantor will cause all of its Subsidiaries that own Collateral to be "Unrestricted Subsidiaries" as defined in, and for all purposes of, each of the Indentures and will deliver such documents to the trustees under each of the Indentures and take such actions thereunder as may be necessary to effect the foregoing. SECTION 1.10. Restriction on Sale and Leaseback Transactions. Except for a sale or transfer by a Subsidiary to a Subsidiary Guarantor, the Guarantor will not, and will not permit any Subsidiary to, enter into any Sale and Leaseback Transaction after June 12, 2000 other than (a) a Sale and Leaseback Transaction listed on Schedule 5.10 to the Credit Agreement. (b) with respect to any property other than a Mortgaged Property owned by the Guarantor or any Subsidiary Guarantor as of June 12, 2000, for a lease for a period, including renewals, not exceeding 24 months, by the end of which period it is intended that the use of such property or equipment by the lessee will be discontinued; provided, however, that such Sale and Leaseback Transaction will be subject to Section 1.19(b), (c) with respect to any property other than a Mortgaged Property, if entered into in respect of property acquired, developed or constructed by the Guarantor or a Subsidiary after the Closing Date, if such Sale and Leaseback Transaction is entered into within 24 months from the date of completion of such acquisition, development or construction (which, in the case of any Store, shall be deemed to be 24 months from the date of the opening of such Store), or (d) if none of clauses (a) through (c) above are applicable, any other Sale and Leaseback Transaction not involving a Mortgaged Property, subject to Section 1.19(b). SECTION 1.11. 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 in connection with a Sale and Leaseback Transaction permitted by Section 1.10, (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 and not created in anticipation of such acquisition, which acquisition is not otherwise prohibited by this Annex A, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired; provided that the Lien does not attach to other property except unimproved real property previously owned upon which any new construction has taken place and subsequent additions to such acquired or constructed property; (b) any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 1.11 or any Lien securing the Debt of the Guarantor or of any Subsidiary on June 12, 2000 or of a corporation at the time such corporation becomes a Subsidiary, or any extensions, renewals or refundings of any such Lien; provided that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding Lien shall be limited to all or that part of the same property which secured the Debt so extended, renewed or refunded; (c) any Lien securing Debt of a Subsidiary owing to a Subsidiary Guarantor; (d) any Lien created by the Second Priority Collateral Documents; (e) any Lien created by the Senior Loan Documents; provided that (i) with respect to any specific Collateral which is also Senior Collateral, a Lien is created simultaneously under the Second Priority Collateral Documents and is subject to the Collateral Trust and Intercreditor Agreement and (ii) the aggregate principal amount of Senior Debt Obligations to be secured by such Lien shall not exceed the amount permitted by Section 6.02 of the Collateral Trust and Intercreditor Agreement; (f) any Lien under the Exchange Debt First Priority Collateral Documents in favor of the Exchange Debt Parties, provided that such Lien is limited to the Exchange Debt First Priority Collateral; (g) any Lien under the PCS Pledge Agreement and the Drugstore.com Pledge Agreement in favor of the Existing Facility Parties and the Synthetic Lease Parties, provided that such Lien is limited to the "Collateral" as such term is defined in each such document; (h) existing Liens under the Synthetic Lease Documents and Liens under Synthetic Leases permitted pursuant to Section 1.25; (i) Liens identified on Schedule 1.11(i) to the Credit Agreement; provided, however, that such Liens do not attach to any other property other than that identified in such Schedule; and (j) Liens in respect of Debt or Attributable Debt permitted under Sections 1.16(f), (h), (i) and (j) so long as such Liens attach only to (i) the equipment subject to such financing, (ii) the property to which they attach on the Closing Date (or in the case of any operating lease which is reclassified as a Capital Lease, any property subject to such operating lease on the Closing Date), or (iii) the property or assets constructed, developed or purchased with such financing. SECTION 1.12. 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:
PERIOD AMOUNT - ------ ------ IF NO PCS DIVESTITURE HAS BEEN IF A PCS DIVESTITURE HAS BEEN CONSUMMATED ON OR BEFORE THE LAST CONSUMMATED ON OR BEFORE THE LAST DAY OF SUCH PERIOD, MAXIMUM DAY OF SUCH PERIOD, MAXIMUM RETAIL CONSOLIDATED CAPITAL EXPENDITURES CAPITAL EXPENDITURES Fiscal quarter ending on August 26, $70,000,000 $64,000,000 2000 Two fiscal quarters ending on $138,000,000 $125,000,000 November 25, 2000 Three fiscal quarters ending on $205,000,000 $186,000,000 March 3, 2001 Four fiscal quarters ending on June $270,000,000 $245,000,000 2, 2001 Four fiscal quarters ending on $265,000,000 $241,000,000 September 1, 2001 Four fiscal quarters ending on $265,000,000 $242,000,000 December 1, 2001 Four fiscal quarters ending on March $265,000,000 $243,000,000 March 2, 2002 Four fiscal quarters ending on June $265,000,000 $243,000,000 1, 2002 Four fiscal quarters ending on $265,000,000 $243,000,000 September 7, 2002 Four fiscal quarters ending on $265,000,000 $243,000,000 December 7, 2002 Four fiscal quarters ending on March $265,000,000 $243,000,000 1, 2003 Four fiscal quarters ending on June $265,000,000 $243,000,000 7, 2003 Four fiscal quarters ending on $265,000,000 $243,000,000 September 6, 2003 Four fiscal quarters ending on $265,000,000 $243,000,000 December 6, 2003 Four fiscal quarters ending on March $265,000,000 $243,000,000 6, 2004 Four fiscal quarters ending on May $265,000,000 $243,000,000 30, 2004
SECTION 1.13. Minimum EBITDA. The aggregate amount of Consolidated EBITDA, Retail EBITDA or PCS EBITDA, as the case may be, for any period forth below shall not be less than the amount set forth below opposite such period:
PERIOD AMOUNT ------ ------ IF NO PCS DIVESTITURE HAS IF A PCS DIVESTITURE HAS IF NO PCS DIVESTITURE HAS BEEN CONSUMMATED ON OR BEEN CONSUMMATED ON OR BEEN CONSUMMATED ON OR BEFORE THE LAST DAY OF BEFORE THE LAST DAY OF BEFORE THE LAST DAY OF SUCH PERIOD, MINIMUM SUCH PERIOD, MINIMUM SUCH PERIOD, MINIMUM PCS CONSOLIDATED EBITDA RETAIL EBITDA EBITDA Fiscal quarter ending on $95,000,000 $75,000,000 N/A August 26, 2000 Two fiscal quarters ending $232,000,000 $178,000,000 N/A on November 25, 2000 Three fiscal quarters ending $426,000,000 $335,000,000 N/A on March 3, 2001 Four fiscal quarters ending N/A N/A $100,000,000 on March 3, 2001 Four fiscal quarters ending $569,000,000 $444,000,000 N/A on June 2, 2001 Four fiscal quarters ending $646,000,000 $504,000,000 N/A on September 1, 2001 Four fiscal quarters ending $722,000,000 $563,000,000 N/A on December 1, 2001 Four fiscal quarters ending $860,000,000 $689,000,000 $100,000,000 on March 2, 2002 Four fiscal quarters ending $894,000,000 $720,000,000 N/A on June 1, 2002 Four fiscal quarters ending $894,000,000 $720,000,000 N/A on September 7, 2002 Four fiscal quarters ending $894,000,000 $720,000,000 N/A on December 7, 2002 Four fiscal quarters ending $894,000,000 $720,000,000 $100,000,000 on March 1, 2003 Four fiscal quarters ending $894,000,000 $720,000,000 N/A on June 7, 2003 Four fiscal quarters ending $894,000,000 $720,000,000 N/A on September 6, 2003 Four fiscal quarters ending $894,000,000 $720,000,000 N/A on December 6, 2003 Four fiscal quarters ending $894,000,000 $720,000,000 $100,000,000 on March 6, 2004 Four fiscal quarters ending $894,000,000 $720,000,000 N/A on May 30, 2004
SECTION 1.14. Minimum Interest Coverage Ratio. At no time shall the Consolidated Interest Coverage Ratio or the Retail Interest Coverage Ratio, as the case may be, for any period be less than the amount set forth below opposite such period:
PERIOD AMOUNT ------ ------ IF NO PCS DIVESTITURE HAS BEEN IF A PCS DIVESTITURE HAS BEEN CONSUMMATED ON OR BEFORE THE LAST CONSUMMATED ON OR BEFORE THE LAST DAY OF SUCH PERIOD, THE MINIMUM DAY OF SUCH PERIOD, THE MINIMUM CONSOLIDATED INTEREST COVERAGE RATIO RETAIL INTEREST COVERAGE RATIO Fiscal quarter ending on August 26, .70 .67 2000 Two fiscal quarters ending on November .81 .79 25, 2000 Three fiscal quarters ending on March .96 .95 3, 2001 Four fiscal quarters ending on June 2, .96 .94 2001 Four fiscal quarters ending on 1.07 1.04 September 1, 2001 Four fiscal quarters ending on 1.18 1.14 December 1, 2001 Four fiscal quarters ending on March 1.39 1.37 2, 2002 Four fiscal quarters ending on June 1, 1.40 1.40 2002 Four fiscal quarters ending on 1.40 1.40 September 7, 2002 Four fiscal quarters ending on 1.40 1.40 December 7, 2002 Four fiscal quarters ending on March 1.40 1.40 1, 2003 Four fiscal quarters ending on June 7, 1.40 1.40 2003 Four fiscal quarters ending on 1.40 1.40 September 6, 2003 Four fiscal quarters ending on 1.40 1.40 December 6, 2003 Four fiscal quarters ending on March 1.40 1.40 6, 2004 Four fiscal quarters ending on May 30, 1.40 1.40 2004
SECTION 1.15. Minimum Fixed Charge Coverage Ratio. At no time shall the Consolidated Fixed Charge Coverage Ratio or the Retail Fixed Charge Coverage Ratio, as the case may be, for any period set forth below be less than the amount set forth below opposite such period:
PERIOD AMOUNT ------ ------ IF NO PCS DIVESTITURE HAS IF A PCS DIVESTITURE HAS BEEN BEEN CONSUMMATED ON OR BEFORE CONSUMMATED ON OR BEFORE THE LAST THE LAST DAY OF SUCH PERIOD, DAY OF SUCH PERIOD, THE MINIMUM THE MINIMUM CONSOLIDATED RETAIL FIXED CHARGE COVERAGE RATIO FIXED CHARGE COVERAGE RATIO Fiscal quarter ending on August .83 .83 26, 2000 Two fiscal quarters ending on .89 .88 Novembeer 25, 2000 Three fiscal quarters ending on .96 .95 March 3, 2001 Four fiscal quarters ending on .96 .94 June 2, 2001 Four fiscal quarters ending on 1.01 .99 September 1, 2001 Four fiscal quarters ending on 1.06 1.04 December 1, 2001 Four fiscal quarters ending on 1.19 1.17 March 2, 2002 Four fiscal quarters ending on 1.20 1.19 June 1, 2002 Four fiscal quarters ending on 1.20 1.19 September 7, 2002 Four fiscal quarters ending on 1.20 1.19 December 7, 2002 Four fiscal quarters ending on 1.20 1.19 March 1, 2003 Four fiscal quarters ending on 1.20 1.19 June 7, 2003 Four fiscal quarters ending on 1.20 1.19 September 6, 2003 Four fiscal quarters ending on 1.20 1.19 December 6, 2003 Four fiscal quarters ending on 1.20 1.19 March 6, 2004 Four fiscal quarters ending on 1.20 1.19 May 30, 2004
SECTION 1.16. Restriction 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 or any Attributable Debt in respect of any Sale and Leaseback Transaction except: (a) Debt under the Senior Loan Documents in a principal amount no greater than the amount permitted by Section 6.02 of the Collateral Trust and Intercreditor Agreement; (b) Debt under the Existing Facility Obligations, the Exchange Debt Obligations, the Exchange Note Obligations, and Debt under the Indentures in each case in a principal amount not greater than the principal amount thereof on the Closing Date; provided that no Subsidiary Guarantor will have any liability thereon except its obligations under the Second Priority Collateral Agreements or the Exchange Debt First Priority Collateral Documents; (c) Attributable Debt of (i) the Synthetic Lease Obligations, including this Guaranty and the other Operative Documents, in a principal amount not greater than the principal amount thereof on the Closing Date, plus amounts permitted pursuant to Section 1.25 provided that no Subsidiary Guarantor will have any liability thereon except its obligations under the Second Priority Collateral Documents and (ii) any Sale and Leaseback Transactions in existence on the Closing Date; (d) unsecured Debt of the Guarantor extending, or having the effect of extending the maturity of, or refunding, refinancing or exchanging, in whole or in part, Debt described in clauses (a), (b) and (c), provided that (i) the terms of any such extending, refunding, refinancing or exchanging of Debt, and of any agreement entered into and of any instrument issued in connection therewith, are otherwise permitted by the Loan Documents, (ii) the terms relating to principal amount, amortization, maturity, convertibility and subordination (if any), and other material terms taken as a whole, of any such extending, refunding, refinancing or exchanging of Debt, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Guarantor and the Subsidiaries or the banks or lenders than the terms of any agreement or instrument governing the Debt being extended, refunded, refinanced or exchanged and the interest rate applicable to such extending, refunding or refinancing or exchanging of Debt does not exceed the then applicable market interest rate and (iii) the principal amount of such extending, refunding, refinancing or exchanging of Debt shall not be increased above the principal amount of the Debt being extended, refunded, refinanced or exchanged outstanding immediately prior to such extension, refunding, refinancing or exchanging; (e) indorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (f) Debt for borrowed money and Capital Leases existing on the date hereof and set forth in Schedule 1.16(f), but not any extensions, renewals or replacements of such Debt; (g) Debt or Attributable Debt in respect of Capital Leases (whether or not in the form of Sale and Leaseback Transactions or Synthetic Leases) so long as such Capital Leases were leases existing as of the Closing Date, which are reclassified from operating leases to Capital Leases; (h) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions in respect of equipment financing or leasing in the ordinary course of business of the Guarantor and its Subsidiaries consistent with past practices; (i) Debt (including Capital Leases) and Attributable Debt in respect of Sale and Leaseback Transactions entered into to finance the acquisition, development, construction or opening of any Store after the Closing Date which is not inconsistent with the Guarantor's business plan delivered pursuant to Section 3.01(e) of the Credit Agreement; provided that such Debt or Attributable Debt is (x) incurred within 24 months of the completion of the acquisition, development, construction or opening thereof, and any Lien securing such Debt or Attributable Debt is limited to the Store financed with the proceeds thereof and (y) in the case of a Sale and Leaseback Transaction, permitted under Section 5.10(a), (b) or (c); (j) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions entered into to finance the acquisition after June 12, 2000 of property or assets provided that (i) such Debt or Attributable Debt is incurred within 24 months of the acquisition of such property or assets, (ii) any Lien securing such Debt or Attributable Debt is limited to the property or assets financed with the proceeds thereof and (iii) the aggregate principal amount of Debt and Attributable Debt incurred pursuant to this clause (j) shall not exceed $50,000,000 at any time outstanding; (k) Debt in respect of the Independent Standby Letters of Credit, or any extension, renewals, replacements or reissuances thereof; provided that the aggregate drawable stated amount and unreimbursed drawings of all Independent Standby Letters of Credit outstanding at any time shall not exceed $34,000,000 less the stated amount of any such letters of credit which expire or are not extended, replaced or renewed; (l) Debt of the Guarantor and its Subsidiaries in respect of intercompany Investments permitted under Section 1.17(a); and (m) unsecured Debt of the Guarantor not otherwise permitted by this Section in an aggregate principal amount at any time outstanding not to exceed (i) $100,000,000 less (ii) the aggregate amount of any increases in the amount of Debt permitted under subsection (a) above by reason of clause (i) of the proviso to Section 6.02 of the Collateral Trust and Intercreditor Agreement. SECTION 1.17. Limitation on Investments and Acquisitions. (a) Neither the Guarantor nor any Subsidiary will make or acquire any Investment in any Person other than: (i) Investments in Subsidiary Guarantors, other than PCS and its Subsidiaries; (ii) Investments of the Guarantor and the Subsidiary Guarantors in existence on June 12, 2000; (iii) Advances made by the Guarantor to PCS that reduce the intercompany payable due from the Guarantor to PCS; (iv) Temporary Cash Investments; (v) Investments received as consideration for any sale or other disposition permitted by Section 1.19; (vi) Investments in Drugstore.com existing on the date hereof; (vii) Investments of PCS and its Subsidiaries in PCS and its Subsidiaries; (viii) Investments by the Subsidiaries of the Guarantor in the Guarantor, but only to the extent that the uses of the proceeds of such Investments would be permitted as uses of proceeds of the loans made under the Senior Credit Facility pursuant to Section 1.24(b) thereof; (ix) Exchange Notes issued by the Guarantor to and held by SPV pursuant to the Forward Commitment Agreement; and (x) any Investment by a Subsidiary Guarantor in a Person other than a Subsidiary 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 (x) does not exceed at any one time outstanding the greater of (A) $200,000,000 or (B) after the delivery of the Initial Financial Statements, 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 (including Debt assumed or consolidated in accordance with generally accepted accounting principles) in connection with all such Business Acquisitions on or after the Closing Date would exceed $15,000,000. SECTION 1.18. Consolidations and Mergers. (a) Without limiting the restrictions on Business Acquisitions set forth above, the Guarantor will not consolidate or merge with or into any other Person; provided that the Guarantor may merge with another Person if (i) the Guarantor is the corporation surviving such merger, (ii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, and (iii) if such other Person is a Subsidiary Guarantor, such Subsidiary Guarantor shall have no property that constitutes Collateral. (b) No Subsidiary Guarantor will consolidate or merge with or into any other Person, except (i) without limiting the restrictions on Business Acquisitions set forth above, a Subsidiary Guarantor may merge with another Person if (A) either (1) a Subsidiary Guarantor is the corporation surviving such merger, or (2) the Subsidiary Guarantor that merges with such Person shall have no property that constitutes Second Priority Collateral, and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing, (ii) PCS or its Subsidiaries may consolidate with or merge into another Person as part of a PCS Disposition. SECTION 1.19. Dispositions of Assets. (a) The Guarantor will not dispose of any capital stock of any Subsidiary Guarantor other than to another Subsidiary Guarantor, or permit any Subsidiary Guarantor to issue capital stock to any Person other than the Guarantor or another Subsidiary Guarantor, except in each case for a PCS Disposition; provided, that no such issuance or disposition of capital stock of PCS shall be to any Subsidiary Guarantor and no such issuance or disposition of capital stock of a Subsidiary of PCS shall be to the Guarantor or any Subsidiary Guarantor other than PCS or a Subsidiary of PCS. (b) The Guarantor will not, and will not permit any Subsidiary Guarantor to, dispose of any property or assets except (i) any Permitted Disposition; (ii) any PCS Disposition or sale or other disposition of the capital stock of Drugstore.com; or (iii) any other disposition of property or assets of the Guarantor or any Subsidiary for fair value not in the ordinary course of business; provided that with respect to such dispositions of Collateral under this clause, (vi) at least 75% of the consideration therefor shall consist of cash, and (2) the Net Cash Proceeds of such disposition of Collateral are applied as provided in Section 4.05 of the Collateral Trust and Intercreditor Agreement. (c) The consideration received by the Guarantor or the applicable Subsidiary Guarantor for any PCS Disposition or the disposition of the capital stock of Drugstore.com shall be for the fair market value of such disposition and consist solely of a combination of at least 75% cash and no more than 25% of publicly traded securities, in each case payable and deliverable at the closing of such disposition, unless, (i) in the case of a PCS Disposition, the "Required Banks" under the PCS Facility otherwise agree or (ii) in the case of a disposition of the capital stock of Drugstore.com, the "Required Banks" under the RCF Facility otherwise agree. Consideration in the form of forgiveness of intercompany obligations shall be disregarded for purposes of determinations of compliance with this Section 1.19(c). SECTION 1.20. Use of Proceeds. The proceeds of the Tranche A Loans made under the Existing Credit Agreement were used by the Guarantor solely to repay commercial paper maturing on or prior to the date of the related borrowing thereunder or to extend and renew loans outstanding under the Existing Agreement, the proceeds of which loans were used solely to repay commercial paper (or to refund other 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 Existing Agreement were used by the Guarantor for the Guarantor's general corporate purposes. No such use of proceeds have 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, 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 1.21. Restrictions on Asset Holdings by the Guarantor. The Guarantor will not at any time (i) make or hold any Investments other than investments in the capital stock of Drugstore.com and its Subsidiaries (including any distributions or other assets received in respect thereto), Investments received as consideration in connection with the PCS Disposition or a disposition of Drugstore.com, intercompany advances to Subsidiaries, and Investments permitted by clause (iii) below, (ii) acquire or hold any Stores, other capital assets, inventory or accounts receivable, other than any real estate which the Guarantor holds only as lessor, and which is leased and operated by another Person, or (iii) acquire or hold cash, cash equivalents, Temporary Cash Investments or balances in bank accounts other than such amounts as are reasonably anticipated (at the time so acquired or held) to be utilized within five Business Days to pay costs, expenses and other obligations of the Guarantor referred to in Section 1.24(B) of the Senior Credit Agreement. SECTION 1.22. Restricted Payments. After the date hereof, neither the Guarantor nor any Subsidiary will declare or make any Restricted Payment other than (a) payments of dividends to Subsidiary Guarantors, and (b) payments of cash dividends to the Guarantor to the extent necessary to enable the Guarantor to make payments otherwise permitted by the Loan Documents; provided, that no such Restricted Payments may be made by PCS or any Subsidiary of PCS to any Person other than PCS or a Subsidiary of PCS. SECTION 1.23. Business of Guarantor and Subsidiaries. The Guarantor will not, and will not cause or permit any of the Subsidiaries to, engage at any time in any business or business activity other than the business conducted on the Closing Date by it and business activities reasonably incidental thereto. Without limitation of the foregoing, Guarantor will not permit SPV to have any assets or liabilities or conduct any business other than as expressly contemplated by the Forward Commitment Agreement. SECTION 1.24. Transactions with Affiliates. The Guarantor will not, and will not cause or permit any of the Subsidiaries to, directly or indirectly enter into or conduct any transactions or series of transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any Affiliate of the Guarantor, other than the payment of transaction costs approved by the Collateral Agent before June 12, 2000 (an "Affiliate Transaction"), other than (a) the payment of compensation to directors, officers, and employees of the Guarantor and its Subsidiaries in the ordinary course of business; (b) payments in respect of Affiliate Transactions required to be made pursuant to agreements or arrangements in effect on June 12, 2000 and set forth in Schedule 1.24 to the Credit Agreement; (c) Affiliate Transactions involving the acquisition of inventory in the ordinary course of business, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Guarantor or such Subsidiary Guarantor as the case may be, and (C) no less favorable to the Guarantor or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Guarantor, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000, the board of directors of the Guarantor (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (C) of this paragraph; (d) the issuance of Exchange Notes by the Guarantor to the SPV as contemplated by the Forward Commitment Agreement; (e) Affiliate Transactions between or among the Guarantor and/or one or more Subsidiary Guarantors; and (f) any other Affiliate Transaction, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Guarantor or such Subsidiary, as the case may be, and (C) no less favorable to the Guarantor or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Guarantor, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $25,000,000 in any 12-month period, the board of directors of the Guarantor (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (i)(C) of this paragraph and (iii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000 in any 12-month period, the Guarantor obtains a written opinion from an independent investment banking firm or appraiser of national prominence, as appropriate to the effect that such transaction is fair to the Guarantor or such Subsidiary, as the case may be, from a financial point of view. SECTION 1.25. New Synthetic Leases. Neither the Guarantor nor any Subsidiary will enter into any Synthetic Lease after June 12, 2000 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 June 12, 2000 would exceed $35,000,000 unless such Synthetic Lease is otherwise permitted under Section 1.16(h), (i) or (j). SECTION 1.26. Corporate Separateness. The Guarantor will, and will cause each Subsidiary to, take all necessary steps to maintain its identity as a separate legal entity from other Persons and to make it manifest to third parties that it is an entity with assets and liabilities distinct from those of each of other Person. SECTION 1.27. Limitation on Derivative Obligations. The Guarantor will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any monetary liability under any Derivative Obligations; unless such Derivative Obligations are entered into for bona fide hedging purposes of the Guarantor or its Subsidiary Guarantors (as determined in good faith by the board of directors or senior management of the Guarantor) and correspond in terms of notional amount, duration, currencies and interest rates, as applicable, to Debt of the Guarantor or its Subsidiary Guarantors incurred without violation of this Agreement or to business transactions of the Guarantor or its Subsidiary Guarantors on customary terms entered into in the ordinary course of business, and do not exceed an amount equal to the aggregate principal amount of the Senior Obligations and the Second Priority Debt Obligations. SECTION 1.28. 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 June 12, 2000, and any refinancings, renewals or extensions thereof permitted by this Annex A and which is in effect at the time of such sale, to reduce ratably the Lease Balance under the Lease and the lease balance under the 1997 Lease. Attachment 1 to Annex A Definitions Annex EX-10 22 0022.txt EXHIBIT 10.18 - MASTER LEASE AND SECURITY AGREEMENT Exhibit 10.18 EXECUTION AMENDMENT NO. 4 Dated as of June 12, 2000 to MASTER LEASE AND SECURITY AGREEMENT between Rite Aid Realty Corp. and RAC Leasing LLC AMENDMENT NO. 4 TO MASTER LEASE AND SECURITY AGREEMENT, dated as of June 12, 2000 ("Amendment No. 4"), 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 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 23, 1999 (as amended, the "Lease"); WHEREAS, Rite Aid Corporation ("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, and as further amended by Amendment No. 3 dated as of December 2, 1999 and as further amended by Amendment No. 4 dated as of February 28, 2000 and as further amended by Amendment No. 5 dated as of the date hereof (as so amended, the "Guaranty"); and WHEREAS, Lessor and Lessee wish to amend further the Lease as hereinafter provided, and each of the parties hereto agrees to the terms of this Amendment No. 4 to Master Lease and Security Agreement; NOW, THEREFORE, Lessor and Lessee hereby agree as follows: Section 1. Amendments to the Lease. Appendix 2 to the Lease is hereby amended by deleting the tables and related provisions set forth under the headings "Determination of Lessor Applicable Margin and Liquidity Applicable Margin", respectively, and inserting in lieu thereof the following: "The Liquidity Applicable Margin" means the sum of (i) 3.75% plus (ii) at any date on or after November 1, 2000, 0.50% unless the Reduction Condition has been met on or prior to such date. "The Lessor Applicable Margin" means the sum of (i) 4.75% plus (ii) at any date on or after November 1, 2000, 0.50% unless the Reduction Condition has been met on or prior to such date. "Reduction Condition" shall have the meaning given to such term in Annex A to the Guaranty. Section 2. Representations and Warranties. The Lessee represents and warrants to the Lessor, Collateral Agent and the other Secured Parties 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. 5 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 or thereto (collectively, the "Amendment Documents") and the performance of the Lease and the Guaranty, as amended by the Amendment Documents, have been duly authorized by all necessary action of the Lessee and the Guarantor. The Lessee and the Guarantor have duly executed and delivered each Amendment Document to which it is a party. Each Amendment Document and the Lease and the Guaranty, as amended by the Amendment Documents, constitutes a legal, valid and binding obligation of the Lessee and the Guarantor, as the case may be, 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, (ii) with respect to each representation set forth in Section 6.2(h) of the Lease, such representation is true and correct on and as of the date hereof, subject to the disclosure set forth in the Initial Financial Statements (as defined in Annex A to the Guaranty) for the period on or before May 27, 2000 and (iii) in lieu of the representation set forth in Section 6.2(d) of the Lease, the Lessee hereby represents and warrants to the Lessor and each Lender that on and as of the date hereof, there has been (x) no development in any Existing Litigation after April 10, 2000 and (y) no litigation or administrative proceeding that in case of either clause (x) or (y), could reasonably be expected to have a Material Adverse Effect, and that on and as of the date hereof, there has been no development in any Existing Litigation after April 10, 2000, and there has been no litigation or administrative proceeding that could, in the Required Participants' sole judgment, impair the validity, enforceability or priority of the security interests granted in favor of the Lenders under the Operative Documents, the Pledge Agreements (as defined in Annex A to the Guaranty) or the Second Priority Collateral Documents (as defined in Annex A to the Guaranty); 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 3. 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 each of the Second Priority Collateral Documents (as such term is defined in Annex A to the Guaranty) showing a lien in favor of the trustee named therein for the ratable benefit of the Collateral Agent and the Secured Parties under the Intercreditor Agreement; (c) a fully executed counterpart of each amendment to the PCS Pledge Agreement and Drugstore.com Pledge Agreement (as such terms are defined in Annex A to the Guaranty); (d) a fully executed copy of the RCF Facility dated as of the date hereof among the Guarantor, the banks parties thereto and Morgan Guaranty Trust Company of New York, certified as true, correct and complete by a Responsible Officer of the Guarantor; (e) 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; (f) certificates from the Secretary of State of the State of Delaware evidencing the good standing each of the Lessee and the Guarantor; (g) 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; (h) a certificate from the Secretary or an Assistant Secretary of the Guarantor certifying (i) as to the incumbency and signature of the officer of the Guarantor to execute and deliver the Amendment Documents to which it is a party, (ii) that the charter and by-laws of the Guarantor 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 Guarantor authorizing the execution, delivery and performance of the Amendment Documents, the performance of the Guaranty, as amended by the Amendment Documents, and the transactions contemplated thereby; (i) a certificate from a Responsible Officer of the Lessee, certifying that, to the best knowledge of such officer, the representation and warranty made by the Lessee pursuant to Section 2(b) hereof is 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; (j) a certificate from a Responsible Officer of the Guarantor, certifying that, to the best knowledge of such officer, the representations and warranties contained in Section 4 of Amendment No. 5 to the Guaranty 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 Guaranty, 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 4. 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 5. 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 6. 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. 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., By: _______________________ Name: Title: RAC LEASING LLC, as Lessor By: The Diversified Group Incorporated, Manager By:___________________________ Name: Title: The undersigned hereby acknowledge and consent to the foregoing Amendment No. 4: THE SUMITOMO BANK, LIMITED NEW YORK BRANCH By: _________________________________ RITE AID CORPORATION By: _________________________________ ABN AMRO BANK, N.V. By:__________________________________ CITIBANK, N.A. By:__________________________________ SUMITOMO BANK LEASING AND FINANCE, INC. By:__________________________________ Amendment No. 4 to Master Lease and Security Agreement (RAC Tool) EX-10 23 0023.txt EXHIBIT 10.19 - AMENDMENT NO. 4 TO GUARANTY Exhibit 10.19 EXECUTION AMENDMENT NO. 4 Dated as of June 12, 2000 to GUARANTY between Rite Aid Realty Corp. and Sumitomo Bank Leasing and Finance, Inc. AMENDMENT NO. 4 TO GUARANTY AMENDMENT NO. 4 TO GUARANTY ("Amendment No. 4"), dated as of June 12, 2000, 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 and as further amended by Amendment No. 5 dated as of the date hereof (as so amended and as further amended from time to time, 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 ("Amendment No. 1") and as further amended by Amendment No. 2 dated as of December 2, 1999 and as further amended by Amendment No. 3 dated as of February 28, 2000 (as so amended, 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, 1999, 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, the Drugstore.com Pledge Agreement and the Second Priority Collateral Documents (as such terms are defined in the Definitions Annex attached hereto as Attachment I to Annex A attached to this Amendment No. 4 to Guaranty); and WHEREAS, the Guarantor and the Lessor now desire to amend further the Guaranty; and 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. Annex A to the Guaranty is hereby amended in its entirety by deleting Annex A attached to Amendment No. 1 and inserting in lieu thereof Annex A attached hereto and made a part of the Guaranty. Section 2. Second Priority Collateral Documents. The Lessor and each Lender hereby accepts the benefits of and acknowledges and agrees to the terms of each of the Second Priority Collateral Documents and confirms its appointment of Wilmington Trust Company as the trustee thereunder in accordance with the terms thereof and of The Sumitomo Bank Limited, New York Branch as collateral agent (in such capacity, "Sumitomo") as the Second Priority Representative under and as defined in the Definitions Annex attached hereto as Attachment I to Annex A, and agree that the provisions of Section 5 of the Intercreditor Agreement (as defined in the Lease) shall apply to Sumitomo in its capacity as the Second Priority Representative. Section 3. Amendments to Pledge Agreements. The Lessor and each Lender hereby consents to the execution and delivery of the Amended and Restated PCS Pledge Agreement and the Amended and Restated Drugstore.com Pledge Agreement. Section 4. 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. 4, 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. 4, (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. 4 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. 4 and the transactions contemplated hereby. Section 5. 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. 4, 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 each 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 subject to the disclosure in the Initial Financial Statements (as defined in Annex A hereto) for the period on or before May 27, 2000 and (iii) in lieu of the representation set forth in Section 4(f) of the Guaranty, the Guarantor hereby represents and warrants to the Lessor and each Lender that on and as of the date hereof, there has been (x) no development in any Existing Litigation after April 10, 2000 and (y) no litigation or administrative proceeding that in case of either clause (x) or (y), could reasonably be expected to have a Material Adverse Effect, and that on and as of the date hereof, there has been no development in any Existing Litigation after April 10, 2000, and there has been no litigation or administrative proceeding that could, in the Required Participants' sole judgment, impair the validity, enforceability or priority of the security interests granted in favor of the Lenders under the Operative Documents, the Pledge Agreements or the Second Priority Collateral Documents and (B) no Default or Event of Default has occurred and is continuing. Section 6. 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 7. Governing Law. THIS AMENDMENT NO. 4 SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 8. Counterparts. This Amendment No. 4 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. 4. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 4 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: Acknowledged and Consented to: THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH By: _________________________________________ Name: Title: BANK OF AMERICA, N.A. By: _________________________________________ Name: Title: ANNEX A TO GUARANTY DEFINITIONS Capitalized terms used but not otherwise defined below or in the Guaranty shall have the respective meanings given to such terms in the Definitions Annex attached to and made a part of this Annex A as Attachment 1; provided, that for purposes of this Annex A the term "Borrower" used in the Definitions Annex attached as Attachment 1 shall be deemed to be the "Guarantor" as defined in this Guaranty. Unless otherwise indicated, section references herein are to sections of this Annex A. The following terms, as used in this Annex A, have the following definitions: "ADMINISTRATIVE AGENT" means Morgan Guaranty Trust Company of New York in its capacity as agent for the Banks under the Credit Agreement and related documents thereto, and its successors in such capacity. "ADJUSTED WORKING CAPITAL" means, for any date, current assets (other than cash and cash equivalents) less current liabilities (other than Debt permitted hereunder). "AFFILIATE TRANSACTION" is defined in Section 1.24. "ASSIGNEE" has the meaning set forth in Section 9.06(C) of the Credit Agreement. "BANK" means each Person listed on the signature pages to the Credit Agreement under the heading "BANKS", each Assignee 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. "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; provided, that the acquisition of prescription files, Stores and Persons substantially all of whose assets consist of fewer than ten Stores, in each case, in the ordinary course of business and not inconsistent with the Guarantor's business plan delivered pursuant to Section 3.01(e) of the Credit Agreement, shall not be a Business Acquisition. "CAPITAL LEASE" means any lease of property which, in accordance with generally accepted accounting principles, should be capitalized on the lessee's balance sheet. "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 for the replacement or restoration of assets to the extent financed by Casualty/Condemnation Proceeds relating to the asset or assets being replaced or restored. "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" means, for any period (without duplication), Consolidated Net Income for such period, plus (without duplication) (A) to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) consolidated interest expenses, whether cash or non-cash, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments which reduced such Consolidated Net Income, (v) store closing expenses and (vi) any other nonrecurring charge to the extent such nonrecurring charge does not involve any cash expenditure during such period, (vii) all fees, costs, charges and expenses in connection with the Transactions, (viii) all fees, costs, charges and expenses in connection with the restatement of the consolidated financial statements of the Guarantor and its Consolidated Subsidiaries for periods before February 26, 2000 and litigation expenses (exclusive of damages or amounts paid in settlement of claims) incurred in connection with litigation, investigation (including internal review) or other proceedings relating to such restatement, (ix) any advisory or other fees payable by the Guarantor pursuant to the one-year financial services advisory contract described in the Guarantor's quarterly report on Form 10-Q for the fiscal quarter ended as of August 28, 1999, (x) non-cash compensation expenses related to stock option and restricted stock employee benefit plans, and (xi) the non-cash interest component, as adjusted from time to time, in respect of reserves, 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 and added back to Consolidated Net Income pursuant to clause (A) above in calculating Consolidated EBITDA in any prior period and (ii) LIFO Adjustments which increased such Consolidated Net Income. "CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of (i) Consolidated EBITDA plus Consolidated Rent to (ii) Consolidated Interest Charges plus Consolidated Rent, in each case for such period. "CONSOLIDATED INTEREST CHARGES" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Guarantor and its Consolidated Subsidiaries, solely to the extent paid or payable in cash, during such period. "CONSOLIDATED INTEREST COVERAGE RATIO" means, with respect to any period, the ratio of Consolidated EBITDA for such period to Consolidated Interest Charges for such period. "CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of the 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. 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 and including base or basic rent payments under Synthetic Leases. "CONSOLIDATED SUBSIDIARY" means, with respect to any Person, at any date any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "CREDIT AGREEMENT" means the RCF Facility Agreement dated as of June 12, 2000 among the Guarantor, the banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as administrative agent, without giving effect to any amendments or waivers thereof made by the requisite parties thereto after June 12, 2000, unless expressly consented to by the Required Participants. "CREDIT EXPOSURE" means, with respect to any Bank, the aggregate outstanding principal amount of such Bank's Loans. "DEFAULT" means any condition or event which constitutes an Event of Default (as defined in Appendix I to the Lease) or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DEFINITIONS ANNEX" means the Definitions Annex, dated as of June 12, 2000, among the Guarantor, the Senior Collateral Agent and the Second Priority Collateral Trustee and attached to this Annex as Attachment No. 1, without giving effect to any amendments or waivers thereto made after June 12, 2000 unless expressly consented to by the Required Participants. "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. "DRUGSTORE.COM" means drugstore.com, inc., a Delaware corporation, and its successors. "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. "EXISTING CREDIT AGREEMENT" means 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 administrative agent. "EXISTING LITIGATION" means the bondholders' class actions and shareholders' class actions pending as of April 10, 2000 in the Eastern District of Pennsylvania, identified in Schedule 1.01(A) to the Credit Agreement and the related pending investigation by the SEC. "FINANCIAL OFFICER" of any person means the chief financial officer, principal accounting officer, treasurer or senior vice president finance of such person. "GOVERNMENTAL AUTHORITY" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "HAZARDOUS MATERIALS" means all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBS") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "INITIAL FINANCIAL STATEMENTS" means the consolidated financial statements of the Guarantor and its Consolidated Subsidiaries for the fiscal year ended February 26, 2000, and for the fiscal quarter ended May 27, 2000. "INTEREST RATE AGREEMENT" means, for any person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement designed to protect against fluctuations in interest rates. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "INVESTMENT" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. Any repurchase by the Guarantor 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 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. "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. "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. "MATERIAL ADVERSE EFFECT" means (i) any material adverse effect on the business, financial position, results of operations or prospects of the Guarantor and its Consolidated Subsidiaries, considered as a whole, (ii) any material impairment of the legality, validity and enforceability of the Guaranty or the other Operative Documents (including without limitation, the validity, enforceability or priority of security interests to be granted), or the rights and remedies of the Second Priority Debt Parties or (iii) any material impairment of the Guarantor's or the Subsidiary Guarantors' ability to perform its or their obligations under the Guaranty or the other Operative Documents. "MATERIAL FINANCIAL OBLIGATIONS" means (a) the Senior Obligations, (b) the Second Priority Debt Obligations (other than Debt hereunder), and (c) (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. "MATERIAL PLAN" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000. "MORTGAGED PROPERTIES" means the owned real properties of the Subsidiary Guarantors specified on Schedule 1.01(B) to the Credit Agreement, together with real properties that are mortgaged pursuant to Section 1.08. Each Mortgaged Property shall include any owned fixtures used in connection with the operation of such Mortgaged Property. "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "1998 LEASE" means the Master Lease and Security Agreement dated as of May 19, 1998, between Rite Aid Realty Corp., as lessee, and RAC Leasing LLC, as amended. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PCS EBITDA" means, for any period, Consolidated EBITDA for such period less Retail EBITDA for such period. "PERFECTION CERTIFICATE" means the Perfection Certificate substantially in the form of Schedule 5 to the Second Priority Subsidiary Security Agreement. "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. "QUALIFIED PREFERRED STOCK" means preferred stock of the Guarantor that requires no cash payment before the date that is six months after the Expiration Date. The "REDUCTION CONDITION" shall be satisfied at such time as the aggregate amount outstanding under the Existing Facilities is less than or equal to the sum of (i) the aggregate amount outstanding under the Existing Facilities on the Closing Date minus (ii) $500,000,000. "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 (a) any dividend or other distribution on any shares of the Guarantor's or any Subsidiary's capital stock (except dividends payable solely in shares of the Guarantor's capital stock); or (b) any payment on account of the purchase, redemption, retirement or acquisition of (i) any shares of the Guarantor's or any Subsidiary's capital stock or (ii) any option, warrant or other right to acquire shares of the Guarantor's or any Subsidiary's capital stock (other than such payment in connection with employee benefit plans in the ordinary course of business). "RETAIL CAPITAL EXPENDITURES" means, for any period, Consolidated Capital Expenditures for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Guarantor. "RETAIL EBITDA" means, for any period, Consolidated EBITDA for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Guarantor. "RETAIL FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of (i) Retail EBITDA plus Retail Rent to (ii) Retail Interest Charges plus Retail Rent, in each case for such period. "RETAIL INTEREST CHARGE COVERAGE RATIO" means, with respect to any period, the ratio of Retail EBITDA for such period to Retail Interest Charges for such periods. "RETAIL 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, solely to the extent paid or payable in cash, during such period; provided, however, that for such period, such interest charges relating to the PCS Facility for such period will be computed as though the aggregate principal amount on which such interest charges are calculated at all times during such period were the lesser of (A) $300,000,000 and (B) the actual principal amount of the PCS Facility from time to time after giving effect to any repayment of the PCS Facility after the consummation of a PCS Disposition. "RETAIL RENT" means, for any period, Consolidated Rent for such period, but computed as though neither PCS nor any of PCS's Consolidated Subsidiaries were Consolidated Subsidiaries of the Guarantor. "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. "STORE" means any retail store (which may include any real property, fixtures, equipment, inventory and script files related thereto) operated, or to be operated, by any Subsidiary Guarantor. "SUBSIDIARY" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Guarantor. "SUBSIDIARY GUARANTOR" means, initially, each Subsidiary listed on Schedule 1.01(C) to the Credit Agreement, and each other Subsidiary that is or becomes a party to a Second Priority Subsidiary Guarantee Agreement. "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. "TRANCHE A EXPOSURE" means, with respect to each Bank, the aggregate outstanding principal amount of its Tranche A Loans. "TRANCHE A LOAN" means a loan made by a Bank as a Tranche A Loan pursuant to the Existing Credit Agreement which is outstanding at the Closing Date. "TRANCHE B EXPOSURE" means, with respect to each Bank, the aggregate outstanding principal amount of its Tranche B Loans. "TRANCHE B LOAN" means a loan made by a Bank as a Tranche B Loan pursuant to the Existing Credit Agreement which is outstanding at the Closing Date. "TRANSACTIONS" is defined in Annex 3 to the Credit Agreement. "TRANSACTION COSTS" is defined in Annex 3 to the Credit Agreement. "TRANSACTION DOCUMENTS" means the documents (other than the Second Priority Debt Documents) evidencing the Transactions. "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 (through Wholly-Owned Consolidated Subsidiaries) owned by the Guarantor. ARTICLE 1 COVENANTS The Guarantor agrees that, until the Commitments (as defined in the Committed Loan Agreement) of 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 1.1. Information. The Guarantor will deliver to the Collateral Agent and each of the Lenders: (a) (i) with respect to the fiscal year of the Guarantor ended February 26, 2000 as soon as available but not later than July 11, 2000, and (ii) with respect to each following fiscal year of the Guarantor 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 such fiscal year, 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 without material qualification by Deloitte & Touche (or other independent public accountants of nationally recognized standing); (b) with respect to the fiscal quarter of the Guarantor ending May 27, 2000 as soon as available but not later then July 11, 2000, and (ii) with respect to each following fiscal quarter of the Guarantor (other than the last fiscal quarter of a fiscal year) as soon as available and in any event within 45 days (or within such longer period of time, not greater than 60 days, to which the SEC may extend the filing deadline for the Guarantor's Quarterly Report on Form 10-Q) after the end of each such fiscal quarter, 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 a 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 a Financial Officer of the Guarantor (i) setting forth in reasonable detail the calculations required to establish whether the Guarantor (or, in the case of Section 1.13, PCS) was in compliance with the requirements of Sections 1.12, 1.13, 1.14 and 1.15 on the date of such financial statements, (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Guarantor is taking or proposes to take with respect thereto and (iii) in the case of the certificate delivered together with the financial statements referred to in clause (a) above, a calculation of Excess Cash Flow (as defined in the Credit Agreement) for the applicable period specified in Section 2.07 of the Credit Agreement and the amount of the required prepayment of the Loans under the Credit Agreement, if any, in respect thereof; (d) simultaneously with the delivery of each set of financial statements referred to in clause (A) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (C) above; (e) within three Business Days after the end of each fiscal month a certificate of a Financial Officer of the Guarantor setting forth in reasonable detail, a description of each disposition of assets not in the ordinary course of business for which the book value or fair market value of the assets of the Guarantor or the Subsidiaries disposed or the consideration received therefor was greater than $5,000,000; (f) within five Business Days after the end of each calendar month a report, in form and scope satisfactory to the Collateral Agent, summarizing determinations of the borrowing base and utilization under the Senior Credit Facility during such month; (g) within five days after any officer of the Guarantor obtains knowledge of (i) any Default, if such Default is then continuing, a certificate of a Financial Officer of the Guarantor setting forth the details thereof and the action which the Guarantor is taking or proposes to take with respect thereto, or (ii) the filing or commencement of any action, suit or proceeding, whether at law or in equity or by or before any court, Governmental Authority or other tribunal, against the Guarantor or any Affiliate thereof that could reasonably be expected to have a Material Adverse Effect; (h) promptly upon the mailing thereof to the shareholders of the Guarantor generally, copies of all financial statements, reports and proxy statements so mailed; (i) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Guarantor shall have filed with the SEC; (j) within five days, if and when any member of the ERISA Group (i) gives or any Financial Officer becomes aware that such member is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or any Financial Officer knows that the plan administrator of any Plan has given 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 a Financial 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; (k) on or prior to the dates specified below (or, in the reasonable discretion of the Collateral Agent, no later than 5 days thereafter); (i) a monthly forecast of cash receipts and disbursements, commencing with July, 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 June 17, 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, 2002, no later than March 31, 2001; 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; (l) from time to time such additional information regarding the financial position or business of the Guarantor and its Subsidiaries or the Collateral as the Collateral Agent, at the request of any Lender, may reasonably request. Information required to be delivered pursuant to clauses (a), (b), (h) and (i) shall be deemed to have been delivered on the date on which the Guarantor provides notice to the Banks 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 Banks without charge; provided that (i) such notice may be included in a certificate delivered pursuant to clause (c), and (ii) the Guarantor shall deliver paper copies of the information referred to in clauses (a), (b), (h) and (i) to any Bank which requests such delivery. SECTION 1.2. 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 material Lien upon any of its property or assets or a material risk of forfeiture of a Mortgaged Property, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except 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 1.3. Maintenance of Property; Insurance. (a) The Guarantor will keep, and will cause each Subsidiary to keep, all property useful in its business in good working order and condition, ordinary wear and tear excepted. (b) The 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 Lenders, upon request from the Collateral Agent, information presented in reasonable detail as to the insurance so carried. The Guarantor will, and will cause each of its Subsidiaries to, maintain such insurance in a coverage amount of not less than 90% of the coverage amount as of June 12, 2000, with deductibles, risks covered and other provisions (other than amount of premiums) not materially less favorable to the Guarantor and its Subsidiaries as of the June 12, 2000. (c) The Guarantor will, and will cause each of the Subsidiary Guarantors to, cause all such policies to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement, in form and substance satisfactory to the Senior Administrative Agent, the Senior Collateral Agent, the Administrative Agent, the Collateral Agent and the Second Priority Collateral Trustee which endorsement shall provide that, from and after the Closing Date, if the insurance carrier shall have received written notice from the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent or the Administrative Agent of the occurrence of an Event of Default, the insurance carrier shall pay all proceeds otherwise payable to the Guarantor and any other Obligor under such policies directly to the Senior Collateral Agent and the Second Priority Collateral Trustee, as their interests may appear, for application pursuant to the Collateral Trust and Intercreditor Agreement; cause all such policies to provide that none of the Guarantor, the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent, the Administrative Agent, nor any other party shall be a coinsurer thereunder and to contain a "Replacement Cost Endorsement", without any deduction for depreciation, and such other provisions as the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent or the Administrative Agent may reasonably require from time to time to protect their interests; deliver broker's certificates to the Senior Collateral Agent and the Second Priority Collateral Trustee; cause each such policy to provide that it shall not be canceled or not renewed by reason of nonpayment of premium upon not less than 10 days prior written notice thereof by the insurer to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent and the Administrative Agent (giving the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent and the Administrative Agent the right to cure defaults in the payment of premiums) or for any other reason upon not less than 30 days' prior written notice thereof by the insurer to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent and the Administrative Agent; deliver to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent and the Administrative Agent, before the cancellation or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent and the Administrative Agent) together with evidence reasonably satisfactory to the Senior Administrative Agent, the Senior Collateral Agent, the Collateral Agent and the Administrative Agent of payment of the premium therefor. (d) [Reserved] (e) The Guarantor will, and will cause each of the Subsidiary Guarantors to, with respect to any Mortgaged Property, carry and maintain comprehensive general liability insurance including the "broad form CGL endorsement" and coverage on an occurrence basis against claims made for personal injury (including bodily injury, death and property damage) and umbrella liability insurance against any and all claims, in no event for a combined single limit of less than $10,000,000, naming the Senior Collateral Agent (for the benefit of the Senior Bank Parties) and the Second Priority Collateral Trustee (for the benefit of the Second Priority Debt Parties) as additional insured parties, on forms satisfactory to the Senior Collateral Agent and the Second Priority Collateral Trustee. (f) The Guarantor will notify the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee and the Collateral Agent promptly whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section is taken out by the Guarantor or its Subsidiaries; and promptly deliver to the Senior Administrative Agent, the Senior Collateral Agent, the Second Priority Collateral Trustee, the Collateral Agent and the Administrative Agent a duplicate original copy of such policy or policies. (g) In connection with the covenants set forth in this Section, it is agreed that: (i) none of the Collateral Agent, the Lessor, the Lenders or their respective agents or employees shall be liable for any loss or damage insured by the insurance policies required to be maintained under this Section, and (A) the Guarantor and each other Obligor shall look solely to their insurance companies or any other parties other than the aforesaid parties for the recovery of such loss or damage and (B) such insurance companies shall have no rights of subrogation against the Collateral Agent, the Second Priority Collateral Trustee, the Lessor, the Lenders or their agents or employees. If, however, the insurance policies do not provide waiver of subrogation rights against such parties, as required above, then the Guarantor hereby agrees, to the extent permitted by law, to waive its right of recovery, if any, against the Collateral Agent, the Second Priority Collateral Trustee, the Lessor, the Lenders and their agents and employees; and (ii) the designation of any form, type or amount of insurance coverage by the Collateral Agent, the Second Priority Collateral Trustee or the Lenders under this Section shall in no event be deemed a representation, warranty or advice by the Administrative Agent, the Second Priority Collateral Trustee or the Banks that such insurance is adequate for the purposes of the business of the Guarantor and the Subsidiaries or the protection of their properties. SECTION 1.4. Conduct of Business and Maintenance of Existence. Except as otherwise permitted in this Agreement, the Guarantor will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Guarantor and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary (except where such Subsidiary merges into a Subsidiary Guarantor) to preserve, renew and keep in full force and effect their respective legal existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that the foregoing will not prohibit any merger or liquidation of, or sale of assets by, a Subsidiary that is permitted by Sections 1.18 and 1.19. SECTION 1.5. 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) applicable to it or its property except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply would not have a Material Adverse Effect. SECTION 1.6. 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 Lender (at such Lender's expense, unless a Default has occurred and is continuing, in which case at the Guarantor's expense and after such Lender has consulted the Collateral Agent with respect thereto) to visit and inspect any of their properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 1.7. Restriction on Other Agreements, Payment Limitations, Debt Prepayments. (a) The Guarantor will not, and will not permit any Subsidiary to, enter into any agreement which imposes a limitation on incurrence by the Guarantor and its Subsidiaries of Liens that (i) would restrict any Subsidiary from granting Liens on any of its assets (including assets in addition to the then-existing Second Priority Collateral to secure the Second Priority Obligations or (ii) is more restrictive than the limitation on Liens set forth in this Annex A or (iii) which imposes other covenants more restrictive than those set forth in this Annex A except, in each case, (A) agreements with respect to Debt secured by Liens permitted by Section 1.11 containing restrictions on the ability to transfer or grant Liens on the assets securing such Debt, (B) customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, (D) pursuant to applicable law, (E) agreements in effect as of June 12, 2000 the Closing Date and not entered into in contemplation of the Transactions and (F) the other Existing Facility Documents and the Forward Commitment Agreement as in effect on the June 12, 2000. (b) The Guarantor will not, and will not permit any Subsidiary to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (i) make Restricted Payments in respect of any capital stock of such Subsidiary held by, or pay any Debt owed to, the Guarantor or any other Subsidiary, (ii) make any Investment in the Guarantor or any other Subsidiary, or (iii) transfer any of its assets to the Guarantor or any other Subsidiary, except for such encumbrances or restrictions existing under or by reason of (A) any restriction existing under the Guaranty and the other Operative Documents, the Second Priority Debt Documents, the Senior Loan Documents, the Indentures or the Forward Commitment Agreement, (B) any restrictions with respect to PCS imposed pursuant to a PCS Disposition pending the consummation thereof, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, and (D) as required by applicable law. (c) The Guarantor will not, and will not permit any Subsidiary to, make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption or, or otherwise voluntarily or optionally defease, debt under the Existing Facilities, the Exchange Debt Obligations, the Existing Notes (as defined in Annex 3 to the Credit Agreement) (other than pursuant to the Exchange Offer (as defined in Annex 3 to the Credit Agreement)), the Exchange Notes or any other Debt for borrowed money of the Guarantor or any Subsidiary, or segregate funds for any such payment, prepayment, repurchase, redemption or defeasance, except for refinancings, refundings and exchanges pursuant to Section 1.16(d) repurchases or redemption of such Debt for consideration consisting solely of common stock of the Guarantor or Qualified Preferred Stock or prepayments of Capital Leases in connection with the sale, closing or relocation of Stores. SECTION 1.8. Further Assurances. The Guarantor will, and will cause each of the Subsidiary Guarantors to, execute any and all further documents, financing statements, recordations, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements, recordations, mortgages and deeds of trust) that may be required under applicable law, or that the Required Participants, the Collateral Agent or the Second Priority Collateral Agent may reasonably request, in order to effectuate the transactions contemplated by the Operative Documents and in order to grant, preserve, protect and perfect the validity and priority of the security interests created or intended to be created by the Operative Documents and the Second Priority Collateral Documents. The Guarantor will cause any subsequently acquired or organized Domestic Subsidiary to execute a Second Priority Subsidiary Guarantee Agreement, Second Priority Indemnity, Subrogation and Contribution Agreement, Second Priority Subsidiary Security Agreement and any applicable financing statement or other recordation from time to time, and to comply with the terms thereof. The Guarantor agrees to cause to be provided such evidence as the Second Priority Collateral Trustee and the Administrative Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. SECTION 1.9. Subsidiaries. The Guarantor will cause all of its Subsidiaries that own Collateral to be "Unrestricted Subsidiaries" as defined in, and for all purposes of, each of the Indentures and will deliver such documents to the trustees under each of the Indentures and take such actions thereunder as may be necessary to effect the foregoing. SECTION 1.10. Restriction on Sale and Leaseback Transactions. Except for a sale or transfer by a Subsidiary to a Subsidiary Guarantor, the Guarantor will not, and will not permit any Subsidiary to, enter into any Sale and Leaseback Transaction after June 12, 2000 other than (a) a Sale and Leaseback Transaction listed on Schedule 5.10 to the Credit Agreement. (b) with respect to any property other than a Mortgaged Property owned by the Guarantor or any Subsidiary Guarantor as of June 12, 2000, for a lease for a period, including renewals, not exceeding 24 months, by the end of which period it is intended that the use of such property or equipment by the lessee will be discontinued; provided, however, that such Sale and Leaseback Transaction will be subject to Section 1.19(b), (c) with respect to any property other than a Mortgaged Property, if entered into in respect of property acquired, developed or constructed by the Guarantor or a Subsidiary after the Closing Date, if such Sale and Leaseback Transaction is entered into within 24 months from the date of completion of such acquisition, development or construction (which, in the case of any Store, shall be deemed to be 24 months from the date of the opening of such Store), or (d) if none of clauses (a) through (c) above are applicable, any other Sale and Leaseback Transaction not involving a Mortgaged Property, subject to Section 1.19(b). SECTION 1.11. 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 in connection with a Sale and Leaseback Transaction permitted by Section 1.10, (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 and not created in anticipation of such acquisition, which acquisition is not otherwise prohibited by this Annex A, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired; provided that the Lien does not attach to other property except unimproved real property previously owned upon which any new construction has taken place and subsequent additions to such acquired or constructed property; (b) any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 1.11 or any Lien securing the Debt of the Guarantor or of any Subsidiary on June 12, 2000 or of a corporation at the time such corporation becomes a Subsidiary, or any extensions, renewals or refundings of any such Lien; provided that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding Lien shall be limited to all or that part of the same property which secured the Debt so extended, renewed or refunded; (c) any Lien securing Debt of a Subsidiary owing to a Subsidiary Guarantor; (d) any Lien created by the Second Priority Collateral Documents; (e) any Lien created by the Senior Loan Documents; provided that (i) with respect to any specific Collateral which is also Senior Collateral, a Lien is created simultaneously under the Second Priority Collateral Documents and is subject to the Collateral Trust and Intercreditor Agreement and (ii) the aggregate principal amount of Senior Debt Obligations to be secured by such Lien shall not exceed the amount permitted by Section 6.02 of the Collateral Trust and Intercreditor Agreement; (f) any Lien under the Exchange Debt First Priority Collateral Documents in favor of the Exchange Debt Parties, provided that such Lien is limited to the Exchange Debt First Priority Collateral; (g) any Lien under the PCS Pledge Agreement and the Drugstore.com Pledge Agreement in favor of the Existing Facility Parties and the Synthetic Lease Parties, provided that such Lien is limited to the "Collateral" as such term is defined in each such document; (h) existing Liens under the Synthetic Lease Documents and Liens under Synthetic Leases permitted pursuant to Section 1.25; (i) Liens identified on Schedule 1.11(i) to the Credit Agreement; provided, however, that such Liens do not attach to any other property other than that identified in such Schedule; and (j) Liens in respect of Debt or Attributable Debt permitted under Sections 1.16(f), (h), (i) and (j) so long as such Liens attach only to (i) the equipment subject to such financing, (ii) the property to which they attach on the Closing Date (or in the case of any operating lease which is reclassified as a Capital Lease, any property subject to such operating lease on the Closing Date), or (iii) the property or assets constructed, developed or purchased with such financing. SECTION 1.12. 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:
PERIOD AMOUNT - ------ ------ If no PCS Divestiture has If a PCS Divestiture has been been consummated on or consummated on or before before the last day of such the last day of such period, period, maximum maximum Retail Capital Consolidated Capital Expenditures Expenditures Fiscal quarter ending on August 26, 2000 $70,000,000 $64,000,000 Two fiscal quarters ending on November 25, 2000 $138,000,000 $125,000,000 Three fiscal quarters ending on March 3, 2001 $205,000,000 $186,000,000 Four fiscal quarters ending on June 2, 2001 $270,000,000 $245,000,000 Four fiscal quarters ending on September 1, 2001 $265,000,000 $241,000,000 Four fiscal quarters ending on December 1, 2001 $265,000,000 $242,000,000 Four fiscal quarters ending on March 2, 2002 $265,000,000 $243,000,000 Four fiscal quarters ending on June 1, 2002 $265,000,000 $243,000,000 Four fiscal quarters ending on September 7, 2002 $265,000,000 $243,000,000 Four fiscal quarters ending on December 7, 2002 $265,000,000 $243,000,000 Four fiscal quarters ending on March 1, 2003 $265,000,000 $243,000,000 Four fiscal quarters ending on June 7, 2003 $265,000,000 $243,000,000 Four fiscal quarters ending on September 6, 2003 $265,000,000 $243,000,000 Four fiscal quarters ending on December 6, 2003 $265,000,000 $243,000,000 Four fiscal quarters ending on March 6, 2004 $265,000,000 $243,000,000 Four fiscal quarters ending on May 30, 2004 $265,000,000 $243,000,000
SECTION 1.13. Minimum EBITDA. The aggregate amount of Consolidated EBITDA, Retail EBITDA or PCS EBITDA, as the case may be, for any period forth below shall not be less than the amount set forth below opposite such period:
PERIOD AMOUNT - ------ ------ IF NO PCS DIVESTITURE HAS IF A PCS DIVESTITURE HAS IF NO PCS DIVESTITURE HAS BEEN CONSUMMATED ON OR BEEN CONSUMMATED ON OR BEEN CONSUMMATED ON OR BEFORE THE LAST DAY OF BEFORE THE LAST DAY OF BEFORE THE LAST DAY OF SUCH PERIOD, MINIMUM SUCH PERIOD, MINIMUM SUCH PERIOD, MINIMUM PCS CONSOLIDATED EBITDA RETAIL EBITDA EBITDA Fiscal quarter ending on August 26, 2000 $95,000,000 $75,000,000 N/A Two fiscal quarters ending on November 25, 2000 $232,000,000 $178,000,000 N/A Three fiscal quarters ending on March 3, 2001 $426,000,000 $335,000,000 N/A Four fiscal quarters ending on March 3, 2001 N/A N/A $100,000,000 Four fiscal quarters ending on June 2, 2001 $569,000,000 $444,000,000 N/A Four fiscal quarters ending on September 1, 2001 $646,000,000 $504,000,000 N/A Four fiscal quarters ending on December 1, 2001 $722,000,000 $563,000,000 N/A Four fiscal quarters ending on March 2, 2002 $860,000,000 $689,000,000 $100,000,000 Four fiscal quarters ending on June 1, 2002 $894,000,000 $720,000,000 N/A Four fiscal quarters ending on September 7, 2002 $894,000,000 $720,000,000 N/A Four fiscal quarters ending on December 7, 2002 $894,000,000 $720,000,000 N/A Four fiscal quarters ending on March 1, 2003 $894,000,000 $720,000,000 $1,000,000,000 Four fiscal quarters ending on June 7, 2003 $894,000,000 $720,000,000 N/A Four fiscal quarters ending on September 6, 2003 $894,000,000 $720,000,000 N/A Four fiscal quarters ending on December 6, 2003 $894,000,000 $720,000,000 N/A Four fiscal quarters ending on March 6, 2004 $894,000,000 $720,000,000 $1,000,000 Four fiscal quarters ending on May 30, 2004 $894,000,000 $720,000,000 N/A
SECTION 1.14. Minimum Interest Coverage Ratio. At no time shall the Consolidated Interest Coverage Ratio or the Retail Interest Coverage Ratio, as the case may be, for any period be less than the amount set forth below opposite such period:
PERIOD AMOUNT ------ ------ IF NO PCS DIVESTITURE HAS BEEN IF A PCS DIVESTITURE HAS BEEN CONSUMMATED ON OR BEFORE THE LAST CONSUMMATED ON OR BEFORE THE LAST DAY OF SUCH PERIOD, THE MINIMUM DAY OF SUCH PERIOD, THE MINIMUM CONSOLIDATED INTEREST COVERAGE RATIO RETAIL INTEREST COVERAGE RATIO Fiscal quarter ending on August 26, 2000 .70 .67 Two fiscal quarters ending on November 25, 2000 .81 .79 Three fiscal quarters ending on March 3, 2001 .96 .95 Four fiscal quarters ending on June 2, 2001 .96 .94 Four fiscal quarters ending on September 1, 2001 1.07 1.04 Four fiscal quarters ending on December 1, 2001 1.18 1.14 Four fiscal quarters ending on March 2, 2002 1.39 1.37 Four fiscal quarters ending on June 1, 2002 1.40 1.40 Four fiscal quarters ending on September 7, 2002 1.40 1.40 Four fiscal quarters ending on December 7, 2002 1.40 1.40 Four fiscal quarters ending on March 1, 2003 1.40 1.40 Four fiscal quarters ending on June 7, 2003 1.40 1.40 Four fiscal quarters ending on September 6, 2003 1.40 1.40 Four fiscal quarters ending on December 6, 2003 1.40 1.40 Four fiscal quarters ending on March 6, 2004 1.40 1.40 Four fiscal quarters ending on May 30, 2004 1.40 1.40
SECTION 1.15. Minimum Fixed Charge Coverage Ratio. At no time shall the Consolidated Fixed Charge Coverage Ratio or the Retail Fixed Charge Coverage Ratio, as the case may be, for any period set forth below be less than the amount set forth below opposite such period:
Period Amount ------ ------ If no PCS Divestiture has If a PCS Divestiture has been been consummated on or before consummated on or before the last day of the last day of such period, such period, the minimum Retail Fixed the minimum Consolidated Charge Coverage Ratio Fixed Charge Coverage Ratio Fiscal quarter ending on August 26, 2000 .83 .83 Two fiscal quarters ending on November 25, 2000 .89 .88 Three fiscal quarters ending on March 3, 2001 .96 .95 Four fiscal quarters ending on June 2, 2001 .96 .94 Four fiscal quarters ending on September 1, 2001 1.01 .99 Four fiscal quarters ending on December 1, 2001 1.06 1.04 Four fiscal quarters ending on March 2, 2002 1.19 1.17 Four fiscal quarters ending on June 1, 2002 1.20 1.19 Four fiscal quarters ending on September 7, 2002 1.20 1.19 Four fiscal quarters ending on December 7, 2002 1.20 1.19 Four fiscal quarters ending on March 1, 2003 1.20 1.19 Four fiscal quarters ending on June 7, 2003 1.20 1.19 Four fiscal quarters ending on September 6, 2003 1.20 1.19 Four fiscal quarters ending on December 6, 2003 1.20 1.19 Four fiscal quarters ending on March 6, 2004 1.20 1.19 Four fiscal quarters ending on May 30, 2004 1.20 1.19
SECTION 1.16. Restriction 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 or any Attributable Debt in respect of any Sale and Leaseback Transaction except: (a) Debt under the Senior Loan Documents in a principal amount no greater than the amount permitted by Section 6.02 of the Collateral Trust and Intercreditor Agreement; (b) Debt under the Existing Facility Obligations, the Exchange Debt Obligations, the Exchange Note Obligations, and Debt under the Indentures in each case in a principal amount not greater than the principal amount thereof on the Closing Date; provided that no Subsidiary Guarantor will have any liability thereon except its obligations under the Second Priority Collateral Agreements or the Exchange Debt First Priority Collateral Documents; (c) Attributable Debt of (i) the Synthetic Lease Obligations, including this Guaranty and the other Operative Documents, in a principal amount not greater than the principal amount thereof on the Closing Date, plus amounts permitted pursuant to Section 1.25; provided that no Subsidiary Guarantor will have any liability thereon except its obligations under the Second Priority Collateral Documents and (ii) any Sale and Leaseback Transactions in existence on the Closing Date; (d) unsecured Debt of the Guarantor extending, or having the effect of extending the maturity of, or refunding, refinancing or exchanging, in whole or in part, Debt described in clauses (a), (B) and (c), provided that (i) the terms of any such extending, refunding, refinancing or exchanging of Debt, and of any agreement entered into and of any instrument issued in connection therewith, are otherwise permitted by the Loan Documents, (ii) the terms relating to principal amount, amortization, maturity, convertibility and subordination (if any), and other material terms taken as a whole, of any such extending, refunding, refinancing or exchanging of Debt, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Guarantor and the Subsidiaries or the banks or lenders than the terms of any agreement or instrument governing the Debt being extended, refunded, refinanced or exchanged and the interest rate applicable to such extending, refunding or refinancing or exchanging of Debt does not exceed the then applicable market interest rate and (iii) the principal amount of such extending, refunding, refinancing or exchanging of Debt shall not be increased above the principal amount of the Debt being extended, refunded, refinanced or exchanged outstanding immediately prior to such extension, refunding, refinancing or exchanging; (e) endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (f) Debt for borrowed money and Capital Leases existing on the date hereof and set forth in Schedule 1.16(f), but not any extensions, renewals or replacements of such Debt; (g) Debt or Attributable Debt in respect of Capital Leases (whether or not in the form of Sale and Leaseback Transactions or Synthetic Leases) so long as such Capital Leases were leases existing as of the Closing Date, which are reclassified from operating leases to Capital Leases; (h) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transaction in respect of equipment financing or leasing in the ordinary course of business of the Guarantor and its Subsidiaries consistent with past practices; (i) Debt (including Capital Leases) and Attributable Debt in respect of Sale and Leaseback Transactions entered into to finance the acquisition, development, construction or opening of any Store after the Closing Date which is not inconsistent with the Guarantor's business plan delivered pursuant to Section 3.01(e) of the Credit Agreement; provided that such Debt or Attributable Debt is (x) incurred within 24 months of the completion of the acquisition, development, construction or opening thereof, and any Lien securing such Debt or Attributable Debt is limited to the Store financed with the proceeds thereof and (y) in the case of a Sale and Leaseback Transaction, permitted under Section 5.10(a), (b) or (c); (j) Debt (including Capital Leases) and Attributable Debt in respect of Synthetic Leases and Sale and Leaseback Transactions entered into to finance the acquisition after June 12, 2000 the Closing Date of property or assets provided that (i) such Debt or Attributable Debt is incurred within 24 months of the acquisition of such property or assets, (ii) any Lien securing such Debt or Attributable Debt is limited to the property or assets financed with the proceeds thereof and (iii) the aggregate principal amount of Debt and Attributable Debt incurred pursuant to this clause (j) shall not exceed $50,000,000 at any time outstanding; (k) Debt in respect of the Independent Standby Letters of Credit, or any extension, renewals, replacements or reissuances thereof; provided that the aggregate drawable stated amount and unreimbursed drawings of all Independent Standby Letters of Credit outstanding at any time shall not exceed $34,000,000 less the stated amount of any such letters of credit which expire or are not extended or renewed; (l) Debt of the Guarantor and its Subsidiaries in respect of intercompany Investments permitted under Section 1.17(a); and (m) unsecured Debt of the Guarantor not otherwise permitted by this Section in an aggregate principal amount at any time outstanding not to exceed (i) $100,000,000 less (ii) the aggregate amount of any increases in the amount of Debt permitted under subsection (A) above by reason of clause (i) of the proviso to Section 6.02 of the Collateral Trust and Intercreditor Agreement. SECTION 1.17. Limitation on Investments and Acquisitions. (a) Neither the Guarantor nor any Subsidiary will make or acquire any Investment in any Person other than: (i) Investments in Subsidiary Guarantors, other than PCS and its Subsidiaries; (ii) Investments of the Guarantor and the Subsidiary Guarantors in existence on June 12, 2000; (iii) Advances made by the Guarantor to PCS that reduce the intercompany payable due from the Guarantor to PCS; (iv) Temporary Cash Investments; (v) Investments received as consideration for any sale or other disposition permitted by Section 1.19; (vi) Investments in Drugstore.com existing on the date hereof; (vii) Investments of PCS and its Subsidiaries in PCS and its Subsidiaries; (viii) Investments by the Subsidiaries of the Guarantor in the Guarantor, but only to the extent that the uses of the proceeds of such Investments would be permitted as uses of proceeds of the loans made under the Senior Credit Facility pursuant to Section 1.24(b) thereof; (ix) Exchange Notes issued by the Guarantor to and held by SPV pursuant to the Forward Commitment Agreement; and (x) any Investment by a Subsidiary Guarantor in a Person other than a Subsidiary 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 (x) does not exceed at any one time outstanding the greater of (A) $200,000,000 or (B) after the delivery of the Initial Financial Statements, 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 (including Debt assumed or consolidated in accordance with generally accepted accounting principles) in connection with all such Business Acquisitions on or after the Closing Date would exceed $15,000,000. SECTION 1.18. Consolidations and Mergers. (a) Without limiting the restrictions on Business Acquisitions set forth above, the Guarantor will not consolidate or merge with or into any other Person; provided that the Guarantor may merge with another Person if (i) the Guarantor is the corporation surviving such merger, (ii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, and (iii) if such other Person is a Subsidiary Guarantor, such Subsidiary Guarantor shall have no property that constitutes Collateral. (b) No Subsidiary Guarantor will consolidate or merge with or into any other Person, except (i) without limiting the restrictions on Business Acquisitions set forth above, a Subsidiary Guarantor may merge with another Person if (A) either (1) a Subsidiary Guarantor is the corporation surviving such merger, or (2) the Subsidiary Guarantor that merges with such Person shall have no property that constitutes Second Priority Collateral, and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing, (ii) PCS or its Subsidiaries may consolidate with or merge into another Person as part of a PCS Disposition. SECTION 1.19. Dispositions of Assets. (a) The Guarantor will not dispose of any capital stock of any Subsidiary Guarantor other than to another Subsidiary Guarantor, or permit any Subsidiary Guarantor to issue capital stock to any Person other than the Guarantor or another Subsidiary Guarantor, except in each case for a PCS Disposition; provided, that no such issuance or disposition of capital stock of PCS shall be to any Subsidiary Guarantor and no such issuance or disposition of capital stock of a Subsidiary of PCS shall be to the Guarantor or any Subsidiary Guarantor other than PCS or a Subsidiary of PCS. (b) The Guarantor will not, and will not permit any Subsidiary Guarantor to, dispose of any property or assets except (i) any Permitted Disposition; (ii) any PCS Disposition or sale or other disposition of the capital stock of Drugstore.com; or (iii) any other disposition of property or assets of the Guarantor or any Subsidiary for fair value not in the ordinary course of business; provided that with respect to such dispositions of Collateral under this clause, (vi) at least 75% of the consideration therefor shall consist of cash, and (2) the Net Cash Proceeds of such disposition of Collateral are applied as provided in Section 4.05 of the Collateral Trust and Intercreditor Agreement. (c) The consideration received by the Guarantor or the applicable Subsidiary Guarantor for any PCS Disposition or the disposition of the capital stock of Drugstore.com shall be for the fair market value of such disposition and consist solely of a combination of at least 75% cash and no more than 25% of publicly traded securities, in each case payable and deliverable at the closing of such disposition, unless, (i) in the case of a PCS Disposition, the "Required Banks" under the PCS Facility otherwise agree or (ii) in the case of a disposition of the capital stock of Drugstore.com, the "Required Banks" under the RCF Facility otherwise agree. Consideration in the form of forgiveness of intercompany obligations shall be disregarded for purposes of determinations of compliance with this Section 1.19(c). SECTION 1.20. Use of Proceeds. The proceeds of the Tranche A Loans made under the Existing Credit Agreement were used by the Guarantor solely to repay commercial paper maturing on or prior to the date of the related borrowing thereunder or to extend and renew loans outstanding under the Existing Agreement, the proceeds of which loans were used solely to repay commercial paper (or to refund other 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 Existing Agreement were used by the Guarantor for the Guarantor's general corporate purposes. No such use of proceeds have 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, 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 1.21. Restrictions on Asset Holdings by the Guarantor. The Guarantor will not at any time (i) make or hold any Investments other than investments in the capital stock of Drugstore.com and its Subsidiaries (including any distributions or other assets received in respect thereto), Investments received as consideration in connection with the PCS Disposition or a disposition of Drugstore.com, intercompany advances to Subsidiaries, and Investments permitted by clause (iii) below, (ii) acquire or hold any Stores, other capital assets, inventory or accounts receivable, other than any real estate which the Guarantor holds only as lessor, and which is leased and operated by another Person, or (iii) acquire or hold cash, cash equivalents, Temporary Cash Investments or balances in bank accounts other than such amounts as are reasonably anticipated (at the time so acquired or held) to be utilized within five Business Days to pay costs, expenses and other obligations of the Guarantor referred to in Section 1.24(B) of the Senior Credit Agreement. SECTION 1.22. Restricted Payments. After the date hereof, neither the Guarantor nor any Subsidiary will declare or make any Restricted Payment other than (a) payments of dividends to Subsidiary Guarantors, and (b) payments of cash dividends to the Guarantor to the extent necessary to enable the Guarantor to make payments otherwise permitted by the Loan Documents; provided, that no such Restricted Payments may be made by PCS or any Subsidiary of PCS to any Person other than PCS or a Subsidiary of PCS. SECTION 1.23. Business of Guarantor and Subsidiaries. The Guarantor will not, and will not cause or permit any of the Subsidiaries to, engage at any time in any business or business activity other than the business conducted on the Closing Date by it and business activities reasonably incidental thereto. Without limitation of the foregoing, Guarantor will not permit SPV to have any assets or liabilities or conduct any business other than as expressly contemplated by the Forward Commitment Agreement. SECTION 1.24. Transactions with Affiliates. The Guarantor will not, and will not cause or permit any of the Subsidiaries to, directly or indirectly enter into or conduct any transactions or series of transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any Affiliate of the Guarantor, other than the payment of transaction costs approved by the Collateral Agent before June 12, 2000 (an "Affiliate Transaction"), other than (a) the payment of compensation to directors, officers, and employees of the Guarantor and its Subsidiaries in the ordinary course of business; (b) payments in respect of Affiliate Transactions required to be made pursuant to agreements or arrangements in effect on June 12, 2000 and set forth in Schedule 1.24 to the Credit Agreement; (c) Affiliate Transactions involving the acquisition of inventory in the ordinary course of business, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Guarantor or such Subsidiary Guarantor as the case may be, and (C) no less favorable to the Guarantor or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Guarantor, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000, the board of directors of the Guarantor (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (C) of this paragraph; (d) the issuance of Exchange Notes by the Guarantor to the SPV as contemplated by the Forward Commitment Agreement; (e) Affiliate Transactions between or among the Guarantor and/or one or more Subsidiary Guarantors; and (f) any other Affiliate Transaction, provided that (i) the terms of such Affiliate Transaction are (A) set forth in writing, (B) in the best interests of the Guarantor or such Subsidiary, as the case may be, and (C) no less favorable to the Guarantor or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a person that is not an Affiliate of the Guarantor, and (ii) if such Affiliate Transaction involves aggregate payments or value in excess of $25,000,000 in any 12-month period, the board of directors of the Guarantor (including a majority of the disinterested members of the board of directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (i)(B) and (i)(C) of this paragraph and (iii) if such Affiliate Transaction involves aggregate payments or value in excess of $50,000,000 in any 12-month period, the Guarantor obtains a written opinion from an independent investment banking firm or appraiser of national prominence, as appropriate to the effect that such transaction is fair to the Guarantor or such Subsidiary, as the case may be, from a financial point of view. SECTION 1.25. New Synthetic Leases. Neither the Guarantor nor any Subsidiary will enter into any Synthetic Lease after June 12, 2000 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 June 12, 2000 would exceed $35,000,000 unless such Synthetic Lease is otherwise permitted under Section 1.16(h), (i) or (j). SECTION 1.26. Corporate Separateness. The Guarantor will, and will cause each Subsidiary to, take all necessary steps to maintain its identity as a separate legal entity from other Persons and to make it manifest to third parties that it is an entity with assets and liabilities distinct from those of each of other Person. SECTION 1.27. Limitation on Derivative Obligations. The Guarantor will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any monetary liability under any Derivative Obligations; unless such Derivative Obligations are entered into for bona fide hedging purposes of the Guarantor or its Subsidiary Guarantors (as determined in good faith by the board of directors or senior management of the Guarantor) and correspond in terms of notional amount, duration, currencies and interest rates, as applicable, to Debt of the Guarantor or its Subsidiary Guarantors incurred without violation of this Agreement or to business transactions of the Guarantor or its Subsidiary Guarantors on customary terms entered into in the ordinary course of business, and do not exceed an amount equal to the aggregate principal amount of the Senior Obligations and the Second Priority Debt Obligations. SECTION 1.28. 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 June 12, 2000, and any refinancings, renewals or extensions thereof permitted by this Annex A and which is in effect at the time of such sale, to reduce ratably the Lease Balance under the Lease and the lease balance under the 1998 Lease. Attachment 1 to Annex A Definitions Annex EX-10 24 0024.txt EXHIBIT 10.20 - AMENDMENT NO. 5 TO MASTER LEASE AND SECURITY AGREEMENT Exhibit 10.20 EXECUTION AMENDMENT NO. 5 Dated as of June 12, 2000 to MASTER LEASE AND SECURITY AGREEMENT between Rite Aid Realty Corp. and Sumitomo Bank Leasing and Finance, Inc. AMENDMENT NO. 5 TO MASTER LEASE AND SECURITY AGREEMENT, dated as of June 12, 2000 ("Amendment No. 5"), 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 and as further amended by Amendment No. 4, dated as of October 25, 1999 (as so amended, the "Lease"); WHEREAS, the Rite Aid Corporation (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 ("Amendment No. 1") and as further amended by Amendment No. 2 dated as of December 2, 1999 and as further amended by Amendment No. 3 dated as of February 28, 2000 and as further amended by Amendment No. 4 dated as of the date hereof (as so amended, the "Guaranty"); and WHEREAS, Lessor and Lessee wish to amend further the Lease as hereinafter provided, and each of the parties hereto agrees to the terms of this Amendment No. 5 to Master Lease and Security Agreement; NOW, THEREFORE, Lessor and Lessee hereby agree as follows: Section 1. Amendments to the Lease. Appendix 2 to the Lease is hereby amended by deleting the tables and related provisions set forth under the headings "Determination of Lessor Applicable Margin and Liquidity Applicable Margin", respectively, and inserting in lieu thereof the following: "The Liquidity Applicable Margin" means the sum of (i) 3.75% plus (ii) at any date on or after November 1, 2000, 0.50% unless the Reduction Condition has been met on or prior to such date. "The Lessor Applicable Margin" means the sum of (i) 4.75% plus (ii) at any date on or after November 1, 2000, 0.50% unless the Reduction Condition has been met on or prior to such date. "Reduction Condition" shall have the meaning given to such term in Annex A to the Guaranty. Section 2. Representations and Warranties. The Lessee represents and warrants to the Lessor, Collateral Agent and the other Secured Parties 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. 5 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 or thereto (collectively, the "Amendment Documents") and the performance of the Lease and the Guaranty, as amended by the Amendment Documents, have been duly authorized by all necessary action of the Lessee and the Guarantor. The Lessee and the Guarantor have duly executed and delivered each Amendment Document to which it is a party. Each Amendment Document and the Lease and the Guaranty, as amended by the Amendment Documents, constitutes a legal, valid and binding obligation of the Lessee and the Guarantor, as the case may be, 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, (ii) with respect to each representation set forth in Section 6.2(h) of the Lease, such representation is true and correct on and as of the date hereof, subject to the disclosure set forth in the Initial Financial Statements (as defined in Annex A to the Guaranty) for the period on or before May 27, 2000 and (iii) in lieu of the representation set forth in Section 6.2(d) of the Lease, the Lessee hereby represents and warrants to the Lessor and each Lender that on and as of the date hereof, there has been (x) no development in any Existing Litigation after April 10, 2000 and (y) no litigation or administrative proceeding that in case of either clause (x) or (y), could reasonably be expected to have a Material Adverse Effect, and that on and as of the date hereof, there has been no development in any Existing Litigation after April 10, 2000, and there has been no litigation or administrative proceeding that could, in the Required Participants' sole judgment, impair the validity, enforceability or priority of the security interests granted in favor of the Lenders under the Operative Documents, the Pledge Agreements (as defined in Annex A to the Guaranty) or the Second Priority Collateral Documents (as defined in Annex A to the Guaranty); 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 3. Conditions Precedent. As a condition precedent to the effectiveness of this Amendment No. 5, 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. 5; (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 each of the Second Priority Collateral Documents (as such term is defined in Annex A to the Guaranty) showing a lien in favor of the trustee named therein for the ratable benefit of the Collateral Agent and the Secured Parties under the Intercreditor Agreement; (c) a fully executed counterpart of each amendment to the PCS Pledge Agreement and the Drugstore.com Pledge Agreement (as such terms are defined in Annex A to the Guaranty); (d) a fully executed copy of the RCF Facility dated as of the date hereof among the Guarantor, the banks parties thereto and Morgan Guaranty Trust Company of New York, certified as true, correct and complete by a Responsible Officer of the Guarantor; (e) any and all fees payable to the Lessor, the Liquidity Providers and the Liquidity Agent in connection with this Amendment No. 5, 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; (f) certificates from the Secretary of State of the State of Delaware evidencing the good standing each of the Lessee and the Guarantor; (g) 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; (h) a certificate from the Secretary or an Assistant Secretary of the Guarantor certifying (i) as to the incumbency and signature of the officer of the Guarantor to execute and deliver the Amendment Documents to which it is a party, (ii) that the charter and by-laws of the Guarantor 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 Guarantor authorizing the execution, delivery and performance of the Amendment Documents, the performance of the Guaranty, as amended by the Amendment Documents, and the transactions contemplated thereby; (i) a certificate from a Responsible Officer of the Lessee, certifying that, to the best knowledge of such officer, the representation and warranty made by the Lessee pursuant to Section 2(b) hereof is 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; (j) a certificate from a Responsible Officer of the Guarantor, certifying that, to the best knowledge of such officer, the representations and warranties contained in Section 4 of Amendment No. 4 to the Guaranty 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 Guaranty, 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 4. Counterparts. This Amendment No. 5 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. 5. Section 5. Governing Law. THIS AMENDMENT NO. 5 SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 6. 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. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 to be duly executed as of the date first above written. RITE AID REALTY CORP., By:________________________ Name: Title: SUMITOMO BANK LEASING AND FINANCE, INC., By:___________________________ Name: Title: The undersigned hereby acknowledge and consent to the foregoing Amendment No. 5: THE SUMITOMO BANK, LIMITED NEW YORK BRANCH By: _________________________________ RITE AID CORPORATION By: _________________________________ SUMITOMO BANK LEASING & FINANCE, INC. By: _________________________________ BANK OF AMERICA, N.A. By: _________________________________ Amendment No. 5 to Master Lease and Security Agreement (SBLF TOOL) EX-99 25 0025.txt EXHIBIT 99.1 - PRESS RELEASE Exhibit 99.1 RITE AID REFINANCING COMPLETED APPROXIMATELY $640 MILLION IN ADDITIONAL FUNDS AVAILABLE TO SUPPORT NEW MANAGEMENT'S TURNAROUND PLAN $285 MILLION OF BANK DEBT CONVERTED TO COMMON STOCK CAMP HILL, PA, June 14, 2000 - Rite Aid Corporation (NYSE, PSE: RAD) announced today that it has successfully completed its previously announced refinancing, which makes available approximately $640 million in additional funds for working capital and general corporate purposes. The refinancing also extends the maturity dates of a substantial portion of the Company's debt so that no significant debt matures before August, 2002. "This refinancing gives us additional funds and time to support the Company's turnaround plan. We and our 85,000 loyal, hard-working employees thank our new lenders, our existing lenders, our bondholders and our vendors for the confidence they've shown in the future of Rite Aid," said Bob Miller, Rite Aid chairman and chief executive officer. Rite Aid's refinancing includes a new syndicated $1 billion senior secured credit facility led by agent Citibank, N.A., which will provide approximately $640 million in additional funds. The remainder of the facility was used to repay the Company's $300 million asset securitization facility and will be used to pay fees and expenses associated with the refinancing transactions. The new senior secured credit facility, which matures August 1, 2002, is secured by inventory, accounts receivable and certain other assets owned by Rite Aid subsidiaries. Also part of the refinancing is the modification of approximately $3.2 billion of existing indebtedness of Rite Aid, including approximately $2.2 billion of debt led by agent bank J.P. Morgan and held by banks and other financial institutions, which will now mature August 15, 2002; $213 million of obligations under synthetic leases; and a total of $467.5 million of 5.5% notes due in 2000 and 6.7% notes due in 2001, approximately $374.3 million of which have been exchanged and approximately $93.2 million of which the Company has arranged to have refinanced for new 10.5% Senior Secured Notes due September 15, 2002. In exchange for the extensions and modifications, all of the modified debt, including the bank debt and the new notes, is secured by a second lien on the collateral securing the new $1 billion senior secured credit facility. The Company also said that as part of the refinancing, $285 million of its existing bank debt has been converted into Rite Aid common stock at a price of $5.50 per share. J.P. Morgan, one of the Company's principal lenders, has converted $200 million of that debt into equity, while 12 other financial institutions have converted $85 million of that debt into equity. 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 in the forward-looking statements. Factors that could cause actual results to differ materially from those expressed or implied in such forward-looking statements include the preparation of restated historic finan cial statements, final audit adjustments, completion of the SEC's review of the Company's financial reporting, the outcome of certain litigation against, and governmental investigations regarding, the Company, and the impact of possible asset sales or other corporate transactions which the Company is currently consider ing 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 market for pharmaceuticals, availability of real estate, construction and start-up of drugstore and distribution center facilities. Conse quently, all of the forward-looking statements made in this press release are quali fied 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. Investors: Dave Jessick (717) 975-5750 Media: Sara Datz (717) 975-5718 -----END PRIVACY-ENHANCED MESSAGE-----