-----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, Ez7igvqOI+ktTuE5KiMebOjEt0KhKQFsP1Rkx74+InlapYcIuDZdhkpueebf7BT2 TPXNL3qPY/gSHxccy78XFQ== 0000950172-99-001508.txt : 19991103 0000950172-99-001508.hdr.sgml : 19991103 ACCESSION NUMBER: 0000950172-99-001508 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991027 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19991102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RITE AID CORP CENTRAL INDEX KEY: 0000084129 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 231614034 STATE OF INCORPORATION: DE FISCAL YEAR END: 0302 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-05742 FILM NUMBER: 99739720 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 8-K 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 October 27, 1999 --------------------------------- (Date of earliest event reported) Rite Aid Corporation ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 1-5742 23-1614034 ------------------------ --------------------- ------------------- (State of Incorporation) (Commission File No.) (IRS Employer Identification No.) 30 Hunter Lane, Camp Hill, Pennsylvania 17011 ------------------------------------------------------------- (Address of principal executive offices, including zip code) (717) 761- 2633 ------------------------------------------------------------- (Registrant's telephone number, including area code) N/A ------------------------------------------------------------- (Former name or former address, if changed since last report) Item 5. Other Events. Equity Investment On October 27, 1999 (the "Closing Date"), Rite Aid Corporation ("Rite Aid") issued and sold to Green Equity Investors III, L.P. ("GEI") 3,000,000 shares of Rite Aid's 8% Series A Cumulative Convertible Pay-in- Kind Preferred Stock, par value $1.00 per share (the "Series A Convertible Preferred Stock"), at a purchase price of $100 per share, for an aggregate purchase price of $300,000,000 (the "Equity Investment"). At any time after the expiration or termination of any applicable waiting period under the Hart-Scott Rodino Antitrust Act of 1976, the Series A Convertible Preferred Stock is convertible into Rite Aid's Common Stock, par value $1.00 per share (the "Common Stock"), at a current conversion price of $11.00 per share (subject to certain adjustments). Each share of Series A Convertible Preferred Stock will be exchangeable, either at the option of Rite Aid or all holders of such shares, for one share of a series of Rite Aid's preferred stock (the "Series B Convertible Preferred Stock") with substantially the same terms as the Series A Convertible Preferred Stock, except that the Series B Convertible Preferred Stock will have certain voting rights. The holders of Series B Convertible Preferred Stock will vote with holders of Common Stock and each holder of Series B Convertible Preferred Stock will have one vote for each share of Common Stock issuable upon conversion of such holder's Series B Convertible Preferred Stock. The holders of Series B Convertible Preferred Stock will also be entitled to vote separately as a class to elect two directors to the Board of Directors of Rite Aid. The Series A Convertible Preferred Stock accrues dividends at a rate of 8% per annum, such dividends payable in cash or in additional shares of Series A Convertible Preferred Stock at the option of Rite Aid, subject to the restriction on paying cash dividends in the financial covenants of Rite Aid's banking facilities. The initial conversion price will be reset (1) in the event that prior to October 27, 2000, Rite Aid issues shares of its Common Stock at a sale price lower than the then current conversion price, to such lower sale price and (2) on March 1, 2001, to the lowest average price (but not less than $7.50) of Rite Aid's Common Stock during any consecutive three-month period from October 27, 1999 through February 28, 2001 if such average price is lower than the then current conversion price or, if not lower, to $11.50 (assuming no other adjustment). Rite Aid may redeem the Series A Convertible Preferred Stock after October 24, 2004 at a price equal to $105 per share (subject to certain adjustments) plus accrued and unpaid dividends to the date of redemption. In connection with the Equity Investment, Rite Aid granted to GEI certain registration rights with respect to the Series A Convertible Preferred Stock and the Common Stock into which it is convertible, pursuant to the terms of a Registration Rights Agreement, dated as of October 27, 1999, by and between Rite Aid and GEI (the "GEI Registration Rights Agreement"). Rite Aid has appointed Leonard Green and Jonathan Sokoloff to serve on the Board of Directors of Rite Aid. Mr. Green will also become a member of both the executive committee and the audit committee of the Board of Directors. On the Closing Date, Rite Aid paid a fee of $3,000,000 to Leonard Green & Partners, the general partner of GEI, as a placement fee for the Equity Investment. Rite Aid has also agreed to pay Leonard Green & Partners a consulting fee of $1,000,000 on each of the first, second and third anniversaries of the Closing Date. The consideration for the Equity Investment was arrived at through arm's-length negotiation. A committee of independent directors of the Board of Directors of Rite Aid authorized and approved the terms of the Equity Investment. The foregoing description of the Equity Investment contained in this Form 8-K is a brief summary of the terms related thereto but does not purport to be complete. This summary is qualified in its entirety by reference to the Restated Certificate of Incorporation, the GEI Registration Rights Agreement and the Commitment Letter, dated October 18, 1999, by and between Rite Aid and GEI, copies of which are attached as exhibits hereto and incorporated by reference herein. Extended and Restructured Bank Facilities and Issuance of the Warrant On the Closing Date, Rite Aid entered into a series of agreements (the "Credit Agreements") extending and restructuring all $2,700,000,000 of its outstanding banking facilities. Rite Aid entered into a Term Loan Agreement, dated as of October 27, 1999 (the "Term Loan Agreement"), with Morgan Guaranty Trust Company of New York ("MGT"), as Administrative Agent, along with other banks. Pursuant to the Term Loan Agreement, Rite Aid may borrow up to $1,300,000,000 under this bank facility. Rite Aid also entered into an Amended and Restated Credit Agreement, dated as of October 27, 1999 (the "Amended and Restated Credit Agreement"), with MGT, as Agent, along with other banks. Pursuant to the Amended and Restated Credit Agreement, Rite Aid may borrow up to $1,300,000,000 under this bank facility. The Amended and Restated Credit Agreement extends the maturity of (1) $1,000,000,000 of Rite Aid's bank debt originally scheduled to mature on October 29, 1999 and (2) $300,000,000 of its bank debt originally due on demand, in both cases to November 1, 2000. The Amended and Restated Credit Agreement also amends financial covenants in Rite Aid's bank facilities to be consistent with Rite Aid's current business plans. In order to secure Rite Aid's obligations under the Credit Agreements, as well as under other existing lines of credit, Rite Aid has pledged to MGT, as agent for the benefit of certain banks acting as lenders to Rite Aid, Rite Aid's interests in each of PCS Holding Corporation and drugstore.com, inc. Rite Aid paid approximately $30,000,000 in aggregate fees in connection with the closing of the Credit Agreements. This amount includes all fees paid to the lenders and financial advisors under the Credit Agreements (the "Lending Syndicate"). In addition, this amount includes fees paid to lenders involved with certain other of Rite Aid's bank facilities that were, by the terms of those facilities, entitled to fees commensurate with the fees paid to the Lending Syndicate. In connection with Rite Aid's extending and restructuring of its banking facilities, Rite Aid issued a warrant, dated October 27, 1999 (the "Warrant"), to J. P. Morgan Ventures Corporation ("J. P. Morgan Ventures") to purchase 2,500,000 shares of Rite Aid's Common Stock. The exercise price for the Common Stock is $11.00 per share (subject to certain adjustments), and the Warrant will expire on September 23, 2002. Rite Aid has also granted J. P. Morgan Ventures registration rights with respect to the shares of Common Stock issuable upon exercise of the Warrant pursuant to the terms of a Registration Rights Agreement, dated as of October 27, 1999, by and between Rite Aid and J. P. Morgan Ventures (the "J. P. Morgan Registration Rights Agreement"). The foregoing description of the Credit Agreements and the Warrant contained in this Form 8-K is a brief summary of the provisions contained in the various agreements and documents in connection therewith but does not purport to be complete. This summary is qualified in its entirety by reference to the Term Loan Agreement, the Amended and Restated Credit Agreement, the Pledge Agreement, the PCS Junior Pledge Agreement, the J. P. Morgan Registration Rights Agreement and the Warrant attached as exhibits hereto and incorporated herein by reference. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (c) Exhibit No. Description 3 Restated Certificate of Incorporation. 4.1 Registration Rights Agreement, dated as of October 27, 1999, by and between Rite Aid Corporation and Green Equity Investors III, L.P. 4.2 Registration Rights Agreement, dated as of October 27, 1999, by and between Rite Aid Corporation and J.P. Morgan Ventures Corporation. 4.3 Warrant to purchase Common Stock, par value $1.00 per share, of Rite Aid Corporation, dated October 27, 1999, issued to J.P. Morgan Ventures Corporation. 10.1 Commitment Letter, dated October 18, 1999, by and between Rite Aid Corporation and Green Equity Investors III, L.P. 10.2 Term Loan Agreement, dated as of October 27, 1999, by and among Rite Aid Corporation, the banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent. 10.3 Amended and Restated Credit Agreement, dated as of October 27, 1999, by and among Rite Aid Corporation, the banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Agent. 10.4 Pledge Agreement, dated as of October 25, 1999, by and between Rite Aid Corporation and Morgan Guaranty Trust Company of New York, as Agent. 10.5 PCS Junior Pledge Agreement, dated as of October 19, 1999, by and between Rite Aid Corporation and Morgan Guaranty Trust Company of New York, as Agent. 99 Press release issued by Rite Aid Corporation on October 27, 1999. 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 hereto duly authorized. DATE: November 2, 1999 RITE AID CORPORATION By: /s/ Elliot S. Gerson --------------------------------------- Name: Elliot S. Gerson Title: Senior Executive Vice President, General Counsel and Secretary EX-3.(I) 2 EXHIBIT 3 - RESTATED CERTIFICATE OF INCORPORATION Exhibit 3(i) RESTATED CERTIFICATE OF INCORPORATION OF RITE AID CORPORATION Rite Aid Corporation, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is Rite Aid Corporation and the corporation was originally incorporated under the same name. The original Certificate of Incorporation of Rite Aid Corporation was filed April 15, 1968. 2. This Restated Certificate of Incorporation merely restates and integrates and does not further amend the provisions of the Certificate of Incorporation of the corporation, as amended or supplemented, and there is no discrepancy between the provisions of the Certificate of Incorporation, as amended, and this Restated Certificate of Incorporation. 3. This Restated Certificate of Incorporation has been duly adopted by the Board of Directors of the corporation in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware. 4. The text of the Restated Certificate of Incorporation as heretofore amended or supplemented is hereby restated to read in its entirety as follows: FIRST: The name of this Corporation (hereinafter called the "corporation") is RITE AID CORPORATION. SECOND: The address, including street, number, city, and county, of the registered office of the corporation in the State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle; and the name of the registered agent of the corporation in the State of Delaware at such address is The Prentice-Hall Corporation System, Inc. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "General Corporation Law"): FOURTH: The total number of shares of stock which the corporation shall have authority to issue shall be three hundred twenty million (320,000,000) shares of which three hundred million (300,000,000) shares shall be Common Stock of the par value of $1.00 per share, and twenty million (20,000,000) shares shall be Preferred Stock of the par value of $1.00 per share. The designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of each class of stock are as follows: A. The Preferred Stock may be issued in one or more series and may be with such voting powers, full or limited, or without voting powers, and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be fixed by the Board of Directors pursuant to authority hereby expressly granted to it, and as shall be stated and expressed in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors pursuant to authority expressly vested in it by these provisions. B. Any Preferred Stock or series thereof may be made subject to redemption at such time or times and at such price or prices as shall be stated and expressed in the resolutions or resolutions providing for the issue of such stock adopted by the Board of Directors as hereinabove provided. C. The holders of Preferred Stock or of any series thereof shall be entitled to receive dividends at such rates, on such conditions and at such times as shall be stated and expressed in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors as hereinabove provided, payable in preference to, or in such relation to, the dividends payable on any other class or classes of stock, or cumulative or non-cumulative as shall be so stated and expressed. D. The holders of Preferred Stock or of any class or of any series thereof, shall be entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the corporation as shall be stated and expressed in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors as hereinabove provided. E. Any Preferred Stock of any class or of any series thereof may be made convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or of any other class or classes of stock of the corporation, or shares of any class or series of stock of any other corporation, at such price or prices or at such rates of exchange and with such adjustments as shall be stated and expressed or provided for in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors as hereinabove provided. F. Except as otherwise by statute or by the resolutions providing for the issue of Preferred Stock specifically provided, the Preferred Stock and the Common Stock shall each have the right and power to vote on all matters on which a vote of stockholders is to be taken. Each holder of Preferred Stock and each holder of Common Stock of the corporation entitled to vote shall have one vote for each share thereof held. FIFTH: The name and the mailing address of the incorporator is as follows: Lawrence P. Lavan, 61 Broadway, New York, New York 10006. SIXTH: The corporation is to have perpetual existence. SEVENTH: Whenever a compromise or arrangement is proposed between the corporation and its creditors or any class of them and/or between the corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the corporation, or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the corporation under the provisions of Section 291 of the General Corporation Law or on the application of trustees in dissolution or of any receiver or receivers appointed for the corporation under the provisions of Section 279 of the General Corporation Law order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the stockholders or class of stockholders, of the corporation, as the case may be, and also on the corporation. EIGHTH: For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation and of its directors and stockholders, or any class thereof, as the case may be, it is further provided: 1. The management of the business and the conduct of the affairs of the corporation, including the election of the Chairman of the Board of Directors, if any, the President, the Treasurer, the Secretary, and other principal officers of the corporation, shall be vested in its Board of Directors. The number of Directors of the corporation shall be fixed by the By-Laws of the corporation and may be altered from time to time as provided therein, but in no event shall the number of directors of the corporation be less than three nor more than fifteen. A director shall be elected to hold office until the expiration of the term for which such person is elected, and until such person's successor shall be duly elected and qualified. The directors of the corporation shall be divided into three classes, as nearly equal in number as possible, designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the annual meeting of stockholders to be held in 1977; the term of office of the initial Class II directors shall expire at the annual meeting of stockholders to be held in 1978; and the term of office of the initial Class III directors shall expire at the annual meeting of stockholders to be held in 1979. At each annual meeting of stockholders commencing with the annual meeting to be held in 1977 for the purpose of electing a class of directors, persons shall be elected to hold office as such class of directors for a period of three years and until the third succeeding annual meeting of stockholders following the meeting at which they are elected. When the number of directors is changed, any newly created directorships or any decrease in directorships shall be so apportioned among the classes so as to make all classes as nearly equal in number as possible. Any vacancies created in the Board of Directors through increase in the number of directors or otherwise, may be filled in accordance with the By-Laws of the corporation and the applicable laws of the State of Delaware. Election of directors need not be by written ballot. 2. The original By-Laws of the corporation shall be adopted by the incorporator. Thereafter, the power to make, alter, or repeal the ByLaws, and to adopt any new By-Law, except a By-Law classifying directors for election for staggered terms, shall be vested in the Board of Directors. 3. Whenever the corporation shall be authorized to issue more than one class of stock, one or more of which is denied voting power, no outstanding share of any class of stock which is denied voting power under this Certificate of Incorporation shall entitle the holder thereof to notice of, and the right to vote, at any meeting of stockholders except as the provisions of paragraph (b)(2) of Section 242 of the General Corporation Law and of Section 251, 252, and 253 of the General Corporation Law shall otherwise require; provided, that no share of any such class which is otherwise denied voting power shall entitle the holder thereof to vote upon the increase or decrease in the number of authorized shares of said class. 4. In lieu of taking any permissive or requisite action by vote at a meeting of stockholders, any such vote and any such meeting may be dispensed with if either all of the stockholders entitled to vote upon the action at any such meeting shall consent in writing to any such corporate action being taken or if less then all of the stockholders entitled to vote upon the action at any such meeting shall consent in writing to any such corporate action being taken; provided, that any such action taken upon less than the unanimous written consent of all stockholders entitled to vote upon any such action shall be by the written consent of the stockholders holding at least the minimum percentage of the votes required to be cast to authorize any such action under the provisions of the General Corporation Law or under the provisions of this Certificate of Incorporation or the By-Laws as permitted by the provisions of the General Corporation Law; and, provided, that prompt notice be given to all stockholders entitled to vote on any such action or the taking of such action without a meeting and by less than unanimous written consent. NINTH: No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or a committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (a) The material facts as to his interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by a vote sufficient for such purpose without counting the vote of the interested director or directors; or (b) The material facts as to his interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. TENTH: A. Modification of Certain Liability of Directors. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law, as so amended. Any repeal or modification of this Section A or B by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. B. Indemnification and Insurance. (1) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer shall be indemnified and held harmless by the corporation to the fullest extent authorized by the General Corporation Law as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in paragraph (2) of this Section B with respect to proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Section B shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that if the General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to any employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the corporation of an undertaking by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section B or otherwise. (2) Right of Claimant to Bring Suit. If a claim under paragraph (1) of this Section B is not paid in full by the corporation within the thirty days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (3) Non Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section B shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Certificate of Incorporation, By-Law, agreement, vote of stockholders or disinterested directors or otherwise. (4) Insurance. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law. ELEVENTH: From time to time any of the provisions of this Certificate of Incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said law, and all rights at any time conferred upon the stockholders of the corporation by this Certificate of Incorporation are granted subject to the provisions of this Article ELEVENTH. TWELFTH: A. As used in this Article TWELFTH: (1) "Affiliate" and "Associate" shall be determined pursuant to Rule 12b-2 (or any successor rule) of the General Rules and Regulations under the Securities Exchange Act of 1934; (2) "Beneficial Ownership" shall be determined pursuant to Rule 13d-3 (or any successor rule) of the General Rules and Regulations under the Securities Exchange Act of 1934 and shall include: (i) shares of stock which a Person has the right to acquire, hold or vote pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants, options or otherwise; and (ii) shares of stock which are beneficially owned, directly or indirectly (including shares deemed owned through application of the foregoing clause (i)), by any Person (a) with which it or its Affiliate or Associate has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of shares of stock of the corporation or (b) which is its Affiliate or Associate; (3) "Business Combination" shall include: (i) any merger or consolidation of the corporation with or into any other Related Person; (ii) the sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Related Person of any assets of the corporation or any subsidiary thereof having an aggregate fair market value of $15,000,000 or more; (iii) the issuance or transfer by the corporation or any subsidiary thereof (in one transaction or a series of transactions) of any securities of the corporation or any subsidiary thereof to any Related Person in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $15,000,000 or more; (iv) the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by or on behalf of any Related Person; or (v) any reclassification or recapitalization of securities of the corporation if the effect, directly or indirectly, of such transaction is to increase the relative voting power of any Related Person; (4) "Continuing Director" shall mean a member of the Board of Directors of the corporation who was not affiliated with the Related Person and was a member of the Board of Directors prior to the time that the Related Person acquired the last shares of stock of the corporation entitling such Related Person to exercise, in the aggregate, in excess of ten percent (10%) of the total voting power of all classes of stock of the corporation entitled to vote in elections of directors, or a Person recommended to succeed a Continuing Director by a majority of Continuing Directors; (5) "Person" shall include any individual, corporation, partnership, person or other entity; and (6) "Related Person" shall mean any Person, together with any Affiliate or Associate of such Person, which has Beneficial Ownership, directly or indirectly, of shares of stock of the corporation entitling such Person to exercise more than ten percent (10%) of the total voting power of all classes of stock of the corporation entitled to vote in elections of directors, considered for the purposes of this Article TWELFTH as one class, together with the successors and assigns of any such Person in any transaction or series of transactions not involving a public offering of the corporation's stock within the meaning of the Securities Act of 1933. B. Unless the conditions set forth in subparagraphs (1) or (2) of this paragraph B are satisfied, the affirmative vote of not less than seventy-five percent (75%) of the outstanding shares of stock of the corporation entitled to vote in elections of directors, considered for the purposes of this Article TWELFTH as one class, shall be required for the adoption or authorization of a Business Combination with any Related Person. Such affirmative vote shall be required notwithstanding the fact that no vote, or a lesser percentage, may be required by law or in any agreement with any national securities exchange or otherwise, but such vote shall not be applicable if: (1) The definitive agreement or other arrangements to effectuate a Business Combination with a Related Person are approved by a majority of the Continuing Directors; such determination shall be made by a majority of the Continuing Directors even if such majority does not constitute a quorum of the members of the Board of Directors then in office; or (2) All of the following conditions are satisfied: (i) The cash and fair market value of the property, securities or other consideration (including, without limitation, stock of the corporation retained by its existing public stockholders in the event of a Business Combination in which the corporation is the surviving corporation) to be received per share by the holders of each class or series of stock of the corporation in a Business Combination with a Related Person is not less than the highest per share price (including brokerage commissions and/or soliciting dealers' fees) paid by such Related Person in acquiring any shares of such class or series, respectively; (ii) The consideration to be received by holders of a particular class of securities shall be in cash or in the same form as the Related Person has previously paid for shares of such class of stock. If the Related Person has paid for shares of any class of stock with varying forms of consideration, the form of consideration for such class of stock shall be either cash or the form used to acquire the largest number of shares of such class of stock previously acquired by it; (iii) After a Person has become a Related Person and prior to the consummation of a Business Combination, except as approved by a majority of the Continuing Directors, there shall have been no reduction in the annual rate of dividends paid on shares of stock of the corporation (except as necessary to reflect any subdivision of such shares); (iv) The Related Person shall not have (a) received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the corporation, or (b) made any major change in the corporation's business or equity capital structure without the approval of a majority of the Continuing Directors, in either case prior to the consummation of the Business Combination; and (v) A proxy statement complying with the requirements of the Securities Exchange Act of 1934 shall be mailed to public stockholders of the corporation for the purpose of soliciting stockholder approval of the Business Combination and shall contain at the front thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the Business Combination which the Continuing Directors, or any of them, may choose to state and, if deemed advisable by a majority of the Continuing Directors, an opinion of a reputable investment banking firm as to the fairness (or not) of the terms of such Business Combination, from the point of view of the remaining public stockholders of the corporation (such investment banking firm to be selected by a majority of the Continuing Directors and to be paid a reasonable fee for their services by the corporation upon receipt of such opinion). The provisions of this Article TWELFTH shall also apply to a Business Combination with any Person which at any time has been a Related Person, notwithstanding the fact that such Person is no longer a Related Person, if, at the time the definitive agreement or other arrangements relating to a Business Combination with such Person was entered into, it was a Related Person or if, as of the record date for the determination of stockholders entitled to notice of and to vote on the Business Combination, such Person is an Affiliate of the corporation. C. A majority of the Continuing Directors shall have the power and duty, consistent with their fiduciary obligations, to determine for the purposes of this Article TWELFTH, on the basis of information known to them, (1) whether any Person is a Related Person; (2) whether any Person is an Affiliate or Associate of another; (3) whether any Person has an agreement, arrangement, or understanding with another; or (4) the fair market value of property, securities or other consideration (other than cash) to be received by holders of shares of stock of the corporation. The good faith determination of a majority of the Continuing Directors on such matters shall be binding and conclusive for purposes of this Article TWELFTH. D. Any corporation action which may be taken by the written consent of stockholders entitled to vote upon such action pursuant to Article EIGHTH Section 4 of this Certificate of Incorporation or pursuant to the General Corporation Law shall be only by the written consent of holders of not less than seventy-five percent (75%) of the shares of stock of the corporation entitled to vote thereon, notwithstanding the fact that a lesser percentage may be required by law or otherwise. E. Any corporate action which may be taken at a special meeting of stockholders called by the Board of Directors, a majority of which Board are not Continuing Directors, shall be only by the affirmative vote of the holders of not less than seventy-five percent (75%) of the outstanding shares of stock of the corporation entitled to vote in elections of directors, considered for purposes of this Article TWELFTH as one class, notwithstanding the fact that a lesser percentage may be required by law or otherwise. F. Notwithstanding any other provision contained in this Certificate of Incorporation, any action by stockholders to amend this Certificate of Incorporation or the By-Laws of the corporation shall be made at a meeting of the stockholders called for that purpose and not by written consent. G. No amendments to this Certificate of Incorporation of the corporation shall amend, alter, change or repeal any of the provisions of this Article TWELFTH, unless the amendment effecting such amendment, alteration, change or repeal shall receive the affirmative vote of not less than seventy-five percent (75%) of the shares of stock of the corporation entitled to vote in elections of directors, considered for the purposes of this Article TWELFTH as one class; provided that this paragraph G shall not apply to, and such seventy-five percent (75%) vote shall not be required for, any amendment, alteration, change or repeal recommended to the stockholders by a majority of the Continuing Directors. H. Nothing contained in this Article TWELFTH shall be construed to relieve the Board of Directors or any Related Person from any fiduciary obligation imposed by law. IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed by Elliot S. Gerson, its authorized officer, this 12th day of December, 1996. By: /s/ Elliot S. Gerson --------------------------------------- Title: Senior Vice President Exhibit 3(ii) CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF RITE AID CORPORATION ------------------------------------------ Pursuant to Section 242 of the General Corporation Law of the State of Delaware ------------------------------------------ Rite Aid Corporation, a Delaware corporation (hereinafter called the "Corporation"), does hereby certify as follows: FIRST: The first paragraph of Article FOURTH of the Corporation's Restated Certificate of Incorporation is hereby amended to read in its entirety as set forth below: "FOURTH: The total number of shares of stock which the corporation shall have authority to issue shall be six hundred twenty million (620,000,000) shares of which six hundred million (600,000,000) shares shall be Common Stock of the par value of $1.00 per share, and twenty million (20,000,000) shares shall be Preferred Stock of the par value of $1.00 per share." SECOND: This amendment to the Restated Certificate of Incorporation was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Rite Aid Corporation has caused this Certificate to be duly executed in its corporate name this 22nd day of February, 1999. RITE AID CORPORATION By: /s/ Elliot S. Gerson ------------------------------- Name: Elliot S. Gerson Title: Executive Vice President and Secretary Exhibit 3(iii) CERTIFICATE OF DESIGNATION OF 8% SERIES A CUMULATIVE CONVERTIBLE PAY-IN-KIND PREFERRED STOCK OF Rite Aid Corporation _________________________ Pursuant to Section 151 of the General Corporation Law of the State of Delaware _________________________ Rite Aid Corporation (the "Company"), a corporation organized and existing under the General Corporation Law of the State of Delaware, certifies that pursuant to the authority contained in Article Fourth of its Restated Certificate of Incorporation (the "Certificate of Incorporation") and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Company, at a meeting duly called and held on October 18, 1999 duly approved and adopted the following resolution which resolution remains in full force and effect on the date hereof: RESOLVED, that, pursuant to the authority vested in the Board of Directors by the Certificate of Incorporation, the Board of Directors does hereby designate, create, authorize and provide for the issuance of 8% Series A Cumulative Convertible Pay-in-Kind Preferred Stock (the "Series A Preferred Stock"), par value $1.00 per share, with a liquidation preference of $100 per share at the time of initial issuance, initially consisting of 3,000,000 shares, which number may be increased from time to time by the Board of Directors upon any issuance of Series A Preferred Stock in accordance with Section 3 of this Certificate of Designation, having the following voting powers, preferences and relative, optional and other special rights, and qualifications, limitations and restrictions thereof as follows: 1. Certain Definitions. Unless the context otherwise requires, the terms defined in this Section 1 shall have, for all purposes of this resolution, the meanings herein specified (with terms defined in the singular having comparable meanings when used in the plural). "Board of Directors" means the Board of Directors of the Company or any authorized committee of the Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Closing Price" means, with respect to any securities on any day, the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the New York Stock Exchange, or, if such security is not listed or admitted to trading on such exchange, on the principal national securities exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similarly generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose. "Common Stock" means the common stock, par value $1.00 per share, of the Company. "Common Stock Sale Price" means, the most recent price per share at which the Company shall have issued and sold its Common Stock from the Issue Date through the first anniversary of the Issue Date other than pursuant to an Excluded Transaction. For purposes of this definition, sales of securities which are convertible into Common Stock or issuances of options or warrants to purchase Common Stock shall be treated as sales of Common Stock at the conversion price on the date of issuance of the convertible security or the price at which the option or warrant may be exercised on the date of the issuance of the option or warrant, as the case may be. "Conversion Price" means (a) at any time prior to March 1, 2001, the lowest of (i) $11.00, (ii) the applicable Common Stock Sale Price or (iii) the then applicable Conversion Price and (b) on and after March 1, 2001, (x) if any Three-Month Average Price is less than the Conversion Price as of the end of the day on February 28, 2001, the greater of (1) the lowest Three-Month Average Price or (2) $7.50 and (y) if the Conversion Price as of the end of the day on February 28, 2001 is equal to or less than the lowest Three-Month Average Price, the lower of $11.50 or the lowest of any Common Stock Sale Price; provided, however, that in the event of any adjustment to the Conversion Price pursuant to section 6(c) hereof prior to March 1, 2001, each and every aspect of this definition shall be proportionately adjusted. "DGCL" means the Delaware General Corporation Law. "Dividend Payment Date" has the meaning set forth in Section 3(a) below. "Dividend Rate" means 8.00% per annum. "Excluded Transaction" means (i) the exercise of options or warrants existing as the Issue Date, (ii) the exercise of warrants to purchase up to 2,500,000 shares of Common Stock (subject to certain anti- dilution provisions) issued on or about the Issue Date, (iii) the issuance of options to purchase Common Stock granted or to be granted to any employees or directors of the Company under a stock option plan and the exercise thereof, (iv) the settlement of any stock appreciation rights by the issuance of Common Stock and (v) the issuance of Common Stock in connection with the acquisition by the Company of all or a substantial portion of the assets or Capital Stock of any Person. "Holder" means the record holder of one or more shares of Series A Preferred Stock, as shown on the books and records of the Company. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Issue Date" means the first date on which any shares of Series A Preferred Stock are issued. "Junior Securities" has the meaning set forth in Section 2 below. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. "Liquidation Date" has the meaning set forth in Section 4(a) below. "Liquidation Preference" means, as of any date and subject to adjustment based on stock splits, subdivisions or combinations with respect to the Series A Preferred, $100 plus unpaid dividends with respect to any preceding Dividend Payment Date, as if the same had been paid on such date, at the Dividend Rate. "Optional Redemption Price" has the meaning set forth in Section 5(a) below. "Parity Securities" has the meaning set forth in Section 2 below. "Partial Dividend Period Amount" means, as of any applicable date, with respect to any Series A Preferred Stock, an amount equal to the amount of dividends that would accrue at the Dividend Rate on the Liquidation Preference of such Series A Preferred Stock on a daily basis from the last Dividend Payment Date to and including such applicable date. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Record Date" has the meaning set forth in Section 3(a) below. "Redemption Date" has the meaning set forth in Section 5(c) below. "Senior Security" has the meaning set forth in Section 2 below. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Three-Month Average Price" means the average Closing Price of the Common Stock for the Trading Days during any consecutive 90-day period from the Issue Date through February 28, 2001. "Trading Day" means (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for business or (y) if the applicable security is quoted on the Nasdaq National Market, a day on which trade may be made on the Nasdaq National Market or (z) if the applicable security is not otherwise listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. 2. Ranking. The Series A Preferred Stock shall, with respect to dividend rights and distributions upon the liquidation, winding-up or dissolution of the Company, rank (i) senior to all classes of Common Stock of the Company and to each other class of Capital Stock or series of preferred stock established after the Issue Date by the Board of Directors, the terms of which do not expressly provide that it ranks senior to or on a parity with the Series A Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to with the Common Stock of the Company as "Junior Securities"); (ii) subject to Section 7(b) hereof, on a parity with any additional shares of Series A Preferred Stock issued by the Company in the future in accordance with Section 3 hereof and any other class of Capital Stock or series of preferred stock established after the Issue Date by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Series A Preferred Stock as to dividend distributions and distributions upon the liquidation, winding- up and dissolution of the Company, including but not limited to the Series B Preferred Stock (as defined in Section 8 hereof) (collectively referred to as "Parity Securities") and (iii) subject to Section 7(b) hereof, junior to any additional shares of Series A Preferred Stock issued by the Company in the future and any other class of Capital Stock or series of preferred stock established after the Issue Date by the Board of Directors, the terms of which expressly provide that such class or series will rank senior to the Series A Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Senior Securities"). 3. Dividends. a. The Holders of shares of the Series A Preferred Stock shall be entitled to receive, when, as and if dividends are declared by the Board of Directors out of funds of the Company legally available therefor, cumulative preferential dividends, accruing from the date of issuance at the Dividend Rate on the Liquidation Preference and payable quarterly in arrears on each March 31, June 30, September 30 and December 31 or, if any such date is not a Business Day, on the next succeeding Business Day (each, a "Dividend Payment Date"), to the Holders of record as of the next preceding March 15, June 15, September 15 and December 15 (each, a "Record Date"). Dividends shall be payable, at the option of the Company, either (i) in cash, (ii) by issuance of additional shares of Series A Preferred Stock (including fractional shares) having an aggregate Liquidation Preference equal to the amount of the dividend to be paid, or (iii) any combination thereof. All dividends paid with respect to shares of Series A Preferred Stock, whether in cash or shares of Series A Preferred Stock, pursuant to this Section 3 shall be made pro rata among the Holders based upon the aggregate accrued but unpaid dividends on the shares held by each such Holder. If and when any shares are issued under this Section 3(a) for the payment of accrued dividends, such shares shall be validly issued and outstanding and fully paid and nonassessable and shall initially have a Conversion Price equal to that of the Series a Preferred Stock with respect to which it is issued. The first dividend payment shall be payable on December 31, 1999. Dividends payable on the Series A Preferred Stock shall be computed on the basis of a 360-day year consisting of twelve 30-day months and shall be deemed to accumulate on a daily basis. b. To the extent not paid pursuant to Section 3(a) above, dividends on the Series A Preferred Stock shall accumulate, whether or not there are funds legally available for the payment of such dividends and whether or not dividends are declared. For all purposes hereunder, dividends on the Series A Preferred Stock shall be treated as if the same were paid on the relevant Dividend Payment Date, whether or not the same were in fact so paid or declared. c. Holders of the Series A Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of the full cumulative dividends as herein described. Unless full cumulative dividends on all outstanding shares of Series A Preferred Stock for all past dividend periods shall have been declared and paid in cash or by the issuance of additional shares of Series A Preferred Stock, or declared and a sufficient sum for the payment thereof set apart, then: (i) no dividend (other than a dividend payable solely in Junior Securities) shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any shares of Junior Securities; (ii) no other distribution shall be declared or made upon, or any sum set apart for the payment of any distribution upon, any shares of Junior Securities, other than a distribution consisting solely of Junior Securities; (iii) no shares of Junior Securities shall be purchased, redeemed or otherwise acquired or retired for value (excluding an exchange or conversion for shares of other Junior Securities) by the Company or any of its Subsidiaries; and (iv) no monies shall be paid into or set apart or made available for a sinking or other like fund for the purchase, redemption or other acquisition or retirement for value of any shares of Junior Securities by the Company or any of its Subsidiaries. d. In the case of shares of Series A Preferred Stock issued on the Issue Date, dividends shall accrue and be cumulative from such date. In the case of shares of Series A Preferred Stock issued as a dividend on shares of Series A Preferred Stock, dividends shall accrue and be cumulative from the Dividend Payment Date in respect of which such shares were issued or were scheduled to be paid pursuant to Section 3(a) hereof as a dividend. e. Each fractional share of Series A Preferred Stock outstanding (or treated as outstanding pursuant to Section 3(b) hereof) shall be entitled to a ratably proportionate amount of all dividends accruing with respect to each outstanding or due to be issued and outstanding share of Series A Preferred Stock pursuant to paragraph (a) of this Section 3, and all such dividends with respect to such outstanding fractional shares shall be cumulative and shall accrue (whether or not declared); and shall be payable in the same manner and at such times as provided for in paragraph (a) of this Section 3 with respect to dividends on each outstanding or due to be issued and outstanding share of Series A Preferred Stock. Each fractional share of Series A Preferred Stock outstanding shall also be entitled to a ratably proportionate amount of any other distributions made with respect to each outstanding or due to be issued and outstanding share of Series A Preferred Stock, and all such distributions shall be payable in the same manner and at the same time as distributions on each outstanding or due to be issued and outstanding share of Series A Preferred Stock. f. Accrued but unpaid dividends for any past dividend periods may be declared by the Board of Directors and paid on any date fixed by the Board of Directors, whether or not a regular Dividend Payment Date, to Holders of record on the books of the Corporation on such record date as may be fixed by the Board of Directors, which record date shall be no more than 60 days prior to the payment date thereof. 4. Distributions Upon Liquidation, Dissolution or Winding Up. Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company or reduction or decrease in its Capital Stock resulting in a distribution of assets to the holders of any class or series of the Company's Capital Stock (the date of such occurrence, the "Liquidation Date"), the Company shall, out of the assets of the Company available for distribution, make the following payments in respect of its Capital Stock: a. first, payments due in connection with the Senior Securities on the Liquidation Date, including any accumulated and unpaid dividends, if any, on such Senior Securities, to the Liquidation Date; b. second, on a pro rata basis, payments (i) on shares of the Series A Preferred Stock equal to the Liquidation Preference per share of Series A Preferred Stock held by or due to (as of such date pursuant to Section 3 hereof) such Holder, plus all Partial Dividend Period Amounts, if any, thereon to the Liquidation Date and (ii) due on Parity Securities; and c. third, payments on any Junior Securities, including, without limitation, the Common Stock. After payment in full in cash of the Liquidation Preference and all accumulated dividends, if any, to which Holders of Series A Preferred Stock are entitled, such Holders shall not be entitled to any further participation in any distribution of assets of the Company. 5. Redemption by the Company. a. From time to time, on and after October 25, 2004, the Company shall have the option to redeem (subject to the legal availability of funds therefor) all, or any part of, the outstanding (and due to be issued and outstanding as of such date pursuant to Section 3 hereof) shares of the Series A Preferred Stock at a price equal to 105% of the Liquidation Preference), plus the Partial Dividend Period Amount, if any, to the applicable Redemption Date (together, the "Optional Redemption Price"). b. In case of redemption of less than all of such shares of Series A Preferred Stock, the shares to be redeemed shall be selected pro rata or by other appropriate means. c. Notice of any redemption shall be sent by or on behalf of the Company not less than 30 nor more than 60 days prior to the date specified for redemption in such notice (the "Redemption Date"), by first class mail, postage prepaid, to all Holders of record of the Series A Preferred Stock at their last addresses as they shall appear on the books of the Company; provided, however, that no failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock except as to the Holder to whom the Company has failed to give notice or except as to the Holder to whom notice was defective. In addition to any information required by law, such notice shall state: (i) the Redemption Date; (ii) the Optional Redemption Price; (iii) the number of shares of Series A Preferred Stock to be redeemed and, if less than all shares held by such Holder are to be redeemed, the number of such shares to be redeemed; (iv) the place or places where certificates for such shares are to be surrendered for payment of the Optional Redemption Price; (v) the Conversion Price then in effect; (vi) that the Holder's right to convert such shares of into Common Stock shall terminate on the close of business on the fifth Business Day preceding such redemption date; and (vii) that dividends on the shares to be redeemed will cease to accumulate on the Redemption Date. Upon the mailing of any such notice of redemption, the Company shall become obligated to redeem at the time of redemption specified thereon all shares called for redemption. d. If notice has been mailed in accordance with Section 5(c) above and provided that on or before the Redemption Date specified in such notice, all funds necessary for such redemption shall have been set aside by the Company, separate and apart from its other funds in trust for the pro rata benefit of the Holders of the shares so called for redemption, so as to be, and to continue to be available therefor, then, from and after the Redemption Date, dividends on the shares of the Series A Preferred Stock so called for redemption shall cease to accumulate, and said shares shall no longer be deemed to be outstanding and shall not have the status of shares of Series A Preferred Stock, and all rights of the Holders thereof as stockholders of the Company (except the right to receive from the Company the Optional Redemption Price) shall cease. Upon surrender, in accordance with said notice, of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Company shall so require and the notice shall so state), such shares shall be redeemed by the Company at the Optional Redemption Price. e. Any deposit of funds with a bank or trust company for the purpose of redeeming Series A Preferred Stock shall be irrevocable except that any balance of monies so deposited by the Company and unclaimed by the Holders of the Series A Preferred Stock entitled thereto at the expiration of two years from the applicable Redemption Date shall be repaid, together with any interest or other earnings earned thereon, to the Company, and after any such repayment, the Holders of the shares entitled to the funds so repaid to the Company shall look only to the Company for payment without interest or other earnings; provided, however, that any funds deposited for the purpose of redeeming shares of Series A Preferred Stock which are subsequently converted in accordance with Section 6 hereof shall be repaid to the Company upon such conversion. 6. Conversion. a. At any time after the termination or expiration of any applicable waiting period under the HSR Act, holders of shares of Series A Preferred Stock shall have the right to convert any of such shares which have not been previously redeemed into fully paid, nonassessable shares of Common Stock. For the purpose of conversion, each share of Series A Preferred Stock shall be valued at the Liquidation Preference, which shall be divided by the Conversion Price in effect on the conversion date to determine the number of shares issuable upon conversion. In case any shares of Series A Preferred Stock are to be redeemed pursuant to Section 5 hereof or exchanged pursuant to Section 8 hereof, such right of conversion shall cease and terminate as to the shares of Series A Preferred Stock to be redeemed or exchanged at the close of business on the fifth Business Day preceding the date fixed for redemption or exchange, as the case may be, unless the Company shall default in the payment of the applicable redemption price or making available the Series B Preferred Stock prior to the close of business on the date fixed for redemption or exchange. b. Any Holder of shares of Series A Preferred Stock desiring to convert such shares into Common Stock shall surrender the certificate or certificates (unless such certificates have not yet been issued by the Company but are otherwise due such Holder pursuant to Section 3 hereof) evidencing such shares of Series A Preferred Stock at the office of the transfer agent (which may be the Company) for the Series A Preferred Stock, which certificate or certificates, if the Company shall so require, shall be duly endorsed to the Company or in blank, or accompanied by proper instruments of transfer to the Company or in blank, accompanied by (i) an irrevocable written notice to the Company that the Holder elects so to convert such shares of Series A Preferred Stock and specifying the name or names (with address or addresses) in which a certificate or certificates evidencing shares of Common Stock are to be issued, (ii) in the event that the Series A Preferred Stock is converted during the period from the close of business on any Record Date next preceding any Dividend Payment Date to the opening of business on such Dividend Payment Date, payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the Partial Dividend Period Amount (other than with respect to dividends to be paid-in-kind by the Company) that would accrue from the date of conversion to such Dividend Payment Date on the Series A Preferred Stock so converted and (iii) if required pursuant to Section 6(f), an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Company demonstrating that such taxes have been paid). In the event that a holder fails to notify the Company of the number of shares of Series A Preferred Stock which such Holder wishes to convert, such Holder shall be deemed to have elected to convert all shares represented by the certificate or certificates surrendered for conversion. Holders of shares of Series A Preferred Stock at the close of business on a Record Date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the conversion thereof following such Record Date and prior to such Dividend Payment Date. A Holder of shares of Series A Preferred Stock on a Record Date who (or whose transferee) tenders any such shares for conversion into shares of Common Stock on such Dividend Payment Date will receive the dividend payable by the Company on such shares of Series A Preferred Stock on such date; provided, however, in the case of a dividend to be paid-in-kind, the aggregate Liquidation Preference of the series A Preferred stock to be issued will be equal to the Partial Dividend Period Amount through the date of conversion. Except as provided for above, no payments or adjustments in respect of dividends on shares of Series A Preferred Stock surrendered for conversion or on account of any dividend on the Common Stock issued upon conversion shall be made upon the conversion of any shares of Series A Preferred Stock. The Company shall, as soon as practicable after such deposit of certificates (to the extent required above) evidencing shares of Series A Preferred Stock accompanied by the written notice and compliance with any other conditions herein contained, deliver at such office of such transfer agent to the person for whose account such shares of Series A Preferred Stock were so surrendered, or to the nominee or nominees of such person, certificates evidencing the number of full shares of Common Stock to which such person shall be entitled as aforesaid, together with a cash adjustment in respect of any fraction of a share of Common Stock as hereinafter provided. Subject to the following provisions of this paragraph, each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for shares of Series A Preferred Stock to be converted shall have been surrendered (to the extent required above) together with the irrevocable written notice and payment of taxes (if applicable) as provided for in clauses (i) and (ii) above, and the person or persons entitled to receive the Common Stock deliverable upon conversion of such Series A Preferred Stock shall be treated for all purposes as the record holder or holders of such Common Stock at such time on such date, unless the stock transfer books of the Company shall be closed on such date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such shares shall have been surrendered and such notice (and, if applicable, payment) received by the Company. Immediately following such conversion, the rights of the holders of converted Series A Preferred Stock shall cease. c. Adjustment of Conversion Price. The Conversion Price at which shares of Series A Preferred Stock are convertible into Common Stock shall be subject to adjustment from time to time, as follows: i. In case at any time after the date hereof, the Company shall pay or make a dividend or other distribution on all or any portion of its Common Stock or shall make a dividend or other distribution on any other class of Capital Stock of the Company which dividend or distribution includes Common Stock, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be decreased by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such decrease to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (i), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip Common Stock. If any dividend or distribution of the type described in this Section 6(c)(i) is declared but not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. ii. In case at any time after the date hereof, the Company shall pay or make a dividend or other distribution on all of its Common Stock consisting of, or shall otherwise issue to all holders of its Common Stock, rights, warrants or options (not being available on an equivalent basis to Holders of the Series A Preferred Stock upon conversion) entitling the holders of its Common Stock to subscribe for or purchase Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (viii) of this Section 6(c)) of the shares of Common Stock on the date fixed for the determination of stockholders entitled to receive such rights, warrants or options (other than pursuant to a dividend reinvestment plan), the Conversion Price in effect at the opening of business on the day following the date fixed for such determination shall be decreased by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such decrease to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (ii), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but will include shares issuable in respect of scrip certificates, if any, issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights or warrants in respect of Common Stock held in the treasury of the Company (or, if rights or warrants are issued in respect of all of the Common Stock of the Company, will not exercise any such rights or warrants in respect of Common Stock held in the treasury of the Company). In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such current market price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants. The value of such consideration, if other than cash, shall be determined in the reasonable good faith judgment of the Board of Directors of the Company, whose determination shall be conclusive. iii. In case at any time after the date hereof, all or any portion of the Common Stock outstanding shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely in case at any time after the date hereof, all or any portion of the shares of Common Stock outstanding shall each be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. iv. In case at any time after the date hereof, the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness or assets (including securities, rights, warrants or options, but excluding any rights, warrants, or options referred to in paragraph (ii) of this Section 6(c) as entitling the holders of Common Stock to subscribe for or purchase Common Stock at a price per share less than the curent market price, any dividend or distribution paid exclusively in cash, any dividend or distribution referred to in paragraph (i) of this Section 6(c) and any dividend or distribution upon a merger or consolidation referred to in paragraph (v) of this Section 6(c)), the Conversion Price shall be decreased so that the same shall equal the rate determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (viii) of this Section 6(c)) of the Common Stock on the date fixed for such determination less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of the portion of the assets or evidence of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. If any dividend or distribution of the type described in this Section 6(c)(iv) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. v. In case at any time after the date hereof, the Company shall, by dividend or otherwise, make a distribution to all holders of its Common Stock consisting exclusively of cash (excluding any cash that is distributed upon a merger or consolidation or a sale or transfer of all or substantially all of the assets of the Company to which Section 6(e) applies or as part of a distribution referred to in paragraph (iv) of this Section 6(c)) in an aggregate amount that, combined together with (i) the aggregate amount of any other distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this paragraph (v) has been made and (ii) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of consideration payable in respect of any tender offer by the Company or any of its Subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to paragraph (vi) of this Section 6(c) has been made, exceeds 12.5% of the product of the current market price per share of Common Stock on the date for the determination of holders of Common Stock entitled to receive such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date for determination, the Conversion Price shall be decreased so that the same shall equal the rate determined by multiplying the Conversion Price in effect immediately prior to the close of business in the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (A) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (viii) of this Section 6(c)) of the Common Stock on the date fixed for such determination less an amount equal to the quotient of (x) the excess of such combined amount over such 12.5% and (y) the number of shares of Common Stock outstanding on such date for determination and (B) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (viii) of this section 6(c)) of the Common Stock on such date for determination. If any dividend or distribution of the type described in this Section 6(c)(v) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. vi. In case a tender or exchange offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive) that combined together with (i) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive) as of the expiration of such tender or exchange offer, of consideration payable in respect of any other tender or exchange offer, by the Company or any Subsidiary of the company for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender or exchange offer and in respect of which no adjustment, pursuant to this paragraph (vi) has been made and (ii) the aggregate amount of any distributions to all holders of the Company's Common Stock made exclusively in cash within 12 months preceding the expiration of such tender or exchange offer and in respect of which no adjustment pursuant to paragraph (v) of this Section 6(c) has been made, exceeds 12.5% of the product of the current market price per share of the Common Stock (determined as provided in paragraph (viii) of this Section 6(c)) as of the last time (the "Expiration Time") tenders or tenders could have been made pursuant to such tender or exchange offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be decreased so that the same shall equal the rate determined by multiplying the Conversion Price immediately prior to the close of business on the date of the Expiration Time by a fraction (A) the numerator of which shall be equal to (1) the product of (x) the current market price per share of the Common Stock (determined as provided in paragraph (viii) of this Section 6(c)) on the date of the Expiration Time and (y) the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the date of the Expiration Time less (2) the amount of cash plus the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares, and (B) the denominator of which shall be equal to the product of (x) the current market price per share of the Common Stock (determined as provided in paragraph (viii) of this Section 6(c), as of the Expiration Time and (y) the number of shares of Common Stock outstanding (including any tendered or exchanged shares) as of the Expiration Time less the number of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares"). In the event that the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender offer had not been made. vii. The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 6(e) applies) shall be deemed to involve (i) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and "the date fixed for such determination" within the meaning of paragraph (ii) of this Section 6(c)) and (ii) a subdivision or combination, as the case may be, of the number of Common Stock outstanding immediately prior to such reclassification into the number of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective," as the case may be, and "the day upon which such subdivision or combination becomes effective", within the meaning of the paragraph (iii) of this Section 6(c). viii. For the purpose of any computation under paragraphs (ii), (iv), (v), or (vi) of this Section 6(c), the current market price per share of Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share for the five consecutive Trading Days immediately preceding the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. For purposes of this paragraph, the term "ex date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the applicable securities exchange or in the applicable securities market without the right to receive such issuance or distribution. ix. The Company may make such reductions in the Conversion Price, in addition to those required by subparagraphs (i), (ii), (iii), (iv), (v) and (vi), of this Section 6(c), as it considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. The Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty days, the reduction is irrevocable during the period and the Board of Directors (or, to the extent permitted by applicable law, a duly authorized committee thereof) shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to Holders of record of the Series A Preferred Stock a notice of the reduction at least fifteen days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period it will be in effect. x. Notwithstanding any other provision of this Section 6, no adjustment to the Conversion Price shall reduce the Conversion Price below the then par value per share of the Common Stock, and any such purported adjustment shall instead reduce the Conversion Price to such par value. The Company hereby covenants not to take any action (1) to increase the par value per share of the Common Stock or (2) that would or does result in any adjustment in the Conversion Price that would cause the Conversion Price to be less than the then par value per share of the Common Stock. xi. Notwithstanding any other provision of this Section 6, no adjustment in the Conversion Price need be made until all cumulative adjustments amount to 1% or more of the Conversion Price as last adjusted. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. xii. Whenever the Conversion Price is adjusted as herein provided: (1) the Company shall compute the adjusted conversion price and shall prepare a certificate signed by the Treasurer of the Company setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with the transfer agent for the Series A Preferred Stock; and (2) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall as soon as practicable be mailed by the Company to all record Holders of shares of Series A Preferred Stock at their last addresses as they shall appear upon the stock transfer books of the Company. xiii. In any case in which this Section 6(c) provides that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (x) issuing to the Holder of any share of Series A Preferred Stock converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (y) paying to such Holder any amount in cash in lieu of any fractional share of Common Stock pursuant to Section 6(d). d. The Company shall not issue fractional shares or scrip representing fractional shares of Common Stock upon conversion of Series A Preferred Stock. Instead the Company shall pay a cash adjustment based upon the Closing Price of the Common Stock on the Business Day immediately preceding the date of conversion. If more than one certificate evidencing shares of Series A Preferred Stock shall be surrendered for conversion at one time by the same Holder, the number of shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series A Preferred Stock so surrendered. e. In the event that the Company shall be a party to any transaction, including without limitation any (i) recapitalization or reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of the Common Stock), (ii) any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger which does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company), (iii) any sale or transfer of all or substantially all of the assets of the Company or (iv) any compulsory share exchange, pursuant to which the Common Stock is converted into the right to receive other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby the Holder of each share of Series A Preferred Stock then outstanding shall have the right thereafter, to convert such share into the kind and amount of securities, cash and other property receivable upon such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock into which such share of Series A Preferred Stock might have been converted immediately prior to such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange. The Company or the person formed by such consolidation or resulting from such merger or which acquires such assets or which acquires the Company's shares, as the case may be, shall make provisions in its certificate or articles of incorporation or other constituent document to establish such right. Such certificate or articles of incorporation or other constituent document shall provide for adjustments which, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The above provisions shall similarly apply to successive recapitalization, reclassifications, consolidations, mergers, sales, transfers or share exchanges. f. The Company shall at all times reserve and keep available, out of its authorized and unissued stock, solely for the purpose of effecting the conversion of the Series A Preferred Stock, such number of shares of its Common Stock, free of preemptive rights, as shall from time to time be sufficient to effect the conversion of all shares of Series A Preferred Stock from time to time outstanding. The Company shall from time to time, in accordance with the laws of the State of Delaware, use its best efforts to increase the authorized number of shares of Common Stock if at any time the number of shares of authorized and unissued Common Stock shall not be sufficient to permit the conversion of all the then outstanding shares of Series A Preferred Stock. The Company shall pay any and all issue or other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of the Series A Preferred Stock. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of Common Stock (or other securities or assets) in a name other than that in which the shares of Series A Preferred Stock so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of such tax or has established, to the satisfaction of the Company, that such tax has been paid. g. In case: i. the Company shall authorize or take an action that would, upon consummation, require a Conversion Price adjustment pursuant to subparagraphs (ii), (iii), (iv), (v) or (vi) of Section 6(c); or ii. of any reclassification of Common Stock (other than a subdivision or combination of the outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company shall be required, or of the sale or transfer of all or substantially all of the assets of the Company or of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property; or iii. of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be mailed to the Holders of record of the Series A Preferred Stock, at their last addresses as they shall appear upon the stock transfer books of the Company, at least twenty days prior to the proposed record or effective date as the case may be, notice stating (x) the date on which a record (if any) is to be taken for the purpose of such action, dividend or distribution, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend or distribution are to be determined or (y) the date on which such action, reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such action, reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up (but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice). h. Notwithstanding the foregoing provisions, the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under any such plan and the issuance of any shares of Common Stock or options or rights to purchase such shares pursuant to any employee benefit plan or program of the Company or pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the Issue Date, shall not be deemed to constitute an issuance of Common Stock or exercisable, exchangeable or convertible securities by the Company to which any of the adjustment provisions described above applies so long as the size or extent of the plan or plans are customary for corporations similar to the Company. There shall also be no adjustment of the Conversion Price in case of the issuance of any stock (or securities convertible into or exchangeable for stock) of the Company except as specifically described in this Section 6. If any action would require adjustment of the Conversion Price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be the amount of adjustment which has the greatest absolute value. i. For purposes of this Section 6, the number of shares of Common Stock at any time outstanding shall not include any shares of Common Stock then owned or held by or for the account of the Company. 7. Voting Rights. (a) Holders of Series A Preferred Stock shall have no voting rights, except as required by law and as hereinafter provided in this Section 7. (b) The Company shall not, without the affirmative vote or consent of the Holders of a majority of the shares of Series A Preferred Stock then outstanding: i. authorize, create (by way of reclassification or otherwise) or issue any Parity Securities (other than additional shares of Series A Preferred Stock issued in accordance with Section 3(a) hereof, Series B Preferred Stock issued in accordance with Section 8 hereof or Series B Preferred Stock issued as a dividend on Series B Preferred Stock) or Senior Securities or any obligation or security convertible into or evidencing the right to purchase any Parity Securities or Senior Securities; ii. amend or otherwise alter its Certificate of Incorporation in any manner that adversely affects the rights, privileges and preferences of the Series A Preferred Stock set forth in this Certificate of Designation; or iii. take any action requiring a vote of stockholders of the Company that (x) is materially adverse to the Holders of Series A Preferred Stock or (y) adversely affects the rights, preferences and privileges of the Series A Preferred Stock set forth in this Certificate of Designation. 8. Exchange. (a) The Series A Preferred Stock shall be exchangeable, at the option of either the Company or all of the Holders, at any time after the expiration or termination of any applicable waiting period under the HSR Act, into shares of Series B Cumulative Convertible Pay-in-Kind Preferred Stock (the "Series B Preferred Stock") of the Company with an aggregate liquidation preference equal to the Liquidation Preference of the Series A Preferred Stock so exchanged plus any Partial Dividend Period Amount accrued on such Series A Preferred Stock to the date of exchange. The Series B Preferred Stock shall have substantially identical rights, privileges and preferences as the Series A Preferred Stock set forth in this Certificate of Designation, such rights, privileges and preferences to be set forth in a Certificate of Designation in substantially the form of Exhibit A attached hereto (the "Series B Certificate of Designation"). (b) In order to exercise the exchange set forth in Section 8(a), the Company, or all Holders, as the case may be, shall mail to (x) in the case of the Corporation, each Holder of Series A Preferred Stock or (y) in the case of the Holders, to the Corporation, written notice of its or their intention to exchange all Series A Preferred Stock then outstanding or thereafter issued in accordance with Section 3(a). Any notice sent by the Company pursuant to the immediately preceding sentence shall be sent not less than 30 nor more than 60 days prior to the date fixed for such exchange (any such date, an "Exchange Date"). Promptly upon receipt by the Company of a written notice from all Holders pursuant to this Section 8(b), the Company shall send a notice to all Holders stating the Exchange Date which Exchange Date shall be not less than 30 nor more than 60 days subsequent to the receipt by the Company of the notice sent by Holders pursuant to the first sentence of this Section 8(b). Each notice sent by the Company pursuant to this Section 8(b) shall include a statement as to the place or places where certificates for shares of Series A Preferred Stock are to be surrendered for exchange. Upon the first delivery of any such notice, the Corporation shall take all necessary actions to cause the Series B Certificate of Designation to be filed with the Secretary of State of the State of Delaware on or prior to the first Exchange Date. (c) If notice has been mailed as set forth in Section 8(b) above, and if on or before the Exchange Date specified in such notice, the Series B Certificate of Designation has been filed with the Secretary of State of the State of Delaware, then, regardless of whether certificates for the shares of Series A Preferred Stock have been surrendered for exchange, on the Exchange Date, dividends on the shares of Series A Preferred Stock to be exchanged shall cease to accrue, and said shares of Series A Preferred Stock shall no longer be deemed to be issued and outstanding, and all rights of the Holders thereof (except the right to receive shares of Series B Preferred Stock) shall cease and terminate. Upon surrender of the certificates for any shares of Series A Preferred Stock so exchanged, such shares shall be exchanged by the Company into shares of Series B Preferred Stock as aforesaid and no Holder of Series A Preferred Stock shall have the right to receive any accrued and unpaid dividends on any share of the Series A Preferred Stock. (d) The Company will give prior written notice to each Holder (the "Company Notice") of any Specified Debt Issuance (as defined below) by the Company to be consummated during the period from the Issue Date through November 29, 2000. The Company Notice shall be provided to each Holder at its address set forth in the register of Holders of Series A Preferred Stock maintained by the Company no less than five Business Days prior to any Specified Debt Issuance. Any Company Notice shall (1) describe the terms of the securities to be issued (the "New Securities") in reasonable detail, (2) include a statement that the Holders, upon unanimous election, have the right to exchange all shares of outstanding Series A Preferred Stock for securities with substantially the same terms as the New Securities if any New Securities are issued and (3) include a statement that any exchange pursuant to this Section 8(d) shall be effected on the date of the issuance of the New Securities. If all Holders provide written notice to the Company within five Business Days of the Company Notice of their election to exchange all Series A Preferred Stock for securities with substantially the same terms as the New Securities and if such New Securities are issued, on the date of the issuance of the New Securities, the Company shall exchange all Series A Preferred Stock for securities with substantially the same terms as the New Securities. The securities to be issued to Holders will have a principal amount equal to the Liquidation Preference of the Series A Preferred Stock so exchanged. The Company shall provide prior written notice to each Holder of the date for the exchange and, regardless of whether certificates for the shares of Series A Preferred Stock have been surrendered for exchange, on the date specified by the Company for the exchange, dividends on the shares of Series A Preferred Stock shall cease to accrue and the Series A Preferred Stock shall no longer be deemed to be issued and outstanding, and all rights of the Holders thereof (except the right to receive shares of the securities to be issued upon exchange) shall cease and terminate. If less than all Holders provide written notice to the Company of their election to exchange as provided above, the Company shall not so exchange any Series A Preferred Stock and the Company shall be permitted to issue the New Securities for up to 60 days from the date of the Company Notice. For purposes of this Section 8(d) and Section 8(e) below, "Specified Debt Issuance" shall mean any private placement that is not widely distributed of any securities which are treated as indebtedness on the balance sheet of the Company in accordance with U.S. generally accepted accounting principles if such securities (i) are convertible into or exchangeable for Common Stock or Junior Securities or (ii) are issued with warrants, options or rights to purchase Common Stock or Junior Securities issued to the purchasers of such debt securities. For purposes of the immediately preceding sentence, a widely distributed private placement is any offering of securities not registered under the Securities Act of 1933 made to five or more unaffiliated purchasers or to fewer than five purchasers if such purchasers are purchasing the securities with a view to reselling such securities to five or more unaffiliated purchasers. (e) Notwithstanding the foregoing provisions, the Company shall have no obligations and the Holders shall have no rights pursuant to Section 8(d) upon a Specified Debt Issuance if a majority of the Holders shall have consented in writing to suchissuance and waived its rights under Secion 8(d). 9. Payment. (a) All amounts payable in cash with respect to the Series A Preferred Stock shall be payable in United States dollars at the principal executive office of the Company or, at the option of the Holder, payment of dividends (if any) may be made by check mailed to such Holder of the Series A Preferred Stock at its address set forth in the register of Holders of Series A Preferred Stock maintained by the Company. (b) Any payment on the Series A Preferred Stock due on any day that is not a Business Day need not be made on such day, but may be made on the next succeeding Business Day with the same force and effect as if made on such due date. (c) Dividends payable on the Series A Preferred Stock on any Redemption Date that is a Dividend Payment Date shall be paid to the Holders of record as of the immediately preceding Record Date. 10. Exclusion of Other Rights. Except as may otherwise be required by law, the shares of Series A Preferred Stock shall not have any voting powers, preferences and relative, participating, optional or other special rights, other than those specifically set forth in this Certificate of Designation (as such Certificate of Designation may be amended from time to time) and in the Certificate of Incorporation. The shares of Series A Preferred Stock shall have no preemptive or subscription rights. 11. Headings of Subdivisions. The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 12. Severability of Provisions. If any voting powers, preferences and relative, participating, optional and other special rights of the Series A Preferred Stock and qualifications, limitations and restrictions thereof set forth in this Certificate of Designation (as it may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof set forth in this Certificate of Designation (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative, participating, optional and other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect, and no voting powers, preferences and relative, participating, optional or other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative, participating, optional or other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof unless so expressed herein. 13. Reissuance of Series A Preferred Stock. Shares of Series A Preferred Stock that have been issued and reacquired in any manner, including shares purchased, redeemed, exchanged or converted, shall (upon compliance with any applicable provisions of the DGCL) have the status of authorized but unissued shares of preferred stock of the Company undesignated as to series and may be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Company, provided that any issue of such shares as Series A Preferred Stock must be in compliance with the terms hereof. [signature page follows] IN WITNESS WHEREOF, the Company has caused this certificate to be duly executed this 25th day of October, 1999. RITE AID CORPORATION By: /s/Elliot S. Gerson ----------------------------- Name: Elliot S. Gerson Title: Executive Vice President, Secretary and General Counsel EX-4 3 EXHIBIT 4.1 - REGISTRATION RIGHTS AGREEMENT Exhibit 4.1 REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 25, 1999 By and Among RITE AID CORPORATION and GREEN EQUITY INVESTORS III, L.P. REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and entered into as of October 25, 1999, by and among RITE AID CORPORATION, a Delaware corporation (the "COMPANY") and GREEN EQUITY INVESTORS III, L.P. ("GEI"). W I T N E S S E T H: WHEREAS, pursuant to a letter agreement, dated as of October 18, 1999 (the "LETTER AGREEMENT"), GEI has agreed to purchase 3,000,000 shares of the Company's Series A 8% Convertible Pay-in-Kind Preferred Stock (the "PREFERRED STOCK") at a purchase price of $100 per share; WHEREAS, in consideration of the aforementioned purchase of the Preferred Stock by GEI, the Company has agreed to provide to the holders of the Preferred Stock and the Common Stock (as defined below) into which it is convertible the registration rights set forth herein pursuant to Section 3.4 of the Letter Agreement; 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. "Common Stock" shall mean the common stock of the Company, par value $1.00 per share, that may be issued from time to time comprising common equity of the Company. 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 GEI 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 Preferred Stock, the Company's Series B 8% Convertible Pay-in-Kind Preferred Stock (the "Series B Preferred Stock) issued upon exchange of the Preferred Stock and/or the Common Stock issued or issuable upon conversion of the Preferred Stock or the Series B Preferred Stock. As to any Registrable Securities, such securities shall cease to be Registrable Securities when (i) a registration statement registering such Registrable Securities under the Securities Act has been declared or becomes effective and such Registrable Securities have been sold or otherwise transferred by the Holder thereof pursuant to such effective registration statement; (ii) such Registrable Securities are sold pursuant to Rule 144 under circumstances in which any legend borne by such Registrable Securities relating to restrictions on the transferability thereof, under the Securities Act or otherwise, is removed by the Company or such Registrable Securities are eligible to be sold pursuant to paragraph (k) of Rule 144; or (iii) such Registrable Securities shall cease to be outstanding. 1.7. "Rule 144" shall mean Rule 144 promulgated under the Securities Act. 1.8. "Securities" shall mean the Preferred Stock, the Series B Preferred Stock or the Common Stock. 1.9. "Securities Act" shall mean Securities Act of 1933, as amended, or any federal statute then in effect which has replaced such statute. ARTICLE II. Public Offering Pursuant to Registration Rights 2.1. Demand Registrations. (a) Holders of Registrable Securities representing not less than one-third of the then-outstanding Registrable Securities (for purposes of this calculation, any Preferred Stock to be measured as the number of shares of Common Stock issuable upon conversion of such Preferred Stock at the then applicable conversion rate) (the "INITIATING HOLDERS") may require that the Company effect a registration under the Securities Act at any time or times (i) with respect to at least 25% of the Common Stock issued or issuable upon conversion of the Preferred Stock or Series B Preferred Stock (or such lesser of all remaining Registrable Securities) (a "COMMON STOCK REGISTRATION"), and (ii) with respect to Preferred Stock or Series B Preferred Stock with an anticipated offering or sale price of $75,000,000 to be registered on or after October 25, 2001 (a "PREFERRED STOCK REGISTRATION") (each of such a Common Stock Registration and a Preferred Stock Registration 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 if (x) 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 2.1(d) or 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 (i) in any 12-month period in which the Company has not made a Shelf Registration (as defined in Section 2.4(d)), 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, and (ii) in any 12-month period in which the Company has made a Shelf Registration, the Company may not defer the filing or delivery, as the case may be, for any period or periods aggregating more than 120 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 underwriting, they shall so advise the Company as part of their demand made pursuant to Section 2.1(a) and the Company shall include such information in its written notice to Holders. The Initiating Holders shall have the right to select the managing underwriter(s) for any underwritten Demand Registration, subject to the approval of the Board (which will not be unreasonably withheld or delayed). The right of any Holder to participate in an underwritten Demand Registration shall be conditioned upon such Holder's participation in such underwriting in accordance with the terms and conditions thereof, and the Company and all such Holders will enter into an underwriting agreement in customary form. (d) The Initiating Holders may require the Company to make such Demand Registration in the form of a "shelf" registration (to the extent the Company then qualifies for the filing of a "shelf" registration statement), which they shall so advise the Company as part of their demand made pursuant to Section 2.1(a), providing for the registration of, and the sale on a continuous or delayed basis by the Holders of, the Registrable Securities, pursuant to Rule 415 under the Securities Act and/or any similar rule that may be adopted by the Commission (the "SHELF Registration"). The Company agrees to use its best efforts to file the registration statement relating to the Shelf Registration to become or be declared effective no later than 120 days after such obligation arises, and to keep such Shelf Registration continuously effective until the earlier of (i) two (2) years from the effective date thereof or (ii) such time as there are no longer any Registrable Securities outstanding subject to such demand, subject to the Securities Act and the rules and regulations thereunder. The Company further agrees, subject to Section 2.1(b), to supplement or make amendments to the Shelf Registration, as and when required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration or by the Securities Act or rules and regulations thereunder for shelf registration, and the Company agrees to furnish to the Holders of the Registrable Securities copies of any such supplement or amendment promptly following its being used and/or filed with the Commission. (e) The Holders will have absolute priority over any other Securities 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 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. 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 Securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form. (c) If such proposed Piggyback Registration is an underwritten offering and the managing underwriter for such offering advises the Company that the Securities requested to be included therein exceeds the amount of Securities or other securities that can be sold in such offering, except as provided in Section 2.1(b), any Securities or other 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 acknowledging that Irell & Manella LLP 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 Securities and Exchange Commission (the "COMMISSION") and, (i) in the case of a Demand Registration other than a Shelf 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, and (ii) in the case of a Shelf Registration, keep such registration effective as set forth in Section 2.1(d); (b) as soon as reasonably possible, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus included therein (including post-effective amendments, prospectus supplements and pricing supplements) as may be necessary to effect and maintain the effectiveness of such registration statement for the period specified in Section 2.4(a). (c) provide (A) the Holders of the Registrable Securities to be included in such registration statement, (B) the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act) if any, thereof, (C) the sales or placement agent therefor, if any, (D) counsel for such underwriters or agent, and (E) not more than one counsel for all the holders of such Registrable Securities the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; (d) with respect to any Demand Registration that is a Shelf Registration, for a reasonable period prior to the filing of such registration statement, and throughout the period specified in Section 4(a), make available at reasonable times at the Company's principal place of business or such other reasonable place for inspection by one representative of each of the parties referred to in Section 2.4(d) who shall certify to the Company that they have a current intention to sell the Registrable Securities pursuant to the Shelf Registration such financial and other information and books and records of the Company, and cause the officers, employees, counsel and independent certified public accountants of the Company to respond to such inquiries, as shall be reasonably necessary, in the reasonable judgment of the respective counsel referred to in such Section, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that each such party shall be required to maintain in confidence and not to disclose to any other person any information or records reasonably designated by the Company in writing as being confidential, until such time as (A) such information becomes a matter of public record, other than by an impermissible disclosure by such party (whether by virtue of its inclusion in such registration statement or otherwise), or (B) such person shall be required, or shall deem it advisable, to disclose such information pursuant to the subpoena or order of any court or other governmental agency or body having jurisdiction over the matter (subject to the requirements of such order, and only after such person shall have given the Company prompt prior written notice thereof), or (C) such information is required to be set forth in such registration statement or the prospectus included therein or in an amendment to such registration statement or an amendment or supplement to such prospectus in order that such registration statement, prospectus, amendment or supplement, as the case may be, does not contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (e) (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) with respect to any Shelf Registration, keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions during the period the Shelf Registration is required to remain effective under Section 2.4(a) above and for so long as may be necessary to enable any such Holder, agent or underwriter, if any, to complete its distribution of Registrable Securities pursuant to such registration statement and (C) 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(f) or (2) consent to general service of process or taxation in any such jurisdiction; (f) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as any Holder from time to time may reasonably request; (g) promptly notify the selling Holders of Registrable Securities, the sales or placement agent, if any, therefor and the managing underwriter or underwriters, if any, thereof and confirm such advice in writing, (A) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and with respect to such registration statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission, the Blue Sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such registration statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 2.4(p) 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 registration statement, prospectus, prospectus amendment or supplement or post-effective amendment, or any document incorporated by reference in any of the foregoing, contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (h) obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (i) if requested by any managing underwriter or underwriters, any placement or sales agent or any Holder of Registrable Securities, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold by such Holder or agent or to any underwriters, the name and description of such Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such Holder or agent or to such underwriters; and, with respect to a Demand Registration that is a Shelf Registration, make all required filings of such prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment pursuant to this clause (i); (j) furnish to each Holder of Registrable Securities included in such registration statement, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 2.4(d) an executed copy of such registration statement, each such amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and such number of copies of such registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically and reasonably so requested by such Holder, agent or underwriter, as the case may be) and of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act; and the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Holder and by any such agent and underwriter, if any, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (k) cause all Registrable Securities covered by such registration to be listed on each securities exchange or inter-dealer quotation system on which similar securities issued by the Company are then listed; (l) provide a transfer agent and registrar for all Registrable Securities covered by such registration and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (m) obtain the consent or approval of each governmental agency or authority, whether federal, state, provincial or local, which may be required to effect any such Shelf Registration or the offering or sale in connection therewith or to enable the selling Holder or Holders to offer, or to consummate the disposition of, their Registrable Securities; provided, however, that the Company shall not be required for any such 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(n) or (2) consent to general service of process or taxation in any such jurisdiction; (n) cooperate with the Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends; (o) with respect to an underwritten Demand, whether or not an agreement of the type referred to in Section 2.4(s) hereof is entered into and whether or not any portion of the offering contemplated by such registration statement is an underwritten offering or is made through a placement or sales agent or any other entity, 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, if any, and as any Holders of at least 25% in aggregate principal amount of the Registrable Securities to be included in such Shelf Registration may reasonably request, addressed to such Holder or Holders and the placement or sales agent, if any, therefor and the underwriters, if any, 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 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 (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 any Holders of at least 25% in aggregate principal amount of the Registrable Securities to be included in such Shelf Registration and the placement or sales agent, if any, therefor and the managing underwriters, if any, 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; (p) 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; (q) otherwise comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable but in no event later than eighteen months after the effective date of such registration statement, an earnings statement covering the period of at least twelve months, but not more than 18 months, beginning with the first month after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder); and (r) in connection with any underwritten Demand Registration, 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(h) 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(h) hereof, such Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the registration statement applicable to such Registrable Securities until such Holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. 2.6. Furnishing Information by the Holders. The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such Holder and such Holder's intended method of distribution of such Registrable Securities as the Company may from time to time reasonably request in writing, but only to the extent that such information is required in order to comply with the Securities Act. Each such Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities or omits to state any material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish information so required so that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. 2.7. Indemnification. (a) The Company will indemnify each Holder whose Registrable Securities are to be included in a registration pursuant to this Article II, each of such Holder's officers, directors, partners, agents, employees and representatives and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to each registration, qualification or compliance effected pursuant to this Article II, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, or other document incorporated by reference therein, or compliance, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to a Holder to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder and provided for use in such registration statement, prospectus, offering circular or other document or the Holder delivered a registration or prospectus in violation of Section 2.5 hereof after notice was provided by the Company as provided in Section 2.5. It is agreed that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). (b) Each Holder whose Registrable Securities are included in any registration effected pursuant to this Article II shall indemnify the Company, each of its directors, officers, agents, employees and representatives, and each Person who controls the Company within the meaning of Section 15 of the Securities Act, each other such Holder and each of their officers, directors, partners, agents, employees and representatives and each person controlling such Holder, and each underwriter, if any, of such Registrable Securities and each Person who controls any such underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document incident to such registration, qualification or compliance, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse such indemnified persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in strict conformity with written information furnished to the Company by such Holder and provided specifically for use therein; provided, however, that (x) no Holder shall be liable hereunder for any amounts in excess of the gross proceeds received by such Holder pursuant to such registration, and (y) the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 2.7 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed, the Company herein and hereby approving Irell & Manella LLP as counsel to GEI for the purposes of this Section 2.7(c)), and the Indemnified Party may participate in such defense with counsel reasonably acceptable to and paid for by the Indemnifying Party but otherwise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.7 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in an underwriting agreement entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 2.8. Other Obligations. With a view to making available the benefits of certain rules and regulations of the Commission which may effectuate the registration of Registrable Securities or permit the sale of Registrable Securities to the public without registration, the Company agrees to: (a) exercise 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 Securities (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 Securities. ARTICLE III. Representations and Warranties The Company represents and warrants to, and agrees with, GEI and each of the Holders from time to time of Registrable Securities that: (a) The compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company 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 qualifications as may be required under State securities or blue sky laws in connection with the offering and distribution of the Registrable Securities. (b) This Agreement has been duly authorized, executed and delivered by the Company. ARTICLE IV. Termination This Agreement shall terminate immediately following the moment at which there exist no Securities 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 (including, without limitation, a payment-in-kind dividend paid on the Preferred Stock), split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. In the event of any change in the capitalization of the Company as a result of any stock split, stock dividend or stock combination, the provisions of this Agreement shall be appropriately adjusted. 5.2. Injunctive Relief. It is hereby agreed and acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved Person will be irreparably damaged and will not have an adequate remedy at law. Any such Person shall, therefore, in addition to any other remedies available under applicable law, be entitled to injunctive relief, including specific performance, to enforce such obligations, without the posting of any bond, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 5.3. Parties in Interest. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and assigns of the parties hereto. In the event that any transferee of any Holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing of any kind, be deemed a party hereto for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. 5.4. Survival. The respective indemnities, agreements, representations, warranties and each other Provision set forth in this Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statements as to the results thereto) made by or on behalf of any Holder of Registrable Securities, any director, officer or partner of such Holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive delivery of and payment for the Registrable Securities pursuant to the Letter Agreement and the transfer of Registrable Securities by such Holder. 5.5. Amendment; Waiver. (a) This Agreement may be amended only by a written instrument signed by the Company and by Holders holding more than 66% of the then outstanding Registrable Securities and, in the case of any amendment that adversely affects any Holder or all of the members of any group of Holders differently from any of the other Holders, by such Holder or the holders of more than 66% in interest of the Securities 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 wavier is sought. Holders shall be bound from and after the date of the receipt of a written notice from the Company setting forth such amendment or waiver, whether or not the Registrable Securities shall have been marked to indicate such amendment or waiver. 5.6. Notices. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing (including a writing delivered by facsimile transmission) and shall be deemed to have been duly given if delivered personally, or sent by either certified or registered mail, return receipt requested, postage prepaid, or by overnight courier guaranteeing next day delivery, or by telex or telecopier, at the following addresses: if to the Company: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: President Telecopier: (717) 975-3762 with a copy to Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022-3897 Attention: Stacy J. Kanter Telecopier: (212) 735-2000 if to GEI: c/o Leonard Green & Partners, L.P. 11111 Santa Monica Boulevard, Suite 2000 Los Angeles, California 90025 Attention: Jonathan D. Sokoloff Telecopier: (310) 954-0404 with a copy to: Irell & Manella LLP 333 South Hope Street, Suite 3300 Los Angeles, California 90071 Attention: Edmund M. Kaufman, Esq. Telecopier: (213) 229-0515 GEI may, by written notice given to the Company in accordance with this Section 4.5, change the address to which such notice or other communications are to be sent to it. All such notices and communications shall be deemed to have been given on the date of delivery thereof, if delivered by hand, on the fifth day after the mailing thereof, if mailed, on the next day after the sending thereof, if by overnight courier and when receipt is acknowledged, if telecopied. 5.7. Inspection. So long as this Agreement shall be in effect, this Agreement and any amendments hereto shall be made available for inspection by any Holder at the principal offices of the Company. 5.8. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 5.9. Headings. Article, section and paragraph headings are inserted for convenience only and do not constitute a part of this Agreement. 5.10. Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to this subject matter. 5.11. Illegality. In case any provision in this Agreement shall be declared or held invalid, illegal or unenforceable, in whole or in part, whether generally or in any particular jurisdiction, such provision shall be deemed amended to the extent, but only to the extent, necessary to cure such invalidity, illegality or unenforceability, and the validity, legality and enforceability of the remaining provisions, both generally and in every other jurisdiction, shall not in any way be affected or impaired thereby. 5.12. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall 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 undersigned have executed this Agreement as of the date set forth above. RITE AID CORPORATION By: /s/ Elliot S. Gerson Its: Senior Executive Vice President, General Counsel and Secretary GREEN EQUITY INVESTORS III, L.P. By: Leonard Green & Partners, L.P. By: LGP Management, Inc. /s/ Jonathan Sokoloff _________________________ EX-4 4 EXHIBIT 4.2 - REGISTRATION RIGHTS AGREEMENT Exhibit 4.2 REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 27, 1999 By and Between RITE AID CORPORATION and J.P. MORGAN VENTURES CORPORATION REGISTRATION RIGHTS AGREEMENT ----------------------------- This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and entered into as of October 27, 1999, by and between RITE AID CORPORATION, a Delaware corporation (the "COMPANY"), and J.P. MORGAN VENTURES CORPORATION ("J.P. MORGAN"). W I T N E S S E T H: WHEREAS, the Company has agreed to issue to J. P. Morgan a warrant, dated October 27, 1999 (the "WARRANT"), to purchase 2,500,000 shares (the "WARRANT SHARES") of the Company's Common Stock, par value $1.00 per share (the "COMMON STOCK"), in accordance with the terms thereof; WHEREAS, in connection with the issuance of the Warrant to J.P. Morgan, the Company has agreed to provide to the holders of the Warrant and the Warrant Shares the registration rights set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to and on the terms and conditions herein set forth, the parties hereto hereby agree as follows: ARTICLE I Certain Definitions As used in this Agreement, the following terms shall have the meanings ascribed to them below: 1.1 "Commission" shall mean the Securities and Exchange Commission or any federal agency at the time administering the Securities Act. 1.2 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any federal statute then in effect which has replaced such statute. 1.3 "Group" shall mean two or more Persons that would be deemed a "group" for purposes of Rule 13d-5 under the Exchange Act. 1.4 "Holder" means J.P. Morgan for so long as it owns any Registrable Securities and any other Person who is a holder or beneficial owner of Registrable Securities for so long as such Person owns any Registrable Securities. 1.5 "Person" shall mean an individual, corporation, limited liability company, joint venture, partnership, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity that may be treated as a person under applicable law. 1.6 "Registrable Securities" shall mean the Common Stock issued or issuable upon exercise of the Warrant. As to any Registrable Securities, such securities shall cease to be Registrable Securities when (i) a registration statement registering such Registrable Securities under the Securities Act has been declared or becomes effective and such Registrable Securities have been sold or otherwise transferred by the Holder thereof pursuant to such effective registration statement; (ii) such Registrable Securities are sold pursuant to Rule 144 under circumstances in which any legend borne by such Registrable Securities relating to restrictions on the transferability thereof, under the Securities Act or otherwise, is removed by the Company or such Registrable Securities are eligible to be sold pursuant to paragraph (k) of Rule 144; or (iii) such Registrable Securities shall cease to be outstanding. 1.7 "Rule 144" shall mean Rule 144 promulgated under the Securities Act. 1.8 "Securities Act" shall mean Securities Act of 1933, as amended, or any federal statute then in effect which has replaced such statute. ARTICLE II Public Offering Pursuant to Registration Rights ----------------------------------------------- 2.1 Demand Registrations. (a) Holders of Registrable Securities representing not less than one-third of the then-outstanding Registrable Securities (the "INITIATING HOLDERS") may require that the Company effect a registration under the Securities Act at any time or times with respect to at least 25% of the Common Stock issued or issuable upon exercise of the Warrant (or, if less, all remaining Registrable Securities) (a "DEMAND REGISTRATION"). Upon receipt of written notice of such demand, the Company will promptly give written notice of the proposed registration to all Holders other than Initiating Holders and will include in such registration (x) all Registrable Securities specified in such demand, together with Registrable Securities of like kind of any other Holder joining in such demand as are specified in a written request received by the Company within 20 days after delivery of the Company's notice and (y) all shares of equity securities of the Company which the Company or other holders of equity securities having registration rights may elect to register. Notwithstanding anything in this Section 2.1(a) to the contrary, the Holders will collectively be entitled to no more than an aggregate of two (2) Demand Registrations. (b) The Company shall file a registration statement with respect to each Demand Registration requested pursuant to Section 2.1(a) as soon as practicable after receipt of the demand of the Initiating Holders; provided, however, that (x) if in the good faith judgment of the Board of Directors of the Company (the "BOARD"), deferral of such Demand Registration or delivery of any prospectus supplement to be delivered pursuant to Section 2.5 would be in the best interests of the Company in that such registration or delivery would interfere with any other material corporate transaction (as evidenced by an appropriate resolution of the Board) of the Company or would require the disclosure of material non-public information, then the Company shall have the right to defer such filing or delivery, as the case may be, in order to effect such other material corporate transaction; provided, further, however, that the Company may not defer the filing or delivery, as the case may be, for any period or periods aggregating more than 90 days after receipt of the demand of the Initiating Holders, (y) the Company shall not be required to file any registration statement or deliver any prospectus supplement (i) if such filing or delivery is prohibited by applicable law, (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 underwriting, they shall so advise the Company as part of their demand made pursuant to Section 2.1(a) and the Company shall include such information in its written notice to Holders. The Initiating Holders shall have the right to select the managing underwriter(s) for any underwritten Demand Registration, subject to the approval of the Board (which will not be unreasonably withheld or delayed). The right of any Holder to participate in an underwritten Demand Registration shall be conditioned upon such Holder's participation in such underwriting in accordance with the terms and conditions thereof, and the Company and all such Holders will enter into an underwriting agreement in customary form. (d) The Holders will have absolute priority over any other securities of the Company sought to be included in a Demand Registration. If such other securities are included in any Demand Registration that is not an underwritten offering, all Registrable Securities of the Holders included in such offering shall be sold prior to or concurrently with the sale of any of such other securities. If other securities of the Company are included in any Demand Registration that is an underwritten offering, and the managing underwriter for such offering advises the Company that in its opinion the amount of securities to be included exceeds the amount of securities which can be sold in such offering without adversely affecting the marketability thereof, the Company will include in such registration all Registrable Securities requested to be included therein by the Holders prior to the inclusion of any other securities of the Company. If the number of Registrable Securities requested by the Holders to be included in such registration exceeds the amount of securities which in the opinion of such managing underwriter can be sold without adversely affecting the marketability of such offering, such Registrable Securities shall be included pro rata among the Holders based on the percentage of the then-outstanding Registrable Securities held by each such Holder. 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 underwritten offering and the managing underwriter for such offering advises the Company that the securities requested to be included therein exceeds the amount of securities that can be sold in such offering, except as provided in Section 2.1(b), any securities to be sold 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 acknowledging 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, prospectus supplements and pricing supplements) as may be necessary to effect and maintain the effectiveness of such registration statement for the period specified in Section 2.4(a); (c) provide (A) the Holders of the Registrable Securities to be included in such registration statement, (B) the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act) if any, thereof, (C) the sales or placement agent therefor, if any, (D) counsel for such underwriters or agent, and (E) not more than one counsel for all the holders of such Registrable Securities the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; (d) (A) register or qualify the Registrable Securities to be included in such registration statement under such securities laws or blue sky laws of such jurisdictions as any Holder of such Registrable Securities and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, and (B) take any and all other actions as may be reasonably necessary or advisable to enable each such Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that the Company shall not be required for any other purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 2.4(d) or (2) consent to general service of process or taxation in any such jurisdiction; (e) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as any Holder from time to time may reasonably request; (f) promptly notify the selling Holders of Registrable Securities, the sales or placement agent, if any, therefor and the managing underwriter or underwriters, if any, thereof and confirm such advice in writing, (A) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and with respect to such registration statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission, the Blue Sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such registration statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 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 registration statement, prospectus, prospectus amendment or supplement or post-effective amendment, or any document incorporated by reference in any of the foregoing, contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (g) obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (h) if requested by any managing underwriter or underwriters, any placement or sales agent or any Holder of Registrable Securities, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold by such Holder or agent or to any underwriters, the name and description of such Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such Holder or agent or to such underwriters; (i) furnish to each Holder of Registrable Securities included in such registration statement, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 2.4(c) an executed copy of such registration statement, each such amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and such number of copies of such registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically and reasonably so requested by such Holder, agent or underwriter, as the case may be) and of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act; and the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Holder and by any such agent and underwriter, if any, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (j) cause all Registrable Securities covered by such registration to be listed on each securities exchange or inter-dealer quotation system on which similar securities issued by the Company are then listed; (k) provide a transfer agent and registrar for all Registrable Securities covered by such registration and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (l) cooperate with the Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends; (m) 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 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 (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 regulations of the Commission and make available to its security holders, as soon as reasonably practicable but in no event later than eighteen months after the effective date of such registration statement, an earnings statement covering the period of at least twelve months, but not more than 18 months, beginning with the first month after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder); and (p) in connection with any underwritten Demand Registration, 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 inaccuracy or change in information previously furnished by such Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities or omits to state any material fact regarding such Holder or such Holder's intended method of distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish information so required so that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. 2.7 Indemnification. (a) The Company will indemnify each Holder whose Registrable Securities are to be included in a registration pursuant to this Article II, each of such Holder's officers, directors, partners, agents, employees and representatives and each person controlling such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, with respect to each registration, qualification or compliance effected pursuant to this Article II, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, or other document incorporated by reference therein, or compliance, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such indemnified person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to a Holder to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder and provided for use in such registration statement, prospectus, offering circular or other document or the Holder delivered a registration or prospectus in violation of Section 2.5 hereof after notice was provided by the Company as provided in Section 2.5. It is agreed that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed). (b) Each Holder whose Registrable Securities are included in any registration effected pursuant to this Article II shall indemnify the Company, each of its directors, officers, agents, employees and representatives, and each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, each other such Holder and each of their officers, directors, partners, agents, employees and representatives and each person controlling such Holder, and each underwriter, if any, of such Registrable Securities and each Person who controls any such underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document incident to such registration, qualification or compliance, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse such indemnified persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in strict conformity with written information furnished to the Company by such Holder and provided specifically for use therein; provided, however, that (x) no Holder shall be liable hereunder for any amounts in excess of the gross proceeds received by such Holder pursuant to such registration, and (y) the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 2.7 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld or delayed, the Company herein and hereby approving Davis Polk & Wardwell as counsel to J.P. Morgan for the purposes of this Section 2.7(c)), and the Indemnified Party may participate in such defense with counsel reasonably acceptable to and paid for by the Indemnifying Party but otherwise at the Indemnified Party's expense, and provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.7 to the extent such failure is not materially prejudicial. No Indemnifying Party in the defense of any such claim or litigation shall except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include an unconditional release of such Indemnified Party from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in an underwriting agreement entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 2.8 Other Obligations. With a view to making available the benefits of certain rules and regulations of the Commission which may effectuate the registration of Registrable Securities or permit the sale of Registrable Securities to the public without registration, the Company agrees to: (a) exercise 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 the Warrant or 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 (assuming exercise of the Warrant for this purpose). ARTICLE III Representations and Warranties ------------------------------ The Company represents and warrants to, and agrees with, J.P. Morgan and each of the Holders from time to time of Registrable Securities that: (a) The compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company 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 qualifications as may be required under State securities or blue sky laws in connection with the offering and distribution of the Registrable Securities. (b) This Agreement has been duly authorized, executed and delivered by the Company. ARTICLE IV Termination ----------- This Agreement shall terminate immediately following the moment at which there exist no securities of the Company that constitute Registrable Securities; provided, however, that Section 2.7 hereof shall survive indefinitely. ARTICLE V Miscellaneous ------------- 5.1 Recapitalization, Exchanges, etc. Affecting the Common Stock. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (a) the Registrable Securities and (b) any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution for the Registrable Securities, by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. In the event of any change in the capitalization of the Company as a result of any stock split, stock dividend or stock combination, the provisions of this Agreement shall be appropriately adjusted. 5.2 Injunctive Relief. It is hereby agreed and acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved Person will be irreparably damaged and will not have an adequate remedy at law. Any such Person shall, therefore, in addition to any other remedies available under applicable law, be entitled to injunctive relief, including specific performance, to enforce such obligations, without the posting of any bond, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 5.3 Parties in Interest. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and assigns of the parties hereto. In the event that any transferee of any Holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing of any kind, be deemed a party hereto for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. 5.4 Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statements as to the results thereto) made by or on behalf of any Holder of Registrable Securities, any director, officer or partner of such Holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive delivery of and payment for the Registrable Securities pursuant to the Warrant and the transfer of Registrable Securities by such Holder. 5.5 Amendment; Waiver. ----------------- (a) This Agreement may be amended only by a written instrument signed by the Company and by Holders holding more than 66% of the then outstanding Registrable Securities and, in the case of any amendment that adversely affects any Holder or all of the members of any group of Holders differently from any of the other Holders, by such Holder or the holders of more than 66% in interest of the securities of the Company held by such group of Holders. (b) No provision of this Agreement may be waived orally, but only by a written instrument signed by the party against whom enforcement of such waiver is sought. Holders shall be bound from and after the date of the receipt of a written notice from the Company setting forth such amendment or waiver, whether or not the Registrable Securities shall have been marked to indicate such amendment or waiver. 5.6 Notices. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing (including a writing delivered by facsimile transmission) and shall be deemed to have been duly given if delivered personally, or sent by either certified or registered mail, return receipt requested, postage prepaid, or by overnight courier guaranteeing next day delivery, or by telex or telecopier, at the following addresses: if to the Company: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: President Telecopier: (717) 975-3762 with a copy to Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022-3897 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 J.P. Morgan may, by written notice given to the Company in accordance with this Section 4.5, change the address to which such notice or other communications are to be sent to it. All such notices and communications shall be deemed to have been given on the date of delivery thereof, if delivered by hand, on the fifth day after the mailing thereof, if mailed, on the next day after the sending thereof, if by overnight courier and when receipt is acknowledged, if telecopied. 5.7 Inspection. So long as this Agreement shall be in effect, this Agreement and any amendments hereto shall be made available for inspection by any Holder at the principal offices of the Company. 5.8 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 5.9 Headings. Article, section and paragraph headings are inserted for convenience only and do not constitute a part of this Agreement. 5.10 Integration. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to this subject matter. 5.11 Illegality. In case any provision in this Agreement shall be declared or held invalid, illegal or unenforceable, in whole or in part, whether generally or in any particular jurisdiction, such provision shall be deemed amended to the extent, but only to the extent, necessary to cure such invalidity, illegality or unenforceability, and the validity, legality and enforceability of the remaining provisions, both generally and in every other jurisdiction, shall not in any way be affected or impaired thereby. 5.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall 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 undersigned have executed this Agreement as of the date set forth above. RITE AID CORPORATION By: /s/ Elliot S. Gerson ___________________________________ Its: Senior Executive Vice President, General Counsel and Secretary J.P. MORGAN VENTURES CORPORATION By: /s/ John A. Major, Jr. ____________________________________ Title: Managing Director EX-4 5 EXHIBIT 4.3 - WARRANT Exhibit 4.3 THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER ARE SUBJECT TO AND HAVE THE BENEFIT OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 27,1999 BETWEEN RITE AID CORPORATION AND J.P. MORGAN VENTURES CORPORATION, A COPY OF WHICH IS ON FILE WITH RITE AID CORPORATION. Dated: October 27, 1999 WARRANT TO PURCHASE 2,500,000 SHARES OF COMMON STOCK OF RITE AID CORPORATION EXPIRING SEPTEMBER 23, 2002 THIS IS TO CERTIFY THAT, for value received, J.P. MORGAN VENTURES CORPORATION or registered assigns ("HOLDER") is entitled to purchase from RITE AID CORPORATION, a Delaware corporation ("COMPANY"), at any time or from time to time after 9:00 a.m., New York City time, on the date hereof and prior to 5:00 p.m., New York City time, on September 23, 2002 at the place where the Warrant Agency is located, at the Exercise Price, the number of shares of Common Stock of Company, par value $1.00 per share, shown above, all subject to adjustment and upon the terms and conditions hereinafter provided. Certain terms used in this Warrant are defined in Article 4. ARTICLE 1 EXERCISE OF WARRANTS SECTION 1.1 Method of Exercise. To exercise this Warrant, in whole or in part, the Holder shall deliver on any Business Day to Company, at the Warrant Agency, (a) this Warrant, (b) a written notice of such Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased (which shall be a whole number of shares if for less than all the shares then issuable hereunder), the method of payment elected by the holder pursuant to clause (c) below, the denominations of the share certificate or certificates desired and the name or names in which such certificates are to be registered, and (c) payment of the Exercise Price with respect to such shares. Such payment may be made, at the option of the Holder, either (a) by cash, certified or bank cashier's check or wire transfer in an amount equal to the product of (i) the Exercise Price times (ii) the number of Warrant Shares for which this Warrant is being exercised or (b) by receiving from Company the number of Warrant Shares equal to (i) the number of Warrant Shares for which this Warrant is being exercised minus (ii) the number of Warrant Shares having a value, based on the average reported closing prices on the five Trading Days immediately prior to the date of such exercise, equal to the product of (x) the Exercise Price times (y) the number of Warrant Shares as to which this Warrant is being exercised. Company shall, as promptly as practicable and in any event within seven days after receipt of such notice and payment, execute and deliver or cause to be executed and delivered, in accordance with such notice, a certificate or certificates representing the aggregate number of shares of Common Stock to be issued pursuant to such notice together with cash in lieu of any fractions of a share as provided in Section 1.3. The share certificate or certificates so delivered shall be in such denominations as may be specified in such notice, and shall be issued in the name of the Holder or such other name or names as shall be designated in such notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and such Holder or any other Person so designated to be named therein shall be deemed for all purposes to have become a holder of record of shares, as of the date the aforementioned notice and payment is received by Company. If this Warrant shall have been exercised only in part, Company shall, at the time of delivery of such certificate or certificates, deliver to the Holder a new Warrant evidencing the rights to purchase the remaining shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder specified in such notice, appropriate notation may be made on this Warrant which shall then be returned to the Holder. Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of share certificates and new Warrants, except that, if share certificates or new Warrants shall be registered in a name or names other than the name of the Holder, funds sufficient to pay all transfer taxes payable as a result of such transfer shall be paid by the Holder at the time of delivery of the aforementioned notice of exercise or promptly upon receipt of a written request of Company for payment. SECTION 1.2 Shares to Be Fully Paid and Nonassessable. All shares of Common Stock issued upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable and, if the Common Stock is then listed on any national securities exchange or quoted on NASDAQ, shall be duly listed or quoted thereon, as the case may be. SECTION 1.3 No Fractional Shares Required to Be Issued. Company shall not be required to issue fractions of shares of Common Stock upon exercise of this Warrant. If any fraction of a share would, but for this Section, be issuable upon final exercise of this Warrant, in lieu of such fractional share Company shall pay to the Holder, in cash, an amount equal to the same fraction of the closing price per share of the Common Stock on the Trading Day immediately prior to the date of such exercise. SECTION 1.4 Share Legend. Each certificate for shares of Common Stock issued upon exercise of this Warrant, unless at the time of exercise such shares are registered under the Securities Act, shall bear the following legend: "This security has not been registered under the Securities Act of 1933 and may not be sold or offered for sale unless registered under said Act and any applicable state securities laws or unless an exemption from such registration is available. This security is also subject to and has the benefit of a Registration Rights Agreement dated as of October 27, 1999 between Rite Aid Corporation and J.P. Morgan Ventures Corporation, copies of which are on file with Rite Aid Corporation." Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public offering pursuant to a registration statement under the Securities Act) shall also bear such legend unless, in the opinion of counsel selected by the holder of such certificate (who may be an employee of such holder) and reasonably acceptable to Company, the securities represented thereby need no longer be subject to restrictions on resale under the Securities Act. SECTION 1.5 Reservation. Company has duly reserved and will keep available for issuance upon exercise of the Warrants the total number of Warrant Shares deliverable from time to time upon exercise of all Warrants from time to time outstanding. ARTICLE 2 WARRANT AGENCY; TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS SECTION 2.1 Warrant Agency. As long as this Warrant remains outstanding, Company shall perform the obligations of and be the warrant agency with respect to the Warrant (the "WARRANT AGENCY") at its address set forth on the signature page or at such other address as Company shall specify by notice to the Holder. SECTION 2.2 Ownership of Warrant. Company may deem and treat the person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by any person other than Company) for all purposes and shall not be affected by any notice to the contrary, until due presentment of this Warrant for registration of transfer as provided in this Article 2. SECTION 2.3 Transfer of Warrant. Company agrees to maintain at the Warrant Agency books for the registration of transfers of the Warrant, and transfer of this Warrant and all rights hereunder shall be registered, in whole or in part, on such books, upon surrender of this Warrant at the Warrant Agency, together with a written assignment of this Warrant duly executed by the Holder or its duly authorized agent or attorney, with (if the Holder is a natural person) signatures guaranteed by a bank or trust company or a broker or dealer registered with the NASD, and funds sufficient to pay any transfer taxes payable upon such transfer. Upon surrender and, if required, such payment, Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in the instrument of assignment (which shall be whole numbers of shares only) and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, if any, and this Warrant shall promptly be canceled. SECTION 2.4 Division or Combination of Warrants. This Warrant may be divided or combined with other Warrants upon presentment hereof and of any Warrant or Warrants with which this Warrant is to be combined at the Warrant Agency, together with a written notice specifying the names and denominations (which shall be whole numbers of shares only) in which the new Warrant or Warrants are to be issued, signed by the Holder and the holders thereof or their respective duly authorized agents or attorneys. Subject to compliance with Section 2.3 as to any transfer or assignment which may be involved in the division or combination, Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. SECTION 2.5 Loss, Theft, Destruction of Warrant Certificates. Upon receipt of evidence satisfactory to Company of the ownership of and the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to Company (it being understood and agreed that if the holder of such Warrant is J.P. Morgan & Co. Incorporated or one of its subsidiaries, then a written agreement of indemnity given by such holder alone shall be satisfactory to Company and no further security shall be required) or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, Company will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of shares of Common Stock. SECTION 2.6 Expenses of Delivery of Warrants. Company shall pay all expenses, taxes (other than transfer taxes) and other charges payable in connection with the preparation, issuance and delivery of Warrants hereunder. ARTICLE 3 ANTIDULUTION PROVISIONS SECTION 3.1 Adjustment Generally. The Exercise Price and the number of shares of Common Stock (or other securities or property) issuable upon exercise of this Warrant shall be subject to adjustment from time to time, as follows: SECTION 3.2 Common Stock Dividends. In case at any time after the date hereof, Company shall pay or make a dividend or other distribution on all or any portion of its Common Stock or shall make a dividend or other distribution on any other class of Capital Stock of Company which dividend or distribution includes Common Stock, the Exercise Price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be decreased by multiplying such Exercise Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such decrease to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (i), the number of shares of Common Stock at anytime outstanding shall not include shares held in the treasury of Company but shall include shares issuable in respect of scrip Common Stock. If any dividend or distribution of the type described in this Section 3.2 is declared but not so paid or made, the Exercise Price shall again be adjusted to be the Exercise Price which would then be in effect if such dividend or distribution had not been declared. SECTION 3.3 Common Stock Rights. In case at any time after the date hereof, Company shall pay or make a dividend or other distribution on all of its Common Stock consisting of, or shall otherwise issue to all holders of its Common Stock, rights, warrants or options (not being available on an equivalent basis to the Holder of this Warrant upon exercise) entitling the holders of its Common Stock to subscribe for or purchase Common Stock at a price per share less than the current market price per share (determined as provided in Section 3.9) of the shares of Common Stock on the date fixed for the determination of stockholders entitled to receive such rights, warrants or options (other than pursuant to a dividend reinvestment plan), the Exercise Price in effect at the opening of business on the day following the date fixed for such detennination shall be decreased by multiplying such Exercise Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such decrease to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (ii), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of Company but will include shares issuable in respect of scrip certificates, if any, issued in lieu of fractions of shares of Common Stock. Company will not issue any rights or warrants in respect of Common Stock held in the treasury of Company (or, if rights or warrants are issued in respect of all of the Common Stock of Company, will not exercise any such rights or warrants in respect of Common Stock held in the treasury of Company). In the event that such rights or warrants are not so issued, the Exercise Price shall again be adjusted to be the Exercise Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such current market price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants. The value of such consideration, if other than cash, shall be determined in the reasonable good faith judgment of the Board of Directors of Company, whose determination shall be conclusive. SECTION 3.4 Common Stock Subdivisions and Combinations. In case at any time after the date hereof, all or any portion of the Common Stock outstanding shall be subdivided into a greater number of shares of Common Stock, the Exercise Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely in case at any time after the date hereof, all or any portion of the shares of Common Stock outstanding shall each be combined into a smaller number of shares of Common Stock, the Exercise Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. SECTION 3.5 Distributions of Property. In case at any time after the date hereof, Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness or assets (including securities, rights, warrants or options, but excluding any rights, warrants, or options referred to in Section 3.3 as entitling the holders of Common Stock to subscribe for or purchase Common Stock at a price per share less than the current market price, any dividend or distribution paid exclusively in cash, any dividend or distribution referred to in Section 3.2 and any dividend or distribution upon a merger or consolidation referred to in Section 3.16), the Exercise Price shall be decreased so that the same shall equal the rate determined by multiplying the Exercise Price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in Section 3.9) of the Common Stock on the date fixed for such determination less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of the portion of the assets or evidence of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. If any dividend or distribution of the type described in this Section 3.5 is declared but not so paid or made, the Exercise Price shall again be adjusted to the Exercise Price which would then be in effect if such dividend or distribution had not been declared. SECTION 3.6 Special Cash Distributions. In case at any time after the date hereof, Company shall, by dividend or otherwise, make a distribution to all holders of its Common Stock consisting exclusively of cash (excluding any cash that is distributed upon a merger or consolidation or a sale or transfer of all or substantially all of the assets of Company to which Section 3.16 applies or as part of a distribution referred to in Section 3.5) in an aggregate amount that, combined together with (i) the aggregate amount of any other distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this Section 3.6 has been made and (ii) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of consideration payable in respect of any tender offer by Company or any of its Subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to Section 3.7 has been made, exceeds 12.5% of the product of the current market price per share of Common Stock on the date for the determination of holders of Common Stock entitled to receive such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date for determination, the Exercise Price shall be decreased so that the same shall equal the rate determined by multiplying the Exercise Price in effect immediately prior to the close of business in the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (A) the numerator of which shall be equal to the current market price per share (determined as provided in Section 3.9) of the Common Stock on the date fixed for such determination less an amount equal to the quotient of (x) the excess of such combined amount over such 12.5% and (y) the number of shares of Common Stock outstanding on such date for determination and (B) the denominator of which shall be equal to the current market price per share (determined as provided in Section 3.9) of the Common Stock on such date for determination. If any dividend or distribution of the type described in this Section 3.6 is declared but not so paid or made, the Exercise Price shall again be adjusted to the Exercise Price which would then be in effect if such dividend or distribution had not been declared. SECTION 3.7 Tender Offers. In case a tender or exchange offer made by Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive) that combined together with (i) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive) as of the expiration of such tender or exchange offer, of consideration payable in respect of any other tender or exchange offer, by Company or any Subsidiary of Company for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender or exchange offer and in respect of which no adjustment, pursuant to this Section 3.7 has been made and (ii) the aggregate amount of any distributions to all holders of Company's Common Stock made exclusively in cash within 12 months preceding the expiration of such tender or exchange offer and in respect of which no adjustment pursuant to Section 3.6 has been made, exceeds 12.5% of the product of the current market price per share of the Common Stock (determined as provided in Section 3.9) as of the last time (the "EXPIRATION TIME") tenders or tenders could have been made pursuant to such tender or exchange offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Exercise Price shall be decreased so that the same shall equal the rate determined by multiplying the Exercise Price immediately prior to the close of business on the date of the Expiration Time by a fraction (A) the numerator of which shall be equal to (1) the product of (x) the current market price per share of the Common Stock (determined as provided in Section 3.9) on the date of the Expiration Time and (y) the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the date of the Expiration Time less (2) the amount of cash plus the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares, and (B) the denominator of which shall be equal to the product of (x) the current market price per share of the Common Stock (determined as provided in Section 3.9, as of the Expiration Time and (y) the number of shares of Common Stock outstanding (including any tendered or exchanged shares) as of the Expiration Time less the number of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "PURCHASED SHARES"). In the event that Company is obligated to purchase shares pursuant to any such tender offer, but Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Exercise Price shall again be adjusted to be the Exercise Price which would then be in effect if such tender offer had not been made. SECTION 3.8 Reclassifications. The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 3.16 applies) shall be deemed to involve (i) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and "the date fixed for such determination" within the meaning of Section 3.5)) and (ii) a subdivision or combination, as the case may be, of the number of Common Stock outstanding immediately prior to such reclassification into the number of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective," as the case may be, and "the day upon which such subdivision or combination becomes effective", within the meaning of Section 3.4. SECTION 3.9 Current Market Price. For the purpose of any computation under Section 3.3, 3.5, 3.6 or 3.7, the current market price per share of Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share for the five consecutive Trading Days immediately preceding the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. For purposes of this paragraph, the term "ex date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the applicable securities exchange or in the applicable securities market without the right to receive such issuance or distribution. SECTION 3.10 Optional Reductions. Company may make such reductions in the Exercise Price, in addition to those required by Sections 3.2 to 3.7, as it considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. Company from time to time may reduce the Exercise Price by any amount for any period of time if the period is at least twenty days, the reduction is irrevocable during the period and the Board of Directors (or, to the extent permitted by applicable law, a duly authorized committee thereof) shall have made a determination that such reduction would be in the best interests of Company, which determination shall be conclusive. Whenever the Exercise Price is reduced pursuant to the preceding sentence, Company shall mail to the Holder a notice of the reduction at least fifteen days prior to the date the reduced Exercise Price takes effect, and such notice shall state the reduced Exercise Price and the period it will be in effect. SECTION 3.11 Adjustments to Warrant Shares. Upon any adjustment to the Exercise Price pursuant to the foregoing provisions of this Article 3, the number of shares of Common Stock for which this Warrant may be exercised shall be adjusted by multiplying the number of shares of Common Stock for which this Warrant was exercisable immediately prior to such adjustment by a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to such adjustment and the denominator of which shall be the Exercise Price in effect immediately after such adjustment. SECTION 3.12 Certain Limitations. Notwithstanding any other provision of this Article 3, no adjustment to the Exercise Price shall reduce the Exercise Price below the then par value per share of the Common Stock, and any such purported adjustment shall instead reduce the Exercise Price to such par value. Company hereby covenants not to take any action (1) to increase the par value per share of the Common Stock, (2) that would or does result in any adjustment in the Exercise Price that would cause the Exercise Price to be less than the then par value per share of the Common Stock or (3) that would or does result in any adjustment to the number of shares for which this Warrant may be exercised that would cause such number to exceed the number of authorized but unissued shares of Common Stock not reserved for other purposes. SECTION 3.13 Minimum Adjustment. Notwithstanding any of the foregoing provisions of this Article 3, no adjustment in the Exercise Price need be made until all cumulative adjustments amount to 1% or more of the Exercise Price as last adjusted. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. SECTION 3.14 Notice to Holder. Whenever the Exercise Price is adjusted as herein provided, Company shall compute the adjusted Exercise Price and number of Warrant Shares and shall prepare a certificate signed by the Treasurer of Company setting forth the adjusted Exercise Price and number of Warrant Shares and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be delivered to the Holder. SECTION 3.15 Deferred Delivery. In any case in which this Article 3 provides that an adjustment shall become effective immediately after a record date for an event, Company may defer until the occurrence of such event (x) issuing to the Holder upon exercise of this Warrant after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such exercise by reason of the adjustment required by such event over and above the Common Stock issuable upon such exercise before giving effect to such adjustment and (y) paying to such Holder any amount in cash in lieu of any fractional share of Common Stock pursuant to Section 1.03. SECTION 3.16 Merger and Consolidation. In the event that Company shall be a party to any transaction, including without limitation any (i) recapitalization or reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of the Common Stock), (ii) any consolidation of Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger which does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company), (iii) any sale or transfer of all or substantially all of the assets of the Company or (iv) any compulsory share exchange, pursuant to which the Common Stock is converted into the right to receive other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby the Holder of this Warrant shall have the right thereafter, to exercise this Warrant for the kind and amount of securities, cash and other property receivable upon such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock for which this Warrant might have been exercised immediately prior to such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange. Company or the person formed by such consolidation or resulting from such merger or which acquires such assets or which acquires Company's shares, as the case may be, shall make provisions in its certificate or articles of incorporation or other constituent document to establish such right. Such certificate or articles of incorporation or other constituent document shall provide for adjustments which, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 3. The above provisions shall similarly apply to successive recapitalization, reclassifications, consolidations, mergers, sales, transfers or share exchanges. ARTICLE 4 DEFINITIONS The following terms, as used in this Warrant, have the following meanings: "BUSINESS DAY" means any day excluding Saturday, Sunday and any day on which banking institutions located in New York are authorized by law or other governmental action to be closed. "CAPITAL STOCK" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, "COMPANY" means Rite Aid Corporation, a Delaware corporation, and its successors. "EXERCISE PRICE" means $11.00 per share of Common Stock, subject to adjustment pursuant to Article 3. "HOLDER" has the meaning set forth in the first paragraph of this Warrant. "NASD" means The National Association of Securities Dealers, Inc. "NASDAQ" means The National Association of Securities Dealers, Inc. Automated Quotation System. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "SECURITIES ACT" means the Securities Act of 1933, as amended, and rules and regulations of the Securities and Exchange Commission thereunder. "SUBSIDIARY" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "TRADING DAY" means (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for business or (y) if the applicable security is quoted on the Nasdaq National Market, a day on which trade may be made on the Nasdaq National Market or (z) if the applicable security is not otherwise listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "WARRANT AGENCY" has the meaning set forth in Section 2.1. "WARRANT SHARES" means the shares of Common Stock issuable upon the exercise of the Warrants. "WARRANTHOLDER" means a holder of a Warrant. All references herein to "DAYS" shall mean calendar days unless otherwise specified. ARTICLE 5 MISCELLANEOUS SECTION 5.1 Notices. Notices and other communications provided for herein shall be in writing and may be given by mail, courier, confirmed telex or facsimile transmission and shall, unless otherwise expressly required, be deemed given when received or, if mailed, four Business Days after being deposited in the United States mail with postage prepaid and properly addressed. In the case of the Holder, such notices and communications shall be addressed to its address as shown on the books maintained by the Warrant Agency, unless the Holder shall notify the Warrant Agency that notices and communications should be sent to a different address (or telex or facsimile number), in which case such notices and communications shall be sent to the address (or telex or facsimile number) specified by the Holder. SECTION 5.2 Amendments. The provisions of this Warrant may be amended, modified or waived only with the written consent of Company and the Holder. SECTION 5.3 Governing Law. THIS WARRANT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW). SECTION 5.4 Transfer; Covenants to Bind Successor and Assigns. All covenants, stipulations, promises and agreements in this Warrant contained by or on behalf of Company or the Holder shall bind its successors and assigns, whether so expressed or not. This Warrant shall be transferable and assignable by the Holder hereof in whole or from time to time in part to any other Person and the provisions of this Warrant shall be binding upon and inure to the benefit of the Holder hereof and its successors and assigns. SECTION 5.5 No Stockholder Rights. Prior to exercise of this Warrant, the Holder shall not be entitled to any rights of a stockholder with respect to the shares of Common Stock purchasable upon exercise, including, without limitation, the right to vote such shares of Common Stock, receive dividends or other distributions thereon, exercise preemptive rights or be notified of stockholder meetings, and, except as explicitly stated herein, the Holder shall not be entitled to any notice or other communication concerning the business or affairs of Company. IN WITNESS WHEREOF, Company has caused this Warrant to be executed in its corporate name by one of its officers thereunto duly authorized, and its corporate seal to be hereunto affixed, attested by its Secretary or an Assistant Secretary, all as of the day and year first above written. RITE AID CORPORATION By: /s/ Elliot S. Gerson _____________________________________ Name: 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 [Corporate Seal] Attest: /s/ Lawrence Gelman - -------------------------------- Name: Lawrence Gelman Title: Secretary EX-10 6 EXHIBIT 10.1 - COMMITMENT LETTER Exhibit 10.1 October 18, 1999 Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Re: Commitment with Respect to Investment in Rite Aid Corporation ---------------------------------- Dear Sirs and Madams: You have requested that Green Equity Investors III (the "Purchaser") commit to purchase 3,000,000 shares of 8% convertible pay-in-kind preferred stock (the "Preferred Stock") of Rite Aid Corporation, a Delaware corporation (the "Company"), on the terms and conditions described below. The closing of the sale of the Preferred Stock is hereinafter referred to as the "Closing". The Closing is expected to occur on October 25, 1999. 1. Authorization of Preferred Stock. The Company has approved the issuance of 3,000,000 shares (the "Preferred Shares") of Preferred Stock to be designated as its "8% Convertible Pay-in-Kind Preferred Stock". The Preferred Stock shall have the relative rights, preferences and privileges, including, without limitation, the right to convert the Preferred Stock into shares of the Company's common stock, par value $1.00 per share (the "Common Stock"), as described in Annex A hereto and to be set forth in a Certificate of Designation to be filed pursuant to Section 151 of the General Corporation Law of the State of Delaware (the "Certificate of Designation"). 2. Sale and Purchase of Stock. The Company will issue and sell to the Purchaser and, subject to the terms and conditions of this Commitment, the Purchaser will purchase from the Company, at the Closing, the Preferred Shares at a purchase price of $100 per share, in immediately available funds. The Closing shall take place on October 25, 1999 at 10:00 a.m. (New York City time) at a place to be agreed by the Company and the Purchaser. 3. Conditions to Closing. The Purchaser's obligation to purchase and pay for the Preferred Shares to be sold to the Purchaser at the Closing is subject to the fulfillment, prior to or concurrently with the Closing, of the following conditions: 3.1 Representations and Warranties. The representations and warranties of the Company contained in this Commitment shall be in all material respects correct when made and at the time of the Closing. 3.2 Certificate of Designation. The Certificate of Designation shall have been duly filed under the laws of the State of Delaware, and the Restated Certificate of Incorporation of the Company, as amended by the Certificate of Designation, shall be in full force and effect, and shall not have been otherwise amended or modified. 3.3 Amendment and Restatement of Credit Facilities. The Company's credit facilities aggregating $2.75 billion shall have been amended and restated, including any necessary waivers thereunder, which amendment and restatement shall contain substantially the terms set forth in the drafts dated October 16, 1999 previously furnished to the Purchaser. 3.4 Registration Rights Agreement. The Company and the Purchaser shall have entered into a registration rights agreement containing substantially the terms described in Annex A hereto (the "Registration Rights Agreement"). 3.5 Legal Opinions. The Purchaser shall have received a legal opinion (which may contain customary assumptions and qualifications) dated the date of the Closing from Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Company, covering the matters set forth on Schedule A hereto. 3.6 No Default. After giving effect to the amendment and restatement of the credit facilities referred to in Section 3.3 hereof, there shall not have occurred and be continuing any default or any event which with notice or passage of time would constitute a default under any of the Company's material agreements with respect to indebtedness for borrowed money. 3.7 Financial Statements. The contemplated restatement of the Company's financial statements for all periods ending prior to the date hereof is not expected to involve an aggregate reduction in the Company's net equity as of August 28, 1999 of more than $700,000,000 on a pre-tax basis. 4. Representations and Warranties. The Company represents and warrants that: 4.1 Organization, Standing, etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into and perform all of its obligations under this Commitment, to issue and sell the Preferred Shares to be issued and sold at the Closing and to carry out the transactions contemplated hereby or thereby. 4.2 Capital Stock and Related Matters. As of September 25, 1999 and without giving effect to the transactions contemplated by this Commitment, the authorized capital stock of the Company consisted of (a) 600,000,000 shares of Common Stock, of which approximately 258,927,199 shares were issued and outstanding and (b) 20,000,000 shares of preferred stock, undesignated as to terms, none of which were outstanding. All of the outstanding shares of Common Stock are validly issued and outstanding, fully paid and non-assessable. As of September 25, 1999 and except (i) as set forth in the Company's Annual Report on Form 10-K for the year ended February 27, 1999, (ii) for employee stock options exercisable for 16,166,529 shares of the Company's Common Stock, (iii) the Company's 5.25% Convertible Notes due 2002 which are currently convertible into 17,986,413 shares of the Company's Common Stock and (iv) stock appreciation rights which may be settled in 6,076,895 shares of the Company's Common Stock, the Company had no outstanding stock or securities convertible into or exchangeable for any shares of its capital stock, or any outstanding rights (either preemptive or other) to subscribe for or to purchase, or any outstanding options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any outstanding calls, commitments or claims of any character relating to, any capital stock or any stock or securities convertible into or exchangeable for any capital stock of the Company. 4.3 Governmental Consents, etc. No consent, approval or authorization of, or declaration or filing with, any governmental authority on the part of the Company is required for the valid execution and delivery of this Commitment, the valid offer, issue, sale and delivery of the Preferred Shares pursuant to this Commitment or the valid issue and delivery of shares of Common Stock issuable upon conversion of the Preferred Stock. 4.4 Offering of Securities. Neither the Company nor any person acting on its behalf has offered the Preferred Stock or any similar securities of the Company to, or solicited any offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any person or persons other than the Purchaser in such manner as would subject the offering, issuance or sale of any of the Preferred Shares to the provisions of Section 5 of the Securities Act. Neither the Company nor any Person acting on behalf of the Company has taken or will take any action which would subject the offering, issuance or sale of any of the Preferred Shares to the provisions of Section 5 of the Securities Act. 4.5 Integration. Neither the Company nor any affiliate (as such term is defined in Rule 501(b) under the Securities Act) has, directly or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Preferred Shares, in a manner that would require the registration of the Securities under the Securities Act. 4.6 Enforceability. This Commitment has been duly authorized, and executed and delivered by the Company and (assuming the due authorization, execution and delivery thereof by the Purchaser) constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally, or by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity). 4.7 Compliance with Other Instruments, etc. The execution and delivery by the Company of this Commitment and the issuance and sale of the Preferred Shares will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the property or assets of the Company is subject, nor will such action result in any violation of the provisions of the certificate of incorporation or by-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its properties, except in each case as would not, individually or in the aggregate have a material adverse effect on the Company's business, results of operations or financial condition. 5. Investment Representations. The Purchaser understands that neither the Preferred Shares nor any Common Stock issuable upon conversion, if any, of the Preferred Shares has been registered under the Securities Act and that the certificates for the Preferred Shares and such Common Stock will bear a legend to that effect. The Purchaser also understands that the Preferred Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act, based in part upon their representations contained in this Commitment. The Purchaser hereby represents and warrants as follows: 5.1 Acquisition for Own Account. The Purchaser is acquiring the Preferred Shares for its own account for investment and not with a view toward distribution in a manner which would violate the Securities Act. 5.2 Ability to Protect Own Interests. The Purchaser represents that by reason of its business or financial experience, or the business and financial experience of its management, the Purchaser has the capacity to protect its own interests in connection with the transaction contemplated in this Commitment. The Purchaser is not a corporation formed for the specific purpose of consummating this transaction. 5.3 Accredited Investor. The Purchaser represents that it is an "accredited investor" as that term is defined in Regulation D promulgated under the Securities Act. 5.4 Access to Information. The Purchaser has been given access to all Company documents, records, and other information, have received physical delivery of all those which the Purchaser has requested, and has had adequate opportunity to ask questions of, and receive answers from, the Company's officers, employees, agents, accountants, and representatives concerning the Company's business, operations, financial condition, assets, liabilities, and all other matters relevant to its investment in the Preferred Shares. 5.5 Compliance with Laws. The Purchaser and its transferees will comply with all filing and other reporting obligations under all applicable law which shall be applicable to Purchaser with respect to the Preferred Stock and to the Common Stock issuable or issued on conversion of the Preferred Stock. 5.6 Enforceability. This Commitment has been duly authorized, and executed and delivered by the Purchaser and (assuming the due authorization, execution and delivery thereof by the Company) constitutes the valid and binding obligation of the Purchaser, enforceable in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally, or by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity). 6. Reservation of Common Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon conversion of the Preferred Stock, the number of shares of Common Stock from time to time issuable upon conversion of all shares of the Preferred Stock at the time outstanding. All shares of Common Stock issuable upon conversion of the Preferred Stock shall be duly authorized and, when issued upon such conversion, shall be validly issued, fully paid and non-assessable. 7. Transfer Restrictions. 7.1 Restrictive Legends. Except as otherwise permitted by this Section 7, each certificate for Preferred Stock (including each certificate for Preferred Stock issued upon the transfer of any certificate for Preferred Stock and each certificate issued in payment of dividends with respect to the Preferred Stock) shall be stamped or otherwise imprinted with a legend in substantially the following form: "The shares represented by this Certificate and any shares of Common Stock issuable upon conversion of any such shares have not been registered under the Securities Act of 1933 and may not be transferred in the absence of such registration or an exemption therefrom under such Act. Such shares and any such shares of Common Stock may be transferred only in a transaction exempt from registration under the Act or pursuant to a registration statement under the Act." Except as otherwise permitted by this Section 7, each certificate for Common Stock issued upon the conversion of any of the Preferred Stock, and each certificate issued upon the transfer of any such Common Stock, shall be stamped or otherwise imprinted with a legend in substantially the following form: "The shares represented by this certificate have not been registered under the Securities Act of 1933 and may not be transferred in the absence of such registration or an exemption therefrom under such Act. Such shares may be transferred only in a transaction exempt from registration under the Act or pursuant to a registration statement under the Act." 7.2 Termination of Restrictions. The restrictions imposed by this Section 7 upon the transferability of Preferred Stock and Common Stock shall cease and terminate as to any particular securities when such restrictions are no longer required in order to insure compliance with the Securities Act. Whenever such restrictions shall cease and terminate as to any securities, the holder thereof shall be entitled to receive from the Company, without expense (other than applicable transfer taxes, if any), new certificates for such securities of like tenor not bearing the applicable legends required by Section 7.1 hereof. 8. Survival of Representations and Warranties. The representations and warranties contained in this Commitment shall survive the execution and delivery of this Commitment and the Closing. No written or oral statements made by or on behalf of the Company, other than in this Commitment, shall constitute representations or warranties within the meaning of this Commitment. 9. Amendments and Waivers. Any term of this Commitment may be amended or modified and the observance of any term of this Commitment may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Purchaser. 10. Termination. This Commitment may be terminated (a) by the mutual written consent of the Purchaser and the Company at any time or (b) by the Purchaser or the Company if the Closing shall not have been consummated on or before November 15, 1999. 11. Standstill Agreement. Concurrently with the Closing, the Company and the Purchaser agree to enter into a two-year standstill agreement containing customary terms and provisions. 12. Election of Leonard Green and Jonathan Sokoloff as Directors. After the Closing, it is agreed that Leonard Green will be elected to fill the vacancy created by the resignation of Martin Grass, and that Jonathan Sokoloff will be elected as a director, both of which will be representatives of the Preferred Stock. 13. Closing Fee. Concurrently with the Closing, the Company agrees to pay to Leonard Green & Partners a fee of $3 million. 14. Consulting Fee. The Company shall pay to Leonard Green & Partners a consulting fee of $1 million on each of the first, second and third anniversaries of the Closing. 15. Miscellaneous. This Commitment shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns and affiliates of the parties hereto, whether so expressed or not. Except as aforesaid, this Commitment shall not inure to the benefit of any third party. This Commitment embodies the entire agreement and understanding between the Purchaser and the Company and supersedes all prior agreements and understandings relating to the subject matter hereof. This Commitment shall be construed and enforced in accordance with and governed by the law of the State of New York without regard to the principles regarding conflicts of laws. The headings in this Commitment are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. This Commitment 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 of the Company and the Purchaser represent and warrant that it is duly authorized to execute and deliver and perform its obligations under this commitment letter and that the execution of this letter does not violate any contract or law or require any third party consents. Very truly yours, Green Equity Investors III, L.P. By: Leonard Green & Partners, L.P. By: LGP Management, Inc. By: /s/ Jonathan Sokoloff __________________________________ Name: Jonathan Sokoloff Title: Accepted and agreed to as of the date first written above: Rite Aid Corporation By: /s/ Elliot S. Gerson ________________________________ Name: Elliot S. Gerson Title: Executive Vice President Schedule A ---------- Matters to be Covered in Legal Opinion of Skadden, Arps, Slate, Meagher & Flom LLP ---------------------------------------- 1. The issuance and sale of the Preferred Shares being sold by the Company to you have been duly authorized by the Company and, upon payment therefor and delivery of certificates evidencing the Preferred Shares in accordance with the Commitment, will be validly issued, fully paid and non-assessable. The Preferred Shares to be issued by the Company to you at the Closing shall be entitled to all the rights, preferences and privileges set forth in the Certificate of Designation. The stock certificates evidencing the Preferred Shares will, upon due execution thereof by the Company, conform in all material respects to the requirements of Section 151(f) of the DGCL (as defined below). 2. The Commitment has been duly authorized, executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 3. To such counsel's knowledge, the execution and delivery of the Commitment by the Company and the issuance and sale of the Preferred Shares pursuant thereto will not (i) require any consent, approval, authorization, or other order of, or qualification with, any Governmental Authorities pursuant to Applicable Laws, (ii) conflict with the Certificate of Incorporation or the By-laws, (iii) constitute a violation of or default under the terms of any Applicable Contract (except that such counsel need not express any opinion as to any covenant, restriction or provision of any such agreement or instrument with respect to financial covenants, ratios or tests or any aspect of the financial condition or results of operations of the Company) or (iv) violate or conflict with, or result in any contravention of, any Applicable Law or any Applicable Order. For purposes of such opinion: (i) the term "Applicable Laws" means the General Corporation Law of the State of Delaware (the "DGCL") and those laws, rules and regulations of the State of New York and the federal laws of the United States of America, in each case, which, in such counsel's experience, are normally applicable to transactions of the type contemplated by the Commitment (other than the United States federal securities laws, state and foreign securities or Blue Sky laws, antifraud laws, the rules and regulations of the National Association of Securities Dealers, Inc.), but without having made any special investigation with respect to any other laws, rules or regulations; (ii) the term "Applicable Contracts" means those instruments or agreements that are filed as exhibits to the Company's Annual Report on Form 10-K for the year ended February 27, 1999; (iii) the term "Governmental Authorities" means any court, regulatory body, administrative agency, or governmental body of the State of New York, the State of Delaware or the United States of America having jurisdiction over the Company under Applicable Laws; and (iv) the term "Applicable Orders" means those judgments, orders or decrees, if any, of any Governmental Authorities specifically identified to such counsel by the Company to be applicable to the Company. EX-10 7 EXHIBIT 10.2 - TERM LOAN AGREEMENT Exhibit 10.2 $1,300,000,000 TERM LOAN AGREEMENT dated as of October 25, 1999 among Rite Aid Corporation, The Banks from time to time parties hereto and Morgan Guaranty Trust Company of New York, as Administrative Agent ------------------------------------ JP Morgan Securities Inc., Lead Arranger and Book Runner TABLE OF CONTENTS1 --------------- PAGE ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions.......................................1 SECTION 1.02. Accounting Terms and Determinations..............16 SECTION 1.03. Other Definitional Provisions....................16 ARTICLE 2 THE CREDITS SECTION 2.01. Commitments to Lend..............................17 SECTION 2.02. Notice of Borrowing..............................17 SECTION 2.03. Notice to Banks; Funding of Loans................18 SECTION 2.04. Notes............................................19 SECTION 2.05. Maturity of Loans................................19 SECTION 2.06. Interest Rates...................................19 SECTION 2.07. Method of Electing Interest Rates................21 SECTION 2.08. Fees.............................................22 SECTION 2.09. Reduction Events; Mandatory Prepayments and Commitment Reductions..........................23 SECTION 2.10. Optional Prepayments.............................25 SECTION 2.11. General Provisions as to Payments................25 SECTION 2.12. Funding Losses...................................26 SECTION 2.13. Computation of Interest..........................26 SECTION 2.14. Regulation D Compensation........................26 ARTICLE 3 CONDITIONS SECTION 3.01. Closing Date.....................................27 SECTION 3.02. Subsequent Borrowings............................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...................................29 SECTION 4.04. Financial Information............................29 SECTION 4.05. Full Disclosure..................................30 SECTION 4.06. Litigation.......................................30 SECTION 4.07. Compliance with ERISA............................30 SECTION 4.08. Taxes............................................31 SECTION 4.09. Subsidiaries.....................................31 SECTION 4.10. Environmental Matters............................31 SECTION 4.11. Year 2000 Compliance.............................32 SECTION 4.12. Pledge Agreement.................................32 ARTICLE 5 COVENANTS SECTION 5.01. Information......................................32 SECTION 5.02. Payment of Obligations...........................35 SECTION 5.03. Maintenance of Property; Insurance...............35 SECTION 5.04. Conduct of Business and Maintenance of Existence.35 SECTION 5.05. Compliance with Laws.............................36 SECTION 5.06. Inspection of Property, Books and Records........36 SECTION 5.07. Restriction on Other Agreements..................36 SECTION 5.08. Restriction on Debt of Subsidiaries..............36 SECTION 5.09. Restriction on Sales with Leases Back............37 SECTION 5.10. Restriction on Liens.............................37 SECTION 5.11. Capital Expenditures.............................39 SECTION 5.12. Capitalization Leverage Ratio....................39 SECTION 5.13. Cash Flow Leverage Ratio.........................39 SECTION 5.14. Fixed Charge Coverage............................39 SECTION 5.15. Limitation on Investments and Acquisitions.......40 SECTION 5.16. Consolidations, Mergers and Sales of Assets......40 SECTION 5.17. Use of Proceeds..................................41 SECTION 5.18. Restricted Payments..............................41 SECTION 5.19. Synthetic Leases.................................41 ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default................................42 SECTION 6.02. Notice of Default................................44 ARTICLE 7 THE ADMINISTRATIVE AGENT SECTION 7.01. Appointment and Authorization....................44 SECTION 7.02. Administrative Agent and Affiliates..............44 SECTION 7.03. Action by Administrative Agent...................45 SECTION 7.04. Consultation with Experts........................45 SECTION 7.05. Liability of Administrative Agent................45 SECTION 7.06. Indemnification..................................45 SECTION 7.07. Credit Decision..................................46 SECTION 7.08. Successor Administrative Agent...................46 SECTION 7.09. Administrative Agent's Fees......................46 ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair........................................46 SECTION 8.02. Illegality.......................................47 SECTION 8.03. Increased Cost and Reduced Return................48 SECTION 8.04. Taxes............................................49 SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans...............................51 ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices..........................................52 SECTION 9.02. No Waivers.......................................52 SECTION 9.03. Expenses; Indemnification........................52 SECTION 9.04. Sharing of Set-Offs..............................53 SECTION 9.05. Amendments and Waivers...........................53 SECTION 9.06. Successors and Assigns...........................54 SECTION 9.07. Collateral.......................................56 SECTION 9.08. Governing Law; Submission to Jurisdiction........56 SECTION 9.09. Counterparts.....................................56 SECTION 9.10. WAIVER OF JURY TRIAL.............................56 Commitment Schedule Pricing Schedule 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 - Opinion of Davis Polk & Wardwell, Special Counsel for the Administrative Agent Exhibit D - Assignment and Assumption Agreement Exhibit E - Pledge Agreement TERM LOAN AGREEMENT AGREEMENT dated as of October 25, 1999 among RITE AID CORPORATION, the BANKS from time to time parties hereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent. The parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "ADMINISTRATIVE AGENT" means Morgan Guaranty Trust Company of New York in its capacity as agent for the Banks under the Loan Documents, and its successors in such capacity. "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank. "APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office. "ASSET SALE" means any sale, lease or other disposition (including any such transaction effected by way of merger or consolidation) by the Borrower or any of its Subsidiaries of any asset, but excluding (i) any sale, lease or other disposition by PCS or any of its Subsidiaries, (ii) the sale or other disposition of capital stock of PCS (or of any non-cash proceeds thereof), (iii) dispositions of inventory, cash, cash equivalents and other cash management investments and obsolete, unused or unnecessary equipment, in each case in the ordinary course of business, (iv) dispositions to the Borrower or a Wholly-Owned Consolidated Subsidiary, (v) any Sale and Leaseback Transaction and (vi) sales of accounts receivable pursuant to the Rite Aid Funding LLC receivables securitization facility in existence on the date hereof, or any successor receivables securitization facility, if and to the extent that the amount of financing available thereunder is not increased above that available on the date hereof. "ASSIGNEE" has the meaning set forth in Section 9.06(c). "ATTRIBUTABLE DEBT" means, as to any particular Sale and Leaseback Transaction under which the Borrower or any Subsidiary is at the time liable, at any date as of which the amount thereof is to be determined (i) in the case of any such transaction involving a Capital Lease, the amount on such date of the Capital Lease Obligation thereunder, or (ii) in the case of any other Sale and Leaseback Transaction, the then present value of the minimum rental obligations under such Sale and Leaseback Transaction during the remaining term thereof (after giving effect to any extensions at the option of the lessor) computed by discounting the respective rental payments at the actual interest factor included in such payments or, if such interest factor cannot be readily determined, at the rate of 14% per annum. The amount of any rental payment required to be made under any such Sale and Leaseback Transaction not involving a Capital Lease may exclude amounts required to be paid by the lessee on account of maintenance and repairs, insurance, taxes, assessments, utilities, operating and labor costs and similar charges. "AVAILABILITY PERIOD" means the period from and including the Closing Date to and including November 15, 1999 (or such earlier date on which the unused amount of the Commitments is reduced to zero). "BANK" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. "BASE RATE" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "BASE RATE LOAN" means a Loan that bears interest at a rate per annum, based on the Base Rate pursuant to the Notice of Borrowing, a Notice of Interest Rate Election, the last sentence of Section 2.07(a) or Article 8. "BASE RATE MARGIN" has the meaning specified in the Pricing Schedule. "BENEFIT ARRANGEMENT" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "BORROWER" means Rite Aid Corporation, a Delaware corporation, and its successors. "BORROWER'S 1999 FORM 10-K" means the Borrower's annual report on Form 10-K for the fiscal year ended February 27, 1999, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. "BORROWING" means the aggregation of Loans to be made to the Borrower by the Banks pursuant to Article 2 on a single date and for a single Interest Period. A Borrowing is a "BASE RATE BORROWING" if such Loans are Base Rate Loans or a "EURO-DOLLAR BORROWING" if such Loans are Euro-Dollar Loans. "BUSINESS ACQUISITION" means (i) an Investment by the Borrower or any of its Subsidiaries in any other Person (including an Investment by way of acquisition of securities of any other Person) pursuant to which such Person shall become a Subsidiary or shall be merged into or consolidated with the Borrower or any of its Subsidiaries or (ii) an acquisition by the Borrower or any of its Subsidiaries of the property and assets of any Person (other than the Borrower or any of its Subsidiaries) that constitute substantially all the assets of such Person or any division or other business unit of such Person. "CAPITAL LEASE" means any lease of property which, in accordance with generally accepted accounting principles, should be capitalized on the lessee's balance sheet; and "CAPITAL LEASE OBLIGATION" means the amount of the liability so capitalized in respect of a Capital Lease. "CAPITAL MARKETS TRANSACTION" means the receipt by the Borrower or a Subsidiary of proceeds of (a) an issuance in the public or private capital markets of long-term debt securities, of equity securities or of equity-linked (e.g., trust preferred) securities (other than the LPG Transaction), (b) a Sale and Leaseback Transaction (other than a Sale and Leaseback Transaction (i) between the Borrower and a Wholly-Owned Consolidated Subsidiary or between Wholly-Owned Consolidated Subsidiaries or (ii) entered into in respect of property acquired by the Borrower or a Subsidiary if such Sale and Leaseback Transaction is entered into within 24 months from the date of such acquisition) or (c) bank borrowings under facilities entered into after the Closing Date, to the extent the aggregate incremental financing available thereunder exceeds $200,000,000. "CLOSING DATE" means the date designated by the Borrower pursuant to Section 2.02 as the date of the first borrowing hereunder. "CLOSING PRICE" on any day, with respect to publicly traded securities, means (a) if such securities are listed or admitted for trading on a national securities exchange, the reported last sales price regular way or, if no such reported sale occurs on such day, the average of the closing bid and asked prices regular way on such day, in each case on the principal national securities exchange on which such securities are listed or admitted to trading, or (b) if such securities are not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices in the over-the-counter market on such day as reported by NASDAQ or any comparable system or, if not so reported, as reported by any New York Stock Exchange member firm selected by the Administration Agent for such purpose. "COLLATERAL" means collateral subject to the Collateral Documents. The "COLLATERAL TEST" will be deemed to have been met for purposes of Section 2.09 if either (i) there shall have been no sale or other disposition by the Borrower of the capital stock of PCS and the Required Banks shall not have notified the Borrower of their determination that there has been a material decline in the value of the capital stock of PCS or (ii) the capital stock of PCS shall have been sold for consideration consisting in whole or in part of publicly traded securities held as Collateral under the Loan Documents, and the aggregate Closing Price at the date of determination of such Collateral is at least 200% of the aggregate amount of the Credit Exposures at such date. "COLLATERAL DOCUMENTS" means the Pledge Agreement, any additional pledge agreements required to be delivered pursuant to the Loan Documents and any other instruments or agreements executed pursuant to the foregoing. "COMMITMENT" means (i) with respect to each Bank listed in the Commitment Schedule, the amount set forth opposite the name of such Bank in the Commitment Schedule as its Commitment and (ii) with respect to each Assignee which becomes a Bank pursuant to Section 9.06(c), the amount of the Commitment thereby assumed by it, in each case as such amount may be changed from time to time pursuant to Sections 2.09 and 9.06(c). "COMMITMENT SCHEDULE" means the Schedule attached hereto identified as such. "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the aggregate amount of expenditures by the Borrower and its Consolidated Subsidiaries for plant, property and equipment during such period (including any such expenditure by way of acquisition of a Person or by way of assumption of indebtedness or other obligations of a Person, to the extent reflected as plant, property and equipment), but excluding any such expenditures made (i) for the replacement or restoration of assets to the extent financed by condemnation awards or proceeds of insurance received with respect to the loss or taking of or damage to the asset or assets being replaced or restored and (ii) for assets acquired to the extent financed by a Sale and Leaseback Transaction permitted by Section 5.09. "CONSOLIDATED DEBT" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "CONSOLIDATED EBITDA" for any period, Consolidated Net Income for such period plus, to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) Consolidated Interest Charges, (ii) provision for income taxes, (iii) depreciation and amortization and (iv) charges incurred in connection with store closings not in excess of $48,000,000 and $20,000,000 during the fiscal years ending on or closest to February 28, 2000 and February 28, 2001, respectively; provided that if there shall have been an acquisition or disposition of operations during such period, Consolidated EBITDA shall be calculated on a pro forma basis giving effect thereto as if such acquisition or disposition had occurred on the first day of such period. "CONSOLIDATED INTEREST CHARGES" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Borrower and its Consolidated Subsidiaries during such period. "CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of the Borrower and its Consolidated Subsidiaries (exclusive of (a) any non-cash loss on account of a sale of any drugstore and (b) extraordinary items of gain or loss and other non-recurring items of gain or loss, but only to the extent that such non-recurring items of loss do not (i) involve any cash expenditure by the Borrower during such period or any future period or (ii) exceed $50,000,000 in any fiscal year), determined on a consolidated basis for such period. "CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of assets (less applicable reserves and other properly deductible items) which under generally accepted accounting principles would be included on a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries after deducting therefrom (i) all liabilities and liability items, including amounts in respect of obligations or guarantees of obligations under leases, which under generally accepted accounting principles would be included on such balance sheet, except Funded Debt, capital stock and surplus, surplus reserves and provisions for deferred income taxes, and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, which in each case under generally accepted accounting principles would be included on such consolidated balance sheet. "CONSOLIDATED NET WORTH" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries determined as of such date. "CONSOLIDATED RENT" means, for any period, the consolidated rental expense of the Borrower and its Consolidated Subsidiaries for such period. "CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. "CREDIT EXPOSURE" means, with respect to any Bank, the amount of such Bank's Commitment, if still in existence, or the aggregate outstanding principal amount of such Bank's Loans, if its Commitment is not in existence. "DEBT" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations (and, for purposes of Section 5.10 and the definitions of Material Debt and Material Financial Obligations, all contingent obligations) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed by such Person. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DERIVATIVES OBLIGATIONS" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent. "DRUGSTORE.COM" means drugstore.com, inc., a Delaware corporation, and its successors. "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 the Notice of Borrowing or a Notice of Interest Rate Election. "EURO-DOLLAR MARGIN" has the meaning specified in the Pricing Schedule. "EURO-DOLLAR RATE" means a rate of interest determined pursuant to Section 2.06(b) on the basis of a London Interbank Offered Rate. "EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in Section 2.14. "EVENT OF DEFAULT" has the meaning set forth in Section 6.01. "EXISTING CREDIT AGREEMENT" means the Credit Agreement dated as of January 21, 1999 among the Borrower, the banks party thereto and Morgan Guaranty Trust Company of New York, as administrative agent. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Administrative Agent. "FIXED CHARGE COVERAGE RATIO" means at any date, the ratio of (i) Consolidated EBITDA plus Consolidated Rent to (ii) Consolidated Interest Charges plus Consolidated Rent, in each case for the period of four consecutive fiscal quarters most recently ended on or prior to such date. "FUNDED DEBT" means any Debt maturing more than one year after the date of determination thereof and any Debt, regardless of its term, renewable pursuant to the terms thereof or of a revolving credit or similar agreement effective for more than one year after the date of the creation of such Debt, which would, in accordance with generally accepted accounting practice, be classified as funded debt but shall not include: (a) any Debt for the payment, redemption or satisfaction of which money (or evidences of indebtedness, if permitted under the instrument creating such indebtedness) in the necessary amount shall have been deposited in trust with a trustee or proper depository either at or before maturity or redemption date thereof; or (b) guarantees arising in connection with the sale, discount, guarantee or pledge of notes, chattel mortgages, leases, accounts receivable, trade acceptances and other paper arising, in the ordinary course of business, out of installment or conditional sales to or by, or transactions involving title retention with, distributors, dealers or other customers of merchandise, equipment or services or guarantees other than guarantees of indebtedness for borrowed money. "GROUP OF LOANS" means, at any time, a group of Loans consisting of (i) all Loans which are Base Rate Loans at such time and (ii) all Euro-Dollar Loans having the same Interest Period at such time; provided that, if a Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "GUARANTEE" used as a verb has a corresponding meaning. "INDEMNITEE" has the meaning set forth in Section 9.03(b). "INDENTURES" means (i) the Indenture dated as of December 21, 1998 between the Borrower and Harris Trust and Savings Bank, as trustee, (ii) the Indenture dated as of September 22, 1998 between the Borrower and Harris Trust and Savings Bank, as trustee and (iii) the Indenture dated as of August 1, 1993, between the Borrower and First Trust of New York, National Association, as successor trustee. "INFORMATION" means, collectively, (i) the information provided to the Banks in connection with the waiver dated as of September 29, 1999 to the Existing Credit Agreement and (ii) the information presented to the Banks at meetings in New York City on October 4, 1999 and October 18, 1999 among the Borrower and certain financial institutions. "INTEREST PERIOD" means, with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in an applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) no Interest Period may end after the Maturity Date. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "INVESTMENT" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. Any repurchase by the Borrower of its own capital stock shall not constitute an Investment for purposes of this Agreement. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal, to the fair market value of such property at the time of such transfer or exchange. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. "LOAN" means a Base Rate Loan or a Euro-Dollar Loan and "LOANS" means Base Rate Loans or Euro-Dollar Loans or any combination of the foregoing. "LOAN DOCUMENTS" means this Agreement, the Notes and the Collateral Documents. "LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.06(b). "LPG COMMITMENT" means the Commitment with Respect to Investment in Rite Aid Corporation dated October 18, 1999 between the Borrower and Green Equity Investors III. "LPG TRANSACTION" means the purchase and sale of 3,000,000 shares of 8% Convertible Pay-In-Kind Preferred Stock of the Borrower for a purchase price of $100.00 per share pursuant to the LPG Commitment. "MATERIAL FINANCIAL OBLIGATIONS" means (i) a principal or face amount of Debt (except Debt outstanding hereunder) and/or (ii) payment or collateralization obligations in respect of Derivatives Obligations and/or (iii) payment or collateralization obligations in respect of leases (other than Capital Leases, which are Debt) of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $25,000,000. "MATERIAL PLAN" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000. "MATURITY DATE" means November 1, 2000. "MORGAN PRO RATA EXPOSURE" means the $300,000,000 Demand Promissory Note dated June 15, 1999 issued by the Borrower to the order of J.P. Morgan Ventures Corporation. "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "NET CASH PROCEEDS" means, with respect to any Reduction Event, an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Reduction Event (including, when received, any cash proceeds received as income or other proceeds of any noncash proceeds of any Asset Sale), less (x) any investment banking and underwriting fees and any other expenses reasonably incurred by such Person in respect of such Reduction Event, (y) if such Reduction Event is an Asset Sale, (I) the amount of any Debt secured by a Lien on any asset disposed of in such Asset Sale and discharged from the proceeds thereof and (II) any taxes actually paid or to be payable by such Person (as estimated in good faith by the senior financial or accounting officer of the Borrower, giving effect to the overall tax position of the Borrower) in respect of such Asset Sale and (z) if such Reduction Event is an Asset Sale, the portion (which may be all) of such Net Cash Proceeds required by the terms of the Pro Rata Facilities to be applied to the prepayment of loans and/or reduction of commitments thereunder. "1996 LOAN DOCUMENTS" means the "Loan Documents" as defined in the Pro Rata Credit Agreement. "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 BORROWING" means a Notice of Borrowing (as defined in Section 2.02). "OCTOBER SPECIAL CHARGES" means the special charges in the aggregate pre-tax amount of $660,000,000 reflected in the Information. "PARENT" means, with respect to any Bank, any Person controlling such Bank. "PARTICIPANT" has the meaning set forth in Section 9.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PCS" means PCS Holding Corporation, a Delaware corporation, and its successors. "PCS EVENT" means (i) the sale or other disposition of capital stock of PCS (or of any non-cash proceeds thereof) or (ii) any sale, lease or other disposition by PCS or any of its Subsidiaries of any asset which would constitute an Asset Sale but for clause (i) of the definition of such term. "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PLAN" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "PLEDGE AGREEMENT" means the PCS Pledge Agreement dated as of the date hereof between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder, in substantially the form of Exhibit E. "PRICING SCHEDULE" means the Schedule attached hereto identified as such. "PRIME RATE" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "PRO RATA CREDIT AGREEMENT" means the $1,000,000,000 Amended and Restated Credit Agreement dated as of July 19, 1996 and amended and restated as of October 25, 1999 among the Borrower, the banks listed therein and Morgan Guaranty Trust Company of New York, as administrative agent thereunder. "PRO RATA FACILITIES" means, collectively, the Pro Rata Credit Agreement, the Prudential Pro Rata Exposure and the Morgan Pro Rata Exposure. "PRUDENTIAL PRO RATA EXPOSURE" means the 7.30% Senior Secured Notes due February 28, 2002 issued by Finco, Inc. and guaranteed by the Borrower. "QUARTERLY DATE" means the last day of each Quarterly Period. "QUARTERLY PERIOD" means a three-month period consisting of (i) February, March and April, (ii) May, June and July, (iii) August, September and October or (iv) November, December and January. "REDUCTION EVENT" means the receipt on or after October 15, 1999 by the Borrower or a Subsidiary of proceeds of (i) a PCS Event, (ii) a Capital Markets Transaction or (iii) an Asset Sale. "REFERENCE BANKS" means the principal London offices of Citibank, N.A., Bank of America, N. A. and Morgan Guaranty Trust Company of New York. "REGULATION T, U OR X" means Regulation T, U or X of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REQUIRED BANKS" means at any time Banks having more than 50% of the aggregate amount of the Credit Exposures. "RESTRICTED PAYMENT" means (i) any dividend or other distribution on any shares of the Borrower's capital stock (except dividends payable solely in shares of its capital stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Borrower's capital stock or (b) any option, warrant or other right to acquire shares of the Borrower's capital stock (other than such payments in connection with employee benefit plans in the ordinary course of business). "SALE AND LEASEBACK TRANSACTION" has the meaning set forth in Section 5.09. "SEC" means the Securities and Exchange Commission, or any Person succeeding to its functions under the Securities Exchange Act of 1934, as amended. "SECURED DEBT" means Debt which is secured by a Lien on property of the Borrower or any Subsidiary, but shall not include guarantees arising in connection with the sale, discount, guarantee or pledge of notes, chattel mortgages, leases, accounts receivable, trade acceptances and other papers arising, in the ordinary course of business, out of installment or conditional sales to or by, or transactions involving title retention with, distributors, dealers or other customers, of merchandise, equipment or services. "SIGNIFICANT SUBSIDIARY" means at any time any Subsidiary or any group of Subsidiaries having consolidated assets, individually or in the aggregate, equal to or greater than 8% of the consolidated assets of the Borrower and its Consolidated Subsidiaries at such time. "SUBSIDIARY" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "SUPER MAJORITY BANKS" means at any time Banks having at least 90% of the aggregate amount of the Credit Exposures. "SYNTHETIC LEASE" means a lease which is treated as an operating lease under generally accepted accounting principles but as ownership of the leased asset by the lessee for purposes of the Internal Revenue Code. "TEMPORARY CASH INVESTMENT" means any Investment in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by S&P (as defined in the Pricing Schedule) and P-1 by Moody's (as defined in the Pricing Schedule), (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized or licensed under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $500,000,000, (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, provided in each case that such Investment matures within one year from the date of acquisition thereof by the Borrower or a Subsidiary or (v) money market mutual funds at least 90% the assets of which are held in Investments referred to in clauses (i) through (iv) above (except that the maturities of certain Investments held by any such money market funds may exceed one year so long as the dollar-weighted average life of the Investments of such money market mutual fund is less than one year). "TOTAL CAPITAL" means, at any date, the sum of Consolidated Debt and Consolidated Net Worth, each determined as of such date. "UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "UNITED STATES" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. "WHOLLY-OWNED CONSOLIDATED SUBSIDIARY" means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. SECTION 1.02. Accounting Terms and Determinations. (a) Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the 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. (b) All financial determinations hereunder shall be adjusted to eliminate the effect of the October Special Charge for all fiscal periods ended prior to the date hereof. SECTION 1.03. Other Definitional Provisions. References in this Agreement to "Articles", "Sections", "Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1.01 may, unless the context otherwise requires, be used in the singular or plural depending on the reference. "Include" or "includes" and "including" shall be deemed to be followed by "without limitation" whether or not they are in fact followed by such words or words of like import. "Writing", "written" and comparable terms refer to printing, typing and other means of reproducing words in a visible form. References to any agreement or contract are to such agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof; provided that amendments, modifications or supplements to the 1996 Loan Documents or the Pro Rata Facilities shall be effective for purposes of references thereto in the Loan Documents only if such amendments are consented to in writing for such purpose by the Super-Majority Banks. References to any Person include the successors and assigns of such Person. References "from" or "through" any date mean, unless otherwise specified, "from and including" or "through and including", respectively. ARTICLE 2 THE CREDITS SECTION 2.01. Commitments to Lend. During the Availability Period each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower from time to time in amounts requested by the Borrower in accordance with the terms of this Agreement, provided that the aggregate principal amount of Loans made by such Bank shall not exceed the amount of its Commitment. Each Borrowing under this Section shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount of the unused Commitments) and shall be made from the several Banks ratably in proportion to their respective Commitments. The Commitments are not revolving in nature, and amounts repaid or prepaid may not be reborrowed. The Commitments shall terminate at the close of business on the last day of the Availability Period (or at the close of business on October 29, 1999, if the Closing Date shall not have occurred on or prior to such date). SECTION 2.02. Notice of Borrowing. The Borrower shall give the Administrative Agent notice (a "NOTICE OF BORROWING") not later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing and (y) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (b) the aggregate amount of such Borrowing, (c) whether the Loans comprising such Borrowing are to be Base Rate Loans or Euro-Dollar Loans, and (d) in the case of a Euro-Dollar Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.03. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of the contents thereof, and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City time) on the date of each Borrowing, each Bank shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the Borrower at the Administrative Agent's aforesaid address. (c) Each Bank shall apply a portion of the Loan(s) to be made by it on the Closing Date equal to the outstanding principal amount of its loans under the Existing Credit Agreement as an extension and renewal of such outstanding loans, and only an amount equal to the excess, if any, of its share of the Borrowing on the Closing Date over the amount of its outstanding loans under the Existing Credit Agreement shall be made available by such Bank to the Administrative Agent as provided in subsection (b). (d) Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank's share of such Borrowing, the Administrative Agent may assume that such Bank has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section 2.03 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Administrative Agent, such Bank and the Borrower severally agree to repay to the 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 Administrative Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.06 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.04. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Administrative Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "NOTE" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.01(d), the Administrative Agent shall forward such Note to such Bank. Each Bank shall record the date, amount and type of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.05. Maturity of Loans. Each Loan shall mature, and the principal amount thereof shall be due and payable, on the Maturity Date. SECTION 2.06. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the sum of the Base Rate Margin plus the Base Rate for such day. Such interest shall be payable monthly in arrears on the last day of each calendar month and on the Maturity Date and, with respect to the principal amount of any Base Rate Loan that is prepaid or converted to a Euro-Dollar Loan, on the date of such prepayment or conversion. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the applicable London Interbank Offered Rate for such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. (c) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Loan and (ii) the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than six months as the Administrative Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Reference Banks are offered to such Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day). (d) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (e) Each Reference Bank 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 2.07. Method of Electing Interest Rates. (a) The Loans included in each Group of Loans shall bear interest initially at the type of rate specified by the Borrower in the Notice of Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject to Section 2.07(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 2.12 if any such conversion is effective on any day other than the last day of an Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST RATE ELECTION") to the Administrative Agent not later than 10:30 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each at least $100,000,000 (unless such portion is comprised of Base Rate Loans). If no such notice is timely received before the end of an Interest Period for any Group of Euro-Dollar Loans, the Borrower shall be deemed to have elected that such Group of Loans be converted to Base Rate Loans at the end of such Interest Period. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of Section 2.07(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 2.07(a), the Administrative Agent shall notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. (d) The Borrower shall not be entitled to elect to convert any Loans to, or continue any Loans for an additional Interest Period as, Euro-Dollar Loans if (i) the aggregate principal amount of any Group of Euro-Dollar Loans created or continued as a result of such election would be less than $100,000,000 or (ii) a Default shall have occurred and be continuing when the Borrower delivers notice of such election to the Administrative Agent. (e) If any Loan is converted to a different type of Loan, the Borrower shall pay, on the date of such conversion, the interest accrued to such date on the principal amount being converted. SECTION 2.08. Fees. (a) 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 Commitment plus (ii) 0.25% of the excess, if any, of the amount (if any) that such Bank committed to provide to the Borrower during the syndication of this Agreement (whether or not accepted by the Borrower) over the amount of the commitment of such Bank under the Existing Credit Agreement. (b) Commitment Fees. The Borrower shall pay to the Agent for the account of the Banks ratably a commitment fee accruing at the rate of 0.50% per annum on the daily unused amount of the Commitments. Accrued commitment fees shall be payable upon the date of termination of the Commitments in their entirety. SECTION 2.09. Reduction Events; Mandatory Prepayments and Commitment Reductions. (a) In the event that the Borrower or any of its Subsidiaries shall at any time, or from time to time, receive any Net Cash Proceeds of any Reduction Event, (x) the Borrower shall, not later than the Domestic Business Day following the date of receipt of such Net Cash Proceeds, notify the Administrative Agent of such fact and of the amount of such Net Cash Proceeds, (y) the Borrower shall, not later than the Domestic Business Day following the date of receipt of such Net Cash Proceeds, cause the same to be transferred to the Administrative Agent to be held in an escrow account pending application in accordance with the provisions of this Agreement 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 ratable reduction of the Credit Exposures; provided that (i) if the amount of the Net Cash Proceeds in respect of any Reduction Event is less than $5,000,000, then, unless the Required Banks otherwise elect, the application thereof shall be deferred until receipt of proceeds such that, together with all other such amounts received and not previously applied, the amount of such Net Cash Proceeds is equal to at least $5,000,000; (ii) so long as the Collateral Test would be met after giving effect to any such election, each Bank shall have the right, exercisable by notice to such effect to the Administrative Agent not less than two Euro-Dollar Business Days prior to the date of any prepayment required pursuant to this Section by reason of a Capital Markets Transaction, to decline to accept the portion of such prepayment otherwise allocable to the Loans of such Bank, in which case the Loans of such Bank shall not be prepaid and the portion of the Net Cash Proceeds of such Capital Markets Transaction which would otherwise have been applied to the prepayment of the Loans of such Bank shall instead be available for application in accordance with the Pro Rata Facilities or, if the Pro Rata Facilities shall have been prepaid in full and the commitments thereunder shall have been terminated, such portion shall be returned to the Borrower. Any such election shall be made by each Bank individually and in its sole discretion, and no such election with respect to any particular prepayment required hereunder shall be applicable to any subsequent prepayment. The absence of a timely notice as contemplated by this paragraph shall constitute an election to receive the prepayment in question. In the event a Bank elects to decline one or more prepayments of its Loans, the aggregate principal amount of its Loans which would otherwise have been so prepaid shall bear additional interest, payable quarterly in arrears on each Quarterly Date, at the rate of 0.25% per annum; (iii) Net Cash Proceeds applied to the Credit Exposures pursuant to this Section shall be applied, FIRST, to reduce ratably the unused amount of the Commitments and, SECOND, if the Commitments shall have terminated or been fully utilized, to the ratable prepayment of the Loans; (iv) any reduction of the Commitments hereunder shall be effective on the Domestic Business Day following the date of receipt of the related Net Cash Proceeds, and any required prepayment of the Loans shall be made on the third Euro-Dollar Business Day following the date of receipt of such Net Cash Proceeds; and (v) the ratable allocation among the Banks contemplated by this Section 2.09 shall be done on a basis which disregards the effect of any election by a Bank to decline to accept a prepayment of its Loans pursuant to Section 2.09(a)(ii) above. (b) Upon receipt from the Borrower of a notice pursuant to Section 2.09(a)(y), the Administrative Agent will promptly notify each Bank of the contents thereof, and of the date of the related reduction required hereunder. Any required prepayment shall be made together with accrued interest on the amount prepaid, and shall be applied first to the Group of Base Rate Loans and then to such 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. (c) Amounts held by the Administrative Agent in escrow pending application as contemplated by this Section 2.09 shall be invested upon the instruction of the Borrower in Temporary Cash Investments for the account of the Borrower. (d) It is expressly understood and agreed that the provisions of this Section 2.09 are not intended to, and do not, create a Lien in any Net Cash Proceeds (except to the extent the same represent proceeds of Collateral). (e) Net Cash Proceeds of a Reduction Event received by the Borrower or a Subsidiary prior to the Closing Date shall be deemed for purposes of this Section to have been received on the Closing Date. SECTION 2.10. Optional Prepayments. (a) Subject in the case of any Euro-Dollar Loans to Section 2.12 and so long as no loans are outstanding under the Pro Rata Credit Agreement and the commitments thereunder have been terminated, 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 2.11. 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 2.12. Funding Losses. If the Borrower makes any payment of principal with respect to any Euro-Dollar Loan (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of the Interest Period applicable thereto, or the end of an applicable period fixed pursuant to Section 2.06(c), or if the Borrower fails to borrow, prepay, continue or convert any Euro-Dollar Loans after notice has been given to any Bank in accordance with Section 2.03(a), 2.07(c), 2.09(b) or 2.10(b), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow, prepay, continue or convert, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of clearly demonstrable error. SECTION 2.13. 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 2.14. Regulation D Compensation. Each Bank may require the Borrower to pay, contemporaneously with each payment of interest on the Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such Bank at a rate per annum determined by such Bank up to but not exceeding the excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank wishing to require payment of such additional interest (x) shall so notify the Borrower and the Administrative Agent, in which case such additional interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place indicated in such notice with respect to each Interest Period commencing at least three Euro-Dollar Business Days after the giving of such notice, and (y) shall notify the Borrower at least five Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans of the amount then due it under this Section. "EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). ARTICLE 3 CONDITIONS SECTION 3.01. Closing Date. The obligation of any Bank to make a Loan on the Closing Date is subject to the satisfaction of the following conditions: (a) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02; (b) the fact that, immediately after such Borrowing, no Default shall have occurred and be continuing; (c) the fact that the representations and warranties of the Borrower contained in this Agreement shall be true in all material respects on and as of the date of such Borrowing; (d) 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 2.04; (e) receipt by the Administrative Agent of duly executed counterparts of the Pledge Agreement; (f) 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; (g) receipt by the Administrative Agent of an opinion of Davis Polk & Wardwell, special counsel for the Administrative Agent, substantially in the form of Exhibit C hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (h) receipt by the Administrative Agent of all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement, the Pledge Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent; (i) receipt by the Administrative Agent of evidence satisfactory to it that the Borrower shall have paid all participation fees payable pursuant to Section 2.08; (j) receipt by the Administrative Agent of evidence satisfactory to it that all loans outstanding under the Existing Credit Agreement shall have been renewed and extended hereunder and that all interest and fees accrued under the Existing Credit Agreement to but excluding the Closing Date and all other amounts (if any) then due and payable by the Borrower thereunder shall have been paid in full; (k) receipt by the Administrative Agent of evidence satisfactory to it that the LPG Transaction shall have been consummated in accordance with the LPG Commitment, and the Borrower shall have received $300,000,000 gross cash proceeds pursuant thereto; and (l) receipt by the Administrative Agent of evidence satisfactory to it that the Pro Rata Credit Agreement shall have become effective in accordance with its terms without waiver of any material condition specified therein. On the Closing Date, the commitments under the Existing Credit Agreement shall terminate automatically, without any further action by any party to the Existing Credit Agreement. Upon receipt of its Note, each Bank which is a party to the Existing Credit Agreement shall mark the note issued to it pursuant to the Existing Credit Agreement "renewed". SECTION 3.02. Subsequent Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing subsequent to the Closing Date is subject to the satisfaction of the conditions specified in clauses (a), (b) and (c) of Section 3.01. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b) and (c) of Section 3.01. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of the Loan Documents are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary or any other material agreement, instrument, judgment, injunction, order or decree binding upon the Borrower or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary pursuant to any such agreement, instrument, judgment, injunction, order or decree (other than the Liens created by the Pledge Agreement). SECTION 4.03. Binding Effect. This Agreement and the Pledge Agreement each constitutes a valid and binding agreement of the Borrower and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms. SECTION 4.04. Financial Information. Except as disclosed in the Information: (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of February 27, 1999 and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by KPMG Peat Marwick LLP and set forth in the Borrower's 1999 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of May 29, 1999 and the related consolidated statements of income and cash flows for the fiscal period then ended, set forth in the Borrower's quarterly report on Form 10-Q for the fiscal quarter then ended, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a), the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal period, subject to normal year-end adjustments. (c) Since May 29, 1999, there has been no material adverse change in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.05. Full Disclosure. All financial statements and other documents furnished by the Borrower to the Banks in connection with this Agreement, including the Information, do not and will not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading. The Borrower has disclosed to the Banks in writing any and all facts which materially and adversely affect the business, operations or condition, financial or otherwise, of the Borrower and its Subsidiaries or the Borrower's ability to perform its obligations under this Agreement. SECTION 4.06. Litigation. Except as disclosed in the Borrower's 1999 Form 10-K, there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries or which in any manner draws into question the validity or enforceability of any Loan Document. SECTION 4.07. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all United States Federal income tax returns, and the Borrower and its Significant Subsidiaries have filed all other material tax returns, which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Significant Subsidiary except where the payment of any such taxes is being contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Borrower and its Consolidated Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.09. Subsidiaries. Each of the Borrower's corporate Significant Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.10. Environmental Matters. In the ordinary course of its business, the Borrower conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or hazardous substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the Borrower has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a material adverse effect on the business, financial condition, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.11. Year 2000 Compliance. The Borrower has (i) initiated a review and assessment of all areas within the business and operations of the Borrower and each of its Subsidiaries (including those areas affected by suppliers and vendors) that could be adversely affected by the "YEAR 2000 PROBLEM") (that is, the risk that computer applications used by it or any of its Subsidiaries (or their respective supplier and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented such plan in accordance with such timetable. The Borrower reasonably believes that all computer applications that are material to the business or operations of the Borrower or any of its Subsidiaries will on a timely basis be able to perform properly date-sensitive functions for all dates before and from and after January 1, 2000, except to the extent that a failure to do so could not reasonably be expected to have a material adverse effect on the business, financial condition, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.12. Pledge Agreement. The representations and warranties of the Borrower set forth in the Pledge Agreement are true and correct. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) as soon as available and in any event within 90 days (or within such longer period of time, not greater than 120 days, to which the SEC may extend the filing deadline for the Borrower's Annual Report on Form 10-K) after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on without material qualification by KPMG Peat Marwick LLP or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 45 days (or (x) in the case of the fiscal quarter most recently ended prior to the date hereof, within 65 days or (y) in the case of any subsequent fiscal quarter, within such longer period of time, not greater than 60 days, to which the SEC may extend the filing deadline for the Borrower's Quarterly Report on Form 10-Q) after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrower's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.08 to 5.15, inclusive, on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above; (e) within five days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the SEC; (h) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer, any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and (i) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Bank, may reasonably request. Information required to be delivered pursuant to Section 5.01(a), 5.01(b), 5.01(f) or 5.01(g) above shall be deemed to have been delivered on the date on which the Borrower provides notice to the Banks that such information has been posted on the Borrower's website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux/searches.htm or at another website identified in such notice and accessible by the Banks without charge; provided that (i) such notice may be included in a certificate delivered pursuant to Section 5.01(c) and (ii) the Borrower shall deliver paper copies of the information referred to in Section 5.01(a), 5.01(b), 5.01(f) or 5.01(g) to any Bank which requests such delivery. SECTION 5.02. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge, as the same shall become due and payable, (i) all material claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons prior to the time such claims or demands give rise to a Lien upon any of its property or assets, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except where any of the items in clause (i) or (ii) above may be contested in good faith by appropriate proceedings, and the Borrower or such Subsidiary, as the case may be, shall have set aside on its books, in accordance with generally accepted accounting principles, appropriate reserves, if any, for the accrual of any such items. SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will, and will cause each of its Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to the Banks, upon request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried. SECTION 5.04. Conduct of Business and Maintenance of Existence. Except as otherwise permitted in this Agreement, the Borrower will continue, and will cause each Significant Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Significant Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Significant Subsidiary (except where such Significant Subsidiary merges into the Borrower or any other Subsidiary) to preserve, renew and keep in full force and effect their respective legal existences and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business. SECTION 5.05. Compliance with Laws. The Borrower will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 5.06. Inspection of Property, Books and Records. The Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank at such Bank's expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.07. Restriction on Other Agreements. The Borrower will not, and will not permit any Subsidiary to, enter into any agreement (other than the Loan Documents and the 1996 Loan Documents) which imposes a limitation on incurrence by the Borrower and its Subsidiaries of Liens that is more restrictive than the limitation on Liens set forth in the Indentures (other than agreements with respect to Debt secured by Liens permitted by Section 5.10(a) containing restrictions on the ability to transfer or grant Liens on the assets securing such Debt and other than customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing and customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business) or which imposes other covenants more restrictive than those set forth in this Agreement. SECTION 5.08. Restriction on Debt of Subsidiaries. The Borrower will not permit any Subsidiary to create, issue, incur, assume, or in any other way become liable for any unsecured Debt unless immediately prior thereto the Borrower would be entitled under Section 5.10(e) to create Secured Debt not specifically permitted under Section 5.10 but for subsection (e) thereof in an amount equal to such Debt; provided that the foregoing restriction shall not prevent (i) any Subsidiary from becoming liable to the Borrower or to a Wholly-Owned Consolidated Subsidiary for Debt or (ii) the extension, renewal or refunding of any Debt of any Subsidiary so long as Consolidated Debt is not thereby increased. SECTION 5.09. Restriction on Sales with Leases Back. Except for a sale or transfer by a Subsidiary to the Borrower or a Wholly-Owned Consolidated Subsidiary, the Borrower will not, and will not permit any Subsidiary to, sell or transfer any manufacturing plant, warehouse, retail store or equipment now or hereafter owned and operated by the Borrower or a Subsidiary, with the intention that the Borrower or any Subsidiary take back a lease thereof, except a lease for a period, including renewals, not exceeding 24 months, by the end of which period it is intended that the use of such property or equipment by the lessee will be discontinued (any such transaction being herein referred to as a "SALE AND LEASEBACK TRANSACTION"); provided that, notwithstanding the foregoing, the Borrower or any Subsidiary may enter into a Sale and Leaseback Transaction if the Borrower or a Subsidiary would be entitled under Section 5.10(e) to create Secured Debt not specifically permitted under Section 5.10 but for Section 5.10(e) in an amount equal to the Attributable Debt respecting such Sale and Leaseback Transaction; provided further that, notwithstanding the foregoing, the Borrower or any Subsidiary may enter into a Sale and Leaseback Transaction if entered into in respect of property acquired by the Borrower or a Subsidiary if such Sale and Leaseback Transaction is entered into within 24 months from the date of such acquisition; and provided still further that, notwithstanding the foregoing, the Borrower or any Subsidiary may enter into a Sale and Leaseback Transaction so long as the Net Cash Proceeds thereof are applied as contemplated by Section 2.09 hereof. SECTION 5.10. Restriction on Liens. The Borrower will not, and will not permit any Subsidiary to, create, issue, incur, assume or guarantee any Secured Debt; provided that the foregoing covenant shall not apply to the following: (a) (i) Any Lien on any property acquired or constructed by the Borrower or a Subsidiary and created contemporaneously with, or within 24 months after, such acquisition or the completion of such construction and commencement of full operation of such property, whichever is later, to secure or provide for the payment of any part of the purchase or construction price of such property, or (ii) the acquisition by the Borrower or a Subsidiary of property subject to any Lien upon such property existing at the time of acquisition thereof, whether or not assumed by the Borrower or such Subsidiary, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired; provided that the Lien does not spread to other property except unimproved real property previously owned upon which any new construction has taken place and subsequent additions to such acquired or constructed property; (b) Any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 5.10 or any Lien securing the Debt of the Borrower or of any Subsidiary on the date of this Agreement or of a corporation at the time such corporation becomes a Subsidiary, or any extensions, renewals or refundings of any such Lien; provided that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding Lien shall be limited to all or that part of the same property which secured the Debt so extended, renewed or refunded; (c) Any Secured Debt of a Subsidiary owing to the Borrower or a Wholly-Owned Consolidated Subsidiary; (d) Any Lien created by the Loan Documents or the 1996 Loan Documents; and (e) Secured Debt of the Borrower and its Subsidiaries which would otherwise be prohibited by the foregoing restrictions (not including Secured Debt permitted to be secured under subsections (a) through (d) above) so long as the sum of any such Secured Debt hereafter incurred and outstanding at the time plus Attributable Debt of the Borrower and any Subsidiaries in respect of Sale and Leaseback Transactions hereafter entered into and outstanding at the time (excluding Attributable Debt incurred in respect of any Sale and Leaseback Transaction (i) entered into in respect of property acquired by the Borrower or a Subsidiary not more than 24 months prior to the date such Sale and Leaseback Transaction is entered into or (ii) if the Borrower, within 120 days before or after such Sale and Leaseback Transaction is entered into applies an amount equal to the greater of (A) the net proceeds of the sale of the property so sold and leased back or (B) the fair market value of such property at the date such arrangement is entered into to the retirement of Secured Debt (other than at maturity or pursuant to any mandatory payment provision) or to reduction of the Commitments) plus unsecured Debt of any Subsidiary hereafter incurred and outstanding at the time (excluding unsecured Debt incurred through the extension, renewal or refunding of Debt of such Subsidiary where Consolidated Debt was not thereby increased and excluding any Debt owed to the Borrower or a Wholly-Owned Consolidated Subsidiary) does not at the time exceed 5% of Consolidated Net Tangible Assets. SECTION 5.11. Capital Expenditures. The aggregate amount of Consolidated Capital Expenditures for any period set forth below shall not exceed the amount set forth below opposite such period: FISCAL YEAR ENDING ON AMOUNT OR CLOSEST TO February 29, 2000 $620,000,000 February 28, 2001 $295,000,000 SECTION 5.12. Capitalization Leverage Ratio. At no time during any period set forth below shall the ratio of (i) Consolidated Debt at such time to (ii) Total Capital at such time, exceed the ratio set forth below opposite such period: FISCAL QUARTER ENDING RATIO ON OR CLOSEST TO November 30, 1999 0.635 February 29, 2000 0.635 May 31, 2000 and 0.620 thereafter SECTION 5.13. Cash Flow Leverage Ratio. At no time during any period set forth below shall the ratio of (i) Consolidated Debt at such time to (ii) Consolidated EBITDA for the four consecutive fiscal quarters then most recently ended at or prior to such time, exceed the ratio set forth below opposite such period: FISCAL QUARTER ENDING RATIO ON OR CLOSEST TO November 30, 1999 6.30 February 29, 2000 6.00 May 31, 2000 5.75 August 31, 2000 4.75 SECTION 5.14. Fixed Charge Coverage. At no time during any period set forth below shall the Fixed Charge Coverage Ratio be less than the ratio set forth below opposite such period: FISCAL QUARTER ENDING RATIO ON OR CLOSEST TO November 30, 1999 1.35 February 29, 2000 1.35 May 31, 2000 1.35 August 31, 2000 1.45 SECTION 5.15. Limitation on Investments and Acquisitions. (a) Neither the Borrower nor any Consolidated Subsidiary will make or acquire any Investment in any Person other than: (i) Investments in Consolidated Subsidiaries; provided, that Investments (exclusive of inter-company payables owing to the Borrower or a Subsidiary arising from cash management transactions in the ordinary course of business) in PCS, whether existing on the date hereof or hereafter made, may be made only by the Borrower and only in the form of a contribution to the capital of PCS and without issuance of additional shares of capital stock therefor, and provided further that no such Investment may be made in any Subsidiary of PCS except by PCS or another Subsidiary of PCS; (ii) Temporary Cash Investments; (iii) Investments received as consideration for sale or other disposition of the capital stock of PCS or drugstore.com permitted by Section 5.16; (iv) Investments in drugstore.com existing on the date hereof; and (v) Any Investment not otherwise permitted by the foregoing clauses of this Section if, immediately after such Investment is made or acquired, the aggregate net book value of all Investments permitted by this clause (c) does not exceed 10% of Consolidated Net Worth. (b) The Borrower will not, and will not permit any Subsidiary to, consummate any Business Acquisition to the extent that the aggregate consideration paid or payable by the Borrower or any Subsidiary in connection with all such Business Acquisitions on or after the Closing Date would exceed $15,000,000. SECTION 5.16. Consolidations, Mergers and Sales of Assets. The Borrower will not (i) consolidate or merge with or into any other Person, (ii) sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of the assets of the Borrower and its Subsidiaries, taken as a whole, to any other Person or (iii) sell, lease or otherwise transfer any Collateral to any other Person; provided that (x) the Borrower may merge with another Person if (A) the Borrower is the corporation surviving such merger and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing and (y) the Borrower may sell or otherwise dispose of the capital stock of PCS or drugstore.com, in whole but not in part, so long as the consideration therefor is not less than the fair market value of such capital stock and shall consist solely of a combination of cash and publicly traded securities payable and deliverable at the closing of such sale. SECTION 5.17. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower solely to repay commercial paper maturing on or prior to the date of the related Borrowing hereunder or to extend and renew loans outstanding under the Existing Credit 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 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 5.18. Restricted Payments. After the date hereof, neither the Borrower nor any Subsidiary will declare or make any Restricted Payment. SECTION 5.19. Synthetic Leases. Neither the Borrower nor any Subsidiary will enter into any Synthetic Lease if, after giving effect thereto, the aggregate amount financed under all Synthetic Leases entered into in any period of twelve consecutive calendar months commencing after the date hereof would exceed $35,000,000. ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("EVENTS OF DEFAULT") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within five days of the due date thereof any interest, fees or other amount payable hereunder; (b) the Borrower shall fail to observe or perform (i) any covenant contained in Sections 5.08 to 5.19, inclusive or (ii) any covenant contained in Section 3(b) or 5(b) of the Pledge Agreement; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in the Loan Documents (other than those covered by clause (a) or (b) above) for 30 days after written notice thereof has been given to the Borrower by the Administrative Agent at the request of any Bank; (d) any material representation, warranty, certification or statement made (or deemed made) by the Borrower in any Loan Document or in any certificate, financial statement or other document delivered pursuant to any Loan Document shall prove to have been incorrect in any material respect when made (or deemed made); (e) the Borrower or any Subsidiary shall fail to make any payment in respect of any Material Financial Obligations when due or within any applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Financial Obligations or enables (or, if such event or condition does not otherwise give rise to a Default hereunder, which with the giving of notice or lapse of time or both would enable) the holder of such Material Financial Obligations or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) the Borrower or any Significant Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Significant Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Significant Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $5,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer, any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000; (j) a judgment or order for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; (k) any Lien created by the Pledge Agreement shall at any time fail to constitute a valid and (to the extent required by the Pledge Agreement) perfected Lien on all of the Collateral purported to be subject thereto, securing the obligations purported to be secured thereby, with the priority required by the Loan Documents, or the Borrower shall so assert in writing; or (l) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under said Act) of 20% or more of the outstanding shares of common stock of the Borrower; or, during any period of 12 consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; then, and in every such event, the Administrative Agent shall (i) if requested by the Required Banks, by notice to the Borrower terminate the Commitments (if still in existence) and they shall thereupon terminate, and (ii) if requested by Banks holding Notes evidencing more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Banks, the Commitments (if still in existence) shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.02. Notice of Default. The Administrative Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE 7 THE ADMINISTRATIVE AGENT SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Administrative Agent and Affiliates. Morgan Guaranty Trust Company of New York shall have the same rights and powers under the Loan Documents as any other Bank and may exercise or refrain from exercising the same as though it were not the Administrative Agent, and Morgan Guaranty Trust Company of New York and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Administrative Agent. SECTION 7.03. Action by Administrative Agent. The obligations of the Administrative Agent under the Loan Documents are only those expressly set forth therein. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6 and in the Pledge Agreement. SECTION 7.04. Consultation with Experts. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. Liability of Administrative Agent. Neither the Administrative Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it or any of them in connection herewith (i) with the consent or at the request of the Required Banks (or such other number or percentage of Banks as may be specified in the Loan Documents for particular purposes) or (ii) in the absence of its or their own gross negligence or willful misconduct. Neither the Administrative Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Administrative Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Administrative Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance with its Credit Exposure, indemnify the Administrative Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. Successor Administrative Agent. The Administrative Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right, with (so long as no Default shall have occurred and be continuing) the consent of the Borrower, to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Administrative Agent by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent. SECTION 7.09. Administrative Agent's Fees. The Borrower shall pay to the Administrative Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Administrative Agent. ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Euro-Dollar Loan: (a) the Administrative Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the London interbank market for such Interest Period, or (b) Banks having 50% or more of the aggregate amount of the Credit Exposures advise the Administrative Agent that the London Interbank Offered Rate as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to 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 Agent at least two Domestic Business Days before the date of any Euro-Dollar Borrowing for which a Notice of Borrowing 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. (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 with respect to which such Bank is entitled to compensation for the relevant Interest Period under Section 2.14), 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 Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. If the form provided by a Bank at the time such Bank first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "TAXES" as defined in Section 8.04(a). (e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which a form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04(a) with respect to Taxes imposed by the United States; provided, however, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank. SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans which would otherwise be made by such Bank as (or continued as or converted into) Euro-Dollar Loans shall be made instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and (b) after each of its Euro-Dollar Loans has been repaid, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead. If such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks. ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Administrative Agent, at its address or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or telex number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Administrative Agent under Article 2 or Article 8 shall not be effective until received. SECTION 9.02. No Waivers. No failure or delay by the Administrative Agent or any Bank in exercising any right, power or privilege under any Loan Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in the Loan Documents shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Administrative Agent, including fees and disbursements of special counsel for the Administrative Agent, in connection with the preparation and administration of the Loan Documents, any waiver or consent thereunder or any amendment thereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Administrative Agent and each Bank, including fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify the Administrative Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "INDEMNITEE") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction. SECTION 9.04. Sharing of Set-Offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note acquired pursuant to the foregoing arrangements may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.05. Amendments and Waivers. (a) Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Administrative Agent are affected thereby, by the Administrative Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) 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) change Section 9.04 or (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement; and provided further that no such amendment or waiver may modify Section 2.09 (or the defined terms used therein) in a manner which (i) increases the amount of Net Cash Proceeds available for application under the Pro Rata Facilities or (ii) permits application of cash proceeds of Collateral to a use other than payment of the Loans, in either case without the written consent of all Banks. (b) Any provision of any 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 Administrative Agent with the consent of the Required Banks; provided that no such amendment or waiver shall, unless signed by all the Banks, (i) alter in a manner adverse to the Banks the priorities specified in Section 13 of the Pledge Agreement or (ii) effect or permit a release of any of the Collateral under the Plege Agreement. Notwithstanding the foregoing, Collateral shall be released from the Lien of the Pledge Agreement from time to time as necessary to effect any sale of Collateral permitted by the Loan Documents, and the Administrative Agent shall execute and deliver all release documents reasonably requested to evidence such release; provided that arrangements satisfactory to the Administrative Agent shall have been made for application of the cash proceeds thereof in accordance with Section 2.09 hereof and for the pledge of any non-cash proceeds thereof pursuant to the Collateral Documents. SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "PARTICIPANT") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Administrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05 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 D hereto executed by such Assignee and such transferor Bank, with (and subject to) notice to, and the subscribed consent of, the Borrower, so long as no Default shall have occurred and be continuing, and the Administrative Agent (such consent of the Borrower and the Administrative Agent not to be unreasonably withheld); provided that (i) if an Assignee is an affiliate of such transferor Bank or is a Bank prior to giving effect to such assignment, such notice shall be given but no such consent shall be required. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment 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. 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/ Richard Varmecky --------------------------------------- Name: Richard Varmecky Title: Senior Vice President - Finance Address: 30 Hunter Lane Camp Hill, PA 17011 Attention: Chief Financial Officer Telephone No.: (717) 975-5750 Facsimile No.: (717) 975-3764 Website: www.riteaid.com MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Glenda Winter-Irving ---------------------------------- Name: Glenda Winter-Irving Title: Vice President BANK OF AMERICA, N.A. By: /s/ Timothy Spanos ----------------------------------- Name: Timothy Spanos Title: Managing Director CITIBANK, N.A. By: /s/ Bradly I. Dietz ---------------------------------- Name: Bradly I. Dietz Title: Vice President BANK ONE, NA (Main Office - Chicago) By: /s/ Eve Drinis ---------------------------------- Name: Eve Drinis Title: Assistant Vice President ABN AMRO BANK N.V. By: /s/ Louis K. McLinden Jr. ---------------------------------- Name: Louis K. McLinden Jr. Title: Vice President By: /s/ Jim Janorsky ---------------------------------- Name: Jim Janorsky Title: Group Vice President FIRST UNION NATIONAL BANK By: /s/ Mark S. Supple ---------------------------------- Name: Mark S. Supple Title: Vice President PNC BANK, NATIONAL ASSOCIATION By: /s/ Brennan T. Danile ---------------------------------- Name: Brennan T. Danile Title: Assistant Vice President WACHOVIA BANK, N.A. By: /s/ James McCreary --------------------------------------------- Name: James McCreary Title: Senior Vice President/Group Executive BANK OF MONTREAL By: /s/ Jeffrey McConnell -------------------------------- Name: Jeffrey McConnell Title: Director THE BANK OF NOVA SCOTIA By: /s/ J. Alan Edwards -------------------------------- Name: J. Alan Edwards Title: Authorized Signatory COMMERZBANK AG, NEW YORK BRANCH By: /s/ Sean M. Harrigan -------------------------------- Name: Sean M. Harrigan Title: Senior Vice President FLEET NATIONAL BANK By: /s/ Robert Storer -------------------------------- Name: Robert Storer Title: Senior Vice President KEYBANK NATIONAL ASSOCIATION By: /s/ Daniel Lolly -------------------------------- Name: Daniel Lolly Title: Assistant Vice President MELLON BANK, N.A. By: /s/ Richard Schaich -------------------------------- Name: Richard Schaich Title: Vice President U.S. BANK NATIONAL ASSOCIATION By: /s/ Elliot Jaffre -------------------------------- Name: Elliot Jaffre Title: Senior Vice President UNION BANK OF CALIFORNIA, N.A. By: /s/ Timothy Streb ------------------------------- Name: Timothy Streb Title: Vice President LEHMAN COMMERCIAL PAPER INC. By: /s/ Michael Swanson ------------------------------- Name: Michael Swanson Title: Authorized Signatory HSBC BANK USA By: /s/ Joseph Salonia ------------------------------- Name: Joseph Salonia Title: Vice President AMSOUTH BANK By: /s/ Darlene Chandler ------------------------------- Name: Darlene Chandler Title: Vice President ARAB BANK, PLC GRAND CAYMAN By: /s/ Emanuel Caravanos ------------------------------ Name: Emanuel Cravanos Title: Vice President THE BANK OF NEW YORK By: /s/ Howard Bascom Jr. ------------------------------ Name: Howard Bascom Jr. Title: Vice President ALLFIRST BANK, N.A. By: /s/ Theodore Oswald ------------------------------ Name: Theodore Oswald Title: Vice President HIBERNIA NATIONAL BANK By: /s/ Christopher Pitre ------------------------------ Name: Christopher Pitre Title: Vice President THE HUNTINGTON NATIONAL BANK By: /s/ David Leger ------------------------------ Name: David Leger Title: Senior Vice President NATIONAL CITY BANK OF PENNSYLVANIA By: /s/ Bruce Shearer ------------------------------ Name: Bruce Shearer Title: Vice President NORDDEUTSCHE LANDESBANK GIROZENTRALE By: /s/ Stephen Hunter ------------------------------ Name: Stephen Hunter Title: Senior Vice President THE NORTHERN TRUST COMPANY By: /s/ Donald Dabisch ----------------------------- Name: Donald Dabisch Title: Vice President THE SUMITOMO BANK, LIMITED By: /s/ C. Michael Garrido ---------------------------- Name: C. Michael Garrido Title: Senior Vice President SUNTRUST BANK, ATLANTA By: /s/ David Wisdom ---------------------------- Name: David Wisdom Title: Vice President By: --------------------------- Name: Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ M. R. Morron --------------------------- Name: M. R. Morron Title: Vice President FIRST TENNESSEE BANK NATIONAL ASSOCIATION By: /s/ Tim Miller --------------------------- Name: Tim Miller Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By: /s/ Glenda Winter-Irving --------------------------- Name: Glenda Winter-Irving Title: Vice President Address: 60 Wall Street New York, New York 10260-0060 Attention: Loan Department Telex number: 177615 COMMITMENT SCHEDULE BANK COMMITMENT - ---- ---------- Morgan Guaranty Trust Company of New York $ 73,000,000.00 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 First Union National Bank 61,000,000.00 PNC Bank, National Association 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 Branch 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 Union Bank of California, N.A. 49,000,000.00 Lehman Commercial Paper Inc. 44,000,000.00 HSBC Bank USA 44,000,000.00 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, N.A. 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, Atlanta 22,000,000.00 Bank of Tokyo-Mitsubishi Trust Company 12,000,000.00 First Tennessee Bank National Association 9,000,000.00 -------------- TOTAL COMMITMENTS $ 1,300,000,000.00 PRICING SCHEDULE The "BASE RATE MARGIN" and "EURO-DOLLAR MARGIN" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Status that exists on such day. Status Level I Level II Level III - ----------------------------------------------------------------------------- Base Rate Margin 1.00% 1.50% 2.00% - ----------------------------------------------------------------------------- Euro-Dollar Margin 2.00% 2.50% 3.00% For purposes of this Schedule, the following terms have the following meanings: "LEVEL I STATUS" exists at any date if (i) such date is on or after May 1, 2000 and (ii) at such date, the Borrower's long-term debt is rated BBB- or higher by S&P and Baa3 or higher by Moody's. "LEVEL II STATUS" exists at any date if, at such date, (a) the Borrower's long-term debt is rated BB+ or higher by S&P and Ba1 or higher by Moody's and (b) Level I Status does not exist. "LEVEL III STATUS" exists at any date if, at such date, no other Status exists. "MOODY'S" means Moody's Investors Service, Inc., or any successor to its business of rating debt securities. "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. "STATUS" refers to the determination of which of Level I Status, Level II Status or Level III Status exists at any date. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Borrower without third-party credit enhancement, and any rating assigned to any other debt security of the Borrower shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. If Asset Sales generating Net Cash Proceeds of at least $500.0 million (excluding the sale by the Borrower of certain of its assets to Longs Drug Stores Corp. publicly announced prior to the date of this Agreement, but including solely for purposes of this sentence a sale or other disposition of capital stock of PCS) are not consummated by February 15, 2000, the Euro-Dollar Margin and Base Rate Margin applicable for any day thereafter shall be the Euro-Dollar Margin and Base Rate Margin, respectively, set forth above for such day, plus, in each case, 0.50%. EXHIBIT A NOTE New York, New York October __, 1999 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 Loan Agreement referred to below on November 1, 2000. 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 Loan 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 respective 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 Loan Agreement. This note is one of the Notes referred to in the $1,300,000,000 Term Loan Agreement dated as of October 25, 1999 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 "LOAN AGREEMENT"). Terms defined in the Loan Agreement are used herein with the same meanings. Reference is made to the Loan 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 Collateral Documents. RITE AID CORPORATION By ___________________________________ Title: Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL - ------------------------------------------------------------------------------ Amount of Amount of Type of Principal Notation Date Loan Loan Repaid Made By - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ EXHIBIT B-1 October __, 1999 To the Banks and the Administrative Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Administrative Agent 60 Wall Street New York, New York 10260-0060 Re: Rite Aid Corporation Ladies and Gentlemen: We have acted as special counsel to Rite Aid Corporation, a Delaware corporation (the "BORROWER"), in connection with the preparation, execution and delivery of the $1,300,000,000 Term Loan Agreement dated as of October 25, 1999 (the "LOAN AGREEMENT") among the Borrower, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent (the "ADMINISTRATIVE AGENT"). Terms defined in the Loan Agreement are used herein as therein defined. This opinion is being delivered pursuant to Section 3.01(f)(i) of the Loan Agreement. In our examination we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies, and the authenticity of the originals of such copies. As to any facts material to this opinion which we did not independently establish or verify, we have relied upon statements and representations of the Borrower and its officers and other representatives and of public officials, including the facts set forth in the Borrower's Certificate described below. In rendering the opinions set forth herein, we have examined and relied on originals or copies of the following: (1) the Loan Agreement; (2) the Notes issued pursuant thereto; (3) the Pledge Agreement dated as of October __, 1999 (the "PLEDGE AGREEMENT") between the Borrower and the Administrative Agent; (iv) each of the other Applicable Agreements (as defined below); (v) the certificate of the Borrower dated the date hereof, a copy of which is attached as Exhibit A hereto (the "BORROWER'S Certificate"); and (vi) such other documents as we have deemed necessary or appropriate as a basis for the opinions set forth below. Members of our firm are admitted to the Bar in the State of New York, and we do not express any opinion as to the laws of any other jurisdiction other than the Delaware General Corporation Law, the Uniform Commercial Code as in effect on the date hereof in the State of Delaware (the "DELAWARE UCC") and the laws of the United States of America to the extent specifically referred to herein. Unless otherwise indicated, references to the "UCC" shall mean (i) with respect to the validity of the security interest, the Uniform Commercial Code as in effect on the date hereof in the State of New York, and (ii) with respect to the perfection and the effect of perfection or non-perfection of the security interest, the Delaware UCC. Nancy A. Lieberman, a member of this firm, is a director and shareholder of the Borrower. Based upon the foregoing and subject to the limitations, qualifications, exceptions and assumptions set forth herein, we are of the opinion that: 1. Each Loan Document (other than the Notes) constitutes the valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case, enforceable against the Borrower in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in equity or at law). In connection with our opinion set forth in this paragraph 1, we call to your attention our opinion set forth in paragraph 2 below. 2. The execution and delivery by the Borrower of each Loan Document, and the performance by the Borrower of its obligations under each Loan Document in accordance with its terms, do not conflict with the Certificate of Incorporation or By-laws of the Borrower. 3. Neither the execution, delivery or performance by the Borrower of any Loan Document nor the compliance by the Borrower with the terms and provisions thereof will contravene any provision of any of the Applicable Agreements (as hereinafter defined). "APPLICABLE AGREEMENTS" shall mean the agreements set forth in Schedule B hereto, together with the instruments issued by the Borrower in connection therewith, in each case as in effect as of the date hereof. In rendering the opinions set forth in this paragraph 3, we have considered and relied upon the fact that (i) the shares of capital stock represented by the share certificate identified on Schedule A hereto (the "PLEDGED SECURITIES") were acquired by the Borrower within 24 months of the date hereof with the proceeds of commercial paper issued thereby and (ii) the proceeds of the Loans are being used exclusively to repay commercial paper maturing on or prior to the date of the related Borrowing under the Loan Agreement or to repay or prepay the loans outstanding under the Existing Credit 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). 4. The provisions of the Pledge Agreement are effective to create, in favor of the Administrative Agent for the benefit of the Banks to secure all amounts payable by the Borrower under the Pledge Agreement, the Loan Agreement and the Notes (all such amounts, the "OBLIGATIONS"), a valid security interest in the Pledged Securities (as defined in each Pledge Agreement). 5. Upon delivery of the Pledged Securities to the Administrative Agent for the benefit of the Banks in the State of Delaware, the security interest of the Agent for the benefit of the Banks in the Pledged Securities will be perfected. 6. Neither the execution, delivery or performance by the Borrower of any Loan Document nor the compliance by the Borrower with the terms and provisions thereof will contravene any provision of any Applicable Law (as hereinafter defined). "APPLICABLE LAWS" shall mean those laws, rules and regulations of the State of New York and of the United States of America (including, without limitation, Regulations U and X of the Board of Governors of Federal Reserve System) or pursuant to the Delaware General Corporation Law which, in our experience, are normally applicable to transactions of the type contemplated by the Loan Documents. 7. No Governmental Approval (as hereinafter defined), which has not been obtained or taken and is not in full force and effect, is required to authorize or is required in connection with the execution, delivery or performance of any of the Loan Documents by the Borrower. "GOVERNMENTAL APPROVAL" means any consent, approval, license, authorization or validation of, or filing, recording or registration with, any Governmental Authority (as hereinafter defined) pursuant to Applicable Laws. "GOVERNMENTAL AUTHORITY" means any New York or federal legislative, judicial, administrative or regulatory body. 8. Neither the execution, delivery or performance by the Borrower of its obligations under the Loan Documents nor compliance by the Borrower with the terms thereof will contravene any Applicable Order (as hereinafter defined) against the Borrower. "APPLICABLE ORDERS" means those orders, judgments or decrees of Governmental Authorities identified in paragraph 2 of the Borrower's Certificate. In rendering the foregoing opinions, we have assumed, with your consent, that: (i) each Loan Document has been duly executed and delivered by the Borrower; (ii) the execution, delivery and performance of any of the Borrower's obligations under the Loan Documents does not and will not conflict with, contravene, violate or constitute a default under (i) any lease, indenture, instrument or other agreement to which the Borrower or its property is subject (other than Applicable Agreements as to which we express our opinion in paragraph 3 herein), (ii) any rule, law or regulation to which the Borrower is subject (other than Applicable Laws as to which we express our opinion in paragraph 6 herein) or (iii) any judicial or administrative order or decree of any governmental authority (other than Applicable Orders as to which we express our opinion in paragraph 8 herein); and (iii) no authorization, consent or other approval of, notice to or filing with any court, governmental authority or regulatory body (other than Governmental Approvals as to which we express our opinion in paragraph 7 herein) is required to authorize or is required in connection with the execution, delivery or performance by the Borrower of the Loan Documents or the transactions contemplated thereby. We understand that you are separately receiving an opinion, dated as of the date hereof, with respect to certain of the foregoing from Elliot S. Gerson, Esq. (the "GENERAL COUNSEL OPINION") and we are advised that such opinion contains qualifications. Our opinions herein stated are based on the assumptions specified above and we express no opinion as to the effect on the opinions herein stated of the qualifications contained in the General Counsel Opinion. Our opinions are also subject to the following assumptions and qualifications: (a) we have assumed that each of the Loan Documents constitutes the legal, valid and binding obligation of each party thereto (other than the Borrower) enforceable against such party (other than the Borrower) in accordance with its terms; and (b) we express no opinion as to the effect on the opinions expressed herein of (i) the compliance or non-compliance of any party (other than the Borrower) to the any Loan Document with any state, federal or other laws or regulations applicable to it or (ii) the legal or regulatory status or the nature of the business of any party (other than the Borrower) to any Loan Document. (c) we express no opinion as to the enforceability of any rights to contribution or indemnification provided for in the Loan Documents which are violative of the public policy underlying any law, rule or regulation (including any federal or state securities law, rule or regulation); (d) certain of the remedial provisions, including waivers, with respect to the exercise of remedies against the Pledged Securities contained in the Pledge Agreement may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of the Pledge Agreement, taken as a whole, and the Pledge Agreement, taken as a whole, together with applicable law, contains adequate provisions for the practical realization of the benefits of the security interest created thereby; (e) we express no opinion as to the effect on the opinions expressed herein of (1) the compliance or non-compliance of the Administrative Agent for the benefit of the Banks or any party (other than the Borrower) to the Loan Documents with any state, federal or other laws or regulations applicable to them or (2) the legal or regulatory status or the nature of the business of the Agent for the benefit of the Banks; and In addition to the foregoing, our opinions with respect to the security interest of the Administrative Agent for the benefit of the Banks in the Pledged Securities are subject to the following qualifications: (a) we have assumed that the Borrower owns, or with respect to after-acquired property will own, the Pledged Securities, and we express no opinion as to the nature or extent of the Borrower's rights in, or title to, any of the Pledged Securities and we note that with respect to any after-acquired property, the security interest will not attach until the Borrower acquires ownership thereof; (b) our opinions with respect to the interest of the Administrative Agent for the benefit of the Banks are limited to Article 8 and Article 9 of the UCC, and such opinions do not address (i) laws of jurisdictions other than New York and Delaware, and of New York and Delaware except for Article 8 and Article 9 of the UCC, (ii) collateral of a type not subject to Article 8 and Article 9 of the UCC, and (iii) what law governs perfection or priority of the security interests granted in the Pledged Securities covered by this opinion; (c) we call to your attention that under the UCC, events occurring subsequent to the date hereof may affect any security interest subject to the UCC including, but not limited to, factors of the type identified in Section 9-306 with respect to proceeds; Section 9-402 with respect to changes in name, structure and corporate identity; Section 9-103 with respect to changes in the location of the Pledged Securities and the location of a debtor; Section 9-316 with respect to subordination agreements; Section 9-403 with respect to continuation statements; and Sections 9-307, 9-308 and 9-309 with respect to subsequent purchasers of the Pledged Securities. In addition, actions taken by a secured party (e.g., releasing or assigning the security interest, delivering possession of the Pledged Securities to a debtor or another person and voluntarily subordinating a security interest) may affect any security interest subject to the UCC; (d) we have assumed that the Pledged Securities are the Subsidiary Shares as defined in the Pledge Agreement; and (e) we express no opinion with respect to the priority of the security interest of the Administrative Agent for the benefit of the Banks in any of the Pledged Securities. This opinion is being furnished only to you and is solely for your benefit and is not to be relied upon by anyone else or for any other purpose without our prior written consent. Very truly yours, Schedule A Certificate Type of Number of Issuer Number Stock Shares ------ ----------- ------- --------- PCS Holdings Corporation A-2 Class A, 565 Shares par value $1.00 per share Schedule B 1. Note Agreement dated as of September 30, 1996 among FINCO, INC, The Prudential Insurance Company of America and PRUCO Life Insurance Company ($79,560,908.91 7.30% Senior Secured Notes due February 28, 2002). 2. Master Tax Ownership Operating Lease dated as of March 19, 1998 by and among Rite Aid Realty Corp. as Lessee, Rite Aid Corporation, as Guarantor, RAC Leasing LLC, as Lessor, Sumitomo Bank, Limited, New York Branch, as Liquidity Agent and Collateral Agent, and RA Funding II Corporation as Lease Receivables Purchaser. 3. Senior Loan Agreement dated as of March 11, 1998 between RAC Leasing LLC and The Lenders Parties hereto, as Lenders and Sumitomo Bank Leasing and Finance, Inc. as Agent. 4. Master Tax Ownership Operating Lease dated as of May 30, 1997 by and among Rite Aid Realty Corp., as Lessee, Rite Aid Corporation, as Guarantor, Sumitomo Bank Leasing and Finance, Inc., as Lessor, Sumitomo Bank, Limited, New York Branch as Liquidity Agent and Collateral Agent, RA Funding Corporation, as Lease Receivables Purchaser, and Madison Funding Corporation, as Conduit. 5. Receivables Purchase Agreement dated as of November 26, 1997 among Rite Aid Funding LLC as the Seller, and Corporate Asset Funding Company, Inc. and Corporate Receivables Corporation as the Investors, and Citibank, N.A. and Citicorp North America, Inc. as the Agent and Rite Aid Corporation as Collection Agent. 6. Indenture, dated as of December 21, 1998, between the Borrower and Harris Trust and Savings Bank, as Trustee. 7. Indenture, dated as of September 22, 1998, by and among the Borrower and Harris Trust and Savings Bank, as Trustee. 8. Indenture dated August 1, 1993, between the Borrower and First Trust of New York, National Association, as successor Trustee. EXHIBIT B-2 OPINION OF GENERAL COUNSEL FOR THE BORROWER -------------------------------- To the Banks and the Administrative Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Administrative Agent 60 Wall Street New York, New York 10260-0060 Dear Sirs: I am General Counsel of Rite Aid Corporation (the "Borrower"), and I have advised the Borrower in connection with the $1,300,000,000 Term Loan Agreement (the "LOAN AGREEMENT") dated as of October __, 1999 among the Borrower, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent. Terms defined in the Loan Agreement are used herein as therein defined. This opinion is being rendered to you at the request of our client pursuant to Section 3.01(f)(ii) of the Loan Agreement. I have examined originals or copies, certified or otherwise identified to my satisfaction, of the Loan Agreement, the Notes issued pursuant thereto, the Pledge Agreement and such other documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 2. The execution, delivery and performance by the Borrower of the Loan Documents are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of (i) any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary, (ii) any agreement material to the business, financial condition, results of operations or prospects of the Borrower, or (iii) any other material 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. 3. Each Loan Document (other than the Notes) constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 4. Except as described in the Borrower's Annual Report on Form 10-K for the fiscal year ended February 27, 1999, there is no action, suit or proceeding pending against, or to the best of my knowledge threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole or which in any manner draws into question the validity or enforceability of the Loan Documents. 5. Each of the Borrower's corporate Significant Subsidiaries is a corporation 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. In giving the foregoing opinion, I express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York and the State of Pennsylvania) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without my prior written consent. Very truly yours, EXHIBIT C OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE ADMINISTRATIVE AGENT To the Banks and the Administrative Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Administrative Agent 60 Wall Street New York, New York 10260-0060 Dear Sirs: We have participated in the preparation of the $1,300,000,000 Term Loan Agreement (the "LOAN AGREEMENT") dated as of October 25, 1999 among Rite Aid Corporation, a Delaware corporation (the "BORROWER"), the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, and have acted as special counsel for the Administrative Agent for the purpose of rendering this opinion pursuant to Section 3.01(g) of the Loan Agreement. Terms defined in the Loan Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of the Loan Agreement, the Notes issued pursuant thereto, the Pledge Agreement and such other documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 1. The execution, delivery and performance by the Borrower of the Loan Documents are within the Borrower's corporate powers and have been duly authorized by all necessary corporate action. 2. Each Loan Document (other than the Notes) constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, EXHIBIT D ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of __________, 19__ 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 $1,300,000,000 Term Loan Agreement dated as of October __, 1999 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 "LOAN AGREEMENT"); [WHEREAS, as provided under the Loan Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount not to exceed $_________;] [WHEREAS, Loans made to the Borrower by the Assignor under the Loan 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 Loan Agreement in respect of a portion of its [Commitment][Loans] thereunder in an amount equal to $___________ (the "ASSIGNED AMOUNT"), [together with a corresponding portion of its outstanding Loans,] 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 Loan Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Loan 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 Loan 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 Loan Agreement with [a Commitment][outstanding Loans] in an amount equal to the Assigned Amount, and (ii) [the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and] the Assignor released from its obligations under the Loan 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 [It is understood that commitment fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof in respect of the Assigned Amount are for the account of the Assignee.] Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Loan 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 Loan 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 Loan 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. -------- 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 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: EXHIBIT E PCS PLEDGE AGREEMENT AGREEMENT dated as of October 25, 1999 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 Credit Agreement dated as of January 21, 1999 (as heretofore amended, the "ORIGINAL 1999 CREDIT AGREEMENT"); and WHEREAS, the Borrower and Morgan, as agent, have entered into the Pledge Agreement dated as of September 29, 1999 (the "FIRST PLEDGE AGREEMENT"), pursuant to which the Borrower has pledged the Collateral (as hereinafter defined) to secure its obligations under the Original 1999 Credit Agreement and the Notes issued pursuant thereto; and WHEREAS, the Borrower, certain banks and Morgan, as agent for such banks are parties to a Credit Agreement dated as of July 19, 1996 (as heretofore amended, the "ORIGINAL 1996 CREDIT AGREEMENT"); and WHEREAS, the Borrower and Morgan, as agent, are parties to a PCS Junior Pledge Agreement dated as of October 19, 1999 (the "SECOND PLEDGE AGREEMENT"), pursuant to which the Borrower has granted a junior security interest in the Collateral to secure certain of its obligations under the Original 1996 Credit Agreement; and WHEREAS, the Borrower proposes to enter into a Term Loan Agreement of even date herewith with the parties to the Original 1999 Credit Agreement (as the same may be amended from time to time, the "1999 FACILITY"), term loans under which (the "1999 LOANS") are to refinance loans outstanding under the Original 1999 Credit Agreement; and WHEREAS, the Borrower proposes to enter into an Amended and Restated Credit Agreement of even date amending and restating the Original 1996 Credit Agreement (as the same may be amended from time to time, the "PRO RATA CREDIT AGREEMENT"); and WHEREAS, the Borrower has agreed to grant a continuing security interest in and to the Collateral (i) on a first priority basis, to secure its obligations under the 1999 Facility, (ii) on a second priority basis, to secure certain of its obligations under the Pro Rata Credit Agreement, (iii) on a third priority basis, to secure certain other obligations under the Pro Rata Credit Agreement as well as the Prudential Pro Rata Exposure (as defined below), the Morgan Pro Rata Exposure (as defined below) and the Letter of Credit Exposure (as defined below) and (iv) on a fourth priority basis, to secure the Synthetic Lease Obligations (as defined below); and WHEREAS, this Agreement is intended to continue the security interests created and perfected under the First Pledge Agreement and the Second Pledge Agreement, but its terms shall supersede the terms thereof; 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 Pro Rata Credit Agreement: drugstore.com Pledge Agreement Morgan Pro Rata Exposure Prudential Pro Rata Exposure Tranche A Loans Tranche B Loans (c) The following additional terms, as used herein, have the following respective meanings: "BASE RATE" has the meaning set forth in the Credit Agreements. "COLLATERAL" has the meaning assigned to such term in Section 2(c)(a). "CREDIT AGREEMENT" means the 1999 Facility or the Pro Rata Credit Agreement. "DEFAULT" means a "Default" as defined in either of the Credit Agreements. "EVENT OF DEFAULT" means an "Event of Default" as defined in either the Credit Agreements. "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 1999 Loan, (ii) all other amounts payable by the Borrower under the 1999 Facility 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 1999 Facility and (ii) thereafter, the "Required Banks" as defined in the Pro Rata Credit Agreement. "ISSUER" means PCS Holdings Corporation, and its successors. "LETTER OF CREDIT EXPOSURE" means the reimbursement obligations of the Borrower in respect of standby letters of credit issued for the account of the Borrower set forth in Schedule A hereto, and any replacements thereof; provided that the issuer of such letter 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 $32,750,000; 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. "LIEN" means a "Lien" as defined in either of the Credit Agreements. "LOAN DOCUMENTS" means the "Loan Documents" as defined in either Credit Agreement. "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 $399,000,000, 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, the Prudential Pro Rata Exposure, the Morgan Pro Rata Exposure 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 2(c)(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 1996 Loan 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 565 shares of Class A Stock, par value $1.00 per share, of the Issuer. "SYNTHETIC LEASE OBLIGATIONS" means, collectively, (i) the Guaranty dated as of March 19, 1998 from Rite Aid Corporation to RAC Leasing LLC, as the same may be amended from time to time, and (ii) the Guaranty dated as of May 30, 1997 from Rite Aid Corporation to Sumitomo Bank Leasing and Finance, Inc., as the same may be amended from time to time. "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 Yield-Maintenance Amount payable in respect of the portion of the Prudential Pro Rata Exposure secured pursuant to clauses (i) and (ii) of this definition; (iv) any renewals or extensions of any of the foregoing and (v) 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 (iv) 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 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 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) 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 12 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 Base Rate plus 4.50% 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 10 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 Letter of Credit Exposure 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 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 and the termination of the Commitments under the Credit Agreements, 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 Agreements. 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 Agreements. 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 Loan 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 Credit Agreement. No such amendment shall by its terms materially adversely affect the rights of holders of any of the Prudential Pro Rata Exposure, the Morgan Pro Rata Exposure, the Letter of Credit Exposure or the Fourth 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: /s/ Richard Varmecky --------------------------------------- Name: Richard Varmecky Title: Senior Vice President - Finance MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: /s/ Glenda Winter-Irving ------------------------------------------ Name: Glenda Winter-Irving Title: Vice President SCHEDULE A Letters of Credit -----------------
L/C Ref # Beneficiary Amount Date Issued Expiry Date - --------- ----------- ------ ----------- ----------- ISSUED BY MELLON BANK, N.A.: 8571380 National Union Fire $ 20,861,000.00 20-Feb-98 31-Dec-99 Insurance 8554730 Insurance Co. of North 1,186,255.00 03-Nov-97 22-Nov-99 America 8533170 Commonwealth of PA 75,000.00 11-Jul-97 11-Jul-00 8531390 Joseph Brozek, Jr. 250,000.00 25-Jun-97 25-Jun-00 8159320 Continental Casualty Company 1,027,000.00 19-Feb-92 01-Jan-00 8478300 United States Fidelity and 1,250,000.00 15-May-98 31-Dec-99 Trust 8578810 Travelers Indemnity Co. (TPI) 225,000.00 16-Apr-98 31-Dec-99 8578580 LA Dept. of Labor 350,000.00 15-Apr-98 31-Dec-99 8586190 Reliance Insurance Co. 300,000.00 20-May-98 31-Dec-99 8614310 City of Grand Junction, CO 117,680.00 28-Dec-98 21-Apr-00 8642610 Capital Blue Cross 749.458.87 08-Jul-99 31-Dec-99 8464810 Baltimore County, MD 38,973.00 08-May-96 08-Nov-99 -------------- 26,430,366.87 ISSUED BY CITIBANK, N.A.: 13863/30019259 MLTC Funding 5,800,000.00 12-Dec-96 22-Oct-00 ISSUED BY AMSOUTH BANK OF ALABAMA: S309510 AmSouth Bank of Alabama 477,320.73 05-Sep-95 01-Jan-00 ---------------- Total standby letters 32,707,687.60 of credit outstanding ----------------
CROSS-REFERENCE TARGET LIST NOTE: DUE TO THE NUMBER OF TARGETS SOME TARGET NAMES MAY NOT APPEAR IN THE TARGET PULL-DOWN LIST. (This list is for the use of the wordprocessor only, is not a part of this document and may be discarded.) ARTICLE/SECTIONTARGET NAME ARTICLE/SECTIONTARGET NAME ARTICLE/SECTIONTARGET NAMEARTICLE/SECTIONTARGET NAME
1....................................def 2................................rep.war 2(c).............................sec.int 4.............................del.pl.sec 5..............................fur.assur 6.........................rec.own.pl.stk 5.19........................synth.leases 7........................rt.rec.dist.col 7................................rt.vote 9..............................gen.autho 9.04.......................shrg.set.offs 9(d).......................rem.event.def 10..............................expenses 11(b)(iv)...................lim.duty.agt 12..............................appl.pro 14..............................conc.agt 14(b)........................appt.co.agt 15..........................term.sec.int 9.01, 16.........................notices 17...............................waivers 18...........................succ.assign 19.............................chg.write 20................................ny.law 22...................................sev EX-10 8 EXHIBIT 10.3 - AMENDED AND RESTATED CREDIT AGREEMENT Exhibit 10.3 $1,000,000,000 AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 25, 1999 among Rite Aid Corporation, The Banks from time to time parties hereto and Morgan Guaranty Trust Company of New York, as Agent ------------------------------------ JP Morgan Securities Inc., Lead Arranger and Book Runner TABLE OF CONTENTS(1) PAGE ---- ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions................................................1 SECTION 1.02. Accounting Terms and Determinations.......................17 SECTION 1.03. Classes and Types of Loans................................17 SECTION 1.04. Other Definitional Provisions.............................18 - ------------ 1 The Table of Contents is not a part of this Agreement. ARTICLE 2 THE CREDITS SECTION 2.01. Commitments to Lend.......................................18 SECTION 2.02. Notice of Borrowings......................................19 SECTION 2.03. Notice to Banks; Funding of Loans.........................19 SECTION 2.04. Notes.....................................................20 SECTION 2.05. Maturity of Loans.........................................21 SECTION 2.06. Interest Rates............................................21 SECTION 2.07. Fees......................................................23 SECTION 2.08. Optional Termination or Reduction of Commitments..........23 SECTION 2.09. Scheduled Termination of Commitments......................23 SECTION 2.10. Reduction Events; Mandatory Prepayments and Commitment Reductions...................................23 SECTION 2.11. Optional Prepayments......................................26 SECTION 2.12. General Provisions as to Payments.........................26 SECTION 2.13. Funding Losses............................................27 SECTION 2.14. Computation of Interest and Fees..........................27 ARTICLE 3 CONDITIONS SECTION 3.01. Effectiveness.............................................27 SECTION 3.02. Borrowings................................................29 SECTION 3.03. Transition................................................29 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............................................30 SECTION 4.04. Financial Information.....................................30 SECTION 4.07. Compliance with ERISA.....................................32 SECTION 4.11. Year 2000 Compliance......................................33 SECTION 4.12. Pledge Agreements.........................................33 ARTICLE 5 COVENANTS SECTION 5.02. Payment of Obligations....................................36 SECTION 5.03. Maintenance of Property; Insurance........................36 SECTION 5.04. Conduct of Business and Maintenance of Existence..........36 SECTION 5.06. Inspection of Property, Books and Records.................37 SECTION 5.07. Restriction on Other Agreements...........................37 SECTION 5.08. Restriction on Debt of Subsidiaries.......................37 SECTION 5.09. Restriction on Sales with Leases Back.....................38 SECTION 5.10. Restriction on Liens......................................38 SECTION 5.11. Capital Expenditures......................................39 SECTION 5.12. Capitalization Leverage Ratio.............................40 SECTION 5.13. Cash Flow Leverage Ratio..................................40 SECTION 5.14. Fixed Charge Coverage.....................................40 SECTION 5.16. Consolidations, Mergers and Sales of Assets...............41 SECTION 5.17. Use of Proceeds...........................................42 SECTION 5.18. Restricted Payments.......................................42 SECTION 5.19. Synthetic Leases..........................................42 SECTION 5.20. Tranche A Limitations.....................................42 ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default.........................................43 SECTION 6.02. Notice of Default.........................................45 ARTICLE 7 THE AGENT SECTION 7.01. Appointment and Authorization.............................46 SECTION 7.02. Agent and Affiliates......................................46 SECTION 7.03. Action by Agent...........................................46 SECTION 7.05. Liability of Agent........................................46 SECTION 7.07. Credit Decision...........................................47 SECTION 7.08. Successor Agent...........................................47 SECTION 7.09. Agent's Fee...............................................48 ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair..................................................48 SECTION 8.02. Illegality................................................48 SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans.......................................52 ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices...................................................52 SECTION 9.02. No Waivers................................................53 SECTION 9.03. Expenses; Indemnification.................................53 SECTION 9.04. Sharing of Set-Offs.......................................53 SECTION 9.06. Successors and Assigns....................................55 SECTION 9.07. Governing Law; Submission to Jurisdiction.................56 SECTION 9.08. Counterparts; Integration.................................56 SECTION 9.09. WAIVER OF JURY TRIAL......................................57 Commitment Schedule Pricing Schedule Exhibit A - Note Exhibit B-1 - Opinion of Special Counsel for the Borrower Exhibit B-2 - Opinion of General Counsel of the Borrower Exhibit C - Opinion of Davis Polk & Wardwell, Special Counsel for the Agent Exhibit D - Assignment and Assumption Agreement Exhibit E - PCS Pledge Agreement Exhibit F - drugstore.com Pledge Agreement AMENDED AND RESTATED CREDIT AGREEMENT AGREEMENT dated as of October 25, 1999 among RITE AID CORPORATION, the BANKS from time to time parties hereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent. W I T N E S S E T H : WHEREAS, the Borrower (as this and other capitalized terms are defined in Section 1.01 below), the Banks and the Agent are parties to a Credit Agreement as dated as of July 19, 1996 (as amended to the Effective Date, the "ORIGINAL AGREEMENT"); and WHEREAS, the parties hereto wish to amend the Original Agreement to provide for collateral security for the Loans, to divide the Commitments and the Loans into tranches in which the Banks participate ratably, to increase the rates of interest and fees payable thereunder, to modify the covenants and to make various other changes as more fully set forth below, and to restate the Original Agreement as so amended; NOW, THEREFORE, the parties hereto hereby agree that, on and as of the Effective Date, the Original Agreement is hereby amended and restated in its entirety as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "ADJUSTED LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.06(b). "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Borrower) duly completed by such Bank. "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. "AGREEMENT" means the Original Agreement as amended and restated by this Amended Agreement and as the same may be further amended from time to time in accordance with the terms hereof. "AMENDED AGREEMENT" means this Amended and Restated Credit Agreement dated as of October 25, 1999 among the Borrower, the Banks and the Agent. "APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office. "ASSET SALE" means any sale, lease or other disposition (including any such transaction effected by way of merger or consolidation) by the Borrower or any of its Subsidiaries of any asset, but excluding (i) any sale, lease or other disposition by PCS or any of its Subsidiaries, (ii) the sale or other disposition of capital stock of PCS (or of any non-cash proceeds thereof), (iii) dispositions of inventory, cash, cash equivalents and other cash management investments and obsolete, unused or unnecessary equipment, in each case in the ordinary course of business, (iv) dispositions to the Borrower or a Wholly-Owned Consolidated Subsidiary, (v) any Sale and Leaseback Transaction and (vi) sales of accounts receivable pursuant to the Rite Aid Funding LLC receivables securitization facility in existence on the date hereof, or any successor receivables securitization facility, if and to the extent that the amount of financing available thereunder is not increased above that available on the date hereof. "ASSIGNEE" has the meaning set forth in Section 9.06(c). "ATTRIBUTABLE DEBT" means, as to any particular Sale and Leaseback Transaction under which the Borrower or any Subsidiary is at the time liable, at any date as of which the amount thereof is to be determined (i) in the case of any such transaction involving a Capital Lease, the amount on such date of the Capital Lease Obligation thereunder, or (ii) in the case of any other Sale and Leaseback Transaction, the then present value of the minimum rental obligations under such Sale and Leaseback Transaction during the remaining term thereof (after giving effect to any extensions at the option of the lessor) computed by discounting the respective rental payments at the actual interest factor included in such payments or, if such interest factor cannot be readily determined, at the rate of 14% per annum. The amount of any rental payment required to be made under any such Sale and Leaseback Transaction not involving a Capital Lease may exclude amounts required to be paid by the lessee on account of maintenance and repairs, insurance, taxes, assessments, utilities, operating and labor costs and similar charges. "BANK" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. "BASE RATE" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "BASE RATE LOAN" means a Loan to be made by a Bank as a Base Rate Loan in accordance with the applicable Notice of Borrowing or pursuant to Article 8. "BASE RATE MARGIN" has the meaning specified in the Pricing Schedule. "BENEFIT ARRANGEMENT" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "BORROWER" means Rite Aid Corporation, a Delaware corporation, and its successors. "BORROWER'S 1999 FORM 10-K" means the Borrower's annual report on Form 10-K for the fiscal year ended February 27, 1999, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. "BORROWING" means the aggregation of Loans of the same Class to be made to the Borrower by the Banks pursuant to Article 2 on a single date and for a single Interest Period. "BUSINESS ACQUISITION" means (i) an Investment by the Borrower or any of its Subsidiaries in any other Person (including an Investment by way of acquisition of securities of any other Person) pursuant to which such Person shall become a Subsidiary or shall be merged into or consolidated with the Borrower or any of its Subsidiaries or (ii) an acquisition by the Borrower or any of its Subsidiaries of the property and assets of any Person (other than the Borrower or any of its Subsidiaries) that constitute substantially all the assets of such Person or any division or other business unit of such Person. "CAPITAL LEASE" means any lease of property which, in accordance with generally accepted accounting principles, should be capitalized on the lessee's balance sheet; and "CAPITAL LEASE OBLIGATION" means the amount of the liability so capitalized in respect of a Capital Lease. "CAPITAL MARKETS TRANSACTION" means the receipt by the Borrower or a Subsidiary of proceeds of (a) an issuance in the public or private capital markets of long-term debt securities, of equity securities or of equity-linked (e.g., trust preferred) securities (other than the LPG Transaction), (b) a Sale and Leaseback Transaction (other than a Sale and Leaseback Transaction (i) between the Borrower and a Wholly-Owned Consolidated Subsidiary or between Wholly-Owned Consolidated Subsidiaries or (ii) entered into in respect of property acquired by the Borrower or a Subsidiary if such Sale and Leaseback Transaction is entered into within 24 months from the date of such acquisition)or (c) bank borrowings under facilities entered into after the Effective Date, to the extent the aggregate incremental financing available thereunder at any time exceeds $200,000,000. "CLASS" has the meaning set forth in Section 1.03. "COLLATERAL" means collateral subject to the Collateral Documents. "COLLATERAL DOCUMENTS" means the Pledge Agreements, any additional pledge agreements required to be delivered pursuant to the Loan Documents and any other instruments or agreements executed pursuant to the foregoing. "COMMITMENT" means a Tranche A Commitment or a Tranche B Commitment, and "COMMITMENTS" means any two or more of the foregoing, as the context may require. "COMMITMENT SCHEDULE" means the Schedule attached hereto identified as such. "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the aggregate amount of expenditures by the Borrower and its Consolidated Subsidiaries for plant, property and equipment during such period (including any such expenditure by way of acquisition of a Person or by way of assumption of indebtedness or other obligations of a Person, to the extent reflected as plant, property and equipment), but excluding any such expenditures made (i) for the replacement or restoration of assets to the extent financed by condemnation awards or proceeds of insurance received with respect to the loss or taking of or damage to the asset or assets being replaced or restored and (ii) for assets acquired to the extent financed by a Sale and Leaseback Transaction permitted by Section 5.08. "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" for any period, Consolidated Net Income for such period plus, to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) Consolidated Interest Charges, (ii) provision for income taxes, (iii) depreciation and amortization and (iv) charges incurred in connection with store closings not in excess of $48,000,000 and $20,000,000 during the fiscal years ending on or closest to February 28, 2000 and February 28, 2001, respectively; provided that if there shall have been an acquisition or disposition of operations during such period, Consolidated EBITDA shall be calculated on a pro forma basis giving effect thereto as if such acquisition or disposition had occurred on the first day of such period. "CONSOLIDATED INTEREST CHARGES" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued by the Borrower and its Consolidated Subsidiaries during such period. "CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of the Borrower and its Consolidated Subsidiaries (exclusive of (a) any non-cash loss on account of a sale of any drugstore and (b) extraordinary items of gain or loss and other non-recurring items of gain or loss, but only to the extent that such non-recurring items of loss do not (i) involve any cash expenditure by the Borrower during such period or any future period or (ii) exceed $50,000,000 in any fiscal year), determined on a consolidated basis for such period. "CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of assets (less applicable reserves and other properly deductible items) which under generally accepted accounting principles would be included on a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries after deducting therefrom (i) all liabilities and liability items, including amounts in respect of obligations or guarantees of obligations under leases, which under generally accepted accounting principles would be included on such balance sheet, except Funded Debt, capital stock and surplus, surplus reserves and provisions for deferred income taxes, and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, which in each case under generally accepted accounting principles would be included on such consolidated balance sheet. "CONSOLIDATED NET WORTH" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries determined as of such date. "CONSOLIDATED RENT" means, for any period, the consolidated rental expense of the Borrower and its Consolidated Subsidiaries for such period. "CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. "CREDIT EXPOSURE" means, with respect to any Bank, the sum of its Tranche A Exposure and its Tranche B Exposure. "DEBT" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations (and, for purposes of Section 5.10 and the definitions of Material Debt and Material Financial Obligations, all contingent obligations) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed by such Person. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DERIVATIVES OBLIGATIONS" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent. "DRUGSTORE.COM" means drugstore.com, inc., a Delaware corporation, and its successors. "DRUGSTORE.COM PLEDGE AGREEMENT" means the drugstore.com Pledge Agreement dated as of the date hereof between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder, in substantially the form of Exhibit F. "EFFECTIVE DATE" means the date this Agreement becomes effective in accordance with Section 3.01. "ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA GROUP" means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Agent. "EURO-DOLLAR LOAN" means a Loan to be made by a Bank as a Euro-Dollar Loan in accordance with the applicable Notice of Borrowing. "EURO-DOLLAR MARGIN" has the meaning set forth in the Pricing Schedule. "EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in Section 2.06(b). "EVENT OF DEFAULT" has the meaning set forth in Section 6.01. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Agent. "FIXED CHARGE COVERAGE RATIO" means at any date, the ratio of (i) Consolidated EBITDA plus Consolidated Rent to (ii) Consolidated Interest Charges plus Consolidated Rent, in each case for the period of four consecutive fiscal quarters most recently ended on or prior to such date. "FUNDED DEBT" means any Debt maturing more than one year after the date of determination thereof and any Debt, regardless of its term, renewable pursuant to the terms thereof or of a revolving credit or similar agreement effective for more than one year after the date of the creation of such Debt, which would, in accordance with generally accepted accounting practice, be classified as funded debt but shall not include: (a) any Debt for the payment, redemption or satisfaction of which money (or evidences of indebtedness, if permitted under the instrument creating such indebtedness) in the necessary amount shall have been deposited in trust with a trustee or proper depository either at or before maturity or redemption date thereof; or (b) guarantees arising in connection with the sale, discount, guarantee or pledge of notes, chattel mortgages, leases, accounts receivable, trade acceptances and other paper arising, in the ordinary course of business, out of installment or conditional sales to or by, or transactions involving title retention with, distributors, dealers or other customers of merchandise, equipment or services or guarantees other than guarantees of indebtedness for borrowed money. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "GUARANTEE" used as a verb has a corresponding meaning. "INDEMNITEE" has the meaning set forth in Section 9.03(b). "INDENTURES" means (i) the Indenture dated as of December 21, 1998 between the Borrower and Harris Trust and Savings Bank, as trustee, (ii) the Indenture dated as of September 22, 1998 between the Borrower and Harris Trust and Savings Bank, as trustee and (iii) the Indenture dated as of August 1, 1993, between the Borrower and First Trust of New York, National Association, as successor trustee. "INFORMATION" means, collectively, (i) the information provided to the Banks in connection with the waiver dated as of September 29, 1999 to the Existing Credit Agreement and (ii) the information presented to the Banks at meetings in New York City on October 4, 1999 and October 18, 1999 among the Borrower and certain financial institutions. "INTEREST PERIOD" means: (1) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable Notice of Borrowing; 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 Termination Date. (2) with respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing and ending 30 days thereafter; 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; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "INVESTMENT" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. Any repurchase by the Borrower of its own capital stock shall not constitute an Investment for purposes of this Agreement. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal, to the fair market value of such property at the time of such transfer or exchange. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. "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 Collateral Documents. "LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.06(b). "LPG COMMITMENT" means the Commitment with Respect to Investment in Rite Aid Corporation dated October 18, 1999 between the Borrower and Green Equity Investors III. "LPG TRANSACTION" means the purchase and sale of 3,000,000 shares of 8% Convertible Pay-In-Kind Preferred Stock of the Borrower for a purchase price of $100.00 per share pursuant to the LPG Commitment. "MATERIAL FINANCIAL OBLIGATIONS" means (i) a principal or face amount of Debt (except Debt outstanding hereunder) and/or (ii) payment or collateralization obligations in respect of Derivatives Obligations and/or (iii) payment or collateralization obligations in respect of leases (other than Capital Leases, which are Debt) of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $25,000,000. "MATERIAL PLAN" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000. "MORGAN PRO RATA EXPOSURE" means the $300,000,000 Demand Promissory Note dated June 15, 1999 issued by the Borrower to the order of J.P. Morgan Ventures Corporation. "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "NET CASH PROCEEDS" means, with respect to any Reduction Event, an amount equal to the cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Reduction Event (including, when received, any cash proceeds received as income or other proceeds of any noncash proceeds of any Asset Sale), less (x) any investment banking and underwriting fees and any other expenses reasonably incurred by such Person in respect of such Reduction Event and (y) if such Reduction Event is an Asset Sale, (I) the amount of any Debt secured by a Lien on any asset disposed of in such Asset Sale and discharged from the proceeds thereof and (II) any taxes actually paid or to be payable by such Person (as estimated by a senior financial or accounting officer of the Borrower, giving effect to the overall tax position of the Borrower) in respect of such Asset Sale. "1999 FACILITY" means the $1,300,000,000 Term Loan Agreement dated as of the date of this Amended Agreement among Rite Aid Corporation, the banks listed therein and Morgan Guaranty Trust Company of New York, as administrative agent thereunder. "1999 EXPOSURES" means the undrawn commitments and/or the outstanding loans under the 1999 Facility. "1999 LOAN DOCUMENTS" means the "Loan Documents" as defined in the 1999 Facility. "NOTES" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "NOTE" means any one of such promissory notes issued hereunder. "NOTICE OF BORROWING" means a Notice of Borrowing (as defined in Section 2.02). "OCTOBER SPECIAL CHARGES" means the special charges in the aggregate pre-tax amount of $660,000,000 reflected in the Information. "ORIGINAL AGREEMENT" has the meaning set forth in the recitals hereto. "PARENT" means, with respect to any Bank, any Person controlling such Bank. "PARTICIPANT" has the meaning set forth in Section 9.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PCS" means PCS Holding Corporation, a Delaware corporation, and its successors. "PCS EVENT" means (i) the sale or other disposition of capital stock of PCS (or of any non-cash proceeds thereof) or (ii) any sale, lease or other disposition by PCS or any of its Subsidiaries of any asset which would constitute an Asset Sale but for clause (i) of the definition of such term. "PCS PLEDGE AGREEMENT" means the PCS Pledge Agreement dated as of the date hereof between the Borrower and Morgan Guaranty Trust Company of New York, as agent thereunder, in substantially the form of Exhibit E. "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PLAN" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "PLEDGE AGREEMENTS" means the drugstore.com Pledge Agreement and the PCS Pledge Agreement. "PRICING SCHEDULE" means the Schedule attached hereto identified as such. "PRIME RATE" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "PRO RATA EXPOSURES" means the Credit Exposures, the Morgan Pro Rata Exposure and the Prudential Pro Rata Exposure. "PRUDENTIAL PRO RATA EXPOSURE" means the 7.30% Senior Secured Notes due February 28, 2002 issued by Finco, Inc. and guaranteed by the Borrower. "QUARTERLY DATE" means the last day of each Quarterly Period. "QUARTERLY PERIOD" means a three-month period consisting of (i) February, March and April, (ii) May, June and July, (iii) August, September and October or (iv) November, December and January. "REDUCTION EVENT" means the receipt on or after October 15, 1999 by the Borrower or a Subsidiary of proceeds of (i) a PCS Event, (ii) a Capital Markets Transaction or (iii) an Asset Sale. "REFERENCE BANKS" means the principal London offices of Citibank, N.A., Bank of America, N.A. and Morgan Guaranty Trust Company of New York. "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 Board of Governors of the Federal Reserve System, as in effect from time to time. "REQUIRED BANKS" means at any time Banks having more than 50% of the aggregate amount of the Credit Exposures. "RESTRICTED PAYMENT" means (i) any dividend or other distribution on any shares of the Borrower's capital stock (except dividends payable solely in shares of its capital stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Borrower's capital stock or (b) any option, warrant or other right to acquire shares of the Borrower's capital stock (other than such payment in connection with employee benefit plans in the ordinary course of business). "REVOLVING CREDIT PERIOD" means the period from and including the Effective Date to but not including the Termination Date. "SALE AND LEASEBACK TRANSACTION" has the meaning set forth in Section 5.08. "SEC" means the Securities and Exchange Commission, or any Person succeeding to its functions under the Securities Exchange Act of 1934, as amended. "SECURED DEBT" means Debt which is secured by a Lien on property of the Borrower or any Subsidiary, but shall not include guarantees arising in connection with the sale, discount, guarantee or pledge of notes, chattel mortgages, leases, accounts receivable, trade acceptances and other papers arising, in the ordinary course of business, out of installment or conditional sales to or by, or transactions involving title retention with, distributors, dealers or other customers, of merchandise, equipment or services. "SIGNIFICANT SUBSIDIARY" means at any time any Subsidiary or any group of Subsidiaries having consolidated assets, individually or in the aggregate, equal to or greater than 8% of the consolidated assets of the Borrower and its Consolidated Subsidiaries at such time. "SUBSIDIARY" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "SYNTHETIC LEASE" means a lease which is treated as an operating lease under generally accepted accounting principles but as ownership of the leased asset by the lessee for purposes of the Internal Revenue Code. "TEMPORARY CASH INVESTMENT" means any Investment in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by S&P (as defined in the Pricing Schedule) and P-1 by Moody's (as defined in the Pricing Schedule), (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized or licensed under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $500,000,000, (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, provided in each case that such Investment matures within one year from the date of acquisition thereof by the Borrower or a Subsidiary or (v) money market mutual funds at least 90% the assets of which are held in Investments referred to in clauses (i) through (iv) above (except that the maturities of certain Investments held by any such money market funds may exceed one year so long as the dollar-weighted average life of the Investments of such money market mutual fund is less than one year). "TERMINATION DATE" means July 19, 2001, or, if such day is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the Termination Date shall be the next preceding Euro-Dollar Business Day. "TOTAL CAPITAL" means, at any date, the sum of Consolidated Debt and Consolidated Net Worth, each determined as of such date. "TRANCHE A COMMITMENT" means (i) with respect to each Bank listed in the Commitment Schedule, the amount set forth opposite the name of such Bank in the Commitment Schedule as its Tranche A Commitment and (ii) with respect to each Assignee which becomes a Bank pursuant to Section 9.06(c), the amount of the Tranche A Commitment thereby assumed by it, in each case as such amount may be changed from time to time pursuant to Sections 2.08, 2.10 and 9.06(c). "TRANCHE A EXPOSURE" means, with respect to each Bank, the amount of its Tranche A Commitment, if still in existence, or the aggregate outstanding principal amount of its Tranche A Loans, if its Tranche A Commitment is no longer in existence. "TRANCHE A LOAN" means a loan made by a Bank pursuant to Section 2.01(a). "TRANCHE B COMMITMENT" means (i) with respect to each Bank listed in the Commitment Schedule, the amount set forth opposite the name of such Bank in the Commitment Schedule as its Tranche B Commitment and (ii) with respect to each Assignee which becomes a Bank pursuant to Section 9.06(c), the amount of the Tranche B Commitment thereby assumed by it, in each case as such amount may be changed from time to time pursuant to Sections 2.08, 2.10 and 9.06(c). "TRANCHE B EXPOSURE" means, with respect to each Bank, the amount of its Tranche B Commitment, if still in existence, or the aggregate outstanding principal amount of its Tranche B Loans, if its Tranche B Commitment is no longer in existence. "TRANCHE B LOAN" means a loan made by a Bank pursuant to Section 2.01(b). "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 and the District of Columbia, but excluding its territories and possessions. "WHOLLY-OWNED CONSOLIDATED SUBSIDIARY" means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. SECTION 1.02. Accounting Terms and Determinations. (a) Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the 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 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 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. (b) All financial determinations hereunder shall be adjusted to eliminate the effect of the October Special Charge for all fiscal periods ended prior to the date hereof. 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 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 (or a Borrowing) 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 (or that such Borrowing is comprised of such Loans). 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 1999 Loan Documents or the 1999 Facility shall be effective for purposes of references thereto in this Agreement only if such amendments are consented to in writing for such purpose by the Required Banks. References to any Person include the successors and assigns of such Person. References "from" or "through" any date mean, unless otherwise specified, "from and including" or "through and including", respectively. ARTICLE 2 THE CREDITS SECTION 2.01. Commitments to Lend. (a) Tranche A. During the Revolving Credit Period each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section 2.01(a) from time to time in amounts requested by the Borrower in accordance with the terms of this Agreement, provided that the aggregate principal amount of Tranche A Loans by such Bank at any one time outstanding shall not exceed the amount of its Tranche A Commitment. (b) Tranche B. During the Revolving Credit Period each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section 2.01(b) from time to time in amounts requested by the Borrower in accordance with the terms of this Agreement, provided that the aggregate principal amount of Tranche B Loans by such Bank at any one time outstanding shall not exceed the amount of its Tranche B Commitment. (c) Amounts. Each Borrowing under this Section shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount of the unused Commitments of the applicable Class) and shall be made from the several Banks ratably in proportion to their respective Commitments of the applicable Class. Within the foregoing limits, the Borrower may borrow under this Section, repay, or to the extent permitted by Section 2.11, prepay Loans and reborrow at any time during the Revolving Credit Period under this Section. SECTION 2.02. Notice of Borrowings. The Borrower shall give the Agent notice (a "NOTICE OF BORROWING") not later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing and (y) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (b) the aggregate amount of such Borrowing, (c) the Class and Type of the Loans comprising such Borrowing, and (d) in the case of a Euro-Dollar Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.03. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's share of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City time) on the date of each Borrowing, each Bank shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. Unless the Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower at the Agent's aforesaid address. (c) If any Bank makes a new Loan hereunder on a day on which the Borrower is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Agent as provided in subsection (b), or remitted by the Borrower to the Agent as provided in Section 2.12, as the case may be. (d) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section 2.03 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and the Borrower severally agree to repay to the 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 Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.06 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.04. 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 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 Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, Class, Type and maturity 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 2.05. Maturity of Loans. Each Loan included in any Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. SECTION 2.06. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the sum of the Base Rate Margin plus the Base Rate for such day. Such interest shall be payable for each Interest Period on the last day thereof. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the applicable 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 Euro-Dollar 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 Euro-Dollar 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) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Loan and (ii) the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than six months as the Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day). (d) The Agent shall determine each interest rate applicable to the Loans hereunder. The 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 Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the 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 2.07. Fees. (a) Participation Fees. On the Effective Date, the Borrower shall pay to the Agent for the account of each Bank a participation fee in an amount equal to 0.50% of the aggregate amount of such Bank's Commitments. (b) Commitment Fees. The Borrower shall pay to the Agent for the account of the Banks ratably a commitment fee accruing at the Commitment Fee Rate (determined daily in accordance with the Pricing Schedule) on the daily unused amount of the Commitments of each Class. Accrued commitment fees with respect to the Commitments of each Class shall be payable quarterly on each Quarterly Date and upon the date of termination of the Commitments of such Class in their entirety. SECTION 2.08. Optional Termination or Reduction of Commitments. During the Revolving Credit Period, the Borrower may, upon at least three Domestic Business Days' notice to the Agent, (i) terminate the Commitments of either Class at any time, if no Loans of such Class are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $25,000,000 or any larger multiple thereof, the aggregate amount of the Commitments of either Class in excess of the aggregate outstanding principal amount of the Loans of such Class; provided that no such termination or reduction of the Tranche A Commitments shall be permitted unless and until the Tranche B Commitments shall have been terminated. Upon receipt of any such notice, the Agent shall promptly notify the Banks. SECTION 2.09. Scheduled Termination of Commitments. All Commitments shall terminate on the Termination Date, and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 2.10. Reduction Events; Mandatory Prepayments and Commitment Reductions. (a) In the event that the Borrower or any of its Subsidiaries shall at any time, or from time to time, receive any Net Cash Proceeds of any Reduction Event, (x) the Borrower shall, not later than the Domestic Business Day following the date of receipt of such Net Cash Proceeds, notify the Agent of such fact and of the amount of such Net Cash Proceeds, (y) the Borrower shall, not later than the Domestic Business Day following the date of receipt of such Net Cash Proceeds, cause the same to be transferred to the Agent to be held in an escrow account pending application in accordance with the provisions of this Agreement and the 1999 Facility and (z) the Borrower shall, on the third Euro-Dollar Business Day following the date of receipt of such Net Cash Proceeds, apply an amount equal to the largest multiple of $1,000,000 which does not exceed the amount of such Net Cash Proceeds to reduction of the 1999 Exposures and/or the Pro Rata Exposures in accordance with the following provisions of this Section: (i) if the amount of the Net Cash Proceeds in respect of any Reduction Event is less than $5,000,000, then, unless the Required Banks otherwise elect, the application thereof shall be deferred until receipt of proceeds such that, together with all other such amounts received and not previously applied, the amount of such Net Cash Proceeds is equal to at least $5,000,000; (ii) if such Reduction Event is a PCS Event, such Net Cash Proceeds shall FIRST be applied ratably to reduce the 1999 Exposures, until the same shall have been reduced to zero, then SECOND shall be applied ratably to reduce the Tranche A Exposures until the Tranche A Exposures shall have been reduced to zero and then THIRD applied in accordance with paragraph (iv) below; (iii) if such Reduction Event is a Capital Markets Transaction, such Net Cash Proceeds shall first be applied ratably to reduce the 1999 Exposures, subject to Section 2.09(a)(ii) of the 1999 Facility, until the same shall have been reduced to zero, and then applied in accordance with paragraph (iv) below; (iv) if such Reduction Event is not covered by paragraph (ii) or (iii) above, or if there are Net Cash Proceeds in excess of those applied in accordance with paragraphs (ii) and (iii) above, such Net Cash Proceeds shall first be applied ratably to the Pro Rata Exposures until the Pro Rata Exposures shall have been reduced to zero, and then ratably to prepay loans outstanding under the 1999 Facility; (v) the ratable application of Net Cash Proceeds to the Credit Exposure, Tranche A Exposure or Tranche B Exposure of a Bank shall be based upon the full amount thereof at the relevant time, and shall be effected by both a reduction in the amount of such Bank's Commitment of the relevant Class by its ratable share of the related Net Cash Proceeds and by the prepayment of its outstanding Loans of the relevant Class in an equal amount; provided that if its outstanding Loans of the relevant Class are less than its ratable share of such Net Cash Proceeds, such Loans shall be prepaid in their entirety and the excess funds not required for such purpose shall be remitted to the Borrower; and provided further that if and to the extent any prepayment of Tranche B Loans required hereunder would result in the aggregate outstanding principal amount of the Partially Secured Obligations (as defined in the Pledge Agreements) being less than the Maximum Principal Amount (as defined in the Pledge Agreements), such prepayment shall be required only to the extent necessary so that the aggregate outstanding principal amount of the Tranche B Loans does not exceed the aggregate amount of the Tranche B Commitments as reduced; (vi) Net Cash Proceeds applied to the Credit Exposures pursuant to paragraph (iv) above shall be applied ratably FIRST to the Tranche B Exposures until Tranche B Exposures shall have been reduced to zero and then SECOND to the Tranche A Exposures; and (vii) no Borrowing may be made on or after the date of any Reduction Event and prior to the fifth Euro-Dollar Business Day thereafter if such Borrowing would cause the aggregate outstanding principal amount of the Loans of any Class to exceed the amount of the Commitments of such Class after giving effect to any reduction thereof required pursuant to this Section on such fifth succeeding Euro-Dollar Business Day. (b) Upon receipt from the Borrower of a notice pursuant to Section 2.10(a)(y), the Administrative Agent will promptly notify each Bank of the contents thereof, and of the date of the related reduction required hereunder. Any required prepayment shall be made together with accrued interest on the amount prepaid, and (within the Class of Borrowings determined pursuant to the other provisions of this Section) shall be applied first to Base Rate Borrowings and then to such outstanding Euro-Dollar Borrowings as the Borrower may elect in such notice, or failing such election as the Administrative Agent may determine in its discretion. (c) Amounts held by the Administrative Agent in escrow pending application as contemplated by this Section 2.10 shall be invested upon the instruction of the Borrower in Temporary Cash Investments for the account of the Borrower. (d) It is expressly understood and agreed that the provisions of this Section 2.10 are not intended to, and do not, create a Lien in any Net Cash Proceeds (except to the extent the same represent proceeds of Collateral). (e) Net Cash Proceeds of a Reduction Event received by the Borrower or a Subsidiary prior to the Effective Date shall be deemed for purposes of this Section to have been received on the Effective Date. SECTION 2.11. Optional Prepayments. (a) Subject in the case of any Euro-Dollar Loans to Section 2.14, the Borrower may (i) upon at least one Domestic Business Day's notice to the Agent, prepay any Base Rate Borrowing or (ii) upon at least three Euro-Business Days' notice to the 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; provided that no such optional prepayment of any Tranche A Loan shall be permitted while any Tranche B Loans remain outstanding. 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 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 2.12. 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 Agent at its address referred to in Section 9.01. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the 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 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 Agent may assume that the Borrower has made such payment in full to the Agent on such date and the 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 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 Agent, at the Federal Funds Rate. SECTION 2.13. Funding Losses. If the Borrower makes any payment of principal with respect to any Euro-Dollar Loan (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of the Interest Period applicable thereto, or the end of an applicable period fixed pursuant to Section 2.07(c), or if the Borrower fails to borrow or prepay any Euro-Dollar Loans after notice has been given to any Bank in accordance with Section 2.03(a), 2.10(b) or 2.11(a), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow or prepay, 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 2.14. Computation of Interest and Fees. 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). ARTICLE 3 CONDITIONS SECTION 3.01. Effectiveness. 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 Banks comprising the Required 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 Agent for the account of each Bank of a duly executed Note dated on or before the Effective Date complying with the provisions of Section 2.04; (c) receipt by the Agent of duly executed counterparts of the Pledge Agreements, together with certificates evidencing the Collateral pledged thereunder and such other instruments of assignment and/or financing statements as the Agent may reasonably request; (d) receipt by the 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 Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit C hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (f) receipt by the Agent of all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement, the Pledge Agreements and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Agent; (g) receipt by the Agent of evidence satisfactory to it that the Borrower shall have paid all participation fees payable pursuant to Section 2.08; (h) receipt by the Agent of evidence satisfactory to it that the closing under the 1999 Facility shall have occurred, and the loans contemplated thereby shall have been made, not later than the Effective Date, without waiver of any material condition specified therein; (i) receipt by the Agent of evidence satisfactory to it that amendments to the Morgan Pro Rata Exposure and the Prudential Pro Rata Exposure shall have become effective, under the terms of which amendments no payments of principal may be required thereunder prior to November 1, 2000 except (i) as contemplated by Section 2.10 hereof or (ii) in the event of acceleration upon an Event of Default; (j) receipt by the Agent for each Bank of a duly executed purpose statement on Form FR U-1; and (k) receipt by the Agent of evidence satisfactory to it that the LPG Transaction shall have been consummated in accordance with the LPG Commitment, and the Borrower shall have received $300,000,000 gross cash proceeds pursuant thereto. On the Effective Date the Original Agreement will be automatically amended and restated in its entirety to read as set forth herein. On and after the Effective 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 Effective Date shall continue to be governed by the provisions of the Original Agreement. The Notes delivered to each Bank under the Original 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. Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) receipt by the Agent of a Notice of Borrowing as required by Section 2.02; (b) the fact that, immediately after such Borrowing, no Default shall have occurred and be continuing; and (c) 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(c) and 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 Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b) and (c) of this Section. SECTION 3.03. Transition. Each Loan outstanding under the Original Agreement on the Effective 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 Original Agreement, but with a Base Rate Margin or Euro-Dollar Margin determined pursuant to this Amended Agreement for any date on or after the Effective Date. The Agent shall determine in consultation with the Borrower which of such outstanding Loans are Tranche A Loans and which are Tranche B Loans, and shall promptly notify the Borrower and each Bank of such determination. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of the Loan Documents are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary or any other material agreement, instrument, judgment, injunction, order or decree binding upon the Borrower or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary pursuant to any such agreement, instrument, judgment, injunction, order or decree (other than the Liens created by the Pledge Agreements). SECTION 4.03. Binding Effect. This Agreement and each Pledge Agreement constitutes a valid and binding agreement of the Borrower and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms. SECTION 4.04. Financial Information. Except as disclosed in the Information: (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of February 27, 1999 and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by KPMG Peat Marwick LLP and set forth in the Borrower's 1999 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of May 29, 1999 and the related consolidated statements of income and cash flows for the fiscal period then ended, set forth in the Borrower's quarterly report on Form 10-Q for the fiscal quarter then ended, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a), the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal period, subject to normal year-end adjustments. (c) Since May 29, 1999, there has been no material adverse change in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.05. Full Disclosure. All financial statements and other documents furnished by the Borrower to the Banks in connection with this Agreement, including the Information, do not and will not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading. The Borrower has disclosed to the Banks in writing any and all facts which materially and adversely affect the business, operations or condition, financial or otherwise, of the Borrower and its Subsidiaries or the Borrower's ability to perform its obligations under this Agreement. SECTION 4.06. Litigation. Except as disclosed in the Borrower's 1999 Form 10-K, there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries or which in any manner draws into question the validity or enforceability of any Loan Document. SECTION 4.07. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all United States Federal income tax returns, and the Borrower and its Significant Subsidiaries have filed all other material tax returns, which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Significant Subsidiary except where the payment of any such taxes is being contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Borrower and its Consolidated Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.09. Subsidiaries. Each of the Borrower's corporate Significant Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.10. Environmental Matters. In the ordinary course of its business, the Borrower conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or hazardous substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the Borrower has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a material adverse effect on the business, financial condition, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.11. Year 2000 Compliance. The Borrower has (i) initiated a review and assessment of all areas within the business and operations of the Borrower and each of its Subsidiaries (including those areas affected by suppliers and vendors) that could be adversely affected by the "YEAR 2000 PROBLEM") (that is, the risk that computer applications used by it or any of its Subsidiaries (or their respective supplier and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented such plan in accordance with such timetable. The Borrower reasonably believes that all computer applications that are material to the business or operations of the Borrower or any of its Subsidiaries will on a timely basis be able to perform properly date-sensitive functions for all dates before and from and after January 1, 2000, except to the extent that a failure to do so could not reasonably be expected to have a material adverse effect on the business, financial condition, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.12. Pledge Agreements. The representations and warranties of the Borrower set forth in each Pledge Agreement are true and correct. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) as soon as available and in any event within 90 days (or within such longer period of time, not greater than 120 days, to which the SEC may extend the filing deadline for the Borrower's Annual Report on Form 10-K) after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on without material qualification by KPMG Peat Marwick LLP or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 45 days (or (x) in the case of the fiscal quarter most recently ended prior to the date hereof, within 65 days or (y) in the case of any subsequent fiscal quarter, within such longer period of time, not greater than 60 days, to which the SEC may extend the filing deadline for the Borrower's Quarterly Report on Form 10-Q) after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrower's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.08 to 5.15, inclusive, on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above; (e) within five days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the SEC; (h) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer, any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and (i) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Bank, may reasonably request. Information required to be delivered pursuant to Section 5.01(a), 5.01(b), 5.01(f) or 5.01(g) above shall be deemed to have been delivered on the date on which the Borrower provides notice to the Banks that such information has been posted on the Borrower's website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux/searches.htm or at another website identified in such notice and accessible by the Banks without charge; provided that (i) such notice may be included in a certificate delivered pursuant to Section 5.01(c) and (ii) the Borrower shall deliver paper copies of the information referred to in Section 5.01(a), 5.01(b), 5.01(f) or 5.01(g) to any Bank which requests such delivery. SECTION 5.02. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge, as the same shall become due and payable, (i) all material claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons prior to the time such claims or demands give rise to a Lien upon any of its property or assets, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except where any of the items in clause (i) or (ii) above may be contested in good faith by appropriate proceedings, and the Borrower or such Subsidiary, as the case may be, shall have set aside on its books, in accordance with generally accepted accounting principles, appropriate reserves, if any, for the accrual of any such items. SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will, and will cause each of its Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to the Banks, upon request from the Agent, information presented in reasonable detail as to the insurance so carried. SECTION 5.04. Conduct of Business and Maintenance of Existence. Except as otherwise permitted in this Agreement, the Borrower will continue, and will cause each Significant Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Significant Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Significant Subsidiary (except where such Significant Subsidiary merges into the Borrower or any other Subsidiary) to preserve, renew and keep in full force and effect their respective legal existences and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business. SECTION 5.05. Compliance with Laws. The Borrower will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 5.06. Inspection of Property, Books and Records. The Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank at such Bank's expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.07. Restriction on Other Agreements. The Borrower will not, and will not permit any Subsidiary to, enter into any agreement (other than the Loan Documents and the 1999 Loan Documents) which imposes a limitation on incurrence by the Borrower and its Subsidiaries of Liens that is more restrictive than the limitation on Liens set forth in the Indentures (other than agreements with respect to Debt secured by Liens permitted by Section 5.10(a) containing restrictions on the ability to transfer or grant Liens on the assets securing such Debt and other than customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing and customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business) or which imposes other covenants more restrictive than those set forth in this Agreement. SECTION 5.08. Restriction on Debt of Subsidiaries. The Borrower will not permit any Subsidiary to create, issue, incur, assume, or in any other way become liable for any unsecured Debt unless immediately prior thereto the Borrower would be entitled under Section 5.10(e) to create Secured Debt not specifically permitted under Section 5.10 but for subsection (e) thereof in an amount equal to such Debt; provided that the foregoing restriction shall not prevent (i) any Subsidiary from becoming liable to the Borrower or to a Wholly-Owned Consolidated Subsidiary for Debt or (ii) the extension, renewal or refunding of any Debt of any Subsidiary so long as Consolidated Debt is not thereby increased. SECTION 5.09. Restriction on Sales with Leases Back. Except for a sale or transfer by a Subsidiary to the Borrower or a Wholly-Owned Consolidated Subsidiary, the Borrower will not, and will not permit any Subsidiary to, sell or transfer any manufacturing plant, warehouse, retail store or equipment now or hereafter owned and operated by the Borrower or a Subsidiary, with the intention that the Borrower or any Subsidiary take back a lease thereof, except a lease for a period, including renewals, not exceeding 24 months, by the end of which period it is intended that the use of such property or equipment by the lessee will be discontinued (any such transaction being herein referred to as a "SALE AND LEASEBACK TRANSACTION"); provided that, notwithstanding the foregoing, the Borrower or any Subsidiary may enter into a Sale and Leaseback Transaction if the Borrower or a Subsidiary would be entitled under Section 5.10(e) to create Secured Debt not specifically permitted under Section 5.10 but for Section 5.10(e) in an amount equal to the Attributable Debt respecting such Sale and Leaseback Transaction; provided further that, notwithstanding the foregoing, the Borrower or any Subsidiary may enter into a Sale and Leaseback Transaction if entered into in respect of property acquired by the Borrower or a Subsidiary if such Sale and Leaseback Transaction is entered into within 24 months from the date of such acquisition; and provided still further that, notwithstanding the foregoing, the Borrower or any Subsidiary may enter into a Sale and Leaseback Transaction so long as the Net Cash Proceeds thereof are applied as contemplated by Section 2.10 hereof. SECTION 5.10. Restriction on Liens. The Borrower will not, and will not permit any Subsidiary to, create, issue, incur, assume or guarantee any Secured Debt; provided that the foregoing covenant shall not apply to the following: (a) (i) Any Lien on any property acquired or constructed by the Borrower or a Subsidiary and created contemporaneously with, or within 24 months after, such acquisition or the completion of such construction and commencement of full operation of such property, whichever is later, to secure or provide for the payment of any part of the purchase or construction price of such property, or (ii) the acquisition by the Borrower or a Subsidiary of property subject to any Lien upon such property existing at the time of acquisition thereof, whether or not assumed by the Borrower or such Subsidiary, or (iii) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired; provided that the Lien does not spread to other property except unimproved real property previously owned upon which any new construction has taken place and subsequent additions to such acquired or constructed property; (b) Any Lien created for the sole purpose of extending, renewing or refunding, in whole or part, any Lien permitted by this Section 5.10 or any Lien securing the Debt of the Borrower or of any Subsidiary on the date of this Agreement or of a corporation at the time such corporation becomes a Subsidiary, or any extensions, renewals or refundings of any such Lien; provided that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding Lien shall be limited to all or that part of the same property which secured the Debt so extended, renewed or refunded; (c) Any Secured Debt of a Subsidiary owing to the Borrower or a Wholly-Owned Consolidated Subsidiary; (d) Any Lien created by the Loan Documents or the 1999 Loan Documents; and (e) Secured Debt of the Borrower and its Subsidiaries which would otherwise be prohibited by the foregoing restrictions (not including Secured Debt permitted to be secured under subsections (a) through (d) above) so long as the sum of any such Secured Debt hereafter incurred and outstanding at the time plus Attributable Debt of the Borrower and any Subsidiaries in respect of Sale and Leaseback Transactions hereafter entered into and outstanding at the time (excluding Attributable Debt incurred in respect of any Sale and Leaseback Transaction (i) entered into in respect of property acquired by the Borrower or a Subsidiary not more than 24 months prior to the date such Sale and Leaseback Transaction is entered into or (ii) if the Borrower, within 120 days before or after such Sale and Leaseback Transaction is entered into applies an amount equal to the greater of (A) the net proceeds of the sale of the property so sold and leased back or (B) the fair market value of such property at the date such arrangement is entered into to the retirement of Secured Debt (other than at maturity or pursuant to any mandatory payment provision) or to reduction of the Commitments) plus unsecured Debt of any Subsidiary hereafter incurred and outstanding at the time (excluding unsecured Debt incurred through the extension, renewal or refunding of Debt of such Subsidiary where Consolidated Debt was not thereby increased and excluding any Debt owed to the Borrower or a Wholly-Owned Consolidated Subsidiary) does not at the time exceed 5% of Consolidated Net Tangible Assets. SECTION 5.11. Capital Expenditures. The aggregate amount of Consolidated Capital Expenditures for any period set forth below shall not exceed the amount set forth below opposite such period: FISCAL YEAR ENDING ON OR CLOSEST TO AMOUNT --------------------- ------ February 29, 2000 $620,000,000 February 28, 2001 $295,000,000 SECTION 5.12. Capitalization Leverage Ratio. At no time during any period set forth below shall the ratio of (i) Consolidated Debt at such time to (ii) Total Capital at such time, exceed the ratio set forth below opposite such period: FISCAL QUARTER ENDING ON OR CLOSEST TO RATIO --------------------- ----- November 30, 1999 0.635 February 29, 2000 0.635 May 31, 2000 and 0.620 thereafter SECTION 5.13. Cash Flow Leverage Ratio. At no time during any period set forth below shall the ratio of (i) Consolidated Debt at such time to (ii) Consolidated EBITDA for the four consecutive fiscal quarters then most recently ended at or prior to such time, exceed the ratio set forth below opposite such period: FISCAL QUARTER ENDING ON OR CLOSEST TO RATIO --------------------- ----- November 30, 1999 6.30 February 29, 2000 6.00 May 31, 2000 5.75 August 31, 2000 4.75 November 30, 2000 4.50 February 28, 2001 and 4.00 thereafter SECTION 5.14. Fixed Charge Coverage. At no time during any period set forth below shall the Fixed Charge Coverage Ratio be less than the ratio set forth below opposite such period: FISCAL QUARTER ENDING ON OR CLOSEST TO RATIO --------------------- ----- November 30, 1999 1.35 February 29, 2000 1.35 May 31, 2000 1.35 August 31, 2000 1.45 November 30, 2000 1.55 February 28, 2001 and 1.60 thereafter SECTION 5.15. Limitation on Investments and Acquisitions. (a) Neither the Borrower nor any Consolidated Subsidiary will make or acquire any Investment in any Person other than: (i) Investments in Consolidated Subsidiaries; provided, that Investments (exclusive of inter-company payables owing to the Borrower or a Subsidiary arising from cash management transactions in the ordinary course of business) in PCS, whether existing on the date hereof or hereafter made, may be made only by the Borrower and only in the form of a contribution to the capital of PCS and without issuance of additional shares of capital stock therefor, and provided further that no such Investment may be made in any Subsidiary of PCS except by PCS or another Subsidiary of PCS; (ii) Temporary Cash Investments; (iii) Investments received as consideration for sale or other disposition of the capital stock of PCS or drugstore.com permitted by Section 5.16; (iv) Investments in drugstore.com existing on the date hereof; and (v) Any Investment not otherwise permitted by the foregoing clauses of this Section if, immediately after such Investment is made or acquired, the aggregate net book value of all Investments permitted by this clause (c) does not exceed 10% of Consolidated Net Worth. (b) The Borrower will not, and will not permit any Subsidiary to, consummate any Business Acquisition to the extent that the aggregate consideration paid or payable by the Borrower or any Subsidiary in connection with all such Business Acquisitions on or after the Closing Date would exceed $15,000,000. SECTION 5.16. Consolidations, Mergers and Sales of Assets. The Borrower will not (i) consolidate or merge with or into any other Person, (ii) sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of the assets of the Borrower and its Subsidiaries, taken as a whole, to any other Person or (iii) sell, lease or otherwise transfer any Collateral to any other Person; provided that (x) the Borrower may merge with another Person if (A) the Borrower is the corporation surviving such merger and (B) immediately after giving effect to such merger, no Default shall have occurred and be continuing and (y) the Borrower may sell or otherwise dispose of the capital stock of PCS or drugstore.com, in whole but not in part, so long as the consideration therefor is not less than the fair market value of such capital stock and shall consist solely of a combination of cash and publicly traded securities payable and deliverable at the closing of such sale. SECTION 5.17. Use of Proceeds. The proceeds of the Tranche A Loans made under this Agreement will be used by the Borrower exclusively to repay commercial paper (or to refund borrowings the proceeds of which were used solely to repay commercial paper), which commercial paper provided funds for the payment of the purchase price of the capital stock of PCS. The proceeds of the Tranche B Loans made under this Agreement will be used by the Borrower for the Borrower's general corporate purposes; provided that no Tranche B Loans may be borrowed for a purpose for which Tranche A Loans may be borrowed unless the Tranche A Commitments are at the time fully drawn. No such use of the proceeds will be for the purpose of prepaying commercial paper prior to the maturity thereof and no such use of proceeds will be, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "MARGIN STOCK" within the meaning of Regulation U, other than publicly traded securities issued to the 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 5.18. Restricted Payments. After the date hereof, neither the Borrower nor any Subsidiary will declare or make any Restricted Payment. SECTION 5.19. Synthetic Leases. Neither the Borrower nor any Subsidiary will enter into any Synthetic Lease if, after giving effect thereto, the aggregate amount financed under all Synthetic Leases entered into in any period of twelve consecutive calendar months commencing after the date hereof would exceed $35,000,000. SECTION 5.20. Tranche A Limitations. (a) No Tranche A Loans may be borrowed hereunder unless the commitments under the 1999 Facility are fully drawn. (b) The Borrower will not for so long as the Tranche B Commitments remain in existence use any source of funds other than additional Tranche A Loans to repay or prepay Tranche A Loans prior to the Termination Date, except as expressly contemplated by Section 2.10. (c) If the capital stock of PCS is sold for consideration consisting in whole or in part of "margin stock" within the meaning of Regulation U, then for so long as such margin stock is held as substitute collateral under the PCS Pledge Agreement, the Borrower may not make any Tranche A Borrowing other than a Refunding Borrowing unless it shall have delivered to the Agent an opinion of Skadden, Arps, Slate, Meagher & Flom, LLP, satisfactory in form and substance to the Agent, to the effect that such Borrowing does not result in a violation of Regulation T, U or X. ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("EVENTS OF DEFAULT") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within five days of the due date thereof any interest, fees or other amount payable hereunder; (b) the Borrower shall fail to observe or perform (i) any covenant contained in Sections 5.08 to 5.20, inclusive or (ii) any covenant contained in Section 3(b) or 5(b) of either Pledge Agreement; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in the Loan Documents (other than those covered by clause (a) or (b) above) for 30 days after written notice thereof has been given to the Borrower by the Agent at the request of any Bank; (d) any material representation, warranty, certification or statement made (or deemed made) by the Borrower in any Loan Document or in any certificate, financial statement or other document delivered pursuant to any Loan Document shall prove to have been incorrect in any material respect when made (or deemed made); (e) the Borrower or any Subsidiary shall fail to make any payment in respect of any Material Financial Obligations when due or within any applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Financial Obligations or enables (or, if such event or condition does not otherwise give rise to a Default hereunder, which with the giving of notice or lapse of time or both would enable) the holder of such Material Financial Obligations or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) the Borrower or any Significant Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Significant Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Significant Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $5,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer, any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000; (j) a judgment or order for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; (k) any Lien created by either Pledge Agreement shall at any time fail to constitute a valid and (to the extent required by such Pledge Agreement) perfected Lien on all of the Collateral purported to be subject thereto, securing the obligations purported to be secured thereby, with the priority required by the Loan Documents, or the Borrower shall so assert in writing; or (l) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under said Act) of 20% or more of the outstanding shares of common stock of the Borrower; or, during any period of 12 consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; then, and in every such event, the Agent shall (i) if requested by the Required Banks, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding Notes evidencing more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower ; and provided further that if the Tranche B Commitments are then still in existence, the Tranche B Commitments shall terminate automatically, without any notice to the Borrower or any act by the Agent or the Banks, immediately prior to any application of proceeds of Collateral to the Tranche B Loans pursuant to Section 13 of the PCS Pledge Agreement or Section 13 of the drugstore.com Pledge Agreement. SECTION 6.02. Notice of Default. The 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 AGENT SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of New York shall have the same rights and powers under the Loan Documents as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Agent. SECTION 7.03. Action by Agent. The obligations of the Agent under the Loan Documents are only those expressly set forth therein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6 and in the Pledge Agreements. SECTION 7.04. Consultation with Experts. The 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 Agent. Neither the 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 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 Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The 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 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 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 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 Agent. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right, with (so long as no Default shall have occurred and be continuing) the consent of the Borrower, to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Agent by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Agent's resignation hereunder as 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 Agent. SECTION 7.09. Agent's Fee. The Borrower shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the 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 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 Commitments of the relevant Class advise the Agent that the Adjusted London Interbank Offered Rate as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period, the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the 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 shall be suspended. Unless the Borrower notifies the Agent at least two Domestic Business Days before the date of any Euro-Dollar Borrowing for which a Notice of Borrowing 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 Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the 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 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 Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower shall immediately prepay in full the then outstanding principal amount of each such Euro-Dollar Loan, together with accrued interest thereon. Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan. 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 Board of Governors of the Federal Reserve System, but excluding any such requirement included 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 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 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 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 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 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 Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or the 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 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 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 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 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 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 Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. If the form provided by a Bank at the time such Bank first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "TAXES" as defined in Section 8.04(a). (e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which a form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04(a) with respect to Taxes imposed by the United States; provided, however, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank. SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans which would otherwise be made by such Bank as Euro-Dollar Loans shall be made instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and (b) after each of its Euro-Dollar Loans has been repaid, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead. ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Agent, at its address or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or telex number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Agent under Article 2 or Article 8 shall not be effective until received. SECTION 9.02. No Waivers. No failure or delay by the 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 Agent, including fees and disbursements of special counsel for the Agent, in connection with the preparation and administration of the Loan Documents, any waiver or consent thereunder or any amendment thereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the 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 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 Agent are affected thereby, by the 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 or (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. (b) Any provision of any 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 Administrative Agent with the consent of the Required Banks; provided that no such amendment or waiver shall, unless signed by all the Banks, (i) alter in a manner adverse to the Banks the priorities specified in Section 13 of either Pledge Agreement or (ii) effect or permit a release of all or substantially all of the Collateral under either Pledge Agreement. Notwithstanding the foregoing, Collateral shall be released from the Lien of the Pledge Agreement from time to time as necessary to effect any sale of Collateral permitted by the Loan Documents, and the Administrative Agent shall execute and deliver all release documents reasonably requested to evidence such release; provided that arrangements satisfactory to the Agent shall have been made for application of the cash proceeds thereof in accordance with Section 2.10 hereof and for the pledge of any non-cash proceeds thereof pursuant to the Collateral Documents. SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "PARTICIPANT") participating interests in its 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 Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the 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 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 D 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 Agent (such consent of the Borrower and the Agent not to be unreasonably withheld); provided that 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 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 subsection (c), the transferor Bank, the 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 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 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 AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. RITE AID CORPORATION By: /s/ Richard Varmecky -------------------------------------- Name: Richard Varmecky Title: Senior Vice President - Finance Address: 30 Hunter Lane Camp Hill, PA 17011 Attention: Chief Financial Officer Telephone No.: (717) 975-5750 Facsimile No.: (717) 975-3764 Website: www.riteaid.com MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Glenda Winter-Irving ------------------------------- Name: Glenda Winter-Irving Title: Vice President BANK OF AMERICA, N.A. By: /s/ Timothy Spanos ------------------------------- Name: Timothy Spanos Title: Managing Director THE CHASE MANHATTAN BANK By: /s/ Margaret Lane ------------------------------- Name: Margaret Lane Title: Vice President MELLON BANK, N.A. By: /s/ Richard Schaich ------------------------------- Name: Richard Schaich Title: Vice President PNC BANK, NATIONAL ASSOCIATION By: /s/ Brennan Danile ------------------------------- Name: Brennan Danile Title: Assistant Vice President WACHOVIA BANK, N.A. By: /s/ James McCreary ---------------------------------- Name: James McCreary Title: Senior Vice President/Group Executive SUNTRUST BANK, ATLANTA By: /s/ Karen Copeland --------------------------------- Name: Karen Copeland Title: Vice President By: -------------------------------- Name: Title: BANK ONE, NA (Main Office - Chicago) By: /s/ Eva Drinis -------------------------------- Name: Eva Drinis Title: Assistant Vice President ABN AMRO BANK N.V. By: /s/ Louis McLinden, Jr. -------------------------------- Name: Louis McLinden, Jr. Title: Vice President By: /s/ Jim Janovsky -------------------------------- Name: Jim Janovsky Title: Group Vice President BANK OF MONTREAL By: /s/ Geoffrey McConnell -------------------------------- Name: Geoffrey McConnell Title: Director THE BANK OF NEW YORK By: /s/ Howard Bascom -------------------------------- Name: Howard Bascom Title: Vice President THE BANK OF NOVA SCOTIA By: /s/ J. Alan Edwards -------------------------------- Name: J. Alan Edwards Title: Authorized Signatory BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ M. R. Marron ------------------------------- Name: M. R. Marron Title: Vice President & Manager COMMERZBANK AG, NEW YORK BRANCH By: /s/ Sean Harrigan ------------------------------- Name: Sean Harrigan Title: Senior Vice President By: /s/ Andrew Lusk ------------------------------- Name: Andrew Lusk Title: Assistant Treasurer FIRST UNION NATIONAL BANK By: /s/ Mark Supple ------------------------------ Name: Mark Supple Title: Vice President FLEET NATIONAL BANK By: /s/ Robert Storer ----------------------------- Name: Robert Storer Title: Senior Vice President THE FUJI BANK LIMITED By: /s/ Raymond Ventura ----------------------------- Name: Raymond Ventura Title: Vice President THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY By: /s/ J. Kenneth Biegan ------------------------------ Name: J. Kenneth Biegan Title: Senior Vice President KEYBANK NATIONAL ASSOCIATION By: /s/ Daniel Lally ------------------------------- Name: Daniel Lally Title: Assistant Vice President THE NORTHERN TRUST COMPANY By: /s/ Donald Dabisch ------------------------------ Name: Donald Dabisch Title: Vice President ROYAL BANK OF CANADA By: /s/ Lori Ross ------------------------------ Name: Lori Ross Title: Manager THE SANWA BANK, LIMITED, NEW YORK BRANCH By: /s/ Joseph Leo ------------------------------ Name: Joseph Leo Title: Vice President THE SUMITOMO BANK, LIMITED By: /s/ C. Michael Garrido ----------------------------- Name: C. Michael Garrido Title: Senior Vice President THE TOKAI BANK, LIMITED By: /s/ Shinichi Nakatani ------------------------------- Name: Shinichi Nakatani Title: Assistant General Manger UBS AG STAMFORD BRANCH By: /s/ Wilfred Saint ------------------------------ Name: Wilfred Saint Title: Assistant Director CITIBANK, N.A. By: /s/ Bradley Dietz ----------------------------- Name: Bradley Dietz Title: Vice President ALLFIRST BANK, N.A. By: /s/ Theodore Oswald ----------------------------- Name: Theodore Oswald Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: /s/ Glenda Winter-Irving ----------------------------- Name: Glenda Winter-Irving Title: Vice President Address: 60 Wall Street New York, NY 10260-0060 Attention: Loan Department Telex number: 177615
COMMITMENT SCHEDULE BANK TRANCHE A TRANCHE B TOTAL - ----- --------------- --------------- ----------------- Morgan Guaranty Trust Company of New York $ 12,800,000.00 $ 51,200,000.00 $ 64,000,000.00 Bank of America, N.A 23,200,000.00 92,800,000.00 116,000,000.00 The Chase Manhattan Bank 9,600,000.00 38,400,000.00 48,000,000.00 Mellon Bank, N.A 9,600,000.00 38,400,000.00 48,000,000.00 PNC Bank, National Association 9,600,000.00 38,400,000.00 48,000,000.00 Wachovia Bank, N.A 9,600,000.00 38,400,000.00 48,000,000.00 SunTrust Bank, Atlanta 8,000,000.00 32,000,000.00 40,000,000.00 Bank One, NA (Main Office - Chicago) 6,000,000.00 24,000,000.00 30,000,000.00 ABN AMRO Bank N.V 6,000,000.00 24,000,000.00 30,000,000.00 Bank of Montreal 6,000,000.00 24,000,000.00 30,000,000.00 The Bank of New York 6,000,000.00 24,000,000.00 30,000,000.00 The Bank of Nova Scotia 6,000,000.00 24,000,000.00 30,000,000.00 Bank of Tokyo-Mitsubishi Trust Company 6,000,000.00 24,000,000.00 30,000,000.00 Commerzbank AG, New York Branch 6,000,000.00 24,000,000.00 30,000,000.00 First Union National Bank 6,000,000.00 24,000,000.00 30,000,000.00 Fleet National Bank 6,000,000.00 24,000,000.00 30,000,000.00 The Fuji Bank Limited 6,000,000.00 24,000,000.00 30,000,000.00 The Industrial Bank of Japan Trust Company 6,000,000.00 24,000,000.00 30,000,000.00 KeyBank National Association 6,000,000.00 24,000,000.00 30,000,000.00 The Northern Trust Company 6,000,000.00 24,000,000.00 30,000,000.00 Royal Bank of Canada 6,000,000.00 24,000,000.00 30,000,000.00 The Sanwa Bank, Limited, New York Branch 6,000,000.00 24,000,000.00 30,000,000.00 The Sumitomo Bank, Limited 6,000,000.00 24,000,000.00 30,000,000.00 The Tokai Bank, Limited 6,000,000.00 24,000,000.00 30,000,000.00 UBS AG Stamford Branch 6,000,000.00 24,000,000.00 30,000,000.00 Citibank, N.A 5,600,000.00 22,400,000.00 28,000,000.00 Allfirst Bank, N.A 4,000,000.00 16,000,000.00 20,000,000.00 -------------- --------------- ----------------- TOTAL COMMITMENTS $200,000,00.000 $800,000,000.00 $1,000,000,000.00 =============== =============== =================
PRICING SCHEDULE The "COMMITMENT FEE RATE", "BASE RATE MARGIN" and "EURO-DOLLAR MARGIN" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Status that exists on such day. STATUS LEVEL I LEVEL II LEVEL III ------ ------- -------- --------- Commitment Fee Rate 0.45% 0.50% 0.50% Base Rate Margin 1.25% 1.75% 2.50% Euro-Dollar Margin 2.25% 2.75% 3.50% For purposes of this Schedule, the following terms have the following meanings: "LEVEL I STATUS" exists at any date if (i) such date is on or after May 1, 2000 and (ii) at such date, the Borrower's long-term debt is rated BBB- or higher by S&P and Baa3 or higher by Moody's. "LEVEL II STATUS" exists at any date if, at such date, (a) the Borrower's long-term debt is rated BB+ or higher by S&P and Ba1 or higher by Moody's and (b) Level I Status does not exist. "LEVEL III STATUS" exists at any date if, at such date, no other Status exists. "MOODY'S" means Moody's Investors Service, Inc., or any successor to its business of rating debt securities. "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. "STATUS" refers to the determination of which of Level I Status, Level II Status or Level III Status exists at any date. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Borrower without third-party credit enhancement, and any rating assigned to any other debt security of the Borrower shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. If Asset Sales generating Net Cash Proceeds of at least $500.0 million (excluding the sale by the Borrower of certain of its assets to Longs Drug Stores Corp. publicly announced prior to the date of this Agreement, but including solely for purposes of this sentence a sale or other disposition of capital stock of PCS) are not consummated by February 15, 2000, the Euro-Dollar Margin and Base Rate Margin applicable for any day thereafter shall be the Euro-Dollar Margin and Base Rate Margin, respectively, set forth above for such day, plus, in each case, 0.50%. EXHIBIT A NOTE New York, New York October __, 1999 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 respective Classes, Types and maturities 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 $1,000,000,000 Amended and Restated Credit Agreement dated as of October 25, 1999 among the Borrower, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as 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 Collateral Documents. RITE AID CORPORATION By: ___________________________________ Name: Title: Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL - ----------------------------------------------------------------------------- Class and Amount of Amount of Type of Principal Maturity Notation Date Loan Loan Repaid Date Made By - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- EXHIBIT B-1 October __, 1999 To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260-0060 Re: Rite Aid Corporation Ladies and Gentlemen: We have acted as special counsel to Rite Aid Corporation, a Delaware corporation (the "BORROWER"), in connection with the preparation, execution and delivery of the $1,000,000,000 Amended and Restated Credit Agreement dated as of October 25, 1999 (the "CREDIT AGREEMENT") among the Borrower, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Agent (the "AGENT"). Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being delivered pursuant to Section 3.01(d)(i) of the Credit Agreement. In our examination we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies, and the authenticity of the originals of such copies. As to any facts material to this opinion which we did not independently establish or verify, we have relied upon statements and representations of the Borrower and its officers and other representatives and of public officials, including the facts set forth in the Borrower's Certificate described below. In rendering the opinions set forth herein, we have examined and relied on originals or copies of the following: (i) the Credit Agreement; (ii) the Notes issued pursuant thereto; (iii) the Pledge Agreements; (iv) each of the Applicable Agreements (as defined below); (v) the certificate of the Borrower dated the date hereof, a copy of which is attached as Exhibit A hereto (the "BORROWER'S CERTIFICATE"); and (vi) such other documents as we have deemed necessary or appropriate as a basis for the opinions set forth below. Members of our firm are admitted to the Bar in the State of New York, and we do not express any opinion as to the laws of any other jurisdiction other than the Delaware General Corporation Law, the Uniform Commercial Code as in effect on the date hereof in the State of Delaware (the "DELAWARE UCC") and the laws of the United States of America to the extent specifically referred to herein. Unless otherwise indicated, references to the "UCC" shall mean (i) with respect to the validity of the security interest, the Uniform Commercial Code as in effect on the date hereof in the State of New York, and (ii) with respect to the perfection and the effect of perfection or non-perfection of the security interest, the Delaware UCC. Nancy A. Lieberman, a member of this firm, is a director and shareholder of the Borrower. Based upon the foregoing and subject to the limitations, qualifications, exceptions and assumptions set forth herein, we are of the opinion that: 1. Each Loan Document (other than the Notes) constitutes the valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case, enforceable against the Borrower in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in equity or at law). In connection with our opinion set forth in this paragraph 1, we call to your attention our opinion set forth in paragraph 2 below. 2. The execution and delivery by the Borrower of each Loan Document, and the performance by the Borrower of its obligations under each Loan Document in accordance with its terms, do not conflict with the Certificate of Incorporation or By-laws of the Borrower. 3. Neither the execution, delivery or performance by the Borrower of any Loan Document nor the compliance by the Borrower with the terms and provisions thereof will contravene any provision of any of the Applicable Agreements (as hereinafter defined). "APPLICABLE AGREEMENTS" shall mean the agreements set forth in Schedule B hereto, together with the instruments issued by the Borrower in connection therewith, in each case as in effect as of the date hereof. In rendering the opinions set forth in this paragraph 3, we have considered and relied upon the fact that (i) the shares of capital stock of PCS Holding Corporation represented by the share certificates identified on Schedule A hereto (the "PLEDGED SECURITIES") were acquired by the Borrower within 24 months of the date hereof with the proceeds of commercial paper issued thereby and (ii) the proceeds of the Tranche A Loans are being used exclusively to repay commercial paper (or to refund borrowings the proceeds of which were used solely to repay commercial paper) that has matured on or prior to the date of the borrowing of such Tranche A Loans. 4. The provisions of each of the Pledge Agreements are effective to create, in favor of the Agent for the benefit of the Banks to secure all amounts payable by the Borrower under each of the Pledge Agreements, the Credit Agreement and the Notes (all such amounts, the "OBLIGATIONS"), a valid security interest in the Pledged Securities (as defined in each Pledge Agreement). 5. Upon delivery of the Pledged Securities to the Administrative Agent for the benefit of the Banks in the State of New York or the State of Delaware, the security interest of the Agent for the benefit of the Banks in the Pledged Securities will be perfected. 6. Neither the execution, delivery or performance by the Borrower of any Loan Document nor the compliance by the Borrower with the terms and provisions thereof will contravene any provision of any Applicable Law (as hereinafter defined). "APPLICABLE LAWS" shall mean those laws, rules and regulations of the State of New York and of the United States of America (including, without limitation, Regulations U and X of the Board of Governors of Federal Reserve System) or pursuant to the Delaware General Corporation Law which, in our experience, are normally applicable to transactions of the type contemplated by the Loan Documents. 7. No Governmental Approval (as hereinafter defined), which has not been obtained or taken and is not in full force and effect, is required to authorize or is required in connection with the execution, delivery or performance of any of the Loan Documents by the Borrower. "GOVERNMENTAL APPROVAL" means any consent, approval, license, authorization or validation of, or filing, recording or registration with, any Governmental Authority (as hereinafter defined) pursuant to Applicable Laws. "GOVERNMENTAL AUTHORITY" means any New York or federal legislative, judicial, administrative or regulatory body. 8. Neither the execution, delivery or performance by the Borrower of its obligations under the Loan Documents nor compliance by the Borrower with the terms thereof will contravene any Applicable Order (as hereinafter defined) against the Borrower. "APPLICABLE ORDERS" means those orders, judgments or decrees of Governmental Authorities identified in paragraph 2 of the Borrower's Certificate. In rendering the foregoing opinions, we have assumed, with your consent, that: (i) each Loan Document has been duly executed and delivered by the Borrower; (ii) the execution, delivery and performance of any of the Borrower's obligations under the Loan Documents does not and will not conflict with, contravene, violate or constitute a default under (i) any lease, indenture, instrument or other agreement to which the Borrower or its property is subject (other than Applicable Agreements as to which we express our opinion in paragraph 3 herein), (ii) any rule, law or regulation to which the Borrower is subject (other than Applicable Laws as to which we express our opinion in paragraph 6 herein) or (iii) any judicial or administrative order or decree of any governmental authority (other than Applicable Orders as to which we express our opinion in paragraph 8 herein); and (iii) no authorization, consent or other approval of, notice to or filing with any court, governmental authority or regulatory body (other than Governmental Approvals as to which we express our opinion in paragraph 7 herein) is required to authorize or is required in connection with the execution, delivery or performance by the Borrower of the Loan Documents or the transactions contemplated thereby. We understand that you are separately receiving an opinion, dated as of the date hereof, with respect to certain of the foregoing from Elliot S. Gerson, Esq. (the "GENERAL COUNSEL OPINION") and we are advised that such opinion contains qualifications. Our opinions herein stated are based on the assumptions specified above and we express no opinion as to the effect on the opinions herein stated of the qualifications contained in the General Counsel Opinion. Our opinions are also subject to the following assumptions and qualifications: (a) we have assumed that each of the Loan Documents constitutes the legal, valid and binding obligation of each party thereto (other than the Borrower) enforceable against such party (other than the Borrower) in accordance with its terms; and (b) we express no opinion as to the effect on the opinions expressed herein of (i) the compliance or non-compliance of any party (other than the Borrower) to the any Loan Document with any state, federal or other laws or regulations applicable to it or (ii) the legal or regulatory status or the nature of the business of any party (other than the Borrower) to any Loan Document. (c) we express no opinion as to the enforceability of any rights to contribution or indemnification provided for in the Loan Documents which are violative of the public policy underlying any law, rule or regulation (including any federal or state securities law, rule or regulation); (d) certain of the remedial provisions, including waivers, with respect to the exercise of remedies against the Pledged Securities contained in the Pledge Agreements may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of the Pledge Agreements, taken as a whole, and each of the Pledge Agreements, taken as a whole, together with applicable law, contains adequate provisions for the practical realization of the benefits of the security interest created thereby; (e) we express no opinion as to the effect on the opinions expressed herein of (1) the compliance or non-compliance of the Agent for the benefit of the Banks or any party (other than the Borrower) to the Loans Documents with any state, federal or other laws or regulations applicable to them or (2) the legal or regulatory status or the nature of the business of the Agent for the benefit of the Banks; and In addition to the foregoing, our opinions with respect to the security interest of the Agent for the benefit of the Banks in the Pledged Securities are subject to the following qualifications: (a) we have assumed that the Borrower owns, or with respect to after-acquired property will own, the Pledged Securities, and we express no opinion as to the nature or extent of the Borrower's rights in, or title to, any of the Pledged Securities and we note that with respect to any after-acquired property, the security interest will not attach until the Borrower acquires ownership thereof; (b) our opinions with respect to the interest of the Agent for the benefit of the Banks are limited to Article 8 and Article 9 of the UCC, and such opinions do not address (i) laws of jurisdictions other than New York and Delaware, and of New York and Delaware except for Article 8 and Article 9 of the UCC, (ii) collateral of a type not subject to Article 8 and Article 9 of the UCC, and (iii) what law governs perfection or priority of the security interests granted in the Pledged Securities covered by this opinion; (c) we call to your attention that under the UCC, events occurring subsequent to the date hereof may affect any security interest subject to the UCC including, but not limited to, factors of the type identified in Section 9-306 with respect to proceeds; Section 9-402 with respect to changes in name, structure and corporate identity; Section 9-103 with respect to changes in the location of the Pledged Securities and the location of a debtor; Section 9-316 with respect to subordination agreements; Section 9-403 with respect to continuation statements; and Sections 9-307, 9-308 and 9-309 with respect to subsequent purchasers of the Pledged Securities. In addition, actions taken by a secured party (e.g., releasing or assigning the security interest, delivering possession of the Pledged Securities to a debtor or another person and voluntarily subordinating a security interest) may affect any security interest subject to the UCC; (d) we have assumed that the Pledged Securities are the Subsidiary Shares as defined in each of the Pledge Agreements; and (e) we express no opinion with respect to the priority of the security interest of the Agent for the benefit of the Banks in any of the Pledged Securities. This opinion is being furnished only to you and is solely for your benefit and is not to be relied upon by anyone else or for any other purpose without our prior written consent. Very truly yours, SCHEDULE A CERTIFICATE TYPE OF NUMBER OF ISSUER NUMBER STOCK SHARES ------ ----------- ------- --------- PCS Holdings Corporation A-2 Class A, 565 Shares par value $1.00 per share drugstore.com, inc. ____ Class ___, ___Shares par value $___ per share SCHEDULE B 1. Note Agreement dated as of September 30, 1996 among FINCO, INC, The Prudential Insurance Company of America and PRUCO Life Insurance Company ($79,560,908.91 7.30% Senior Secured Notes due February 28, 2002). 2. Master Tax Ownership Operating Lease dated as of March 19, 1998 by and among Rite Aid Realty Corp. as Lessee, Rite Aid Corporation, as Guarantor, RAC Leasing LLC, as Lessor, Sumitomo Bank, Limited, New York Branch, as Liquidity Agent and Collateral Agent, and RA Funding II Corporation as Lease Receivables Purchaser. 3. Senior Loan Agreement dated as of March 11, 1998 between RAC Leasing LLC and The Lenders Parties hereto, as Lenders and Sumitomo Bank Leasing and Finance, Inc. as Agent. 4. Master Tax Ownership Operating Lease dated as of May 30, 1997 by and among Rite Aid Realty Corp., as Lessee, Rite Aid Corporation, as Guarantor, Sumitomo Bank Leasing and Finance, Inc., as Lessor, Sumitomo Bank, Limited, New York Branch as Liquidity Agent and Collateral Agent, RA Funding Corporation, as Lease Receivables Purchaser, and Madison Funding Corporation, as Conduit. 5. Receivables Purchase Agreement dated as of November 26, 1997 among Rite Aid Funding LLC as the Seller, and Corporate Asset Funding Company, Inc. and Corporate Receivables Corporation as the Investors, and Citibank, N.A. and Citicorp North America, Inc. as the Agent and Rite Aid Corporation as Collection Agent. 6. Indenture, dated as of December 21, 1998, between the Borrower and Harris Trust and Savings Bank, as Trustee. 7. Indenture, dated as of September 22, 1998, by and among the Borrower and Harris Trust and Savings Bank, as Trustee. 8. Indenture dated August 1, 1993, between the Borrower and First Trust of New York, National Association, as successor Trustee. EXHIBIT B-2 OPINION OF GENERAL COUNSEL OF THE BORROWER October __, 1999 To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260-0060 Dear Sirs: I am Senior General Counsel of Rite Aid Corporation (the "BORROWER"), and I have advised the Borrower in connection with the $1,000,000,000 Amended and Restated Credit Agreement (the "CREDIT AGREEMENT") dated as of October 25, 1999 among the Borrower, the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of our client pursuant to Section 3.01(d)(ii) of the Credit Agreement. I have examined originals or copies, certified or otherwise identified to my satisfaction, of the Credit Agreement, the Notes issued pursuant thereto, the Pledge Agreements and such other documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 2. The execution, delivery and performance by the Borrower of each of the Loan Documents are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of (i) any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary, (ii) any agreement material to the business, financial condition, results of operations or prospects of the Borrower, or (iii) any other material 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. 3. Each of the Loan Documents (other than the Notes) constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 4. Except as described in the Borrower's Annual Report on Form 10-K for the fiscal year ended February 27, 1999, there is no action, suit or proceeding pending against, or to the best of my knowledge threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole or which in any manner draws into question the validity or enforceability of any of the Loan Documents or the Notes. 5. Each of the Borrower's corporate Significant Subsidiaries is a corporation 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. In giving the foregoing opinion, I express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York and the State of Pennsylvania) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without my prior written consent. Very truly yours, EXHIBIT C OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENT October __, 1999 To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260-0060 Dear Sirs: We have participated in the preparation of the $1,000,000,000 Amended and Restated Credit Agreement (the "CREDIT AGREEMENT") dated as of October 25, 1999 among Rite Aid Corporation, a Delaware corporation (the "BORROWER"), the Banks from time to time parties thereto and Morgan Guaranty Trust Company of New York, as Agent, and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.01(e) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of the Credit Agreement, the Notes issued pursuant thereto, the Pledge Agreements and such other documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 1. The execution, delivery and performance by the Borrower of each of the Loan Documents and the Notes are within the Borrower's corporate powers and have been duly authorized by all necessary corporate action. 2. Each of the Loan Documents constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, EXHIBIT D ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of __________, 19__ among [ASSIGNOR] (the "ASSIGNOR"), [ASSIGNEE] (the "ASSIGNEE")[, RITE AID CORPORATION (the "BORROWER")] and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "AGENT"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "AGREEMENT") relates to the $1,000,000,000 Amended and Restated Credit Agreement dated as of October __, 1999 among [RITE AID CORPORATION (the "BORROWER")] [the Borrower,] the Assignor and the other Banks parties thereto, as Banks, and the Agent (as amended from time to time, the "CREDIT AGREEMENT"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $_________; 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 Commitment thereunder in an amount equal to $___________ (the "ASSIGNED AMOUNT"), together with a corresponding portion of its outstanding Loans, 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 Committed 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 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 Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment 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 $_______.(2) It is understood that facility fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof in respect of the Assigned Amount are for the account of the Assignee. 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. - -------------- (2) 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 Agent. This Agreement is conditioned upon the consent of [the Borrower and] the Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the 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 Agent By ____________________________________ Title: EXHIBIT E PCS PLEDGE AGREEMENT AGREEMENT dated as of October 25, 1999 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 Credit Agreement dated as of January 21, 1999 (as heretofore amended, the "ORIGINAL 1999 CREDIT AGREEMENT"); and WHEREAS, the Borrower and Morgan, as agent, have entered into the Pledge Agreement dated as of September 29, 1999 (the "FIRST PLEDGE AGREEMENT"), pursuant to which the Borrower has pledged the Collateral (as hereinafter defined) to secure its obligations under the Original 1999 Credit Agreement and the Notes issued pursuant thereto; and WHEREAS, the Borrower, certain banks and Morgan, as agent for such banks are parties to a Credit Agreement dated as of July 19, 1996 (as heretofore amended, the "ORIGINAL 1996 CREDIT AGREEMENT"); and WHEREAS, the Borrower and Morgan, as agent, are parties to a PCS Junior Pledge Agreement dated as of October 19, 1999 (the "SECOND PLEDGE AGREEMENT"), pursuant to which the Borrower has granted a junior security interest in the Collateral to secure certain of its obligations under the Original 1996 Credit Agreement; and WHEREAS, the Borrower proposes to enter into a Term Loan Agreement of even date herewith with the parties to the Original 1999 Credit Agreement (as the same may be amended from time to time, the "1999 FACILITY"), term loans under which (the "1999 LOANS") are to refinance loans outstanding under the Original 1999 Credit Agreement; and WHEREAS, the Borrower proposes to enter into an Amended and Restated Credit Agreement of even date amending and restating the Original 1996 Credit Agreement (as the same may be amended from time to time, the "PRO RATA CREDIT AGREEMENT"); and WHEREAS, the Borrower has agreed to grant a continuing security interest in and to the Collateral (i) on a first priority basis, to secure its obligations under the 1999 Facility, (ii) on a second priority basis, to secure certain of its obligations under the Pro Rata Credit Agreement, (iii) on a third priority basis, to secure certain other obligations under the Pro Rata Credit Agreement as well as the Prudential Pro Rata Exposure (as defined below), the Morgan Pro Rata Exposure (as defined below) and the Letter of Credit Exposure (as defined below) and (iv) on a fourth priority basis, to secure the Synthetic Lease Obligations (as defined below); and WHEREAS, this Agreement is intended to continue the security interests created and perfected under the First Pledge Agreement and the Second Pledge Agreement, but its terms shall supersede the terms thereof; 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 Pro Rata Credit Agreement: drugstore.com Pledge Agreement Morgan Pro Rata Exposure Prudential Pro Rata Exposure Tranche A Loans Tranche B Loans (c) The following additional terms, as used herein, have the following respective meanings: "BASE RATE" has the meaning set forth in the Credit Agreements. "COLLATERAL" has the meaning assigned to such term in Section 3(a). "CREDIT AGREEMENT" means the 1999 Facility or the Pro Rata Credit Agreement. "DEFAULT" means a "Default" as defined in either of the Credit Agreements. "EVENT OF DEFAULT" means an "Event of Default" as defined in either the Credit Agreements. "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 1999 Loan, (ii) all other amounts payable by the Borrower under the 1999 Facility 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 1999 Facility and (ii) thereafter, the "Required Banks" as defined in the Pro Rata Credit Agreement. "ISSUER" means PCS Holdings Corporation, and its successors. "LETTER OF CREDIT EXPOSURE" means the reimbursement obligations of the Borrower in respect of standby letters of credit issued for the account of the Borrower set forth in Schedule A hereto, and any replacements thereof; provided that the issuer of such letter 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 $32,750,000; 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. "LIEN" means a "Lien" as defined in either of the Credit Agreements. "LOAN DOCUMENTS" means the "Loan Documents" as defined in either Credit Agreement. "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 $399,000,000, 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, the Prudential Pro Rata Exposure, the Morgan Pro Rata Exposure 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 1996 Loan 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 565 shares of Class A Stock, par value $1.00 per share, of the Issuer. "SYNTHETIC LEASE OBLIGATIONS" means, collectively, (i) the Guaranty dated as of March 19, 1998 from Rite Aid Corporation to RAC Leasing LLC, as the same may be amended from time to time, and (ii) the Guaranty dated as of May 30, 1997 from Rite Aid Corporation to Sumitomo Bank Leasing and Finance, Inc., as the same may be amended from time to time. "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 Yield-Maintenance Amount payable in respect of the portion of the Prudential Pro Rata Exposure secured pursuant to clauses (i) and (ii) of this definition; (iv) any renewals or extensions of any of the foregoing and (v) 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 (iv) 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 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 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) 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 (iii) 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, (iv) the collection, sale or other disposition of any of the Collateral, (v) the exercise by the Agent of any of the rights conferred upon it hereunder or (vi) any Default. Any such amount not paid on demand shall bear interest at a rate per annum equal to Base Rate plus 4.50% 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 Letter of Credit Exposure 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 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 and the termination of the Commitments under the Credit Agreements, 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 Agreements. 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 Agreements. 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 Loan 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 Credit Agreement. No such amendment shall by its terms materially adversely affect the rights of holders of any of the Prudential Pro Rata Exposure, the Morgan Pro Rata Exposure, the Letter of Credit Exposure or the Fourth 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:
SCHEDULE A Letters of Credit L/C Ref # Beneficiary Amount Date Issued Expiry Date - --------- ----------- ------ ----------- ----------- ISSUED BY MELLON BANK, N.A.: 8571380 National Union Fire Insurance $ 20,861,000.00 20-Feb-98 31-Dec-99 8554730 Insurance Co. of North America 1,186,255.00 03-Nov-97 22-Nov-99 8533170 Commonwealth of PA 75,000.00 11-Jul-97 11-Jul-00 8531390 Joseph Brozek, Jr. 250,000.00 25-Jun-97 25-Jun-00 8159320 Continental Casualty Company 1,027,000.00 19-Feb-92 01-Jan-00 8478300 United States Fidelity and Trust 1,250,000.00 15-May-98 31-Dec-99 8578810 Travelers Indemnity Co. (TPI) 225,000.00 16-Apr-98 31-Dec-99 8578580 LA Dept. of Labor 350,000.00 15-Apr-98 31-Dec-99 8586190 Reliance Insurance Co. 300,000.00 20-May-98 31-Dec-99 8614310 City of Grand Junction, CO 117,680.00 28-Dec-98 21-Apr-00 8642610 Capital Blue Cross 749.458.87 08-Jul-99 31-Dec-99 8464810 Baltimore County, MD 38,973.00 08-May-96 08-Nov-99 -------------- 26,430,366.87 ISSUED BY CITIBANK, N.A.: 13863/30019259 MLTC Funding 5,800,000.00 12-Dec-96 22-Oct-00 ISSUED BY AMSOUTH BANK OF ALABAMA: S309510 AmSouth Bank of Alabama 477,320.73 05-Sep-95 01-Jan-00 Total standby letters of credit outstanding 32,707,687.60 --------------
EXHIBIT F DRUGSTORE.COM PLEDGE AGREEMENT AGREEMENT dated as of October 25, 1999 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 Credit Agreement dated as of July 19, 1996 (as heretofore amended, the "ORIGINAL 1996 CREDIT AGREEMENT"); and WHEREAS, the Borrower proposes to enter into an Amended and Restated Credit Agreement of even date amending and restating the Original 1996 Credit Agreement (as the same may be amended from time to time, the "CREDIT AGREEMENT"); and WHEREAS, the Borrower has agreed to grant 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 Prudential Pro Rata Exposure (as defined below), the Morgan Pro Rata Exposure (as defined below) and the Letter of Credit Exposure (as defined below) and (ii) on a second priority basis, to secure the Synthetic Lease Obligations (as defined below); 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: Base Rate Default Event of Default Lien Loan Documents PCS Pledge Agreement Morgan Pro Rata Exposure Prudential Pro Rata Exposure Tranche A Loans 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 Yield-Maintenance Amount payable in respect of the portion of the Prudential Pro Rata Exposure secured pursuant to clauses (i) and (ii) of this definition, (iv)any renewals or extensions of any of the foregoing and (v) 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 (iv) 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 reimbursement obligations of the Borrower in respect of standby letters of credit issued for the account of the Borrower set forth in Schedule A hereto, and any replacements thereof; provided that the issuer of such letter 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 $32,750,000; 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 PCS Pledge Agreement, which principal amount shall not exceed $399,000,000, 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, the Prudential Pro Rata Exposure, the Morgan Pro Rata Exposure 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 obligations of the Borrower 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. "LIMITED SHARES" means 9,334,746 shares of Common Stock, par value $0.001 per share, of the Issuer. "SYNTHETIC LEASE OBLIGATIONS" means, collectively, (i) the Guaranty dated as of March 19, 1998 from Rite Aid Corporation to RAC Leasing LLC, as the same may be amended from time to time, and (ii) the Guaranty dated as of May 30, 1997 from Rite Aid Corporation to Sumitomo Bank Leasing and Finance, Inc., as the same may be amended from time to time. 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 Base Rate plus 4.50% 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 Letter of Credit Exposure 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 and the termination of the Commitments under the Credit Agreement, 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 Loan 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 Prudential Pro Rata Exposure, the Morgan Pro Rata Exposure, the Letter of Credit Exposure 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:
SCHEDULE A Letters of Credit L/C Ref # Beneficiary Amount Date Issued Expiry Date - --------- ----------- ------ ----------- ----------- ISSUED BY MELLON BANK, N.A.: 8571380 National Union Fire Insurance $ 20,861,000.00 20-Feb-98 31-Dec-99 8554730 Insurance Co. of North America 1,186,255.00 03-Nov-97 22-Nov-99 8533170 Commonwealth of PA 75,000.00 11-Jul-97 11-Jul-00 8531390 Joseph Brozek, Jr. 250,000.00 25-Jun-97 25-Jun-00 8159320 Continental Casualty Company 1,027,000.00 19-Feb-92 01-Jan-00 8478300 United States Fidelity and Trust 1,250,000.00 15-May-98 31-Dec-99 8578810 Travelers Indemnity Co. (TPI) 225,000.00 16-Apr-98 31-Dec-99 8578580 LA Dept. of Labor 350,000.00 15-Apr-98 31-Dec-99 8586190 Reliance Insurance Co. 300,000.00 20-May-98 31-Dec-99 8614310 City of Grand Junction, CO 117,680.00 28-Dec-98 21-Apr-00 8642610 Capital Blue Cross 749.458.87 08-Jul-99 31-Dec-99 8464810 Baltimore County, MD 38,973.00 08-May-96 08-Nov-99 -------------- 26,430,366.87 ISSUED BY CITIBANK, N.A.: 13863/30019259 MLTC Funding 5,800,000.00 12-Dec-96 22-Oct-00 ISSUED BY AMSOUTH BANK OF ALABAMA: S309510 AmSouth Bank of Alabama 477,320.73 05-Sep-95 01-Jan-00 Total standby letters of credit outstanding 32,707,687.60 --------------
CROSS-REFERENCE TARGET LIST NOTE: DUE TO THE NUMBER OF TARGETS SOME TARGET NAMES MAY NOT APPEAR IN THE TARGET PULL-DOWN LIST. (This list is for the use of the wordprocessor only, is not a part of this document and may be discarded.) ARTICLE/SECTION TARGET NAME - --------------- ----------- 1.01.............................................................definitions 1.03...................................................................types 2.....................................................................assign 2.01.............................................................commitments 2.01(a)............................................................tranche.a 2.01(b)............................................................tranche.b 2.02........................................................notice.committed 2.03............................................................notice.banks 2.03(a).......................................................notice.banks.a 2.04...................................................................notes 2.06...............................................................int.rates 2.06(b)..........................................................int.rates.c 2.06(c)..........................................................int.rates.d 2.07....................................................................fees 2.07(b)...............................................................fees.b 2.08................................................................optional 2.09..............................................................,mandatory 2.10.............................................................redct.evnts 2.10(b)........................................................redct.evnts.b 2.11.........................................................opt.prepayments 2.11(a)....................................................opt.prepayments.a 2.11(b)....................................................opt.prepayments.c 2.12...............................................................gen.provs 2.13..........................................................funding.losses 2.14..........................................................comp.ints.fees 3.................................................................conditions 3.01...........................................................effectiveness 3.01(b)......................................................effectiveness.b 3.01(d)......................................................effectiveness.c 3.01(e)......................................................effectiveness.d 4.................................................................reps.warrs 4.04(c).....................................................financial.info.c 4.06.....................................................................lit 5..................................................................covenants 5.01(a)...........................................................as.soon.as 5.01(b).........................................................as.soon.as.b 5.01(c).........................................................as.soon.as.c 5.01(f).........................................................as.soon.as.f 5.01(g).........................................................as.soon.as.g 5.07...............................................................rest.debt 5.08.......................................................restriction.sales 5.09..............................................................rest.liens 5.10..........................................................restrict.liens 5.10(a).....................................................restrict.liens.a 5.12..............................................................limitation 5.15............................................................use.proceeds 5.20............................................................trnch.A.ltds 6...................................................................defaults 6.01..................................................................events 6.01(c)...........................................................defaults.c 8.....................................................................change 8.01...................................................................basis 8.01(a)..............................................................basis.a 8.02..............................................................illegality 8.03..........................................................increased.cost 8.04...................................................................taxes 8.04(a)..............................................................taxes.a 8.04(d)..............................................................taxes.d 9.01.................................................................notices 9.03...............................................................exp.indem 9.03(b)...........................................................expenses.b 9.05.............................................................amend.waive 9.06(b).........................................................successors.b 9.06(c).........................................................successors.c EX-10 9 EXHIBIT 10.4 - PLEDGE AGREEMENT Exhibit 10.4 DRUGSTORE.COM PLEDGE AGREEMENT AGREEMENT dated as of October 25, 1999 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 Credit Agreement dated as of July 19, 1996 (as heretofore amended, the "ORIGINAL 1996 CREDIT AGREEMENT"); and WHEREAS, the Borrower proposes to enter into an Amended and Restated Credit Agreement of even date amending and restating the Original 1996 Credit Agreement (as the same may be amended from time to time, the "CREDIT AGREEMENT"); and WHEREAS, the Borrower has agreed to grant 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 Prudential Pro Rata Exposure (as defined below), the Morgan Pro Rata Exposure (as defined below) and the Letter of Credit Exposure (as defined below) and (ii) on a second priority basis, to secure the Synthetic Lease Obligations (as defined below); 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: Base Rate Default Event of Default Lien Loan Documents PCS Pledge Agreement Morgan Pro Rata Exposure Prudential Pro Rata Exposure Tranche A Loans 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 Yield-Maintenance Amount payable in respect of the portion of the Prudential Pro Rata Exposure secured pursuant to clauses (i) and (ii) of this definition, (iv) any renewals or extensions of any of the foregoing and (v) 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 (iv) 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 reimbursement obligations of the Borrower in respect of standby letters of credit issued for the account of the Borrower set forth in Schedule A hereto, and any replacements thereof; provided that the issuer of such letter 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 $32,750,000; 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 9,334,746 shares of Common Stock, par value $0.001 per share, of the Issuer. "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 $399,000,000, 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, the Prudential Pro Rata Exposure, the Morgan Pro Rata Exposure 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 obligations of the Borrower 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. "SYNTHETIC LEASE OBLIGATIONS" means, collectively, (i) the Guaranty dated as of March 19, 1998 from Rite Aid Corporation to RAC Leasing LLC, as the same may be amended from time to time, and (ii) the Guaranty dated as of May 30, 1997 from Rite Aid Corporation to Sumitomo Bank Leasing and Finance, Inc., as the same may be amended from time to time. 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 Uniforrn 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 hold 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 Base Rate plus 4.50% and shall be an additional Secured Obligation hereunder. SECTION 12. Limitation on Duty ofAgent 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 (i) accrued but unpaid interest on the First Priority Secured Obligations in accordance with the terms thereof and (ii) any Yield-Maintenance Amount payable in respect of the portion of the Prudential Pro Rata Exposure secured pursuant to clauses (i) and (ii) of the definition of First Priority Secured Obligations; 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 Letter of Credit Exposure 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 and the termination of the Commitments under the Credit Agreement, 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 Loan 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 Prudential Pro Rata Exposure, the Morgan Pro Rata Exposure, the Letter of Credit Exposure 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:
SCHEDULE A Letters of Credit L/C Ref # Beneficiary Amount Date Issued Expiry Date ---------------- ------------------------ ------------------ ----------- ----------- ISSUED BY MELLON BANK, N.A.: 8571380 National Union Fire Insurance $ 20,861,000.00 20-Feb-98 31-Dec-99 8554730 Insurance Co. of North America 1,186,255.00 03-Nov-97 22-Nov-99 8553170 Commonwealth of PA 75,000.00 11-Jul-97 11-Jul-00 8531390 Joseph Brozek, Jr. 250,000.00 25-Jun-97 25-Jun-00 8159320 Continental Casualty Company 1,027,000.00 19-Feb-92 01-Jan-00 8478300 United State Fidelity and Trust 1,250,000.00 15-May-98 31-Dec-99 8578810 Travelers Indemnity Co. (TPI) 225,000.00 16-Apr-98 31-Dec-99 8578580 LA Dept. of Labor 350,000.00 15-Apr-98 31-Dec-99 8586190 Reliance Insurance Co. 300,000.00 20-May-98 31-Dec-99 8614310 City of Grand Junction, CO 117,680.00 28-Dec-98 21-Apr-00 8642610 Capital Blue Cross 749,458.37 08-Jul-99 31-Dec-99 8464810 Baltimore County, MD 38,973.00 08-May-96 08-Nov-99 ----------------- 26,430,366.87 Issued by Citibank, N.A.: 13863/30019259 MLTC Funding 5,800,000.00 12-Dec-96 22-Oct-00 Issued by AmSouth Bank of Alabama: S309510 AmSouth Bank of Alabama 477,320.73 05-Sep-95 01-Jan-00 Total standby letters of credit outstanding 32,707,687.60
EX-10 10 EXHIBIT 10.5 - PCS JUNIOR PLEDGE AGREEMENT Exhibit 10.5 PCS JUNIOR PLEDGE AGREEMENT AGREEMENT dated as of October 19,1999 between RITE AID CORPORATION (with its successors, the "BORROWER") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent. W I T N E S S E T H: WHEREAS, the Borrower, certain banks and Morgan Guaranty Trust Company of New York ("MORGAN"), as agent for such banks are parties to a Credit Agreement dated as of July 19, 1996 (as the same may be amended from time to time, the "CREDIT AGREEMENT"); and WHEREAS, the Borrower has agreed to grant a continuing security interest in and to the Collateral (as hereafter defined) to secure its obligations under the Credit Agreement and the Notes issued pursuant thereto; WHEREAS, the Borrower has heretofore granted a continuing security interest in and to the Collateral to secure its obligations under the Credit Agreement dated as of January 21, 1999 (the "PCS Credit Agreement") among the Borrower, the banks listed therein and Morgan, as agent and the notes issued pursuant thereto; 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. Terms defined in the Credit Agreement and not otherwise defined herein have, as used herein, the respective meanings provided for therein. The following additional terms, as used herein, have the following respective meanings: "COLLATERAL" has the meaning assigned to such term in Section 3(a). "ISSUER" means PCS Holdings Corporation, and its successors. "JUNIOR SECURED OBLIGATIONS" means the obligations secured under this Agreement including (i) up to $200,000,000 principal amount of loans made to the Borrower under the Credit Agreement on or after the date hereof for the purpose of repaying maturing commercial paper (together with interest on such loans and facility fees allocable to such loans (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)), (ii) all other amounts payable by the Borrower hereunder and (iii) any renewals or extensions of any of the foregoing. "JUNIOR SECURITY INTERESTS" means the security interests in the Collateral granted hereunder securing the Junior Secured Obligations. "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). "SENIOR PLEDGE AGREEMENT" means the PCS Pledge Agreement dated as of September 29, 1999 between the Borrower and Morgan Guaranty Trust Company, as agent. "SENIOR SECURED OBLIGATIONS" means the obligations secured under the PCS Credit Agreement including (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, or any note issued pursuant to, the PCS Credit Agreement, (ii) all other amounts payable by the Borrower under the Senior Pledge Agreement or under the PCS Credit Agreement and (iii) any renewals or extensions of any of the foregoing. "SENIOR SECURITY INTERESTS" means the security interests in the Collateral granted under the Senior Pledge Agreement securing the Senior Secured Obligations. "SUBSIDIARY SHARES" means 565 shares of Class A Stock, par value $1.00 per share, of the Issuer. 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 Junior Security Interests and the Senior 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 Junior Security Interests. The Agent has valid and perfected security interests in the Collateral subject to no prior Lien other than the Lien created pursuant to the Senior Pledge Agreement. 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 Junior 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 Junior Security Interests. In order to secure the full and punctual payment of the Junior 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 Banks and grants to the Agent for the benefit of the Banks 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"), such security interest to be subordinate and junior to the security interest created under the Senior Pledge Agreement. Delivery of the certificate representing the Subsidiary Shares to Morgan as agent under the Senior Pledge Agreement shall constitute delivery of the Subsidiary Shares to Morgan as agent hereunder. Upon termination of the commitments and repayment of all loans and other amounts outstanding under the PCS Credit Agreement and the Senior Pledge Agreement, such Subsidiary Shares shall be held by Morgan exclusively as agent 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 Junior Secured Obligations. All such shares constitute Pledged Stock and are subject to all provisions of this Agreement. (c) The Junior Security Interests are granted as security only and shall not subject the Agent or any Bank 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 Junior 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 Junior Security Interests. (b) The Borrower agrees that it will not change (i) its name, identity or corporate structure in any manner or (ii) the location of its chief executive office unless it shall have given the Agent not less than 30 days' prior notice thereof. SECTION 6. Record Ownership of Pledged Stock. Subject to the rights of the holders of the Senior Secured Obligations, 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. Subject to the rights of the holders of the Senior Secured Obligations, 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 Banks 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. Subject to the rights of the holders of the Senior Secured Obligations, 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. Subject to the rights of the holders of the Senior Secured Obligations, 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 Banks or otherwise, for the sole use and benefit of the Agent and Banks, but at the expense of the Borrower, to the extent permitted by law to exercise, at anytime 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. Subject to the rights of the holders of the Senior Secured Obligations, if any Event of Default shall have occurred and be continuing, the Agent may exercise on behalf of the Banks 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 Junior 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 Bank 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 Junior 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 Junior 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 Junior 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 the rate applicable to Base Rate Borrowings plus 2% and shall be an additional Junior 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, after application of such proceeds in accordance with Section 13 of the Senior Pledge Agreement, 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 or any Bank is to be reimbursed pursuant to Section 9.03 of the Credit Agreement or Section 11 hereof and unpaid fees owing to the Agent under the Credit Agreement; SECOND, to the ratable payment of unpaid principal of the Junior Secured Obligations; THIRD, to the ratable payment of accrued but unpaid interest on the Junior Secured Obligations in accordance with the provisions of the Credit Agreement; FOURTH, to the ratable payment of all other Junior Secured Obligations, until all Junior Secured Obligations shall have been paid in full; and 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 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 parties to the Credit Agreement 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 Required 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 Junior 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 Banks 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 Junior Security Interests; Release of Collateral. Upon the repayment in full of all Junior Secured Obligations and the termination of the Commitments under the Credit Agreement, the Junior 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 Junior Security Interests, the Agent may release any of the Collateral with the prior written consent of the Required Banks. Upon any such termination of the Junior 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 Junior 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 of any right under the Credit Agreement or this Agreement preclude any other or further exercise thereof or the exercise of any other right. The rights in this Agreement and the Credit Agreement 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 Agent and the Banks and their successors and assigns, and in the event of an assignment of all or any of the Junior 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. 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 Banks 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. 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 -------------------------------------- Name: Elliot S. Gerson Title: Senior Executive Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: /s/ Glenda Winter-Irving ------------------------------------- Name: Glenda Winter-Irving Title: Vice President EX-99 11 EXHIBIT 99 - PRESS RELEASE Exhibit 99 CAMP HILL, Pa. (BUSINESS WIRE) Oct. 27, 1999 Rite Aid Corporation (RAD-NYSE, PSE), today announced that it has concluded the extension and restructuring of all $2.7 billion of its outstanding banking facilities and concurrently consummated the sale of $300 million of its 8% convertible pay-in-kind preferred stock to an affiliate of Leonard Green & Partners. As a result, the due dates of $1.3 billion of its bank debt scheduled to mature on October 29, 1999 and $300 million of its bank debt which was due on demand have been extended to Nov. 1, 2000. In addition, the financial covenants in all $2.7 billion of its banking facilities have been amended to be consistent with the Company's current business plan. The facilities prohibit the Company from paying cash dividends or from redeeming or otherwise purchasing its capital stock and are secured by the Company's ownership interests in PCS Health Systems, Inc. and drugstore.com, inc. The preferred stock issued to the Leonard Green & Partners' affiliate has an 8% dividend payable in cash or in additional shares, at the option of the Company, subject to the restriction in the banking facilities on the payment of cash dividend, and is convertible into common stock at $11 per share. The conversion price is subject to certain antidilution adjustments. In addition, the conversion price will be reset (1) in the event that prior to October 27, 2000, the Company issues shares of common stock at a price lower than the then current conversion price and (2) on March 1, 2001, to the lowest average price (but not less than $7.50) of the Company's common stock during any consecutive three-month period from October 27, 1999, through February 28, 2001, if such average price is lower than the then current conversion price; however, if the conversion price has not been so reset to a lower price by February 28, 2001, it will be reset to $11.50 (assuming no other adjustment). The preferred stock is redeemable by the Company after October 24, 2004. Leonard Green and Jonathan Sokoloff, partners in Leonard Green & Partners, will join Rite Aid's Board of Directors; Green will also become a member of the executive committee of the board. Rite Aid is one of the nation's leading drugstore chains with annual revenues of nearly $13 billion and approximately 3,800 stores in 30 states and the District of Columbia. Rite Aid owns PCS Health Systems, Inc., which provides pharmacy benefit management programs and services that can help improve patient health and reduce health care costs. Rite Aid also owns approximately 22% of drugstore.com a leading online source for health, beauty and pharmacy products. General information about Rite Aid, including corporate background and press releases is available through the company's web site at http://www.RITEAID.com Contact: CONTACT: Media: Karen Rugen (717) 730-7766 Sarah Datz (717) 975-5718 or Investors: Doug Wilburne (717) 214-8835 07:30 EDT OCTOBER 27, 1999 -----END PRIVACY-ENHANCED MESSAGE-----