
	Twenty-Six Week Period Ended
	August 28, 2004			August 30, 2003
Operating activities:
Net income (loss)	$	73,163		$	(49,420	)
Adjustments to reconcile to net cash provided by (used in) operations:
Depreciation and amortization		125,099			130,672
Stock-based compensation expense		9,105			18,682
Store closing and impairment charges (credits)		9,345			(2,628	)
(Gain) loss on debt modifications and retirements, net		(791	)		35,315
Gain on sale of assets and investments, net		(2,172	)		(1,162	)
Changes in income tax receivables and payables		38,342			—
Changes in operating assets and liabilities		(19,603	)		(192,656	)
Net cash provided by (used in) operating activities		232,488			(61,197	)
Investing activities:
Expenditures for property, plant and equipment		(75,828	)		(158,493	)
Intangible assets acquired		(12,720	)		(7,608	)
Proceeds from dispositions		4,116			14,436
Net cash used in investing activities		(84,432	)		(151,665	)
Financing activities:
Principal payments on long-term debt		(74,157	)		(199,204	)
Principal payments on bank credit facilities		(2,875	)		(1,372,500	)
Proceeds from issuance of new bank credit facilities		—			1,150,000
Change in zero balance cash accounts		(1,858	)		55,940
Proceeds from issuance of stock		2,964			1,271
Proceeds from issuance of bonds		—			502,950
Deferred financing costs paid		—			(30,985	)
Net cash (used in) provided by financing activities		(75,926	)		107,472
Increase (decrease) in cash and cash equivalents		72,130			(105,390	)
Cash and cash equivalents at beginning of period		334,755			365,321
Cash and cash equivalents at end of period	$	406,885		$	259,931
Supplementary cash flow data:
Cash paid for interest (net of capitalized amounts of $70 and $91, respectively)	$	143,927		$	146,892
Cash (refunds) payments of income taxes, net	$	(31,763	)	$	2,169
Fixed assets financed under capital leases	$	10,191		$	9,025

Exhibit 10.1 ------------ EXECUTION COPY ================================================================================ CREDIT AGREEMENT dated as of June 27, 2001, as amended and restated as of August 4, 2003, as further amended and restated as of September 22, 2004 among RITE AID CORPORATION, The Lenders Party Hereto, CITICORP NORTH AMERICA, INC., as Administrative Agent and Collateral Processing Co-Agent, JPMORGAN CHASE BANK, as Syndication Agent and Collateral Processing Co-Agent, FLEET RETAIL GROUP, INC., as Co-Documentation Agent and Collateral Agent, THE CIT GROUP/BUSINESS CREDIT, INC., as Co-Documentation Agent, And GENERAL ELECTRIC CAPITAL CORPORATION, as Co-Documentation Agent --------------------------- CITIGROUP GLOBAL MARKETS INC. and J. P. MORGAN SECURITIES INC., as Joint Lead Arrangers and Joint Bookrunners ================================================================================ SECOND AMENDMENT AND RESTATEMENT dated as of September 22, 2004 (this "Amendment"), to the CREDIT AGREEMENT dated as of June 27, 2001, as amended and restated as of August 4, 2003 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Rite Aid Corporation, a Delaware corporation (the "Borrower"), the lenders from time to time party thereto (the "Lenders"), Citicorp North America, Inc., as administrative agent (in such capacity, the "Administrative Agent") and collateral processing co-agent, JPMorgan Chase Bank, as syndication agent and collateral processing co-agent, Fleet Retail Group, Inc., as co-documentation agent and collateral agent, The CIT Group/Business Credit, Inc., as co-documentation agent, and General Electric Capital Corporation, as co-documentation agent. RECITALS A. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement, as amended and restated hereby. B. The Borrower has requested that the Lenders amend and restate the Credit Agreement in order to, among other things (i) provide for a new tranche of term loans thereunder (the "New Term Loans") in an aggregate principal amount of $450,000,000, which will be utilized, together with proceeds of an accounts receivables securitization and other funds available to the Borrower, to refinance all currently outstanding Term Loans and which, except as revised hereby, will have the same terms as the currently outstanding Term Loans under the Credit Agreement and (ii) terminate the existing $700,000,000 of Revolving Commitments under the Credit Agreement (the "Existing Revolving Commitments") and replace and augment them with new Revolving Commitments ("New Revolving Commitments") in an aggregate principal amount of $950,000,000 which, except as revised hereby, will have the same terms and be utilized for the same purposes as the currently outstanding Revolving Commitments. C. Each existing Term Lender (an "Existing Term Lender") that executes and delivers this Amendment (a "Renewing Term Lender") will be deemed, upon the Amendment Effective Date (as defined below), to have (i) made a commitment to make New Term Loans in an aggregate principal amount up to, but not in excess of, the aggregate principal amount of such Existing Term Lender's outstanding Term Loans immediately prior to such effectiveness ("Existing Term Loans") and (ii) made such New Term Loans by exchanging its Existing Term Loans for New Term Loans in an equal principal amount. D. Each existing Revolving Lender (an "Existing Revolving Lender" and, together with the Existing Term Lenders, "Existing Lenders") that executes and delivers this Amendment (a "Renewing Revolving Lender" and, together with the Renewing Term Lenders, the "Renewing Lenders") will be deemed, upon the Amendment Effective Date, 2 to have made a New Revolving Commitment in an aggregate amount equal to the aggregate amount of its Existing Revolving Commitment. E. Each Person (if any) that executes and delivers this Amendment as an Additional Term Lender (an "Additional Term Lender") will make New Term Loans to the Borrower on the Amendment Effective Date ("Additional Term Loans"), the proceeds of which will be used by the Borrower, along with other funds, to repay in full the outstanding principal amount of Term Loans of Existing Term Lenders that are not Renewing Lenders. Each Person (if any) that executes and delivers this Amendment as an Additional Revolving Lender (an "Additional Revolving Lender" and, together with the Additional Term Lenders, the "Additional Lenders") will undertake a New Revolving Commitment on the Amendment Effective Date. The aggregate amount of New Revolving Commitments of Additional Revolving Lenders will equal the amount of Existing Revolving Commitments of Revolving Lenders, if any, that are not converted by such Revolving Lenders into New Revolving Commitments plus the $250,000,000 increase of the New Revolving Commitments over the Existing Revolving Commitments. Existing Lenders may execute this Amendment in the capacity of Additional Term Lenders and/or Additional Revolving Lenders. F. The Borrower has further requested that such amendment and restatement of the Credit Agreement effect other changes to the Credit Agreement, including providing for the future implementation of an incremental term loan facility, modifying certain covenants, permitting the redemption or repurchase of its Series D Preferred Stock, 4.75% Convertible Notes and Optional Debt Repurchases of Outside Indebtedness in certain circumstances and permitting the Borrower to implement a receivables securitization facility in an amount that, together with Indebtedness incurred in connection with Factoring Transactions, does not exceed $650,000,000. G. The Lenders are willing, subject to the terms and conditions set forth in this Amendment, so to amend and restate the Credit Agreement. H. The Renewing Lenders and the Additional Lenders (collectively, the "New Lenders") are severally willing to make the New Term Loans and New Revolving Commitments as contemplated hereby, in each case, subject to the terms and conditions set forth in this Amendment. AGREEMENTS In consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Amendment and Restatement of Credit Agreement; Amendment to the Collateral Trust and Intercreditor Agreement. (a) The Credit Agreement is hereby amended and restated, effective as of the Amendment Effective Date, in the form of the Credit Agreement attached as Exhibit A to this Amendment. The parties acknowledge and agree that Schedule 2.01 to the Credit Agreement as amended and 3 restated hereby shall replace in its entirety Schedule 2.01 of the Original Agreement and all other allocations of Commitments made under the Original Agreement. (b) The parties hereto authorize an amendment to the Collateral Trust and Intercreditor Agreement which conforms the definitions annex in the Collateral Trust and Intercreditor Agreement to the definitions contained in the Credit Agreement. SECTION 2. Representations and Warranties. To induce the other parties hereto to enter into this Amendment, the Borrower represents and warrants to each of the Lenders and the Administrative Agent that, as of the Amendment Effective Date: (a) This Amendment has been duly authorized, executed and delivered by it and this Amendment and the Credit Agreement, as amended and restated hereby, constitutes its valid and binding obligation, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (b) The representations and warranties set forth in Article III of the Credit Agreement are true and correct in all material respects on and as of the Amendment Effective Date with the same effect as though made on and as of the Amendment Effective Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties were true and correct in all material respects as of such earlier date). (c) No Default or Event of Default has occurred and is continuing. SECTION 3. New Term Loans and New Revolving Commitments. (a) Subject to the terms and conditions set forth herein, (i) each Renewing Term Lender agrees to make a New Term Loan to the Borrower on the Amendment Effective Date by exchanging its Existing Term Loans for New Term Loans in an amount equal to its New Term Loan Commitment and (ii) each Additional Term Lender agrees to make New Term Loans to the Borrower on the Amendment Effective Date in a principal amount equal to such New Term Lender's New Term Loan Commitment. Such New Term Loans shall be made in the manner contemplated by paragraph (b) of this Section. For purposes hereof, a Person shall become an Additional Term Lender and a party to the Credit Agreement by executing and delivering to the Administrative Agent, on or prior to the Amendment Effective Date, a signature page to this Amendment setting forth the amount of New Term Loans that such Person commits to make on the Amendment Effective Date. The "New Term Loan Commitment" (i) of any Renewing Term Lender will be such amount (not in excess of the amount of its Existing Term Loans) as is determined by Citigroup Global Markets Inc. ("CGMI") and notified to such Lender prior to the Amendment Effective Date and (ii) of any Additional Term Lender will be the amount of such commitment set forth in its signature page to this Amendment or such lesser amount as is allocated to it by CGMI and notified to it prior to the Amendment Effective Date. The commitments of the New Lenders are several and no New Lender shall be responsible for any other New Lender's failure to make New Term Loans. 4 (b) Each Renewing Term Lender and each Additional Term Lender will make new Term Loans on the Amendment Effective Date by (i) exchanging its Existing Term Loans for New Term Loans in an equal principal amount (to the extent the amounts of such Existing Term Loans, if any, do not exceed the New Term Loan Commitment of such Lender) and (ii) transferring to the Administrative Agent, in the manner contemplated by Section 2.06 of the Credit Agreement, an amount equal to the excess, if any, of its New Term Loan Commitment over the principal amount of Existing Term Loans exchanged pursuant to clause (i) above. Any portion of an Existing Term Loan exchanged for a New Term Loan as contemplated hereby is referred to herein as an "Exchanged Loan". Each Additional Term Lender will make its New Term Loans that cannot be made pursuant to an exchange for Exchanged Loans of such Lender by transferring the amount thereof to the Administrative Agent on the Amendment Effective Date in the manner contemplated by Section 2.06 of the Credit Agreement. Notwithstanding anything in this Amendment to the contrary, the Borrower, the Administrative Agent and any Lender may agree that such Lender's Existing Term Loans may be deemed to be converted into New Term Loans in connection with this Amendment. (c) Each Renewing Revolving Lender and each Additional Revolving Lender will assume a New Revolving Commitment on the Amendment Effective Date in an amount (i) in the case of a Renewing Revolving Lender, equal to the amount of its Existing Revolving Commitment and (ii) in the case of an Additional Revolving Lender, in an amount equal to the New Revolving Commitment set forth on its signature page to this Amendment or such lesser amount as is allocated to it by CGMI and notified to it prior to the Amendment Effective Date, the Existing Revolving Commitments will automatically terminate and be replaced by the New Revolving Commitments. Each Lender executing this Amendment hereby waives advance notice of such termination. Notwithstanding anything in this Amendment to the contrary, the Borrower, the Administrative Agent and any Lender may agree that such Lender's Existing Revolving Commitment may be deemed to be converted into a New Revolving Commitment in connection with this Amendment. (d) The obligations of each New Lender to make New Term Loans on the Amendment Effective Date is subject to the satisfaction of the following conditions: (i) The conditions set forth in paragraphs (a), (b) and (c) of Section 4.02 of the Credit Agreement shall be satisfied on and as of the Amendment Effective Date, and the New Lenders shall have received a certificate of a Financial Officer, dated the Amendment Effective Date, to such effect; (ii) The Administrative Agent shall have received a favorable legal opinion of each of (i) Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Borrower, and (ii) Robert Sari, General Counsel of the Borrower, in each case addressed to the Administrative Agent and the New Lenders and dated the Amendment Effective Date, in substantially the forms of Exhibits J-1 and J-2 to the Credit Agreement, modified, however, to address the New Term Loans, the New Revolving Commitments, this Amendment, and the Credit Agreement as amended and restated hereby, and covering such other matters relating to the Loan Parties, the Senior Loan Documents, the Senior Collateral and the Transactions as the Administrative Agent may reasonably request, and otherwise reasonably 5 satisfactory to the Administrative Agent. The Borrower hereby requests such counsel to deliver such opinions; (iii) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of each Loan Party, the authorization of this Amendment and the transactions contemplated hereby and any other legal matters relating to the Loan Parties, this Amendment, the other Senior Loan Documents and the transactions contemplated hereby, all in form and substance reasonably satisfactory to the Administrative Agent; (iv) To the extent deemed necessary or appropriate by the Administrative Agent, each Senior Collateral Document shall have been amended to provide the benefits thereof to the New Term Loans, the New Revolving Commitments (and Revolving Loans and Letters of Credit made or issued thereunder) and the obligations of the Loan Parties in connection therewith on the same basis as such benefits are provided to the Existing Term Loans and Existing Revolving Commitments; (v) Each Loan Party that has not executed and delivered this Amendment shall have entered into a written instrument reasonably satisfactory to the Administrative Agent pursuant to which it confirms that it consents to this Amendment and that the Senior Collateral Documents to which it is party will continue to apply in respect of the Credit Agreement, as amended and restated hereby, and the Senior Obligations thereunder; (vi) The aggregate amount of New Term Loan Commitments plus the aggregate Net Proceeds from the Securitization referred to below plus the amount of any cash available to the Borrower to be used to repay Existing Term Loans on the Amendment Effective Date, shall equal or exceed the aggregate principal amount of the Existing Term Loans. The aggregate amount of the New Revolving Commitments shall equal $950,000,000; (vii) The Administrative Agent shall have received evidence satisfactory to it that the Borrower has made the payments referred to in Section 3(f) or is making such payments on the Amendment Effective Date with the cash proceeds of the New Term Loans and the Securitization referred to below and such other funds of the Borrower as may be required; (viii) A Securitization yielding gross cash proceeds of not less than $300,000,000 shall have been consummated on terms reasonably satisfactory to the Administrative Agent; (ix) There shall be no outstanding Revolving Loans; and (x) The conditions to effectiveness of this Amendment set forth in Section 4 hereof shall have been satisfied. 6 (e) On the Amendment Effective Date, the New Revolving Lenders shall automatically be deemed to have purchased participations in outstanding Letters of Credit, if any, under the Credit Agreement, pro rata in accordance with the amounts of their New Revolving Commitments, in accordance with the provisions of Section 2.05(d) of the Credit Agreement. (f) On the Amendment Effective Date, the Borrower shall apply the proceeds of the Additional Term Loans, the Securitization referred to in paragraph (d)(viii) above and such other amounts as may be necessary (i) to prepay in full all Existing Term Loans, to pay all accrued and unpaid interest on all Existing Term Loans, to pay each Existing Term Lender (including each Renewing Lender) the prepayment fee payable pursuant to Section 2.12(d) (as in effect immediately prior to the Amendment Effective Date) in respect of the prepayment of its Existing Term Loans, and to pay all other amounts payable as a result of such prepayment pursuant to Section 2.16 of the Credit Agreement and all other Senior Obligations then accrued and owing to the Existing Term Lenders under the Credit Agreement in their capacities as such and (ii) to pay each Existing Revolving Lender all commitment fees, Letter of Credit participation fees, principal and interest on Revolving Loans, amounts payable pursuant to Section 2.16 of the Credit Agreement and all other Senior Obligations accrued and owing to the Existing Revolving Lenders under the Credit Agreement in their capacities as such. (g) On and after the Amendment Effective Date, each reference in the Credit Agreement to "Term Loan" or "Revolving Commitment" shall be deemed a reference to the New Term Loans and New Revolving Commitments, respectively, contemplated hereby. Notwithstanding the foregoing, the provisions of the Credit Agreement with respect to indemnification, reimbursement of costs and expenses, increased costs and break funding payments (other than as set forth in Section 3(e) above) shall continue in full force and effect with respect to, and for the benefit of, each Existing Lender prior to the Amendment Effective Date in respect of such Lender's Loans, Commitments and participations in Letters of Credit under the Credit Agreement prior to the Amendment Effective Date. SECTION 4. Effectiveness. This Amendment and the amendment and restatement of the Credit Agreement effected hereby shall become effective as of the first date on or before September 30, 2004 (the "Amendment Effective Date") on which the following conditions have been satisfied: (a) The Administrative Agent (or its counsel) shall have received duly executed counterparts hereof that, when taken together, bear the signatures of (i) the Borrower, (ii) each Renewing Lender and (iii) each Additional Lender. The aggregate amount of the New Term Loan Commitments of the Additional Term Lenders, plus the aggregate amount of Exchanged Loans shall equal $450,000,000. The aggregate amount of New Revolving Commitments shall equal $950,000,000. (b) The conditions to the making of the New Term Loans set forth in Section 3(d) hereof shall have been satisfied. 7 (c) To the extent invoiced, the Administrative Agent shall have received payment or reimbursement of its reasonable out-of-pocket expenses in connection with this Amendment, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent. (d) The Administrative Agent shall have received evidence that the Borrower has made the payments referred to in Section 3(f) or is making such payments on the Amendment Effective Date with the proceeds of the Additional Term Loans and such other funds as may be required. (e) The Borrower shall have paid the Administrative Agent, in immediately available funds, for the account of each Revolving Lender that has executed and delivered this Amendment prior to 5:00 p.m., New York City time, on September 22, 2004, a fee equal to 0.25% of such Lender's New Revolving Commitment. (f) The Senior Collateral Documents shall have been amended, to the extent deemed reasonably necessary by the Borrower and the Administrative Agent, to provide for the release or nonapplicability of Liens thereunder in respect of Securitization Assets at such time as they are transferred to a Securitization Vehicle in connection with a Securitization permitted by the Credit Agreement, as amended hereby. Each Lender executing this Amendment hereby authorizes the Agents, on its behalf, to enter into any such amendments as well as any intercreditor agreement confirming such release or nonapplicability of Liens (and containing other customary provisions) with the providers of any such Securitization financings or an agent or trustee on their behalf, in each case as may be deemed necessary or appropriate by the Agents. (g) The Administrative Agent shall have received from the Borrower all Schedules required by the terms of the Credit Agreement to be provided as of the Restatement Effective Date, each such Schedule to be in a form reasonably acceptable to the Administrative Agent. (h) Each of the conditions set forth in Section 4.01 of the Credit Agreement shall have been satisfied. The Administrative Agent shall notify the Borrower and the New Lenders of the Amendment Effective Date and such notice shall be conclusive and binding. Notwithstanding the foregoing, this Amendment shall not become effective, and the obligations of the New Lenders hereunder to make New Term Loans and undertake New Revolving Commitments will automatically terminate, if each of the conditions set forth or referred to in Section 3(d) and 4 hereof has not been satisfied at or prior to 5:00 p.m., New York City time, on September 30, 2004. SECTION 5. Effect of Amendment. (a) Each party hereto agrees that, as among themselves, on and after the Amendment Effective Date the Credit Agreement will be amended, and will be and remain in full force and effect, in the form of the amended and restated Credit Agreement attached hereto as Exhibit A, notwithstanding the failure of any former Lender under the Original Agreement to consent to this Amendment. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, 8 impair, constitute a waiver of or otherwise affect the rights and remedies of the Lenders or the Agents under the Credit Agreement or any other Senior Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other provision of the Credit Agreement or of any other Senior Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Borrower to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Senior Loan Document in similar or different circumstances. (b) On and after the Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like import, and each reference to the Credit Agreement in any other Senior Loan Document shall be deemed a reference to the Credit Agreement, as amended and restated hereby. This Amendment shall constitute a "Senior Loan Document" for all purposes of the Credit Agreement and the other Senior Loan Documents. (c) The changes in the Applicable Rate effected pursuant to this Amendment shall be effective on and after the Amendment Effective Date. All accruals of interest and fees for periods prior to the Amendment Effective Date will be based on the Applicable Rate in effect under the Credit Agreement prior to giving effect to this Amendment. SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 7. Costs and Expenses. The Borrower agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with this Amendment, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent. SECTION 8. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Delivery of any executed counterpart of a signature page of this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart hereof. SECTION 9. Headings. The headings of this Amendment are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. 9 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers as of the date first above written. RITE AID CORPORATION, By:___________________________ Name: Title: CITICORP NORTH AMERICA, INC., individually and as Administrative Agent, By:___________________________ Name: Title: JPMORGAN CHASE BANK, individually and as Syndication Agent and Collateral Processing Co-Agent, by ------------------------- Name: Title: FLEET RETAIL GROUP, INC., individually and as Collateral Agent and Co-Documentation Agent, by ------------------------- Name: Title: 10 THE CIT GROUP/BUSINESS CREDIT, INC., individually and as Co-Documentation Agent, by ------------------------- Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION, individually and as Co-Documentation Agent, by ------------------------- Name: Title: SIGNATURE PAGE TO SECOND AMENDMENT AND RESTATEMENT DATED AS OF SEPTEMBER 22, 2004, TO THE RITE AID CREDIT AGREEMENT DATED AS OF JUNE 27, 2001, AS AMENDED AND RESTATED AS OF AUGUST 4, 2003 To approve Second Amendment and Restatement: Name of Institution: [Additional Revolving Commitment, [as a Renewing Revolving Lender] if signing as an Additional [as an Additional Revolving Lender] Revolving Lender: [as a Renewing Term Lender] [as an Additional Term Lender] $_____________________]* _____________________________ [Additional Term Loan Commitment, if signing as an Additional Term Lender: by___________________________ $_____________________]* Name: Title: o To be included only in the case of an institution that is a Revolving Lender or an Additional Term Lender, as the case may be. ================================================================================ CREDIT AGREEMENT dated as of June 27, 2001, as amended and restated as of August 4, 2003, as further amended and restated as of September 22, 2004 among RITE AID CORPORATION, The Lenders Party Hereto, CITICORP NORTH AMERICA, INC., as Administrative Agent and Collateral Processing Co-Agent JPMORGAN CHASE BANK, as Syndication Agent and Collateral Processing Co-Agent FLEET RETAIL GROUP, INC., as Co-Documentation Agent and Collateral Agent, THE CIT GROUP/BUSINESS CREDIT, INC., as Co-Documentation Agent, And GENERAL ELECTRIC CAPITAL CORPORATION, as Co-Documentation Agent --------------------------- CITIGROUP GLOBAL MARKETS INC. and J. P. MORGAN SECURITIES INC., as Joint Lead Arrangers and Joint Bookrunners ================================================================================ TABLE OF CONTENTS Page ARTICLE I Definitions SECTION 1.01. Defined Terms..................................................2 SECTION 1.02. Classification of Loans and Borrowings........................30 SECTION 1.03. Terms Generally...............................................30 SECTION 1.04. Accounting Terms; GAAP........................................30 SECTION 1.05. Terms Defined in Definitions Annex............................31 ARTICLE II The Credits SECTION 2.01. Commitments...................................................31 SECTION 2.02. Loans and Borrowings..........................................31 SECTION 2.03. Requests for Borrowings.......................................32 SECTION 2.04. Swingline Loans...............................................33 SECTION 2.05. Letters of Credit.............................................34 SECTION 2.06. Funding of Borrowings.........................................39 SECTION 2.07. Interest Elections............................................40 SECTION 2.08. Termination and Reduction of Commitments......................41 SECTION 2.09. Repayment of Loans; Evidence of Indebtedness..................42 SECTION 2.10. Amortization of Term Loans....................................43 SECTION 2.11. Prepayment of Loans; Reductions...............................44 SECTION 2.12. Fees..........................................................46 SECTION 2.13. Interest......................................................47 SECTION 2.14. Alternate Rate of Interest....................................48 SECTION 2.15. Increased Costs...............................................48 SECTION 2.16. Break Funding Payments........................................50 SECTION 2.17. Taxes.........................................................50 SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Setoffs....51 SECTION 2.19. Mitigation Obligations; Replacement of Lenders................53 SECTION 2.20. Adjustments to Borrowing Base Advance Rates...................54 SECTION 2.21. Incremental Loans.............................................54 ARTICLE III Representations and Warranties SECTION 3.01. Organization; Powers..........................................55 SECTION 3.02. Authorization; Enforceability.................................55 SECTION 3.03. Governmental Approvals; No Conflicts..........................56 SECTION 3.04. Financial Condition; No Material Adverse Change...............56 SECTION 3.05. Properties....................................................56 SECTION 3.06. Litigation and Environmental Matters..........................57 SECTION 3.07. Compliance with Laws and Agreements...........................57 SECTION 3.08. Investment and Holding Company Status.........................57 SECTION 3.09. Taxes.........................................................57 SECTION 3.10. ERISA.........................................................58 SECTION 3.11. Disclosure; Accuracy of Information...........................58 SECTION 3.12. Subsidiaries..................................................58 SECTION 3.13. Insurance.....................................................58 SECTION 3.14. Labor Matters.................................................59 SECTION 3.15. Solvency......................................................59 SECTION 3.16. Federal Reserve Regulations...................................59 SECTION 3.17. Security Interests............................................59 SECTION 3.18. Use of Proceeds...............................................60 ARTICLE IV Conditions SECTION 4.01. Restatement Effective Date....................................60 SECTION 4.02. Each Credit Event.............................................61 SECTION 4.03. Determinations Under Section 4.01.............................62 ARTICLE V Affirmative Covenants SECTION 5.01. Financial Statements and Other Information....................63 SECTION 5.02. Notices of Material Events....................................65 SECTION 5.03. Information Regarding Collateral..............................66 SECTION 5.04. Existence; Conduct of Business................................66 SECTION 5.05. Payment of Obligations........................................66 SECTION 5.06. Maintenance of Properties.....................................67 SECTION 5.07. Insurance.....................................................67 SECTION 5.08. Books and Records; Inspection and Audit Rights; Collateral and Borrowing Base Reviews........................................68 SECTION 5.09. Compliance with Laws..........................................69 SECTION 5.10. Use of Proceeds and Letters of Credit.........................69 SECTION 5.11. Additional Subsidiaries.......................................70 SECTION 5.12. Further Assurances............................................70 SECTION 5.13. Subsidiaries..................................................71 SECTION 5.14. Intercompany Transfers........................................71 SECTION 5.15. Inventory Purchasing..........................................71 SECTION 5.16. Cash Management System........................................71 SECTION 5.17. Termination of Factoring Transactions.........................72 ARTICLE VI Negative Covenants SECTION 6.01. Indebtedness; Certain Equity Securities.......................72 SECTION 6.02. Liens.........................................................74 SECTION 6.03. Fundamental Changes...........................................76 SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions.....77 SECTION 6.05. Asset Sales...................................................78 SECTION 6.06. Sale and Leaseback Transactions...............................79 SECTION 6.07. Hedging Agreements............................................79 SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness.........80 SECTION 6.09. Transactions with Affiliates..................................82 SECTION 6.10. Restrictive Agreements........................................83 SECTION 6.11. Amendment of Material Documents...............................84 SECTION 6.12. [Intentionally Omitted].......................................84 SECTION 6.13. Leverage Ratio................................................85 SECTION 6.14. Consolidated Fixed Charge Coverage Ratio......................85 SECTION 6.15. [Intentionally Omitted].......................................86 SECTION 6.16. Restrictions on Asset Holdings by the Borrower................86 SECTION 6.17. Corporate Separateness........................................87 ARTICLE VII Events of Default ARTICLE VIII The Agents ARTICLE IX Miscellaneous SECTION 9.01. Notices.......................................................92 SECTION 9.02. Waivers; Amendments...........................................93 SECTION 9.03. Expenses; Indemnity; Damage Waiver............................95 SECTION 9.04. Successors and Assigns........................................96 SECTION 9.05. Survival.....................................................100 SECTION 9.06. Counterparts; Integration; Effectiveness.....................100 SECTION 9.07. Severability.................................................101 SECTION 9.08. Right of Setoff..............................................101 SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process...101 SECTION 9.10. WAIVER OF JURY TRIAL.........................................102 SECTION 9.11. Headings.....................................................102 SECTION 9.12. Confidentiality..............................................102 SECTION 9.13. Interest Rate Limitation.....................................103 SECTION 9.14. Collateral Trust and Intercreditor Agreement.................103 SECTION 9.15. Cash Sweep...................................................103 SECTION 9.16. Electronic Communications....................................104 ANNEXES: Annex 1 - Definitions Annex Annex 2 - Subordination Terms SCHEDULES: Schedule 1.01 - Subsidiary Loan Parties Schedule 2.01 - Commitments Schedule 2.05 - Existing Letters of Credit Schedule 3.04 - Undisclosed Liabilities Schedule 3.05(c) - Leased Warehouses and Distribution Centers Schedule 3.06(a) - Litigation Schedule 3.06(b) - Environmental Matters Schedule 3.12 - Subsidiaries Schedule 3.13 - Insurance Schedule 5.11 - Subsidiaries Schedule 6.01(a)(x) - Existing Indebtedness Schedule 6.01(b) - Equity Issuances Schedule 6.02(x) - Liens Schedule 6.04 - Investments Schedule 6.08(a) - Restricted Payments Schedule 6.09 - Affiliate Transactions EXHIBITS: Exhibit A-1 - Form of Term Note Exhibit A-2 - Form of Revolving Credit Note Exhibit B - Form of Borrowing Base Certificate Exhibit C - Form of Assignment and Acceptance Agreement Exhibit D - Form of Senior Subsidiary Guarantee Agreement Exhibit E - Form of Senior Subsidiary Security Agreement Exhibit F - Form of Senior Indemnity, Subrogation and Contribution Agreement Exhibit G - Form of Second Priority Subsidiary Guarantee Agreement Exhibit H - Form of Second Priority Subsidiary Security Agreement Exhibit I - Form of Second Priority Indemnity, Subrogation and Contribution Agreement Exhibit J-1 - Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, Special New York Counsel to the Borrower Exhibit J-2 - Form of Opinion of Robert Sari, General Counsel of the Borrower CREDIT AGREEMENT dated as of June 27, 2001, as amended and restated as of September 22, 2004 (this "Agreement"), among RITE AID CORPORATION, a Delaware corporation, the LENDERS party hereto, CITICORP NORTH AMERICA, INC., as Administrative Agent and Collateral Processing Co-Agent, JPMORGAN CHASE BANK, as Syndication Agent and Collateral Processing Co-Agent, FLEET RETAIL GROUP, INC., as Co-Documentation Agent and Collateral Agent, THE CIT GROUP/BUSINESS CREDIT, INC., as Co-Documentation Agent and GENERAL ELECTRIC CAPITAL CORPORATION, as Co-Documentation Agent. On the Effective Date (such term and each other capitalized term used but not otherwise defined in this preamble having the meaning assigned to such term in Article I below or in the Definitions Annex), the Borrower, the Administrative Agent, the Collateral Agents and certain of the Lenders entered into this Agreement pursuant to which certain of the Lenders thereunder agreed to extend credit to the Borrower on a revolving credit basis and to make term loans to the Borrower. The parties hereto desire to amend this Agreement and to restate it in its entirety giving effect to such amendment. The Borrower has requested the Lenders to extend credit hereunder in the form of Term Loans to be made on the Restatement Effective Date in an aggregate principal amount of $450,000,000 and Revolving Loans, Letters of Credit and Swingline Loans to be made or issued at any time and from time to time on or after the Restatement Effective Date and prior to the Maturity Date in an aggregate principal amount at any time outstanding not in excess of $950,000,000 (subject to the limitations set forth herein). The proceeds of the Term Loans made on the Restatement Effective Date will be used (i) together with other funds available to the Borrower, to repay or refinance all amounts due or outstanding under the Original Agreement on the Restatement Effective Date, and (ii) to pay fees and expenses incurred in connection with the Transactions. The proceeds of Revolving Loans and Swingline Loans made after the Restatement Effective Date will be used for general corporate purposes, including the financing of Optional Debt Repurchases and Consolidated Capital Expenditures, as more fully described herein. Letters of Credit will be used solely to support payment obligations of the Borrower and the Subsidiaries incurred in the ordinary course of business. The Lenders and the Swingline Lenders are willing to extend such credit, and the Issuing Banks are willing to issue Letters of Credit, on the terms and subject to the conditions set forth herein. Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that this Agreement shall, upon satisfaction (or waiver) of the conditions set forth in Section 4.01, be amended and restated to read in its entirety as follows: 2 ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Account" means any right to payment for goods sold or leased or for services rendered, whether or not earned by performance. "Account Debtor" means, with respect to any Account, the obligor with respect to such Account. "Accounts Receivable Advance Rate" means the accounts receivable advance rate determined in accordance with Section 2.20. "Additional Lender" has the meaning assigned to such term in Section 2.21. "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means CNAI, in its capacity as administrative agent and collateral processing co-agent for the Lenders. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Agents" means the Administrative Agent and the Collateral Agents. "Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Citibank Base Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Citibank Base Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Citibank Base Rate or the Federal Funds Effective Rate. "Applicable Percentage" means, with respect to any Revolving Lender, the percentage of the total Revolving Commitments represented by such Lender's Revolving Commitment. If the Revolving Commitments have been terminated or expired, the Applicable Percentages shall be determined based upon the Revolving Commitments most recently in effect, giving effect to any assignments. 3 "Applicable Rate" means (a) with respect to any ABR Term Loan, a rate per annum of 0.75%, and with respect to any Eurodollar Term Loan, a rate per annum of 1.75%, and (b) with respect to any ABR Revolving Loan or Eurodollar Revolving Loan, or with respect to the commitment fees payable hereunder, as the case may be, the applicable rate per annum set forth below (expressed in basis points) under the caption "Revolving Loan ABR Spread", "Revolving Loan Eurodollar Spread" or "Commitment Fee Rate", as the case may be, in each case based upon the Leverage Ratio as of the most recent date of determination: ================================================================================ Revolving Loan Revolving Loan Commitment Fee ABR Spread Eurodollar Spread Rate RATING: bps bps bps - -------------------------------------------------------------------------------- Category 1 50 150 37.5 ---------- Leverage Ratio (less than) 4.25 to 1.00 - -------------------------------------------------------------------------------- Category 2 75 175 37.5 ---------- Leverage Ratio (greater than or equal to) 4.25 to 1.00 ================================================================================ For purposes of determining the Applicable Rate, (i) the Leverage Ratio shall be determined as of the end of each fiscal quarter of the Borrower's fiscal year based upon the consolidated financial statements delivered pursuant to Section 5.01(a) or (b) and (ii) each change in the Applicable Rate resulting from a change in the Leverage Ratio shall be effective during the period commencing on and including the date of delivery to the Administrative Agent of such consolidated financial statements indicating such change and ending on the date immediately preceding the effective date of the next such change; provided that the Leverage Ratio shall be deemed to be in Category 2 if the Borrower fails to deliver the consolidated financial statements required to be delivered by it pursuant to Section 5.01(a) or (b), during the period from the expiration of the time for delivery thereof until such consolidated financial statements are delivered. "Approved Fund" means (a) with respect to any Lender, a CLO managed by such Lender or by an Affiliate of such Lender or (b) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit C or any other form approved by the Administrative Agent. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" means Rite Aid Corporation, a Delaware corporation. 4 "Borrowing" means (a) Loans of the same Class and Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect, or (b) a Swingline Loan. "Borrowing Base Amount" means, with respect to the Borrower, an amount equal to the sum, without duplication, of the following; (a) the Accounts Receivable Advance Rate multiplied by the book value of Eligible Accounts Receivable; plus (b) the Pharmaceutical Inventory Advance Rate multiplied by the Eligible Pharmaceutical Inventory Value; plus (c) the Other Inventory Advance Rate multiplied by the Eligible Other Inventory Value; plus (d) the Script Lists Advance Rate multiplied by the Eligible Script Lists Value; minus (e) a reserve in an aggregate amount equal to the Borrower's then-current exposure upon early termination under each of its existing and future Hedging Agreements; minus (f) any reserves established by the Collateral Agents in the exercise of their reasonable judgment to reflect Borrowing Base Factors; provided, that, for purposes of determining the Borrowing Base Amount at any date of determination, the amount set forth in clause (d) of this definition shall not exceed the lesser of (i) $400,000,000 and (ii) 25% of the Borrowing Base Amount. The Borrowing Base Amount shall be computed (i) weekly with respect to Eligible Accounts Receivable and Eligible Inventory stored at any location other than a distribution center, (ii) monthly with respect to Eligible Inventory stored at a distribution center and (iii) semi-annually with respect to Eligible Script Lists, in each case in accordance with Sections 2.20 and 5.01(f). The Borrowing Base Amount at any time in effect shall be determined by reference to the Borrowing Base Certificate most recently delivered pursuant to Section 5.01(f). "Borrowing Base Certificate" means a certificate substantially in the form of Exhibit B or in such other form as the Agents may approve. "Borrowing Base Factors" means landlord's liens affecting Eligible Inventory, factors affecting the saleability or collectability of Eligible Accounts Receivable and Eligible Inventory at retail or in liquidation, factors affecting the market value of Eligible Inventory, Eligible Accounts Receivable or Eligible Script Lists, other impediments to the Collateral Agents' ability to realize upon the Eligible Accounts Receivable, the Eligible Inventory or the Eligible Script Lists and other factors affecting 5 the credit value to be afforded the Eligible Accounts Receivable, the Eligible Inventory and the Eligible Script Lists. "Borrowing Request" means a request by the Borrower for a Borrowing in accordance with Section 2.03. "Business Acquisition" means (i) an Investment by the Borrower or any of the Subsidiaries in any other Person (including an Investment by way of acquisition of debt or equity 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 the Subsidiaries or (ii) an acquisition by the Borrower or any of the Subsidiaries of the property and assets of any Person (other than the Borrower or any of the Subsidiaries) that constitute substantially all the assets of such Person or any division or other business unit of such Person; provided, that the acquisition of prescription files and Stores and the acquisition of Persons substantially all of whose assets consist of fewer than ten Stores, in each case in the ordinary course of business and not substantially inconsistent with the business projections of the Borrower and the Subsidiaries delivered to the Lenders on or about the Restatement Effective Date shall not constitute a Business Acquisition. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any Capital Lease, which obligations should be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Cash Management System" shall have the meaning assigned to such term in the Senior Subsidiary Security Agreement. "Capital Markets Transactions" means the receipt by the Borrower or a Subsidiary of proceeds of an issuance in the public or private capital markets of long-term debt securities, of equity securities or of equity-linked (e.g., trust preferred) securities other than any proceeds received by the Borrower or a Subsidiary in respect of an issuance or incurrence of (A) Indebtedness or Attributable Debt pursuant to Section 6.01(a)(v), (vi), (vii), (viii), (xii) or (xiii) hereof, (B) Refinancing Indebtedness pursuant to Section 6.01(a)(ii) hereof or (C) pursuant to a Securitization or a Factoring Transaction permitted by this Agreement. "Cash Sweep Cash Collateral Account" shall have the meaning assigned to such term in the Senior Subsidiary Security Agreement. "Cash Sweep Notice" shall have the meaning assigned to such term in the Senior Subsidiary Security Agreement. "Cash Sweep Period" shall have the meaning assigned to such term in the Senior Subsidiary Security Agreement. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the 6 Securities Exchange Act of 1934, as amended, and the rules of the SEC thereunder as in effect on the Restatement Effective Date), other than Green Equity Investors III, L.P. and its Affiliates, of 30% or more of the outstanding shares of common stock of the Borrower; (b) at the end of any period of 12 consecutive calendar months, the occupation of a majority of the seats on the board of directors of the Borrower by Persons who were not members of the board of directors of the Borrower on the first day of such period; or (c) the occurrence of a "Change of Control", as defined in any Indenture or other agreement that governs the terms of any Material Indebtedness. "Change in Law" means (a) the adoption of any law, rule or regulation after the Restatement Effective Date, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the Restatement Effective Date or (c) compliance by any Lender or any Issuing Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender or by such Lender's or such Issuing Bank's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the Restatement Effective Date. "Citibank Base Rate" means the rate of interest publicly announced by Citibank, N.A. in New York City from time to time as the Citibank Base Rate. "Citibank Concentration Account" shall have the meaning assigned to such term in the Senior Subsidiary Security Agreement. "Class", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Term Loans or Swingline Loans and, when used in reference to any Commitment, refers to whether such Commitment is a Revolving Commitment or a Term Loan Commitment. "CLO" means any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of a Lender. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Collateral Agents" means CNAI and JPMCB, each in its capacity as collateral processing co-agent for the Lenders. "Collateral and Guarantee Requirement" means the requirement that: (a) the Administrative Agent shall have received from each Subsidiary Loan Party either (i) a counterpart of each Senior Collateral Document duly executed and delivered on behalf of such Loan Party or (ii) in the case of any Person that becomes a Subsidiary Loan Party after the Restatement Effective Date, a supplement to each applicable Senior Collateral Document, in the form 7 specified therein, duly executed and delivered on behalf of such Subsidiary Loan Party; (b) (i) all documents and instruments, including Uniform Commercial Code financing statements, required by law or reasonably requested by the Administrative Agent to be filed, registered or recorded to create the Liens intended to be created by the Senior Collateral Documents and perfect such Liens to the extent required by, and with the priority required by, this Agreement and the Senior Collateral Documents, shall have been filed, registered or recorded or delivered to the Administrative Agent for filing, registration or recording or (ii) the Administrative Agent shall have been provided with all authorizations, consents and approvals from each Loan Party, Governmental Authority and other Person reasonably requested by it to file, record or register all documents and instruments referred to in clause (b)(i) of this definition; and (c) each Loan Party shall have obtained all consents and approvals required to be obtained by it in connection with the execution and delivery of all Senior Collateral Documents to which it is a party, the performance of its obligations thereunder and the granting by it of the Liens thereunder. "Commitment" means the Revolving Commitments and the Term Loan Commitments, or any combination thereof (as the context requires). "Consolidated Capital Expenditures" means, for any period, the aggregate amount of expenditures by the Borrower and its Consolidated Subsidiaries for plant, property and equipment and prescription files during such period (including any such expenditure by way of acquisition of a Person or by way of assumption of Indebtedness or other obligations of a Person, to the extent reflected as plant, property and equipment or as prescription file assets), but excluding, without duplication, (i) any such expenditures made for the replacement or restoration of assets to the extent financed by Casualty/Condemnation Proceeds relating to the asset or assets being replaced or restored, (ii) any amounts paid to any party under a lease entered into in connection with a Sale and Leaseback Transaction with respect to the termination of such lease and the reacquisition by the Borrower or any of the Subsidiaries of the property subject to such lease and (iii) any such expenditures made for the purchase or other acquisition from a third party of Stores, leases and prescription files, but only to the extent that an equivalent or greater amount is received from such third party as consideration for the sale or other disposition to such third party of Stores, leases and/or prescription files of a substantially equivalent value closed at substantially the same time as, and entered into as part of a single related transaction with, such purchase or acquisition; provided that if a lesser amount is received from such third party as consideration for such sale or other disposition, then the amount of Consolidated Capital Expenditures for purposes hereof shall be the expenditures made net of the consideration received. "Consolidated EBITDA" means, for any period, without duplication, Consolidated Net Income for such period, plus (a) to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) consolidated 8 interest expenses, whether cash or non-cash, and charges, commissions, discounts, yield and other similar fees and charges incurred pursuant to Factoring Transactions or by Securitization Vehicles in connection with Securitizations which are payable to any Person other than a Loan Party, and any other amounts comparable to or in the nature of interest under any Securitization or Factoring Transaction, including losses on the sale of Securitization Assets in a Securitization accounted for as a "true sale" or Factoring Assets in a Factoring Transaction accounted for as a "true sale," (ii) provision for income taxes, (iii) depreciation and amortization, (iv) LIFO Adjustments which reduced such Consolidated Net Income, (v) store closing and non-cash impairment expenses, (vi) any other nonrecurring charge to the extent such nonrecurring charge does not involve any cash expenditure during such period, (vii) non-cash compensation expenses related to stock option and restricted stock employee benefit plans, (viii) the non-cash interest component, as adjusted from time to time, in respect of reserves, (ix) all costs, fees, charges and expenses incurred in connection with the Transactions, (x) all charges incurred relating to the investigation of the Borrower by the United States Attorney's Office and the United States Department of Labor and all amounts paid in satisfaction of any judgment, fine or settlement resulting therefrom and (xi) all costs and litigation expenses incurred in connection with litigation, investigations and other proceedings relating to the business conduct and practices of the former management of the Borrower, and minus (b) to the extent not deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) any cash expenditure during such period in connection with which a nonrecurring charge was taken and added back to Consolidated Net Income pursuant to clause (a) above in calculating Consolidated EBITDA in any prior period and (ii) LIFO Adjustments which increased such Consolidated Net Income. "Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio of (i) Consolidated EBITDA plus Consolidated Rent less Consolidated Capital Expenditures to (ii) Consolidated Interest Charges plus Consolidated Rent plus scheduled amortization payments made pursuant to Section 2.10 plus cash dividends paid pursuant to Section 6.08(a), in each case for such period and determined in accordance with GAAP. "Consolidated Interest Charges" means, for any period, the aggregate amount of interest charges, whether expensed or capitalized, incurred or accrued during such period by the Borrower and its Consolidated Subsidiaries, solely to the extent paid or payable (whether during or after such period) in cash (i) minus non-cash interest expenses during such period related to (x) litigation reserves, (y) closed store liability reserves, if any, and (z) self-insurance reserves and (ii) plus, to the extent not otherwise included in such interest charges, commissions, discounts, yield and other similar fees and charges incurred pursuant to Factoring Transactions or by Securitization Vehicles in connection with Securitizations which are payable to any Person other than a Loan Party, and any other amounts comparable to or in the nature of interest under any Securitization or Factoring Transaction, including losses on the sale of Securitization Assets in a Securitization accounted for as a "true sale" or Factoring Assets in a Factoring Transaction accounted for as a "true sale". 9 "Consolidated Net Income" means, for any period, the net income (or loss) of the Borrower and its Consolidated Subsidiaries (exclusive of (a) extraordinary items of gain or loss during such period or gains or losses from Indebtedness modifications during such period, (b) any gain or loss in connection with any Asset Sale during such period, other than sales of inventory in the ordinary course of business, but in the case of any loss only to the extent that such loss does not involve any current or future cash expenditure, (c) the cumulative effect of accounting changes during such period and (d) net income or loss attributable to any Investments in Persons other than Affiliates of the Borrower), determined on a consolidated basis for such period in accordance with GAAP. "Consolidated Net Worth" means, at any date, the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries determined as of such date. Consolidated Net Worth includes the Series D Preferred Stock. "Consolidated Rent" means, for any period, the consolidated rental expense of the Borrower and its Consolidated Subsidiaries for such period, and including in any event rental costs of closed stores for such period whether or not reflected as an expense in the determination of Consolidated Net Income for such period. "Consolidated Subsidiary" means, with respect to any Person, at any date, any Subsidiary or other entity the accounts of which would, in accordance with GAAP, be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "CNAI" means Citicorp North America, Inc. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Definitions Annex" means the definitions annex attached hereto as Annex 1 (as the same may be amended, supplemented or otherwise modified from time to time). "Deposit Account" shall have the meaning assigned to such term in the Senior Subsidiary Security Agreement. "dollars" or "$" refers to lawful money of the United States of America. "Eligible Accounts Receivable" means, at any date of determination, all Accounts that satisfy at the time of creation and continue to meet the same at the time of such determination the criteria established from time to time by the Collateral Agents in 10 their reasonable judgment to reflect Borrowing Base Factors. On the Restatement Effective Date, those criteria are: (a) such Account constitutes an "account" or "chattel paper" within the meaning of the Uniform Commercial Code of the state in which the Account is located; (b) all payments on such Account are by the terms of such Account due not later than 90 days after the date of service (i.e., the transaction date) and are otherwise on terms that are normal and customary in the business of the Borrower and the Subsidiaries; (c) such Account has been billed and has not remained unpaid for more than 120 days following the date of service; (d) such Account is denominated in dollars; (e) such Account arose from a completed, outright and lawful sale of goods or the completed performance of services by the applicable Subsidiary Loan Party and accepted by the applicable Account Debtor, and the amount of such Account has been properly recognized as revenue on the books of the applicable Subsidiary Loan Party; (f) such Account is owned solely by a Subsidiary Guarantor (and has not been transferred pursuant to a Securitization or a Factoring Transaction); (g) the proceeds of such Account are payable solely to a Deposit Account which (A) is under the control of the Senior Collateral Agents and (B) has not been released or transferred in accordance with Section 5.16 or otherwise; (h) such Account arose in the ordinary course of business of the applicable Subsidiary Loan Party; (i) not more than 50% of the aggregate amount of Accounts from the same Account Debtor and any Affiliates thereof remain unpaid for more than 120 days following the date of service; (j) to the knowledge of the Borrower and the Subsidiaries, no event of death, bankruptcy, insolvency or inability to pay creditors generally of the Account Debtor of such Account has occurred, and no notice thereof has been received; (k) payment of such Account is not being disputed by the Account Debtor thereof; (l) such Account complies in all material respects with the requirements of all applicable laws and regulations, whether Federal, state or local, including 11 the Federal Consumer Credit Protection Act, the Federal Truth in Lending Act and Regulation Z of the Federal Reserve Board; (m) with respect to such Account, the Account Debtor (i) is organized in the United States (or, if such Account Debtor is not organized in the United States, such Account is supported by a letter of credit approved by the Collateral Agents in favor of the applicable Subsidiary Loan Party) and (ii) is not an Affiliate or Subsidiary of the Borrower or an Affiliate of any of the Subsidiaries; (n) such Account is subject to a perfected first priority security interest in favor of the Collateral Agents for the benefit of the Lenders pursuant to the Senior Collateral Documents and is not subject to any other Lien (other than the Second Priority Lien); (o) with respect to any such Account for an amount greater than $5,000,000, the Account Debtor has not been disapproved by the Required Lenders (based, in the Required Lenders' reasonable judgment, upon the creditworthiness of such Account Debtor); (p) the representations and warranties contained in the Senior Loan Documents with respect to such Account are true and correct in all material respects; and (q) such Account is in full force and effect and constitutes a legal, valid and binding obligation of the Account Debtor, enforceable against such Account Debtor in accordance with its terms. "Eligible Inventory" means, at any date of determination, all inventory (as defined in the Uniform Commercial Code) owned by any Subsidiary Loan Party that satisfies at the time of such determination the criteria established from time to time by the Collateral Agents in their reasonable judgment to reflect Borrowing Base Factors. On the Restatement Effective Date, Eligible Inventory shall exclude, without duplication, the following: (a) any such inventory that has been shipped to a customer, even if on a consignment or "sale or return" basis, or is otherwise not in the possession or control of or any Subsidiary Loan Party or a warehouseman or bailee of any Subsidiary Loan Party; (b) any inventory against which any Subsidiary Loan Party has taken a reserve, to the extent of such reserve, to the extent specified by the Collateral Agents from time to time in their reasonable judgment to reflect Borrowing Base Factors; (c) any inventory that has been discontinued or is otherwise of a type (SKU) not currently offered for sale on a regular basis by the Subsidiary Loan Parties (including any such inventory obtained in connection with a Business 12 Acquisition) to the extent specified by the Collateral Agents from time to time in their reasonable judgment to reflect Borrowing Base Factors; (d) any inventory not located in the United States or otherwise not subject to a valid and perfected Lien under the Senior Collateral Documents, subject to no prior or equal Lien; (e) any supply, scrap or obsolete inventory or inventory that is otherwise unsaleable; (f) any inventory that is past its expiration date, is damaged or not in good condition, is a sample used for marketing purposes or does not meet all material standards imposed by any governmental authority having regulatory authority over such inventory, except in each case to the extent of its net realizable value as determined by the Collateral Agents from time to time in their reasonable judgment; (g) any inventory that is subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third Person from whom the Borrower or any of its Subsidiaries has received notice of a dispute in respect of such agreement, to the extent that the Collateral Agents determine, in their reasonable judgment, that such dispute could be expected to prevent the sale of such inventory; (h) any inventory which is subject to a negotiable document of title which has not been delivered to the Administrative Agent; (i) any inventory to the extent that such inventory is not comprised of readily marketable materials of a type manufactured, consumed or held for resale by the Subsidiary Loan Parties in the ordinary course of business; (j) any inventory to the extent that such inventory consists of raw materials, component parts and/or work-in-progress; (k) any inventory in respect of which the applicable representations and warranties in the Senior Loan Documents are not true and correct in all material respects; (l) any inventory to which the Subsidiary Loan Parties do not have good title or any inventory which a Subsidiary Loan Party holds on consignment or on a "sale or return" basis; and (m) any inventory (as notified by the Collateral Agents to the Borrower) that the Collateral Agents have, in their reasonable judgment, deemed ineligible in order to reflect Borrowing Base Factors; provided, however, that no inventory which is stored at a distribution center leased by the Borrower or any other Person shall be considered "Eligible Inventory" unless the 13 Borrower shall have complied with Section 4.01(n) (or the Collateral Agents shall have granted a waiver to such compliance pursuant to Section 4.01(n)). "Eligible Other Inventory Value" means, at any date of determination, an amount equal to (i) the cost of Eligible Inventory that is Other Inventory (less any appropriate reserve for obsolete Other Inventory and any profits accrued in connection with transfers of Other Inventory between the Borrower and the Subsidiaries or between Subsidiaries) at such date, in dollars, determined in accordance with GAAP consistently applied and on a basis consistent with that used in the preparation of the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Lenders pursuant to Section 5.01(a) multiplied by (ii) the Net Orderly Liquidation Rate with respect to such Other Inventory. "Eligible Pharmaceutical Inventory Value" means, at any date of determination, an amount equal to (i) the cost of Eligible Inventory that is Pharmaceutical Inventory (less any appropriate reserve for obsolete Pharmaceutical Inventory and any profits accrued in connection with transfers of Pharmaceutical Inventory between the Borrower and the Subsidiaries or between Subsidiaries) at such date, in dollars, determined in accordance with GAAP consistently applied and on a basis consistent with that used in the preparation of the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Lenders pursuant to Section 5.01(a) multiplied by (ii) the Net Orderly Liquidation Rate with respect to such Pharmaceutical Inventory. "Eligible Script Lists" means, at any date of determination, all lists owned and maintained on such date by the Subsidiary Loan Parties setting forth Persons (and addresses, telephone numbers or other contact information therefor) who currently purchase or otherwise obtain, in any Store owned or operated by any Subsidiary Loan Party, medication required to be dispensed by a licensed professional. "Eligible Script Lists Value" means, at any date of determination, the liquidation value of the Eligible Script Lists in dollars, as most recently determined in connection with an appraisal performed for purposes of this Agreement by Nations Business Consulting Group or such other appraisal firm satisfactory to the Collateral Agents. "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means all liabilities, obligations, damages, losses, claims, actions, suits, judgments, orders, fines, penalties, fees, expenses and costs, (including administrative oversight costs, natural resource damages and remediation costs), whether contingent or otherwise, arising out of or relating to: (a) compliance or non-compliance with any Environmental Law, (b) the generation, use, handling, 14 transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "Equity Interests" means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; or (h) the existence of any event or condition that could reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article VII. "Excluded Taxes" means, with respect to any Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or 15 measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction described in clause (a) above and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.19(b)), any withholding tax that (i) is in effect and would apply to amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to any withholding tax pursuant to Section 2.17(a), or (ii) is attributable to such Foreign Lender's failure to comply with Section 2.17(e). "Existing Letters of Credit" means each letter of credit issued or deemed to have been issued under the Original Agreement that is outstanding on the Restatement Effective Date. The Existing Letters of Credit are listed on Schedule 2.05. "Factoring Assets" means any accounts receivable owed to the Borrower or any Subsidiary (whether now existing or arising or acquired in the future) arising in the ordinary course of business from the sale of goods or services, all collateral securing such accounts receivable, all contracts and contract rights and all guarantees or other obligations in respect of such accounts receivable, all proceeds of such accounts receivable and other assets (including contract rights) which are of the type customarily transferred in connection with the factoring of accounts receivable and which are sold, transferred or otherwise conveyed by the Borrower or a Subsidiary pursuant to a Factoring Transaction permitted by this Agreement. "Factoring Notice" means a written notice delivered by the Borrower to the Administrative Agent at least 30 days after the termination of any Securitization program indicating that the Borrower or its Subsidiaries intend to engage in a Factoring Transaction. "Factoring Transaction" means any transaction or series of transactions entered into by the Borrower and any Subsidiaries pursuant to which the Borrower or such Subsidiaries sells, conveys or otherwise transfers (or purports to sell, convey or otherwise transfer) Factoring Assets of the Borrower or such Subsidiaries to a non-related third party factor on market terms as determined in good faith by the senior management of the Borrower; provided that (i) no portion of any Indebtedness deemed to exist as a result of such Factoring Transaction (x) is incurred or Guaranteed by the Borrower or any other Subsidiary (in each case, other than as permitted pursuant to Section 6.01(a)(xiv)), (y) is recourse to the Borrower or any other Subsidiary (in each case, other than as permitted pursuant to Section 6.01(a)(xiv)) and (z) is secured (contingently or otherwise) by any Lien on assets of the Borrower or any other Subsidiary (other than by the Factoring Assets to be sold, conveyed or transferred to the third party factor), (ii) such Factoring Transaction is consummated pursuant to customary contracts, arrangements or agreements entered into with respect to the sale, purchase and servicing of Factoring 16 Assets on market terms for similar factoring, and (iii) in connection with such Factoring Transaction, the third party factor enters into an intercreditor arrangement reasonably acceptable to the Collateral Agents. "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Financial Covenant Effectiveness Period" means each period on or after the Second Amendment Effective Date commencing on and including any date on which Revolver Availability is less than $300,000,000 and ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which Revolver Availability is equal to or greater than $300,000,000. "Financial Officer" means the chief financial officer, principal accounting officer, treasurer, vice president of financial accounting or controller of the Borrower. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "GAAP" means generally accepted accounting principles in the United States of America. "Government Lockbox Account" shall have the meaning assigned to such term in the Senior Subsidiary Security Agreement. "Government Lockbox Account Agreement" shall have the meaning assigned to such term in the Senior Subsidiary Security Agreement. "Government Lockbox Account Bank" shall have the meaning assigned to such term in the Senior Subsidiary Security Agreement. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Grantor" shall have the meaning assigned to such term in the Senior Subsidiary Security Agreement. 17 "Hazardous Materials" means (a) petroleum products and byproducts, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, radon gas, chlorofluorocarbons and all other ozone-depleting substances, or (b) any chemical, material, substance, waste, pollutant or contaminant that is prohibited, limited or regulated by or pursuant to any Environmental Law. "Hedging Agreement" means 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. "Incremental Commitment" has the meaning assigned to such term in Section 2.21. "Incremental Facility Amendment" has the meaning assigned to such term in Section 2.21. "Incremental Loans" has the meaning assigned to such term in Section 2.21. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Inside Indebtedness" means Indebtedness of the Borrower or any Subsidiary (other than intercompany Indebtedness permitted by Section 6.01(a)(iii)) which matures on or before the Maturity Date and any portion of any other Indebtedness subject to scheduled amortization on or before the Maturity Date. "Interest Election Request" means a request by the Borrower to convert or continue a Revolving Borrowing or a Term Borrowing in accordance with Section 2.07. "Interest Payment Date" means (a) with respect to any ABR Loan (other than a Swingline Loan), the last day of each March, June, September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period, and (c) with respect to any Swingline Loan, the day that such Loan is required to be repaid. "Interest Period" means, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending (x) on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, (y) in the case of Revolving Loans or Interest Periods for Term Loans commencing at any time during the period from the Restatement Effective Date to the date that is 30 days after the Restatement Effective Date, seven days thereafter or (z) in the case of Revolving 18 Loans, six weeks thereafter if, at the time of the relevant Borrowing, all Lenders participating therein agree to make an interest period of such duration available, in each case as the Borrower may elect; provided that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day (unless, in the case of Interest Periods of one, two, three or six months, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day), (ii) any Interest Period of one, two, three or six months that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period, (iii) there shall be no more than one Term Loan with a seven day Interest Period at any time outstanding and (iv) there shall be no more than two Revolving Loans with a seven day Interest Period at any time outstanding. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Investment" by any Person in any other Person means (i) any direct or indirect loan, advance or other extension of credit or capital contribution to or for the account of such other Person (by means of any transfer of cash or other property to any Person or any payment for property or services for the account or use of any Person, or otherwise), (ii) any direct or indirect purchase or other acquisition of any Equity Interests, bond, note, debenture or other debt or equity security or evidence of Indebtedness, or any other ownership interest (including, any option, warrant or any other right to acquire any of the foregoing), issued by such other Person, whether or not such acquisition is from such or any other Person, (iii) any direct or indirect payment by such Person on a Guarantee of any obligation of or for the account of such other Person or any direct or indirect issuance by such Person of such a Guarantee (provided, however, that for purposes of Section 6.04, payments under Guarantees not exceeding the amount of the Investment attributable to the issuance of such Guarantee will not be deemed to result in an increase in the amount of such Investment) or (iv) any other investment of cash or other property by such Person in or for the account of such other Person. Any repurchase by the Borrower of its own Equity Interests or Indebtedness 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. "Issuing Banks" means (a) CNAI, JPMCB and any other Lender designated as an Issuing Bank in accordance with the provisions of Section 2.05(k), in each case in its capacity as an issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.05(i) and (b) solely in respect of each Existing Letter of Credit, the issuer thereof. An Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which 19 case the term "Issuing Banks" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. "Joint Venture" means, with respect to any Person, at any date, any other Person in whom such Person directly or indirectly holds an Investment consisting of an Equity Interest, and whose financial results would not be consolidated under GAAP with the financial results of such Person on the consolidated financial statements of such Person, if such statements were prepared in accordance with GAAP as of such date. "JPMCB" means JPMorgan Chase Bank. "LC Disbursement" means a payment made by an Issuing Bank pursuant to a Letter of Credit. "LC Exposure" means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Revolving Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. "Lenders" means the Persons listed on Schedule 2.01 as having a Revolving Commitment and the Persons that have agreed to make Term Loans pursuant to the Second Amendment and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. Unless the context otherwise requires, the term "Lenders" includes the Swingline Lender. "Letter of Credit" means any letter of credit issued pursuant to this Agreement and any Existing Letter of Credit. "Leverage Ratio" means, at any date, the ratio of (i) Total Indebtedness as of such date to (ii) Consolidated EBITDA for the four fiscal quarter period most recently ended on or prior to such date. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate rounded upwards, if necessary, to the next 1/100 of 1% at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 20 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "LIFO Adjustments" means, for any period, the net adjustment to costs of goods sold for such period required by the Borrower's LIFO inventory method, determined in accordance with GAAP. "Loan Parties" means the Borrower and the Subsidiary Loan Parties. "Loans" means the loans made by the Lenders to the Borrower pursuant to this Agreement. "Lockbox Account" shall have the meaning assigned to such term in the Senior Subsidiary Security Agreement. "Margin Stock" means "margin stock", as such term is defined in Regulation U of the Board. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations, properties, condition (financial or otherwise), or prospects of the Borrower and the Subsidiaries, taken as a whole, (b) the ability of any Loan Party to perform any of its material obligations under any Senior Loan Document or (c) the legality, validity or enforceability of the Senior Loan Documents (including, without limitation, the validity, enforceability or priority of security interests granted thereunder) or the rights of or benefits available to the Lenders under any Senior Loan Document. "Material Indebtedness" means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrower and the Subsidiaries in an aggregate principal amount exceeding $25,000,000. For purposes of this definition, the "principal amount" of the obligations of the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "Maturity Date" means September 22, 2009. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Orderly Liquidation Rate" means, with respect to any type of inventory, at any date of determination, the net orderly liquidation rate with respect to such type of inventory, expressed as a percentage of carrying cost after giving effect to reserves, as determined by Hilco Appraisal Services, LLC (or another appraisal firm chosen by the Collateral Agents) in connection with the most recent appraisal of inventory of the Borrower and the Subsidiaries. "Offer Period" has the meaning assigned to such term in Section 2.21. 21 "Optional Debt Repurchase" means any optional or voluntary repurchase, redemption, retirement or defeasance for cash by the Borrower or any Subsidiary of any publicly-traded Indebtedness of the Borrower. "Original Agreement" means this Agreement, including all amendments hereto and waivers hereof effective prior to the Restatement Effective Date, as in effect immediately prior to the Restatement Effective Date. "Other Inventory" means all inventory other than Pharmaceutical Inventory. "Other Inventory Advance Rate" means the other inventory advance rate determined in accordance with Section 2.20. "Other Taxes" means any and all present or future recording, stamp, documentary, excise, transfer, sales, property or similar taxes, charges or levies arising from any payment made under any Senior Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Senior Loan Document. "Outside Indebtedness" means Indebtedness of the Borrower or any Subsidiary (other than intercompany Indebtedness permitted by Section 6.01(a)(iii)) that matures after the Maturity Date, including the amount of any scheduled amortization after the Maturity Date. "Parent Undertaking" means an agreement by the Borrower to cause a Subsidiary other than a Securitization Vehicle to perform its obligations under the instruments governing a Securitization which agreement (a) contains terms that are customarily included in securitizations of accounts receivable involving comparable companies and (b) does not provide for any Guarantee of payment or other credit support in respect of Securitization Assets or Third Party Interests. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Perfection Certificate" means a certificate in the form of Schedule 8 to the Senior Subsidiary Security Agreement or any other form approved by the Agents. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.05; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 60 days or are being contested in compliance with Section 5.05; 22 (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article VII; (f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; (g) licenses, sublicenses, leases or subleases granted in the ordinary course of business with respect to real property; and (h) landlord Liens arising by law securing obligations not overdue by more than 60 days or being contested in good faith; provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Pharmaceutical Inventory" means all inventory consisting of products that can be dispensed only on order of a licensed professional. "Pharmaceutical Inventory Advance Rate" means the pharmaceutical inventory advance rate determined in accordance with Section 2.20. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate has any liability or is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Predecessor Collateral Documents" means the "Senior Collateral Documents", as such term is defined herein immediately prior to the amendment and restatement hereof pursuant to the Second Amendment. 23 "Preferred Stock" means, with respect to any corporation, capital stock issued by such corporation that is entitled to a preference or priority, in respect of dividends or distributions upon liquidation, over some other class of capital stock issued by such corporation. "Qualified Preferred Stock" means Preferred Stock of the Borrower that does not require any cash payment (including in respect of redemptions or repurchases), other than in respect of cash dividends, before the date that is six months after the Maturity Date. "Reduction Event" means each of the following: (i) any Senior Collateral Disposition or any other Asset Sale, except in each case any Permitted Disposition or in connection with any Sale and Leaseback Transaction permitted under Section 6.01(a)(vii), (xii) or (xiii) of the Senior Credit Agreement or any Securitization or Factoring Transaction permitted pursuant to this Agreement; (ii) any Casualty/Condemnation; and (iii) any Capital Markets Transaction; provided, however, that Capital Markets Transactions (or portions thereof) consummated on or after the Restatement Effective Date resulting in receipt of initial cumulative Net Cash Proceeds in the amount of up to $500,000,000 shall not be deemed to constitute Reduction Events (except to the extent cumulative Net Cash Proceeds in excess of such amounts are generated by any such Capital Markets Transaction); and provided further, however, that any Capital Markets Transaction or portions thereof the Net Cash Proceeds of which are required (without regard to this proviso) to be applied to Reductions pursuant to clause (i) of the first sentence of Section 2.11(d) will in any event be deemed to constitute Reduction Events and will be disregarded for purposes of calculations when such $500,000,000 limit has been reached. "Refinancing Indebtedness" means Indebtedness (which shall be deemed to include Attributable Debt solely for the purposes of this definition) issued or incurred (including by means of the extension or renewal of existing Indebtedness) to extend, renew or refinance existing Indebtedness or Attributable Debt ("Refinanced Debt"); provided that (i) the terms of any such Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are otherwise permitted by the Senior Loan Documents, (ii) such extending, renewing or refinancing Indebtedness is in an original aggregate principal amount not greater than the aggregate principal amount of, and unpaid interest on, the Refinanced Debt plus the amount of any premiums paid thereon and fees and expenses associated therewith, (iii) such Indebtedness (x) does not mature or require scheduled payments of principal prior to December 31, 2009 and (y) has a later maturity and a longer weighted average life than the Refinanced Debt, (iv) such Indebtedness bears an interest rate not in excess of the market interest rate with respect to such type of Indebtedness as of the time of its issuance or incurrence, (v) at the 24 option of the Borrower, such Indebtedness may contain market call and make-whole provisions as of the time of its issuance or incurrence, (vi) if the Refinanced Debt or any Guarantees thereof are subordinated to the Senior Obligations, such Indebtedness shall be subordinated to the Senior Obligations on terms no less favorable, taken as a whole, to the holders of the Senior Obligations than the subordination terms of such Refinanced Debt or Guarantees thereof (and no Loan Party that has not guaranteed such Refinanced Debt guarantees such Indebtedness), (vii) the senior management of the Borrower determines in good faith that such Indebtedness contains covenants (including with respect to amortization and convertibility) and events of default on market terms, (viii) such Indebtedness is benefited by Guarantees (if any) which, taken as a whole, are not materially less favorable to the Lenders than the Guarantees (if any) in respect of such Refinanced Debt, (ix) if such Refinanced Debt or any Guarantees thereof are secured, such Indebtedness and any Guarantees thereof are either unsecured or secured only by such property or assets as secured the Refinanced Debt and Guarantees thereof and not any additional property or assets of the Borrower or any Subsidiary (other than (A) property or assets acquired after the issuance or incurrence of such Refinancing Indebtedness that would have been subject to the Lien securing refinanced Indebtedness if such Indebtedness had not been refinanced, (B) additions to the property or assets subject to the Lien and (C) the proceeds of the property or assets subject to the Lien), (x) if such Refinanced Debt and any Guarantees thereof are unsecured, such Indebtedness and Guarantees thereof are also unsecured and (xi) any Net Cash Proceeds of such Indebtedness are used no later than 45 days following receipt thereof to repay the Refinanced Debt and pay any accrued interest, fees, premiums (if any) and expenses in connection therewith. "Register" has the meaning set forth in Section 9.04. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the directors, officers, employees, agents, trustees and advisors of such Person and such Person's Affiliates. "Repurchase Expenditures" means, with respect to any Optional Debt Repurchase, the aggregate amount of expenditures made or required to be made to effect such Optional Debt Repurchase, including without limitation payments on account of principal, premium and fees payable to holders of the Indebtedness purchased or reacquired in connection with such Optional Debt Repurchase, but excluding payments representing accrued interest to the date of such Optional Debt Repurchase and excluding fees and expenses paid to third parties in connection therewith. "Required Lenders" means, at any time, Lenders having Revolving Exposures, outstanding Term Loans and unused Commitments representing more than 50% of the sum of the total Revolving Exposures, outstanding Term Loans and unused Commitments at such time. "Requirement of Law" means, with respect to any Person, the charter and by-laws or other organizational or governing documents of such Person, and any law, rule or regulation (including Environmental Laws, the Code and ERISA) or order, decree 25 or other determination of an arbitrator or a court or other Governmental Authority applicable to or binding upon such Person or any of its property or assets or to which such Person or any of its property or assets is subject. "Restatement Effective Date" means the Second Amendment Effective Date, on which date the Original Agreement was amended and restated in the form hereof. "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property, except dividends payable solely in shares of the Borrower's common stock or Qualified Preferred Stock) with respect to any Equity Interests in the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property, except payments made solely with common equity), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancelation or termination of any Equity Interests in the Borrower or any Subsidiary or any option, warrant or other right to acquire any such Equity Interests in the Borrower or any Subsidiary. "Revolver Availability" means, on any date of determination, the maximum amount of Revolving Loans that could be made to the Borrower on such date pursuant to Section 2.01(b) pursuant to the use of unused Revolving Commitments on such date. "Revolving Availability Period" means the period from and including the Restatement Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Revolving Commitments. "Revolving Commitment" means, with respect to each Lender, the commitment, if any, of such Lender to make Revolving Loans and to acquire participations in Letters of Credit and Swingline Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Revolving Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable. The aggregate amount of the Lenders' Revolving Commitments on the Restatement Effective Date is $950,000,000. "Revolving Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans and its LC Exposure and Swingline Exposure at such time. "Revolving Lender" means a Lender with a Revolving Commitment or, if the Revolving Commitments have terminated or expired, a Lender with Revolving Exposure. 26 "Revolving Loan" means a Loan made pursuant to clause (b) of Section 2.01. "Script Lists Advance Rate" means the Script Lists advance rate determined in accordance with Section 2.20. "Second Amendment" means the Second Amendment and Restatement, dated as of September 22, 2004, to this Agreement. "Second Amendment Effective Date" means the date on which the Second Amendment became effective in accordance with the terms thereof. "Second Priority Debt" means any Indebtedness (including the 12.5% Notes, 9.5% Notes and 8.125% Notes) incurred by Rite Aid and Guaranteed by the Subsidiary Guarantors on or after the Effective Date pursuant to the Second Priority Subsidiary Guarantee Agreement (i) which is secured by the Second Priority Collateral on a pari passu basis with the other Second Priority Debt Obligations and (ii) if issued on or after the Restatement Effective Date, matures after December 31, 2009; provided, however, that (A) such Indebtedness is permitted to be incurred, secured and Guaranteed on such basis by each Senior Loan Document and each Second Priority Debt Document and (B) the Representative for the holders of such Second Priority Debt shall have become party to the Collateral Trust and Intercreditor Agreement pursuant to, and by satisfying the conditions set forth in, Section 8.12 thereof. Second Priority Debt shall include any Registered Equivalent Notes issued in exchange thereof. "Securitization" means any transaction or series of transactions entered into by the Borrower and any Subsidiaries pursuant to which the Borrower or such Subsidiaries sell, convey or otherwise transfer (or purport to sell, convey or otherwise transfer) Securitization Assets to a Securitization Vehicle or another Subsidiary which sells, conveys or otherwise transfers (or purports to sell, convey or otherwise transfer) Securitization Assets to a Securitization Vehicle, and such Securitization Vehicle finances the acquisition of such Securitization Assets (i) with proceeds from the issuance of Third Party Interests, (ii) with Sellers' Retained Interests, (iii) with proceeds from the sale or collection of Securitization Assets previously purchased by such Securitization Vehicle or (iv) with proceeds from the sale of Securitization Assets to another Securitization Vehicle. For purposes of this Agreement, the "amount" or "principal amount" of any Securitization shall be deemed at any time to be (1) the aggregate principal or stated amount of the Third Party Interests (which stated amount may be described as a "net investment", "capital", "invested amount" or similar term reflecting the amount invested in any beneficial interest constituting a Third Party Interest) incurred or issued pursuant to such Securitization, in each case outstanding at such time, or (2) in the case of any Securitization in respect of which no such principal or stated amount is determinable, the cash purchase price paid by the buyer in connection with its purchase of Third Party Interests less the amount of collections received in respect of such Third Party Interests and paid to such buyer, excluding any amounts applied to purchase fees or discount or in the nature of interest. 27 "Securitization Assets" means any accounts receivable owed to the Borrower or any Subsidiary (whether now existing or arising or acquired in the future) arising in the ordinary course of business from the sale of goods or services, all collateral securing such accounts receivable, all contracts and contract rights and all guarantees or other obligations in respect of such accounts receivable, all proceeds of such accounts receivable and other assets (including contract rights) which are the type customarily transferred in connection with securitizations of accounts receivable and which are sold, transferred or otherwise conveyed (or purported to be sold, transferred or otherwise conveyed) by the Borrower or a Subsidiary to a Securitization Vehicle in connection with a Securitization permitted by Sections 6.01 and 6.05. "Securitization Vehicle" means a Person that is a direct or indirect wholly owned Subsidiary of the Borrower used solely for the purpose of effecting one or more Securitizations to which the Borrower and/or Subsidiaries and/or another Securitization Vehicle transfer Securitization Assets and which, in connection with such Securitization either issues Third Party Interests or transfers such Securitization Assets to another Securitization Vehicle that issues Third Party Interests; provided, in each case, that (i) each such Person shall engage in no business other than the purchase of Securitization Assets pursuant to Securitizations permitted by Sections 6.01 and 6.05, the issuance of Third Party Interests and any activities reasonably related thereto, (ii) no portion of the Indebtedness or other obligations (contingent or otherwise) of such Person (x) is Guaranteed by the Borrower or any other Subsidiary, other than any Guarantee of obligations (other than of principal of, or interest on, Indebtedness) that may be deemed to exist solely by virtue of Standard Securitization Undertakings, (y) is recourse to the Borrower or any other Subsidiary other than by virtue of Standard Securitization Undertakings and (z) is secured (contingently or otherwise) by any Lien on assets of the Borrower or any other Subsidiary other than by virtue of Standard Securitization Undertakings, (iii) such Person has no contract, agreement, arrangement or understanding with the Borrower or any other Subsidiary other than (A) customary contracts, arrangements or agreements entered into with respect to the sale, purchase and servicing of Securitization Assets on market terms for similar securitization transactions and (B) Guarantees and pledges of security as required by the Senior Loan Documents and the Second Priority Debt Documents and (iv) neither the Borrower nor any Subsidiary has any obligations to maintain or preserve such Person's financial condition or cause it to achieve certain levels of operating results other than pursuant to Standard Securitization Undertakings. "Sellers' Retained Interests" means the debt or equity interests held by the Borrower or any Subsidiary in a Securitization Vehicle to which Securitization Assets have been transferred (or purported to have been transferred) in a Securitization permitted by Sections 6.01 and 6.05, including any such debt or equity received in consideration for the Securitization Assets transferred. "Series D Preferred Stock" means the Borrower's 8% Series D cumulative, convertible pay-in-kind preferred stock held by Green Equity Investors III, L.P. or one of its Affiliates on the Restatement Effective Date. 28 "Standard Securitization Undertakings" means representations, warranties, covenants and indemnities made by the Borrower or a Subsidiary in connection with Securitizations permitted by Sections 6.01 and 6.05 which representations, warranties, covenants and indemnities are customarily included in securitizations of accounts receivable involving comparable companies. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages expressed as a decimal (including any marginal, special, emergency or supplemental reserves) established by the Board to which the Administrative Agent is subject with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Store" means any retail store (which may include any real property, fixtures, equipment, inventory and script files related thereto) operated, or to be operated, by any Subsidiary Loan Party. "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" means any subsidiary of the Borrower. "Subsidiary Loan Party" means each Subsidiary set forth on Schedule 1.01 hereto and any wholly-owed Domestic Subsidiary, including any Securitization Vehicle that is a Domestic Subsidiary. "Swingline Exposure" means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be its Applicable Percentage of the total Swingline Exposure at such time. "Swingline Lender" means CNAI, in its capacity as the lender of Swingline Loans hereunder. 29 "Swingline Loan" means a Loan made pursuant to Section 2.04. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Term Loans" means Loans made or deemed made pursuant to the Second Amendment on the Second Amendment Effective Date. "Term Loan Commitment" means, with respect to each Lender, the commitment, if any, of such Lender to make a Term Loan hereunder on the Second Amendment Effective Date (including pursuant to the exchange of a term loan of such Lender outstanding hereunder prior to the Second Amendment Effective Date for a Term Loan in an equal or lesser principal amount), expressed as an amount representing the maximum principal amount of the Term Loan to be made by such Lender hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Term Loan Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Term Loan Commitment, as applicable. The aggregate amount of the Term Loan Lenders' Term Loan Commitments is $450,000,000. "Term Loan Lender" means a Lender with a Term Loan Commitment or an outstanding Term Loan. "Third Party Interests" means, with respect to any Securitization, notes, bonds or other debt instruments, beneficial interests in a trust, ownership interests (including any fractional undivided interests) in a pool or pools of accounts receivable or other interests or securities issued or sold for cash consideration by a Securitization Vehicle to banks, investors or other financing sources (other than the Borrower or its Subsidiaries) the proceeds of which are used to finance, in whole or in part, the purchase by such Securitization Vehicle of accounts receivables or other Securitization Assets in a Securitization. "Total Indebtedness" means, as of any date, the sum of the aggregate principal amount of Indebtedness of the Borrower and its Consolidated Subsidiaries outstanding as of such date, in the amount that would be reflected on a balance sheet prepared as of such date on a consolidated basis in accordance with GAAP plus, without duplication, the aggregate outstanding amount of Third Party Interests (which amount may be described as a "net investment", "capital", "invested amount", "principal amount" or similar term reflecting the aggregate amount invested in beneficial interests constituting Third Party Interests). "Transactions" means the execution, delivery and performance by the Borrower and the Subsidiary Loan Parties of each Senior Loan Document, the borrowing of Loans, the use of proceeds thereof and the other transactions to be effected on the Restatement Effective Date. 30 "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Title IV of ERISA. SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing"). SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein); provided, however, that amendments to the Indentures and the Second Priority Debt Documents after the Restatement Effective Date shall be effective for purposes of references thereto in this Agreement and the other Senior Loan Documents only if such amendments are permitted hereunder or are consented to in writing for such purpose by the Required Lenders (or such other percentage of the Lenders as may be specified herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights and (f) references to "the date hereof" or "the date of this Agreement" shall refer to June 27, 2001. SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after Restatement Effective Date in GAAP or in the application thereof on the operation of such provision 31 (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. SECTION 1.05. Terms Defined in Definitions Annex. Capitalized terms used in this Agreement that are not defined in Section 1.01 shall have the meanings assigned to such terms in the Definitions Annex (but any definition of such a term in the Definitions Annex shall be disregarded for purposes hereof if such term is also defined in Section 1.01). ARTICLE II The Credits SECTION 2.01. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees (a) to make a Term Loan to the Borrower on the Second Amendment Effective Date (subject to the terms and conditions of the Second Amendment) in a principal amount not exceeding its Term Loan Commitment and in the manner contemplated by the Second Amendment and (b) to make Revolving Loans to the Borrower from time to time during the Revolving Availability Period in an aggregate principal amount that will not result in such Lender's Revolving Exposure exceeding the lesser of (i) such Lender's Revolving Commitment and (ii) such Lender's Applicable Percentage of an amount equal to (A) the Borrowing Base Amount in effect at such time minus (B) the aggregate amount of Term Loans outstanding at such time. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans. Amounts repaid in respect of Term Loans may not be reborrowed. SECTION 2.02. Loans and Borrowings. (a) Each Loan (other than a Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the Lenders ratably in accordance with the amounts of their Commitments of the applicable Class. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.14, each Revolving Borrowing and Term Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Swingline Loan shall be an ABR Loan. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. 32 (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000; provided that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Revolving Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.05(e). Each Swingline Loan shall be in an amount that is an integral multiple of $1,000,000. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of 10 Eurodollar Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03. Requests for Borrowings. To request a Revolving Borrowing or Term Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than (1) 10:30 a.m., New York City time, on the Business Day of the proposed Borrowing, in the case of Borrowings to be made on the same day as such notice is given or (2) 12:00 noon, New York City time, on the Business Day before the proposed Borrowing, in the case of all other Borrowings. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) whether the requested Borrowing is to be a Revolving Borrowing or Term Borrowing; (ii) the aggregate amount of such Borrowing; (iii) the date of such Borrowing, which shall be a Business Day; (iv) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (v) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (vi) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.06. 33 If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. Swingline Loans. (a) Subject to the terms and conditions set forth herein, the Swingline Lender may, in its sole discretion, make Swingline Loans to the Borrower from time to time during the Revolving Availability Period in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding $100,000,000 or (ii) the sum of the total Revolving Exposures exceeding the lesser of (A) the total Revolving Commitments at such time and (B) an amount equal to the Borrowing Base Amount in effect at such time minus the aggregate amount of Term Loans outstanding at such time; provided that (i) the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan and (ii) the Swingline Lender shall not have any obligation, under this Agreement or otherwise, to make any Swingline Loan requested by the Borrower hereunder and may, in its sole discretion, decline to make a requested Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Swingline Loans. (b) To request a Swingline Loan, the Borrower shall notify the Administrative Agent of such request by telephone (confirmed by telecopy), not later than 1:00 p.m., New York City time, on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a wire transfer to an account designated by the Borrower (or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section 2.05(e), by remittance to the relevant Issuing Bank) by 3:00 p.m., New York City time, on the requested date of such Swingline Loan. (c) Interest on each Swingline Loan shall be payable on the Interest Payment Date with respect thereto. (d) The Administrative Agent shall (i) at any time when Swingline Loans in an aggregate principal amount of $10,000,000 or more are outstanding, at the request of the Swingline Bank in its sole discretion, or (ii) on the date that is seven days after the date on which a Swingline Loan was made, deliver on behalf of the Borrower a Borrowing Request pursuant to Section 2.03 for an ABR Borrowing in the amount of such Swingline Loans; provided, however, that the obligations of the Lenders to fund such Borrowing shall not be subject to the conditions set forth in Section 4.02. 34 (e) The Swingline Lender may by written notice given to the Administrative Agent not later than 12:00 noon, New York City time, on any Business Day require the Revolving Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which Revolving Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Revolving Lender, specifying in such notice such Lender's Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender's Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Revolving Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of the Revolving Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Revolving Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other Person on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent, and any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Revolving Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any default in the payment thereof. SECTION 2.05. Letters of Credit. (a) General. On the Restatement Effective Date, the Existing Letters of Credit will automatically, without any action on the part of any Person, be deemed to be Letters of Credit issued hereunder for the account of the Borrower for all purposes of this Agreement and the other Senior Loan Documents. In addition, subject to the terms and conditions set forth herein, the Borrower may request the issuance of (and the applicable Issuing Bank, as specified by the Borrower, will issue) Letters of Credit for its own account, in a form reasonably acceptable to the Administrative Agent and the relevant Issuing Bank, at any time and from time to time during the Revolving Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, an Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. 35 (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the applicable Issuing Bank) to the relevant Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by an Issuing Bank, the Borrower also shall submit a letter of credit application on such Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the total LC Exposure shall not exceed $300,000,000 and (ii) the total Revolving Exposures shall not exceed the lesser of (A) the total Revolving Commitments at such time and (B) an amount equal to the Borrowing Base Amount then in effect minus the aggregate amount of Term Loans outstanding at such time. Notwithstanding anything to the contrary contained in this Agreement, no Existing Letter of Credit may be amended, renewed or extended. (c) Expiration Date. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date that is one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date. (d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the applicable Issuing Bank or the Lenders, such Issuing Bank hereby grants to each Revolving Lender, and each Revolving Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit in an amount equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. Each Revolving Lender shall be deemed to have acquired such a participation in each Existing Letter of Credit on the Restatement Effective Date. In consideration and in furtherance of the foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the applicable Issuing Bank, such Lender's Applicable Percentage of each LC Disbursement made by such Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance 36 whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If any Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 3:30 p.m., New York City time, on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 1:00 p.m., New York City time, on the Business Day immediately following the day that the Borrower receives such notice; provided that, if such LC Disbursement is not less than $5,000,000, the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.04 that such payment be financed with an ABR Revolving Borrowing or Swingline Loan in an equivalent amount and, to the extent so financed, the Borrower's obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Borrowing or Swingline Loan. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Revolving Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender's Applicable Percentage thereof. Promptly following receipt of such notice, each Revolving Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of the Revolving Lenders), and the Administrative Agent shall promptly pay to the relevant Issuing Bank the amounts so received by it from the Revolving Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to such Issuing Bank or, to the extent that Revolving Lenders have made payments pursuant to this paragraph to reimburse such Issuing Bank, then to such Lenders and such Issuing Bank as their interests may appear. Any payment made by a Revolving Lender pursuant to this paragraph to reimburse an Issuing Bank for any LC Disbursement (other than the funding of ABR Revolving Loans or a Swingline Loan as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement. (f) Obligations Absolute. The Borrower's obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein or herein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by any Issuing Bank under a Letter of Credit against presentation of a draft or other document that does 37 not comply with the terms of such Letter of Credit or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's obligations hereunder. None of the Administrative Agent, any Lender or any Issuing Bank, or any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the relevant Issuing Bank; provided that the foregoing shall not be construed to excuse such Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the fullest extent permitted by applicable law) suffered by the Borrower that are caused by such Issuing Bank's gross negligence or wilful misconduct (as determined by a court of competent jurisdiction by a final and non-appealable judgment) in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or wilful misconduct on the part of an Issuing Bank (as determined by a court of competent jurisdiction by a final and non-appealable judgment), such Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, an Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (g) Disbursement Procedures. The applicable Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The applicable Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC Disbursement. (h) Interim Interest. If an Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Revolving Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.13(c) 38 shall apply. Interest accrued pursuant to this paragraph shall be for the account of the applicable Issuing Bank, except that interest accrued on and after the date of payment by any Revolving Lender pursuant to paragraph (e) of this Section to reimburse such Issuing Bank shall be for the account of such Lender to the extent of such payment. (i) Resignation or Replacement of the Issuing Bank. An Issuing Bank may resign at any time by giving 180 days' prior written notice to the Administrative Agent, the Borrower and the Lenders, and an Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Lenders of any such replacement of an Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall (or shall cause Subsidiary Loan Parties to) deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to the total LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower or any Subsidiary Loan Party described in clause (h) or (i) of Article VII. The Borrower also shall (or shall cause Subsidiary Loan Parties to) deposit cash collateral pursuant to this paragraph as and to the extent required by Section 2.11(b), and any such cash collateral so deposited and held by the Administrative Agent hereunder shall constitute part of the Borrowing Base Amount for purposes of determining compliance with Section 2.11(b). Each such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. The Administrative Agent shall, at the Borrower's risk and expense, invest all such deposits in Permitted Investments chosen in the sole discretion of the Administrative Agent after consultation with the Borrower, provided that no consultation shall be required if a Default has occurred and is continuing. Other than any interest earned in 39 respect of the investment of such deposits, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse each Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Revolving Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy the Senior Obligations. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived (or, during a Cash Sweep Period, paid into the Citibank Concentration Account). If the Borrower is required to provide an amount of cash collateral hereunder pursuant to Section 2.11(b), such amount (to the extent not applied as aforesaid) shall be returned to the Borrower as and to the extent that, after giving effect to such return, the Borrower would remain in compliance with Section 2.11(b) and no Default shall have occurred and be continuing. Unless and except to the extent that the deposit of cash collateral directly by the Borrower would not result in an obligation to grant a security interest in such cash collateral to the holders of other outstanding Indebtedness of the Borrower, the Borrower will cause Subsidiary Loan Parties to deposit all cash collateral required to be deposited pursuant to this Section 2.05(j) or Section 2.11(b). (k) Additional Issuing Banks The Borrower may, at any time and from time to time with the consent of the Administrative Agent (which consent shall not be unreasonably withheld) and such Lender, designate one or more additional Lenders to act as an issuing bank under the terms of this Agreement. Any Lender designated as an issuing bank pursuant to this clause (k) shall be deemed to be an "Issuing Bank" (in addition to being a Lender) in respect of Letters of Credit issued or to be issued by such Lender, and, with respect to such Letters of Credit, such term shall thereafter apply to the other Issuing Banks and such Lender in its capacity as an Issuing Bank. (l) Reporting by Issuing Banks to the Administrative Agent. At the end of each week and otherwise upon request of the Administrative Agent, each Issuing Bank shall provide the Administrative Agent with a certificate identifying the Letters of Credit issued by such Issuing Bank and outstanding on such date, the amount and expiration date of each such Letter of Credit, the beneficiary thereof, the amount, if any, drawn under each such Letter of Credit and any other information reasonably requested by the Administrative Agent with respect to such Letters of Credit. The Administrative Agent shall promptly enter all such information received by it pursuant to this Section 2.05(l) in the Register. SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders; provided that Swingline Loans shall be made as provided in Section 2.04. The 40 Administrative Agent will make such Loans available to the Borrower by wire transfer, in like funds, to an account designated by the Borrower in the applicable Borrowing Request. Wire transfers to the Borrower of all Loans (other than Swingline Loans and same-day ABR Revolving Borrowings) shall be made no later than 1:00 p.m., New York City time. Wire transfers to the Borrower of Swingline Loans and same-day ABR Revolving Borrowings shall be made no later than 4:00 p.m., New York City time. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Revolving Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing and Term Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required to be made under Section 2.03 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02 and paragraph (f) of this Section: 41 (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. (f) A Borrowing of any Class may not be converted to or continued as a Eurodollar Borrowing if after giving effect thereto (i) the Interest Period therefore would end after a date on which any principal of the Loans of such Class is scheduled to be repaid and (ii) the sum of the aggregate principal amount of outstanding Eurodollar Borrowings of such Class with Interest Periods ending on or prior to such scheduled repayment date plus the aggregate principal amount of outstanding ABR Borrowings of such Class would be less than the aggregate principal amount of Loans of such Class required to be repaid on such scheduled repayment date. SECTION 2.08. Termination and Reduction of Commitments. (a) Unless previously terminated in accordance with the terms of this Agreement, (i) the Term Loan Commitments shall terminate at 5:00 p.m., New York City time on the 42 Second Amendment Effective Date, and (ii) the Revolving Commitments shall terminate on the Maturity Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Commitments of any Class; provided that (i) each reduction of the Commitments of any Class shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000 and (ii) the Borrower shall not terminate or reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Revolving Loans in accordance with Section 2.11, the total Revolving Exposures would exceed the total Revolving Commitments. (c) If any Reduction of the Revolving Facility is required pursuant to Section 2.11, then, on the date that such Reduction is made, the Revolving Commitments shall be reduced by an aggregate amount equal to the amount of the required Reduction. (d) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section, or any required Reduction of the Revolving Commitments under paragraph (c) of this Section, at least one Business Day prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of voluntary termination of the Revolving Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments of any Class shall be permanent. Each reduction of the Commitments of any Class shall be made ratably among the Lenders in accordance with their Commitments of such Class. SECTION 2.09. Repayment of Loans; Evidence of Indebtedness. (a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Revolving Lender the then unpaid principal amount of each Revolving Loan of such Lender on the Maturity Date, (ii) to the Administrative Agent for the account of each Term Loan Lender the then unpaid principal amount of the Term Loan of such Lender as provided in Section 2.10 and (iii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of (A) the Maturity Date and (B) the date that is seven days after the date on which such Swingline Loan was made; provided that on each date that a Revolving Borrowing is made, the Borrower shall repay all Swingline Loans that were outstanding on the date such Borrowing was requested. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. 43 (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period, if any, applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans of any Class made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in the form attached hereto as Exhibit A-1 or A-2, as applicable, or in such other form approved by the Administrative Agent and the Borrower. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.10. Amortization of Term Loans. (a) Subject to adjustment pursuant to paragraph (d) of this Section, the Borrower shall repay Term Borrowings on each date set forth below in the aggregate principal amount set forth opposite such date: Date Amount ---- ------ November 30, 2004 $1,125,000 February 28, 2005 $1,125,000 May 31, 2005 $1,125,000 August 31, 2005 $1,125,000 November 30, 2005 $1,125,000 February 28, 2006 $1,125,000 May 31, 2006 $1,125,000 August 31, 2006 $1,125,000 November 30, 2006 $1,125,000 February 28, 2007 $1,125,000 May 31, 2007 $1,125,000 August 31, 2007 $1,125,000 November 30, 2007 $1,125,000 February 28, 2008 $1,125,000 May 31, 2008 $1,125,000 August 31, 2008 $1,125,000 November 30, 2008 $1,125,000 44 February 28, 2009 $1,125,000 May 31, 2009 $1,125,000 August 31, 2009 $428,625,000 (b) To the extent not previously paid, all Term Loans shall be due and payable on the Maturity Date. (c) Any mandatory prepayment of a Term Borrowing made after the Restatement Effective Date shall be applied to reduce the subsequent scheduled repayments of the Term Borrowings to be made pursuant to this Section in inverse order of maturity. Any prepayment of a Term Borrowing made after the Restatement Effective Date pursuant to Section 2.11(a) shall be applied to reduce scheduled repayments of the Term Borrowings to be made pursuant to this Section in the manner selected by the Borrower. (d) If the initial aggregate amount of the Lenders' Term Loan Commitments exceeds the aggregate principal amount of Term Loans that are made on the Restatement Effective Date, then the scheduled repayments of Term Borrowings to be made pursuant to paragraph (a) of this Section shall be reduced ratably by an aggregate amount equal to such excess. Prior to any repayment of any Term Borrowings hereunder, the Borrower shall select the Borrowing or Borrowings to be repaid and shall notify the Administrative Agent by telephone (confirmed by telecopy) of such selection not later than 11:00 a.m., New York City time, three Business Days before the scheduled date of such repayment. Each repayment of a Borrowing shall be applied ratably to the Loans included in the repaid Borrowing. Repayments of Term Borrowings shall be accompanied by accrued interest on the amount repaid. SECTION 2.11. Prepayment of Loans; Reductions. (a) The Borrower shall have the right, at any time and from time to time, to prepay any Borrowing in whole or in part, subject to the requirements of this Section; provided, however, that any partial prepayment made pursuant to this Section 2.11(a) shall be in a principal amount that is a multiple of $1,000,000 and not less than $5,000,000. (b) (i) In the event and on each date that the sum of the total Revolving Exposures and the aggregate amount of Term Loans outstanding exceeds the then-current Borrowing Base Amount, the Borrower shall on each such date apply an amount equal to such excess as follows: first, to prepay Revolving Borrowings or Swingline Loans, second, to the extent of any remaining excess, or if no Revolving Borrowings or Swingline Loans are outstanding, to make a deposit in a cash collateral account maintained by the Administrative Agent pursuant to Section 2.05(j) to be held as security for the Borrower's obligations in respect of Letters of Credit, and third, to the extent of any remaining excess, to prepay Term Borrowings. (ii) In the event and on each date that the total Revolving Exposures exceed the total Revolving Commitments, the Borrower shall on such date apply an amount equal to such excess first, to prepay Revolving Borrowings or Swingline Borrowings, and second, to the extent of any remaining excess, or if no Revolving 45 Borrowings or Swingline Loans are outstanding, to a cash collateral account maintained by the Administrative Agent pursuant to Section 2.05(j) to be held as security for the Borrower's obligations in respect of Letters of Credit. (c) In the event and on each occasion that any Net Cash Proceeds are received by or on behalf of the Borrower or any Subsidiary in respect of a Reduction Event consisting of a Senior Collateral Disposition, an Asset Sale or a Casualty/Condemnation, the Borrower shall, within two Business Days after such Net Cash Proceeds are received, effect Reductions to the Revolving Facility and the Term Loans, in the manner set forth in paragraph (e) below, in an aggregate amount equal to such Net Cash Proceeds; provided, however, that the Borrower and the Subsidiaries shall not be required to effect any Reductions pursuant to this Section 2.11(c) with respect to the initial $50,000,000 of such Net Cash Proceeds received on or after the Restatement Effective Date. (d) In the event and on each occasion that any Net Cash Proceeds are received by or on behalf of the Borrower or any Subsidiary in respect of a Reduction Event consisting of a Capital Markets Transaction, the Borrower shall (i) if on the date of receipt of such Net Cash Proceeds the sum of the total Revolving Exposures and the outstanding Term Loans exceeds the Borrowing Base, apply, not later than the Business Day immediately after the day such Net Cash Proceeds are received, an amount equal to the lesser of the amount of such excess and the amount of such Net Cash Proceeds to Reductions to the Revolving Facility and the Term Loans, in the manner set forth in paragraph (e) below, and (ii) within two Business Days after such Net Cash Proceeds are received, effect Reductions to the Revolving Facility and the Term Loans (in addition to any Reductions under clause (i) above), in the manner set forth in paragraph (e) below, in an aggregate amount equal to 50% of an amount equal to (x) the amount of such Net Cash Proceeds minus (y) the amount, if any, of Reductions effected pursuant to clause (i) above as a result of receipt of such Net Cash Proceeds; provided that receipt by the Borrower of Net Cash Proceeds from the issuance of its common stock which are applied pursuant to Section 6.08(a)(vii) to repurchase or redeem Series D Preferred Stock or the 4.75% Convertible Notes within the period specified in such Section shall not provide the basis for any prepayment pursuant to this paragraph, provided further, however, that any such Net Cash Proceeds not so applied in such period shall be applied on the last day of such period as provided in this Section 2.11(d). (e) Reductions to the Revolving Facility and the Term Loans required to be made pursuant to paragraph (c) or (d) of this Section shall be allocated between the Revolving Facility and the Term Loans pro rata based on the relative amounts of the Term Loans and of the Revolving Commitments, used and unused (or if the Revolving Commitments have terminated, the amount of the total Revolving Exposures), on the date of receipt of the Net Cash Proceeds giving rise to such Reductions. Any such Reduction in the Revolving Facility will be effected pursuant to (i) the permanent reduction of Revolving Commitments in the amount of such Reduction and (ii) the simultaneous repayment of Revolving Loans and Swingline Loans, and to the extent no Revolving Loans or Swingline Loans remain outstanding, the cash collateralization of obligations in respect of Letters of Credit, in an aggregate amount equal to such Reduction. 46 (f) The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 12:00 noon, New York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date, the Borrowings to be prepaid and the principal amount of each Borrowing or portion thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably detailed calculation of the amount of such prepayment; provided that, if a notice of optional prepayment is given in connection with a conditional notice of termination of the Revolving Commitments as contemplated by Section 2.08, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.08. Promptly following receipt of any such notice (other than a notice relating solely to Swingline Loans), the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02, except as necessary to apply fully the required amount of a mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13. SECTION 2.12. Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at the Applicable Rate on the daily unused amount of the Revolving Commitment of such Lender during the period from and including the Restatement Effective Date to but excluding the date on which such Commitment terminates. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Revolving Commitments terminate, commencing on the first such date to occur after the Restatement Effective Date. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). For purposes of computing commitment fees pursuant to this Section 2.12(a), a Revolving Commitment of a Lender shall be deemed to be used to the extent of the outstanding Revolving Loans and LC Exposure of such Lender (and the Swingline Exposure of such Lender shall be disregarded for such purpose). (b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Revolving Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the same Applicable Rate as in effect from time to time for interest on Eurodollar Revolving Loans on the daily amount of such Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Restatement Effective Date to but excluding the later of the date on which such Lender's Revolving Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to each Issuing Bank a fronting fee, which shall accrue at the rate of 0.25% per annum on the daily outstanding 47 amount of such Issuing Bank's Letters of Credit during the period from and including the Restatement Effective Date to but excluding the later of the date of termination of the Revolving Commitments and the date on which there ceases to be any LC Exposure, as well as such Issuing Bank's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Restatement Effective Date; provided that all such fees shall be payable on the date on which the Revolving Commitments terminate and any such fees accruing after the date on which the Revolving Commitments terminate shall be payable on demand. Any other fees payable to an Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) The Borrower agrees to pay to the Administrative Agent and the Collateral Agents, for their own accounts, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent or the Collateral Agents, as the case may be. (d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the relevant Issuing Bank, in the case of fees payable to it) for distribution, in the case of commitment fees and participation fees, to the Lenders entitled thereto. Fees paid shall not be refundable under any circumstances. SECTION 2.13. Interest. (a) The Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interest at the Alternate Base Rate plus the Applicable Rate. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate. (c) Notwithstanding the foregoing, upon the occurrence and during the continuation of a Event of Default, at the option of the Administrative Agent or at the request of the Required Lenders, the Borrower shall pay interest on all of the Senior Obligations to but excluding the date of actual payment, after as well as before judgment, (i) in the case of principal, at a rate per annum equal to 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section and (ii) in the case of any other amount, at a rate per annum equal to 2% plus the rate applicable to ABR Revolving Loans as provided in paragraph (a) of this Section. (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and on the Maturity Date and, in the case of Revolving Loans, upon termination of the Revolving Commitments; provided that 48 (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Revolving Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion, together with any amounts due and payable pursuant to Section 2.16. (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Citibank Base Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.14. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing. SECTION 2.15. Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or any Issuing Bank; or (ii) impose on any Lender or any Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein; 49 and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or such Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or such Issuing Bank hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Lender or any Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or such Issuing Bank's capital or on the capital of such Lender's or such Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender or such Issuing Bank or such Lender's or such Issuing Bank's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or such Issuing Bank's policies and the policies of such Lender's or such Issuing Bank's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender's or such Issuing Bank's holding company for any such reduction suffered. Each Lender will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge that will entitle such Lender to compensation pursuant to this Section 2.15; provided that the failure to provide such notification will not affect such Lender's rights to compensation hereunder. (c) A certificate of a Lender or an Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or such Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or such Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender or any Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's or such Issuing Bank's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or an Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 270 days prior to the date that such Lender or such Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's or such Issuing Bank's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof. 50 SECTION 2.16. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.11(f) and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.19, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to consist of an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. SECTION 2.17. Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Senior Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (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) the Agent, Lender or Issuing Bank (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 and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent, each Lender and each Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or such Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder or under any other Senior Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on or 51 attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or an Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or an Issuing Bank, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate, provided that such Foreign Lender has received written notice from the Borrower advising it of the availability of such exemption or reduction and supplying all applicable documentation. SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Setoffs. (a) The Borrower shall make each payment required to be made by it hereunder or under any other Senior Loan Document (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to the time expressly required hereunder or under such other Senior Loan Document for such payment (or, if no such time is expressly required, prior to 2:00 p.m., New York City time), on the date when due, in immediately available funds, without setoff or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 388 Greenwich Street, New York, NY 10013, except payments to be made directly to an Issuing Bank or Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto and payments pursuant to other Senior Loan Documents shall be made to the Persons specified therein. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment under any Senior Loan Document shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments under each Senior Loan Document shall be made in dollars. 52 (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties. (c) If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans, Term Loans or participations in LC Disbursements or Swingline Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans, Term Loans and participations in LC Disbursements and Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans, Term Loans and participations in LC Disbursements and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate relative amounts of principal of and accrued interest on their Revolving Loans, Term Loans and participations in LC Disbursements and Swingline Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or an Issuing Bank, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or such Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or such Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the 53 greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b), 2.18(d) or 9.03(c), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.19. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent (and, if a Revolving Commitment is being assigned, the Issuing Banks and the Swingline Lender), which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a material reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. 54 SECTION 2.20. Adjustments to Borrowing Base Advance Rates. (a) As of the Restatement Effective Date, the Accounts Receivable Advance Rate will be 85%, the Pharmaceutical Inventory Advance Rate will be 85%, the Other Inventory Advance Rate will be 80% and the Scripts List Advance Rate will be 25%. (b) Any increase in the Pharmaceutical Inventory Advance Rate, the Other Inventory Advance Rate, the Accounts Receivable Advance Rate or the Script Lists Advance Rate above that would result in any rate in excess of the initially applicable rate set forth in Section 2.20(a) will in each case require the consent of all the Lenders. (c) The Collateral Agents, in the exercise of their reasonable judgment to reflect Borrowing Base Factors, may (i) reduce the Accounts Receivable Advance Rate, the Pharmaceutical Inventory Advance Rate, the Other Inventory Advance Rate and the Script Lists Advance Rate from time to time and (ii) thereafter increase such rate to a rate not in excess of the applicable rate set forth in Section 2.20(a). (d) The Administrative Agent will give prompt written notice to the Borrower and the Lenders of any adjustments effected pursuant to this Section 2.20. SECTION 2.21. Incremental Loans. At any time after the Restatement Effective Date prior to the Maturity Date, the Borrower may, by notice to the Administrative Agent (which shall promptly deliver a copy to each of the Lenders), request the addition to this Agreement of a new tranche of term loans, or an incremental revolving credit facility or any combination thereof (the "Incremental Facilities"); provided, however, that both (x) at the time of any such request and (y) upon the effectiveness of any such Incremental Facility, no Default shall exist and the Borrower shall, if a Financial Covenant Effectiveness Period is then occurring, be in compliance with Sections 6.13 and 6.14 (calculated, in the case of clause (y), on a pro forma basis to give effect to any borrowing under the Incremental Facility and any substantially simultaneous repayments of Revolving Loans). The Incremental Facilities shall (i) be in an aggregate principal amount not in excess of $700,000,000, (ii) rank pari passu in right of payment and of security with the other Loans, (iii) if such Incremental Facility is a term loan facility, amortize in a manner acceptable to the Agents, and in any event have an average weighted life equal to or longer than the Term Loans and mature no earlier than the Maturity Date, (iv) bear interest at the market interest rate, as determined at the time such Incremental Facility becomes effective, (v) have such other pricing as may be agreed by the Borrower and the Administrative Agent and (vi) otherwise be treated hereunder no more favorably than the Term Loans, in the case of an Incremental Facility involving term loans, or the Revolving Loans, in the case of an Incremental Facility involving revolving loans; provided, that the terms and provisions applicable to the Incremental Facilities may provide for additional or different financial or other covenants applicable only during periods after the Maturity Date. The proceeds of the Incremental Facilities shall be used solely for the purposes set forth in Section 5.10. Such notice shall set forth the requested amount and class of Incremental Facilities, and shall offer each Lender the opportunity to offer a commitment (the "Incremental Commitment") to provide a portion of the Incremental Facility by giving written notice of such offered 55 commitment to the Administrative Agent and the Borrower within a time period (the "Offer Period") to be specified in the Borrower's notice; provided, however, that no existing Lender will be obligated to subscribe for any portion of such commitments. In the event that, at the expiration of the Offer Period, Lenders shall have provided commitments in an aggregate amount less than the total amount of the Incremental Facility initially requested by the Borrower, the Borrower may request that Incremental Facility commitments be made in a lesser amount equal to such commitments and/or shall have the right to arrange for one or more banks or other financial institutions (any such bank or other financial institution being called an "Additional Lender") to extend commitments to provide a portion of the Incremental Facility in an aggregate amount equal to the unsubscribed amount of the initial request; provided that each Additional Lender shall be subject to the approval of the Administrative Agent (such consent not to be unreasonably withheld); and provided further that the Additional Lenders shall be offered the opportunity to provide the Incremental Facility only on terms previously offered to the existing Lenders pursuant to the immediately preceding sentence. Commitments in respect of Incremental Facilities will become Commitments under this Agreement pursuant to an amendment to this Agreement (such an amendment, an "Incremental Facility Amendment") executed by each of the Borrower and each Subsidiary Loan Party, each Lender agreeing to provide such Commitment, if any, each Additional Lender, if any, and the Administrative Agent. The effectiveness of any Incremental Facility Amendment shall be subject to the satisfaction on the date thereof of each of the conditions set forth in Section 4.02. ARTICLE III Representations and Warranties The Borrower represents and warrants to the Lenders that: SECTION 3.01. Organization; Powers. Each of the Borrower and the Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. Authorization; Enforceability. The Transactions to be entered into by each Loan Party are within such Loan Party's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and delivered by the Borrower and constitutes, and each other Senior Loan Document to which any Loan Party is to be a party, when executed and delivered by such Loan Party, will constitute, a legal, valid and binding obligation of the Borrower or such Loan Party (as the case may be), enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject 56 to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except filings necessary to perfect Liens created under the Senior Loan Documents, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of the Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument evidencing or governing Indebtedness or any other material agreement binding upon the Borrower or any Subsidiary or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any Subsidiary, and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary, except Liens created under the Senior Loan Documents and the Second Priority Collateral Documents. SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows as of and for the fiscal year ended February 28, 2004, reported on by Deloitte & Touche LLP. Such financial statements present fairly the financial position and results of operations and cash flows of the Borrower and its Consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP. (b) Except as disclosed (i) in the financial statements referred to in paragraph (a) above or the notes thereto, (ii) in the Borrower's report or Form 10-K for the fiscal year ended February 28, 2004 or (iii) on Schedule 3.04, after giving effect to the Transactions, none of the Borrower or the Subsidiaries has, as of the Restatement Effective Date, any material contingent liabilities, unusual long-term loan commitments or unrealized losses. (c) Since February 28, 2004, there has been no material adverse change in the business, assets, operations, properties, condition (financial or otherwise), or prospects of the Borrower and the Subsidiaries, taken as a whole. SECTION 3.05. Properties. (a) Each of the Borrower and the Subsidiaries has good and marketable title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes. All such real and personal property are free and clear of all Liens, other than Liens permitted by Section 6.02. (b) Each of the Borrower and the Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and the Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually 57 or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (c) Schedule 3.05(c) sets forth the address of every leased warehouse or distribution center in which inventory owned by the Borrower or any Subsidiary is located as of the Restatement Effective Date. SECTION 3.06. Litigation and Environmental Matters. (a) Except as set forth on Schedule 3.06(a), there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of the Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve any of the Senior Loan Documents or the Transactions. (b) Except as set forth on Schedule 3.06(b) and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of the Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrower and the Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property (including, without limitation, the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and all other material healthcare laws and regulations) and all indentures, agreements and other instruments binding upon it or its property or assets, except where the failure to be so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. SECTION 3.08. Investment and Holding Company Status. Neither the Borrower nor any of the Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.09. Taxes. Each of the Borrower and the Subsidiaries has timely filed or caused to be filed all United States Federal income tax returns and reports and all other material tax returns and reports required to have been filed and has paid or caused to be paid all material Taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary, except where the payment of any such Taxes is being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves. 58 The charges, accruals and reserves on the books of the Borrower and its Consolidated Subsidiaries in respect of Taxes or charges imposed by a Governmental Authority are, in the opinion of the Borrower, adequate. SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other ERISA Events for which liability is reasonably expected to result, could reasonably be expected to result in liability exceeding $50,000,000. The minimum funding standards of ERISA and the Code with respect to each Plan have been satisfied. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $50,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $50,000,000 the fair market value of the assets of all such underfunded Plans. SECTION 3.11. Disclosure; Accuracy of Information. (a) As of the Restatement Effective Date, none of the reports, financial statements, certificates or other information furnished by or on behalf of any Loan Party to any Agent or any Lender in connection with the negotiation of this Agreement or any other Senior Loan Document or delivered hereunder or thereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. (b) Each Borrowing Base Certificate that has been or will be delivered to the Collateral Agents, the Administrative Agent or any Lender is and will be complete and correct in all material respects. SECTION 3.12. Subsidiaries. Schedule 3.12 sets forth the name of, and the ownership interest of the Borrower in, each Subsidiary of the Borrower and identifies each Subsidiary that is a Subsidiary Loan Party, in each case as of the Restatement Effective Date. As of the Restatement Effective Date, each of the Subsidiaries is an "Unrestricted Subsidiary" as defined in, and for all purposes of, the Effective Date Indentures and the 12.5% Note Indenture. SECTION 3.13. Insurance. Schedule 3.13 sets forth a description of all liability, property and casualty insurance maintained by or on behalf of the Borrower and the Subsidiaries as of the Restatement Effective Date. As of the Restatement Effective Date, all premiums in respect of such insurance have been paid. The Borrower and the Subsidiaries have insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice and as required by the Senior Loan 59 Documents. The Borrower reasonably believes that the insurance maintained by or on behalf of the Borrower and the Subsidiaries is adequate. SECTION 3.14. Labor Matters. As of the Restatement Effective Date, there are no strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending or, to the knowledge of the Borrower, threatened which could reasonably be expected to result in a Material Adverse Effect. The hours worked by and payments made to employees of the Borrower and the Subsidiaries have not been in violation in any material respect of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters. All payments due from the Borrower or any Subsidiary, or for which any claim may be made against the Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Borrower or such Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Borrower or any Subsidiary is bound. SECTION 3.15. Solvency. Immediately after the consummation of the Transactions to occur on the Restatement Effective Date and immediately following the making of each Loan made on the Restatement Effective Date and after giving effect to the application of the proceeds of such Loans, (a) the fair value of the assets of the Borrower and the other Loan Parties, taken as a whole, at a fair valuation, will exceed their debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the property of the Borrower and the other Loan Parties, taken as a whole, will be greater than the amount that will be required to pay the probable liability of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) the Borrower and the other Loan Parties taken as a whole, will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) the Borrower and the other Loan Parties will not have unreasonably small capital with which to conduct the business in which they are engaged as such business is now conducted and is proposed to be conducted following the Restatement Effective Date. SECTION 3.16. Federal Reserve Regulations. (a) Neither the Borrower nor any Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock. (b) No part of the proceeds of any Loan or any Letter of Credit will be used by the Borrower or any Subsidiary, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation of, or that is inconsistent with, the provisions of Regulations T, U or X of the Board. SECTION 3.17. Security Interests. The Senior Subsidiary Security Agreement is effective to create in favor of the Collateral Agents, for the ratable benefit of the Senior Secured Parties, a legal, valid and enforceable security interest in the Senior Collateral subject to such agreement and, when financing statements in appropriate form are filed in the offices specified on Schedule 6 to the Perfection Certificate, such security 60 interest shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in the Senior Collateral, to the extent perfection can be obtained by filing Uniform Commercial Code financing statements, in each case prior and superior in right to any other Person to the extent perfection can be obtained by filing Uniform Commercial Code financing statements, other than with respect to the rights of Persons pursuant to Liens expressly permitted by Section 6.02. SECTION 3.18. Use of Proceeds. The Borrower will use the proceeds of the Loans and will request the issuance of Letters of Credit only for the purposes specified in the preamble to this Agreement and set forth in Section 5.10. ARTICLE IV Conditions SECTION 4.01. Restatement Effective Date. Without affecting the rights of the Borrower or any Subsidiary hereunder at all times prior to the Restatement Effective Date, the amendment and restatement of the Original Agreement in the form hereof and the obligations of the Lenders to make Loans and acquire participations in Letters of Credit and Swingline Loans and of the Issuing Banks to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02): (a) The conditions set forth in Sections 3(d) and 4 of the Second Amendment shall have been satisfied. (b) The Administrative Agent (or its counsel) shall have received from each party hereto a counterpart of this Agreement signed on behalf of such party. (c) The Agents shall have received all fees and other amounts due and payable on or prior to the Restatement Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses (including fees, charges and disbursements of counsel) required to be reimbursed or paid by any Loan Party hereunder (including under the Original Agreement) or under any other Senior Loan Document. (d) The Collateral and Guarantee Requirement shall have been satisfied and the Administrative Agent shall have received a completed Perfection Certificate dated the Restatement Effective Date and signed by an executive officer or Financial Officer of the Borrower, together with all attachments contemplated thereby, including the results of a Lien search in scope satisfactory to the Collateral Agents made with respect to the Loan Parties in the jurisdictions contemplated by the Perfection Certificate and copies of the financing statements (or similar documents) disclosed by such search and evidence reasonably satisfactory to the Administrative Agent that the Liens indicated by such financing statements (or similar documents) are permitted by Section 6.02 or have been released; provided, however, that in the case of Loan Parties in respect of which Lien searches were performed in connection with the closing of the Original Agreement, such Lien searches shall be limited to updates of the Lien searches previously 61 performed. Each Subsidiary owning any Senior Collateral shall be party to the Intercompany Inventory Purchase Agreement, which shall be in full force and effect. (e) All requisite Governmental Authorities shall have approved or consented to the Transactions and there shall be no governmental or judicial action, actual or threatened, that has or could have a reasonable likelihood of restraining, preventing or imposing burdensome conditions that could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (f) There shall be no material litigation against or involving the Borrower or any Subsidiary or any of its property or defaults or breaches under any provision of any security issued by the Borrower or any Subsidiary or of any agreement, undertaking, contract, indenture, deed of trust or other instrument, document or agreement to which the Borrower or any Subsidiary is a party or by which it or any of its properties or assets are or may be bound, which could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. (g) The Administrative Agent shall have received a Borrowing Base Certificate, dated the Restatement Effective Date and executed by a Financial Officer of the Borrower, containing information as of a date not more than eight Business Days (or, in the case of information with respect to Eligible Inventory stored at a distribution center, 30 days) before the Restatement Effective Date. The Borrowing Base Amount shall be sufficient to support the Borrowings to be effected on the Restatement Effective Date. (h) Each of the Second Priority Subsidiary Security Agreement, the Second Priority Subsidiary Guarantee and the Second Priority Indemnity, Subrogation and Contribution Agreement shall be in form and substance satisfactory to the Agents, shall have been duly executed by each Subsidiary party thereto and by or on behalf of the Second Priority Indebtedness Parties, and shall be in full force and effect, and copies of such documents shall have been delivered to the Agents. (i) Each of the waivers obtained pursuant to the Original Agreement from the lessor of each leased distribution center of the Subsidiary Loan Parties of any statutory, common law or contractual landlord's lien with respect to any inventory of any Subsidiary Loan Party (other than with respect to inventory located at leased warehouses having a value in the aggregate not to exceed $40,000,000) shall be in full force and effect. It is understood and agreed that no term of the amendment and restatement contemplated hereby shall be effective until the Restatement Effective Date occurs, and that the Original Agreement and the Predecessor Security Documents shall continue in full force and effect without regard to the amendment and restatement contemplated hereby until the Restatement Effective Date. SECTION 4.02. Each Credit Event. The obligation of each Revolving Lender to make a Revolving Loan on the occasion of any Revolving Borrowing after the 62 Restatement Effective Date, and of each Issuing Bank to issue, amend, renew or extend any Letter of Credit after the Restatement Effective Date, is subject to receipt of the request therefore in accordance herewith and to the satisfaction of the following conditions (each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit (for purposes of this Section, an "issuance") shall be deemed to constitute a representation and warranty by Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and (c) of this Section): (a) the representations and warranties of the Loan Parties contained in each Senior Loan Document are true and correct in all material respects on and as of the date of such Borrowing or issuance, before and after giving effect to such Borrowing or issuance and to the application of the proceeds therefrom, as though made on and as of such date (except to the extent any such representation or warranty expressly relates to an earlier date, in which case such representation and warranty shall have been true and correct in all material respects as of such earlier date); (b) no event has occurred and is continuing, or would result from such Borrowing or issuance or from the application of the proceeds therefrom, that constitutes a Default or an Event of Default and such Borrowing or issuance would not result in a violation of the amount of secured Indebtedness permitted under the Second Priority Debt Documents; and (c) after giving effect to such Borrowing or issuance, the Borrowing Base Amount shall be equal to or greater than the sum of the total Revolving Exposure and the outstanding Term Loans. SECTION 4.03. Determinations Under Section 4.01. For purposes of determining compliance with the conditions specified in Section 4.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by the Senior Loan Documents shall have received written notice from such Lender prior to the Restatement Effective Date specifying its objection thereto and such Lender shall not have made available to the Administrative Agent such Lender's ratable portion of the Borrowings made on the Restatement Effective Date. ARTICLE V Affirmative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired, terminated or been cash collateralized and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that: 63 SECTION 5.01. Financial Statements and Other Information. The Borrower will furnish to the Administrative Agent and each Lender: (a) as soon as available and in any event within 105 days (or such earlier date that is 10 days after the then-current filing deadline for the Borrower's Annual Report on Form 10-K) after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of income and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any material qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial position, results of operations and cash flows of the Borrower and its Consolidated Subsidiaries on a consolidated basis in accordance with GAAP; (b) as soon as available and in any event within 50 days (or such earlier date that is 5 days after the then-current filing deadline for the Borrower's Quarterly Report on Form 10-Q) after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet as of the end of such fiscal quarter and related statements of income for such fiscal quarter and of income and cash flows for the then elapsed portion of such fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating (x) compliance with Section 6.08(c) and (y) the Borrower's ratios under Sections 6.13 and 6.14, (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the Borrower's audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate, (iv) identifying any Subsidiary formed or acquired since the end of the fiscal quarter immediately preceding the most recent fiscal quarter covered by such financial statements, (v) identifying any change in a Subsidiary Loan Party's name, form of organization or jurisdiction of organization, including as a result of any merger transaction, since the end of the fiscal quarter immediately preceding the most recent fiscal quarter covered by such financial statements, (vi) setting forth the aggregate amount of Optional Debt Repurchases made by the Borrower during the most recent fiscal quarter covered by such financial statements, identifying the Indebtedness repurchased, redeemed, retired or defeased and specifying the provisions of Section 6.08(b) or (c) pursuant to which each such Optional Debt Repurchase was effected and quantifying the amounts effected under each such provision, (vii) setting forth the amount and type of Indebtedness issued or incurred and Securitizations (or increases in the amounts thereof) and Factoring Transactions consummated during the most recent fiscal 64 quarter covered by such financial statements, (viii) identifying, with respect to all Indebtedness of the Borrower and the Subsidiaries outstanding on the date of the most recent balance sheet included in such financial statements, the clause of Section 6.01(a) pursuant to which such Indebtedness is then permitted to be outstanding, (ix) setting forth the amount of Restricted Payments made during the most recent fiscal quarter covered by such financial statements and the provision of Section 6.08(a) pursuant to which such Restricted Payments were made, and (x) setting forth the aggregate sale price of Eligible Script Lists sold since the most recent date on which the Eligible Script Lists Value was provided to the Lenders in the event aggregate sale price for all Eligible Script Lists sold since such date of determination exceeds 5% of the most recently determined Eligible Script Lists Value; (d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements (i) stating whether they obtained knowledge during the course of their examination of such financial statements of any Default and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) (ii) above (which certificate may be limited to the extent required by accounting rules or guidelines); (e) within three Business Days after the end of each fiscal month of the Borrower, a certificate of a Financial Officer of the Borrower setting forth in reasonable detail a description of each disposition of assets not in the ordinary course of business for which the book value or fair market value of the assets of the Borrower or the Subsidiaries disposed or the consideration received therefor was greater than $10,000,000; (f) (i) within four Business Days after the end of each fiscal week of the Borrower, a Borrowing Base Certificate showing the Borrowing Base Amount as of the close of business on the last day of such fiscal week, certified as complete and correct by a Financial Officer of the Borrower; provided that the amount with respect to Eligible Inventory stored at distribution centers included in such Borrowing Base Amount shall be the amount certified in the Borrowing Base Certificate most recently delivered pursuant to clause (ii) of this paragraph (f), and (ii) within 14 days after the end of each fiscal month of the Borrower, a Borrowing Base Certificate showing the Borrowing Base Amount with respect to Eligible Inventory stored at distribution centers as of the close of business on the last day of such fiscal month, certified as complete and correct by a Financial Officer of the Borrower; (g) no later than 60 days following the end of each fiscal year of the Borrower (or, in the reasonable discretion of the Administrative Agent, no later than 30 days thereafter), forecasts for the Borrower and its Consolidated Subsidiaries of (i) quarterly consolidated balance sheet data and related consolidated statements of income and cash flows for each quarter in the next succeeding fiscal year and (ii) consolidated balance sheet data and related consolidated statements of income and cash flows for each fiscal year ending on or prior to the 2009 fiscal year; 65 (h) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the SEC, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; and (i) promptly following any request therefor, such other information regarding the financial condition or business of the Borrower or any Subsidiary, or compliance with the terms of any Senior Loan Document, as either Agent, at the request of any Lender, may reasonably request. Information required to be delivered pursuant to clauses (a), (b) and (h) shall be deemed to have been delivered on the date on which the Borrower provides notice to the Lenders that such information has been posted on the Borrower's website on the Internet at www.riteaid.com, at www.sec.gov/edgar/searchedgar/webusers.htm or at another website identified in such notice and accessible by the Lenders without charge; provided that (i) such notice may be included in a certificate delivered pursuant to clause (c) and (ii) the Borrower shall deliver paper copies of the information referred to in clauses (a), (b) and (h) to any Lender which requests such delivery. SECTION 5.02. Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice after any officer of the Borrower obtains knowledge of any of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event; (d) any Lien (other than security interests created under any Senior Loan Document or Second Priority Debt Document or Permitted Encumbrances) on any material portion of the Senior Collateral; (e) the occurrence of any other event which could reasonably be expected to have a material adverse effect on the security interests created by the Senior Loan Documents or on the aggregate value of the Senior Collateral; and (f) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. 66 SECTION 5.03. Information Regarding Collateral. (a) The Borrower will furnish to the Administrative Agent prompt written notice of any change (i) in any Loan Party's corporate name, (ii) in the location of any Loan Party's jurisdiction of incorporation or organization, (iii) in any Loan Party's form of organization or (iv) in any Loan Party's Federal Taxpayer Identification Number or other identification number assigned by such Loan Party's jurisdiction of incorporation or formation. The Borrower agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or otherwise that are required in order for the Administrative Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Senior Collateral. The Borrower also agrees promptly to notify the Agents if any material portion of the Senior Collateral is damaged or destroyed. (b) Each year, at the time of delivery of annual financial statements with respect to the preceding fiscal year pursuant to clause (a) of Section 5.01, the Borrower shall deliver to the Agents a certificate of the chief legal officer of the Borrower (i) setting forth the information required pursuant to Section 1 of the Perfection Certificate or confirming that there has been no change in such information since the date of the Perfection Certificate delivered on the Restatement Effective Date or the date of the most recent certificate delivered pursuant to this Section and (ii) certifying that all Uniform Commercial Code financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Senior Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (i) above to the extent necessary to protect and perfect the security interests under the Senior Subsidiary Security Agreement for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period). SECTION 5.04. Existence; Conduct of Business. Except as otherwise permitted by this Agreement, the Borrower will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and the Subsidiaries. The Borrower will, and will cause each of the Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks and trade names, in each case material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation, dissolution or sale of assets permitted under Section 6.03. SECTION 5.05. Payment of Obligations. The Borrower will, and will cause each of the Subsidiaries to, pay its Indebtedness and other obligations, including Tax liabilities, which, if unpaid, could result in a material Lien on any of their properties or assets, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. 67 SECTION 5.06. Maintenance of Properties. The Borrower will, and will cause each of the Subsidiaries to, keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted. SECTION 5.07. Insurance. (a) The Borrower will, and will cause each of the Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary's own name), with financially sound and reputable insurance companies insurance in such amounts (with no greater risk retention) and against such risks as are customarily maintained by companies of established repute engaged in the same or similar businesses operating in the same or similar locations. The Borrower will furnish to the Lenders, upon request of the Agents, information in reasonable detail as to the insurance so maintained. (b) The Borrower will, and will cause each of the Subsidiaries to, maintain such insurance in a coverage amount of not less than 90% of the coverage amount as of the Restatement Effective Date, with deductibles, risks covered and other provisions (other than the amount of premiums) not materially less favorable to the Borrower and the Subsidiaries as of the Restatement Effective Date. (c) The Borrower will, and will cause each of the Subsidiary Loan Parties to, (i) cause all such policies to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement, in form and substance satisfactory to the Agents, which endorsement shall provide that, from and after the Restatement Effective Date if the insurance carrier shall have received written notice from the Administrative Agent of the occurrence of an Event of Default, the insurance carrier shall pay all proceeds otherwise payable to the Borrower and any other Loan Party under such policies directly to the Collateral Agents for application pursuant to the Collateral Trust and Intercreditor Agreement; (ii) cause all such policies to provide that neither the Borrower, the Administrative Agent, either Collateral Agents nor any other party shall be a coinsurer thereunder and to contain a "Replacement Cost Endorsement", without any deduction for depreciation, and such other provisions as the Agents may reasonably require from time to time to protect their interests; (iii) deliver broker's certificates to the Collateral Agents; (iv) cause each such policy to provide that it shall not be canceled or not renewed by reason of nonpayment of premium upon not less than 10 days prior written notice thereof by the insurer to the Administrative Agent (giving the Administrative Agent the right to cure defaults in the payment of premiums) or for any other reason upon not less than 30 days' prior written notice thereof by the insurer to the Administrative Agent; (v) deliver to the Administrative Agent, before the cancellation or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Administrative Agent), together with evidence reasonably satisfactory to the Agents of payment of the premium therefor. (d) In connection with the covenants set forth in this Section, it is agreed that: 68 (i) none of the Agents, the Lenders, or their agents or employees shall be liable for any loss or damage insured by the insurance policies required to be maintained under this Section, and (A) the Borrower and each Subsidiary Loan Party shall look solely to their insurance companies or any other parties other than the aforesaid parties for the recovery of such loss or damage and (B) such insurance companies shall have no rights of subrogation against the Agents, the Lenders or their agents or employees. If, however, the insurance policies do not provide waiver of subrogation rights against such parties, as required above, then the Borrower hereby agrees, to the extent permitted by law, to waive its right of recovery, if any, against the Agents, the Lenders and their agents and employees; and (ii) the designation of any form, type or amount of insurance coverage by the Agents or the Required Lenders under this Section shall in no event be deemed a representation, warranty or advice by the Agents or the Lenders that such insurance is adequate for the purposes of the business of the Borrower and the Subsidiaries or the protection of their properties. (e) The Borrower will, and will cause each of the Subsidiaries to, permit any representatives that are designated by a Collateral Agent to inspect the insurance policies maintained by or on behalf of the Borrower and the Subsidiaries and inspect books and records related thereto and any properties covered thereby. The Borrower shall pay the reasonable fees and expenses of any representatives retained by a Collateral Agent to conduct any such inspection. SECTION 5.08. Books and Records; Inspection and Audit Rights; Collateral and Borrowing Base Reviews. (a) The Borrower will, and will cause each of the Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of the Subsidiaries to, permit any representatives designated by any Lender (at such Lender's expense, unless a Default has occurred and is continuing, in which case at the Borrower's expense), and after such Lender has consulted the Administrative Agent with respect thereto, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. (b) The Borrower will, and will cause each of the Subsidiaries to, permit any representatives designated by any Collateral Agent (including any consultants, field examiners, accountants, lawyers and appraisers retained by such Collateral Agent) to conduct (i) a field examination of the Collateral at or about the end of each fiscal quarter of the Borrower, (ii) an appraisal of the Borrower's computation of the assets included in the Borrowing Base Amount at or about the end of each fiscal year of the Borrower, (iii) an appraisal of the Script Lists at or about the end of the fiscal quarter ending August 31 and February 28 of each fiscal year of the Borrower and (iv) other evaluations and appraisals of the Borrower's computation of the Borrowing Base Amount and the assets included in the Borrowing Base Amount, all at such reasonable times and as often 69 as reasonably requested. The Borrower shall pay the reasonable fees and expenses of any representatives retained by any Collateral Agent to conduct any such evaluation or appraisal. The Administrative Agent shall promptly deliver to the Lenders copies of all such appraisals and other information provided to the Borrower in connection with such evaluations and appraisals. (c) The Borrower will, and will cause each of the Subsidiaries to, in connection with any evaluation and appraisal relating to the computation of the Borrowing Base Amount, maintain such additional reserves (for purposes of computing the Borrowing Base Amount) in respect of Eligible Accounts Receivable and Eligible Inventory and make such other adjustments to its parameters for including Eligible Accounts Receivable, Eligible Inventory and Eligible Script Lists in the Borrowing Base Amount as the Collateral Agents shall require based upon the results of such evaluation and appraisal in their reasonable judgment to reflect Borrowing Base Factors. SECTION 5.09. Compliance with Laws. The Borrower will, and will cause each of the Subsidiaries to, comply in all material respects with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, including all Environmental Laws, HIPAA and all other material healthcare laws and regulations, except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or to the extent that any failures so to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. SECTION 5.10. Use of Proceeds and Letters of Credit. (a) The proceeds of the Term Loans made on the Second Amendment Effective Date will be used solely to refinance in part term loans outstanding under this Agreement immediately prior to the Second Amendment Effective Date. (b) The proceeds of the Revolving Loans, Swingline Loans and loans under the Incremental Facilities made after the Restatement Effective Date will be used by the Borrower solely for the following purposes: (i) loans or other transfers to Rite Aid Hdqtrs. Corp. for purposes of financing inventory purchases pursuant to the Intercompany Inventory Purchase Agreement and advancing funds to Subsidiary Loan Parties for their general corporate purposes, including working capital, Consolidated Capital Expenditures and Business Acquisitions permitted pursuant to Section 6.04; (ii) transfers to an operating account for the payment of operating expenses (including rent, utilities, taxes, wages, repair and similar expenses) of, and intercompany Investments permitted under Section 6.04 in, the Borrower or any Subsidiary Loan Party; (iii) payment by the Borrower of principal, interest, fees and expenses with respect to its Indebtedness when due (including associated costs, fees and expenses) and payment of the Borrower's taxes, administrative, operating and other expenses; 70 (iv) dividends permitted to be made in respect of the Equity Interests listed on Schedule 6.08(a) or described in Section 6.08(a); (v) payment of principal, interest, fees and expenses with respect to Third Party Interests in accordance with the terms thereof; and (vi) Optional Debt Repurchases made pursuant to Section 6.08(b) or Section 6.08(c). (c) Letters of Credit will be used solely to support payment obligations of the Borrower and the Subsidiaries incurred in the ordinary course of business. (d) No proceeds of Loans will be used to prepay commercial paper prior to the maturity thereof and no such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any Margin Stock. The Borrower will ensure that no such use of Loan proceeds and no issuance of Letters of Credit will entail any violation of Regulation T, U or X. SECTION 5.11. Additional Subsidiaries. If any additional wholly-owned Domestic Subsidiary is formed or acquired after the Restatement Effective Date, the Borrower will, within three Business Days after such Subsidiary is formed or acquired, notify the Administrative Agent and the Lenders thereof and cause the Collateral and Guarantee Requirement to be satisfied with respect to such Subsidiary, including each Securitization Vehicle which is a Domestic Subsidiary. In addition, the Borrower will, within three Business Days after the Restatement Effective Date, cause the Collateral and Guarantee Requirement to be satisfied with respect to each Domestic Subsidiary, including each Securitization Vehicle that is a Domestic Subsidiary, in existence on the Restatement Effective Date. Notwithstanding any other provision of this Agreement, (i) no Domestic Subsidiary listed on Schedule 5.11 shall be required to become a Subsidiary Loan Party (it being understood and agreed that Schedule 5.11 shall not include any Securitization Vehicle that is a Domestic Subsidiary) and (ii) no Domestic Subsidiary shall be required to become a Subsidiary Loan Party unless and until such time as such Subsidiary has assets in excess of $1,000,000 or acquires assets in excess of $1,000,000 or has revenue in excess of $500,000 per annum. SECTION 5.12. Further Assurances. The Borrower will, and will cause each Subsidiary Loan Party to, execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings, deeds of trust and other documents), which may be required under any applicable law, or which any Collateral Agent or the Required Lenders may reasonably request, to cause the Collateral and Guarantee Requirement to be and remain satisfied, all at the expense of the Loan Parties. The Borrower also agree to provide to the Collateral Agents, from time to time upon request, evidence reasonably satisfactory to the Collateral Agents as to the perfection and priority of the Liens created or intended to be created by the Senior Collateral Documents. 71 SECTION 5.13. Subsidiaries. The Borrower will cause all of the Subsidiaries that own Eligible Accounts Receivable, Eligible Inventory or Eligible Script Lists to be and at all times remain "Unrestricted Subsidiaries" as defined in, and for all purposes of, each of the Effective Date Indentures and the 12.5% Note Indenture and will deliver such documents to the trustees under each such Indenture and take such actions thereunder as may be necessary to effect the foregoing. SECTION 5.14. Intercompany Transfers. The Borrower shall maintain accounting systems capable of tracing intercompany transfers of funds and other assets. SECTION 5.15. Inventory Purchasing. (a) The Borrower shall, and shall cause each Subsidiary party to the Intercompany Inventory Purchase Agreement to, at all times maintain in all material respects the vendor inventory purchasing system and the intercompany inventory purchasing system in accordance with the terms of the Intercompany Inventory Purchase Agreement. The Borrower shall cause each Subsidiary which owns or acquires any Senior Collateral consisting of inventory to be party to the Intercompany Inventory Purchase Agreement. (b) The Borrower shall not permit any Operating Subsidiary (as defined in the Intercompany Inventory Purchase Agreement) to purchase any Inventory (as defined in the Intercompany Inventory Purchase Agreement) from any Direct Delivery Vendor (as defined in the Intercompany Inventory Purchase Agreement) other than (i) the acquisition of inventory from McKesson Corporation (or any Persons that replace McKesson Corporation, in whole or in part, and sell or otherwise provide inventory substantially similar to inventory sold or otherwise provided by McKesson Corporation) consistent with past practice and (ii) food-stuffs, beverages, periodicals, greeting cards and similar items which are either paid for in cash substantially concurrently with the time of delivery or otherwise consistent with past practice. SECTION 5.16. Cash Management System. (a) The Borrower will cause each Subsidiary Loan Party to at all times maintain a Cash Management System that complies with Schedule 3 of the Senior Subsidiary Security Agreement. The Borrower will cause each Subsidiary Loan Party to comply with each obligation thereof under the Cash Management System. The Borrower will cause each Subsidiary Loan Party to comply with each of its obligations under the Cash Management System, and shall cause each Subsidiary Loan Party to use its best efforts to cause any applicable third party to effectuate the Cash Management System. (b) Each party hereto authorizes the Administrative Agent and the Senior Collateral Agents to (i) permit the creation by the Grantors of accounts that receive payments in respect of the Securitization Assets and/or Factoring Assets (but not other payments) and (ii) release the security interest of the Senior Collateral Agent for the ratable benefit of the Senior Secured Parties in the Lockbox Account, the Governmental Lockbox Account and/or any accounts created pursuant to clause (i) of this paragraph from the Cash Management System and transfer control of the Lockbox Account, the Governmental Lockbox Account and/or any accounts created pursuant to clause (i) of this paragraph to (A) any Person in connection with a Factoring Transaction permitted by this 72 Agreement for so long as a Factoring Transaction is ongoing or (B) any Person for the benefit of holders of Third Party Interests in respect of a Securitization permitted by this Agreement for as long as any Third Party Interests are outstanding. SECTION 5.17. Termination of Factoring Transactions. If an Event of Default has occurred and the Senior Collateral Agents have elected to exercise any remedies under the Collateral Documents as a result thereof, the Borrower shall, and shall cause each of its Subsidiaries to, terminate all existing Factoring Transactions and cease to engage in any further Factoring Transactions; provided, however, that neither the Borrower nor any such Subsidiary shall be required to repurchase any Factoring Assets previously sold, transferred or otherwise conveyed pursuant to any such Factoring Transaction. ARTICLE VI Negative Covenants Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired, terminated or been cash collateralized and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that: SECTION 6.01. Indebtedness; Certain Equity Securities. (a) The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Indebtedness, any Attributable Debt in respect of any Sale and Leaseback Transaction or any Third Party Interests except: (i) Indebtedness under the Senior Loan Documents; (ii) unsecured Indebtedness of the Borrower, including the 11.25% Senior Notes , the 4.75% Convertible Notes and the 9.25% Notes, that is not Guaranteed by any Subsidiary, that does not mature or require scheduled payments of principal prior to December 31, 2009, and that has covenants and events of default which are determined in good faith by the senior management of the Borrower to be on market terms, and Refinancing Indebtedness issued in respect of such Indebtedness, provided that such Indebtedness is permitted to be incurred under Section 6.13 and any Reductions required under Section 2.11 as a result of the issuance of such Indebtedness are effected as required thereby; (iii) Indebtedness of the Borrower and the Subsidiaries in respect of intercompany Investments permitted under Section 6.04; provided that such Indebtedness is subordinated to the Senior Obligations pursuant to terms substantially the same as those forth on Annex 2 hereto; 73 (iv) Indebtedness (other than Second Priority Debt, the 11.25% Senior Notes, the 9.25% Notes and the 4.75% Convertible Notes) outstanding on the Restatement Effective Date under the Effective Date Indentures; provided that no Subsidiary Loan Party will have any liability with respect thereto except under and pursuant to the Second Priority Collateral Documents; (v) Second Priority Debt in an aggregate principal amount, together with the aggregate principal amount of Indebtedness incurred pursuant to clause (vi) of this Section 6.01(a), not in excess of $1,800,000,000 at any time outstanding; (vi) unsecured Indebtedness of the Borrower; provided that the amount of Indebtedness incurred pursuant to this clause (vi) is (A) not in excess of $200,000,000 at any time outstanding, and (B) together with the aggregate principal amount of Indebtedness incurred pursuant to clause (v) of this Section 6.01(a), not in excess of $1,800,000,000 at any time outstanding; (vii) Indebtedness secured by Liens on real property or Attributable Debt incurred in connection with Sale and Leaseback Transactions involving real property; provided that any such Indebtedness, or any such lease entered into in connection with the Sale and Leaseback Transaction giving rise to such Attributable Debt, shall have a maturity date or termination date, as the case may be, after December 31, 2009; and provided further that the aggregate principal amount of Indebtedness and Attributable Debt incurred pursuant to this clause (vii) shall not exceed $400,000,000 at any time outstanding; (viii) Refinancing Indebtedness issued in respect of Indebtedness or Attributable Debt permitted under clauses (iv) and (xiii); (ix) endorsements of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (x) Indebtedness for borrowed money and Capital Lease Obligations existing on the Restatement Effective Date (other than Second Priority Debt and Indebtedness referred to in clauses (ii) and (iv) above) and set forth on Schedule 6.01(a)(x), but not any extensions, renewals, refinancings or replacements of such Indebtedness; (xi) Capital Lease Obligations with respect to leases existing on the Restatement Effective Date that were accounted for as operating leases on the Restatement Effective Date and thereafter reclassified as Capital Lease Obligations; (xii) Indebtedness (including Capital Lease Obligations) and Attributable Debt in respect of Sale and Leaseback Transactions in respect of equipment financing or leasing in the ordinary course of business of the Borrower and the Subsidiaries consistent with past practices; 74 (xiii) purchase money Indebtedness (including Capital Lease Obligations) and Attributable Debt in respect of Sale and Leaseback Transactions in each case incurred to finance the acquisition, development, construction or opening of any Store after the Restatement Effective Date; provided that such Indebtedness or Attributable Debt (A) is incurred not later than 24 months following the completion of the acquisition, development, construction or opening of such Store, (B) any Lien securing such Indebtedness or Attributable Debt is limited to the Store financed with the proceeds thereof, and (C) is incurred in a connection with a transaction that is substantially consistent with the business plan of the Borrower provided to the Lenders prior to the Restatement Effective Date; (xiv) (A) Third Party Interests issued by Securitization Vehicles in Securitizations permitted by Section 6.05, and Indebtedness represented by such Third Party Interests and (B) Indebtedness of the Borrower or its Subsidiaries that may be deemed to exist solely by virtue of a Factoring Transaction permitted by this Agreement; provided that the aggregate amount of all Securitizations plus the aggregate amount of Indebtedness permitted by clause (B) shall not exceed $650,000,000 at any time outstanding; and (xv) Indebtedness of Subsidiaries other than Securitization Vehicles that may be deemed to exist solely by virtue of Standard Securitization Undertakings entered into by such Subsidiaries as sellers of Securitization Assets in Securitizations permitted by paragraph (xiv) above. (b) The Borrower will not, nor will it permit any Subsidiary to, issue any Preferred Stock or other preferred Equity Interests, other than Qualified Preferred Stock of the Borrower, Third Party Interests issued by Securitization Vehicles, the Series D Preferred Stock and other preferred Equity Interests issued and outstanding on the Restatement Effective Date and set forth on Schedule 6.01(b). SECTION 6.02. Liens. (a) The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (i) Liens created under the Senior Loan Documents; (ii) Permitted Encumbrances; (iii) any Lien created or permitted by the Second Priority Collateral Agreements with respect to the Second Priority Debt Obligations in favor of the Second Priority Debt Parties; provided that (A) such Lien is created simultaneously with or after an equivalent Lien under the Senior Collateral Documents on the applicable Collateral, (B) such Lien is subject to the Collateral Trust and Intercreditor Agreement, (C) any Lien on the proceeds of such Collateral is permitted by the Collateral Trust and Intercreditor Agreement and 75 (D) such Second Priority Debt Obligations are permitted to be incurred under Section 6.01(a); (iv) any Lien securing Indebtedness of a Subsidiary owing to a Subsidiary Loan Party; (v) any Lien securing Attributable Debt and other payment obligations under leases incurred in connection with a Sale and Leaseback Transaction permitted pursuant to Section 6.01(a), (xii) or (xiii) and Section 6.06; provided that such Liens attach only to the equipment, real property or other assets subject to such Sale and Leaseback Transaction; (vi) any Lien on real property securing Indebtedness permitted and incurred under Section 6.01(a)(vii); (vii) any Lien securing Capital Lease Obligations permitted and incurred under Section 6.01(a)(xi), provided that such Lien is limited to the equipment or other property subject to leases existing on the Restatement Effective Date that were subsequently reclassified as Capital Lease Obligations; (viii) any Lien on equipment securing Indebtedness incurred to finance such equipment pursuant to Section 6.01(a)(xii); (ix) Liens securing Indebtedness permitted and incurred under Section 6.01(a)(xiii), provided that such Liens apply only to the property or other assets acquired, developed or constructed, as the case may be, with the proceeds of such Indebtedness; (x) Liens existing on the Restatement Effective Date and identified on Schedule 6.02(x); provided, that such Liens do not attach to any property other than the property identified on such Schedule and secure only the obligations they secured on the Restatement Effective Date; (xi) any Lien on Net Cash Proceeds that (A) is received in connection with Reduction Events allocated to the Second Priority Debt Obligations in accordance with the Collateral Trust and Intercreditor Agreement and (B) arises pursuant to Section 10.14 of the 12.5% Note Indenture or equivalent provisions in any other Second Priority Debt Document; (xii) Liens securing Refinancing Indebtedness permitted under Section 6.01(a), to the extent that the Indebtedness being refinanced was originally secured in accordance with this Section 6.02; provided that such Lien does not apply to any additional property or assets of the Borrower or any Subsidiary (other than (i) property or assets acquired after the issuance or incurrence of such Refinancing Indebtedness that would have been subject to the Lien securing refinanced Indebtedness if such Indebtedness had not been refinanced, (ii) additions to the property or assets subject to the Lien and (iii) the proceeds of the property or assets subject to the Lien); 76 (xiii) Liens on property or assets acquired pursuant to Section 6.04(vi), (ix), (xii) or (xiii); provided that (A) such Liens apply only to the property or other assets subject to such Liens at the time of such acquisition and (B) such Liens existed at the time of such acquisition and were not created in contemplation thereof; (xiv) put and call agreements with respect to Equity Interests acquired or created in connection with Joint Ventures permitted pursuant to Section 6.04(ix) or (xiii); provided that neither the Borrower nor any Subsidiary shall be permitted to enter into any such agreement that requires or, upon the occurrence of any event or condition, contingent or otherwise, may require the Borrower or any Subsidiary Loan Party to repurchase Equity Interests, Indebtedness or otherwise expend any amounts on or prior to the Maturity Date (other than as permitted under Section 6.04(ix) or (xiii)); (xv) (A) Liens on Securitization Assets transferred or purported to be transferred to Securitization Vehicles securing Third Party Interests issued in Securitizations permitted by Sections 6.01 and 6.05, (B) Liens on account receivables not purchased by a Securitization Vehicle, which Liens (i) are granted in connection with Securitizations permitted by Sections 6.01 and 6.05, (ii) are granted pursuant to Standard Securitization Undertakings, (iii) are perfected prior to an Event of Default and (iv) secure Third Party Interests issued in Securitizations permitted by Sections 6.01 and 6.05 and (C) Liens on Factoring Assets transferred or purported to be transferred in Factoring Transactions permitted by this Agreement; and (xvi) Liens (other than Liens securing Indebtedness) that are not otherwise permitted under any other provision of this Section 6.02(a); provided, that the fair market value of the property and assets with respect to which such Liens are granted shall not at any time exceed $25,000,000. (b) Notwithstanding anything in clause (a) of this Section 6.02, the Borrower may not grant or otherwise permit to exist Liens on any cash or cash equivalents that secure the Senior Obligations or are otherwise held by the Lenders or the Administrative Agent pursuant to Section 2.05(k) or 9.15. SECTION 6.03. Fundamental Changes. Without limiting the restrictions on Business Acquisitions set forth in Section 6.04, the Borrower will not, and will not permit any Subsidiary Loan Party to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Person may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, provided, that if such other Person is a Subsidiary Loan Party, it shall have no assets that constitute Senior Collateral, (ii) any Person may merge into a Subsidiary Loan Party in a transaction in which such Subsidiary Loan Party is the surviving corporation and (iii) any Subsidiary Loan Party may liquidate or dissolve if such liquidation or dissolution is not materially 77 disadvantageous to the Lenders; provided that (A) any such merger involving a Person that is not a wholly-owned Subsidiary immediately prior to such merger shall not be permitted to engage in such merger unless also permitted by Section 6.04 and (B) the Borrower and the applicable Subsidiary Loan Party shall comply with the provisions of Section 5.11 with respect to any Subsidiary acquired pursuant to this Section 6.03. SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions. The Borrower will not, and will not permit any of the Subsidiaries to, make any Investment in, or Guarantee any obligations of, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (i) Permitted Investments; (ii) Investments of the Borrower and the Subsidiary Loan Parties existing on the Effective Date and set forth on Schedule 6.04; (iii) Guarantees consisting of Indebtedness permitted by Section 6.01; (iv) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business; (v) Investments by the Borrower or any Subsidiary Loan Party in Subsidiary Loan Parties; provided that the Borrower and such Subsidiary Loan Party shall comply with the applicable provisions of Section 5.11 with respect to any newly formed Subsidiary; (vi) Investments consisting of non-cash consideration received in connection with any Asset Sale permitted by Section 6.05; (vii) Investments by the Subsidiaries in the Borrower; provided that the proceeds of such Investments are used for a purpose set forth in Section 5.10(b); (viii) usual and customary loans and advances to employees, officers and directors of the Borrower and the Subsidiaries; (ix) Investments by the Borrower or any of the Subsidiaries in Joint Ventures in an amount not to exceed $10,000,000 in the aggregate in any fiscal year of the Borrower; (x) Investments in charitable foundations organized under Section 501(c) of the Code in an amount not to exceed $5,000,000 in the aggregate in any calendar year; (xi) any Investment consisting of a Hedging Agreement permitted by Section 6.07; 78 (xii) Business Acquisitions, provided that the aggregate consideration paid or payable by the Borrower or any Subsidiary (including any Indebtedness assumed or acquired in connection with such Business Acquisition on or after the Restatement Effective Date) for such Business Acquisitions does not exceed $150,000,000 in any fiscal year or $400,000,000 on a cumulative aggregate basis since the Restatement Effective Date; (xiii) Investments by Subsidiary Loan Parties that are not otherwise permitted under any other provision of this Section 6.04; provided that (A) the aggregate net book value of all Investments permitted by this clause (xiii) may not at any time exceed the greater of (1) $200,000,000 and (2) 10% of Consolidated Net Worth and (B) the Borrower and the applicable Subsidiary Loan Party shall comply with the provisions of Section 5.11 with respect to any Subsidiary acquired pursuant to this clause (xiii); (xiv) Investments consisting of Sellers' Retained Interests in Securitizations permitted by Section 6.01 and 6.05; and (xv) (a) Investments by the Borrower or a Subsidiary in connection with a Securitization permitted pursuant to this Agreement and (b) any Investment or other Guarantee that may be deemed made by the Borrower due to the fact that a Parent Undertaking has been entered into in respect of a Securitization permitted pursuant to the Agreement. SECTION 6.05. Asset Sales. The Borrower will not, and will not permit any of the Subsidiary Loan Parties to, conduct any Asset Sale, including any sale of any Equity Interest owned by it and any sale of Securitization Assets in connection with a Securitization, nor will the Borrower permit any of the Subsidiary Loan Parties to issue any additional Equity Interest in such Subsidiary, except: (i) Permitted Dispositions; (ii) any Asset Sale (other than a Sale and Leaseback Transaction, the issuance of Equity Interests, sales or contributions of Securitization Assets in a Securitization or sales of Factoring Assets in Factoring Transactions) for fair value not in the ordinary course of business; (iii) any sale, transfer or disposition to a third party of Stores, leases and prescription files closed at substantially the same time as, and entered into as part of a single related transaction with, the purchase or other acquisition from such third party of Stores, leases and prescription files of a substantially equivalent value; (iv) any issuance of Equity Interests of any Subsidiary Loan Party by such Subsidiary Loan Party to the Borrower or any other Subsidiary Loan Party; (v) any Sale and Leaseback Transaction permitted pursuant to Section 6.01(a)(vii), (xii) or (xiii) and Section 6.06; 79 (vi) sales or contributions of Securitization Assets to Securitization Vehicles in connection with Securitizations, provided that (a) each such Securitization is effected on market terms as determined in good faith by the senior management of the Borrower, (b) the aggregate amount of all such Securitizations plus the aggregate amount of Indebtedness permitted by Section 6.01(a)(xiv)(B) does not exceed $650,000,000 at any time outstanding, (c) the aggregate amount of the Sellers' Retained Interests in such Securitizations does not exceed an amount at any time outstanding that is customary for similar transactions and (d) the proceeds to each such Securitization Vehicle from the issuance of Third Party Interests are applied substantially simultaneously with receipt thereof to the purchase from Subsidiary Loan Parties of Securitization Assets; provided that, in the case of clause (d), the Securitization Vehicle may use a portion of such proceeds to pay a customary collection agent fee in connection with such Securitization to the extent such fee is permitted pursuant to Section 6.09(e); and (vii) unless otherwise restricted by Section 5.17, sales of Factoring Assets in connection with Factoring Transactions; provided that (i) a Factoring Notice with respect to such Factoring Transaction has been delivered by the Borrower to the Administrative Agent and (ii) each such Factoring Transaction is effected on market terms as determined in good faith by the senior management of the Borrower. provided that, with respect to sales, transfers or dispositions under clause (ii) or (v), and with respect to any net consideration received from any transaction described in clause (iii), (1) at least 75% of the consideration therefor shall consist of cash and (2) the Net Cash Proceeds of such sale, transfer or disposition or consideration are applied as provided in Section 2.11(c). SECTION 6.06. Sale and Leaseback Transactions. The Borrower will not, and will not permit any of the Subsidiaries to, enter into any Sale and Leaseback Transaction, except for Sale and Leaseback Transactions permitted by and effected pursuant to Section 6.01(a)(vii), (xii) or (xiii) which do not result in Liens other than Liens permitted pursuant to Section 6.02(a). SECTION 6.07. Hedging Agreements. The Borrower will not, and will not permit any of the Subsidiaries to, incur or at any time be liable with respect to any monetary liability under any Hedging Agreements, unless such Hedging Agreements (i) are entered into for bona fide hedging purposes of the Borrower or any Subsidiary Loan Party (as determined in good faith by the senior management of the Borrower), (ii) correspond in terms of notional amount, duration, currencies and interest rates, as applicable, to Indebtedness of the Borrower or any Subsidiary Loan Party permitted to be incurred under Section 6.01(a) or to business transactions of the Borrower and the Subsidiary Loan Parties on customary terms entered into in the ordinary course of business and (iii) do not exceed an amount equal to the aggregate principal amount of the Senior Obligations and the Second Priority Debt Obligations. 80 SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness. (a) The Borrower will not, nor will it permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except (i) the Borrower may declare and pay dividends with respect to its common stock or Qualified Preferred Stock payable solely in additional shares of its common stock or Qualified Preferred Stock, (ii) Subsidiaries (other than those directly owned, in whole or part, by the Borrower) may declare and pay dividends ratably with respect to their common stock, (iii) the Borrower may pay cash dividends in an amount not to exceed $60,000,000 in any fiscal year of the Borrower with respect to the Series D Preferred Stock or any other Qualified Preferred Stock; provided that (x) immediately prior and after giving effect to any such payment, no Default or Event of Default shall have occurred and be continuing and (y) only so long as a Financial Covenant Effectiveness Period is then occurring, the Consolidated Fixed Charge Coverage Ratio for the period of four consecutive fiscal quarters most recently ended on or prior to the date of such payment, calculated on a pro forma basis as if such payment were made on the last day of such period (and excluding any such payments previously made pursuant to this clause during such four quarter period but attributed for purposes of this calculation to the last day of a prior period which day does not occur in such four quarter period) is not less than the ratio applicable to such period of four fiscal quarters under Section 6.14, (iv) the Borrower and the Subsidiaries may make Restricted Payments consisting of the repurchase or other acquisition of shares of, or options to purchase shares of, capital stock of the Borrower or any of its Subsidiaries from employees, former employees, directors or former directors of the Borrower or any Subsidiary (or their permitted transferees), in each case pursuant to stock option plans, stock plans, employment agreements or other employee benefit plans approved by the board of directors of the Borrower; provided that no Default has occurred and is continuing; and provided further that the aggregate amount of such Restricted Payments made after the Restatement Effective Date shall not exceed $10,000,000, (v) the Subsidiaries may declare and pay cash dividends to the Borrower; provided that the Borrower shall, within a reasonable time following receipt of any such payment, use all of the proceeds thereof for a purpose set forth in Section 5.10(b) (including the payment of dividends required or permitted pursuant to this Section 6.08(a)), (vi) the Borrower and the Subsidiaries may declare and pay cash dividends with respect to the Equity Interests set forth on Schedule 6.08(a) to the extent, and only to the extent, required pursuant to the terms of such Equity Interests or any other agreement in effect on the Effective Date and (vii) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, the Borrower may redeem or repurchase (1) shares of Series D Preferred Stock or the 4.75% Convertible Notes (A) solely with Net Cash Proceeds received by the Borrower from issuances of its common stock after the Second Amendment Effective Date, provided that any such repurchase or redemption is effected within 150 days after the receipt of such proceeds or (B) with other funds available to the Borrower if, immediately after giving effect to any such redemption or repurchase, the Borrower shall have Revolver Availability of more than $300,000,000 or (2) shares of Class A Cumulative Preferred Stock of Rite Aid Lease Management Company with cash and/or a debt-for-equity exchange in an aggregate amount not to exceed $25,000,000 if 81 immediately after giving effect to any such redemption or repurchase, the Borrower shall have Revolver Availability of more than $300,000,000. (b) The Borrower will not, nor will it permit any Subsidiary to, make or agree to pay or make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of or in respect of principal of or interest on any Indebtedness, or any payment or other distribution (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancelation or termination of any Indebtedness, except: (i) payments or prepayments of Indebtedness created under the Senior Loan Documents; (ii) payments of regularly scheduled interest and principal payments as and when due in respect of any Indebtedness permitted pursuant to Section 6.01(a); (iii) (A) prepayments of Indebtedness permitted pursuant to Section 6.01(a)(v) or (vi) with the proceeds of Indebtedness permitted pursuant to Section 6.01(a)(v) or (vi) and (B) prepayments of Indebtedness permitted pursuant to Section 6.01(a)(vii) with the proceeds of Indebtedness permitted pursuant to Section 6.01(a)(vii); (iv) payments of secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; (v) provided no Default has occurred and is continuing or would result therefrom, Optional Debt Repurchases of Inside Indebtedness and, to the extent permitted by paragraph (c) of this section, Optional Debt Repurchases of Outside Indebtedness; (vi) repurchases, exchanges or redemptions of Indebtedness for consideration consisting solely of common stock of the Borrower or Qualified Preferred Stock; (vii) prepayments of Capital Lease Obligations in connection with the sale, closing or relocation of Stores; (viii) prepayments of Indebtedness in connection with the incurrence of Refinancing Indebtedness permitted pursuant to Section 6.01(a)(ii) or (viii); and (ix) prepayments of Indebtedness permitted pursuant to Section 6.01(a)(iii), if permitted by the subordination provisions applicable to such Indebtedness. (c) The Borrower and the Subsidiaries will not effect Optional Debt Repurchases of Outside Indebtedness unless immediately prior and after giving effect to 82 any such Optional Debt Repurchases, (x) no Default or Event of Default shall have occurred and be continuing and (y) the Borrower shall have Revolver Availability of more than $300,000,000. SECTION 6.09. Transactions with Affiliates. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except: (a) payment of compensation to directors, officers, and employees of the Borrower and the Subsidiaries in the ordinary course of business; (b) payments in respect of transactions required to be made pursuant to agreements or arrangements in effect on the Restatement Effective Date and set forth on Schedule 6.09; (c) transactions involving the acquisition of inventory in the ordinary course of business; provided that (i) the terms of such transaction are (A) set forth in writing, (B) in the best interests of the Borrower or such Subsidiary, as the case may be, and (C) no less favorable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a Person that is not an Affiliate of the Borrower or a Subsidiary and, (ii) if such transaction involves aggregate payments or value in excess of $50,000,000, the board of directors of the Borrower (including a majority of the disinterested members of the board of directors) approves such transaction and, in its good faith judgment, believes that such transaction complies with clauses (i)(B) and (C) of this paragraph; (d) (i) transactions between or among the Borrower and/or one or more Subsidiary Loan Parties and (ii) sales of Securitization Assets to Securitization Vehicles in Securitizations permitted by Sections 6.01 and 6.05; and (e) any other Affiliate transaction not otherwise permitted pursuant to this Section 6.09; provided that (i) the terms of such transaction are (A) set forth in writing, (B) in the best interests of the Borrower or such Subsidiary, as the case may be, and (C) no less favorable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's length transaction with a Person that is not an Affiliate of the Borrower or a Subsidiary, (ii) if such transaction involves aggregate payments or value in excess of $25,000,000 in any consecutive 12-month period, the board of directors of the Borrower (including a majority of the disinterested members of the board of directors) approves such transaction and, in its good faith judgment, believes that such transaction complies with clauses (i)(B) and (C) of this paragraph and (iii) if such transaction involves aggregate payments or value in excess of $50,000,000 in any consecutive 12-month period, the Borrower obtains a written opinion from an independent investment banking firm or appraiser of national prominence, as appropriate, to the effect that such transaction is fair to the Borrower or such Subsidiary, as the case may be, from a financial point of view. 83 SECTION 6.10. Restrictive Agreements. (a) The Borrower will not, and will not permit any Subsidiary to, enter into any agreement which imposes a limitation on the incurrence by the Borrower and the Subsidiaries of Liens that (i) would restrict any Subsidiary from granting Liens on any of its assets (including assets in addition to the then-existing Senior Collateral to secure the Senior Obligations and the Second Priority Obligations) or, (ii) is more restrictive than the limitation on Liens set forth in this Agreement except, in each case, (A)(w) the Senior Loan Documents, (x) agreements with respect to Indebtedness secured by Liens permitted by Section 6.02(a) restricting the ability to transfer or grant Liens on the assets securing such Indebtedness, (y) agreements with respect to Second Priority Debt (1) containing provisions described in clauses (i) and/or (ii) above that are not materially more restrictive, taken as a whole, than those of the 9.5% Note Indenture as in effect on the Restatement Effective Date or (2) requiring that such Indebtedness be secured by assets in respect of which Liens are granted to secure other Indebtedness (provided that in the case of any such assets subject to a Senior Lien, such Indebtedness will be required to be secured only with a Second Priority Lien); provided, however, that the Second Priority Debt Documents relating to any such Indebtedness may not contain terms requiring any Liens be granted with respect to Senior Collateral consisting of cash or Permitted Investments pledged pursuant to Section 2.05(j) of this Agreement or Section 5 of the Senior Subsidiary Guarantee Agreement or otherwise required to be provided upon the occurrence of a default under any bank credit facility to secure obligations in respect of letters of credit issued thereunder and (z) agreements with respect to unsecured Indebtedness governed by indentures or by credit agreements or note purchase agreements with institutional investors permitted by this Agreement containing terms that are not materially more restrictive, taken as a whole, than those of the 9.25% Note Indenture as in effect on the Restatement Effective Date, (B) customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing, (C) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, (D) pursuant to applicable law, (E) agreements in effect as of the Effective Date and not entered into in contemplation of the transactions effected in connection with the closing of the Original Agreement, (F) the Indentures, in each case when originally entered into, (G) any restriction existing under agreements relating to assets acquired by the Borrower or a Subsidiary in a transaction permitted hereby; provided that such agreements existed at the time of such acquisition, were not put into place in anticipation of such acquisition and are not applicable to any assets other than assets so acquired, (H) any restriction existing under any agreement of a Person acquired as a Subsidiary pursuant to Section 6.03, Section 6.04(a)(xii), 6.04(a)(xiii); provided that any such agreement existed at the time of such acquisition, was not put into place in anticipation of such acquisition and was not applicable to any Person or assets other than the Person or assets so acquired and (I) customary restrictions and conditions contained in agreements relating to Securitizations permitted hereunder, provided that such restrictions and conditions apply only to Securitization Vehicles and to the Securitization Assets that are subject to such Securitizations. (b) The Borrower will not, and will not permit any Subsidiary to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (i) make Restricted Payments in respect of any Equity 84 Interests of such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any other Subsidiary, (ii) make any Investment in the Borrower or any other Subsidiary, or (iii) transfer any of its assets to the Borrower or any other Subsidiary, except for (A) any restriction existing under (1) the Senior Loan Documents or existing on the Restatement Effective Date under the Indentures, (2) the indenture or agreement governing any Refinancing Indebtedness in respect of Indebtedness set forth in clause (1) above or (3) agreements with respect to Indebtedness permitted by this Agreement containing provisions described in clauses (i), (ii) and (iii) above that are not materially more restrictive, taken as a whole, than those of the 9.5% Note Indenture or, alternatively, the 9.25% Note Indenture, in each case as in effect on the Restatement Effective Date, (B) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business, (C) as required by applicable law, (D) customary restrictions contained in purchase and sale agreements limiting the transfer of the subject assets pending closing, (E) any restriction existing under agreements relating to assets acquired by the Borrower or a Subsidiary in a transaction permitted hereby; provided that such agreements existed at the time of such acquisition, were not put into place in anticipation of such acquisition and are not applicable to any assets other than assets so acquired, (F) any restriction existing under any agreement of a Person acquired as a Subsidiary pursuant to Section 6.03, Section 6.04(a)(xii) or Section 6.04(a)(xiii); provided any such agreement existed at the time of such acquisition, was not put into place in anticipation of such acquisition and was not applicable to any Person or assets other than the Person or assets so acquired, (G) agreements with respect to Indebtedness secured by Liens permitted by Section 6.02 that restrict the ability to transfer the assets securing such Indebtedness and (H) customary restrictions and conditions contained in agreements relating to Securitizations permitted hereunder, provided that such restrictions and conditions apply only to Securitization Vehicles and to the Securitization Assets that are subject to such Securitizations. SECTION 6.11. Amendment of Material Documents. (a) The Borrower will not, nor will it permit any Subsidiary to, amend, modify or waive any Second Priority Security Document or any of its rights thereunder without the consent of the Collateral Agents, other than modifications to such agreements in connection with (i) the joinder of additional Subsidiary Loan Parties effected by the execution of supplements to such agreements and (ii) the inclusion of additional Second Priority Debt permitted pursuant to Section 6.01(a)(v) constituting Secured Obligations (as defined in the Second Priority Security Agreement) under such agreements. (b) The Borrower will not, and will not permit any Subsidiary party to the Intercompany Inventory Purchase Agreement to, amend, terminate, or otherwise modify the Intercompany Inventory Purchase Agreement in any manner materially adverse to the Lenders or their interests under the Senior Loan Documents without the prior written approval of the Collateral Agents; provided, however, that the foregoing shall not limit the Borrower's responsibilities pursuant to Section 3.2 of the Intercompany Inventory Purchase Agreement. SECTION 6.12. [Intentionally Omitted] 85 SECTION 6.13. Leverage Ratio. The Borrower will not permit the Leverage Ratio as of any date during a Financial Covenant Effectiveness Period to exceed the ratio set forth opposite the period below that includes such date: Period Ratio ------ ----- May 30, 2004 through August 28, 2004 6.35 to 1.00 August 29, 2004 through November 27, 2004 6.20 to 1.00 November 28, 2004 through February 26, 2005 6.05 to 1.00 February 27, 2005 through May 28, 2005 5.60 to 1.00 May 29, 2005 through August 27, 2005 5.50 to 1.00 August 28, 2005 through November 26, 2005 5.30 to 1.00 November 27, 2005 through March 4, 2006 5.10 to 1.00 March 5, 2006 through June 3, 2006 4.95 to 1.00 June 4, 2006 through September 2, 2006 4.85 to 1.00 September 3, 2006 through December 2, 2006 4.50 to 1.00 December 3, 2006 through March 3, 2007 4.20 to 1.00 March 4, 2007 through September 1, 2007 4.00 to 1.00 September 2, 2007 through December 1, 2007 3.80 to 1.00 December 2, 2007 through March 1, 2008 3.80 to 1.00 March 2, 2008 through May 31, 2008 3.60 to 1.00 June 1, 2008 through August 30, 2008 3.60 to 1.00 August 31, 2008 through November 29, 2008 3.40 to 1.00 November 30, 2008 through February 28, 2009 3.40 to 1.00 March 1, 2009 through May 30, 2009 3.20 to 1.00 May 31, 2009 through August 29, 2009 3.20 to 1.00 SECTION 6.14. Consolidated Fixed Charge Coverage Ratio. The Borrower will not permit the Consolidated Fixed Charge Coverage Ratio for the period of four consecutive fiscal quarters most recently ended on or prior to any day during a Financial Covenant Effectiveness Period to be less than the ratio set forth below opposite the period that includes the last day of such four quarter period: Four Fiscal Quarter Period Ending Ratio --------------------------------- ----- May 30, 2004 through August 28, 2004 1.05 to 1.00 August 29, 2004 through November 27, 2004 1.05 to 1.00 86 November 28, 2004 through February 26, 2005 1.05 to 1.00 February 27, 2005 through May 28, 2005 1.05 to 1.00 May 29, 2005 through August 27, 2005 1.05 to 1.00 August 28, 2005 through November 26, 2005 1.05 to 1.00 November 27, 2005 through March 4, 2006 1.10 to 1.00 March 5, 2006 through June 3, 2006 1.10 to 1.00 June 4, 2006 through September 2, 2006 1.10 to 1.00 September 3, 2006 through December 2, 2006 1.10 to 1.00 December 3, 2006 through March 3, 2007 1.15 to 1.00 March 4, 2007 through September 1, 2007 1.15 to 1.00 September 2, 2007 through December 1, 2007 1.15 to 1.00 December 2, 2007 through March 1, 2008 1.15 to 1.00 March 2, 2008 through May 31, 2008 1.20 to 1.00 June 1, 2008 through August 30, 2008 1.20 to 1.00 August 31, 2008 through November 29, 2008 1.20 to 1.00 November 30, 2008 through February 28, 2009 1.20 to 1.00 March 1, 2009 through May 30, 2009 1.25 to 1.00 May 31, 2009 through August 29, 2009 1.25 to 1.00 SECTION 6.15. [Intentionally Omitted] SECTION 6.16. Restrictions on Asset Holdings by the Borrower. The Borrower will not at any time: (i) make or hold any Investments other than investments in the Equity Interests of the Subsidiaries (including any distributions or other assets received in respect thereto) intercompany advances to Subsidiaries and Investments permitted by clause (iii) below; (ii) acquire or hold any Stores, other capital assets, inventory or accounts receivable, other than any real estate which the Borrower holds only as lessor and which is leased and operated by another Person; or (iii) acquire or hold cash, cash equivalents, Permitted Investments or balances in bank accounts, other than such amounts as are reasonably anticipated (at the time so acquired or held) to be utilized within five Business Days to pay costs, expenses and other obligations of the Borrower referred to in Section 5.10(b). 87 SECTION 6.17. Corporate Separateness. The Borrower will, and will cause each Subsidiary to, take all necessary steps to maintain its identity as a separate legal entity from other Persons and to make it manifest to third parties that it is an entity with assets and liabilities distinct from those of each of other Person. ARTICLE VII Events of Default If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement or any other Senior Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five days; (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with any Senior Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Senior Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been incorrect in any material respect when made or deemed made; (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02(a), 5.10, 5.11, 5.15 or 5.16 or in Article VI; (e) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in any Senior Loan Document (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied (i) in the case of covenants contained in Section 5.08, for 5 days, (ii) in the case of covenants contained in Sections 5.01 and 5.02(b), (c) and (f), for 10 days and (iii) in the case of any other covenant, for a period of 20 days after notice thereof has been delivered by the Administrative Agent to the Borrower (which notice shall be given promptly at the request of any Lender); (f) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, including any obligation to reimburse letter of credit obligations or to post cash collateral with respect thereto, when and as the same shall become due and payable or within any applicable grace period; 88 (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its Indebtedness, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) the Borrower or any Subsidiary shall become unable to, or admits in writing its inability or fails to, generally pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $25,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; (l) (i) the Borrower or any ERISA Affiliate shall fail to pay when due an amount or amounts aggregating in excess of $10,000,000 which it shall have become liable to pay under Section 302 or Title IV of ERISA; or notice of intent to terminate a Plan shall be filed under Title IV of ERISA by the Borrower or any ERISA Affiliate, 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 89 appointed to administer, any Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any 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 the Borrower and/or one or more ERISA Affiliates to incur a current payment obligation in excess of $50,000,000; or (ii) any other ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower, the ERISA Affiliates and the Subsidiaries in an aggregate amount exceeding $50,000,000; (m) (i) any Lien purported to be created under any Senior Collateral Document shall cease to be a valid and perfected Lien on any material portion of the Senior Collateral, with the priority required by the Senior Loan Documents, except as a result of the sale or other disposition of the applicable Collateral in a transaction permitted under the Senior Loan Documents, or the Borrower or any Subsidiary shall so assert in writing, or (ii) any Senior Loan Document shall become invalid, or the Borrower or any Subsidiary shall so assert in writing; (n) a Change in Control shall occur; or (o) any Subsidiary Loan Party shall amend or revoke any instruction in the Government Lockbox Account Agreement to any Government Lockbox Account Bank in respect of a Government Lockbox Account unless (i) the Administrative Agent shall have given its prior written consent or (ii) the Government Lockbox Account is then under the control of any other Person pursuant to Section 5.16; then, and in every such event (other than an event with respect to the Borrower or any Subsidiary Loan Party described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower or any Subsidiary Loan Party described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. 90 ARTICLE VIII The Agents Each of the Lenders and each Issuing Bank hereby irrevocably appoints (i) the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms of the Senior Loan Documents, together with such actions and powers as are reasonably incidental thereto and (ii) each Collateral Agent as its agent and authorizes the Collateral Agents to take such actions on its behalf and to exercise such powers as are delegated to the Collateral Agents by the terms of the Senior Loan Documents, together with such actions and powers as are reasonably incidental thereto. The financial institutions serving as the Agents hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and such financial institutions and their Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or any Affiliate of any of the foregoing as if they were not Agents hereunder. No Agent shall have any duties or obligations except those expressly set forth in the Senior Loan Documents. Without limiting the generality of the foregoing, (a) no Agent shall be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) no Agent shall have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Senior Loan Documents that such Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 2.20 or 9.02) and (c) except as expressly set forth in the Senior Loan Documents, no Agent shall have any duty to disclose, and no Agent shall be liable for the failure to disclose, any information relating to the Borrower or any of the Subsidiaries that is communicated to or obtained by the financial institution serving as such Agent or any of its Affiliates in any capacity. No Agent shall be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 2.20 or 9.02) or in the absence of its own gross negligence or wilful misconduct (as determined by a court of competent jurisdiction by final and non-appealable judgment). No Agent shall be deemed to have knowledge of any Default unless and until written notice thereof is given to such Agent by the Borrower or a Lender, as applicable, and no Agent shall be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Senior Loan Document, (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Senior Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Senior Loan Document or any other agreement, instrument or document or (v) the satisfaction of 91 any condition set forth in Article IV or elsewhere in any Senior Loan Document, other than to confirm receipt of items expressly required to be delivered to such Agent. Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. Each Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. Any Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. Each Agent may perform any and all of its duties and exercise any and all of its rights and powers by or through any one or more sub-agents appointed by such Agent. Any Agent and any such sub-agent may perform any and all of its duties and exercise any and all of its rights and powers through their Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of any Agent and any such sub-agent, and shall apply to their activities in connection with the syndication of the credit facilities provided for herein as well as activities as an Agent. Subject to the appointment and acceptance of a successor Agent as provided in this paragraph, any Agent may resign at any time by notifying the Lenders, the Issuing Banks and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders and the Issuing Banks, appoint a successor Agent (which shall be a financial institution with an office in New York, New York, or an Affiliate of any such financial institution). Upon the acceptance of its appointment as an Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After an Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Agent. Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender 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 Lender also acknowledges that it will, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own 92 decisions in taking or not taking action under or based upon this Agreement, any other Senior Loan Document or related agreement or any document furnished hereunder or thereunder. Each party hereto authorizes the Administrative Agent to enter into customary intercreditor agreements in connection with Securitizations and Factoring Transactions permitted under this Agreement. ARTICLE IX Miscellaneous SECTION 9.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) Rite Aid Corporation, 30 Hunter Lane Camp Hill, PA 17011, Attention of General Counsel (Telecopy No. 717-760-7867; email address: rsari@riteaid.com); (b) if to the Administrative Agent, to Citicorp North America, Inc., 388 Greenwich Street, New York, NY 10013, Attention of Sebastien Delasnerie (Telecopy No. 212-816-2613; email address: sebastien.delasnerie@citigroup.com; email address: sebastien.delasnerie@citigroup.com, with a copy to oploanswebadmin@citigroup.com); (c) if to the Syndication Agent, to JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017, Attention of Teri Streusand (Telecopy No. 212- 270-6637; email address: teri.streusand@jpmorgan.com); (d) if to the Issuing Banks, to (i) Citicorp North America, Inc., 388 Greenwich Street, New York, NY 10013, Attention of Sebastien Delasnerie (Telecopy No. 212- 816-2613; email address: sebastien.delasnerie@citigroup.com) and (ii) JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017, Attention of Teri Streusand (Telecopy No. 212-270-6637; email address: teri.streusand@jpmorgan.com); (e) if to the Swingline Lender, to it at Citicorp North America, Inc., 388 Greenwich Street, New York, NY 10013, Attention of Sebastien Delasnerie (Telecopy No: 212-816-2613; email address:sebastien.delasnerie@citigroup.com); and (f) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other 93 communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 9.02. Waivers; Amendments. (a) No failure or delay by any Agent, any Issuing Bank or any Lender in exercising any right or power hereunder or under any other Senior Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Agents, the Issuing Banks and the Lenders hereunder and under the other Senior Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Senior Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether any Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any other Senior Loan Document nor any provision hereof or thereof may be waived, amended or modified except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or, in the case of any other Senior Loan Document, pursuant to an agreement or agreements in writing entered into by the Administrative Agent and the Loan Party or Loan Parties that are parties thereto, in each case with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce or forgive the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the maturity of any Loan, or any scheduled date of payment of the principal amount of any Term Loan under Section 2.10, or the required date of reimbursement of any LC Disbursement, or any date for the payment of any interest or fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) amend Section 2.18(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) amend the proviso of the definition of "Borrowing Base Amount" or the definition of "Account Receivable Advance Rate", "Pharmaceutical Inventory Advance Rate", "Other Inventory Advance Rate" or "Script Lists Advance Rate" without the written consent of each of the Lenders, (vi) subordinate the priority of the Lien granted to the Senior Collateral Agents pursuant to the Senior Loan Documents without the written consent of each Lender, (vii) change any of the provisions of this Section or the percentage set forth in the definition of "Required Lenders" or any other provision of any Senior Loan Document specifying the number or percentage of Lenders (or Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of 94 each Lender (or each Lender of such Class, as the case may be), (viii) release the Borrower or any Subsidiary Loan Party from its Guarantee under the Senior Subsidiary Guarantee Agreement (except as expressly provided in the Senior Subsidiary Guarantee Agreement), or limit its liability in respect of such Guarantee, without the written consent of each Lender, (ix) release all or substantially all of the Senior Collateral from the Liens under the Senior Collateral Documents, without the written consent of each Lender, (x) change any provision of any Senior Loan Document in a manner that by its terms adversely affects the rights in respect of payments due to Lenders holding Loans of any Class differently than those holding Loans of any other Class, without the written consent of Lenders holding a majority in interest of the outstanding Loans and unused Commitments of each affected Class, (xi) amend Section 2.21 to increase the permitted Incremental Facilities to in excess of $700,000,000, without the written consent of Lenders having Revolving Exposures, outstanding Term Loans and unused Commitments representing more than 66-2/3% of the sum of the total Revolving Exposures, outstanding Term Loans and unused Commitments at such time or (xii) waive any condition to effectiveness set forth in Section 4.01, without the written consent of each Lender; and provided further, that (A) no such agreement shall amend, modify or otherwise affect the rights or duties of any Agent, the Issuing Banks or the Swingline Lender without the prior written consent of such Agent, the Issuing Banks or the Swingline Lender, as the case may be, and (B) any waiver, amendment or modification of this Agreement that by its terms affects the rights or duties under this Agreement of the Revolving Lenders (but not the Term Loan Lenders) or the Term Loan Lenders (but not the Revolving Lenders) may be effected by an agreement or agreements in writing entered into by the Borrower and requisite percentage in interest of the affected Class of Lenders that would be required to consent thereto under this Section if such Class of Lenders were the only Class of Lenders hereunder at the time; and provided further, that no such agreement shall change the allocation of amounts applied to the permanent reduction of Revolving Commitments and the prepayment of outstanding Term Loans in connection with any such reduction and prepayment required by Section 2.11(b), (c) or (d) without the written consent of Revolving Lenders having more than 50% of the total LC Exposure and unused Revolving Commitments at such time and Term Loan Lenders holding more than 50% of the outstanding Term Loans at such time. Notwithstanding the foregoing, any provision of this Agreement may be amended by an agreement in writing entered into by the Borrower, the Required Lenders and the Administrative Agent (and, if their rights or obligations are affected thereby, the Issuing Banks and the Swingline Lender) if (i) by the terms of such agreement the Commitment of each Lender not consenting to the amendment provided for therein shall terminate upon the effectiveness of such amendment and (ii) at the time such amendment becomes effective, each Lender not consenting thereto receives payment in full of the principal of and interest accrued on each Loan made by it and all other amounts owing to it or accrued for its account under this Agreement. (c) Notwithstanding the foregoing, (i) Senior Collateral shall be released from the Lien under the Senior Collateral Documents from time to time as necessary to effect any sale of Senior Collateral permitted by the Senior Loan Documents, and the Administrative Agent shall execute and deliver all release documents reasonably requested to evidence such release; provided that arrangements satisfactory to the 95 Administrative Agent shall have been made for application of the cash proceeds thereof in accordance with Section 2.11 and for the pledge of any non-cash proceeds thereof pursuant to the Senior Collateral Documents, (ii) the accounts created pursuant to clause (i) of Section 5.16(b), the Lockbox Account and/or the Governmental Lockbox Account may be released by the Administrative Agent and transferred in accordance with Section 5.16 and (iii) if a Subsidiary Loan Party ceases to be a Subsidiary of the Borrower in accordance with this Agreement, or ceases to own any property that constitutes Senior Collateral, at the request of and at the expense of the Borrower, such Subsidiary Loan Party shall be released from the Senior Subsidiary Guarantee Agreement, the Senior Subsidiary Security Agreement and each other Senior Loan Document to which it is a party. SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Agents and their Affiliates, including the reasonable fees, charges and disbursements of counsel for the Agents, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Senior Loan Documents or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by any Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by any Agent, any Issuing Bank or any Lender, including the fees, charges and disbursements of counsel for any Agent, any Issuing Bank or any Lender, in connection with the enforcement or protection of its rights under or in connection with the Senior Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. (b) The Borrower shall indemnify each Agent, each Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Senior Loan Document, the performance by the parties to the Senior Loan Documents of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by an Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property currently or formerly owned or operated by the Borrower or any of the Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of the Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such 96 indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to any Agent, any Issuing Bank or any Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to such Agent, such Issuing Bank or such Lender, as the case may be, such Lender's pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against such Agent, such Issuing Bank or such Lender in its capacity as such. For purposes hereof, a Lender's "pro rata share" shall be determined based upon its share of the sum of the total Revolving Exposures, outstanding Term Loans and unused Commitments at the time. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Senior Loan Document or any other agreement or instrument contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable not later than 10 Business Days after written demand therefor. SECTION 9.04. 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 permitted hereby (including any Affiliate of any Issuing Bank that issues any Letter of Credit), except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their successors and assigns permitted hereby (including any Affiliate of any Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of the Agents, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans at the time owing to it); with the prior written consent (such consent not to be unreasonably withheld or delayed) of: (A) the Borrower; provided that no consent of the Borrower shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved 97 Fund or, if an Event of Default under clause (a), (b), (h), or (i) of Article VII has occurred and is continuing, any other assignee; and (B) the Administrative Agent; provided that no consent of the Administrative Agent shall be required for an assignment to an assignee that is a Lender, an Affiliate of a Lender or an Approved Fund. (ii) Assignments shall be subject to the following additional conditions: (A) except in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than (1) with respect to Revolving Commitments and Revolving Loans, $5,000,000 and (2) with respect to Term Loan Commitments and Term Loans, $1,000,000, or, in each case, if smaller, the entire remaining amount of the assigning Lender's Commitment or Loans, unless each of the Borrower and the Administrative Agent shall otherwise consent; provided that (i) no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing and (ii) in the event of concurrent assignments to two or more assignees that are Affiliates of one another, or to two or more Approved Funds managed by the same investment advisor or by affiliated investment advisors, all such concurrent assignments shall be aggregated in determining compliance with this subsection; (B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement; (C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500; provided that, in the event of concurrent assignments to two or more assignees that are Affiliates of one another, or by or to two or more Approved Funds managed by the same investment advisor or by affiliated investment advisors, only one such fee shall be payable; and (D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. (iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this 98 Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section. (iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Agents, the Issuing Banks and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, any other Agent, any Issuing Bank and any Lender at any reasonable time and from time to time upon reasonable prior notice. (v) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (vi) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (A) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Commitment and the outstanding balances of its Loans, in each case without giving effect to assignments thereof that have not become effective, are as set forth in such Assignment and Acceptance; (B) except as set forth in clause (A) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Senior Loan Document or any other instrument or document furnished pursuant hereto or thereto, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any of the foregoing, or the financial condition of the Loan Parties or the performance or observance by the Loan Parties of any of their obligations under this Agreement or under any other Senior Loan Document or any other instrument or document furnished pursuant hereto or thereto; (C) each of the assignee and the assignor represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (D) such assignee confirms that it has received a copy of this Agreement, together with copies of any 99 amendments or consents entered into prior to the date of such Assignment and Acceptance and copies of the most recent financial statements delivered pursuant to Section 5.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (E) such assignee will independently and without reliance upon the Agents, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (F) such assignee appoints and authorizes the Agents to take such action as agents on its behalf and to exercise such powers under this Agreement and the other Senior Loan Documents as are delegated to them by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (G) such assignee agrees that it will perform in accordance with their terms all the obligations that by the terms of this Agreement are required to be performed by it as a Lender. (c) (i) Any Lender may, without the consent of or notice to the Borrower, the Agents, the Issuing Banks or the Swingline Lender, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (A) such Lender's obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Agents, the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b)(i), (ii) or (iii) that affects such Participant. Subject to paragraph (c)(ii) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.18(c) as though it were a Lender. (ii) A Participant shall not be entitled to receive any greater payment under Section 2.15 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.17 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.17(e) as though it were a Lender. 100 (d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including, without limitation, any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. (e) In the case of any Lender that is a fund that invests in bank loans, such Lender may, without the consent of the Borrower or the Administrative Agent, assign or pledge all or any portion of its rights under the Senior Loan Documents, including the Loans and Notes or any other instrument evidencing its rights as a Lender under the Senior Loan Documents, to any holder of, trustee for, or any other representative of holders of obligations owed or securities issued by such fund, as security for such obligations or securities; provided that any foreclosure or similar action by such trustee or representative shall be subject to the provisions of this Section 9.04 concerning assignments. SECTION 9.05. Survival. All covenants, agreements, representations and warranties made by the Loan Parties in the Senior Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Senior Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Senior Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, any Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Senior Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other 101 parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 9.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (a) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Senior Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Senior Loan Document shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Senior Loan Document against the Borrower or its properties in the courts of any jurisdiction. (b) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or 102 relating to this Agreement or any other Senior Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement or any other Senior Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER SENIOR LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 9.12. Confidentiality. Each of the Administrative Agent, the Issuing Banks and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, trustees, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Senior Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Borrower, (h) to any pledgee referred to in Section 9.04(d) or any direct or indirect contractual counterparty in any Hedging Agreement (or to any such contractual counterparty's professional advisor), so long as such pledgee or contractual counterparty 103 (or such professional advisor) agrees to be bound by the provisions of this Section 9.12, or (i) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, any Issuing Bank or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent, any Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the Borrower. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Notwithstanding anything in this Agreement or in any other Senior Loan Document to the contrary, the Borrower and each Lender (and each employee, representative or other agent of the Borrower) may disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of the Transactions and all materials of any kind (including opinions or other tax analyses) that are provided to the Borrower relating to such U.S. tax treatment and U.S. tax structure. SECTION 9.13. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. SECTION 9.14. Collateral Trust and Intercreditor Agreement. Each Lender, each Issuing Bank and each Agent hereby authorizes the Agent to enter into the Collateral Trust Agreement and each other Senior Collateral Document on its behalf, and agrees that the Administrative Agent and the Collateral Agents may enforce the rights and remedies of the Lenders under each Senior Loan Document to the extent provided in the Senior Collateral Documents and the Collateral Trust and Intercreditor Agreement. SECTION 9.15. Cash Sweep. (a) On any day on which (i) an Event of Default exists or (ii) the lesser of (x) the average Revolving Commitments (after deducting the average total Revolving Exposure) over any 30-day period and (y) the average Borrowing Base Amount (after deducting the average total Revolving Exposure and the average outstanding Term Loans) over any 30-day period, in each case, together with all amounts then on deposit in the Cash Sweep Cash Collateral Account, is less than 104 $75,000,000, then the Collateral Agents, upon its determination or upon request by the Required Lenders, shall be immediately be entitled to deliver Cash Sweep Notices. (b) During a Cash Sweep Period, if (i) there is no Event of Default and (ii) the lesser of (x) the average Revolving Commitments (after deducting the average total Revolving Exposure) over any 30-day period and (y) the average Borrowing Base Amount (after deducting the average total Revolving Exposure and the average outstanding Term Loans) over any 30-day period, in each case, together with all amounts then on deposit in the Cash Sweep Cash Account, is greater than $100,000,000, then the Collateral Agents shall automatically rescind any Cash Sweep Notice and shall be prohibited from delivering any other Cash Sweep Notice (unless and until the occurrence of the events set forth in paragraph (a) of this Section). (c) The Collateral Agents reserves the right to send a Cash Sweep Notice on each occasion of the occurrence of the events set forth in Section 9.15(a). SECTION 9.16. Electronic Communications. (a) Notwithstanding anything in any Senior Loan Document to the contrary, the Borrower hereby agrees that it will use its reasonable best efforts to provide to the Administrative Agent all information, documents and other materials that it is obligated to furnish to the Administrative Agent pursuant to the Senior Loan Documents, including, without limitation, all notices, requests, financial statements, financial and other reports, certificates and other information materials, but excluding any such communication that (i) relates to a request for a new, or a conversion of an existing, Borrowing or other extension of credit (including any election of an interest rate or Interest Period relating thereto), (ii) relates to the payment of any principal or other amount due under any Senior Loan Document prior to the scheduled date therefor, (iii) provides notice of any Default or Event of Default under any Senior Loan Document or (iv) is required to be delivered to satisfy any condition set forth in Section 4.01 and/or 4.02 (all such non-excluded communications being referred to herein collectively as the "Communications"), by transmitting the Communications in an electronic/soft medium in a format acceptable to the Administrative Agent to oploanswebadmin@citigroup.com, with a copy to sebastien.delasnerie@citigroup.com. In addition, the Borrower agrees to continue to provide the Communications to the Administrative Agent in the manner specified in the Senior Loan Documents, but only to the extent requested by the Administrative Agent. (b) The Borrower further agrees that the Administrative Agent may make the Communications available to the Lenders by posting the Communications on Intralinks, Fixed Income Direct or a substantially similar electronic transmission system (each such system, a "Platform"). The Borrower acknowledges that the distribution of material through an electronic medium is not necessarily secure and that there are confidentiality and other risks associated with such distribution. (c) EACH PLATFORM IS PROVIDED "AS IS" AND "AS AVAILABLE". THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE COMMUNICATIONS, OR THE ADEQUACY OF ANY PLATFORM, AND 105 EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR OMISSIONS IN THE COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE AGENT PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR ANY PLATFORM. IN NO EVENT SHALL THE ADMINISTRATIVE AGENT OR ANY OF ITS AFFILIATES OR ANY OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ADVISORS OR REPRESENTATIVES (COLLECTIVELY, THE "AGENT PARTIES") HAVE ANY LIABILITY TO THE BORROWER, ANY OTHER LOAN PARTY, ANY LENDER OR ANY OTHER PERSON OR ENTITY FOR DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF THE BORROWER'S OR THE ADMINISTRATIVE AGENT'S TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET, EXCEPT TO THE EXTENT THE LIABILITY OF ANY AGENT PARTY IS FOUND IN A FINAL NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED PRIMARILY FROM SUCH AGENT PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. (d) The Administrative Agent agrees that the receipt of the Communications by it at its e-mail address set forth in Section 9.01 shall constitute effective delivery of the Communications to the Administrative Agent for purposes of this Section. Each Lender agrees that notice to it (as provided in the next sentence) specifying that the Communications have been posted to a Platform shall constitute effective delivery of the Communications to such Lender for purposes of this Section. Each Lender agrees (i) to notify the Administrative Agent in writing (including by electronic communication) from time to time of such Lender's e-mail address to which the foregoing notice may be sent by electronic transmission and (ii) that the foregoing notice may be sent to such e-mail address. (e) Nothing in this Section 9.16 shall prejudice the right of the Administrative Agent or any Lender to give any notice or other communication pursuant to any Senior Loan Document in any other manner specified in such Senior Loan Document. 106 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. RITE AID CORPORATION, by ------------------------------------- Name: Title: CITICORP NORTH AMERICA, INC., individually and as Administrative Agent and Collateral Processing Co-Agent, by ------------------------------------- Name: Title: JPMORGAN CHASE BANK, individually and as Syndication Agent and Collateral Processing Co-Agent, by ------------------------------------- Name: Title: FLEET RETAIL GROUP, INC., individually and as Collateral Agent and Co-Documentation Agent, by ------------------------------------- Name: Title: 107 CIT GROUP/BUSINESS CREDIT, INC., individually and as Co-Documentation Agent, by ------------------------------------- Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION, individually and as Co-Documentation Agent, by ------------------------------------- Name: Title: 108 SIGNATURE PAGE TO THE RITE AID AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF SEPTEMBER 22, 2004 Name of Institution: -------------------- by ---------------------------------------- Name: Title: ANNEX 1 DEFINITIONS ANNEX This is the Definitions Annex referred to in the Senior Loan Documents and the Second Priority Debt Documents. Each capitalized term used herein shall have the meaning assigned to it below or, if not defined herein, the meaning assigned to it in the applicable Senior Loan Document or Second Priority Debt Document. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. References to any agreement are to such agreement as amended, modified or supplemented from time to time in accordance with the terms thereof and of each Senior Loan Document and Second Priority Debt Document containing restrictions or imposing conditions on the amendment, modification or supplementing of such agreement. "Affiliate" means, when used with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Asset Sale" means any sale, lease, assignment, transfer or other disposition (including pursuant to a Sale and Leaseback Transaction) of any property or asset (whether now owned or hereafter acquired, whether in one transaction or a series of transactions and whether by way of merger or otherwise) of the Borrower or any Subsidiary (including of any Equity Interest in a Subsidiary). "Attributable Debt" means, as to any particular Capital Lease or Sale and Leaseback Transaction under which the Borrower or any Subsidiary is at the time liable, as of any date as of which the amount thereof is to be determined (i) in the case of a transaction involving a Capital Lease, the amount as of such date of Capital Lease Obligations with respect thereto and (ii) in the case of a Sale and Leaseback Transaction not involving a Capital Lease, the then present value of the minimum rental obligations under such Sale and Leaseback Transaction during the remaining term thereof (after giving effect to any extensions at the option of the lessor) computed by discounting the rental payments at the actual interest factor included in such payments or, if such interest factor cannot be readily determined, at the rate per annum that would be applicable to a Capital Lease of the Borrower having similar payment terms. The amount of any rental payment required to be made under any such Sale and Leaseback Transaction not involving a Capital Lease may exclude amounts required to be paid by the lessee on account of maintenance and repairs, insurance, taxes, assessments, utilities, operating and labor costs and similar charges, whether or not characterized as rent. Any determination of any rate implicit in the terms of a Capital Lease or a lease in a Sale and Leaseback Transaction not involving a Capital Lease made in accordance with generally accepted financial practices by the Borrower shall be binding and conclusive absent manifest error. 2 "Bankruptcy Proceeding" means any proceeding under Title 11 of the U.S. Code or any other Federal, state or foreign bankruptcy, insolvency, reorganization, receivership or similar law. "Basket Asset Sale" means any sale, transfer or disposition (including a Sale and Leaseback Transaction not involving any Mortgaged Property) of office locations, Stores or other personal or real property (including any improvements thereon), whether or not constituting Mortgaged Property, or leasehold interest therein for fair value in the ordinary course of business consistent with past practice and not inconsistent with the business plan delivered to the Senior Lenders prior to the Restatement Effective Date; provided, however, that (i) the aggregate consideration received therefor (including the fair market value of any non-cash consideration) shall not exceed $75,000,000 in any fiscal year of Rite Aid (calculated without regard to Sale and Leaseback Transactions permitted by Section 6.01(vii), (xii) and (xiii) of the Senior Credit Agreement) and (ii) except with respect to any net consideration received from any sale, transfer or disposition to a third Person of Stores, leases and prescription files closed at substantially the same time as, and entered into as part of a single related transaction with, the purchase or other acquisition from such third Person of Stores, leases and prescription files of a substantially equivalent value, at least 75% of such consideration shall consist of cash. "Borrower" means Rite Aid. "Business Day" means any day other than a Saturday, Sunday or day on which commercial banks in New York City or Chicago, Illinois are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease" means any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which, in accordance with GAAP, should be capitalized on the lessee's balance sheet. "Casualty/Condemnation" means any event that gives rise to Casualty/Condemnation Proceeds. "Casualty/Condemnation Proceeds" means (a) any insurance proceeds under any insurance policies or otherwise with respect to any casualty or other insured damage to any properties or assets of the Borrower or the Subsidiaries; and (b) any proceeds received by the Borrower or any Subsidiary in connection with any action or proceeding for the taking of any properties or assets of the Borrower or the Subsidiaries, or any part thereof or interest therein, for 3 public or quasi-public use under the power of eminent domain, by reason of any similar public improvement or condemnation proceeding; minus, in each case (i) any fees, commissions and expenses (including the costs of adjustment and condemnation proceedings) and other costs paid or incurred by the Borrower or any Subsidiary in connection therewith, (ii) the amount of income taxes reasonably estimated to be payable as a result of any gain recognized in connection with the receipt of such payment or proceeds and (iii) the amount of any Indebtedness (or Attributable Debt), other than the Senior Obligations, together with premium or penalty, if any, and interest thereon (or comparable obligations in respect of Attributable Debt), that is secured by a Lien on (or if Attributable Debt, the lease of) the properties or assets in question and that has priority over both the Senior Lien and the Second Priority Lien, that is required to be repaid as a result of the receipt by the Borrower or a Subsidiary of such payments or proceeds; provided, however, that no such proceeds shall constitute Casualty/Condemnation Proceeds to the extent that such proceeds are (A) reinvested in other like fixed or capital assets within 270 days of the Casualty/Condemnation that gave rise to such proceeds or (B) committed to be reinvested in other like fixed or capital assets within 270 days of such Casualty/Condemnation, with diligent pursuit of such reinvestment, and reinvested in such assets within 365 days of such Casualty/Condemnation. "Citibank" means Citibank, N.A. "Collateral" means the Senior Collateral and the Second Priority Collateral. "Collateral Documents" means the Senior Collateral Documents and the Second Priority Collateral Documents. "Collateral Trust and Intercreditor Agreement" means the Amended and Restated Collateral Trust and Intercreditor Agreement, dated as of June 27, 2001, as amended and restated as of May 28, 2003, among Rite Aid, the Subsidiary Guarantors, the Second Priority Collateral Trustee, the Senior Collateral Agents and each other Representative. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Debt Facility" means the Senior Credit Agreement and any Second Priority Debt Facility, or any combination thereof (as the context requires). "Default Rate" means a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) equal to the sum of (a) the rate of interest publicly announced by Citibank in New York, New York, from time to time as its "base rate" plus (b) 2.00%. 4 "Domestic Subsidiary" means any Subsidiary incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "Effective Date" means June 27, 2001. "Effective Date Indentures" mean, collectively, (a) the Indenture dated as of December 21, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee, (b) the Indenture dated as of August 1, 1993, between Rite Aid and Morgan Guaranty Trust Company of New York, as trustee, (c) the Indenture dated as September 10, 1997, between Rite Aid and Harris Trust and Savings Bank, as trustee and (d) the Indenture dated as of September 22, 1998, between Rite Aid and Harris Trust and Savings Bank, as trustee. "8.125% Note Indenture" means the Indenture dated as of April 22, 2003 among Rite Aid, the Subsidiary Guarantors and BNY Midwest Trust Company, as trustee, relating to the 8.125% Notes. "8.125% Notes" means the 8.125% Senior Secured Notes of the Borrower due 2010 issued pursuant to the 8.125% Note Indenture and any Registered Equivalent Notes issued in exchange therefor. "11.25% Senior Notes" means the 11.25% Senior Notes of the Borrower due 2008 issued pursuant to the Unsecured Note Indenture and any Registered Equivalent Notes issued in exchange therefor. "4.75% Convertible Notes" means the 4.75% Convertible Notes of the Borrower due 2006 issued pursuant to the 4.75% Note Indenture and any Registered Equivalent Notes issued on exchange thereof. "4.75% Note Indenture" means the Indenture dated as of November 19, 2001 between Rite Aid and BNY Midwest Trust Company, as trustee, relating to the 4.75% Convertible Notes. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty 5 issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "Indentures" mean, collectively, the Effective Date Indentures and the Restatement Date Indentures. "Instructing Group" means, until the Senior Obligation Payment Date, the Required Lenders and, thereafter, the Second Priority Instructing Group. "Intercompany Inventory Purchase Agreement" means the Intercompany Inventory Purchase Agreement dated as of June 12, 2000 (as amended), among the Borrower, Rite Aid Hdqtrs. Corp., the Distribution Subsidiaries named therein and the Operating Subsidiaries named therein. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, Capital Lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. 6 "Majority Senior Parties" means the Required Lenders (as defined in the Senior Credit Agreement), or with respect to any waiver, amendment or request, Senior Lenders having such amount of unused Revolving Commitments, Revolving Credit Exposure, unused Term Loan Commitments and outstanding Term Loans as may be required under the Senior Credit Agreement to approve the same. "Moody's" means Moody's Investors Service, Inc., or any successor to its business of rating debt securities. "Net Cash Proceeds" means: (a) with respect to any Asset Sale, an amount equal to the cash proceeds received by the Borrower or any of the Subsidiaries from or in respect of such Asset Sale (including, when received, any cash proceeds received in respect of any noncash proceeds of any Asset Sale), less the sum of (i) reasonable costs and expenses paid or incurred in connection with such transaction, including, without limitation, any underwriting brokerage or other customary selling commissions and reasonable legal, advisory and other fees and expenses (including title and recording expenses, associated therewith), payments of unassumed liabilities relating to the assets sold and any severance and termination costs; (ii) the amount of any Indebtedness (or Attributable Debt), together with premium or penalty, if any, and accrued interest thereon (or comparable obligations in respect of Attributable Debt) secured by a Lien on (or if Attributable Debt, the lease of) any asset disposed of in such Asset Sale and discharged from the proceeds thereof, but only to the extent such Lien has priority over the Senior Lien and the Second Priority Lien; (iii) any taxes actually paid or to be payable by such Person (as estimated by a senior financial or accounting officer of the Borrower, giving effect to the overall tax position of the Borrower) in respect of such Asset Sale; and (iv) the portion of such cash proceeds which the Borrower determines in good faith and reasonably should be reserved for post-closing adjustments, including, without limitation, indemnification payments and purchase price adjustments, provided, that on the date that all such post-closing adjustments have been determined, the amount (if any) by which the reserved amount in respect of such Asset Sale exceeds the actual post-closing adjustments payable by the Borrower or any of the Subsidiary Loan Parties shall constitute Net Cash Proceeds on such date; 7 (b) with respect to any Capital Markets Transaction, an amount equal to the cash proceeds received by the Borrower or any of the Subsidiaries from or in respect of such Capital Markets Transaction, less any reasonable transaction costs, including investment banking and underwriting fees, discounts and commissions and any other expenses (including legal fees and expenses) reasonably incurred by such Person in respect of such Capital Markets Transaction; (c) with respect to any Securitization, an amount equal to the cash proceeds received by the Borrower or any of the Subsidiary from or in respect of such Securitization, less any reasonable transaction costs, including investment banking and underwriting fees, discounts and commissions and any other expenses (including legal fees and expenses) reasonably incurred by such Person in respect of such Securitization; and (d) with respect to a Casualty/Condemnation, the amount of Casualty/Condemnation Proceeds. "9.5% Note Indenture" means the Indenture dated as of February 12, 2003 among Rite Aid, the Subsidiary Guarantors and BNY Midwest Trust Company, as trustee, relating to the 9.5% Notes. "9.5% Notes" means the 9.5% Senior Secured Notes of Rite Aid due 2011 issued pursuant to the 9.5% Note Indenture and any Registered Equivalent Notes issued in exchange therefor. "9.25% Note Indenture" means the Indenture dated as of May 20, 2003 between Rite Aid and BNY Midwest Trust Company, as trustee, relating to the 9.25% Notes. "9.25% Notes" means the 9.25% Senior Unsecured Notes of Rite Aid due 2013 issued pursuant to the 9.25% Note Indenture and any Registered Equivalent Notes issued in exchange therefor. "Obligors" means Rite Aid, the Subsidiary Guarantors, the Subsidiary Loan Parties and any other Person who is liable for any of the Secured Obligations. "Permitted Disposition" means any of the following, other than sales of Securitization Assets in a Securitization: (i) dispositions of inventory at retail, cash, cash equivalents and other cash management investments and obsolete, unused, uneconomic or unnecessary equipment or inventory, in each case in the ordinary course of business; (ii) a disposition to a Subsidiary Loan Party, provided that if the property subject to such disposition constitutes Collateral immediately before giving effect to such disposition, such property continues to constitute Collateral subject to the Senior Lien and the Second Priority Lien; 8 (iii) a sale or discount, in each case without recourse and in the ordinary course of business, of overdue Accounts (as defined in the Senior Credit Agreement) arising in the ordinary course of business, but only to the extent such Accounts are no longer Eligible Accounts Receivable (as defined in the Senior Credit Agreement) and such sale or discount is in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale); (iv) Basket Asset Sales; and (v) sales of Accounts Receivable (as defined in the Senior Subsidiary Security Agreement) relating to worker's compensation claims to collection agencies pursuant to the Borrower's customary cash management procedures. "Permitted Investments" means any investment by any Person in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by S&P and P-1 by Moody's, (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized or licensed under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $500,000,000, (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, provided in each case that such investment matures within one year from the date of acquisition thereof by such Person or (v) money market mutual funds at least 80% 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). "Reduction" means, when applied to any Debt Facility, (i) the permanent repayment of outstanding loans (or obligations in respect of Attributable Debt) under such Debt Facility, (ii) the permanent reduction of outstanding lending commitments under such Debt Facility or (iii) the permanent cash collateralization of outstanding letters of credit under such facility (together with the termination of any lending commitments utilized by such letters of credit). "Refinance" means, with respect to any issuance of Indebtedness, to replace, renew, extend, refinance, repay, refund, repurchase, redeem, defease or retire, or to issue Indebtedness in exchange or as a replacement therefor. "Refinanced" and "Refinancing" shall have correlative meanings. "Registered Equivalent Notes" means, with respect to any notes originally issued in a Rule 144A or other private placement transaction under the Securities Act of 1933, 9 substantially identical notes issued in a dollar for dollar exchange therefor pursuant to an exchange offer registered with the SEC. "Representatives" means each of the Senior Collateral Agents and the Second Priority Representatives. "Restatement Effective Date" means the date on which the Senior Credit Agreement becomes effective pursuant to its terms. "Restatement Date Indentures" mean, collectively, (a) the Unsecured Note Indenture, (b) the 12.5% Note Indenture, (c) the 9.5% Note Indenture, (d) the 8.125% Note Indenture, (e) the 9.25% Note Indenture and (f) the 4.75% Note Indenture. "Rite Aid" means Rite Aid Corporation, a Delaware corporation, and its successors. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor to its business of rating debt securities. "Sale and Leaseback Transaction" means any arrangement whereby the Borrower or a Subsidiary shall sell or transfer any office building (including its headquarters), distribution center, manufacturing plant, warehouse, Store, equipment or other property, real or personal, now or hereafter owned by the Borrower or a Subsidiary with the intention that the Borrower or any Subsidiary rent or lease the property sold or transferred (or other property of the buyer or transferee substantially similar thereto). "SEC" means the United States Securities and Exchange Commission and any successor agency thereto. "Second Priority Collateral" means all the "Second Priority Collateral" as defined in any Second Priority Collateral Document. "Second Priority Collateral Documents" means the Second Priority Subsidiary Security Agreement, the Second Priority Subsidiary Guarantee Agreement, the Second Priority Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing for purposes of providing collateral security or credit support for any Second Priority Debt Obligation or obligation under the Second Priority Subsidiary Guarantee Agreement. "Second Priority Collateral Trustee" means Wilmington Trust Company, in its capacity as collateral trustee under the Collateral Trust and Intercreditor Agreement and the Second Priority Collateral Documents, and its successors. 10 "Second Priority Debt" means any Indebtedness (including the 12.5% Notes, 9.5% Notes and 8.125% Notes) incurred by Rite Aid and Guaranteed by the Subsidiary Guarantors on or after the Effective Date pursuant to the Second Priority Subsidiary Guarantee Agreement (i) which is secured by the Second Priority Collateral on a pari passu basis with the other Second Priority Debt Obligations and (ii) if issued on or after the Restatement Effective Date, matures after December 31, 2009; provided, however, that (A) such Indebtedness is permitted to be incurred, secured and Guaranteed on such basis by each Senior Loan Document and each Second Priority Debt Document and (B) the Representative for the holders of such Second Priority Debt shall have become party to the Collateral Trust and Intercreditor Agreement pursuant to, and by satisfying the conditions set forth in, Section 10.12 thereof. Second Priority Debt shall include any Registered Equivalent Notes issued in exchange thereof. "Second Priority Debt Documents" means, with respect to any series, issue or class of Second Priority Debt, the promissory notes, indentures and other operative agreements or instruments evidencing or governing such Debt, including the Second Priority Collateral Documents. "Second Priority Debt Facility" means the indenture or other governing agreement or instrument with respect to any Second Priority Debt. "Second Priority Debt Obligations" means with respect to any series, issue or class of Second Priority Debt, (i) all principal of, and interest (including without limitation, any interest which accrues after the commencement of any Bankruptcy Proceeding, whether or not allowed or allowable as a claim in any such proceeding) payable with respect to such Second Priority Debt, (ii) all other amounts payable to the related Second Priority Debt Parties under the related Second Priority Debt Documents and (iii) any renewals or extensions of the foregoing. "Second Priority Debt Parties" means with respect to any series, issue or class of Second Priority Debt, the holders of such Debt, any trustee or agent therefor under any related Second Priority Debt Documents and the beneficiaries of each indemnification obligation undertaken by Rite Aid or any Second Priority Obligor under any related Second Priority Debt Documents, but shall not include the Loan Parties or any Controlled Affiliates thereof (unless such Loan Party or Controlled Affiliate is a holder of such Debt, a trustee or agent therefore or beneficiary of such an indemnification obligation named as such in a Second Priority Debt Document). "Second Priority Indemnity, Subrogation and Contribution Agreement" means the Amended and Restated Second Priority Indemnity, Subrogation and Contribution Agreement, dated as of June 27, 2001, as amended and restated as of May 28, 2003 among Rite Aid, the Subsidiary Guarantors and the Second Priority Collateral Trustee. "Second Priority Instructing Group" means Second Priority Representatives with respect to Second Priority Debt Facilities under which at least a majority of the then aggregate amount of Second Priority Debt Obligations are outstanding. 11 "Second Priority Lien" means the Liens on the Second Priority Collateral in favor of the Second Priority Parties under the Second Priority Collateral Documents. "Second Priority Representative" means, in respect of a Second Priority Debt Facility, the trustee, administrative agent, security agent or similar agent under each Second Priority Facility, as the case may be, and each of their successors in such capacities. "Second Priority Subsidiary Guarantee Agreement" means the Amended and Restated Second Priority Subsidiary Guarantee Agreement, dated as of June 27, 2001, as amended and restated as of May 28, 2003, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Restatement Effective Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Second Priority Subsidiary Security Agreement" means the Amended and Restated Second Priority Subsidiary Security Agreement, dated as of June 27, 2001, as amended and restated as of May 28, 2003, made by the Subsidiary Guarantors (including any additional Subsidiary Guarantor becoming party thereto after the Restatement Effective Date) in favor of the Second Priority Collateral Trustee for the benefit of the Second Priority Debt Parties. "Secured Obligations" means the Senior Obligations and the Second Priority Debt Obligations. "Secured Parties" means the Senior Secured Parties and the Second Priority Debt Parties. "Senior Collateral" means all the "Collateral" as defined in any Senior Collateral Document. "Senior Collateral Agents" means Citicorp North America, Inc. and JPMorgan Chase Bank, each in its capacity as a senior collateral processing co-agent under the Senior Collateral Documents, and their successors. "Senior Collateral Disposition" means (i) any sale, transfer or other disposition of Senior Collateral (including any property or assets that would constitute Senior Collateral but for the release of the Senior Lien with respect thereto in connection with such sale, transfer or other disposition), other than a Permitted Disposition or (ii) a Casualty/Condemnation with respect to Senior Collateral. "Senior Collateral Documents" means the Senior Subsidiary Security Agreement, the Senior Subsidiary Guarantee Agreement, the Senior Indemnity, Subrogation and Contribution Agreement, the Collateral Trust and Intercreditor Agreement and each of the security agreements and other instruments and documents executed and delivered by any Subsidiary Guarantor pursuant to any of the foregoing or pursuant to the Senior 12 Credit Agreement or for purposes of providing collateral security or credit support for any Senior Obligation or obligation under the Senior Subsidiary Guarantee Agreement. "Senior Credit Agreement" means the Amended and Restated Senior Credit Agreement, dated as of June 27, 2001, as amended and restated as of May 28, 2003, among Rite Aid, the Senior Lenders and Citicorp North America, Inc., as administrative agent and as Senior Collateral Agents for the Senior Lenders. "Senior Indemnity, Subrogation and Contribution Agreement" means the Amended and Restated Senior Indemnity, Subrogation and Contribution Agreement, dated as of June 27, 2001, as amended and restated as of May 28, 2003, among Rite Aid, the Subsidiary Guarantors (including Subsidiary Guarantors becoming party thereto after the Restatement Effective Date) and the Senior Collateral Agents. "Senior Hedging Agreement" means any Hedging Agreement entered into with Rite Aid or any Subsidiary, if the applicable counterparty was a Senior Lender or an Affiliate thereof (i) on the Effective Date, in the case of any Hedging Agreement entered into prior to the Restatement Effective Date, or (ii) at the time the Hedging Agreement was entered into, in the case of any Hedging Agreement entered into on or after the Restatement Effective Date. "Senior Lender" means a "Lender" as defined in the Senior Credit Agreement. "Senior Lien" means the Liens on the Senior Collateral in favor of the Senior Secured Parties under the Senior Collateral Documents. "Senior Loan Documents" means the Senior Credit Agreement, the Notes referred to in the Senior Credit Agreement, each Senior Hedging Agreement and the Senior Collateral Documents. "Senior Obligation Payment Date" means the date on which (i) the Senior Obligations have been paid in full, (ii) all lending commitments under the Senior Credit Agreement have been terminated and (iii) there are no outstanding letters of credit issued under the Senior Credit Agreement other than such as have been fully cash collateralized under documents and arrangements satisfactory to the issuer of such letters of credit. "Senior Obligations" means (i) the principal of each loan made under the Senior Credit Agreement, (ii) all reimbursement and cash collateralization obligations in respect of letters of credit issued under the Senior Credit Agreement, (iii) all monetary obligations of the Borrower or any Subsidiary under each Senior Hedging Agreement entered into (x) prior to the Restatement Effective Date with any counterparty that was a Senior Lender (or an Affiliate thereof) on the Restatement Effective Date or (y) on or after the Effective Date with any counterparty that was a Senior Lender (or an Affiliate thereof) at the time such Senior Hedging Agreement was entered into, (iv) all interest on the loans, letter of credit reimbursement, fees and other obligations under the Senior Credit Agreement or such Senior Hedging Agreements (including, without limitation any 13 interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower or any Subsidiary Loan Party, whether or not allowed or allowable as a claim in such proceeding), (v) all other amounts payable by the Borrower or any Subsidiary under the Senior Loan Documents and (vi) all increases, renewals, extensions and Refinancings of the foregoing. "Senior Secured Parties" means each party to the Senior Credit Agreement other than any Senior Loan Party, each counterparty to a Senior Hedging Agreement, the beneficiaries of each indemnification obligation undertaken by Rite Aid or any other Loan Party under any Senior Loan Document, and the successors and permitted assigns of each of the foregoing. "Senior Subsidiary Guarantee Agreement" means the Amended and Restated Senior Subsidiary Guarantee Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Restatement Effective Date) in favor of the Senior Collateral Agents for the benefit of the Senior Secured Parties, as such agreement may be amended, supplemented or otherwise modified from time to time. "Senior Subsidiary Security Agreement" means the Amended and Restated Senior Subsidiary Security Agreement, made by the Subsidiary Guarantors (including Subsidiary Guarantors that become parties thereto after the Restatement Effective Date) in favor of the Senior Collateral Agents for the benefit of the Senior Secured Parties, as such agreement may be amended, supplemented or otherwise modified from time to 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. "Subsidiary Guarantor" means each Subsidiary that is party to any Second Priority Collateral Document. "Subsidiary Loan Party" means each Subsidiary that is party to any Senior Collateral Document. "Triggering Event" shall have the meaning assigned to such term in the Collateral Trust and Intercreditor Agreement. "12.5% Note Exchange Agreement" means the Note Exchange Agreement entered into as of June 27, 2001, by and among Rite Aid and the entities listed on Schedule I to the agreement relating to the issuance of the Exchange Notes in exchange for $152,025,000 principal amount of Rite Aid's 10.5% Senior Secured Notes due 2002. 14 "12.5% Note Indenture" means the Indenture dated as of June 27, 2001, among Rite Aid, the Subsidiary Guarantors and U.S. Bank and Trust, as trustee, relating to the 12.5% Notes. "12.5% Note Registration Rights Agreement" means the Exchange and Registration Rights Agreement, dated as of June 27, 2001, among Rite Aid, each of the Subsidiary Guarantors and the Holders from time to time as provided therein. "12.5% Notes" means the 12.5% Senior Secured Notes due 2006 of Rite Aid issued on the Effective Date pursuant to the 12.5% Note Indenture. "Uniform Commercial Code" or "UCC" means, unless otherwise specified, the Uniform Commercial Code as from time to time in effect in the State of New York. "Unsecured Note Indenture" means the Indenture dated as of June 27, 2001, between Rite Aid and BNY Midwest Trust Company, as trustee, relating to the 11.25% Senior Notes.

Exhibit 10.2 EXECUTION COPY FIRST AMENDMENT, dated as of September 22, 2004 (this "Amendment"), to the Amended and Restated Collateral Trust and Intercreditor Agreement, dated as of June 27, 2001, as amended and restated as of May 28, 2003 (as amended, supplemented or otherwise modified from time to time, the "Collateral Trust and Intercreditor Agreement"), among RITE AID CORPORATION, a Delaware corporation ("Rite Aid" or the "Borrower"), each Subsidiary of Rite Aid party thereto or which becomes a party thereto pursuant to Section 9.11 thereof (each such Subsidiary, individually, a "Subsidiary Guarantor", and collectively, the "Subsidiary Guarantors"), WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral trustee (in such capacity, the "Second Priority Collateral Trustee") for the holders from time to time of the Second Priority Debt Obligations, CITICORP NORTH AMERICA, INC., a Delaware corporation ("CNAI"), as senior collateral processing co-agent, JPMORGAN CHASE BANK, a New York banking corporation ("JPMCB"), as senior collateral processing co-agent (each, individually in such capacity, a "Senior Collateral Agent", and collectively, the "Senior Collateral Agents") for the Senior Secured Parties under the Senior Loan Documents, U.S. BANK AND TRUST, as trustee under the 12.5% Note Indenture, BNY MIDWEST TRUST COMPANY, as trustee under the 9.5% Note Indenture and as trustee under the 8.125% Note Indenture, and each other Second Priority Representative which becomes a party thereto pursuant to Section 8.12 thereof. A. Reference is made to the Senior Credit Agreement, dated as of June 27, 2001, as amended and restated as of August 4, 2003, as further amended and restated as of September 22, 2004 (as amended, supplemented or otherwise modified from time to time, the "Senior Credit Agreement"), among Rite Aid, the lenders party thereto (the "Senior Lenders"), CNAI, as Administrative Agent and Collateral Processing Co-Agent, and JPMCB, as Syndication Agent and Collateral Processing Co-Agent. B. The Borrower has requested that certain provisions of the Collateral Trust and Intercreditor Agreement be modified as set forth in this Amendment, and the Majority Senior Parties and the Second Priority Instructing Group are willing to agree to such modifications as provided for in this Amendment. Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and subject to the conditions set forth herein, the parties hereby agree as follows: SECTION 1. Defined Terms. Capitalized terms used and not defined herein shall have the meanings given to them in the Senior Credit Agreement or the Collateral Trust and Intercreditor Agreement, as amended hereby. SECTION 2. Amendment to the Collateral Trust and Intercreditor Agreement. The Definitions Annex referred to in Section 1.02 of the Collateral Trust and Intercreditor Agreement is hereby amended as follows: (a) the term "Capital Markets Transaction" is hereby amended and restated in its entirety to read as follows: ""Capital Markets Transaction" means the receipt by the Borrower or a Subsidiary of proceeds of an issuance in the public or private capital markets of long-term debt securities, of equity securities or of equity-linked (e.g., trust preferred) securities, other than any proceeds received by the Borrower or a Subsidiary in respect of and issuance or incurrence of (A) Indebtedness or Attributable Debt pursuant to Sections 6.01(a)(v), (vi), (vii), (viii), (xii) or (xiii) of the Senior Credit Agreement, (B) Refinancing Indebtedness pursuant to Section 6.01(a)(ii) of the Senior Credit Agreement or (C) pursuant to a Securitization or a Factoring Transaction permitted by the Senior Credit Agreement.". (b) the term "Reduction Event" is hereby amended and restated in its entirety to read as follows: ""Reduction Event" means each of the following: (i) any Senior Collateral Disposition or any other Asset Sale, except in each case any Permitted Disposition or in connection with any Sale and Leaseback Transaction permitted under Section 6.01(a)(vii), (xii) or (xiii) of the Senior Credit Agreement or any Securitization or Factoring Transaction permitted pursuant to the Senior Credit Agreement; (ii) any Casualty/Condemnation; and (iii) any Capital Markets Transaction; provided, however, that Capital Markets Transactions (or portions thereof) consummated on or after the Restatement Effective Date resulting in receipt of initial cumulative Net Cash Proceeds in the amount of up to $500,000,000 shall not be deemed to constitute Reduction Events (except to the extent cumulative Net Cash Proceeds in excess of such amount are generated by any such Capital Markets Transaction); and provided further, however, 2 that any Capital Markets Transaction or portions thereof the Net Cash Proceeds of which are required (without regard to this proviso) to be applied to Reductions pursuant to clause (i) of the first sentence of Section 2.11(d) of the Senior Credit Agreement will in any event be deemed to constitute Reduction Events and will be disregarded for purposes of calculations when such $500,000,000 limit has been reached.". (c) the term "Second Priority Debt" is hereby amended and restated in its entirety to read as follows: ""Second Priority Debt" means any Indebtedness (including the 12.5% Notes, 9.5% Notes and 8.125% Notes) incurred by Rite Aid and Guaranteed by the Subsidiary Guarantors on or after the Effective Date pursuant to the Second Priority Subsidiary Guarantee Agreement (i) which is secured by the Second Priority Collateral on a pari passu basis with the other Second Priority Debt Obligations and (ii) if issued on or after the Restatement Effective Date, matures after December 31, 2009; provided, however, that (A) such Indebtedness is permitted to be incurred, secured and Guaranteed on such basis by each Senior Loan Document and each Second Priority Debt Document and (B) the Representative for the holders of such Second Priority Debt shall have become party to the Collateral Trust and Intercreditor Agreement pursuant to, and by satisfying the conditions set forth in, Section 8.12 thereof. Second Priority Debt shall include any Registered Equivalent Notes issued in exchange thereof.". SECTION 3. No Other Amendments; Confirmation. Except as expressly amended, modified and supplemented hereby, the provisions of the Collateral Trust and Intercreditor Agreement are and shall remain in full force and effect. SECTION 4. Representations and Warranties. To induce the other parties hereto to enter into this Amendment, Rite Aid represents to each of the Majority Senior Parties and the Second Priority Instructing Group: (i) after giving effect to this Amendment, the representations and warranties of the Borrower set forth in Article III of the Senior Credit Agreement are true and correct in all material respects on the date hereof with the same effect as if made on the Effective Date (as defined below), except for representations and warranties that expressly relate to an earlier date, which representations and warranties were true and correct in all material respects as of such earlier date; (ii) after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing under the Senior Credit Agreement; and 3 (iii) this Amendment has been duly executed and delivered by Rite Aid and constitutes a legal, valid and binding obligation of Rite Aid, enforceable in accordance with its terms. SECTION 5. Effectiveness. This Amendment shall become effective as of the date (the "Effective Date") upon which the Senior Collateral Agent shall have received counterparts of this Amendment that, when taken together, bear the signatures of Rite Aid and the Majority Senior Parties and the Second Priority Instructing Group under the Collateral Trust and Intercreditor Agreement. SECTION 6. Effect of the Amendment. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, amend, or otherwise affect the rights and remedies of either the Majority Senior Parties or the Senior Collateral Agents under the Collateral Trust and Intercreditor Agreement and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Collateral Trust and Intercreditor Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle Rite Aid to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Collateral Trust and Intercreditor Agreement in similar or different circumstances. This Amendment shall apply and be effective with respect to the matters expressly referred to herein. After the Effective Date, any reference to the Collateral Trust and Intercreditor Agreement shall mean such Collateral Trust and Intercreditor Agreement, as modified hereby. SECTION 7. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 8. Costs and Expenses. Rite Aid agrees to reimburse the Senior Collateral Agents for its reasonable out-of-pocket expenses in connection with this Amendment, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore LLP, counsel for the Senior Collateral Agents. SECTION 9. Headings. The headings of this Amendment are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first written above. RITE AID CORPORATION by: -------------------------------------- Name: Title: THE SUBSIDIARY GUARANTORS LISTED ON ANNEX 1 HERETO by: -------------------------------------- Name: Title: THRIFTY PAYLESS, INC. by: -------------------------------------- Name: Title: CITICORP NORTH AMERICA, INC., as Senior Collateral Agent by: -------------------------------------- Name: Title: JPMORGAN CHASE BANK, as Senior Collateral Agent by: -------------------------------------- Name: Title: 5 BNY MIDWEST TRUST COMPANY, as as Trustee under the 9.5% Note Indenture by: -------------------------------------- Name: Title: BNY MIDWEST TRUST COMPANY, as as Trustee under the 8.125% Note Indenture by: -------------------------------------- Name: Title: 6 ANNEX 1 - SUBSIDIARY GUARANTORS

Exhibit 10.3 RECEIVABLES FINANCING AGREEMENT Dated as of September 21, 2004 Among RITE AID FUNDING II as the Borrower --------------- and CAFCO, LLC, JUPITER SECURITIZATION CORPORATION and BLUE RIDGE ASSET FUNDING CORPORATION as the Investors ---------------- and CITIBANK, N.A., BANK ONE, NA and WACHOVIA BANK, NATIONAL ASSOCIATION as Banks -------- and CITICORP NORTH AMERICA, INC. as the Program Agent -------------------- and CITICORP NORTH AMERICA, INC., BANK ONE, NA and WACHOVIA BANK, NATIONAL ASSOCIATION as Investor Agents ------------------ and RITE AID HDQTRS. FUNDING, INC. as Collection Agent ------------------- and Each of the Parties named on Schedule III hereto as Originators --------------------- and JPMORGAN CHASE BANK as Trustee ---------- TABLE OF CONTENTS Page ---- PRELIMINARY STATEMENT.............................................................................................1 ARTICLE I DEFINITIONS.................................................................................1 SECTION 1.01. Certain Defined Terms................................................1 SECTION 1.02. Other Terms.........................................................36 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES..........................................................36 SECTION 2.01. Loan Facility.......................................................36 SECTION 2.02. Making Advances.....................................................37 SECTION 2.03. [Intentionally Omitted].............................................38 SECTION 2.04. Settlement Procedures...............................................38 SECTION 2.04A. Distributions.......................................................41 SECTION 2.05. Fees................................................................44 SECTION 2.06. Payments and Computations, Etc......................................44 SECTION 2.07. Dividing or Combining Rate Tranches.................................45 SECTION 2.08. Increased Costs.....................................................45 SECTION 2.09. Additional Yield on Advances Bearing a Eurodollar Rate.....................................................46 SECTION 2.10. Taxes...............................................................46 SECTION 2.11. Security Interest...................................................48 SECTION 2.12. Sharing of Payments.................................................48 SECTION 2.13. Right of Setoff.....................................................49 SECTION 2.14. Interest on Cash Secured Advances...................................49 SECTION 2.15. Repayment of Cash Secured Advances..................................50 SECTION 2.16. Use of Proceeds; Security Interest in Collateral Advance Account.....................................................50 ARTICLE III CONDITIONS OF ADVANCES.....................................................................51 SECTION 3.01. Conditions Precedent to Initial Advance.............................51 SECTION 3.02. Conditions Precedent to All Advances................................53 ARTICLE IV REPRESENTATIONS AND WARRANTIES.............................................................53 SECTION 4.01. Representations and Warranties of the Borrower......................53 SECTION 4.02. Representations and Warranties of the Collection Agent...............................................................56 ARTICLE V COVENANTS..................................................................................58 SECTION 5.01. Covenants of the Borrower...........................................58 SECTION 5.02. Covenant of the Borrower, the Collection Agent and the Originators.................................................65 -i- Page ---- ARTICLE VI ADMINISTRATION AND COLLECTION OF POOL RECEIVABLES .......................................................................65 SECTION 6.01. Designation of Collection Agent.....................................65 SECTION 6.02. Duties of Collection Agent..........................................66 SECTION 6.03. Certain Rights of the Agents........................................67 SECTION 6.04. Rights and Remedies.................................................68 SECTION 6.05. Further Actions Evidencing the Advances.............................69 SECTION 6.06. Covenants of the Collection Agent and each Originator..........................................................69 SECTION 6.07. Indemnities by the Collection Agent.................................70 SECTION 6.08. Representations of the Collection Agent.............................72 SECTION 6.09. Establishment of Collateral Advance Account and Deposit Accounts....................................................72 SECTION 6.10. Establishment of Trustee's Account and Cure Account.............................................................74 ARTICLE VII EVENTS OF TERMINATION......................................................................76 SECTION 7.01. Events of Termination...............................................76 ARTICLE VIII THE PROGRAM AGENT..........................................................................80 SECTION 8.01. Authorization and Action............................................80 SECTION 8.02. Program Agent's Reliance, Etc.......................................81 SECTION 8.03. CNAI and Affiliates.................................................81 SECTION 8.04. Indemnification of Program Agent....................................82 SECTION 8.05. Delegation of Duties................................................82 SECTION 8.06. Action or Inaction by Program Agent.................................82 SECTION 8.07. Notice of Events of Termination.....................................82 SECTION 8.08. Non-Reliance on Program Agent and Other Parties.....................82 SECTION 8.09. Successor Program Agent.............................................83 SECTION 8.10. Reports and Notices.................................................83 ARTICLE IX THE INVESTOR AGENTS........................................................................83 SECTION 9.01. Authorization and Action............................................83 SECTION 9.02. Investor Agent's Reliance, Etc......................................84 SECTION 9.03. Investor Agent and Affiliates.......................................84 SECTION 9.04. Indemnification of Investor Agents..................................85 SECTION 9.05. Delegation of Duties................................................85 SECTION 9.06. Action or Inaction by Investor Agent................................85 SECTION 9.07. Notice of Events of Termination.....................................85 SECTION 9.08. Non-Reliance on Investor Agent and Other Parties....................85 SECTION 9.09. Successor Investor Agent............................................86 SECTION 9.10. Reliance on Investor Agent..........................................86 -ii- Page ---- ARTICLE X INDEMNIFICATION............................................................................87 SECTION 10.01. Indemnities by the Borrower.........................................87 ARTICLE XI MISCELLANEOUS..............................................................................89 SECTION 11.01. Amendments, Etc.....................................................89 SECTION 11.02. Notices, Etc........................................................89 SECTION 11.03. Assignability.......................................................89 SECTION 11.04. Costs, Expenses and Taxes...........................................93 SECTION 11.05. No Proceedings; Waiver of Consequential Damages.............................................................94 SECTION 11.06. Confidentiality.....................................................94 SECTION 11.07. GOVERNING LAW.......................................................96 SECTION 11.08. Execution in Counterparts...........................................96 SECTION 11.09. Survival of Termination.............................................96 SECTION 11.10. Consent to Jurisdiction.............................................96 SECTION 11.11. WAIVER OF JURY TRIAL................................................97 SECTION 11.12. Judgment............................................................97 SECTION 11.13. Limited Recourse....................................................97 ARTICLE XII THE TRUSTEE................................................................................98 SECTION 12.01. Duties of the Trustee...............................................98 SECTION 12.02. Certain Matters Affecting the Trustee..............................100 SECTION 12.03. Trustee Not Liable for Recitals in Certificates or Transferred Assets.................................................102 SECTION 12.04. Trustee May Own Advances...........................................102 SECTION 12.05. Compensation; Trustee's Expenses...................................103 SECTION 12.06. Eligibility Requirements for Trustee...............................103 SECTION 12.07. Resignation or Removal of Trustee..................................103 SECTION 12.08. Successor Trustee..................................................104 SECTION 12.09. Merger or Consolidation of Trustee.................................105 SECTION 12.10. [Intentionally Omitted]............................................105 SECTION 12.11. [Intentionally Omitted]............................................105 SECTION 12.12. [Intentionally Omitted]............................................105 SECTION 12.13. [Intentionally Omitted]............................................105 SECTION 12.14. Right of Agent to Direct Trustee...................................105 SECTION 12.15. Representations and Warranties of Trustee..........................105 SECTION 12.16. Maintenance of Office or Agency....................................105 -iii- SCHEDULES SCHEDULE I - Deposit Banks and Account Banks SCHEDULE II - Credit and Collection Policy SCHEDULE III - Addresses SCHEDULE IV - Months SCHEDULE V - Material Litigation SCHEDULE VI - Other Financing Statements SCHEDULE VII - Trustee Accounts SCHEDULE VIII - Special Concentration Limits ANNEXES ANNEX A - Form of Daily Report ANNEX A-1 - Form of Borrower Report ANNEX A-2 - Form of Interim Report ANNEX B - Form of Deposit Account Agreement ANNEX C - [Intentionally Omitted] ANNEX D - Assignment and Acceptance ANNEX E - Form of Funds Transfer Letter ANNEX F - Form of Note ANNEX G-1 - Form of Parent Undertaking (Collection Agent) ANNEX G-2 - Form of Parent Undertaking (Originators) ANNEX H - Applicable Margin ANNEX I - Business Associate Addendum ANNEX J - Form of Determination Date Certificate ANNEX K - Service Provider Addendum -iv- RECEIVABLES FINANCING AGREEMENT Dated as of September 21, 2004 RITE AID FUNDING II, a Cayman Islands exempted company incorporated with limited liability (the "Borrower"), CAFCO, LLC, a Delaware limited liability company, as an Investor (as defined herein), JUPITER SECURITIZATION CORPORATION, a Delaware corporation, as an Investor, BLUE RIDGE ASSET FUNDING CORPORATION, a Delaware corporation, as an Investor, CITIBANK, N.A., as a Bank (as defined herein), BANK ONE, NA, as a Bank and an Investor Agent, WACHOVIA BANK, NATIONAL ASSOCIATION, as a Bank and an Investor Agent (as defined herein), CITICORP NORTH AMERICA, INC., a Delaware corporation ("CNAI"), as program agent (the "Program Agent") for the Investors and the Banks and as an Investor Agent, RITE AID HDQTRS. FUNDING, INC., a Delaware corporation, as Collection Agent, each of the parties named on Schedule III hereto as Originators and JPMORGAN CHASE BANK, as Trustee, agree as follows: PRELIMINARY STATEMENT. The Borrower has acquired, and may continue to acquire, Receivables (as hereinafter defined) and Participation Interests (as hereinafter defined) from Cayman SPE I (as hereinafter defined), either by purchase or by contribution to the capital of the Borrower, as determined from time to time by the Borrower and Cayman SPE I. The Borrower wishes to obtain loans from the Investors or the Banks which will be secured by the Receivables and Participation Interests. The Investors may, in their respective sole discretion, make such loans, and the Banks are prepared to make such loans, in each case on the terms set forth herein. Accordingly, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Account Bank" has the meaning specified in the definition of "Governmental Entity Receivables Agreement." "Adjusted Eurodollar Rate" means, for any Fixed Period, an interest rate per annum equal to the rate per annum obtained by dividing (i) the Eurodollar Rate for such Fixed Period by (ii) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Fixed Period. "Advance" has the meaning specified in Section 2.01(a). "Adverse Claim" means a lien, security interest or other charge or encumbrance, or any other type of preferential arrangement. "Affected Person" has the meaning specified in Section 2.08(a). "Affiliate" means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person. "Affiliated Obligor" means any Obligor that is an Affiliate of another Obligor. "Agent" means the Program Agent or any Investor Agent and "Agents" means, collectively, the Program Agent and the Investor Agents. "Alternate Base Rate" means (a) for each Bank or Investor in the Group which includes CAFCO, a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to the highest of: (i) the rate of interest announced publicly by Citibank in New York, New York, from time to time as Citibank's base rate; and (ii) 1/2 of one percent above the Federal Funds Rate. (b) for each Bank or Investor in the Group which includes Jupiter, a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to the highest of: (i) the rate of interest per annum publicly announced from time to time by Bank One as its "prime rate" (the "prime rate" is a rate set by Bank One based upon various factors including Bank One's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate). Any change in the "prime rate" announced by Bank One shall take effect at the opening of business on the day specified in the public announcement of such change; and (ii) 1/2 of one percent above the Federal Funds Rate; (c) for each Bank or Investor in the Group which includes Blue Ridge, a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to the highest of: (i) a rate per annum equal to the prime rate of interest announced from time to time by Wachovia or its parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes; and 2 (ii) 1/2 of one percent above the Federal Funds Rate. "Amortization Period" means the period commencing on the day following the last day of the Revolving Period and ending on the later of the Facility Termination Date and the date on which no Obligations shall be outstanding. "Applicable Margin" means, at any time, the percentage determined pursuant to Annex H. "Asset Purchase Agreement" means (a) in the case of any Bank other than Citibank, Bank One and Wachovia, the asset purchase agreement entered into by such Bank concurrently with the Assignment and Acceptance pursuant to which it became party to this Agreement and (b) in the case of Citibank, Bank One and Wachovia, the secondary market agreement, asset purchase agreement or other similar liquidity agreement entered into by such Bank for the benefit of its respective Investor, to the extent relating to the sale or transfer of interests in Advances, in each case as amended or modified from time to time. "Assignee Rate" for any Fixed Period for any Rate Tranche means an interest rate per annum equal to the Eurodollar Rate for such Fixed Period plus the Applicable Margin; provided, however, that in case of: (i) any Fixed Period on or prior to the first day of which an Investor or Bank shall have notified the Program Agent and each Investor Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Investor or Bank to fund such Rate Tranche at the Assignee Rate set forth above (and such Investor or Bank shall not have subsequently notified the Program Agent and each Investor Agent that such circumstances no longer exist), (ii) any Fixed Period of one to (and including) 29 days (it being understood and agreed that this clause (ii) shall not be applicable to a Fixed Period for which Yield is to be computed by reference to the Eurodollar Rate (a) that is intended to have a one-month duration but due solely to LIBOR interest period convention the duration thereof will be less than 30 days) or (b) that is the initial Fixed Period following the sale by an Investor to its Related Banks of its interest in Advances pursuant to an Asset Purchase Agreement, (iii) any Fixed Period as to which the Program Agent and each Investor Agent does not receive notice, by no later than 12:00 noon (New York City time) on the third Business Day preceding the first day of such Fixed Period, that the related Rate Tranche will not be funded by CAFCO, Jupiter and Blue Ridge through the issuance of Promissory Notes or commercial paper, as the case may be, or 3 (iv) any Fixed Period for a Rate Tranche the Principal of which allocated to the Investors or the Banks is less than $500,000, the "Assignee Rate" for such Fixed Period shall be an interest rate per annum equal to 0.75% per annum above the Alternate Base Rate in effect from time to time during such Fixed Period; provided further that the Agents and the Borrower may agree in writing from time to time upon a different "Assignee Rate". "Assignment and Acceptance" means an assignment and acceptance agreement entered into by a Bank, an Eligible Assignee, such Bank's Investor Agent and the Program Agent, pursuant to which such Eligible Assignee may become a party to this Agreement, in substantially the form of Annex D hereto. "Bank Commitment" of any Bank means, (a) with respect to Citibank, $175,000,000 or such amount as reduced or increased by any Assignment and Acceptance entered into among Citibank, another Bank, the Investor Agent for Citibank and the Program Agent, (b) with respect to Bank One, $125,000,000 or such amount as reduced or increased by any Assignment and Acceptance entered into among Bank One, another Bank, the Investor Agent for Bank One and the Program Agent, (c) with respect to Wachovia, $100,000,000 or such amount as reduced or increased by any Assignment and Acceptance entered into among Wachovia, another Bank, the Investor Agent for Wachovia and the Program Agent or (d) with respect to a Bank (other than Citibank, Bank One or Wachovia) that has entered into an Assignment and Acceptance, the amount set forth therein as such Bank's Bank Commitment, in each case as such amount may be reduced or increased by an Assignment and Acceptance entered into among such Bank, an Eligible Assignee, the Investor Agent for such Bank and the Program Agent, and as may be further reduced (or terminated) pursuant to the next sentence. Any reduction (or termination) of the Facility Amount pursuant to the terms of this Agreement shall reduce ratably (or terminate) each Bank's Bank Commitment. "Bank One" means Bank One, NA (Main Chicago Office), a national banking association, its successors and assigns. "Banks" means Citibank, Bank One, Wachovia and each Eligible Assignee that shall become a party to this Agreement pursuant to Section 11.03. "Base Rate Tranche" means all or a portion of an Advance which bears interest at a rate per annum determined on the basis of the Alternate Base Rate. "Beneficiary" means, as of any date, the Investors, the Banks, the Investor Agents, the Program Agent and the Trustee. "Blue Ridge" means Blue Ridge Asset Funding Corporation and any successor or assign of Blue Ridge that is a receivables investment company administered by the same investor agent which in the ordinary course of its business issues commercial paper or other securities to fund its acquisition and maintenance of receivables. 4 "Borrower Report" means a report in substantially the form of Annex A-1 hereto and containing such additional information as any Agent may reasonably request from time to time, furnished by the Collection Agent pursuant to Section 6.02(g). "Borrower's Account" means the account in the name of the Borrower, designated pursuant to the Funds Transfer Letter. "Borrowing Base" means, at any time, an amount computed as NRPB - (YFR + LR + DR + CR) where: NRPB = the Net Receivables Pool Balance at the time of computation. YFR = the Yield and Fee Reserve at the time of computation. LR = the Loss Reserve at the time of computation. DR = the Dilution Reserve at the time of computation. CR = the Commingling Reserve at the time of computation. "Business Day" means any day on which (i) banks are not authorized or required to close in New York City, Chicago, Illinois and Atlanta, Georgia and (ii) if this definition of "Business Day" is utilized in connection with the Eurodollar Rate, dealings are carried out in the London interbank market. "CAFCO" means CAFCO, LLC and any successor or assign of CAFCO that is a receivables investment company which in the ordinary course of its business issues commercial paper or other securities to fund its acquisition and maintenance of receivables. "Capital Lease" means any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which, in accordance with GAAP, should be capitalized on the lessee's balance sheet. "Capital Lease Obligation" of any Person means the obligations of such Person to pay rent or other amounts under any Capital Lease, which obligations should be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Cash Collateral" has the meaning specified in Section 2.16(b). 5 "Cash Secured Advance" means, in respect of any Bank, without duplication, the aggregate amount of the proceeds (a) (i) of the advance, if any, made by such Bank pursuant to Section 2.01(c) and (ii) of such Bank's Ratable Share of any applications of Collections of Receivables and Participated Receivables during the Term Period for such Bank's Group to reduce the Principal in respect of any Advance by such Bank hereunder and (b) on deposit at such time in the Collateral Advance Account (including any such proceeds invested by the Trustee at such time in Eligible Investments pursuant to Section 6.09(a)), it being understood that the amount of such Bank's Cash Secured Advance shall be decreased by such Bank's Ratable Share of the funds paid from time to time from the Collateral Advance Account to the Borrower in connection with an Advance from time to time during the Term Period for such Bank's Group. "Cash Secured Advance Commencement Date" means, with respect to any Group, the same day as the Term-Out Bank Purchase Date for such Group, provided that the Cash Secured Advance Commencement Date shall occur if, but only if, the Termination Date for all Rate Tranches held by members of such Group shall not have occurred on or prior to such date. "Cayman SPE I" means Rite Aid Funding I, a Cayman Islands exempted company incorporated with limited liability, incorporated on August 11, 2004 under the name Cayman Resources (21) Ltd. (registration no. 138720). "CHAMPUS" means the Civilian Health and Medical Program of the Uniformed Service, a program of medical benefits covering former and active members of the uniformed services and certain of their dependents, financed and administered by the United States Departments of Defense, Health and Human Services and Transportation and established pursuant to 10 U.S.C. ss.ss. 1071-1106, and all regulations promulgated thereunder including without limitation (a) all federal statutes (whether set forth in 10 U.S.C. ss.ss. 1071-1106 or elsewhere) affecting CHAMPUS and (b) all rules, regulations (including 32 CFR 199), manuals, orders and administrative, reimbursement and other guidelines of all Governmental Entities (including, without limitation, the Department of Health and Human Services, the Department of Defense, the Department of Transportation, the Assistant Secretary of Defense (Health Affairs) and the Office of CHAMPUS, or any Person or entity succeeding to the functions of any of the foregoing) promulgated pursuant to or in connection with any of the foregoing (whether or not having the force of law) in each case, as amended, supplemented or otherwise modified from time to time. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934, as amended, and the rules of the SEC thereunder as in effect on the effective date of this Agreement), other than Green Equity Investors III, L.P. and its Affiliates, of 30% or more of the outstanding shares of common stock of the Parent; (b) at the end of any period of 12 consecutive calendar months, the occupation of a majority of the seats on the board of directors of the Parent by Persons who were not members of the board of directors of the Parent on the first day of such period; or (c) the occurrence of a "Change of Control", as defined in any Indenture or other agreement that governs the terms of any Material Debt. 6 "Citibank" means Citibank, N.A., a national banking association, its successors and assigns. "CMS" means Centers for Medicare & Medicaid Services of the Department of Health and Human Services, and any successor agency. "CNAI" has the meaning specified in the introductory paragraph hereof. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Collateral" has the meaning specified in Section 2.11. "Collateral Advance Account" means the collateral deposit/securities account no. 304 265 233 in the name of the Borrower maintained with the Trustee, and under the control of the Program Agent for the ratable benefit of the Term-Out Banks. "Collateral Advance Account Bank" has the meaning specified in Section 6.09(a)(i). "Collateral Advance Account Direction" has the meaning specified in Section 6.09(a)(ii). "Collection Agent" means at any time the Person then authorized pursuant to Section 6.01 to administer and collect Receivables and Participated Receivables. "Collection Agent Default" means (a) proceeding of the type described in Section 7.01(g) instituted by or against the Collection Agent (without giving effect to any grace period provided therein), (b) the failure of the Collection Agent to pay or deposit any amounts or perform any duties required of it under this Agreement (after giving effect to any grace period provided in Section 7.01(a)), or (c) the occurrence of any other Event of Termination with respect to the Collection Agent under this Agreement or any other Transaction Document which specifically refers to the Collection Agent. "Collection Agent Fee" has the meaning specified in Section 2.05(a). "Collection Agent Fee Percentage" means, on any date, an amount equal to: (CAF x RTD) ----------- 360 where: CAF = the percentage per annum used in the calculation of the Collection Agent Fee in effect on such date 7 RTD = the highest three-month rolling average Receivable Turnover Days as calculated as of the last day of the 12 most recently ended Months. "Collection Delay Period" means 10 days or such other number of days as the Program Agent may reasonably select upon three Business Days' notice to the Borrower, based on changes in past collection patterns. "Collections" means, with respect to any Receivable or Participated Receivable, all cash collections and other cash proceeds of such Receivable or Participated Receivable, including, without limitation, all cash proceeds of Related Security with respect to such Receivable or Participated Receivable, and any Collection of such Receivable or Participated Receivable deemed to have been received pursuant to Section 2.04. "Commingling Reserve" means, on any date, the sum of: (i) MDC times the sum of (A) 20%, plus (B) the lesser of (1) 8% and (2) the result obtained by dividing the aggregate Collections on account of Receivables deposited in the Governmental Entity Receivables Account over the last 30 days by the aggregate Collections over the last 30 days, expressed as a percentage. plus (ii) On any date from the date which is 76 days from the date of this Agreement to a date which is 120 days after the date of this Agreement, and on which CA/C is less than 0.75: ((75% x C) - CA) x 2 -------------------- 30 plus (iii) On any date from and after the date which is 121 days after the date of this Agreement, and on which CA/C is less than 0.90: ((90% x C) - CA) x 2 -------------------- 30 where: MDC = an amount equal to the result obtained by dividing (a) the highest aggregate Collections received in any Month during the twelve most recently ended Months by (b) 30. C = aggregate Collections on accounts. 8 CA = aggregate Collections on account of Receivables whose Obligors are over the last 30 days. "Commitment Termination Date" means the earliest of (a) September 20, 2005, unless, prior to such date (or the date so extended pursuant to this clause), upon the Borrower's request, made not more than 45 days prior to the then Commitment Termination Date, each Investor and, with respect to each such Investor, one or more of its Related Banks which, immediately after giving effect to such extension would have Bank Commitments in an aggregate amount equal to such Investor's Investor Facility Amount to be in effect immediately after giving effect to such extension, shall in their sole discretion consent, which consent shall be given not more than 30 days prior to the then Commitment Termination Date, to the extension of the Commitment Termination Date to the date occurring not more than 364 days after the then Commitment Termination Date; provided, however, that any failure of any Investor or Bank to respond to the Borrower's request for such extension shall be deemed a denial of such request by such Bank, (b) the Facility Termination Date (provided that if the Facility Termination Date shall occur solely under clause (d) of such defined term, the Commitment Termination Date shall occur only with respect to the Investor and Banks for which such Facility Termination Date occurred under clause (d)), (c) the date determined pursuant to Section 7.01, and (d) the date the Facility Amount permanently reduces to zero pursuant to Section 2.01(b); provided, however, that if, and only if, there shall have occurred a Cash Secured Advance Commencement Date for any Group, the Commitment Termination Date for such Group shall mean the earliest of September 18, 2007 and the dates referenced in the preceding clauses (c) and (d). "Concentration Limit" for any Obligor means at any time 4.25% ("Normal Concentration Limit"), or such other higher amount ("Special Concentration Limit"), for such Obligor designated on Schedule VIII hereto and, after the date of this Agreement designated by the Program Agent and each Investor Agent in a writing delivered to the Borrower; provided that in the case of an Obligor with any Affiliated Obligor, the Concentration Limit shall be calculated as if such Obligor and such Affiliated Obligor are one Obligor; provided further that the Program Agent or any Investor Agent may reduce or cancel, or all the Agents may increase, any Special Concentration Limit upon three Business Days' notice to the Borrower (with a copy to each of the other Agents). "Contract" means an agreement between any Originator and a Person, or between a PBM and a Contract Payor, pursuant to or under which such Person or Contract Payor shall be obligated to pay for pharmaceutical merchandise sold by such Originator or its Affiliates from time to time. "Contract Payor" means a Person who is required under its agreement with a PBM to make payments to such PBM who, in turn, pays such amounts to an Originator on such Person's behalf. "Corporate Trust Office" means the principal corporate trust office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of the execution of this Agreement is located at JPMorgan Chase Bank, 4 New York 9 Plaza, 6th Floor, New York, New York 10004, Attention: Institutional Trust Services, or at any other time at such other address as the Trustee may designate from time to time by notice to the Borrower, the Collection Agent, the Investor Agents and the Program Agent. "CP Costs" means, for each day, the sum of (i) discount or yield accrued on Pooled Commercial Paper on such day, plus (ii) any and all accrued commissions in respect of placement agents and commercial paper dealers, and issuing and paying agent fees incurred, in respect of such Pooled Commercial Paper for such day, plus (iii) other costs associated with funding small or odd-lot amounts with respect to all receivable purchase facilities which are funded by Pooled Commercial Paper for such day, minus (iv) any accrual of income net of expenses received on such day from investment of collections received under all receivable purchase facilities funded substantially with Pooled Commercial Paper, minus (v) any payment received on such day net of expenses in respect of the Liquidation Fee related to the prepayment of the Principal amount of any Advance of Jupiter or Blue Ridge, as the case may be, pursuant to the terms of any receivable purchase facilities funded substantially with Pooled Commercial Paper. In addition to the foregoing costs, if the Borrower shall request any Advance after the initial Advance under this Agreement during any period of time determined by the relevant Investor Agent in its sole discretion to result in incrementally higher CP Costs applicable to such Advance, the Principal associated with any such Advance shall, during such period, be deemed to be funded by Jupiter or Blue Ridge, as the case may be, in a special pool (which may include capital associated with other receivable purchase facilities) for purposes of determining such additional CP Costs applicable only to such special pool and charged each day during such period against such Principal. "CP Rate Tranche" means all or a portion of an Advance which bears interest at a rate per annum determined on the basis of the Investor Rate. "Credit Agreement" means that certain Credit Agreement dated as of June 27, 2001, as amended and restated as of September 22, 2004, among Rite Aid Corporation, a Delaware corporation, the Lenders party thereto, Citicorp North America, Inc., as Administrative Agent and Collateral Processing Co-Agent, and JPMorgan Chase Bank, as Syndication Agent and Collateral Processing Co-Agent, and Fleet Retail Finance Inc., as Documentation Agent and Collateral Agent, as the same may be amended, modified or restated from time to time. "Credit and Collection Policy" means those receivables credit and collection policies and practices of the Borrower and the Originators in effect on the date of this Agreement and described in Schedule II hereto, as modified in compliance with this Agreement. "Cure Account" has the meaning specified in Section 6.10(b). "Cure Funds" means Collections which, from time to time, are deposited into the Cure Account. "Cure Period" means the period beginning on and including a Pool Non-compliance Date and ending on but excluding the earlier of (a) the first Business Day 10 thereafter on which the Borrowing Base equals or exceeds the Facility Principal and (b) the second consecutive Business Day following the occurrence of such Pool Non-compliance Date. "Daily Report" means an Officer's Certificate of the Collection Agent substantially in the form of Annex A hereto. "Debt" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (e) all Debt of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Adverse Claim on property owned or acquired by such Person, whether or not the Debt secured thereby has been assumed, (f) all Guarantees by such Person of Debt of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Debt of any Person shall include the Debt of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent of the terms of such Debt provide that such Person is not liable therefor. "Default Ratio" means the ratio (expressed as a percentage) computed as of the last day of each Month by dividing (i) the aggregate Outstanding Balance of all Originator Receivables that were Defaulted Receivables on such day or that would have been Defaulted Receivables on such day had they not been written off the books of the applicable Originator or the Borrower during such Month by (ii) the aggregate Outstanding Balance of all Originator Receivables on such day. "Defaulted Participation Interest" means a Participation Interest in an Originator Receivable which is a Defaulted Receivable. "Defaulted Receivable" means an Originator Receivable: (i) as to which any payment, or part thereof, remains unpaid for 121 or more days from the original date of service relating to such Originator Receivable; (ii) as to which the Obligor thereof or any other Person obligated thereon or owning any Related Security in respect thereof has taken any action, or suffered any event to occur, of the type described in Section 7.01(g); (iii) which, consistent with the Credit and Collection Policy, would be written off the applicable Originator's or the Borrower's books as uncollectible; or 11 (iv) as to which the applicable Originator or the Borrower has (or consistent with the Credit and Collection Policy should have) established a specific reserve for non-payment. "Delinquency Ratio" means the ratio (expressed as a percentage) computed as of the last day of each Month by dividing (i) the aggregate Outstanding Balance of all Originator Receivables that were Delinquent Receivables on such day by (ii) the aggregate Outstanding Balance of all Originator Receivables on such day. "Delinquent Participation Interest" means a Participation Interest in an Originator Receivable which is a Delinquent Receivable. "Delinquent Receivable" means an Originator Receivable that is not a Defaulted Receivable and: (i) as to which any payment, or part thereof, remains unpaid for 31 or more days from the original date of service relating to such Originator Receivable; or (ii) which, consistent with the Credit and Collection Policy, would be classified as delinquent by the Originator or the Borrower. "Deposit Account" means an account maintained at a Deposit Bank into which (i) Collections in the form of checks and other items are deposited that have been sent to one or more related Lock-Boxes by Obligors (other than the Contract Payors paying a PBM) and/or (ii) Collections in the form of electronic funds transfers and other items are paid directly by Obligors (other than the Contract Payors paying a PBM) and (iii) which is subject to a Deposit Account Agreement. "Deposit Account Agreement" means an agreement, in substantially the form of Annex B, providing for control by the Program Agent over one or more Deposit Accounts and associated Lock-Boxes. "Deposit Bank" means any of the banks holding one or more Deposit Accounts. "Deposit Date" means each Business Day on which any Collections are deposited in the Trustee's Account. "Designated Obligor" means, at any time, each Obligor; provided, however, that any Obligor shall cease to be a Designated Obligor upon three Business Days' notice by any Investor Agent to the Borrower, the Program Agent and the other Investor Agents. "Determination Date" means the seventh Business Day after the end of each Month; provided that if an Event of Termination has occurred and is continuing, any Agent or the Borrower may designate more frequent Determination Dates. 12 "Determination Date Certificate" means, with respect to each Determination Date, the certificate(s) prepared by the Collection Agent (or, following a Collection Agent Default, the Program Agent) for such Determination Date as of the end of the most recently completed Month (or such shorter period after the occurrence and during the continuance of an Event of Termination as any Agent or the Borrower may designate), substantially in the form of Annex J hereto. "Diluted Participation Interest" means a Participation Interest in an Originator Receivable which is a Diluted Receivable. "Diluted Receivable" means that portion (and only that portion) of any Originator Receivable which is either (a) reduced or canceled as a result of (i) any defective, rejected or returned merchandise or services or any failure by an Originator to deliver any merchandise or provide any services or otherwise to perform under the underlying Contract, (ii) any change in the terms of or cancellation of, a Contract or any cash discount, discount for quick payment or other adjustment by an Originator which reduces the amount payable by the Obligor on the related Originator Receivable (except any such change or cancellation resulting from or relating to the financial inability to pay or insolvency of the Obligor of such Originator Receivable) or (iii) any set-off by an Obligor in respect of any claim by such Obligor as to amounts owed by it on the related Originator Receivable (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (b) subject to any specific dispute, offset, counterclaim or defense whatsoever (except the discharge in bankruptcy of the Obligor thereof); provided that Diluted Receivables are calculated assuming that all chargebacks are resolved in the Obligor's favor. "Dilution Horizon Factor" means, as of any date, a ratio computed by dividing (i) the aggregate original Outstanding Balance of all Originator Receivables created by the Originators during the two most recently ended Months by (ii) the Outstanding Balance of Originator Receivables (other than Defaulted Receivables) less unapplied cash and credit memos as at the last day of the most recently ended Month; or such other formula as the Program Agent may from time to time provide to the Collection Agent in writing based upon the results of a review conducted by or on behalf of the Program Agent. "Dilution Percentage" means, as of any date, the greater of (a) the product of (i) the sum of (A) the product of (X) two, multiplied by (Y) the average of the Dilution Ratios for each of the twelve most recently ended Months, plus (B) the Dilution Volatility Ratio as at the last day of the most recently ended Month, multiplied by (ii) the Dilution Horizon Factor as of such date and (b) 7.5%. "Dilution Ratio" means, as of any date, the ratio (expressed as a percentage) computed for the most recently ended Month, by dividing (i) the aggregate amount of Originator Receivables which became Diluted Receivables during such Month by (ii) the aggregate Outstanding Balance (in each case, at the time of creation) of all Originator Receivables created during the second Month immediately preceding such Month. 13 "Dilution Reserve" means, on any date, an amount equal to: DP x NRPB where: DP = the Dilution Percentage on such date. NRPB = the Net Receivables Pool Balance on such date. "Dilution Volatility Ratio" means, as of any date, a ratio (expressed as a percentage) equal to the product of (a) the highest of the Three Month Average Dilution Ratios calculated for each of the twelve most recently ended Months minus the average of the Dilution Ratios for each of the twelve most recently ended Months, and (b) a ratio calculated by dividing the highest of the Three Month Average Dilution Ratios calculated for each of the twelve most recently ended Months by the average of the Dilution Ratios for each of the twelve most recently ended Months. "Distribution Date" means the second Business Day after each Determination Date. "Effective Date Indentures" mean, collectively, (a) the Indenture dated as of December 21, 1998, between the Parent and Harris Trust and Savings Bank, as trustee, (b) the Indenture dated as of August 1, 1993, between the Parent and Morgan Guaranty Trust Company of New York, as trustee, (c) the Indenture dated as of September 10, 1997, between the Parent and Harris Trust and Savings Bank, as trustee and (d) the Indenture dated as of September 22, 1998, between the Parent and Harris Trust and Savings Bank, as trustee. "E-Mail Report" has the meaning specified in Section 6.02(g). "Eligible Assignee" means (a) with respect to the Group which includes CAFCO, (i) CNAI or any of its Affiliates, (ii) any Person managed by Citibank, CNAI or any of their Affiliates or (iii) any financial or other institution acceptable to the Investor Agent for such Group, (b) with respect to the Group which includes Jupiter, (i) Bank One or any of its Affiliates, (ii) any Person managed by Bank One or any of its Affiliates or (iii) any financial or other institution acceptable to the Investor Agent for such Group and (c) with respect to the Group which includes Blue Ridge, (i) Wachovia or any of its Affiliates, (ii) any Person managed by Wachovia or any of its Affiliates or (iii) any financial or other institution acceptable to the Investor Agent for such Group, it being understood and agreed that in the case of clauses (a)(iii), (b)(iii) and (c)(iii) above, the relevant financial or other institution must also be approved by the Borrower (which approval by the Borrower shall not be unreasonably withheld or delayed and shall not be required if an Event of Termination or an Incipient Event of Termination has occurred and is continuing). "Eligible Institution" means a depository institution organized under the laws of the United States of America or any state thereof or the District of Columbia (or any domestic 14 branch of a foreign bank authorized under any such laws), (a) whose senior long-term unsecured debt obligations are rated at least A- or better by Standard & Poor's and A3 or better by Moody's, and (b) which is subject to regulation regarding fiduciary funds on deposit substantially similar to 12 C.F.R. Section 9.10(b), if applicable, and (c) which has a combined capital and surplus of at least $100,000,000. "Eligible Investments" means book-entry securities entered on the books of the registrar of such securities and held in the name or on behalf of the Trustee, negotiable instruments or securities represented by instruments in bearer or registered form (registered in the name of the Trustee or its nominee) which evidence: (a) readily marketable direct obligations of the Government of the United States or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the United States; (b) insured demand deposits, time deposits or certificates of deposit of any commercial bank that (i) is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated, at the time of the investment or contractual commitment to invest therein, as described in clause (d), (iii) is organized under the laws of the United States or any state thereof and (iv) has combined capital and surplus of at least $500,000,000; (c) repurchase obligations with a term of not more than ten days for underlying securities of the types described in clauses (a) and (b) above entered into with any bank of the type described in clause (b) above; (d) commercial paper (maturing no later than the Business Day prior to the first Distribution Date following the date of purchase) having, at the time of the investment or contractual commitment to invest therein, the highest short-term rating from each of S&P and Moody's; (e) investments in no-load money market funds having a rating from each rating agency rating such fund in its highest investment category (including such funds for which the Trustee or any of its Affiliates is investment manager or advisor). "Eligible Participated Receivable" means a Participated Receivable that satisfies each of paragraphs (i) through (xxi) of the definition of Eligible Receivable subject to each reference therein to "Receivable" being deemed to be a reference to "Participated Receivable". "Eligible Participation Interest" means a Participation Interest with respect to which the related Participated Receivable is an Eligible Participated Receivable. "Eligible Receivable" means, at any time, a Receivable: (i) the Obligor of which is a United States resident, is not an Affiliate of the Parent, and is not a Governmental Entity, except to the extent payment of 15 such Receivable is governed under the Social Security Act (42 U.S.C. ss. 1395, et seq.), including payments under Medicaid and CHAMPUS or regulated by CMS; (ii) the Obligor of which, at the later of the date of this Agreement and the date such Receivable is created, is a Designated Obligor; (iii) which is not a Defaulted Receivable; (iv) the Obligor of which is not the Obligor of any Defaulted Receivables which in the aggregate constitute 50% or more of the aggregate Outstanding Balance of all Receivables of such Obligor; (v) which has been billed and, according to the Contract related thereto, is required to be paid in full within 60 days of the original billing date therefor; (vi) which is an obligation representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended, and the nature of which is such that financing such Receivable with the proceeds of notes would constitute a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended; (vii) which is an "account" or a "payment intangible" within the meaning of Article 9 of the UCC of the applicable jurisdictions governing the perfection of the security interest created by this Agreement in the Receivables; (viii) which is denominated and payable only in United States dollars in the United States; (ix) which arises under a Contract which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable and is not subject to any Adverse Claim or any dispute, offset, counterclaim or defense whatsoever (except the potential discharge in bankruptcy of such Obligor and except with respect to adjudication fees charged by any relevant PBM) and is not settled on a net basis; (x) which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which none of the Borrower, any Originator, the Collection Agent or the Obligor is in violation of any such law, rule or regulation in any material respect; 16 (xi) which arises under a Contract (other than a Contract with respect to which the related Obligor is a Governmental Entity) which (A) does not contain an enforceable provision requiring the Obligor thereunder to consent to the transfer, sale or assignment of the Obligor's payment obligation by the Originator pursuant to the Originator Purchase Agreement, and (B) if such Contract is between a PBM and a Contract Payor, does not contain any enforceable provision prohibiting the transfer, sale or assignment of such Contract Payor's payment obligation to the applicable Originator; (xii) which was generated in the ordinary course of the applicable Originator's business; (xiii) which has not been extended, rewritten or otherwise modified from the original terms thereof (except as permitted by Section 6.02(c)); (xiv) the transfer, sale or assignment of which in accordance with the Transaction Documents does not contravene any applicable law, rule or regulation; (xv) which (A) satisfies all applicable requirements of the Credit and Collection Policy and (B) complies with such other criteria and requirements (other than those relating to the collectibility of such Receivable) as the Program Agent or any Investor Agent may from time to time reasonably specify to the Borrower upon 30 days' notice (with a copy of such notice to the other Agents); (xvi) as to which, at or prior to the later of the date of this Agreement and the date such Receivable is created, an Investor Agent has not notified the Borrower that such Receivable (or class of Receivables) is no longer reasonably acceptable for lending against hereunder by the Investor or any Bank for which such Investor Agent is acting as Investor Agent; (xvii) as to which the applicable Originator has satisfied and fully performed all obligations required to be fulfilled by it; (xviii) as to which the applicable Originator has, or has the right to use, valid provider identification numbers and licenses to generate valid Receivables and all information set forth in the bill and supporting claim documents with respect to such Receivable is true, complete and correct; (xix) as to which the applicable Originator has, or has the right to use, valid provider identification numbers and licenses to generate reports with respect to such Receivable required by the applicable state agency or other CMS-designated agents or agents of such state agency; (xx) which is not a Medicare Receivable; and 17 (xxi) which does not arise from a sale by the applicable Originator from a store located in Hawaii, Illinois, Minnesota, Montana or New Mexico, unless the Borrower shall have furnished the Agents with an opinion of local counsel, or other evidence satisfactory to them, to the effect that the transfer, sale and assignment of Receivables and Participation Interests in accordance with the Transaction Documents from a store located in such state does not violate any provision of law of such state. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Parent, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30 day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Parent or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Parent or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Parent or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; (g) the receipt by the Parent or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Parent or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; or (h) the existence of any event or condition that could reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Rate" means, for any Fixed Period for any Eurodollar Rate Tranche, an interest rate per annum equal to the rate per annum appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Program Agent from time to time for purpose of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 A.M., London time, two Business Days prior to the commencement of such 18 Fixed Period, as the rate for dollar purchases with a maturity comparable to such Fixed Period. In the event such rate is not available at such time for any reason, then the "Eurodollar Rate" with respect to such Eurodollar Rate Tranche for such Fixed Period shall be the rate rounded upwards, if necessary, to the next 1/100 of 1% at which dollar deposits of $5,000,000 and for a maturity comparable to such Fixed Period are offered by the principal office of Citibank, Bank One or Wachovia (based on whether such Eurodollar Rate Tranche is funded by a member of the Group which includes CNAI, Bank One or Wachovia as its Investor Agent, respectively) in London, England in immediately available funds in the London interbank market at 11:00 A.M. (London Time) two Business Days before the commencement of such Fixed Period. "Eurodollar Rate Reserve Percentage" of any Investor or Bank for any Eurodollar Rate Tranche means the reserve percentage applicable two Business Days before the first day of such Fixed Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) (or if more than one such percentage shall be applicable, the daily average of such percentages for those days in such Fixed Period during which any such percentage shall be so applicable) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Investor or Bank with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurocurrency Liabilities is determined) having a term equal to such Fixed Period. "Eurodollar Rate Tranche" means all or a portion of an Advance which bears interest at a rate per annum determined on the basis of the Eurodollar Rate. "Event of Termination" has the meaning specified in Section 7.01. "Excess Interest" means, in respect of Cash Secured Advances at any time, the excess of (i) the aggregate unpaid accrued interest on the Cash Secured Advances at such time over (ii) the aggregate interest and dividends received by the Trustee in respect of the Cash Collateral and available for withdrawal from the Collateral Advance Account at such time. "Expense Amount" means, with respect to any Fixed Period, an annual amount as agreed to from time to time between the Trustee and the Program Agent, and initially approximately $25,000 (constituting the Trustee's accrued and unpaid expenses under Section 12.05(b) entitled to priority reimbursement). "Facility Amount" means $400,000,000, as such amount may be reduced pursuant to the immediately succeeding sentence or Section 2.01(b). In the event that the Facility Termination Date shall occur solely under clause (d) of such defined term, then on such Facility Termination Date the Facility Amount shall be reduced by the aggregate Bank Commitments of the Banks in the Group for which such Facility Termination Date has occurred (as such Bank Commitments were in effect immediately prior to such Facility Termination Date). References to the unused portion of the Facility Amount shall mean, at any time, the Facility Amount, as then reduced pursuant to Section 2.01(b), minus the then Facility Principal under this Agreement. 19 "Facility Principal" means, at any time, the aggregate outstanding Principal of Advances under this Agreement. "Facility Termination Date" means the earliest of (a) September 18, 2007 or (b) the date determined pursuant to Section 7.01 or (c) the date the Facility Amount permanently reduces to zero pursuant to Section 2.01(b) or (d) the date (which shall correspond to the date in clause (a) of the definition of Commitment Termination Date as in effect from time to time) the Asset Purchase Agreement of any Bank expires without being renewed or replaced (provided that, under this clause (d), the Facility Termination Date shall occur solely with respect to the Investors and Banks in such Bank's Group). "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day on such transactions received by the relevant Investor Agent from three Federal funds brokers of recognized standing selected by it. "Fee Agreement" has the meaning specified in Section 2.05(b). "Fees" has the meaning specified in Section 2.05(b). "Financial Officer" means the chief financial officer, principal accounting officer, treasurer, vice president of financial accounting or controller of the relevant Person. "Fixed Period" means, with respect to any Rate Tranche: (a) in the case of any Fixed Period for any CP Rate Tranche or Base Rate Tranche, the period commencing on the date of this Agreement and ending on the last day of the Month in which this Agreement is executed and thereafter a period from the first day of each Month to the last day of such Month; and (b) in the case of any Fixed Period for any Eurodollar Rate Tranche, each successive period commencing on the date of this Agreement and ending on the first Distribution Date after such date, and, thereafter, a period from each Distribution Date to the next succeeding Distribution Date; provided, however, that the initial Eurodollar Rate Tranche Fixed Period following the sale by an Investor to its Related Bank of its interest in Advances pursuant to an Asset Purchase Agreement shall commence on the third Business Day following such sale and end on the next succeeding Distribution Date. "Funds Transfer Letter" means a letter in substantially the form of Annex E hereto executed and delivered by the Borrower to the Program Agent and the Investor Agents, as the same may be amended or restated in accordance with the terms thereof. 20 "GAAP" means generally accepted accounting principles in the United States. "Government Receivable" means any Originator Receivable with respect to which the Obligor is a Governmental Entity. "Governmental Entity" means the United States of America, any state, any political subdivision of a state and any agency or instrumentality of the United States of America or any state or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. Payments from Governmental Entities shall be deemed to include payments governed under the Social Security Act (42 U.S.C. ss. 1395, et seq.), including payments under Medicare, Medicaid and CHAMPUS, and payments administered or regulated by CMS. "Governmental Entity Receivables Account Notice" means a notice contained in a Governmental Entity Receivables Agreement pursuant to which an Affiliate of the Parent gives revocable standing instructions to the Account Bank to sweep funds on a daily basis from the Governmental Entity Receivables Account to the Trustee's Account. "Governmental Entity Receivables Agreement" means an agreement between a bank (an "Account Bank") and one or more Originators or Affiliates of the Parent with respect to one or more accounts (each, a "Governmental Entity Receivables Account") or associated Lock- Boxes into which Collections on account of Government Receivables are deposited or remitted and which is subject to a Governmental Entity Receivables Account Notice. "Group" means (a) with respect to CAFCO, its Investor Agent, its Related Banks and CAFCO, (b) with respect to Jupiter, its Investor Agent, its Related Banks and Jupiter and (c) with respect to Blue Ridge, its Investor Agent, its Related Banks and Blue Ridge. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Debt or other obligation of any Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Debt or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Debt or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hedging Agreement" means 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 21 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. "HQ" means Rite Aid Hdqtrs. Funding, Inc., a Delaware corporation. "Incipient Event of Termination" means an event that but for notice or lapse of time or both would constitute an Event of Termination. "Indemnified Party" has the meaning specified in Section 10.01. "Indentures" means, collectively, the Effective Date Indentures and the Restatement Date Indentures. "Intercreditor Agreement" means that certain Intercreditor Agreement dated as of September 21, 2004 by and among the Program Agent, Cayman SPE I, the Borrower, the Originators, HQ, Citicorp North America, Inc. and JPMorgan Chase Bank, as Senior Collateral Agents, as the same may be amended, modified or restated from time to time. "Interim Report" means a report in substantially the form of Annex A-2 hereto and containing such additional information as any Agent may reasonable request from time to time, furnished by the Collection Agent, pursuant to Section 6.02(g). "Investor" means CAFCO, Jupiter, Blue Ridge and all other owners by assignment or otherwise of an Advance originally made by CAFCO, Jupiter or Blue Ridge and, to the extent of the undivided interests so purchased, shall include any participants. "Investor Agent" means (a) with respect to CAFCO and its Related Banks, CNAI or any successor investor agent designated by such parties, (b) with respect to Jupiter and its Related Banks, Bank One or any successor investor agent designated by such parties and (c) with respect to Blue Ridge and its Related Banks, Wachovia or any successor investor agent designated by such parties. "Investor Agent's Account" means (a) with respect to CAFCO and its Related Banks, the special account (ABA # 021000089, account number 40636695, account name: CAFCO Redemption Account) of their Investor Agent maintained at the office of Citibank at 399 Park Avenue, New York, New York, or such other account as such Investor Agent shall designate in writing to the Borrower, the Collection Agent and the Program Agent, (b) with respect to Jupiter and its Related Banks, the special account (ABA#071000013, account number 59-48118, reference: Rite Aid Funding II) of their Investor Agent maintained at the office of Bank One at 131 South Dearborn, 7th Floor, IL1-0079, Chicago, Illinois 60603, or such other account as such Investor Agent shall designate in writing to the Borrower, the Collection Agent and the Program Agent and (c) with respect to Blue Ridge and its Related Banks, the special account (ABA#053000219, account number 20000010384921, CP Liability Account) of their Investor Agent maintained at the office of Wachovia at 301 South College Street, One Wachovia Center, Charlotte, North Carolina 28288, or such other account as such Investor Agent shall designate in writing to the Borrower, the Collection Agent and the Program Agent. 22 "Investor Collections" means, on any date, that portion of the Collections which are to be deposited to the Trustee's Account for the benefit of both the Investors and the Banks. "Investor Facility Amount" means (a) with respect to the Group consisting of CAFCO and its Related Banks, $175,000,000, (b) with respect to the Group consisting of Jupiter and its Related Banks, $125,000,000, and (c) with respect to the Group consisting of Blue Ridge and its Related Banks, $100,000,000. Any reduction (or termination) of the Facility Amount pursuant to the terms of this Agreement shall reduce ratably (or terminate) each Group's Investor Facility Amount. "Investor Rate" means for any Fixed Period and the related Advance: (a) with respect to CAFCO, the per annum rate equivalent to the weighted average of the per annum rates paid or payable by such Investor from time to time as interest on or otherwise (by means of interest rate hedges or otherwise) in respect of those Promissory Notes issued by such Investor that are allocated, in whole or in part, by such Investor's Investor Agent (on behalf of such Investor) to fund or maintain such Advance during such Fixed Period as determined by such Investor Agent (on behalf of such Investor) and reported to the Borrower, the Program Agent and, if the Collection Agent is not the Borrower, the Collection Agent, which rates shall reflect and give effect to the commissions of placement agents and dealers in respect of such Promissory Notes, to the extent such commissions are allocated, in whole or in part, to such Promissory Notes by such Investor Agent (on behalf of such Investor); provided, however, that (a) if any component of such rate is a discount rate, in calculating the "Investor Rate" for such Fixed Period such Investor Agent shall for such component use the rate resulting from converting such discount rate to an interest bearing equivalent rate per annum; (b) the Investor Rate with respect to Advances funded by CAFCO's Participants shall be the same rate as in effect from time to time on Advances or portions thereof that are not funded by one of its Participants; and (c) if all of the Advances maintained by CAFCO are funded by its Participants, then the Investor Rate shall be CAFCO's pool funding rate in effect from time to time for its largest size pool of transactions which settles monthly. (b) with respect to Jupiter and Blue Ridge, the per annum interest rate that, when applied to the weighted average outstanding principal balance of Advances made by Jupiter or Blue Ridge funded through the issuance of commercial paper notes for the actual number of days elapsed in such Fixed Period, would result in an amount of accrued interest equivalent to Jupiter's or Blue Ridge's (as the case may be) CP Costs for such Fixed Period. "Jupiter" means Jupiter Securitization Corporation and any successor or assign of Jupiter that is a receivables investment company administered by Bank One or one of its Affiliates which in the ordinary course of its business issues commercial paper or other securities to fund its acquisition and maintenance of receivables. 23 "Liquidation Day" means, for any Rate Tranche, (i) each day during a Fixed Period for such Rate Tranche on which the conditions set forth in Section 3.02 are not satisfied, and (ii) each day which occurs on or after the Termination Date for such Rate Tranche. "Liquidation Fee" means, for (i) any Fixed Period for any CP Rate Tranche and a reduction of Principal is made for any reason on any day (unless such reduction is less than or equal to $100,000,000 and the Borrower shall have given each Investor Agent at least 2 Business Days notice thereof) or (ii) any Fixed Period for any Eurodollar Rate Tranche and a reduction of Principal is made for any reason on any day other than the last day of such Fixed Period, the amount, if any, by which (A) the additional Yield (calculated without taking into account any Liquidation Fee or any shortened duration of such Fixed Period pursuant to clause (iii) of the definition thereof) which would have accrued from the date of such repayment to the last day of such Fixed Period (or, in the case of clause (i) above, the maturity of the underlying commercial paper tranches) on the reductions of Principal of the Advance relating to such Fixed Period had such reductions remained as Principal, exceeds (B) the income, if any, received by the Investors or the Banks which hold such Advance from the investment of the proceeds of such reductions of Principal. "Lock-Box" means a post office box either (a) administered by a Deposit Bank for the purpose of receiving Collections, which is the subject of a Deposit Account Agreement or (b) which receives Collections of Government Receivables and is associated with a Governmental Entity Receivables Account that is subject to a Governmental Entity Receivables Agreement. "Loss Horizon Factor" means, as of any date, a ratio computed by dividing (i) the aggregate Outstanding Balance (in each case, at the time of creation) of all Originator Receivables created by the Originators during the four most recently ended Months by (ii) the Outstanding Balance of Originator Receivables (other than Defaulted Receivables and Originator Receivables which underlie Defaulted Participation Interests) less unapplied cash and credit memos as at the last day of the most recently ended Month; or such other formula as the Program Agent may from time to time provide to the Collection Agent in writing based upon results of a review conducted by or on behalf of the Program Agent. "Loss Percentage" means, as of any date, the greater of (a) the product of (i) two multiplied by (ii) the Loss Horizon Factor as of the last day of the most recently ended Month multiplied by (iii) the highest of the Loss Ratios for the twelve most recently ended Months and (b) four times the Normal Concentration Limit. "Loss Ratio" means, as of any date, the average of the ratios (each expressed as a percentage) for each of the three most recently ended Months computed for each such month by dividing (a) the sum of the aggregate Outstanding Balance of Originator Receivables which remain unpaid 121-150 days from the original date of service relating to such Originator Receivable (or otherwise would have been classified during such Month as Defaulted Receivables in accordance with clauses (ii) or (iii) or (iv) of the definition of "Defaulted Receivable") as at the last day of such Month plus (without duplication) write-offs during such Month of Originator Receivables which remain unpaid less than 121 days from the original date 24 of service relating to such Originator Receivable date, by (b) the aggregate Outstanding Balance (in each case, at the time of creation) of Originator Receivables created during the fourth preceding Month. "Loss Reserve" means, on any date, an amount equal to LP x NRPB where: LP = the Loss Percentage on such date. NRPB = the Net Receivables Pool Balance. "Material Adverse Effect" means a material adverse effect on (i) the collectibility of the Receivables Pool, (ii) the ability of the Borrower, the Collection Agent, the Parent, any Predecessor Purchaser, or any Originator to perform any of its respective material obligations under the Transaction Documents to which it is a party, (iii) the legality, validity or enforceability of the Transaction Documents (including, without limitation, the validity, enforceability or priority of the security interests granted thereunder) or the rights of or benefits available to the Investor Agents, the Program Agent, the Investors or the Banks under the Transaction Documents or (iv) the business, assets, operations, condition (financial or otherwise), or prospects of the Parent and its Subsidiaries, taken as a whole. "Material Debt" means Debt (other than the loans and letters of credit under the Credit Agreement), or obligations in respect of one or more Hedging Agreements, of any one or more of the Parent and its Subsidiaries in an aggregate principal amount exceeding $25,000,000. For purposes of this definition, the "principal amount" of the obligations of the Parent or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Parent or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "Medicaid" means the medical assistance program established by Title XIX of the Social Security Act (42 U.S.C. Secs. 1396 et seq.) and any statutes succeeding thereto. "Medicare" means the health insurance program for the aged and disabled established by Title XVIII of the Social Security Act (42 U.S.C. Secs. 1395 et seq.) and any statutes succeeding thereto. "Minimum Liquidity Position" means at any time an amount equal to the sum of (a) the Revolver Availability (as defined in the Credit Agreement) plus (b) the Parent's cash on hand. "Month" means a fiscal month of the Parent as set forth on Schedule IV hereto, as such schedule shall be updated from time to time in accordance with the terms hereof. 25 "Moody's" means Moody's Investors Service, Inc., and its successors. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Receivables Pool Balance" means at any time the Outstanding Balance of Eligible Receivables then in the Receivables Pool and Eligible Participated Receivables with respect to which the applicable Participation Interest is then in the Receivables Pool reduced by the sum of (i) the aggregate amount by which the Outstanding Balance of Eligible Receivables of each Obligor then in the Receivables Pool and the Outstanding Balance of Eligible Participated Receivables with respect to which the applicable Participation Interest is then in the Receivables Pool exceeds (A) in the case of each Obligor subject to a Special Concentration Limit determined as a percentage of the Loss Percentage or as a fixed dollar amount, the Special Concentration Limit for such Obligor, and (B) in the case of all other Obligors, the product of (x) the Concen tration Limit for such Obligor multiplied by (y) the Net Receivables Pool Balance, (ii) the aggregate amount of Collections deposited in the Trustee's Account at such time for payment on account of any Eligible Receivables and Eligible Participated Receivables with respect to which the applicable Participation Interest is then in the Receivables Pool, the Obligor of which has not been identified, (iii) the aggregate Outstanding Balance of all Eligible Receivables and Eligible Participated Receivables in respect of which any credit memo issued by the Originator or the Borrower is outstanding at such time to the extent deemed Collections have not been paid pursuant to Section 2.04, (iv) an amount (not to exceed $150,000,000) equal to the amount by which the Outstanding Balance of Government Receivables (less Medicare Receivables and other Government Receivables not subject to the provisions of the Social Security Act) exceeds 20% of the Outstanding Balance of Eligible Receivables then in the Receivables Pool together with the Outstanding Balance of Eligible Participated Receivables with respect to which the applicable Participation Interest is then in the Receivables Pool, (v) to the extent billed, sales or use taxes, (vi) 50% of the highest accrued but unpaid state and local tax liability of the Originators over the most recently ended twelve Months, (vii) accrued but unpaid third party processing fees, (viii) an amount equal to the accruals in force for indebtedness owed to McKesson or a medical services provider, not to exceed the Outstanding Balance of the relevant Receivables, (ix) claims that are in the system that have yet to be billed, (x) the accrued reversal queue balance, as reported by the Collection Agent as included in account no. 5256, multiplied by (A) one plus (B) the largest percentage increase in the reversal queue balance, as reported by the Collection Agent as included in account no. 5256, over the previous twelve Months and (xi) such other amount as determined from time to time provided by the Program Agent in writing based upon the results of a review conducted by or on behalf of the Program Agent. "Note" means a promissory note of the Borrower, in substantially the form of Annex F hereto, evidencing Advances. "Obligations" has the meaning specified in Section 2.11. "Obligor" means a Person obligated to make payments pursuant to a Contract; provided, however, if a PBM acts as agent for Contract Payors and is obligated, pursuant to a 26 Contract, to turn over to an Originator payments made to it by such Contract Payors, then the term "Obligor" shall include both such PBM and such Contract Payors. "Originator" means each of the Persons designated as such on Schedule III. "Originator Participation Interest" means, with respect to any Originator, a 100% undivided beneficial interest in such Originator's right, title and interest, whether now owned or hereafter arising and wherever located, in, to and under (i) each Government Receivable owned by such Originator, (ii) all Related Security and Collections with respect to such Government Receivable and (iii) all proceeds of such Government Receivable, Related Security and Collections. "Originator Purchase Agreement" means the Purchase Agreement dated as of the date of this Agreement among the Originators, as sellers, and HQ, as purchaser, as the same may be amended, modified or restated from time to time. "Originator Receivable" means the indebtedness of any Obligor resulting from the provision or sale of pharmaceutical merchandise by any Originator under a Contract (whether constituting an account, instrument, chattel paper, payment intangible or general intangible), and includes the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto. "Other Companies" means the Originators, the Predecessor Purchasers and all of their respective Subsidiaries except the Borrower. "Outstanding Balance" of any Originator Receivable at any time means the then outstanding principal balance thereof. "Parent" means Rite Aid Corporation, a Delaware corporation. "Parent Undertaking (Collection Agent)" means the Undertaking Agreement dated as of the date hereof in favor of the Investors, the Banks and the Agents and relating to obligations of the Collection Agent, substantially in the form of Annex G-2 hereto, as the same may be amended, modified or restated from time to time. "Parent Undertaking (Originators)" means the Undertaking Agreement dated as of the date hereof made by the Parent in favor of HQ and relating to obligations of the Originators, substantially in the form of Annex G-1 hereto, as the same may be amended, modified or restated from time to time. "Parent Undertakings" means the Parent Undertaking (Collection Agent) and the Parent Undertaking (Originators). "Participant" has the meaning assigned to such term in Section 11.03(h). 27 "Participated Receivable" means any Originator Receivable which is the subject of a Participation Interest. "Participation Interest" means any Originator Participation Interest which has been acquired by the Borrower by purchase or capital contribution pursuant to the Tertiary Purchase Agreement. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "PBM" means a pharmaceutical benefits manager which has entered into an agreement with an Originator to make payments as agent for various insurers and other Persons, on account of pharmaceutical goods sold by such Originator. "Percentage" of any Bank means, (a) with respect to Citibank, the percentage set forth on the signature page to this Agreement, or such amount as reduced or increased by any Assignment and Acceptance entered into with an Eligible Assignee, (b) with respect to Bank One, the percentage set forth on the signature page to this Agreement, or such amount as reduced by any Assignment and Acceptance entered into with an Eligible Assignee, (c) with respect to Wachovia, the percentage set forth on the signature page to this Agreement, or such amount as reduced by any Assignment and Acceptance entered into with an Eligible Assignee, or (d) with respect to a Bank that has entered into an Assignment and Acceptance, the amount set forth therein as such Bank's Percentage, or such amount as reduced or increased by an Assignment and Acceptance entered into between such Bank and an Eligible Assignee. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a Governmental Entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Parent or any ERISA Affiliate has any liability or is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pool Non-compliance Date" means any Business Day on which the Borrowing Base falls below the Facility Principal less an amount equal to the Cure Funds then in the Cure Account. "Pool Receivable" means a Receivable in the Receivables Pool. "Pooled Commercial Paper" means commercial paper notes of Jupiter or Blue Ridge, as the case may be, subject to any particular pooling arrangement by Jupiter or Blue Ridge, as the case may be, but excluding commercial paper issued by Jupiter or Blue Ridge, as the case may be, for a tenor and in an amount specifically requested by any Person in connection with any agreement effected by Jupiter or Blue Ridge, as the case may be. 28 "Predecessor Purchasers" means Cayman SPE I and HQ. "Principal" means the original principal amount of an Advance by an Investor or a Bank pursuant to this Agreement, in each case reduced from time to time by Collections distributed (or, during the Term Period, deposited in the Collateral Advance Account) on account of Principal pursuant to Section 2.04; provided that if such Principal shall have been reduced by any distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Principal shall be increased by the amount of such rescinded or returned distribution, as though it had not been made. "Program Agent" has the meaning specified in the introductory paragraph hereof. "Program Agent Fee Agreement" means that certain fee letter agreement, dated as of the date hereof, between the Program Agent and the Borrower. "Promissory Notes" means, collectively, (i) promissory notes issued by CAFCO and (ii) participations sold by CAFCO pursuant to Section 10.03(h); provided that the term "Promissory Notes" shall not include the interests sold by CAFCO to a Bank or its designee under an Asset Purchase Agreement. "Purchase Agreements" means, collectively, the Originator Purchase Agreement, the Secondary Purchase Agreement and the Tertiary Purchase Agreement. "Ratable Share" means, at any time in respect of any Bank, the percentage obtained by dividing the amount of such Bank's Bank Commitment at such time by the aggregate amount of the Bank Commitments of all the Banks in such Bank's Group at such time. "Rate Tranche" means a Base Rate Tranche, a CP Rate Tranche or a Eurodollar Rate Tranche. "Receivable" means any Originator Receivable (which is not a Government Receivable) that has been acquired by the Borrower by purchase or by capital contribution pursuant to the Tertiary Purchase Agreement. 29 "Receivable Turnover Days" means, on any date, an amount equal to NRPB ---- x 30 + CDP CO where: NRPB = the Net Receivables Pool Balance. CO = Collections received during the most recently ended Month. CDP = the Collection Delay Period. "Receivables Pool" means at any time the aggregation of each then outstanding Receivable and Participation Interest in respect of which the Obligor is a Designated Obligor at such time or was a Designated Obligor on the date of the initial creation of an interest in such Receivable or Participation Interest under this Agreement. "Register" has the meaning specified in Section 11.03(c). "Related Bank" means (a) with respect to CAFCO, Citibank, each Bank which has entered into an Assignment and Acceptance with Citibank, and each assignee (directly or indirectly) of any such Bank, which assignee has entered into an Assignment and Acceptance, (b) with respect to Jupiter, Bank One, each Bank which has entered into an Assignment and Acceptance with Bank One, and each assignee (directly or indirectly) of any such Bank, which assignee has entered into an Assignment and Acceptance and (c) with respect to Blue Ridge, Wachovia, each Bank which has entered into an Assignment and Acceptance with Wachovia, and each assignee (directly or indirectly) of any such Bank, which assignee has entered into an Assignment and Acceptance. "Related Security" means (a) with respect to any Receivable: (i) all of the Borrower's interest in merchandise, if any, (including returned merchandise) relating to any sale giving rise to such Receivable; (ii) all security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements filed against an Obligor describing any collateral securing such Receivable; (iii) all guaranties, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise; and 30 (iv) the Contract and all other books, records and other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights, subject to the rights of any licensors and to applicable law) relating to such Receivable and the related Obligor; and (b) with respect to any Participation Interest, the Related Security with respect to the Government Receivable that is the subject of such Participation Interest (subject to each reference to "Receivable" in the definition of Related Security for such purposes being deemed to be a reference to a "Participated Receivable"). "Responsible Official" means, when used with respect to the Trustee, any officer within the Corporate Trust Office of the Trustee including any Managing Director, Principal, Vice-President, Assistant Vice-President, Assistant Secretary, Assistant Treasurer, or, with respect to a particular matter, any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Restatement Date Indentures" mean, collectively, (a) the Unsecured Note Indenture, (b) the 12.5% Note Indenture, (c) the 9.5% Note Indenture, (d) the 8.125% Note Indenture, (e) the 9.25% Note Indenture and (f) the 4.75% Note Indenture, as each of those terms are defined in the Credit Agreement. "Revolving Period" means the period beginning on the date on which this Agreement becomes effective and terminating on the close of business on the Business Day immediately preceding the Termination Date for all Rate Tranches. "S&P" means Standard and Poor's, a division of The McGraw-Hill Companies, Inc., and its successors. "SEC" means the Securities and Exchange Commission. "Secondary Purchase Agreement" means the purchase agreement, dated as of the date of this Agreement, between HQ, as seller and Cayman SPE I, as purchaser, as the same may be amended, modified or restated from time to time. "Subsidiary" means any corporation or other entity of which securities 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 or an Originator, as the case may be, or one or more Subsidiaries, or by the Borrower or an Originator, as the case may be, and one or more Subsidiaries. 31 "Term Period" means, for any Group, the period commencing on the Cash Secured Advance Commencement Date, if any, for such Group and ending on the Termination Date for all Rate Tranches for such Group. "Termination Date" for any Rate Tranche means (i) in the case of a Rate Tranche owned by an Investor, the earlier of (a) the Business Day which the Borrower or the Investor Agent for such Investor so designates by notice to the other (with a copy to the Program Agent, the other Investor Agents and the Trustee) at least one Business Day in advance for such Rate Tranche and (b) the Facility Termination Date and (ii) in the case of a Rate Tranche owned by a Bank, the earlier of (a) the Business Day which the Borrower so designates by notice to the Program Agent, the Investor Agents and the Trustee at least one Business Day in advance for such Rate Tranche and (b) the Commitment Termination Date. "Term-Out Bank" means any Bank which is a member of a Group for which the Term Period has commenced. "Term-Out Bank Purchase Date" means, for any Group, the Commitment Termination Date for such Group determined pursuant to clause (a) of the definition thereof, without giving effect to the proviso at the end thereof. "Tertiary Purchase Agreement" means the purchase agreement, dated as of the date of this Agreement, between Cayman SPE I, as seller, and the Borrower, as purchaser, as the same may be amended, modified or restated from time to time. "Three Month Average Dilution Ratio" means, as of the last day of any Month, the arithmetic average of the Dilution Ratios for such Month and the two (2) immediately preceding Months. "Transaction Document" means any of this Agreement, the Purchase Agreements, the Parent Undertakings, the Intercreditor Agreement, the Deposit Account Agreements, the Governmental Entity Receivables Agreements, the Fee Agreement, the Trustee's Fee Letter, each Borrower Report, each Daily Report, each Determination Date Certificate, all amendments to any of the foregoing and all other agreements and documents delivered and/or related hereto or thereto. "Transferred Assets" means all Receivables and all Participation Interests. "Trustee Accounts" has the meaning specified in Section 6.10(c). "Trustee's Account" has the meaning specified in Section 6.10(a). "Trustee's Fee" has the meaning specified in Section 12.05. "Trustee's Fee Letter" means a letter dated the date of this Agreement among the Borrower, the Parent and the Trustee relating to the Trustee's Fee and other matters, as the same may be amended, modified or restated from time to time. 32 "UCC" means the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction. "Wachovia" means Wachovia Bank, National Association, a national banking association, its successors and assigns. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Title IV of ERISA. "Yield" means for each Rate Tranche for each Fixed Period: (i) for each day during each Fixed Period to the extent an Investor will be funding its portion of such Rate Tranche through the issuance of Promissory Notes, commercial paper or other promissory notes, as the case may be, ED IR x P x --- + LF 360 (ii) for each day during such Fixed Period to the extent (x) an Investor will not be funding its portion of such Rate Tranche through the issuance of Promissory Notes, commercial paper or other promissory notes, as the case may be, or (y) a Bank will be funding its portion of such Rate Tranche, ED AR x P x --- + LF 360 where: AR = the Assignee Rate for such portion of such Rate Tranche for such Fixed Period ED = the actual number of days elapsed during such portion of such Fixed Period IR = the Investor Rate for such portion of such Rate Tranche for such Fixed Period LF = the Liquidation Fee, if any, for such portion of such Rate Tranche for such Fixed Period P = the Principal (or portion thereof allocated to such Rate Tranche) during such Fixed Period provided that no provision of this Agreement shall require the payment or permit the collection of Yield in excess of the maximum permitted by applicable law; and provided further that Yield 33 for any Rate Tranche shall not be considered paid by any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason and provided, further, should an Event of Termination (other than the Event of Termination in Section 7.01(n)) occur and be continuing, Yield shall be at a rate equal to 2% per annum above the Alternate Base Rate. "Yield and Fee Reserve" means, on any date, an amount equal to AUYF + (FP x YFRP) + (CAF x OB) where: AUYF = accrued and unpaid Yield, Collection Agent Fee and Fees on such date. CAF = the Collection Agent Fee Percentage. FP = the Facility Principal at the close of business of the Collection Agent on such date. OB = the Outstanding Balance of all Pool Receivables together with the Outstanding Balance of all Participated Receivables with respect to which the applicable Participation Interest is in the Receivables Pool, at the end of the most recently ended Month. YFRP = the Yield and Fee Reserve Percentage on such date. "Yield and Fee Reserve Percentage" means, on any date, a percentage equal to 1.5 x (AER + PF) x RTD ---------------------- 360 where: AER = the one-month Adjusted Eurodollar Rate in effect on such date. PF = the Program Fee (as defined in the Fee Agreement), in effect on such date. RTD = the highest three-month rolling average Receivable Turnover Days as calculated as of the last day of the twelve most recently ended Months. 34 "Yield/Fee Amount" means, on any date, an amount equal to: (i) for each day during each Fixed Period to the extent an Investor will be funding its portion of such Rate Tranche through the issuance of Promissory Notes, commercial paper or other promissory notes, as the case may be, FP x {(IR x 1.3) + PF} + {(FA - FP) x LF} x D + CF + TF ------------------------------------------------------- 360 (ii) for each day during such Fixed Period to the extent (x) an Investor will not be funding its portion of such Rate Tranche through the issuance of Promissory Notes, commercial paper or other promissory notes, as the case may be, or (y) a Bank will be funding its portion of such Rate Tranche, FP x {(AR - AS) x 1.3 + AS + PF} x D + CF + TF ---------------------------------------------- 360 where: AR = the Assignee Rate for such portion of such Rate Tranche for such Fixed Period. AS = to the extent the Assignee Rate for the Fixed Period in which the calculation is being made is based on the Eurodollar Rate, a percentage per annum equal to Applicable Margin; otherwise zero. CF = an amount equal to the Collection Agent Fees actually paid during the immediately preceding Fixed Period. D = the number of days in the Fixed Period in which the calculation is being made. LF = a percentage per annum equal to the Liquidity Fee (as defined in the Fee Agreement), in effect on the final day of the Month in which the calculation is being made. FA = the Facility Amount as of the end of the previous Month. FP = the larger of (i) the Facility Principal as of the end of the previous Month and (ii) the largest Facility Principal estimated in good faith by the Borrower 35 for the Month in which the calculation is being made. IR = the weighted average of the Investor Rates of the Investors for the most recently ended Fixed Period. PF = a percentage per annum equal to the Program Fee (as defined in the Fee Agreement), in effect on the first day of the Month in which the calculation is being made. TF = an amount equal to the fees and expenses actually paid during the immediately preceding Fixed Period, or portion thereof, to the Trustee. SECTION 1.02. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. Loan Facility. (a) On the terms and conditions hereinafter set forth, each of CAFCO, Jupiter and Blue Ridge may, in its sole discretion, ratably in accordance with the Investor Facility Amount of its Group make loans (the "Advances"), and, if and to the extent CAFCO, Jupiter or Blue Ridge does not make an Advance, the Related Banks for such Investor shall, ratably in accordance with their respective Bank Commitments, make Advances to the Borrower from time to time during the period from the date hereof to the Facility Termination Date (in the case of the Investors) and to the Commitment Termination Date (in the case of the Banks). Under no circumstances shall the Investors make any such Advance, or the Banks be obligated to make any such Advance, if after giving effect to such Advance the Facility Principal would exceed the lesser of (1) the Borrowing Base and (2) the Facility Amount. (b) The Borrower may at any time upon at least fifteen Business Days' notice to the Program Agent and the Investor Agents, terminate the facility provided for in this Agreement in whole or, from time to time, reduce in part the unused portion of the Facility Amount; provided that each partial reduction shall be in the amount of at least $1,000,000 or an integral multiple thereof. (c) On the Cash Secured Advance Commencement Date for any Group, each Bank in such Group shall, and severally agrees to, make an advance to the Borrower in U.S. Dollars in an amount equal to the excess of (i) such Bank's Bank Commitment over (ii) the unpaid Principal amount of Advances held by such Bank on such date (including Advances 36 purchased or to be purchased on such date pursuant to the Asset Purchase Agreement to which such Bank is a party), and such Bank shall make such advance by causing an amount equal to such advance to be deposited in same day funds into the Collateral Advance Account. SECTION 2.02. Making Advances. (a) Each Advance by any of the Investors or the Banks shall be made on at least three Business Days' (two Business Days, in the case of a CP Rate Tranche) notice from the Borrower to the Program Agent and each Investor Agent, provided that Advances shall be made not more than once in any calendar week. Each such notice of an Advance shall specify (i) the amount requested to be paid to the Borrower (such amount, which shall not be less than $10,000,000, being referred to herein as the initial "Principal" of the Advance then being made), (ii) the allocation of such amount among each of the Groups (which shall be proportional to the Investor Facility Amount of each Group), and (iii) the date of such purchase (which shall be a Business Day). Each Investor shall promptly notify the Program Agent whether such Investor has determined not to make the requested Advance on the terms specified by the Borrower. The Program Agent shall promptly thereafter notify the Borrower whether the Investors have determined not to make the requested Advance. All Advances by members of each Group shall be evidenced by a Note to the order of the Investor Agent for such Group. If any Investor has determined not to make the entire amount of a proposed Advance requested to be made by it, the Investor Agent for such Investor shall promptly send notice of the proposed Advance to all of the Related Banks for such Investor concurrently by telecopier, telex or cable specifying the date of such Advance, the aggregate amount of Principal of each Advance to be made by such Related Banks (which amount shall be equal to the portion of the initial Principal requested to be funded by such Investor, which such Investor determined not to fund), each such Related Bank's portion thereof (determined ratably in accordance with its respective Bank Commitment), whether the Yield for the Fixed Period for such Advance is calculated based on the Eurodollar Rate (which may be selected only if such notice is given at least three Business Days prior to the purchase date) or the Alternate Base Rate, and the duration of the Fixed Period for such Rate Tranche (which shall be one day if the Borrower has not selected another period); provided, however, that during the Term Period for any Group, each Bank in such Group shall, on the date of such Advance, instruct the Program Agent to direct the Trustee to make available to the Borrower at the Borrower's Account such Bank's Ratable Share of the amount of the Principal of the Advances to be made by such Group out of the funds available therefor in the Collateral Advance Account. (b) On the date of each such Advance, the applicable Investors and/or Banks, as the case may be, shall, upon satisfaction of the applicable conditions set forth in this Article II and Article III, make available to the Borrower in same day funds, at the account set forth in the Funds Transfer Letter, an aggregate amount equal to the initial Principal of such Advance; provided, however, if such Advance is being made by the applicable Banks following the designation by the Investor Agent for an Investor of a Termination Date for an Advance owned by such Investor pursuant to clause (i)(a) of the definition of Termination Date and any Principal of such Advance is outstanding on the date of the requested Advance, the Borrower hereby directs the applicable Banks to pay the proceeds of such Advance (to the extent of the outstanding Principal and accrued Yield on such Advance of such Investor) to the relevant 37 Investor Agent's Account, for application to the reduction of the outstanding Principal and accrued Yield on such Advance of such Investor; provided, further, however, that during the Term Period for any Group, after receipt by the Program Agent of the instruction from each Bank in such Group referred to in the proviso to the last sentence of Section 2.02(a) and upon fulfillment of the applicable conditions set forth in Article III, the Program Agent shall notify the Trustee of the date and amount of such Advance and shall direct the Trustee to make available to the Borrower at the Borrower's Account such Bank's Ratable Share of such Group's amount of such Advance, and after receipt by the Trustee of such direction from the Program Agent, the Trustee shall make available to the Borrower by deposit to the Borrower's Account each such Bank's Ratable Share of such Group's amount of such Advance solely out of the funds available therefor in the Collateral Advance Account, and upon such deposit each such Bank will be deemed to have paid to the Borrower such Bank's Ratable Share of such Group's amount of the Principal of the Advance being made for all purposes of this Agreement. (c) [Intentionally Omitted] (d) Notwithstanding the foregoing, (i) neither CAFCO nor Jupiter nor Blue Ridge shall make an Advance under this Section 2.02 at any time in an amount which would exceed the Investor Facility Amount of such Investor's Group and (ii) a Bank shall not be obligated to make Advances under this Section 2.02 at any time in an amount which would exceed such Bank's Bank Commitment less the sum of (A) the aggregate outstanding and unpaid amount of any Advances made by such Bank under such Bank's Asset Purchase Agreement plus (B) such Bank's ratable share of the aggregate outstanding portion of Principal held by the Investor in such Bank's Group (whether or not any portion thereof has been assigned under an Asset Purchase Agreement), after giving effect to reductions of the Principal held by the Investor in such Bank's Group to be made on the date of such Advance (whether from the distribution of Collections or from the proceeds of Advances by such Bank). Each Bank's obligation shall be several, such that the failure of any Bank to make available to the Borrower any funds in connection with any Advance shall not relieve any other Bank of its obligation, if any, hereunder to make funds available on the date of such purchase, but no Bank shall be responsible for the failure of any other Bank to make funds available in connection with any Advance. SECTION 2.03. [Intentionally Omitted]. SECTION 2.04. Settlement Procedures. (a) On each Deposit Date during each Fixed Period during the Revolving Period, unless a Cure Period shall have occurred and be continuing, the Collection Agent shall instruct the Trustee in a Daily Report delivered to the Trustee by 12:00 noon (New York City time) to, and the Trustee shall, at such time and in the following order: (i) [Intentionally Omitted] (ii) out of the related Collections, allocate to, and hold in the Trustee's Account, in trust for the Beneficiaries and the Collection Agent, an amount equal to the sum of (x) the Yield/Fee Amount for each Fixed Period commencing on or before such Deposit Date, plus (y) during the Term Period for any Group, the 38 Excess Interest accrued through such Deposit Date in respect of all Cash Secured Advances, in each case to the extent the same has not been previously so allocated; and (iii) deposit to the Borrower's Account the remainder of such Collections; provided, however, that the portion of the amounts allocable to the Trustee's expenses and held in the Trustee's Account shall only be in an amount equal to the unpaid expenses and disbursements owed or reimbursable under the Transaction Documents actually incurred by the Trustee (as certified in reasonable detail to the Collection Agent in writing by the Trustee) during the Fixed Period ending on the last day of the most recent Month or remaining unpaid with respect to any prior Fixed Period. The Daily Report delivered by the Collection Agent to the Trustee on the first day of each Fixed Period shall set forth the Yield/Fee Amount for such Fixed Period and during the Term Period for any Group, the estimated Excess Interest for such Fixed Period. (b) On each Deposit Date during each Fixed Period if and so long as a Cure Period shall have occurred and be continuing, the Collection Agent shall instruct the Trustee by a Daily Report delivered to the Trustee by 12:00 noon (New York City time) to, and the Trustee shall, at that time and in the following order: (i) [Intentionally Omitted] (ii) out of the related Collections, allocate to, and hold in the Trustee's Account, in trust for the Beneficiaries and the Collection Agent, an amount equal to the sum of (x) the Yield/Fee Amount for each Fixed Period commencing on or before such Deposit Date, plus (y) during the Term Period for any Group, the Excess Interest accrued through such Deposit Date in respect of all Cash Secured Advances, in each case to the extent the same has not been previously so allocated; (iii) deposit, out of the remainder of such Collections, to the Cure Account an amount sufficient to make the Facility Principal (less an amount equal to the Cure Funds then in the Cure Account) equal the Borrowing Base; and (iv) deposit to the Borrower's Account the remainder of such Collections; provided, however, that the portion of the amounts allocable to the Trustee's expenses and held in the Trustee's Account shall only be in an amount equal to the unpaid expenses and disbursements owed or reimbursable under the Transaction Documents actually incurred by the Trustee (as certified to the Collection Agent in writing by the Trustee) during the Fixed Period ending on the last day of the most recent Month or remaining unpaid with respect to any prior Fixed Period. The Daily Report delivered by the Collection Agent to the Trustee on the first day 39 of each Fixed Period shall set forth the Yield/Fee Amount for such Fixed Period and during the Term Period for any Group, the estimated Excess Interest for such Fixed Period. (c) On each Deposit Date during the Amortization Period, the Collection Agent shall instruct the Trustee by a Daily Report delivered to the Trustee by 12:00 noon (New York City time) to, and the Trustee shall, at that time and in the following order: (i) [Intentionally Omitted] (ii) set aside and hold in the Trustee's Account, in trust for the Beneficiaries and the Collection Agent, all of the relevant Collections until payment in full of the Obligations; and (iii) deposit to the Borrower's Account the remainder of such Collections. (d) On any Business Day during the Revolving Period, unless a Cure Period shall have occurred and be continuing, the Borrower may instruct the Collection Agent to direct the Trustee (as set forth in the Daily Report) to hold in the Trustee's Account all or a portion of the Collections otherwise to be deposited into the Borrower's Account pursuant to Section 2.04(a)(iii). (e) On any Business Day during the Revolving Period, the Borrower may instruct the Trustee by an officer's certificate delivered to the Trustee by 12:00 noon (New York City time) to, and the Trustee shall transfer to the Borrower's Account Cure Funds, if any, held in the Cure Account; provided that the officer's certificate delivered by the Seller to the Trustee at the time of such request shall state that, after taking account of such requested withdrawal, the Borrowing Base on such day is equal to or greater than the Facility Principal (less an amount equal to the Cure Funds then in the Cure Account) and shall set forth the calculation supporting such statement. Further, upon at least two Business Days' prior notice to the Investor Agents and the Trustee, the Borrower may, on any Business Day during the Revolving Period (but, in no event more than once in any calendar week after taking into consideration any payment made pursuant to the first clause of Section 2.04A(a)(iv)), instruct the Trustee by an officer's certificate delivered to the Trustee by 12:00 noon (New York City time) to distribute Cure Funds in the Cure Account, and the Trustee shall transfer from the Cure Account to the Investor Agent's Accounts for the ratable payment of the Facility Principal to the relevant Investors and Banks, the amount set forth in such certificate. (f) For the purposes of this Section 2.04: (i) if on any day any Receivable or any Participated Receivable becomes (in whole or in part) a Diluted Receivable, the Borrower shall be deemed to have received on such day a Collection of such Receivable or Participated Receivable in the amount of such Diluted Receivable and the amount of such 40 deemed Collection shall be allocated in accordance with Section 2.04(a), (b) or (c), as applicable; (ii) if on any day any of the representations or warranties contained in Section 4.01(h) is no longer true with respect to any Receivable or any Participated Receivable, the Borrower shall be deemed to have received on such day a Collection of such Receivable or Participated Receivable in full and the amount of such deemed Collection shall be allocated in accordance with Section 2.04(a), (b) or (c), as applicable; (iii) except as provided in subsection (i) or (ii) of this Section 2.04(f), or as otherwise required by applicable law or the relevant Contract, all Collections received from an Obligor of any Receivables or any Participated Receivable shall be applied to the Receivables or Participated Receivable of such Obligor in the order of the age of such Receivables or Participated Receivable, starting with the oldest such Receivable, unless such Obligor designates its payment for application to specific Receivables or Participated Receivable; and (iv) if and to the extent the Program Agent or any of the Investor Agents, the Investors or the Banks shall be required for any reason to pay over to an Obligor any amount received on its behalf hereunder, such amount shall be deemed not to have been so received but rather to have been retained by the Borrower and, accordingly, the Program Agent or such Investor Agent, the Investors or the Banks, as the case may be, shall have a claim against the Borrower for such amount, payable when and to the extent that any distribution from or on behalf of such Obligor is made in respect thereof. (g) To the extent that the amounts deposited to the Trustee's Account with respect to any Fixed Period are insufficient to pay all the accrued but unpaid Yield, Fees, Excess Interest, Trustee's Fee, Trustee's expenses and (if payable to a Collection Agent other than an Originator or one of its Affiliates) Collection Agent Fee, the Borrower shall be obligated to pay to the Investor Agents and/or Program Agent, as the case may be, on the last day of such Fixed Period, for the account of the Investors, the Banks, the Investor Agents and the Program Agent and the Trustee (and the Collection Agent, if applicable), an amount equal to the balance of such accrued and unpaid amounts by deposit of such amount to the Trustee's Account. The Trustee shall distribute such funds as set forth in Section 2.04A(a) or (b), as applicable. (h) Within one Business Day after the end of each Fixed Period in respect of which Yield is computed by reference to the Investor Rate, each Investor Agent shall furnish the Borrower and the Collection Agent with an invoice setting forth the amount of the accrued and unpaid Yield and Fees for such Fixed Period with respect to the unpaid Advances held by the Investors and the Banks in such Investor Agent's Group. SECTION 2.04A. Distributions. (a) During the Revolving Period, on each Distribution Date, the Trustee shall distribute the funds on deposit in the Trustee's Account and 41 the Cure Account on such Distribution Date, in the following order of priority, in accordance with the Determination Date Certificate: (i) to the Trustee as the accrued and unpaid Trustee's Fee and reasonable expenses of the Trustee reimbursable under this Agreement and the Trustee's Fee Letter; (ii) to the Collection Agent (if the Collection Agent is other than an Originator or one of its Affiliates) as the accrued and unpaid Collection Agent Fee; (iii) to the Investor Agents' Accounts: (A) for the ratable payment of the accrued and unpaid Fees and any other amounts due under the Fee Agreement; and (B) for distribution to the Investors and the Banks that own Advances in payment in full of all accrued Yield thereon and, during the Term Period, to the Term-Out Banks in payment of any remaining unpaid accrued interest on the Cash Secured Advances pursuant to Section 2.14; (iv) to the Investor Agents' Accounts for the ratable payment of Facility Principal due and payable to the relevant Investors and Banks (including amounts held in the Trustee's Account at the Borrower's direction pursuant to Section 2.04(d)) but, in no event more than once in any calendar week and upon at least two Business Days' prior written notice to the Investor Agents and the Trustee; provided, however, that during the Term Periods for any Group, the Trustee shall instead deposit such Group's ratable portion of such payment to the Collateral Advance Account (resulting in a reduction of the Advances of the Term-Out Banks in such Group and an increase in the Cash Secured Advances of such Banks) to be held for the purposes set forth in Section 2.16(a); (v) [Intentionally Omitted] (vi) to the Investor Agents' Accounts for the ratable payment of any other amounts (other than Principal) due and payable to the Investors, the Banks and such Agents under the Transaction Documents; (vii) to the Collection Agent (if the Collection Agent is an Originator or one of its Affiliates) as the accrued and unpaid Collection Agent Fee; (viii) to retain in the Trustee's Account, amounts required to be allocated as the Yield/Fee Amount and Excess Interest (if any) for the immediately succeeding Fixed Period; and 42 (ix) after the payment in full of the amounts specified in clauses (i) through (viii) above, to the Borrower. (b) On each Distribution Date during the Amortization Period, the Trustee shall distribute the funds on deposit in the Trustee's Account and the Cure Account on such Distribution Date, in the following order of priority, in accordance with the Determination Date Certificate: (i) to the Trustee as the accrued and unpaid Trustee's Fee and expenses of the Trustee reimbursable under this Agreement and the Trustee's Fee Letter provided that the amount of such reasonable expenses distributed with respect to any month shall not exceed one-twelfth of the amount of the Expense Amount; (ii) to the Collection Agent (if the Collection Agent is other than an Originator or one of its Affiliates) as the accrued and unpaid Collection Agent Fee; (iii) to the Investor Agents' Accounts: (A) for payment of the accrued and unpaid Fees and any other amounts due under the Fee Agreement; and (B) for distribution to the applicable Investors and the Banks that own Advances in payment in full of all accrued Yield thereon and, during the Term Period, to the Term-Out Banks in payment of any remaining unpaid accrued interest on the Cash Secured Advances pursuant to Section 2.14; (iv) to the Investor Agents' Accounts, for the ratable distribution to the applicable Investors and Banks, in reduction of the Facility Principal until Facility Principal is reduced to zero; (v) to the Investor Agents' Accounts for the ratable payment of any other amounts due the applicable Investors, the applicable Banks and such Agents under the Transaction Documents (including, without limitation, any principal amounts of the Cash Secured Advances, if any, remaining after the application of the Cash Collateral in accordance with Section 2.16(d)); (vi) to the Trustee as Trustee's expenses or other amounts reimbursable or payable to the Trustee under this Agreement and the Trustee's Fee Letter to the extent not paid pursuant to clause (i) of Section 2.04A(a) or (b); (vii) to the Collection Agent (if the Collection Agent is an Originator or one of its Affiliates) as the accrued and unpaid Collection Agent Fee; and 43 (viii) after the payment in full of the amounts specified in clauses (i) through (vii) above, to the Borrower. Upon payment in full to all of the Investors and the Banks of the Facility Principal, all accrued and unpaid Yield thereon and all other amounts due the Investors, the Banks, the Investor Agents and the Program Agent under the Transaction Documents, payment in full to the Collection Agent of the Collection Agent Fee, and payment in full to the Trustee of the Trustee's Fee and all reasonable expenses of the Trustee reimbursable under this Agreement and the Trustee's Fee Letter, all amounts, if any, remaining in the Trustee's Account and the Cure Account shall be distributed by the Trustee to the Borrower; provided, however, that if at any time after the payment that would have otherwise resulted in such payment in full, such payment is rescinded or must otherwise be returned for any reason, effective upon such rescission or return such payment in full shall automatically be deemed, as between the Beneficiaries and the Borrower, never to have occurred, and the Borrower shall be required, to the extent it received any amounts under this Section 2.04A, to remit to the Trustee an amount equal to the rescinded or returned payment. SECTION 2.05. Fees. (a) The Borrower shall pay to the Collection Agent a fee (the "Collection Agent Fee") of 1% per annum on the average daily Outstanding Balance of the Receivables and Participated Receivables, from the date of this Agreement until the later of the last Termination Date for all Rate Tranches or the date on which the Facility Principal is reduced to zero, payable in arrears on each Distribution Date. Upon three Business Days' notice to the Borrower, the Program Agent and each Investor Agent, the Collection Agent (if not the Originator, the Borrower or its designee or an Affiliate of the Borrower) may elect to be paid, as such fee, another percentage per annum on the average daily Outstanding Balance of the Receivables and Participated Receivable, but in no event in excess of 110% of the reasonable costs and expenses of the Collection Agent in administering and collecting the Receivables and Participated Receivable. The Collection Agent Fee shall be payable only from Collections pursuant to, and subject to the priority of payment set forth in, Section 2.04. So long as HQ is acting as the Collection Agent hereunder, amounts paid as the Collection Agent Fee pursuant to this Section 2.05(a) shall reduce, on a dollar-for-dollar basis, the obligation of the Borrower to pay the "Collection Agent Fee" pursuant to Section 6.03 of the Tertiary Purchase Agreement, provided that such obligation of the Borrower shall in no event be reduced below zero. (b) The Borrower shall pay to the Investor Agents certain fees (collectively, the "Fees") in the amounts and on the dates set forth in a separate fee agreement of even date among the Borrower, the Program Agent and the Investor Agents, as the same may be amended or restated from time to time (the "Fee Agreement"). SECTION 2.06. Payments and Computations, Etc. (a) All amounts to be paid or deposited by the Borrower or the Collection Agent hereunder shall be paid or deposited no later than 12:00 noon (New York City time) on the day when due in same day funds to the applicable Investor Agent's Account. (b) Each of the Borrower and the Collection Agent shall, to the extent permitted by law, pay interest on any amount not paid or deposited by it when due hereunder, at 44 an interest rate per annum equal to 2% per annum above the Alternate Base Rate, payable on demand. (c) All computations of interest under subsection (b) above and all computations of Yield, fees, and other amounts hereunder (including, without limitation, interest on Cash Secured Advances during the Term Period) shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. (d) The Trustee shall have no obligation to perform any of the calculations required to be made by the terms of this Agreement. SECTION 2.07. Dividing or Combining Rate Tranches. Either the Borrower or any Investor Agent may, upon notice to the other party (with a copy of such notice to the Program Agent) received at least three Business Days prior to the last day of any Fixed Period for any Rate Tranche in the case of the Borrower giving notice, or up to the last day of such Fixed Period in the case of an Investor Agent giving notice, either (i) divide any portion of such Rate Tranche held by one or more Investors and/or Banks in its Group into two or more Rate Tranches of such Investors and/or Banks having an aggregate principal amount equal to the principal amount of such divided portion of such Rate Tranche, or (ii) combine any two or more portions of Rate Tranches held by one or more Investors and/or Banks in its Group originating on such last day or having Fixed Periods ending on such last day into a single Rate Tranche having a principal amount equal to the aggregate principal amount of such Rate Tranches; provided, however, that no Rate Tranche relating to Advances held by an Investor may be combined with a Rate Tranche relating to Advances held by any Bank. SECTION 2.08. Increased Costs. (a) If CNAI, any Investor, any Investor Agent, any Bank, any entity (including any bank or other financial institution providing liquidity and/or credit support to any Investor in connection with such Investor's commercial paper program) which purchases or enters into a commitment to make Advances or interests therein, or any of their respective Affiliates (each an "Affected Person") determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of the capital required or expected to be maintained by such Affected Person and such Affected Person determines that the amount of such capital is increased by or based upon the existence of any commitment to make or purchase Advances or interests therein related to this Agreement or to the funding thereof and other commitments of the same type, then, within ten Business Days after demand by such Affected Person (with a copy to the Program Agent and the Investor Agent for such Affected Person's Group), the Borrower shall pay to the Investor Agent for such Affected Person's Group for the account of such Affected Person (as a third-party beneficiary), from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person in the light of such circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of any of such commitments. A certificate as to such amounts setting forth in reasonable detail the reason for 45 charging such additional amounts submitted to the Borrower and the Program Agent and the Investor Agent for such Affected Person's Group by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. For avoidance of doubt, if the issuance of any change in accounting standards or the issuance of any other pronouncement, release or interpretation causes or requires the consolidation of all or a portion of the assets and liabilities of any Investor or the Borrower with the assets and liabilities of any Affected Person, such event shall constitute a circumstance in which such Affected Person may base a claim for reimbursement under this Section. (b) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements referred to in Section 2.09) in or in the interpretation of any law or regulation or (ii) compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Investor or Bank of agreeing to make or making or maintaining any Advance in respect of which Yield is computed by reference to the Eurodollar Rate, then, within ten Business Days after demand by such Investor or Bank (with a copy to the Program Agent and the Investor Agent for such Investor or such Bank), the Borrower shall pay to such Investor Agent, for the account of such Investor or Bank (as a third-party beneficiary), from time to time as specified by such Investor or Bank, additional amounts sufficient to compensate such Investor or Bank for such increased costs. A certificate as to such amounts setting forth in reasonable detail the reason for charging such additional amounts submitted to the Borrower and the Program Agent and the Investor Agent for such Affected Person's Group by such Investor or Bank shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.09. Additional Yield on Advances Bearing a Eurodollar Rate. The Borrower shall pay to any Investor or Bank, so long as such Investor or Bank shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional Yield on the unpaid Principal of Advances of such Investor or Bank during each Fixed Period Principal of Advances in respect of which Yield is computed by reference to the Eurodollar Rate, for such Fixed Period, at a rate per annum equal at all times during such Fixed Period to the remainder obtained by subtracting (i) the Eurodollar Rate for such Fixed Period from (ii) the rate obtained by dividing such Eurodollar Rate referred to in clause (i) above by that percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Investor or Bank for such Fixed Period, payable on each date on which Yield is payable on such Advances. Such additional Yield shall be determined by such Investor or Bank and notice thereof given to the Borrower through the Investor Agent for such Investor or Bank (with a copy to the Program Agent) within 30 days after any Yield payment is made with respect to which such additional Yield is requested. A certificate as to such additional Yield setting forth the calculation of such additional Yield submitted to the Borrower and the Program Agent by such Investor or Bank shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.10. Taxes. (a) Any and all payments and deposits required to be made hereunder or under any other Transaction Document by the Collection Agent or the Borrower shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, 46 excluding net income taxes that are imposed by the United States and franchise taxes and net income taxes that are imposed on an Affected Person by the state or foreign jurisdiction under the laws of which such Affected Person is organized or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower or the Collection Agent shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Affected Person, (i) the Borrower shall make an additional payment to such Affected Person, in an amount sufficient so that, after making all required deductions (including deductions applicable to additional sums payable under this Section 2.10), such Affected Person receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower or the Collection Agent, as the case may be, shall make such deductions and (iii) the Borrower or the Collection Agent, as the case may be, shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or other documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any other Transaction Document or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Transaction Document (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Affected Person for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.10) paid by such Affected Person and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within thirty days from the date the Affected Person makes written demand therefor (and a copy of such demand shall be delivered to the Program Agent and the Investor Agent for such Affected Person's Group). A certificate as to the amount of such indemnification submitted to the Borrower, the Program Agent and the Investor Agent for such Affected Person's Group by such Affected Person, setting forth, in reasonable detail, the basis for and the calculation thereof, shall be conclusive and binding for all purposes absent manifest error. (d) Each Affected Person which is organized outside the United States and which is entitled to an exemption from, or reduction of, withholding tax under the laws of the United States as in effect on the date hereof (or, in the case of any Person which becomes an Affected Person after the date hereof, on the date on which it so becomes an Affected Person with respect to any payments under this Agreement) shall, on or prior to the date hereof (or, in the case of any Person who becomes an Affected Person after the date hereof, on or prior to the date on which it so becomes an Affected Person), deliver to the Borrower such certificates, documents or other evidence, as required by the Internal Revenue Code of 1986, as amended or Treasury Regulations issued pursuant thereto, including Internal Revenue Service Form W-8BEN or Form W-8ECI and any other certificate or statement of exemption required by Treasury Regulation Section 1.1441-1(a) or Section 1.1441-6(c) or any subsequent version thereof, properly completed and duly executed by such Affected Person as will permit such payments to be made without withholding or at a reduced rate. Each such Affected Person shall from time to 47 time thereafter, upon written request from the Borrower, deliver to the Borrower any new certificates, documents or other evidence as described in the preceding sentence as will permit payments under this Agreement to be made without withholding or at a reduced rate (but only so long as such Affected Person is legally able to do so). (e) The Borrower shall not be required to pay any amounts to any Affected Person in respect of Taxes and Other Taxes pursuant to paragraphs (a), (b) and (c) above if the obligation to pay such amounts is attributable to the failure by such Affected Person to comply with the provisions of paragraph (d) above; provided, however, that should an Affected Person become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Affected Person shall reasonably request to assist such Affected Person to recover such Taxes. SECTION 2.11. Security Interest. To secure the performance by the Borrower of all the terms, covenants and agreements on the part of the Borrower (whether as Borrower or otherwise) to be performed under this Agreement or any document delivered in connection with this Agreement in accordance with the terms thereof, including the punctual payment when due of all obligations of the Borrower hereunder or thereunder, whether for Principal, Yield, Fees (including, without limitation, interest and principal on any Cash Secured Advances), indemnification payments, expenses or otherwise (all of the foregoing, collectively, the "Obligations"), the Borrower hereby assigns to the Program Agent for its benefit and the ratable benefit of the Investors, the Banks and the Investor Agents, and hereby grants to the Program Agent for its benefit and the ratable benefit of the Investors, the Banks and the Investor Agents, a security interest in, all of the Borrower's right, title and interest in and to the following (collectively, the "Collateral") (A) the Purchase Agreements and the Parent Undertakings, including, without limitation, (i) all rights of the Borrower to receive moneys due or to become due under or pursuant to the Purchase Agreements or the Parent Undertakings, (ii) all security interests and property subject thereto from time to time purporting to secure payment of monies due or to become due under or pursuant to the Purchase Agreements or the Parent Undertakings, (iii) all rights of the Borrower to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Purchase Agreements or the Parent Undertakings, (iv) claims of the Borrower for damages arising out of or for breach of or default under the Purchase Agreements or the Parent Undertakings, and (v) the right of the Borrower to compel performance and otherwise exercise all remedies thereunder, (B) all Transferred Assets, whether now owned and existing or hereafter acquired or arising, the Related Security and Collections with respect thereto and all other assets, including, without limitation, accounts, chattel paper, instruments, payment intangibles and general intangibles (as those terms are defined in the UCC), including undivided interests in any of the foregoing, (C) the Lock-Boxes and Deposit Accounts and (D) to the extent not included in the foregoing, all proceeds of any and all of the foregoing. SECTION 2.12. Sharing of Payments. If any Investor or any Bank (for purposes of this Section only, referred to as a "Recipient") shall obtain payment (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) on account of the Principal of, or Yield on, any Advance or portion thereof owned by it in excess of its ratable share of payments made on account of the Principal of, or Yield on, all of the Advances held by the Investors and the Banks (other than as a result of a payment of Liquidation Fee or different 48 methods for calculating Yield or payments made to less than all of the Groups as a result of the occurrence of a Facility Termination Date under clause (d) of the defined term Facility Termination Date for less than all of the Groups), such Recipient shall forthwith purchase from the Investors or the Banks which received less than their ratable share participations in the Advances made by such Persons as shall be necessary to cause such Recipient to share the excess payment ratably with each such other Person; provided, however, that if all or any portion of such excess payment is thereafter recovered from such Recipient, such purchase from each such other Person shall be rescinded and each such other Person shall repay to the Recipient the purchase price paid by such Recipient for such participation to the extent of such recovery, together with an amount equal to such other Person's ratable share (according to the proportion of (a) the amount of such other Person's required payment to (b) the total amount so recovered from the Recipient) of any interest or other amount paid or payable by the Recipient in respect of the total amount so recovered. SECTION 2.13. Right of Setoff. Without in any way limiting the provisions of Section 2.12, each Agent and each Investor and each Bank (including a Bank which has made Cash Secured Advances) is hereby authorized (in addition to any other rights it may have) at any time after the occurrence and during the continuance of an Event of Termination to set-off, appropriate and apply (without presentment, demand, protest or other notice which are hereby expressly waived) any deposits and any other indebtedness held or owing by such Agent or such Investor or such Bank to, or for the account of, the Borrower, the Collection Agent or any Originator against any amount owing by the Borrower, the Collection Agent or such Originator, respectively, to such Person or to such Agent on behalf of such Person (even if contingent or unmatured). SECTION 2.14. Interest on Cash Secured Advances. The Borrower shall pay interest to each Term-Out Bank on the unpaid principal amount of such Bank's Cash Secured Advance from the date of such Cash Secured Advance until such principal amount shall be repaid in full, at a rate per annum equal at all times during each Fixed Period to the Assignee Rate for such Fixed Period plus (during the existence of an Event of Termination other than Section 7.01(n)) 2% per annum, payable in arrears on each Distribution Date for such Fixed Period and on the Termination Date for all Rate Tranches related to such Cash Secured Advance; provided, however, that recourse for such payment of such interest shall be from, and shall be limited to, the interest and dividends in respect of the Cash Collateral and the Collections of the Pool Receivables and the Participated Receivables. On each Distribution Date for each Fixed Period after the Cash Secured Advance Commencement Date for any Group, the Trustee shall pay, pursuant to a Collateral Advance Account Direction from the Program Agent, to the Investor Agent for such Group at such Investor Agent's Account for the ratable account of the relevant Banks, on behalf of the Borrower, such Group's ratable portion (based on the outstanding principal amounts of each Group's Cash Secured Advances) of the cash funds that constitute that interest on, and those dividends from, the Cash Collateral which shall then be available to be withdrawn from the Collateral Advance Account, and such Investor Agent shall distribute the funds so paid to such Investor Agent's Account to the Banks in its Group, ratably according to the respective outstanding principal amounts of their respective Cash Secured Advances, for application to the payment of unpaid accrued interest on the Cash Secured Advances. Any remaining unpaid accrued interest on the Cash Secured Advances shall be paid from the 49 Collections of the Pool Receivables and the Participated Receivables pursuant to Sections 2.04A and 2.16(d). SECTION 2.15. Repayment of Cash Secured Advances. The Borrower shall repay to each Term-Out Bank the aggregate outstanding principal amount of such Bank's Cash Secured Advance on the Termination Date for all Rate Tranches related to such Cash Secured Advance; provided, however, that recourse of such repayment shall be from, and shall be limited to, the Cash Collateral and the Collections of the Pool Receivables and the Participated Receivables in accordance with Section 2.04A. SECTION 2.16. Use of Proceeds; Security Interest in Collateral Advance Account. (a) The Borrower hereby agrees that it shall use the proceeds of the Cash Secured Advances solely to fund and maintain the Collateral Advance Account for the purpose of funding Advances from time to time during the Term Period. (b) The Borrower hereby grants to the Program Agent, for the ratable benefit of the Term-Out Banks, a security interest in the following (collectively, the "Cash Collateral"): (i) the Collateral Advance Account, all funds from time to time credited to the Collateral Advance Account, all financial assets (including, without limitation, Eligible Investments) from time to time acquired with any such funds or otherwise credited to the Collateral Advance Account, all interest, dividends, cash, instruments and other investment property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such funds or such financial assets, and (ii) all proceeds of, collateral for, and supporting obligations relating to any and all of the Cash Collateral. (c) The grant of a security interest by the Borrower to the Program Agent for the ratable benefit of the Term-Out Banks pursuant to subsection (b) above secures the payment of the Borrower's obligation to repay the Cash Secured Advances, and to pay interest thereon, pursuant to Sections 2.14 and 2.15, respectively. (d) On the Termination Date for all Rate Tranches for any Group as to which the Term Period has occurred, the Program Agent shall instruct the Trustee to, and upon receiving such instruction the Trustee shall, (i) convert the Cash Collateral that does not constitute cash into cash proceeds and (ii) pay to each Investor Agent for such Group at such Investor Agent's Account for the ratable account of the Term-Out Banks in its Group, on behalf of the Borrower, such Group's ratable portion of the Cash Collateral (it being understood that all the Cash Collateral shall then constitute cash or cash proceeds), and such Investor Agent shall distribute the funds so paid to its Investor Agent's Account to the Banks in its Group, ratably according to the respective outstanding principal amounts of their respective Cash Secured Advances, for application, first, to the repayment of the outstanding principal amounts of the Cash Secured Advances and, second, to the payment of unpaid accrued interest on the Cash Secured Advances (to the extent such funds are available therefor). Any remaining outstanding 50 principal amount of, and/or unpaid accrued interest on, the Cash Secured Advances shall be paid from the Collections of the Pool Receivables and the Participated Receivables pursuant to Section 2.04A. ARTICLE III CONDITIONS OF ADVANCES SECTION 3.01. Conditions Precedent to Initial Advance. The initial Advance under this Agreement and the effectiveness of this Agreement is subject to the conditions precedent that the Program Agent and each Investor Agent shall have received on or before the date of such Advance the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Program Agent and each Investor Agent: (a) Certified copies of the resolutions (or similar authorization, if not a corporation) of the Board of Directors (or similar governing body or Persons, if not a corporation) of the Borrower, the Parent, the other Originators, the Collection Agent and the Predecessor Purchaser approving this Agreement, the Purchase Agreements, the Parent Undertakings and any other Transaction Documents to which it is a party and certified copies of all documents evidencing other necessary corporate or limited liability company, as the case may be, action and governmental approvals, if any, with respect to this Agreement, the Purchase Agreements, the Parent Undertakings and any such Transaction Documents. One such certificate will be acceptable for any number of such Persons. (b) A certificate of the Secretary or Assistant Secretary of the Borrower, the Parent, the other Originators, the Collection Agent and the Predecessor Purchaser certifying the names and true signatures of their respective officers authorized to sign this Agreement, the Purchase Agreements, the Parent Undertakings and the other documents to be delivered by it hereunder and thereunder. One such certificate will be acceptable for any number of such Persons. (c) Copies of proper financing statements, duly filed on or before the date of such initial Advance under the UCC of all jurisdictions that the Program Agent may deem necessary or desirable in order to perfect the ownership and security interests contemplated by this Agreement and the Purchase Agreements. (d) Copies of proper financing statements, if any, necessary to release all security interests and other rights of any Person in (i) the Receivables, the Participated Receivables, Participation Interests, Contracts or Related Security previously granted by the Borrower, any Predecessor Purchaser or any Originator and (ii) the Collateral previously granted by the Borrower, except those security interests which are subject and referred to in the Intercreditor Agreement. (e) Completed requests for information, dated on or before the date of such initial Advance, listing all effective financing statements filed in the jurisdictions referred to in subsection (c) above and in any other jurisdictions reasonably requested by the 51 Program Agent that name the Borrower, any Predecessor Purchaser or any Originator as debtor, together with copies of such financing statements (none of which shall cover any Receivables, Participated Receivables, Participation Interests, Contracts, Related Security or the Collateral except those referred to on Schedule VI relating to the Credit Agreement and the Indentures). (f) Executed copies of (a) Deposit Account Agreements with each Deposit Bank and (b) Governmental Entity Receivables Agreements with each Account Bank. (g) Favorable opinions of Skadden, Arps, Slate, Meagher & Flom LLP, Chapman & Cutler relating to various states' local perfection issues, Parent general counsel, and Maples & Calder, as counsel for the Borrower, the Predecessor Purchasers, the Parent and the other Originators, as to such matters as the Program Agent or any Investor Agent may reasonably request. (h) The Fee Agreement, together with payment of any up-front fees called for thereby. (i) The Funds Transfer Letter. (j) An executed copy of the Originator Purchase Agreement, the Secondary Purchase Agreement and the Tertiary Purchase Agreement. (k) A copy of the by-laws of the Parent and of the Memorandum and Articles of Association of Cayman SPE I and the Borrower, certified by the Secretary or Assistant Secretary of the Parent, Cayman SPE I or the Borrower, as the case may be. (l) A copy of the certificates of incorporation of each of the Borrower, HQ, the Parent and the other Originators certified as of a recent date by the Secretary of State or other appropriate official of the state of its organization, and a certificate as to the good standing of each of the Borrower, HQ, the Parent and the other Originators from such Secretary of State or other official, dated as of a recent date. (m) An agreement of the Process Agent pursuant to which it agrees to act as such as called for by Section 11.10(a). (n) Executed copies of the Parent Undertakings. (o) An executed copy of the Intercreditor Agreement. (p) An executed copy of the Trustee's Fee Letter. (q) Executed Notes to the order of each Investor Agent. (r) An executed copy of the Program Agent Fee Letter, together with payment of the fee called for thereby. 52 SECTION 3.02. Conditions Precedent to All Advances. Each Advance (including the initial Advance) shall be subject to the further conditions precedent that (a) in the case of each Advance, the Collection Agent shall have delivered to the Program Agent and each Investor Agent at least one Business Day prior to such Advance, in form and substance satisfactory to the Program Agent, a completed Borrower Report and a completed Daily Report containing information covering the most recently ended reporting period for which information is required pursuant to Section 6.02(g) and demonstrating that after giving effect to such purchase no Event of Termination or Incipient Event of Termination under Section 7.01(i) would occur, (b) on the date of such Advance the following statements shall be true (and acceptance of the proceeds of such Advance shall be deemed a representation and warranty by the Borrower, the Parent and the Collection Agent (each as to itself) that such statements are then true: (i) The representations and warranties contained in Sections 4.01 and 4.02 are correct on and as of the date of such Advance as though made on and as of such date, (ii) No event has occurred and is continuing, or would result from such Advance, that constitutes an Event of Termination or an Incipient Event of Termination, (iii) There shall have been sold or contributed to the purchaser thereunder pursuant to each Purchase Agreement, all Originator Receivables arising on or prior to such date other than Government Receivables, and (iv) There shall have been sold or contributed to the purchaser under each Purchase Agreement, all Participation Interests in all Originator Receivables which are Governmental Receivables arising on or prior to such date. (c) the Program Agent and the Investor Agents shall have received such other approvals, opinions or documents as the Program Agent or any Investor Agent may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. The Borrower hereby represents and warrants as follows, which representations and warranties shall be deemed repeated on each day during the Revolving Period: (a) The Borrower is an exempted company incorporated with limited liability validly existing and in good standing under the laws of the Cayman Islands, and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified. 53 (b) The execution, delivery and performance by the Borrower of the Transaction Documents to which it is a party and the other documents to be delivered by it hereunder, including the Borrower's use of the proceeds of Advances, (i) are within the Borrower's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene (1) the Borrower's Memorandum and Articles of Association, (2) any law, rule or regulation applicable to the Borrower, (3) any contractual restriction binding on or affecting the Borrower or its property or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Borrower or its property, and (iv) do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties (except for the interest created pursuant to this Agreement). Each of the Transaction Documents to which the Borrower is a party has been duly executed and delivered by the Borrower. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of the Transaction Documents to which it is a party or any other document to be delivered thereunder, except for the filing of UCC financing statements which are referred to herein and therein. (d) Each of the Transaction Documents to which it is a party constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and general equitable principles (whether considered in a proceeding at law or in equity). (e) Since its date of formation, August 11, 2004, there has been no material adverse change in the business, operations, property, prospects or financial or other condition of the Borrower. (f) Except as set forth in Schedule V or as otherwise disclosed by the Parent in its publicly available SEC filings, there is no pending or threatened action, investigation or proceeding affecting the Borrower, the Parent or any of their Subsidiaries before any court, governmental agency or arbitrator which if determined adversely to any of them, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. (g) No proceeds of any Advances will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934. (h) The Borrower is the legal and beneficial owner of the Transferred Assets and Related Security free and clear of any Adverse Claim. The Program Agent for the benefit of the Investors and the Banks has a valid and perfected first priority security interest in each Transferred Asset now existing or hereafter arising and in the Related Security and Collections with respect thereto. No effective financing statement or other instrument similar in effect covering any Collateral is on file in any recording office, 54 except those listed in Schedule VI relating to the Credit Agreement and the Indentures, all of which the Borrower represents relate to security interests that are subject to the Intercreditor Agreement, and those filed in favor of the Program Agent relating to this Agreement and those filed pursuant to the Purchase Agreements. Each Transferred Asset characterized in any Borrower Report or other written statement made by or on behalf of the Borrower as an Eligible Receivable or Eligible Participation Interest, or as included in the Net Receivables Pool Balance is, as of the date of such Borrower Report or other statement (or, if applicable, as of a date certain specified in such report), an Eligible Receivable or Eligible Participation Interest, as properly included in the Net Receivables Pool Balance. (i) Each Borrower Report, Interim Report, Daily Report and Determination Date Certificate (if prepared by the Borrower or one of its Affiliates, or to the extent that information contained therein is supplied by the Borrower or an Affiliate), information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time by or on behalf of the Borrower to the Program Agent, the Investor Agents, the Investors or the Banks in connection with and before or after the date of this Agreement is or will be accurate in all material respects as of its date or (except as other wise disclosed to the Program Agent, the Investor Agents, the Investors or the Banks, as the case may be, at such time) as of the date so furnished (or, if applicable, as of a date certain specified in such report), and no such document contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. (j) The principal place of business and chief executive office of the Borrower and the office where the Borrower keeps its records concerning the Transferred Assets are located at the address or addresses referred to in Section 5.01(b). (k) The names and addresses of all the Deposit Banks and Account Banks, together with the post office boxes and account numbers of the Lock-Boxes, Deposit Accounts and Governmental Entity Receivables Accounts, as the case may be, of the Borrower at such banks, are as specified in Schedule I hereto, as such Schedule I may be updated from time to time pursuant to Section 5.01(g). The Lock-Boxes, Deposit Accounts and Governmental Entity Receivables Accounts, as the case may be, are the only post office boxes and bank accounts into which Collections of Receivables and Participated Receivables are deposited or remitted. The Borrower has delivered to the Program Agent a fully executed Deposit Account Agreement or Governmental Entity Receivables Agreement with respect to each Deposit Account, Governmental Entity Receivables Account and any associated Lock-Boxes. (l) Each Pool Receivable (or Participated Receivable, as the case may be) (i) is of a nature that financing such Receivable or Participated Receivable with the proceeds of notes would constitute a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended, and (ii) is an obligation 55 representing part or all of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended. (m) The Borrower is not known by and does not use any tradename or doing- business-as name. (n) The Borrower was incorporated on August 11, 2004 under the name of Cayman Resources (22) Ltd. (registration no. 138722), and the Borrower did not engage in any business activities prior to the date of this Agreement. The Borrower has no Subsidiaries. (o) (i) The fair value of the property of the Borrower is greater than the total amount of liabilities, including contingent liabilities, of the Borrower, (ii) the present fair salable value of the assets of the Borrower is not less than the amount that will be required to pay all probable liabilities of the Borrower on its debts as they become absolute and matured, (iii) the Borrower does not intend to, and does not believe that it will, incur debts or liabilities beyond the Borrower's abilities to pay such debts and liabilities as they mature and (iv) the Borrower is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which the Borrower's property would constitute unreasonably small capital. (p) With respect to each Transferred Asset the Borrower (i) shall have received such Transferred Asset as a contribution to the capital of the Borrower by Cayman SPE I, (ii) shall have purchased such Transferred Asset from Cayman SPE I in exchange for payment (made by the Borrower to Cayman SPE I in accordance with the provisions of the Tertiary Purchase Agreement) of cash or (iii) shall have received such Transferred Asset partially as a capital contribution and partially for payment in cash, in each case in an amount which constitutes fair consideration and reasonably equivalent value. Each such sale referred to in the preceding sentence shall not have been made for or on account of an antecedent debt owed by Cayman SPE I to the Borrower. (q) Taxes. The Borrower has timely filed or caused to be filed all required income tax and sales tax returns and reports and all other material tax returns and reports required to have been filed and has paid or caused to be paid all material taxes due pursuant to such returns or pursuant to any assessment received by the Borrower, except where the payment of any such taxes is being contested in good faith by appropriate proceedings and for which the Borrower has set aside on its books adequate reserves. The charges, accruals and reserves on the books of the Borrower in respect of such taxes or charges imposed by a Governmental Entity are, in the opinion of the Borrower, adequate for the payment thereof. SECTION 4.02. Representations and Warranties of the Collection Agent. The Collection Agent hereby represents and warrants as follows, which representations and warranties shall be deemed repeated on each day during the Revolving Period: 56 (a) The Collection Agent is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified, except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect. (b) The execution, delivery and performance by the Collection Agent of this Agreement and any other documents to be delivered by it hereunder (i) are within the Collection Agent's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene (1) the Collection Agent's charter or by-laws, (2) any law, rule or regulation applicable to the Collection Agent, (3) any contractual restriction binding on or affecting the Collection Agent or its property or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Collection Agent or its property, and (iv) do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. This Agreement has been duly executed and delivered by the Collection Agent. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Collection Agent of this Agreement or any other document to be delivered by it hereunder. (d) This Agreement constitutes the legal, valid and binding obligation of the Collection Agent enforceable against the Collection Agent in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and general equitable principles (whether considered in a proceeding at law or in equity). (e) Since February 28, 2004 there has been no material adverse change in the business, operations, property, prospects or financial or other condition of the Collection Agent. (f) Except as set forth in Schedule V, there is no pending or threatened action, investigation or proceeding affecting the Collection Agent or any of its Subsidiaries before any court, governmental agency or arbitrator which if determined adversely, could reasonably be expected to result in a Material Adverse Effect. (g) On each day during the Revolving Period (and after giving effect to any Advance to be made on such day), the Facility Principal (less the amount of Cure Funds then in the Cure Account) is not greater than the Borrowing Base. Each Transferred Asset characterized in any Borrower Report as an Eligible Receivable or Eligible Participation Interest, or as included in the Net Receivables Pool Balance is, as of the date of such Borrower Report (or, if applicable, as of a date certain specified in such information), an Eligible Receivable or Eligible Participation Interest, or properly included in the Net Receivables Pool Balance. 57 ARTICLE V COVENANTS SECTION 5.01. Covenants of the Borrower. Until the later of the Facility Termination Date or the date on which all Obligations shall be paid in full: (a) Compliance with Laws, Etc. The Borrower will comply in all material respects with all applicable laws, rules, regulations and orders and preserve and maintain its corporate existence, rights, franchises, qualifications, and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such rights, franchises, qualifications, and privileges could not reasonably be expected to result in a Material Adverse Effect. (b) Offices, Records, Name and Organization. The Borrower will keep its principal place of business and chief executive office and the office where it keeps its records concerning the Transferred Assets at the address of the Borrower set forth on Schedule III hereto or, upon 30 days' prior written notice to the Program Agent and each Investor Agent, at any other locations within the United States. The Borrower will not change its name or its jurisdiction of organization, unless (i) the Borrower shall have provided the Program Agent and each Investor Agent with at least 30 days' prior written notice thereof and (ii) no later than the effective date of such change, all actions reasonably requested by the Program Agent to protect and perfect the security interest in the Transferred Assets have been taken and completed. The Borrower also will maintain and implement (or cause the Collection Agent to maintain or implement) administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Transferred Assets and related Contracts in the event of the destruction of the originals thereof), and keep and maintain (or cause the Collection Agent to maintain or implement) all documents, books, records and other information reasonably necessary or advisable for the collection of all Pool Receivables and Participated Receivables (including, without limitation, records adequate to permit the daily identification of each Pool Receivable and Participated Receivables and all Collections of and adjustments to each existing Participated Receivable). (c) Performance and Compliance with Contracts and Credit and Collection Policy. The Borrower will, at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Transferred Assets and timely and fully comply in all material respects with the Credit and Collection Policy in regard to each Transferred Assets and the related Contract. (d) Sales, Liens, Etc. Except for the security interest created hereunder in favor of the Program Agent, the Borrower will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to any Collateral, or upon or with respect to any account to which any 58 Collections of any Pool Receivable or Participated Receivable are sent, or assign any right to receive income in respect thereof. (e) Extension or Amendment of Receivables and Participated Receivables. Except as provided in Section 6.02(c), the Borrower will not (and will not permit the Collection Agent or any Originator to) extend, amend or otherwise modify the terms of any Pool Receivable or Participated Receivable, or amend, modify or waive any term or condition of any Contract related thereto. (f) Change in Business or Credit and Collection Policy. The Borrower will not make any change in the character of its business or in the Credit and Collection Policy that could, in either case, reasonably be expected to result in a Material Adverse Effect. (g) Change in Payment Instructions to Obligors. The Borrower will not add or terminate any bank, post office box or bank account as a Deposit Bank, Account Bank, Lock-Box, Deposit Account or Governmental Entity Receivables Account from those listed in Schedule I to this Agreement, or make any change in its instructions to Obligors regarding payments to be made to the Borrower or payments to be made to any such account or box, unless each of the Agents shall have received notice of such addition, termination or change (including an updated Schedule I) and a fully executed Deposit Account Agreement or Governmental Entity Receivables Agreement with each new Deposit Bank or Account Bank, as the case may be, or with respect to each new Lock- Box, Deposit Account or Governmental Entity Receivables Account. (h) Deposits to Lock-Boxes, Deposit Accounts, Governmental Entity Receivables Accounts. The Borrower will (or will cause the Collection Agent or the Originators to) instruct all Obligors that are Governmental Entities other than Contract Payors to remit all their payments in respect of Participated Receivables to Governmental Entity Receivables Accounts or Lock-Boxes associated therewith. The Borrower will (or will cause the Collection Agent or the Originators to) instruct all Obligors that are not Governmental Entities other than Contract Payors to remit all their payments in respect of Receivables to Deposit Accounts or Lock-Boxes associated therewith. If the Borrower shall receive any Collections directly, it shall immediately (and in any event within one Business Day) deposit the same to a Deposit Account (in the case of Collections of Receivables) or a Governmental Entity Receivables Account (in the case of Collections of Participated Receivables). The Borrower will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box, Deposit Account or Governmental Entity Receivables Account, cash or cash proceeds other than Collections of Receivables or Participated Receivables. (i) Good Standing Certificates. The Borrower will within (a) 90 days after the date of this Agreement provide to the Program Agent copies of good standing certificates or the equivalent for K&B Tennessee Corporation and Rite Aid of Tennessee, Inc., and (b) within 30 days after the date of this Agreement provide to the Program Agent copies of good standing certificates or the equivalent for the Borrower and Cayman SPE I under Cayman Islands law. 59 (j) Further Assurances. (i) The Borrower agrees from time to time, at its expense, promptly to execute and deliver all further instruments and documents, and to take all further actions, that may be necessary or desirable, or that the Program Agent or any Investor Agent may reasonably request, to perfect or protect the security interest granted under this Agreement, or to enable the Investors, the Banks, the Investor Agents or the Program Agent to exercise and enforce their respective rights and remedies under this Agreement. (ii) The Borrower authorizes the Program Agent to file financing or continuation statements, and amendments thereto and assignments thereof, relating to the Collateral. (k) Reporting Requirements. The Borrower will provide to the Program Agent and the Investor Agents (in multiple copies, if requested by the Program Agent or any Investor Agent) the following: (i) as soon as available and in any event within 50 days (or such earlier date that is 5 days after the then-current filing deadline for the Parent's Quarterly Report on Form 10-Q) after the end of each of the first three quarters of each fiscal year of the Parent, the Parent's and its consolidated Subsidiaries' consolidated balance sheet as of the end of such quarter and statements of income and cash flows for the then elapsed portion of such fiscal year for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by a Financial Officer of the Parent; (ii) as soon as available and in any event within 105 days (or such earlier date that is 10 days after the then-current filing deadline for the Parent's Annual Report on Form 10-K) after the end of each fiscal year of the Parent, the audited consolidated balance sheet of the Parent and its consolidated Subsidiaries and related statements of income and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any material qualification or exception as to the scope of the audit) to the effect that such consolidated financial statements present fairly in all material respects the financial position, results of operations and cash flows of the Parent and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP; (iii) as soon as available and in any event within 50 days after the end of each of the first three fiscal quarters (or such earlier date that is 5 days after the then-current filing deadline for the Parent's Quarterly Report on Form 10-Q) and within 105 days after the end of the fourth fiscal quarter of each fiscal year (or such earlier date that is 10 days after the then-current filing deadline for the Parent's Annual Report on Form 10-K) of the Borrower, a balance sheet of the 60 Borrower as of the end of such quarter and a statement of income and cash flows of the Borrower for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by a Financial Officer of the Borrower; (iv) as soon as possible and in any event within five days after the occurrence of each Event of Termination or Incipient Event of Termination, a statement of a Financial Officer of the Borrower setting forth details of such Event of Termination or Incipient Event of Termination and the action that the Borrower has taken and proposes to take with respect thereto; (v) promptly after the sending or filing thereof, copies of all reports that the Parent sends to any of its security holders, and copies of all reports and registration statements that the Parent or any of its Subsidiaries files with the SEC or any national securities exchange; (vi) promptly after the filing or receiving thereof, copies of all reports and notices that the Parent or any ERISA Affiliate files under ERISA with the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or that the Parent or any ERISA Affiliate receives from any of the foregoing or from any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which the Parent or any ERISA Affiliate is or was, within the preceding five years, a contributing employer, in each case in respect of the assessment of withdrawal liability or an event or condition which could, in the aggregate, result in the imposition of liability on the Parent and/or any such ERISA Affiliate in excess of $10,000,000; (vii) at least 30 days prior to any change in the name or jurisdiction of organization of the Parent, any Originator or the Borrower, a notice setting forth the new name or jurisdiction of organization and the effective date thereof; (viii) promptly after the Borrower obtains knowledge thereof, notice of any "Event of Termination" or "Facility Termination Date" under any Purchase Agreement; (ix) so long as any Principal shall be outstanding, as soon as possible and in any event no later than the day of occurrence thereof, notice that any Originator has stopped selling to HQ, pursuant to the Originator Purchase Agreement, all newly arising or acquired Originator Receivables and Participation Interests in Government Receivables; and notice that HQ or Cayman SPE I has stopped selling or contributing Receivables and Participation Interests in Government Receivables pursuant to the Secondary Purchase Agreement or the Tertiary Purchase Agreement, as the case may be; (x) at the time of the delivery of the financial statements provided for in clauses (i) and (ii) of this paragraph, a certificate of a Financial Officer of the 61 Borrower to the effect that, to the best of such officer's knowledge, no Event of Termination has occurred and is continuing or, if any Event of Termination has occurred and is continuing, specifying the nature and extent thereof; (xi) promptly after receipt thereof, copies of all notices received by the Borrower from any Person under or with respect to any Purchase Agreement; (xii) at least 60 days prior to the end of the last fiscal year of the Parent referred to in Schedule IV, a new Schedule IV, setting forth the Months for the upcoming fiscal year or years; and (xiii) such other information respecting the Receivables, Participated Receivables, or Participation Interests or the condition or operations, financial or otherwise, of the Borrower, the Parent or any other Originator as the Program Agent or any Investor Agent may from time to time reasonably request, to the extent such disclosure is permitted under applicable law, rule or regulation. Reports and financial statements required to be delivered pursuant to clauses (i), (ii) and (v) of this Section 5.01(k) shall be deemed to have been delivered on the date on which the Parent posts such reports, or reports containing such financial statements, on the Parent's website on the Internet at http://www.riteaid.com or when such reports, or reports containing such financial statements, are posted on the SEC's website at www.sec.gov; provided that the Parent shall deliver paper copies of the reports and financial statements referred to in clauses (i), (ii) and (v) of this Section 5.01(k) to the Program Agent or any Investor Agent or Bank who requests the Parent to deliver such paper copies until written notice to cease delivering paper copies is given by the Program Agent or such Investor Agent or Bank, as applicable. (l) Separateness. (i) [Intentionally Omitted.] (ii) The Borrower shall not direct or participate in the management of any of the Other Companies' operations or of any other Person's operations. (iii) The Borrower shall conduct its business from an office separate from that of the Other Companies and any other Person (but which may be located in the same facility as one or more of the Other Companies). The Borrower shall have stationery and other business forms and a mailing address and a telephone number separate from that of the Other Companies and any other Person. (iv) The Borrower shall at all times be adequately capitalized in light of its contemplated business. (v) The Borrower shall at all times provide for its own operating expenses and liabilities from its own funds. 62 (vi) The Borrower shall maintain its assets and transactions separately from those of the Other Companies and any other Person and reflect such assets and transactions in financial statements separate and distinct from those of the Other Companies and any other Person and evidence such assets and transactions by appropriate entries in books and records separate and distinct from those of the Other Companies and any other Person. The Borrower shall hold itself out to the public under the Borrower's own name as a legal entity separate and distinct from the Other Companies. The Borrower shall not hold itself out as having agreed to pay, or as being liable, primarily or secondarily, for, any obligations of the Other Companies or any other Person. (vii) The Borrower shall not maintain any joint account with any Other Company or any other Person or become liable as a guarantor or otherwise with respect to any Debt or contractual obligation of any Other Company or any other Person. (viii) The Borrower shall not make any payment or distribution of assets with respect to any obligation of any Other Company or any other Person or grant an Adverse Claim on any of its assets to secure any obligation of any Other Company or any other Person. (ix) The Borrower shall not make loans, advances or otherwise extend credit to any of the Other Companies. (x) The Borrower shall comply in all material respects with its organizational documents and resolutions. (xi) The Borrower shall have recorded any security interests in its Register of Mortgages and Charges, with respect to all assets purchased from any of the Other Companies. (xii) The Borrower shall not engage in any transaction with any of the Other Companies, except as permitted by this Agreement and the other Transaction Documents. (xiii) [Intentionally Omitted.] (m) Tertiary Purchase Agreement. The Borrower will not amend, waive or modify any provision of the Tertiary Purchase Agreement or waive the occurrence of any "Event of Termination" under the Tertiary Purchase Agreement, without in each case the prior written consent of the Program Agent and each Investor Agent; provided, however, that the Borrower may amend the percentage set forth in the definition of "Discount" in the Tertiary Purchase Agreement in accordance with the provisions of the Tertiary Purchase Agreement without the consent of the Program Agent and each Investor Agent, provided, further, that the Borrower shall promptly notify the Program Agent and each Investor Agent of any such amendment. The Borrower will perform all of its obligations under the Tertiary Purchase Agreement in all material respects and will enforce the Tertiary Purchase Agreement in accordance with its terms in all material respects. 63 (n) Nature of Business. The Borrower will not engage in any business other than the purchase or acquisition of Transferred Assets, Related Security and Collections from Cayman SPE I and the transactions contemplated by this Agreement. The Borrower will not create or form any Subsidiary. (o) Mergers, Etc. The Borrower will not merge with or into or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions), all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets or capital stock or other ownership interest of, or enter into any joint venture or partnership agreement with, any Person, other than as specifically contemplated by this Agreement and the other Transaction Documents. (p) Distributions, Etc. The Borrower will not declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of equity interests of the Borrower, or return any capital to its shareholders as such, or purchase, retire, defease, redeem or otherwise acquire for value or make any payment in respect of any shares of any class of equity of the Borrower or any warrants, rights or options to acquire any such shares, now or hereafter outstanding; provided, however, that the Borrower may declare and pay cash dividends on its share capital to its shareholders so long as (i) no Event of Termination shall then exist or would occur as a result thereof, (ii) such dividends are in compliance with all applicable law including the laws of The Cayman Islands, and (iii) such dividends have been approved by all necessary and appropriate corporate action of the Borrower. (q) Debt. The Borrower will not incur any Debt, other than any Debt incurred pursuant to this Agreement. (r) Memorandum and Articles of Association. The Borrower will not amend or delete or modify its Memorandum and Articles of Association, without the prior written consent of the Program Agent. The Borrower will file with the appropriate registry office in the Cayman Islands within one Business Day after such registry reopens after the date of this Agreement, amendment documents to its Memorandum and Articles of Association reflecting, among other things, its change of name from Cayman Resources (22) Ltd. and limiting its corporate objects. (s) Additional Information. If additional information is requested by the Obligor as to a bill or supporting claim documents, the Borrower will cause the applicable Originator to promptly provide the same and, if any error has been made with respect to such information, cause the applicable Originator to promptly correct the same and, if necessary, to rebill such Originator Receivable. SECTION 5.02. Covenant of the Borrower, the Collection Agent and the Originators. Until the latest of the Facility Termination Date or the date on which no Obligations shall be outstanding or the date all other amounts owed by the Borrower hereunder to the 64 Investors, the Banks, the Investor Agents or the Program Agent are paid in full, each of the Borrower, the Collection Agent and each Originator will, at their respective expense, from time to time during regular business hours as requested by the Program Agent or any Investor Agent, permit the Program Agent, any Investor Agent or their respective agents or representatives (including independent public accountants, which may be the Borrower's or the Parent's independent public accountants), (i) to conduct audits of the Receivables, Participated Receivables, the Related Security and the related books and records and collections systems of the Borrower, the Collection Agent or such Originator, as the case may be, (ii) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of the Borrower, the Collection Agent or such Originator, as the case may be, relating to Receivables, Participated Receivables and the Related Security, including, without limitation, the Contracts, and (iii) to visit the offices and properties of the Borrower, the Collection Agent or such Originator, as the case may be, for the purpose of examining such materials described in clause (ii) above, and to discuss matters relating to Receivables, Participated Receivables and the Related Security or the Borrower's, the Collection Agent's or such Originator's performance under the Transaction Documents or under the Contracts with any of the officers or employees of the Borrower, the Collection Agent or such Originator, as the case may be, having knowledge of such matters. In addition, upon any Agent's request no more than four times per year (but without such limitation if an audit deficiency is described during any such audit), the Program Agent will, at Borrower's expense, appoint independent public accountants or other Persons acceptable to the Agents (which shall not be the Parent's or the Borrower's independent public accountants who perform regular financial statement audits for the Parent and its Subsidiaries), to prepare and deliver to the Program Agent and each Investor Agent a written report with respect to the Receivables, Participated Receivables and the Credit and Collection Policy (including, in each case, the systems, procedures and records relating thereto) on a scope and in a form reasonably requested by the Program Agent and the Investor Agents. ARTICLE VI ADMINISTRATION AND COLLECTION OF POOL RECEIVABLES AND PARTICIPATED RECEIVABLES SECTION 6.01. Designation of Collection Agent. The servicing, administration and collection of the Receivables and Participated Receivables shall be conducted by the Collection Agent so designated hereunder from time to time. Until the Program Agent gives notice to the Borrower of the designation of a new Collection Agent in accordance with the terms hereof, HQ is hereby designated as, and hereby agrees to perform the duties and obligations of, the Collection Agent pursuant to the terms hereof. At any time after the occurrence and during the continuance of a Collection Agent Default, the Program Agent may and, at the request of any two Investor Agents, the Program Agent shall designate as Collection Agent any Person (including itself) to succeed the Parent or any successor Collection Agent, if such Person shall consent and agree to the terms hereof. The Collection Agent may, with the prior consent of the Program Agent and each Investor Agent, subcontract with any other Person (except that in the case of an Originator no such consent is required) for the servicing, administration or collection 65 of the Receivables and Participated Receivables. Any such subcontract shall not affect the Collection Agent's liability for performance of its duties and obligations pursuant to the terms hereof, and any such subcontract shall automatically terminate upon designation of a successor Collection Agent. SECTION 6.02. Duties of Collection Agent. (a) The Collection Agent shall take or cause to be taken all such actions as may be necessary or advisable to collect each Pool Receivable and Participated Receivable from time to time, all in accordance in all material respects with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. The Borrower, the Program Agent, the Investor Agents, the Banks and the Investors hereby appoint the Collection Agent, from time to time designated pursuant to Section 6.01, as agent for themselves, the Investors and the Banks to enforce their respective rights and interests in the Pool Receivables, the Participated Receivables, the Participation Interests, the Related Security and the Collections with respect thereto. In performing its duties as Collection Agent, the Collection Agent shall exercise the same care and apply the same policies as it would exercise and apply if it owned such Receivables or Participated Receivables and shall act in the best interests of the Borrower, the Investors, the Banks, the Investor Agents and the Program Agent. (b) The Collection Agent shall administer the Collections in accordance with the procedures described in Section 2.04. The Collection Agent is hereby authorized and empowered to instruct the Trustee to make withdrawals and payments from the Cure Account and Trustee's Account, subject to the limitations set forth in Section 6.09(a) and as otherwise set forth in this Agreement. (c) If no Event of Termination or Incipient Event of Termination shall have occurred and be continuing, HQ, while it is the Collection Agent, may, in accordance with the Credit and Collection Policy, extend the maturity or adjust the Outstanding Balance of any Receivable or Participated Receivable as it deems appropriate to maximize Collections thereof, or otherwise amend or modify other terms of any Receivable or Participated Receivable, provided that the classification of any such Receivable or Participated Receivable as a Delinquent Receivable or Defaulted Receivable hereunder shall not be affected by any such extension. (d) The Collection Agent shall hold in trust for the Borrower and each Investor and Bank, in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) which evidence or relate to Transferred Assets. The Collection Agent shall mark each Originator's master data processing records evidencing the Transferred Assets with a legend, acceptable to the Program Agent, evidencing that such Transferred Assets have been sold to the Borrower and marking the Participated Receivables with a legend, acceptable to the Program Agent, evidencing that such Purchased Receivables are the subject of a Participation Interest sold to the Borrower. (e) The Collection Agent shall, as soon as practicable following receipt, turn over to the Person entitled thereto any cash collections or other cash proceeds received with 66 respect to Receivables and Participated Receivables not constituting Pool Receivables or not subject to Participation Interests. (f) The Collection Agent shall, from time to time at the request of the Program Agent or any Investor Agent, furnish to the Program Agent and the Investor Agents (promptly after any such request) a calculation of the amounts set aside for the Investors, the Banks and the Investor Agents pursuant to Section 2.04. (g) (i) No later than 3:00 p.m. (New York City time) on the seventh Business Day of each Month, the Collection Agent shall prepare and forward to the Program Agent and each Investor Agent a Borrower Report relating to the Receivables and Participated Receivables outstanding on the last day of the immediately preceding Month. (ii) On each Business Day, by no later than 12:00 noon (New York City time), the Collection Agent shall provide to the Trustee, and to the Investor Agents and the Program Agent, a Daily Report as of the prior Business Day. (iii) On or before each Determination Date, the Collection Agent shall deliver to the Trustee, each Investor Agent and the Program Agent a Determination Date Certificate for such Determination Date. (iv) No later than 12:00 noon (New York City time) on the fourth Business Day following the end of the second calendar week of each Month, the Collection Agent shall prepare and deliver to the Trustee, each Investor Agent and the Program Agent an Interim Report relating to Receivables and Participated Receivables outstanding on the last day of such second calendar week. The Collection Agent shall transmit Borrower Reports, the Daily Reports and the Determination Date Certificate, to the Program Agent, each Investor Agent and, in the case of the Daily Reports and the Determination Date Certificate, also to the Trustee, concurrently by facsimile and by electronic mail (each an "E-Mail Report"). Each E-Mail Report shall be (A) formatted as the Program Agent may designate from time to time and shall be digitally signed and (B) sent to the Program Agent and each Investor Agent and the Trustee, as the case may be, at an electronic mail address designated by each of them. SECTION 6.03. Certain Rights of the Agents. (a) After the occurrence and during the continuance of an Event of Termination or an Incipient Event of Termination, the Program Agent may and, at the direction of any Agent, the Program Agent shall notify the Obligors of Pool Receivables and Participated Receivables, at any time and at the Borrower's expense, of the security interest granted under this Agreement. (b) At any time after the occurrence and during the continuance of an Event of Termination or an Incipient Event of Termination: (i) The Program Agent may, and, at the direction of any Agent, the Program Agent shall to the extent permitted under applicable law, direct the 67 Obligors of Pool Receivables and Participated Receivables that all payments thereunder be made directly to the Program Agent or its designee. (ii) At any Agent's request and at the Borrower's expense, the Borrower shall notify each Obligor of Pool Receivables and Participated Receivables of the security interest in the Receivables or Participated Receivables granted under this Agreement and direct that payments be made directly to the Program Agent or its designee. (c) At any time: (i) At any Agent's request and at the Borrower's expense, the Borrower and the Collection Agent shall (A) assemble all of the documents, instruments and other records (including, without limitation, computer tapes and disks) that evidence or relate to the Pool Receivables and Participated Receivables and the related Contracts and Related Security, or that are otherwise necessary or desirable to collect the Pool Receivables and Participated Receivables, and shall make the same available to the Program Agent at a place selected by the Program Agent or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Pool Receivables and Participated Receivables in a manner acceptable to the Agents and, promptly upon receipt, remit all such cash, checks and instruments, duly indorsed or with duly executed instruments of transfer, to the Program Agent or its designee. (ii) The Borrower authorizes the Program Agent to take any and all steps in the Borrower's name and on behalf of the Borrower that are necessary or desirable, in the determination of any Agent, to collect amounts due under the Pool Receivables and Participated Receivables, including, without limitation, endorsing the Borrower's name on checks and other instruments representing Collections of Pool Receivables and Participated Receivables and enforcing the Pool Receivables and Participated Receivables and the Related Security and related Contracts. SECTION 6.04. Rights and Remedies. (a) If the Collection Agent fails to perform any of its obligations under this Agreement, the Program Agent may (but shall not be required to) (after notice to the Collection Agent and such failure to perform, if capable of being cured, is not cured within 10 days after such notice is sent) itself perform, or cause performance of, such obligation; and the Program Agent's costs and expenses incurred in connection therewith shall be payable by the Collection Agent. (b) The Borrower and the Originators shall perform their respective obligations under the Contracts related to the Pool Receivables, the Participated Receivables or the Participation Interests and the exercise by the Program Agent on behalf of the Investors, the Banks and the Investor Agents of their rights under this Agreement shall not release the Originators, the Collection Agent or the Borrower from any of their duties or obligations with respect to any Pool Receivables, the Participated Receivables or the Participation Interests or 68 related Contracts. Neither the Program Agent, the Investors, the Investor Agents nor the Banks shall have any obligation or liability with respect to any Pool Receivables, the Participated Receivables or the Participation Interests or related Contracts, nor shall any of them or the Borrower be obligated to perform the obligations of the Originators thereunder. (c) In the event of any conflict between the provisions of Article VI of this Agreement and Article VI of any Purchase Agreement, the provisions of Article VI of this Agreement shall control. SECTION 6.05. Further Actions Evidencing the Advances. The Borrower and each Originator agrees from time to time, at its expense, to promptly execute and deliver all further instruments and documents, and to take all further actions, that may be reasonably necessary or desirable, or that the Program Agent or any Investor Agent may reasonably request, to perfect, protect or more fully evidence the security interest granted hereunder, or to enable the Investors, the Banks, the Investor Agents or the Program Agent to exercise and enforce their respective rights and remedies hereunder. Without limiting the foregoing, the Borrower and each Originator hereby authorizes the filing of any financing statements or continuation statements, and amendments to financing statements, in any jurisdictions as any Agent may reasonably determine are necessary to perfect the security interest granted to the Program Agent pursuant to Section 2.11 hereof or the interests assigned pursuant to the Originator Purchase Agreement. Such financing statements filed against the Borrower may describe the collateral in the same manner specified in Section 2.11 hereof or in any other manner as any Agent may reasonably determine is necessary to ensure the perfection of such security interest, including, without limitation, describing such property as all assets or all personal property of the Borrower whether now owned or hereafter acquired. SECTION 6.06. Covenants of the Collection Agent and each Originator. (a) [Intentionally Omitted.] (b) Change in Credit and Collection Policy. Neither the Collection Agent nor any Originator will make any change in the Credit and Collection Policy that would impair the collectibility of a significant amount of the Pool Receivables or Participated Receivables or the ability of HQ (if it is acting as Collection Agent) to perform its obligations under this Agreement. In the event that the Collection Agent or any Originator makes any change to the Credit and Collection Policy, it shall, contemporaneously with such change, provide the Program Agent and each Investor Agent with an updated Credit and Collection Policy and a summary of all material changes. (c) Change in Payment Instructions to Obligors. The Collection Agent will not add or terminate any bank, post office box or bank account as a Deposit Bank, Account Bank, Lock-Box, Deposit Account or Governmental Entity Receivables Account from those listed in Schedule I to this Agreement, or make any change in its instructions to Obligors regarding payments to be made to the Borrower or payments to be made to any such box or account, unless the Investor Agents and the Program Agent shall have received notice of such addition, termination or change (including an updated Schedule I) and a fully executed Deposit Account 69 Agreement, Governmental Entity Receivables Agreement with each new Deposit Bank or Account Bank or with respect to each new such box or account. (d) Deposits to Governmental Entity Receivables Accounts, Lock-Boxes and Deposit Accounts. The Collection Agent will (or will cause the Borrower or the Originators to) instruct all Obligors that are Governmental Entities (other than Contract Payors) to remit all their payments in respect of Participated Receivables to Governmental Entity Receivables Accounts or Lock-Boxes associated therewith. The Collection Agent will (or will cause the Borrower or the Originator to) instruct all Obligors that are not Governmental Entities (other than Contract Payors) to remit all their payments in respect of Receivables to Deposit Accounts or Lock-Boxes associated therewith. If the Collection Agent shall receive any Collections directly, it shall immediately (and in any event within one Business Day) deposit the same to a Deposit Account or a Governmental Entity Receivables Account, as the case may be. The Collection Agent will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock- Box, Deposit Account or Governmental Entity Receivables Account cash proceeds other than Collections of Receivables or Participated Receivables, except as provided in the second to last sentence of this Section 6.06(d). In furtherance of the foregoing, the Collection Agent agrees (i) within 30 days from the date of this Agreement, to notify all Obligors that are not Governmental Entities (other than Contract Payors) to remit all their payments in respect of Receivables to Deposit Accounts or Lock-Boxes associated therewith and (ii) thereafter, to use ongoing commercially reasonable efforts to obtain compliance with such notice from those Obligors who have failed to so comply. The foregoing notwithstanding the Collection Agent acknowledges that collections on account of accounts receivable belonging to Drugstore.com are regularly deposited into the Governmental Entity Receivables Account and agrees to identify and remove such collections (from such account or the Trustee's Account, as the case may be) within two Business Days after they are received. The Originators and the Collection Agent will provide such information regarding such Drugstore.com receivables and the contractual arrangements between them and Drugstore.com as any Agent may reasonably request and will cooperate with the Agents in implementing such provisions relating to such Drugstore.com receivables as the Agents may reasonably request following such review by the Agents. (e) Maintenance of Records. The Collection Agent also will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables and Participated Receivable and related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Pool Receivables (including, without limitation, records adequate to permit the daily identification of each Pool Receivable and Participated Receivable and all Collections of and adjustments to each existing Pool Receivable and Participated Receivable). SECTION 6.07. Indemnities by the Collection Agent. Without limiting any other rights that the Program Agent, any Investor Agent, any Investor, any Bank, the Trustee or any of their respective Affiliates or members or any of their respective officers, directors, employees or advisors (each, a "Special Indemnified Party") may have hereunder or under applicable law, and 70 in consideration of its appointment as Collection Agent, the Collection Agent hereby agrees to indemnify each Special Indemnified Party from and against any and all claims, losses and liabilities (including reasonable attorneys' fees) (all of the foregoing being collectively referred to as "Special Indemnified Amounts") arising out of or resulting from any of the following (excluding, however, (a) Special Indemnified Amounts to the extent found in a final non- appealable judgment of a court of competent jurisdiction to have resulted from gross negligence or willful misconduct on the part of such Special Indemnified Party, (b) recourse for Receivables and Participated Receivables which are not collected, not paid or uncollectible on account of the insolvency, bankruptcy or financial inability to pay of the applicable Obligor or (c) any income taxes or franchise taxes measured by income or any other tax or fee measured by income incurred by such Special Indemnified Party arising out of or as a result of this Agreement or the security interest granted hereunder or in respect of any Receivable, Participated Receivable or any Contract): (i) any representation made or deemed made by the Collection Agent pursuant to Section 4.02(g) hereof which shall have been incorrect in any respect when made or any other representation or warranty or statement made or deemed made by the Collection Agent under or in connection with this Agreement which shall have been incorrect in any material respect when made; (ii) the failure by the Collection Agent to comply with any applicable law, rule or regulation with respect to any Pool Receivable, Participated Receivable, or Contract; or the failure of any Pool Receivable, Participated Receivable, or Contract to conform to any such applicable law, rule or regulation; (iii) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool, Participated Receivables with respect to which the Participation Interest is in the Receivables Pool, the Contracts and the Related Security and Collections in respect thereof, whether at the time of any purchase or reinvestment or at any subsequent time; (iv) any failure of the Collection Agent to perform its duties or obligations in accordance with the provisions of this Agreement; (v) the commingling of Collections of Pool Receivables or Participated Receivables at any time by the Collection Agent with other funds; (vi) any breach of an obligation of the Collection Agent reducing or impairing the rights of the Program Agent, the Investor Agents, the Investors or the Banks with respect to any Pool Receivable or the value of any Pool Receivable or Participated Receivable; 71 (vii) any Collection Agent Fees or other costs and expenses payable to any replacement Collection Agent, to the extent in excess of the Collection Agent Fees payable to the Collection Agent hereunder; or (viii) any claim brought by any Person other than a Special Indemnified Party arising from any activity by the Collection Agent or its Affiliates in servicing, administering or collecting any Receivable or Participated Receivable; or (ix) any claim, loss or liability incurred by the Trustee or its Affiliates arising out of the administration of the Trustee's duties hereunder or otherwise incurred in connection with the transactions contemplated herein or under any of the other Transaction Documents; provided, that the Collection Agent shall be obligated with respect to a claim, loss or liability referred to in this clause (ix) only to the extent payment with respect thereto is not made from Investor Collections or by the Borrower. SECTION 6.08. Representations of the Collection Agent. The Collection Agent hereby represents and warrants as follows: (a) Lock Boxes, Deposit Accounts, Governmental Entity Receivables Accounts and the Collateral Advance Account. Specified on Schedule I hereto (as amended by the Collection Agent from time to time in accordance with Section 6.09(b)) are (i) the Lock Box numbers, (ii) the names, addresses and ABA numbers of all the Deposit Banks and Account Banks, together with the account numbers of the Deposit Accounts or Governmental Entity Receivables Accounts, as the case may be, and the name of a contact person at each Deposit Bank and Account Bank, as the case may be, and (iii) the name, address and ABA number of the Collateral Advance Account Bank, together with the account number and the name of a contact person for the Collateral Advance Account. (b) Payment Instructions. It has notified (or has caused the Originators to notify) the Obligor on each Receivable or Participated Receivable other than Contract Payors to make payments on such Receivable to either one of the Lock Boxes or one of the Collection Accounts. (c) Daily Reports, Interim Reports, Borrower Reports and Determination Date Certificates. Each Daily Report, Interim Report, Borrower Report and Determination Date Certificate delivered by the Collection Agent pursuant to this Agreement shall be true and correct in all material respects on the date such report or certificate is delivered. SECTION 6.09. Establishment of Collateral Advance Account and Deposit Accounts. (a) Collateral Advance Account. (i) On or prior to the date of this Agreement, the Collection Agent, for the benefit of the Banks, shall establish and maintain or cause to be established and maintained in the name of the Borrower with an Eligible Institution (which shall initially be JPMorgan Chase Bank), an account (such account being the "Collateral Advance 72 Account" and such institution holding such account being the "Collateral Advance Account Bank"), such account bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Banks and entitled "Citicorp North America, Inc., as Program Agent -- Collateral Advance Account for the Rite Aid Receivables Financing Agreement." The Collateral Advance Account shall be under the sole dominion and control of the Program Agent for the benefit of the Banks which have made Cash Secured Advances, and neither the Borrower, nor any Person claiming by, through or under the Borrower, shall have any right, title or interest in, or any right to withdraw any amount from, the Collateral Advance Account. Except as expressly provided in this Agreement, the Collateral Advance Account Bank agrees that it shall have no right of set-off or banker's lien against, and no right to otherwise deduct from, any funds held in the Collateral Advance Account for any amount owed to it by the Trustee, any Beneficiary, the Borrower, any Predecessor Purchaser or any Originator. The tax identification no. associated with the Collateral Advance Account shall be that of the Borrower. (ii) The Trustee will comply with (a) all written instructions directing disposition of the funds in the Collateral Advance Account, (b) all notifications and entitlement orders that the Trustee receives directing it to transfer or redeem any financial asset in the Collateral Advance Account, and (c) all other directions concerning the Collateral Advance Account, including, without limitation, directions to distribute to any Investor Agent at such Investor Agent's Account proceeds of any such transfer or redemption or interest or dividends on property in the Collateral Advance Account (any such instruction, notification or direction referred to in clause (a), (b) or (c) above being a "Collateral Advance Account Direction"), in each case of clauses (a), (b) and (c) above originated by the Program Agent without further consent by the Borrower or any other Person. Except as specified in subsection (iii) of this Section 6.09(a), the Trustee will comply with Collateral Advance Account Directions and other directions concerning the Collateral Advance Account originated by, and only by, the Program Agent. (iii) Funds on deposit in the Collateral Advance Account shall, at the written direction of the Borrower, be invested by the Trustee in Eligible Investments as instructed by the Borrower in writing (which may be a standing instruction). All such Eligible Investments shall be held in the Collateral Advance Account by the Trustee for the benefit of the Program Agent for the ratable benefit of the Banks which have made Cash Secured Advances. Such funds shall be invested in Eligible Investments that will mature so that funds will be available in amounts sufficient for the Trustee to make each distribution as and when required under the terms of this Agreement. All interest and other investment earnings (net of losses and investment expenses) received on funds on deposit in the Collateral Advance Account, to the extent such investment income is not needed to pay the relevant Investment Agents for the ratable benefit of the Term-Out Banks under the terms of this Agreement, shall be added to the Collateral Advance Account. (iv) If, at any time, the institution with which the Collateral Advance Account is maintained ceases to be an Eligible Institution, the Borrower, upon obtaining actual knowledge thereof, shall, within five Business Days from obtaining such knowledge or, if earlier, from notice to such effect by any Agent, (i) establish a new Collateral Advance Account meeting the conditions specified above with an Eligible Institution, and 73 (ii) transfer any cash and/or any financial assets held in the old Collateral Advance Account to such new Collateral Advance Account, respectively. From the date such new Collateral Advance Account is established, it shall be the "Collateral Advance Account" hereunder and for all purposes hereof. (b) Deposit Accounts and Governmental Entity Receivables Accounts. On or prior to the date of this Agreement, the Collection Agent for the benefit of the Beneficiaries, shall establish and maintain or cause to be established and maintained (i) Lock Boxes to which Obligors will remit payments with respect to Receivables and (ii) Deposit Accounts or Governmental Entity Receivables Accounts with an Eligible Institution. Obligors will be directed to remit payments with respect to their Receivables or Participated Receivables to a Lock Box, a Deposit Account or a Governmental Entity Receivables Account in accordance with the terms of Section 6.06(d). The Lock Boxes (other than those to which only Collections relating to Participated Receivables of Governmental Entities are directed and from which there will be daily sweeps to the Trustee's Account), and Deposit Accounts shall be under the sole control of the Program Agent for the benefit of the Beneficiaries, and neither the Borrower, the Collection Agent, the Parent nor any Person claiming by, through or under the Borrower, the Collection Agent, or the Parent, shall have any right, title or interest in, or any right to withdraw any amount from, any Lock Box (other than those to which only Collections relating to Participated Receivables of Governmental Entities are directed). The Collection Agent shall transfer Collections to the Trustee's Account in the manner set forth in Section 6.10. Each Deposit Account and Governmental Entity Receivables Account shall be maintained with documentation and instructions in form and substance satisfactory to the Agents. Such documentation shall provide, among other things, that available amounts shall be immediately transferred to the Trustee's Account. The Collection Agent will not (i) make any change in any Lock Box numbers, the name, address or ABA number of any Deposit Bank or Account Bank, the account number of any Deposit Account, the name, address or ABA number of any Collateral Advance Account Bank, or the account number for any Collateral Advance Bank from that set forth in Schedule I hereto or (ii) amend any instruction to any Obligor or any instruction to or agreement with any Deposit Bank or Account Bank with respect to any Lock Box, Deposit Account or Governmental Entity Receivables Account (other than to (A) redirect payments of Obligors to a different Lock Box or Deposit Account, (B) close unused Lock Boxes, Deposit Accounts and Governmental Entity Receivables Accounts and (C) open new Lock Boxes, Deposit Accounts and Governmental Entity Receivables Accounts if the Trustee and the Program Agent shall have received executed copies of the Deposit Account Agreements or Governmental Entity Receivables Agreements with each new Deposit Bank or Account Bank and an updated Schedule I) unless the Program Agent shall have given its prior consent to such change or amendment and notified the other Agents thereof. SECTION 6.10. Establishment of Trustee's Account and Cure Account. (a) (i) The Collection Agent, for the benefit of the Beneficiaries, shall establish and maintain in the name of the Trustee, with an Eligible Institution (which shall initially be the Trustee) a segregated non-interest bearing trust account accessible only by the Trustee (the "Trustee's Account"), which shall be identified as the "Trustee's Account for the Rite Aid Receivables Financing Agreement" and shall bear a designation clearly indicating that the funds deposited therein are held for the benefit of the Beneficiaries. The Trustee's Account initially shall be 74 established at the Trustee. Except as specifically provided in this Agreement, the Trustee agrees that it shall have no right of set-off or banker's lien against and no right to otherwise deduct from any funds held in the Trustee's Account for any amount owed to it by any Beneficiary, the Borrower, any Predecessor Purchaser or any Originator. The tax identification no. associated with the Trustee's Account shall be that of the Borrower. (ii) At the written direction of the Collection Agent (which may be a standing direction), funds on deposit in the Trustee's Account shall be invested by the Trustee in Eligible Investments selected by the Collection Agent that will mature so that such funds will be available on or before the close of business on the Business Day next preceding the following Distribution Date. All such Eligible Investments shall be held by the Trustee for the benefit of the Beneficiaries. On each Distribution Date, all interest and other investment earnings (net of losses and investment expenses) on funds on deposit in the Trustee's Account shall be applied as set forth in Section 2.04A. Funds deposited in the Trustee's Account on a Business Day which immediately precedes a Distribution Date are not required to be invested overnight. (b) (i) The Collection Agent, for the benefit of the Beneficiaries, shall establish and maintain in the name of the Trustee a segregated trust account accessible only by the Trustee (the "Cure Account"), which shall be identified as the "Cure Account for the Rite Aid Receivables Financing Agreement" and shall bear a designation clearly indicating that the funds deposited therein are held for the benefit of the Beneficiaries. The Cure Account shall initially be established with the Trustee and thereafter may only be established or maintained at an Eligible Institution. Except as specifically provided in this Agreement, the Trustee agrees that it shall have no right of set-off or banker's lien against and no right to otherwise deduct from any funds held in the Trustee's Account for any amount owed to it by any Beneficiary, the Borrower, any Predecessor Purchaser or any Originator. The tax identification no. associated with the Cure Account shall be that of the Borrower. (ii) At the written direction of the Collection Agent (which may be a standing direction), funds on deposit in the Cure Account shall be invested by the Trustee in Eligible Investments selected by the Collection Agent that will mature so that such funds will be available on or before the close of business on the Business Day preceding the next Distribution Date. All such Eligible Investments shall be held by the Trustee for the benefit of the Beneficiaries. On each Distribution Date, all interest and other investment earnings (net of losses and investment expenses) on funds on deposit in the Cure Account shall be applied as set forth in Section 2.04A. Funds deposited in the Cure Account on a Business Day which immediately precedes a Distribution Date are not required to be invested overnight. (c) (i) The Trustee shall possess all right, title and interest in and to all funds on deposit from time to time in, and all Eligible Investments credited to, the Trustee's Account and the Cure Account (collectively, the "Trustee Accounts") and in all proceeds thereof. The Trustee Accounts shall be under the sole dominion and control of the Trustee for the benefit of the Beneficiaries. If, at any time, any of the Trustee Accounts is held by an institution other than an Eligible Institution, the Trustee (or the Collection Agent, at the direction of the Trustee and on its behalf) shall within 10 Business Days establish a new Trustee Account meeting the conditions specified in paragraph (a)(i) or (b)(i) above, as applicable, and shall transfer any cash 75 and/or any investments to such new Trustee Account. Neither the Borrower, the Collection Agent nor any Person or entity claiming by, through or under the Borrower, the Collection Agent or any such Person or entity shall have any right, title or interest in, or any right to withdraw any amount from, any Trustee Account, except as expressly provided herein. Schedule VII identifies each Trustee Account by setting forth the identification name of such account, the account number of each such account, the account designation of each such account and the name and location of the institution with which such account has been established. If a substitute Trustee Account is established pursuant to this Section 6.10, the party establishing such substitute Trustee Account shall promptly provide to the Collection Agent or the Trustee, as applicable, an amended Schedule VII, setting forth the relevant information for such substitute Trustee Account. (ii) Notwithstanding anything herein to the contrary, the Collection Agent shall have the power, revocable by the Trustee at the written direction of any Agent, to instruct the Trustee in writing to make withdrawals and payments from the Trustee Accounts for the purposes of carrying out the Collection Agent's or Trustee's duties hereunder. (d) At no time may greater than 10% of the funds on deposit in any Trustee Account be invested in Eligible Investments (other than obligations of the United States government or agencies the obligations of which are guaranteed by the United States government or investments described in clause (e) of the definition of Eligible Investments) of any single entity or its Affiliates. Nothing herein shall be construed to impose any obligation on the Trustee to monitor compliance with this Section 6.10(d). (e) Any request by the Collection Agent to invest funds on deposit in any Trustee Account shall be in writing (which may be a standing instruction) and shall state that the requested investment is an Eligible Investment. (f) The Trustee is hereby authorized, unless otherwise directed by the Collection Agent, to effect transactions in Eligible Investments through a capital markets affiliate of the Trustee. (g) The Trustee will, on a monthly basis, report to the Collection Agent, the Borrower and the Agents from time to time on such investments, and at such other times that are reasonably requested by the Borrower or the Collection Agent. ARTICLE VII EVENTS OF TERMINATION SECTION 7.01. Events of Termination. If any of the following events ("Events of Termination") shall occur and be continuing: (a) The Collection Agent (i) shall fail to perform or observe any term, covenant or agreement under this Agreement (other than as referred to in clause (ii) or 76 (iii) of this subsection (a)) and such failure, if capable of being cured, shall remain unremedied for ten days or (ii) shall fail to make when due any payment or deposit to be made by it under this Agreement and such failure, in the case of payments on account of Yield or Fees only, shall remain unremedied for one Business Day or (iii) shall fail to deliver any Borrower Report, Daily Report or Determination Date Certificate when required and such failure shall remain unremedied for one Business Day (provided, that the grace period in this clause (iii) may not be utilized more than three times in any Month); or (b) The Borrower shall fail to make any payment required under Section 2.04(f); or (c) Any representation or warranty (unless such representation or warranty relates solely to one or more specific Receivables incorrectly characterized as Eligible Receivables or specific Participated Receivables incorrectly characterized as Eligible Participated Receivables and either (i) immediately following the removal of such Receivables or Participated Receivables from the Net Receivables Pool Balance the Facility Principal (less the amount of Cure Funds then in the Cure Account) is not greater than the Borrowing Base or (ii) the Borrower shall have made any required deemed Collection payment pursuant to Section 2.04(f) with respect to such Receivables or Participated Receivables) made or deemed made by the Borrower, the Parent, any Originator, any Predecessor Purchaser or the Collection Agent (or any of their respective officers) under or in connection with this Agreement or any other Transaction Document or any information or report delivered by the Borrower, the Parent, any Originator, any Predecessor Purchaser or the Collection Agent pursuant to this Agreement or any other Transaction Document shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; or (d) The Borrower or any Originator shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for 10 days provided, that failure of the Borrower to perform or observe any covenant contained in Sections 5.01(b), 5.01(d), 5.01(g), 5.01(h), 5.01(n), 5.01(o), 5.01(p) or 5.01(q) shall not be entitled to the benefit of such 10-day period; or (e) The Borrower, the Parent, the Collection Agent, any Predecessor Purchaser or any Originator shall fail to pay any principal of or premium or interest on any of its Debt which is outstanding in a principal amount of at least $25,000,000 in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other 77 than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to repay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) The security interest created pursuant to Section 2.11 or Section 2.16(b) shall for any reason cease to be a valid and perfected first priority security interest in the Collateral or the Cash Collateral, as the case may be; or (g) The Borrower, the Parent, the Collection Agent, any Predecessor Purchaser or any Originator shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower, the Parent, the Collection Agent, any Predecessor Purchaser or any Originator seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or any proceeding or petition shall be instituted or adopted for the winding up of the Borrower or Cayman SPE I (whether or not in the context of a bankruptcy or insolvency proceeding); or the Borrower, the Parent, the Collection Agent, any Predecessor Purchaser or any Originator shall take any corporate or other action to authorize any of the actions set forth above in this subsection (g); or (h) As of the last day of any Month, either (i) the Default Ratio shall exceed 4.50 % or (ii) the average of the Default Ratios for such Month and the last two immediately preceding Months shall exceed 4.65 % or (iii) the Delinquency Ratio shall exceed 26.00 % or (iv) the average of the Delinquency Ratios for such Month and the last two immediately preceding Months shall exceed 23.00 % or (v) the average of the Dilution Ratios for such Month and the last two immediately preceding Months shall exceed 3.00 %; or (i) The Facility Principal (less the amount of Cure Funds then in the Cure Account) shall be greater than the Borrowing Base upon the termination of a Cure Period; or (j) There shall have occurred any event which in the discretion of any two of the Investor Agents may materially adversely affect the collectibility of the Receivables Pool or the ability of the Borrower, the Parent, any Originator or the Collection Agent to collect Pool Receivables or Participated Receivables or otherwise perform its obligations under this Agreement and the other Transaction Documents; or 78 (k) An "Event of Termination" or "Facility Termination Date" shall occur under any Purchase Agreement, or any Purchase Agreement shall cease to be in full force and effect; or (l) All of the outstanding capital shares of the Borrower shall cease to be owned, directly or indirectly, by the Parent or all of the outstanding capital stock or shares of any Originator (other than the Parent) or any Predecessor Purchaser ceases to be owned, directly or indirectly, by the Parent; or a Change in Control of the Parent shall occur; or (m) One or more judgments for the payment of money in an aggregate amount in excess of $25,000,000 (except to the extent covered by insurance as to which the insurer has acknowledged such coverage in writing) shall be rendered against (i) the Parent, any Originator, any Predecessor Purchaser or any of their respective Subsidiaries or any combination thereof or (ii) the Collection Agent or any of its Subsidiaries or a combination thereof, and the same shall remain undischarged for a period of 60 consecutive days during which execution shall not be effectively stayed, or any action shall be taken by a judgment creditor to attach or levy upon any assets of the Parent, any Originator, any Predecessor Purchaser or the Collection Agent or any of their respective Subsidiaries to enforce any such judgment; or (n) The Parent shall fail to maintain a Minimum Liquidity Position at least equal to $110,000,000; or (o) (i) the Parent or any ERISA Affiliate shall fail to pay when due an amount or amounts aggregating in excess of $10,000,000 which it shall have become liable to pay under Section 302 or Title IV of ERISA; or notice of intent to terminate a Plan shall be filed under Title IV of ERISA by the Parent or any ERISA Affiliate, 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 Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any 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 the Parent and/or one or more ERISA Affiliates to incur a current payment obligation in excess of $50,000,000; or (ii) any other ERISA Event shall have occurred that, in the opinion of the Investor Agents, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Parent, the ERISA Affiliates and any Subsidiaries in an aggregate amount exceeding $50,000,000; or (p) (i) The Parent shall fail to make any payment required by a Parent Undertaking, or (ii) the Parent shall fail to perform or observe any other term, covenant or agreement contained in a Parent Undertaking and any such failure shall remain 79 unremedied for 10 days after written notice thereof shall have been given to the Borrower by any Agent, or (iii) a Parent Undertaking shall cease to be in full force and effect; or (q) Any Governmental Entity Receivables Account Notice shall be revoked; or (r) A Collection Agent Default shall occur; or (s) The Receivable Turnover Days (without giving effect to the Collection Delay Period) shall at any time exceed 30 days; or (t) The PBGC or the Internal Revenue Service shall, or shall indicate its intention to, file notice of a lien pursuant to Section 4068 of ERISA or Section 6320 of the Code with regard to the assets of the Parent, the Borrower or any Originator; then, and in any such event, any or all of the following actions may be taken by notice to the Borrower: (x) the Program Agent may in its discretion, and shall, at the direction of any Investor Agent, declare the Facility Termination Date to have occurred (in which case the Facility Termination Date shall be deemed to have occurred), (y) the Program Agent may in its discretion, and shall, at the direction of any Investor Agent, declare the Commitment Termination Date to have occurred (in which case the Commitment Termination Date shall be deemed to have occurred), and (z) if such event is a Collection Agent Default, and without limiting any other right under this Agreement to replace the Collection Agent, the Program Agent may in its discretion, and shall, at the direction of any Investor Agent, designate another Person to succeed HQ as the Collection Agent; provided, that, automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in paragraph (g) of this Section 7.01, the Facility Termination Date and the Commitment Termination Date shall occur, HQ (if it is then serving as the Collection Agent) shall cease to be the Collection Agent, and the Program Agent or its designee shall become the Collection Agent. Upon any such declaration or designation or upon such automatic termination, the Investors, the Investor Agents, the Banks and the Program Agent shall have, in addition to the rights and remedies which they may have under this Agreement, all other rights and remedies provided after default under the UCC and under other applicable law, which rights and remedies shall be cumulative. ARTICLE VIII THE PROGRAM AGENT SECTION 8.01. Authorization and Action. Each Investor and each Bank hereby appoints and authorizes the Program Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Transaction Documents as are delegated to the Program Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto. The Program Agent shall not have any duties other than those expressly set forth in the Transaction Documents, and no implied obligations or liabilities shall be read into any Transaction Document, or otherwise exist, against the Program Agent. The 80 Program Agent does not assume, nor shall it be deemed to have assumed, any obligation to, or relationship of trust or agency with, the Borrower, any Predecessor Purchaser, the Parent, the Collection Agent or any other Originator. Notwithstanding any provision of this Agreement or any other Transaction Document, in no event shall the Program Agent ever be required to take any action which exposes the Program Agent to personal liability or which is contrary to any provision of any Transaction Document or applicable law. SECTION 8.02. Program Agent's Reliance, Etc. Neither the Program Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as Program Agent under or in connection with this Agreement (including, without limitation, the Program Agent's servicing, administering or collecting Pool Receivables and Participated Receivables as Collection Agent) or any other Transaction Document, except for its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, the Program Agent: (a) may consult with legal counsel (including counsel for any Investor Agent, the Borrower, any Predecessor Purchaser, the Parent, any other Originator and the Collection Agent), independent certified public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Investor Agent, Investor or Bank (whether written or oral) and shall not be responsible to any Investor Agent, Investor or Bank for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement or any other Transaction Document; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Transaction Document on the part of the Borrower, any Predecessor Purchaser, the Parent, any other Originator or the Collection Agent or to inspect the property (including the books and records) of the Borrower, any Predecessor Purchaser, the Parent, any other Originator or the Collection Agent; (d) shall not be responsible to any Investor Agent, Investor or Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Transaction Document or any other instrument or document furnished pursuant hereto or thereto; and (e) shall incur no liability under or in respect of this Agreement or any other Transaction Document by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telecopier or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.03. CNAI and Affiliates. The obligation of Citibank to make Advances under this Agreement may be satisfied by CNAI or any of its Affiliates. With respect to any Advance made by it, CNAI shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not the Program Agent. CNAI and any of its Affiliates may generally engage in any kind of business with the Borrower, the Parent, any other Originator, any Predecessor Purchaser, the Collection Agent or any Obligor, any of their respective Affiliates and any Person who may do business with or own securities of the Borrower, the Parent, any other Originator, any Predecessor Purchaser, the Collection Agent or any Obligor or any of their respective Affiliates, all as if CNAI were not the Program Agent and without any duty to account therefor to the Investor Agents, the Investors or the Banks. 81 SECTION 8.04. Indemnification of Program Agent. Each Bank agrees to indemnify the Program Agent (to the extent not reimbursed by the Borrower, the Parent or any other Originator), ratably according to the respective Percentage of such Bank, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Program Agent in any way relating to or arising out of this Agreement or any other Transaction Document or any action taken or omitted by the Program Agent under this Agreement or any other Transaction Document, provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Program Agent's gross negligence or willful misconduct. SECTION 8.05. Delegation of Duties. The Program Agent may execute any of its duties through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Program Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. SECTION 8.06. Action or Inaction by Program Agent. The Program Agent shall in all cases be fully justified in failing or refusing to take action under any Transaction Document unless it shall first receive such advice or concurrence of the Investor Agents and assurance of its indemnification by the Banks, as it deems appropriate. The Program Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Transaction Document in accordance with a request or at the direction of the Investor Agents and such request or direction and any action taken or failure to act pursuant thereto shall be binding upon all Investors, Banks, the Program Agent and the Investor Agents. SECTION 8.07. Notice of Events of Termination. The Program Agent shall not be deemed to have knowledge or notice of the occurrence of any Incipient Event of Termination or of any Event of Termination unless the Program Agent has received notice from any Investor Agent, Investor, Bank, the Collection Agent, any Originator, any Predecessor Purchaser or the Borrower stating that an Incipient Event of Termination or Event of Termination has occurred hereunder and describing such Incipient Event of Termination or Event of Termination. If the Program Agent receives such a notice, it shall promptly give notice thereof to each Investor Agent whereupon each Investor Agent shall promptly give notice thereof to its respective Investors and Related Banks. The Program Agent shall take such action concerning an Incipient Event of Termination or an Event of Termination as may be directed by the Investor Agents (subject to the other provisions of this Article VIII), but until the Program Agent receives such directions, the Program Agent may (but shall not be obligated to) take such action, or refrain from taking such action, as the Program Agent deems advisable and in the best interests of the Investors and Banks. SECTION 8.08. Non-Reliance on Program Agent and Other Parties. Each Investor Agent, Investor and Bank expressly acknowledges that neither the Program Agent, any of its Affiliates nor any of their respective directors, officers, agents or employees has made any representations or warranties to it and that no act by the Program Agent hereafter taken, including any review of the affairs of the Borrower, the Collection Agent, any Predecessor Purchasers, the 82 Parent or any other Originator, shall be deemed to constitute any representation or warranty by the Program Agent. Each Investor and Bank represents and warrants to the Program Agent that, independently and without reliance upon the Program Agent, any of its Affiliates, any Investor Agent (except to the extent otherwise agreed in writing between such Investor and its Investor Agent) or any other Investor or Bank and based on such documents and information as it has deemed appropriate, it has made and will continue to make its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Borrower, the Parent and the other Originators, and the Advances and its own decision to enter into this Agreement and to take, or omit, action under this Agreement or any other Transaction Document. Except for items expressly required to be delivered under this Agreement or any other Transaction Document by the Program Agent to any Investor Agent, Investor or Bank, the Program Agent shall not have any duty or responsibility to provide any Investor Agent, Investor or Bank with any information concerning the Borrower, the Collection Agent, any Predecessor Purchaser, the Parent or any other Originator or any of their Affiliates that comes into the possession of the Program Agent or any of its directors, officers, agents, employees, attorneys-in-fact or Affiliates. SECTION 8.09. Successor Program Agent. The Program Agent may, upon at least thirty (30) days' notice to the Borrower and each Investor Agent, resign as Program Agent. Such resignation shall not become effective until a successor agent is appointed by the Investor Agents (with the approval of the Borrower, which approval shall not be unreasonably withheld and shall not be required if an Incipient Event of Termination or an Event of Termination has occurred and is continuing) and has accepted such appointment. Upon such acceptance of its appointment as Program Agent hereunder by a successor Program Agent, such successor Program Agent shall succeed to and become vested with all the rights and duties of the retiring Program Agent, and the retiring Program Agent shall be discharged from its duties and obligations under the Transaction Documents. After any retiring Program Agent's resignation hereunder, the provisions of this Article VIII and Section 6.07 and Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Program Agent. SECTION 8.10. Reports and Notices. The Program Agent hereby agrees to provide each Investor Agent with copies of all material notices, reports and other documents provided to the Program Agent by the Borrower or the Collection Agent hereunder (other than any notices received by the Program Agent referred to in any of the definitions of Assignee Rate, Investor Rate or Fixed Period) which are not otherwise required to be provided by the Borrower or the Collection Agent directly to the Investor Agents in accordance with the terms hereof. ARTICLE IX THE INVESTOR AGENTS SECTION 9.01. Authorization and Action. Each Investor and each Bank which belongs to the same Group hereby appoints and authorizes the Investor Agent for such Group to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Transaction Documents as are delegated to such Investor Agent by the terms hereof and 83 thereof, together with such powers as are reasonably incidental thereto. No Investor Agent shall have any duties other than those expressly set forth in the Transaction Documents, and no implied obligations or liabilities shall be read into any Transaction Document, or otherwise exist, against any Investor Agent. No Investor Agent assumes, nor shall it be deemed to have assumed, any obligation to, or relationship of trust or agency with, the Borrower, the Parent or any other Originator. Notwithstanding any provision of this Agreement or any other Transaction Document, in no event shall any Investor Agent ever be required to take any action which exposes such Investor Agent to personal liability or which is contrary to any provision of any Transaction Document or applicable law. SECTION 9.02. Investor Agent's Reliance, Etc. No Investor Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as an Investor Agent under or in connection with this Agreement or the other Transaction Documents (i) with the consent or at the request or direction of the Investors and Banks in its Group or (ii) in the absence of its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, an Investor Agent: (a) may consult with legal counsel (including counsel for the Program Agent, the Borrower, the Collection Agent, any Predecessor Purchaser, the Parent or any other Originator), independent certified public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Investor or Bank (whether written or oral) and shall not be responsible to any Investor or Bank for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement or any other Transaction Document; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Transaction Document on the part of the Borrower, the Parent, any other Originator or any other Person or to inspect the property (including the books and records) of the Borrower, any Predecessor Purchaser, the Parent, any other Originator or the Collection Agent; (d) shall not be responsible to any Investor or any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Transaction Documents or any other instrument or document furnished pursuant hereto; and (e) shall incur no liability under or in respect of this Agreement or any other Transaction Document by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telecopier or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 9.03. Investor Agent and Affiliates. With respect to any Advances made by it, each Investor Agent shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not an Investor Agent. Each Investor Agent and any of its Affiliates may generally engage in any kind of business with the Borrower, any Predecessor Purchaser, the Parent, any other Originator, the Collection Agent or any Obligors, any of their respective Affiliates and any Person who may do business with or own securities of the Borrower, any Predecessor Purchaser, the Parent, any other Originator, the Collection Agent or any Obligor or any of their respective Affiliates, all as if such Investor Agent were not an Investor Agent and without any duty to account therefor to any Investors or Banks. 84 SECTION 9.04. Indemnification of Investor Agents. Each Bank in any Group agrees to indemnify the Investor Agent for such Group (to the extent not reimbursed by the Borrower, the Parent or any other Originator), ratably according to the proportion of the Percentage of such Bank to the aggregate Percentages of all Banks in such Group, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against such Investor Agent in any way relating to or arising out of this Agreement or any other Transaction Document or any action taken or omitted by such Investor Agent under this Agreement or any other Transaction Document, provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Investor Agent's gross negligence or willful misconduct. SECTION 9.05. Delegation of Duties. Each Investor Agent may execute any of its duties through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Investor Agent shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. SECTION 9.06. Action or Inaction by Investor Agent. Each Investor Agent shall in all cases be fully justified in failing or refusing to take action under any Transaction Document unless it shall first receive such advice or concurrence of the Investors and Banks in its Group and assurance of its indemnification by the Banks in its Group, as it deems appropriate. Each Investor Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Transaction Document in accordance with a request or at the direction of the Investors and Banks in its Group, and such request or direction and any action taken or failure to act pursuant thereto shall be binding upon all Investors and Banks in its Group. SECTION 9.07. Notice of Events of Termination. No Investor Agent shall be deemed to have knowledge or notice of the occurrence of any Incipient Event of Termination or of any Event of Termination unless such Investor Agent has received notice from the Program Agent, any other Investor Agent, any Investor or Bank, the Collection Agent, any Predecessor Purchaser, any Originator or the Borrower stating that an Incipient Event of Termination or Event of Termination has occurred hereunder and describing such Incipient Event of Termination or Event of Termination. If an Investor Agent receives such a notice, it shall promptly give notice thereof to the Investors and Banks in its Group and to the Program Agent (but only if such notice received by such Investor Agent was not sent by the Program Agent). The Investor Agent shall take such action concerning an Incipient Event of Termination or an Event of Termination as may be directed by the Investors and Banks in its Group (subject to the other provisions of this Article IX), but until such Investor Agent receives such directions, such Investor Agent may (but shall not be obligated to) take such action, or refrain from taking such action, as such Investor Agent deems advisable and in the best interests of the Investors and Banks in its Group. SECTION 9.08. Non-Reliance on Investor Agent and Other Parties. Except to the extent otherwise agreed to in writing between an Investor and its Investor Agent, each Investor and Bank in the same Group expressly acknowledges that neither the Investor Agent for its Group, any of its Affiliates nor any of such Investor Agent's or Affiliate's directors, officers, 85 agents or employees has made any representations or warranties to it and that no act by such Investor Agent hereafter taken, including any review of the affairs of the Borrower, the Parent or any other Originator, shall be deemed to constitute any representation or warranty by such Investor Agent. Except to the extent otherwise agreed to in writing between an Investor and its Investor Agent, each Investor and Bank in the same Group represents and warrants to the Investor Agent for such Group that, independently and without reliance upon such Investor Agent, any of its Affiliates, any other Investor Agent, the Program Agent or any other Investor or Bank and based on such documents and information as it has deemed appropriate, it has made and will continue to make its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Borrower, the Parent, any other Originator and the Advances and its own decision to enter into this Agreement and to take, or omit, action under this Agreement or any other Transaction Document. Except for items expressly required to be delivered under this Agreement or any other Transaction Document by an Investor Agent to any Investor or Bank in its Group, no Investor Agent shall have any duty or responsibility to provide any Investor or Bank in its Group with any information concerning the Borrower, the Collection Agent, any Predecessor Purchaser, the Parent, any other Originator or any of their Affiliates that comes into the possession of such Investor Agent or any of its directors, officers, agents, employees, attorneys-in-fact or Affiliates. SECTION 9.09. Successor Investor Agent. Any Investor Agent may, upon at least thirty (30) days' notice to the Program Agent, the Borrower and the Investors and Banks in its Group, resign as Investor Agent for its Group. Such resignation shall not become effective until a successor investor agent is appointed by the Investors and Banks in such Group and has accepted such appointment. Upon such acceptance of its appointment as Investor Agent for such Group hereunder by a successor Investor Agent, such successor Investor Agent shall succeed to and become vested with all the rights and duties of the retiring Investor Agent, and the retiring Investor Agent shall be discharged from its duties and obligations under the Transaction Documents. After any retiring Investor Agent's resignation hereunder, the provisions of this Article IX and Section 6.07 and Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Investor Agent. SECTION 9.10. Reliance on Investor Agent. Unless otherwise advised in writing by an Investor Agent or by any Investor or Bank in such Investor Agent's Group, each party to this Agreement may assume that (i) such Investor Agent is acting for the benefit and on behalf of each of the Investors and Banks in its Group, as well as for the benefit of each assignee or other transferee from any such Person, and (ii) each action taken by such Investor Agent has been duly authorized and approved by all necessary action on the part of the Investors and Banks in its Group. 86 ARTICLE X INDEMNIFICATION SECTION 10.01. Indemnities by the Borrower. Without limiting any other rights that the Program Agent, the Investor Agents, the Investors, the Banks, the Trustee or any of their respective Affiliates or members or any of their respective officers, directors, employees or advisors (each, an "Indemnified Party") may have hereunder or under applicable law, the Borrower hereby agrees to indemnify each Indemnified Party from and against any and all claims, losses and liabilities (including reasonable attorneys' fees) (all of the foregoing being collectively referred to as "Indemnified Amounts") arising out of or resulting from this Agreement or the other Transaction Documents or the use of proceeds of the Advances or the security interest granted hereunder or in respect of any Transferred Asset or any Contract, excluding, however, (a) Indemnified Amounts to the extent found in a final non-appealable judgment of a court of competent jurisdiction to have resulted from gross negligence or willful misconduct on the part of such Indemnified Party, (b) recourse (except as otherwise specifically provided in this Agreement) for Transferred Assets which are not collected, not paid or uncollectible on account of the insolvency, bankruptcy or financial inability to pay of the applicable Obligor or (c) any income taxes or franchise taxes measured by income or any other tax or fee measured by income incurred by such Indemnified Party arising out of or as a result of this Agreement or the security interest granted hereunder or in respect of any Transferred Asset or any Contract. Without limiting or being limited by the foregoing, the Borrower shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following: (i) the characterization in any Borrower Report or other written statement made by or on behalf of the Borrower of any Transferred Asset as an Eligible Receivable or Eligible Participation Interest or as included in the Net Receivables Pool Balance which, as of the date on which such information was certified, is not an Eligible Receivable or Eligible Participation Interest or should not be included in the Net Receivables Pool Balance; (ii) any representation or warranty or statement made or deemed made by the Borrower (or any of its officers) under or in connection with this Agreement or any of the other Transaction Documents which shall have been incorrect in any material respect when made; (iii) the failure by the Borrower to comply with any applicable law, rule or regulation with respect to any Pool Receivable, Participated Receivable, Participated Interest, or the related Contract; or the failure of any Pool Receivable, Participated Receivable, Participation Interest, or the related Contract to conform to any such applicable law, rule or regulation; (iv) the failure to vest in the Investors or the Banks, as the case may be, a perfected security interest in the Collateral free and clear of any Adverse Claim; 87 (v) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Transferred Assets in, or purporting to be in, the Receivables Pool and the Related Security and Collections in respect thereof, whether at the time of any purchase or reinvestment or at any subsequent time; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool or any Participated Receivable with respect to which the applicable Participation Interest is in, or purports to be in, the Receivables Pool (including, without limitation, a defense based on such Receivable, Participated Receivable, or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Receivable or Participated Receivable or the furnishing or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable or Participated Receivable (if such collection activities were performed by the Borrower acting as Collection Agent); (vii) any failure of the Borrower to perform its duties or obligations in accordance with the provisions hereof or to perform its duties or obligations under the Contracts; (viii) any products liability or other claim arising out of or in connection with merchandise, insurance or services which are the subject of any Contract; (ix) the commingling of Collections of Pool Receivables and Participated Receivables at any time with other funds; (x) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of Advances or in respect of any Receivable, Participated Receivable, Participated Interest, Related Security or Contract; (xi) any failure of the Borrower to comply with its covenants contained in this Agreement or any other Transaction Document; (xii) any claim brought by any Person other than an Indemnified Party arising from any activity by the Borrower in servicing, administering or collecting any Receivable or Participated Receivable; (xiii) in the case of a Contract between an Originator and a PBM, where such PBM acts as an agent for Contract Payors rather than as a principal, the inability of the Program Agent, as collateral assignee pursuant to this Agreement and the other Purchase Agreements of such Contract, to enforce any Receivable 88 arising under such contract directly (by contract or by operation of law) against such Contract Payor, except to the extent such Contract Payor is a Governmental Entity and such enforcement rights are limited by the 1972 Amendments to the Social Security Act; and (xiv) the inability of any Agent, the Investors or the Banks to exercise their rights under this Agreement to review any Contract which contains a confidentiality provision that purports to restrict its ability to do so, or any litigation or proceeding relating to any such confidentiality provision. ARTICLE XI MISCELLANEOUS SECTION 11.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or consent to any departure by the Borrower, HQ (as Collection Agent or otherwise) or any Originator therefrom shall be effective unless in a writing signed by each Investor Agent and the Program Agent (and, in the case of any amendment, also signed by the Borrower, HQ and the Originators party hereto); provided, however, that the signatures of the Borrower, HQ and the Originators party hereto shall not be required for the effectiveness of any amendment which modifies the representations, warranties, covenants or responsibilities of the Collection Agent at any time when the Collection Agent is not an Originator, the Parent or an Affiliate of such Originator or the Parent or a successor Collection Agent is designated by the Agent pursuant to Section 6.01, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by (x) the Collection Agent in addition to the Program Agent and each Investor Agent, affect the rights or duties of the Collection Agent under this Agreement or (y) the Trustee in addition to the Program Agent and each Investor Agent, affect the rights or duties of the Trustee under this Agreement. No failure on the part of the Investors, the Banks, the Investor Agents, the Trustee or the Program Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. SECTION 11.02. Notices, Etc. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, to each party hereto, at its address set forth on Schedule III hereto or at such other address or telecopy number as shall be designated by such party in a written notice to the other parties hereto. All notices and other communications given to any party hereto shall be deemed to have been given on the date of receipt. SECTION 11.03. Assignability. (a) This Agreement and the Investors' rights and obligations herein (including ownership of each Advance made by it) shall be assignable in whole or in part by the Investors and their successors and assigns (including, without limitation, pursuant to an Asset Purchase Agreement), with the Borrower's consent, which shall not be 89 unreasonably withheld or delayed, provided, that the Borrower's consent shall not be required if (i) the assignment shall be to an Eligible Assignee or (ii) an Event of Termination or an Incipient Event of Termination has occurred and is continuing. Each such assignor shall notify the Program Agent, its Investor Agent and the Borrower of any such assignment. Each such assignor may, in connection with any such assignment, disclose to the assignee or potential assignee any information relating to the Borrower, the Collection Agent, any Predecessor Purchaser, the Parent or any other Originator, including the Transferred Assets furnished to such assignor by or on behalf of the Borrower, the Parent, any other Originator or by the Program Agent; provided that, prior to any such disclosure, the assignee or potential assignee agrees to preserve the confidentiality of any such information which is confidential in accordance with the provisions of Section 11.06 hereof. (b) Each Bank may assign to any Eligible Assignee or to any other Bank all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Bank Commitment and any Advances made by it); provided, however, that: (i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement, (ii) the amount being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance Agreement with respect to such assignment) shall in no event be less than the lesser of (x) $10,000,000 and (y) all of the assigning Bank's Bank Commitment, (iii) the parties to each such assignment shall execute and deliver to the Program Agent (with a copy to the assignor's Investor Agent), for its acceptance and recording in the Register, an Assignment and Acceptance Agreement, together with a processing and recordation fee of $2,500, (iv) concurrently with such assignment, such assignor Bank shall assign to such assignee Bank or other Eligible Assignee an equal percentage of its rights and obligations under its Asset Purchase Agreement (or, if such assignor Bank is Citibank, it shall arrange for such assignee Bank or other Eligible Assignee to become a party to its Asset Purchase Agreement for a maximum Principal amount equal to the assignee's Bank Commitment), and (v) Citibank may not assign any portion of its Bank Commitment to the extent that it reduces such Bank Commitment below (A) 10% of the Facility Amount minus (B) the Principal of all Advances made by CNAI. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance Agreement, (x) the assignee thereunder shall be a party to this Agreement and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance Agreement, have the rights and obligations of a Bank hereunder and (y) the assigning Bank shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance 90 Agreement, relinquish such rights and be released from such obligations under this Agreement (and, in the case of an Assignment and Acceptance Agreement covering all or the remaining portion of an assigning Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto). (c) The Program Agent shall maintain at its address referred to in Section 11.02 of this Agreement a copy of each Assignment and Acceptance Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the Bank Commitment of, and aggregate outstanding Principal of Advances or interests therein owned by, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Originators, the Program Agent, the Investor Agents, the Investors and the Banks may treat each person whose name is recorded in the Register as a Bank under this Agreement for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. Upon its receipt of an Assignment and Acceptance Agreement executed by an assigning Bank and an Eligible Assignee, the Program Agent shall, if such Assignment and Acceptance Agreement has been completed, (i) accept such Assignment and Acceptance Agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. (d) Notwithstanding any other provision of this Section 10.03, any Bank may at any time pledge or grant a security interest in all or any portion of its rights (including, without limitation, rights to payment of Principal and Yield) under this Agreement or under the Asset Purchase Agreement to secure obligations of such Bank to a Federal Reserve Bank, without notice to or consent of the Borrower or the Program Agent; provided that no such pledge or grant of a security interest shall release a Bank from any of its obligations hereunder or under the Asset Purchase Agreement, as the case may be, or substitute any such pledgee or grantee for such Bank as a party hereto or to the Asset Purchase Agreement, as the case may be. (e) Each Bank may sell participations, to one or more banks or other entities which are Eligible Assignees, in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Bank Commitment and the Advances owned by it); provided, however, that: (i) such Bank's obligations under this Agreement (including, without limitation, its Bank Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties to this Agreement for the performance of such obligations, and (iii) concurrently with such participation, the selling Bank shall sell to such bank or other entity a participation in an equal percentage of its rights and obligations under its Asset Purchase Agreement. 91 The Agents, the other Banks and the Borrower shall have the right to continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Such Bank may, in connection with any such participation, disclose to participants and potential participants any information relating to the Borrower, the Collection Agent, any Predecessor Purchaser, the Parent or any other Originator, including the Transferred Assets furnished to such Bank by or on behalf of the Borrower, provided that, prior to such disclosure, such participant or potential participant agrees to preserve the confidentiality of any such information which is confidential in accordance with the provisions of Section 11.06 hereof. (f) This Agreement and the rights and obligations of the Program Agent herein shall be assignable by the Program Agent and its successors and assigns. (g) Neither the Borrower, the Parent, any Originator or the Collection Agent may assign its rights or obligations hereunder or any other Transaction Document or any interest herein or therein without the prior written consent of the Program Agent and each Investor Agent. (h) CAFCO may, without the consent of the Borrower, sell participations to one or more banks or other entities (each, a "Participant") in all or a portion of its rights and obligations hereunder (including the outstanding Advances); provided that following the sale of a participation under this Agreement (i) the obligations of CAFCO shall remain unchanged, (ii) CAFCO shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Agent, and the Banks shall continue to deal solely and directly with CAFCO in connection with CAFCO's rights and obligations under this Agreement. Any agreement or instrument pursuant to which CAFCO sells such a participation shall provide that the Participant shall not have any right to direct the enforcement of this Agreement or the other Transaction Documents or to approve any amendment, modification or waiver of any provision of this Agreement or the other Transaction Documents; provided that such agreement or instrument may provide that CAFCO will not, without the consent of the Participant, agree to any amendment, modification or waiver that (i) reduces the amount of Principal or Yield that is payable on account of any Advance or delays any scheduled date for payment thereof or (ii) reduces any fees payable by the Borrower to the Program Agent or CAFCO's Investor Agent (to the extent relating to payments to the Participant) or delays any scheduled date for payment of such fees. The Borrower acknowledges and agrees that CAFCO's source of funds may derive in part from its Participants. Accordingly, references in Sections 2.08, 2.09, 2.10, 6.07, 9.01 and 11.04 and the other terms and provisions of this Agreement and the other Transaction Documents to determinations, reserve and capital adequacy requirements, expenses, increased costs, reduced receipts and the like as they pertain to CAFCO shall be deemed also to include those of its Participants; provided that the Borrower shall not be required to pay higher costs, expenses and indemnification amounts pursuant to this sentence than would be required to be paid by the Borrower in the absence of the sale of any participation by CAFCO to a Participant as contemplated by this Section 11.03(h). CAFCO or the Agent may, in connection with any such participation, disclose to Participants and potential Participants any information relating to the Borrower, the Collection Agent, any Predecessor Purchaser, the 92 Parent or the Originators, including the Transferred Assets, furnished to CAFCO or the Agent by or on behalf of the Borrower; provided that, prior to any such disclosure, such Participant or potential Participant agrees to preserve the confidentiality of any such information which is confidential in accordance with the provisions of Section 11.06 hereof. Any interest sold by CAFCO to a Bank or its designee under its Asset Purchase Agreement shall not be considered a participation for the purpose of this Section 11.03(h) (and the Bank or its designee shall not be considered a Participant as a result thereof). (i) For avoidance of doubt, it is agreed that Jupiter may assign its rights and obligations hereunder as an Investor to Park Avenue Receivables Company, LLC and Bank One may assign its rights and obligations hereunder as a Bank and an Investor Agent to JPMorgan Chase Bank without any Person's consent, but upon 10 days' prior written notice to the Agents, the Trustee and the Borrower. (j) Notwithstanding any other provision of this Section 11.03, none of the rights or obligations under this Agreement may be assigned in whole or in part unless as of the effective date of such assignment, the assignee is either (A) a "United States person" (within the meaning of Section 7701(a)(30) of the Code), or (B) entitled to a complete exemption from all U.S. withholding taxes with respect to payments made to such assignee under any Transaction Document. SECTION 11.04. Costs, Expenses and Taxes. (a) In addition to the rights of indemnification granted under Section 10.01 hereof, the Borrower agrees to pay on demand all costs and expenses in connection with the preparation, execution, delivery and administration (including periodic auditing and the other activities contemplated in Section 5.02) of this Agreement, any Asset Purchase Agreement and the other documents and agreements to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Program Agent, each Investor Agent, each Investor, each Bank and their respective Affiliates with respect thereto and with respect to advising the Program Agent, each Investor Agent, each Investor, each Bank and their respective Affiliates as to their rights and remedies under this Agreement, and all costs and expenses, if any (including reasonable counsel fees and expenses), of the Program Agent, the Investor Agents, the Investors, the Banks and their respective Affiliates, in connection with the enforcement of this Agreement and the other documents and agreements to be delivered hereunder. (b) In addition, the Borrower shall pay (i) to the extent not included in the calculation of Yield, any and all commissions of placement agents and dealers in respect of Promissory Notes or commercial paper notes issued to fund the making or maintenance of any Advance, and (ii) any and all costs and expenses of any issuing and paying agent or other Person responsible for the administration of any Investor's Promissory Note or commercial paper program, as the case may be, in connection with the preparation, completion, issuance, delivery or payment of Promissory Notes or commercial paper notes issued to fund the making or maintenance of any Advance. (c) The Borrower also shall pay on demand all other costs, expenses, and taxes (excluding the cost of auditing CAFCO's, Jupiter's and Blue Ridge's books by certified 93 public accountants, the cost of rating CAFCO's, Jupiter's and Blue Ridge's commercial paper by independent financial rating agencies and income taxes) incurred by CAFCO, Jupiter, Blue Ridge or any stockholder, partner or member of CAFCO, Jupiter or Blue Ridge ("Other Costs"), including the taxes (excluding income taxes) resulting from CAFCO's, Jupiter's and Blue Ridge's operations, and the reasonable fees and out-of-pocket expenses of counsel for any stockholder, partner or member of CAFCO, Jupiter and Blue Ridge with respect to advising as to rights and remedies under this Agreement, the enforcement of this Agreement or advising as to matters relating to CAFCO's, Jupiter's and Blue Ridge's operations; provided that the Borrower and any other Persons who from time to time sell receivables or interests therein to or borrow from CAFCO, Jupiter or Blue Ridge ("Other Sellers") each shall be liable for such Other Costs ratably in accordance with the usage under their respective facilities; and provided further that if such Other Costs are attributable to the Borrower and not attributable to any Other Seller, the Borrower shall be solely liable for such Other Costs. (d) Further, the Borrower agrees to pay any and all breakage and other expenses of the Program Agent, the Investor Agents, the Investors and the Banks (including, without limitation, reasonable attorneys' fees and disbursements and the cost including accrued interest, of terminating or transferring any agreements such as interest rate swaps, over-the- counter forward agreements and future contracts engaged by the Investors, the Banks, the Investor Agents or the Program Agent) in connection with any reduction of the Principal relating to the funding or maintenance of any Advance (or portion thereof). SECTION 11.05. No Proceedings; Waiver of Consequential Damages. (a) Each of the Borrower, the Program Agent, each Investor Agent, the Collection Agent, each Originator, each Investor, each Bank, the Trustee, each assignee of an Advance or any interest therein and each entity which enters into a commitment to make Advances or purchase interests therein hereby agrees that it will not institute against, or join any other Person in instituting against, any Investor any proceeding of the type referred to in Section 7.01(g) so long as any commercial paper or other senior indebtedness issued by such Investor shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such commercial paper or other senior indebtedness shall have been outstanding. (b) Each of the Originators, the Collection Agent and the Borrower agree that no Indemnified Party shall have any liability to them or any of their securityholders or creditors in connection with this Agreement, the other Transaction Documents or the transactions contemplated thereby on any theory of liability for any special, indirect, consequential or punitive damages (including, without limitation, any loss of profits, business or anticipated savings). SECTION 11.06. Confidentiality. (a) Each of the Borrower, each Originator, the Parent and the Collection Agent agrees to maintain the confidentiality of this Agreement in communications with third parties and otherwise; provided that this Agreement may be disclosed (i) to third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the Program Agent, (ii) to the legal counsel and auditors of the Borrower, the Parent and the Collection Agent if they agree to hold it confidential and (iii) to the extent required by applicable law or regulation or by any court, regulatory body or agency having jurisdiction over such party; and provided, further, that such 94 party shall have no obligation of confidentiality in respect of any information which may be generally available to the public or becomes available to the public through no fault of such party. (b) Each Investor, each Bank, each Investor Agent, the Program Agent and the Trustee agree to maintain the confidentiality of all information with respect to the Borrower, each Originator, the Parent or the Receivables Pool (including the Borrower Reports) furnished or delivered to it pursuant to this Agreement; provided, that such information may be disclosed (i) to such party's legal counsel and auditors and to such party's assignees and participants and potential assignees and participants and their respective counsel if they agree to hold it confidential, (ii) to the nationally recognized statistical rating agencies, (iii) to any actual or potential subordinated investor in any Investor or any provider of liquidity for any Investor, if such subordinated investor or provider of liquidity has agreed to hold it confidential, (iv) to credit enhancers and dealers and investors in respect of promissory notes of each Investor in accordance with the customary practices of said Investor for disclosure to credit enhancers, dealers or investors, as the case may be, it being understood that any such disclosure to dealers or investors will not identify the Borrower, the Parent, any Originator or any of their Affiliates by name, and (v) to the extent required by applicable law or regulation or by any court, regulatory body or agency having jurisdiction over such party; and provided, further, that such party shall have no obligation of confidentiality in respect of any information which may be generally available to the public or becomes available to the public through no fault of such party. Notwithstanding anything herein to the contrary, the foregoing shall not be construed to prohibit (A) disclosure of any and all information obtained by the Trustee from sources other than the parties to this Agreement, (B) disclosure as required pursuant to the Transaction Documents, (C) disclosure of any and all information (w) if required to do so by any applicable statute, law, rule or regulation, or in working with any taxing authorities or other governmental agencies, (x) to any government agency or regulatory body having or claiming authority to regulate or oversee any respects of the Trustee's business or that of its affiliates, (y) pursuant to any subpoena, civil investigative demand or similar demand or request of any court, regulatory authority, arbitrator or arbitration to which the Trustee or any affiliate or an officer, director, employer or shareholder thereof is a party, or (z) to any affiliate, independent or internal auditor, agent, employee or attorney of the Trustee having a need to know the same, provided that the Trustee advises such recipient of the confidential nature of the information being disclosed. (c) Notwithstanding any other provision herein or in any other Transaction Document, each Investor, each Bank, each Agent and the Trustee hereby confirms that the Borrower, the Originator and the Collection Agent (and each employee, representative or other agent of each such party) may disclose to any and all Persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of the transaction contemplated by this Agreement and the other Transaction Documents. (d) Each of the parties hereto and each successor Collection Agent hereunder agrees to comply with the requirements of Annex I or (in the case of a successor Collection Agent) Annex K. 95 SECTION 11.07. GOVERNING LAW. THIS AGREEMENT SHALL, IN ACCORDANCE WITH SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION, EXCEPT TO THE EXTENT THAT, PURSUANT TO THE UCC OF THE STATE OF NEW YORK, THE PERFECTION AND THE EFFECT OF PERFECTION OR NON- PERFECTION OF THE SECURITY INTERESTS OF THE INVESTORS AND THE BANKS IN THE COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 11.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. SECTION 11.09. Survival of Termination. The provisions of Sections 2.08, 2.09, 6.07, 10.01, 11.04, 11.05, 11.06, 11.07, 11.13 and 12.05 shall survive any termination of this Agreement or earlier resignation or removal of the Trustee. SECTION 11.10. Consent to Jurisdiction. (a) Each party hereto hereby irrevocably submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York City in any action or proceeding arising out of or relating to this Agreement or the other Transaction Documents, and each party hereto hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. The parties hereto hereby irrevocably waive, to the fullest extent they may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The Borrower hereby irrevocably appoints CT Corporation (the "Process Agent"), with an office on the date hereof at 111 Eighth Avenue, 13th Floor, New York, New York 10011, United States, as its agent to receive on behalf of the Borrower and its property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding. Such service may be made by mailing or delivering a copy of such process to the Borrower in care of the Process Agent at the Process Agent's above address, and the Borrower hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf. The parties hereto agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Each of the Borrower, the Parent, the Collection Agent and the Originators consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to it at its address specified in Section 11.02. Nothing in this Sec tion 11.10 shall affect the right of the Investors, any Bank or any Agent to serve legal process in any other manner permitted by law. (c) To the extent that the Borrower has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, 96 attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Borrower hereby irrevocably waives such immunity in respect of its obligations under this Agreement or any other Transaction Document. SECTION 11.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY DOCUMENT EXECUTED OR DELIVERED PURSUANT HERETO. SECTION 11.12. Judgment. (a) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder in U.S. Dollars into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the judgment creditor could purchase U.S. Dollars with such other currency at New York, New York on the Business Day preceding that on which final judgment is given. (b) The obligation of the Borrower in respect of any sum due from it to the Investors, the Banks or the Agents hereunder shall, notwithstanding any judgment in a currency other than U.S. Dollars, be discharged only to the extent that on the Business Day following receipt by the Investors, the Banks or the Agents (as the case may be) of any sum adjudged to be so due in such other currency, the Investors, the Banks or the Agents (as the case may be) may in accordance with normal banking procedures purchase U.S. Dollars with such other currency; if the U.S. Dollars so purchased are less than the sum originally due to the Investors, the Banks or the Agents (as the case may be) in U.S. Dollars, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Investors, the Banks or the Agents (as the case may be) against such loss, and if the U.S. Dollars so purchased exceed the sum originally due to the Investors, the Banks or the Agents (as the case may be) in U.S. Dollars, the Investors, the Banks or the Agents (as the case may be) shall remit to the Borrower such excess. SECTION 11.13. Limited Recourse. Notwithstanding anything to the contrary contained herein, the obligations of each Investor under this Agreement are solely the obligations of such Investor and, in the case of obligations of such Investor other than commercial paper, shall be payable at such time as funds are received by or are available to such Investor in excess of funds necessary to pay in full all outstanding commercial paper and, to the extent funds are not available to pay such obligations, the claims relating thereto shall not constitute a claim against such Investor but shall continue to accrue. Each party hereto agrees that the payment of any claim (as defined in Section 101 of Title 11, United States Code (Bankruptcy)) of any such party shall be subordinated to the payment in full of all commercial paper. No recourse under any obligation, covenant or agreement of any Investor contained in this Agreement shall be had against any member, manager, officer, director, employee or agent of any Investor, any Agent or any of their Affiliates (solely by virtue of such capacity) by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that this Agreement is solely an obligation of such Investor individually, 97 and that no personal liability whatever shall attach to or be incurred by any incorporator, stockholder, officer, director, member, employee or agent of any Investor, any Agent or any of their Affiliates (solely by virtue of such capacity) or any of them under or by reason of any of the obligations, covenants or agreements of such Investor contained in this Agreement, or implied therefrom, and that any and all personal liability for breaches by such Investor of any of such obligations, covenants or agreements, either at common law or at equity, or by statute, rule or regulation, of every such member, manager, officer, director, employee or agent is hereby expressly waived as a condition of and in consideration for the execution of this Agreement; provided that the foregoing shall not relieve any such Person from any liability it might otherwise have as a result of fraudulent actions taken or omissions made by them. ARTICLE XII THE TRUSTEE SECTION 12.01. Duties of the Trustee. (a) The Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied duties or covenants shall be read into this Agreement against the Trustee. The Trustee shall have no duty to act as Collection Agent, to perform Collection Agent functions or to retain a successor Collection Agent. (b) The Trustee, upon receipt of any resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Agreement, shall examine them to determine whether they substantially conform to the requirements of this Agreement. The Trustee shall give prompt written notice to the Borrower, the Investor Agents and the Program Agent of any material lack of conformity of any such instrument to the applicable requirements of this Agreement discovered by the Trustee. (c) No provision of this Agreement shall be construed to relieve the Trustee nor any of its officers, directors, employees or agents from liability for its own grossly negligent action, its own grossly negligent failure to act or its own willful misconduct; provided, however, that: 1. the Trustee shall not be personally liable for an error of judgment made in good faith by any Responsible Official of the Trustee, unless it shall be determined by a court of competent jurisdiction that the Trustee was grossly negligent in ascertaining the pertinent facts; 2. the Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Investor Agents relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee in accordance with the terms of this Agreement, or exercising any trust or power conferred upon the Trustee under this Agreement; and 98 3. the Trustee shall not be charged with knowledge of any failure by the Collection Agent to comply with any obligations of the Collection Agent contained herein or of any Event of Termination unless a Responsible Official of the Trustee obtains actual knowledge of such failure or such event or a Responsible Official of the Trustee receives written notice of such failure or such event from the Collection Agent, any Investor Agent, the Program Agent, any Investor or any Bank. (d) The Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if there is reasonable grounds for believing that the repayment of such funds or indemnity satisfactory to it against such risk or liability is not reasonably assured to it and none of the provisions contained in this Agreement shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any obligations of the Collection Agent under this Agreement except during such time, if any, as the Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Collection Agent in accordance with the terms of this Agreement. (e) Except for actions expressly authorized by this Agreement, the Trustee shall take no action reasonably likely to impair the interests of the Investor Agents or the Program Agent (for the benefit of the Investors and the Banks) in any Receivable, Participated Receivable or Participation Interest now existing or hereafter created or impair the value of any Receivable, Participated Receivable or Participation Interest now existing or hereafter created. (f) The Trustee shall have no responsibility or liability for the selection of or investment losses on, Eligible Investments. The Trustee shall have no liability in respect of losses incurred as a result of the liquidation of any investment prior to its stated maturity or the failure of the relevant party to provide timely written investment directions. The Trustee shall have no obligation to invest or reinvest any amounts held hereunder in the absence of such written investment direction. (g) The Trustee shall, with respect to each Daily Report (upon which the Trustee may conclusively rely and be fully protected in acting or refraining from acting in such reliance), (A) compare the Collections reported that day by the Collection Agent to the actual Collections deposited to the Trustee's Account, (B) with respect to the reconciliation of each of the trust accounts, compare the beginning balance as reported by the Collection Agent to the amount on deposit in the trust accounts per the accounting records of the Trustee, (C) perform each of the account transfers set forth in the Daily Reports as directed by the Collection Agent and (D) examine such Daily Report for indication of the occurrence of the Event of Termination arising under clause (i) of Section 7.01, and if the Trustee determines that such an Event of Termination has occurred, immediately notify the Agents thereof and not deposit any Collections to the Borrower's Account pursuant to Section 2.04 unless such Daily Report provides first for the funding of the Cure Account in accordance with Section 2.04(b); 99 (h) The Trustee shall follow the following procedures with respect to each Determination Date Certificate (upon which the Trustee may conclusively rely and be fully protected in acting or refraining from acting in such reliance): 1. with respect to the reconciliation of each of the trust accounts, compare the beginning and ending balances to the amounts which were on deposit in the trust accounts per the accounting records of the Trustee as of the applicable date; and 2. examine such Certificate for indication of the occurrence of any Events of Termination arising under clause (h) or (i) of Section 7.01. (i) Notwithstanding any other provision of this Agreement, upon discovery by the Trustee of any material discrepancy between the amounts reported by the Collection Agent and the amounts calculated as provided above, the Trustee shall promptly notify the Collection Agent, the Investor Agents and the Program Agent thereof. (j) The permissive rights of the Trustee to do things enumerated in this Agreement shall not be construed as a duty and the Trustee shall not be answerable for other than its gross negligence or willful default. SECTION 12.02. Certain Matters Affecting the Trustee. Except as otherwise provided in Section 12.01: (a) the Trustee may conclusively rely on and shall be fully protected in acting on, or in refraining from acting in accord with, any resolution, officer's certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, consent, order, appraisal, bond or other paper or document believed by it in good faith to be genuine and to have been signed or presented to it pursuant to this Agreement by the proper party or parties; (b) the Trustee may consult with counsel and, as a condition to taking, suffering or omitting to take any action, may demand an opinion of counsel and any advice or opinion of counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion of counsel; (c) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Beneficiaries, unless such Beneficiaries shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby; (d) subject to Section 12.01(c), the Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be 100 authorized or within the discretion or rights or powers conferred upon it by this Agreement; (e) the Trustee shall not be bound to make any investigation into the facts of matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, approval, bond or other paper or document; (f) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian or nominee, and the Trustee shall not be responsible for any misconduct or negligence on the part of, or for the supervision of any such agent, attorney, custodian or nominee appointed with due care by it hereunder; (g) except as required by Section 12.01, the Trustee shall not be required to make any initial or periodic examination of any documents or records related to the Transferred Assets for the purpose of establishing the presence or absence of defects, the compliance by the Borrower with its representations and warranties or for any other purpose; (h) nothing in this Agreement shall be construed to require the Trustee to monitor the performance of the Collection Agent or act as a guarantor of the Collection Agent's performance; and (i) whenever in the administration of the provisions of this Agreement the Trustee shall deem it necessary or desirable that a matter be proved or established prior to the taking or suffering any action to be taken hereunder, the Trustee shall be entitled to receive, and such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of gross negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by, an officer's certificate signed by an authorized officer of the appropriate party delivering same and delivered to the Trustee, and such certificate, in the absence of gross negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted by it under the provisions of this Agreement upon the faith thereof. (j) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law or the terms of this Agreement of any other Transaction Documents. (k) When the Trustee incurs expenses or renders services in connection with a bankruptcy default, such expenses (including the fees and expenses of its counsel) and the compensation for such services are intended to constitute expenses of administration under any bankruptcy law or law relating to creditors rights generally. (l) The Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions or agreements on the part of the Borrower or Collection Agent, except as otherwise set forth herein, but the Trustee may 101 require of the Borrower or the Collection Agent full information and advice as to the performance of the covenants, conditions and agreements contained herein and shall be entitled in connection herewith to examine the books, records and premises of the Borrower and the Collection Agent. (m) The Borrower, the Investors, the Banks, the Program Agent, the Investor Agents, and the Collection Agent (for themselves and any person or entity claiming through them) hereby release, waive, discharge, exculpate and covenant not to sue the Trustee for any action taken or omitted under this Agreement except to the extent caused by the Trustee's gross negligence or willful misconduct. (n) Anything in this Agreement to the contrary notwithstanding, in no event shall the Trustee be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action. (o) Notwithstanding the title or designation of Trustee herein or in any Transaction Document, it is expressly understood and agreed that (a) the duties and obligations of the Trustee shall be determined solely by the provisions of this Agreement and no implied covenants and obligations shall be read into this Agreement against the Trustee, (b) the Trustee's duties are only administrative in nature and (c) Trustee shall have no fiduciary duty, express or implied, to any party to this Agreement, the Transaction Documents or any Person claiming by, through or under any party to this Agreement or any Transaction Document. SECTION 12.03. Trustee Not Liable for Recitals in Certificates or Transferred Assets. The Trustee assumes no responsibility for the correctness of the recitals contained herein. Except as set forth in Section 12.15, the Trustee makes no representations as to the validity or sufficiency of this Agreement or of any Receivable, Participated Receivable or Participation Interest or related document. The Trustee shall not be accountable for the use or application of any funds paid or advanced to the Borrower in respect of the Receivables or Participated Receivables or deposited in or withdrawn in accordance with the provisions of the Transaction Documents from the Collateral Advance Account, any Deposit Account, any Governmental Entity Receivables Account, the Borrower's Account, the Trustee's Account, the Cure Account or any other account hereafter established in accordance with the terms of this Agreement. The Trustee shall at no time have any responsibility or liability for or with respect to the legality, validity and enforceability of any security interest in any Transferred Asset or the perfection and priority of such security interest or the maintenance of any such perfection and priority. SECTION 12.04. Trustee May Own Advances. The Trustee in its individual or any other capacity may become the owner or pledgee of an Advance or an interest therein and may otherwise deal, and transact banking business, with the Collection Agent and the Borrower with the same rights as it would have if it were not the Trustee. 102 SECTION 12.05. Compensation; Trustee's Expenses. (a) The Trustee shall be entitled to receive a monthly Trustee's fee (which fee, to the extent permitted by applicable law, shall not be limited by any provision of law, such fee being the "Trustee's Fee") in respect of each month (or portion thereof) from the Effective Date until the termination of the Amortization Period, payable in arrears on each Distribution Date in an amount agreed upon in writing by the Trustee and the Borrower. The Trustee's Fee shall be payable, first, from Investor Collections pursuant to, and subject to the priority of payment set forth herein, second, to the extent not paid from Investor Collections, by the Borrower, and third, to the extent not paid from Investor Collections or by the Borrower, by the Collection Agent. When the Trustee incurs expenses or renders services in connection with bankruptcy, insolvency, reorganization or similar proceedings affecting any Person, such expenses (including the reasonable fees and expenses of its counsel) and the compensation for such services are intended to constitute expenses of administration under any bankruptcy law or law relating to creditors rights generally. (b) Expenses. The Borrower will pay or reimburse the Trustee upon its request on at least five Business Days' notice providing reasonable detail, and if the Borrower shall fail to do so, the Collection Agent will so pay or reimburse the Trustee (with a right to reimbursement from the Borrower), and if both the Borrower and the Collection Agent shall fail to do so, the Program Agent will have the right, but not the obligation, to so pay or reimburse the Trustee (with a right to reimbursement from the Borrower), for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Agreement or in connection with any amendment hereto (including the reasonable fees and expenses of its agents, any co-trustee and counsel and fees incurred in connection with an Event of Termination) except any such expense, disbursement or advance as may arise from its gross negligence or willful misconduct. The Borrower's and Collection Agent's covenant provided in this Section 12.05 shall survive the termination of this Agreement or the earlier resignation or removal of the Trustee. SECTION 12.06. Eligibility Requirements for Trustee. The Trustee hereunder shall at all times be an Eligible Institution. If the Trustee publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority, then, for the purpose of this Section 12.06, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 12.06, the Trustee shall resign immediately in the manner and with the effect specified in Section 12.07. SECTION 12.07. Resignation or Removal of Trustee. (a) The Trustee may at any time resign and be discharged from its obligations hereunder by giving 30 days' written notice thereof to the Borrower, the Investor Agents, the Program Agent and the Collection Agent. Upon receiving such notice of resignation, the Collection Agent shall promptly appoint a successor trustee acceptable to the Investor Agents and the Program Agent by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning 103 Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. (b) If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 12.06 and shall fail to resign after written request therefor by the Collection Agent or if at any time the Trustee shall be legally unable to act, or shall be adjudged as bankruptcy or insolvent, or if a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Collection Agent may remove the Trustee and promptly appoint a successor trustee acceptable to the Agent by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. (c) If at any time the Trustee shall fail to perform its obligations under this Agreement, the Agent may remove the Trustee and direct the Collection Agent to promptly appoint a successor trustee acceptable to the Investor Agents and the Program Agent by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee; provided that if all other procedures fail and a successor trustee has not accepted an appointment pursuant to this Section 12.07(c) within 30 days after the Trustee shall have received notice from the Agent of its intention to remove such Trustee, the Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. (d) Notwithstanding anything herein to the contrary, any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 12.07 shall not become effective until acceptance of appointment by the successor trustee as provided in Section 12.08. SECTION 12.08. Successor Trustee. (a) Any successor trustee appointed as provided in Section 12.07 shall execute, acknowledge and deliver to the Transferor, the Collection Agent, the Agent and its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Trustee herein. The predecessor Trustee shall deliver (with the expense therefor payable out of the Trustee's Fee, and by the Transferor and the Collection Agent pursuant to Section 12.05(b)) to the successor trustee all documents or copies thereof and statements held by it hereunder, and the Transferor and the predecessor Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. (b) No successor trustee shall accept appointment as provided in this Section 12.08 unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 12.06. 104 SECTION 12.09. Merger or Consolidation of Trustee. Any Person into which the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided that such corporation shall be eligible under the provisions of Section 12.06. SECTION 12.10. [Intentionally Omitted]. SECTION 12.11. [Intentionally Omitted]. SECTION 12.12. [Intentionally Omitted]. SECTION 12.13. [Intentionally Omitted]. SECTION 12.14. Right of Agent to Direct Trustee. The Program Agent shall have the right to direct in writing the time, method and place of conducting any proceeding for any remedy available to the Trustee under any Transaction Document or exercising any trust or power conferred on the Trustee under any Transaction Document; provided, however, that subject to Section 12.01, the Trustee shall have the right to decline to follow any such direction if the Trustee after being advised by counsel determines that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by any Responsible Official of the Trustee, determine that the proceedings so directed would be illegal or involve it in personal liability. SECTION 12.15. Representations and Warranties of Trustee. The Trustee represents and warrants that: (a) the Trustee is a New York banking corporation duly organized and validly existing under the laws of the State of New York, and has the power to own its assets and to transact the business in which it is presently engaged; (b) the Trustee has the full power, authority and right to execute, deliver and perform this Agreement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement; and (c) this Agreement has been duly executed and delivered by the Trustee and constitutes a legal, valid and binding obligation of the Trustee enforceable against the Trustee in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and except as such enforceability may be limited by general principles of equity, whether considered in a suit at law or in equity). SECTION 12.16. Maintenance of Office or Agency. The Trustee will maintain at its expense in New York, New York an office or agency where notices and demands to or upon the Trustee in respect of this Agreement may be served. The Trustee initially designates its Corporate Trust Office as such office. The Trustee will give prompt written notice to the 105 Borrower, the Collection Agent, the Investor Agents and the Program Agent of any change in the location of its Corporate Trust Office. 106 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWER: RITE AID FUNDING II By: ---------------------------------------- Title: Signature Page to Receivables Financing Agreement ------------------------------------------------- INVESTORS: CAFCO, LLC By: Citicorp North America, Inc., as Attorney-in-Fact By: --------------------------------------- Vice President JUPITER SECURITIZATION CORPORATION By: ------------------------------------------- Title: BLUE RIDGE ASSET FUNDING CORPORATION By: Wachovia Capital Markets, LLC, its Attorney-in-Fact By: --------------------------------------- Vice President PROGRAM AGENT: CITICORP NORTH AMERICA, INC., as Program Agent By: ------------------------------------------- Vice President BANKS: CITIBANK, N.A. By: ------------------------------------------- Vice President Percentage: 43.75% Signature Page to Receivables Financing Agreement ------------------------------------------------- BANKS: BANK ONE, NA By: ------------------------------------------- Title: Percentage: 31.25% WACHOVIA BANK, NATIONAL ASSOCIATION By: ------------------------------------------- Title: Percentage: 25.00% Signature Page to Receivables Financing Agreement ------------------------------------------------- COLLECTION AGENT: RITE AID HDQTRS. FUNDING, INC. By: ------------------------------------------- Title: Signature Page to Receivables Financing Agreement ------------------------------------------------- INVESTOR AGENTS: CITICORP NORTH AMERICA, INC. By: ------------------------------------------- Title: BANK ONE, NA By: ------------------------------------------- Title: WACHOVIA BANK, NATIONAL ASSOCIATION By: ------------------------------------------- Title: Signature Page to Receivables Financing Agreement ------------------------------------------------- ORIGINATORS: RITE AID CORPORATION RITE AID OF CONNECTICUT, INC. RITE AID OF DELAWARE, INC. RITE AID OF GEORGIA, INC. RITE AID OF INDIANA, INC. RITE AID OF KENTUCKY, INC. RITE AID OF MAINE, INC. RITE AID OF MARYLAND, INC. RITE AID OF MICHIGAN, INC. RITE AID OF NEW HAMPSHIRE, INC. RITE AID OF NEW JERSEY, INC. RITE AID OF NEW YORK, INC. RITE AID OF OHIO, INC. RITE AID OF PENNSYLVANIA, INC. RITE AID OF TENNESSEE, INC. RITE AID OF VERMONT, INC. RITE AID OF VIRGINIA, INC. RITE AID OF WASHINGTON, D.C., INC. RITE AID OF WEST VIRGINIA, INC. KEYSTONE CENTERS, INC. THE LANE DRUG COMPANY RITE AID DRUG PALACE, INC. THRIFTY PAYLESS, INC. HARCO, INC. PERRY DRUG STORES, INC. APEX DRUG STORES, INC. PDS-1 MICHIGAN, INC. RDS DETROIT, INC. K & B ALABAMA CORPORATION K & B LOUISIANA CORPORATION K & B MISSISSIPPI CORPORATION K & B TENNESSEE CORPORATION By: ------------------------------------------- Title: Signature Page to Receivables Financing Agreement ------------------------------------------------- TRUSTEE: JPMORGAN CHASE BANK By: ------------------------------------------- Name: Daniel C. Brown, Jr Title: Vice President Signature Page to Receivables Financing Agreement ------------------------------------------------- SCHEDULE II CREDIT AND COLLECTION POLICY RITE AID CORPORATION THIRD PARTY CREDIT AND COLLECTION POLICY September 2004 CREDIT POLICY It is our credit policy to only conduct business with Payors of acceptable credit risk. The Managed Care Department is our relationship leader with the PBMs, insurers and government agencies (collectively referred to as Payors). The activities of the Managed Care Department are many but include initially assessing the credit worthiness of the Payors and monitoring activities and developments related to the credit worthiness of the Payors. The Managed Care Department makes the final decision regarding credit worthiness of a Payor. For specific, very significant Payor opportunities, the Managed Care Department will make a recommendation to and obtain the approval of the Executive Committee regarding the credit worthiness of a Payor. The Third Party Administration and Third Party Finance departments support the efforts of the Managed Care Department and are also responsible for supporting this credit policy. The majority of our largest Payor contracts have the Payor as Obligor to us. For such entities, we initially rely on their reputation and financial condition in assessing credit worthiness. For those contracts with Payors as Agent/Administrator, the clients of the Payor are the Obligor to us. We also initially assess the reputation and financial condition of the Agent/Administrator but we rely on the Payor to assess the credit worthiness of the clients of the Payor who are the Obligor to us. For the contracts with Payors as Agent/Administrator there is a distinction between recent and certain legacy contracts. For recent contracts with a Agent/Administrator Payor, we attempt to include language to mitigate exposure to non-payment by Payor clients whereby the Payor plays an active role in minimizing the credit risk. The majority of our largest Payor contracts are with publicly traded companies, e.g., MEDCO, Caremark PCS, Express Scripts, Wellpoint, Anthem, Aetna, Cigna, Prescription Solutions, aka Pacificare. These companies have publicly available financial information which we reference in determining credit worthiness. Another large group of Payor contracts are with large insurance companies (e.g., Aetna, Cigna) and Blue Cross/ Blue Shield companies (e.g., Michigan, Alabama) who are subject to state regulatory requirements and oversight regarding their financial condition. The Blue Cross/Blue Shield Association are also subject to the capital requirements for maintenance of their BCBS licensure status. We rely on the regulatory requirements and II-1 oversight efforts as a basis for credit worthiness of the insurance companies and Blue Cross/Blue Shield companies. On an on-going basis, there are no further credit worthiness assessments unless the Payor does not comply with our collection policy or we become aware of information that raises concern about credit worthiness. COLLECTION POLICY It is our collection policy to only conduct business with Payors that meet the agreed-to payment terms. The Third Party Finance Department closely monitors payment practices. The Managed Care Department is notified by Third Party Finance of increases in Days Sales Outstanding or any aberrant payment patterns with Payors. Most Payors are on a biweekly payment cycle and timing issues are identified immediately. In addition, receivable amounts are aged from date of service and past due amounts are readily identified. The Managed Care Department takes immediate action to address issues with the Payor to understand and correct the situation and either arranges for current payment or instructs Third Party Administration to disable claims processing for the Payor. Once an account balance is deemed to be uncollectible, it is written off in accordance with our accounting policies and procedures. II-2 SCHEDULE III Addresses Borrower: Rite Aid Funding II 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Robert Sari Facsimile No. (717) 760-7867 Investors: CAFCO, LLC 450 Mamaroneck Avenue Harrison, N.Y. 10528 Attention: Global Securitization Facsimile No.: (914) 899-7890 Jupiter Securitization Corporation c/o Bank One, NA (Main Office Chicago) Mail Code IL1-0079 1 Bank One Plaza Chicago, IL 60670 Attention: Jupiter Conduit Administrator Facsimile No.: (312) 732-1844 Blue Ridge Asset Funding Corporation Address: c/o Wachovia Capital Markets, LLC 301 S. College St., FLR TRW 10 NC0610 Charlotte, NC 28288-0610 Attention: Douglas R. Wilson, Sr. Facsimile No.: (704) 383-9579 Program Agent: Citicorp North America, Inc., as Program Agent 450 Mamaroneck Avenue Harrison, N.Y. 10528 Attention: Global Securitization Facsimile No.: ( 914) 899-7890 Banks: Citibank, N.A. 450 Mamaroneck Avenue Harrison, N.Y. 10528 Attention: Global Securitization Facsimile No.: (914) 899-7890 III-1 Bank One, NA Main Office Chicago Mail Code IL1-1729 1 Bank One Plaza Chicago, IL 60670 Attention: William Hendricks Facsimile No.: (312) 732-3600 Wachovia Bank, National Association, Address: 191 Peachtree Street, N.E. Mail Code GA-8088, 22nd Floor Atlanta, GA 30303 Attention: Eero Maki Facsimile No.: (404) 332-5152 Collection Agent: Rite Aid Hdqtrs. Funding, Inc. 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Robert Sari Facsimile No. (717) 760-7867 Investor Agents: Citicorp North America, Inc., as Investor Agent 450 Mamaroneck Avenue Harrison, NY 10528 Attention: Global Securitization Facsimile No.: (914) 899-7890 Bank One, NA, as Investor Agent Main Office Chicago Mail Code IL1-1729 1 Bank One Plaza Chicago, IL 60670 Attention: William Hendricks Facsimile No.: (312) 732-3600 Wachovia Bank, National Association, as Investor Agent Address: 191 Peachtree Street, N.E. Mail Code GA-8088, 22nd Floor Atlanta, GA 30303 Attention: Eero Maki Facsimile No.: (404) 332-5152 III-2 Originators: Rite Aid Corporation, a Delaware corporation Rite Aid of Connecticut, Inc., a Connecticut corporation Rite Aid of Delaware, Inc., a Delaware corporation Rite Aid of Georgia, Inc., a Georgia corporation Rite Aid of Indiana, Inc., an Indiana corporation Rite Aid of Kentucky, Inc., a Kentucky corporation Rite Aid of Maine, Inc., a Maine corporation Rite Aid of Maryland, Inc., a Maryland corporation Rite Aid of Michigan, Inc., a Michigan corporation Rite Aid of New Hampshire, Inc., a New Hampshire corporation Rite Aid of New Jersey, Inc., a New Jersey corporation Rite Aid of New York, Inc., a New York corporation Rite Aid of Ohio, Inc., an Ohio corporation Rite Aid of Pennsylvania, Inc., a Pennsylvania corporation Rite Aid of Tennessee, Inc., a Tennessee corporation Rite Aid of Vermont, Inc., a Vermont corporation Rite Aid of Virginia, Inc., a Virginia corporation Rite Aid of Washington, D.C., Inc., a District of Columbia corporation Rite Aid of West Virginia, Inc., a West Virginia corporation Keystone Centers, Inc., a Pennsylvania corporation The Lane Drug Company, an Ohio corporation Rite Aid Drug Palace, Inc., a Delaware corporation Thrifty PayLess, Inc., a California corporation Harco, Inc., an Alabama corporation Perry Drug Stores, Inc., a Michigan corporation Apex Drug Stores, Inc., a Michigan corporation PDS-1 Michigan, Inc., a Michigan corporation RDS Detroit, Inc., a Michigan corporation K & B Alabama Corporation, an Alabama corporation K & B Louisiana Corporation, a Louisiana corporation K & B Mississippi Corporation, a Mississippi corporation K & B Tennessee Corporation, a Tennessee corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Robert Sari Facsimile No. (717) 760-7867 Trustee: JPMorgan Chase Bank 4 New York Plaza, 6th Fl New York, NY 10004 Attention: Daniel C. Brown, VP Alexander C. Ross III-3 SCHEDULE IV MONTHS Fiscal Year 2004 ---------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/2/2003 3/29/2003 4 2 3/30/2003 4/26/2003 4 3 4/27/2003 5/31/2003 5 4 6/1/2003 6/28/2003 4 5 6/29/2003 7/26/2003 4 6 7/27/2003 8/30/2003 5 7 8/31/2003 9/27/2003 4 8 9/28/2003 10/25/2003 4 9 10/26/2003 11/29/2003 5 10 11/30/2003 12/27/2003 4 11 12/28/2003 1/24/2004 4 12 1/25/2004 2/28/2004 5 IV-1 SCHEDULE IV MONTHS Fiscal Year 2005 (leap year) ---------------------------- Period Start End # of Wks - ------ ----- --- -------- 1 2/29/2004 3/27/2004 4 2 3/28/2004 4/24/2004 4 3 4/25/2004 5/29/2004 5 4 5/30/2004 6/26/2004 4 5 6/27/2004 7/24/2004 4 6 7/25/2004 8/28/2004 5 7 8/29/2004 9/25/2004 4 8 9/26/2004 10/23/2004 4 9 10/24/2004 11/27/2004 5 10 11/28/2004 12/25/2004 4 11 12/26/2004 1/22/2005 4 12 1/23/2005 2/26/2005 5 IV-2 SCHEDULE IV MONTHS Fiscal Year 2006 (53 weeks) --------------------------- Period Start End # of Wks - ------ ----- --- -------- 1 2/27/2005 3/26/2005 4 2 3/27/2005 4/23/2005 4 3 4/24/2005 5/28/2005 5 4 5/29/2005 6/25/2005 4 5 6/26/2005 7/23/2005 4 6 7/24/2005 8/27/2005 5 7 8/28/2005 9/24/2005 4 8 9/25/2005 10/22/2005 4 9 10/23/2005 11/26/2005 5 10 11/27/2005 12/31/2005 5 11 1/1/2006 1/28/2006 4 12 1/29/2006 3/4/2006 5 IV-3 SCHEDULE IV MONTHS Fiscal Year 2007 ---------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/5/2006 4/1/2006 4 2 4/2/2006 4/29/2006 4 3 4/30/2006 6/3/2006 5 4 6/4/2006 7/1/2006 4 5 7/2/2006 7/29/2006 4 6 7/30/2006 9/2/2006 5 7 9/3/2006 9/30/2006 4 8 10/1/2006 10/28/2006 4 9 10/29/2006 12/2/2006 5 10 12/3/2006 12/30/2006 4 11 12/31/2006 1/27/2007 4 12 1/28/2007 3/3/2007 5 IV-4 SCHEDULE IV MONTHS Fiscal Year 2008 (leap year) ---------------------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/4/2007 3/31/2007 4 2 4/1/2007 4/28/2007 4 3 4/29/2007 6/2/2007 5 4 6/3/2007 6/30/2007 4 5 7/1/2007 7/28/2007 4 6 7/29/2007 9/1/2007 5 7 9/2/2007 9/29/2007 4 8 9/30/2007 10/27/2007 4 9 10/28/2007 12/1/2007 5 10 12/2/2007 12/29/2007 4 11 12/30/2007 1/26/2008 4 12 1/27/2008 3/1/2008 5 IV-5 SCHEDULE IV MONTHS Fiscal Year 2009 ---------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/2/2008 3/29/2008 4 2 3/30/2008 4/26/2008 4 3 4/27/2008 5/31/2008 5 4 6/1/2008 6/28/2008 4 5 6/29/2008 7/26/2008 4 6 7/27/2008 8/30/2008 5 7 8/31/2008 9/27/2008 4 8 9/28/2008 10/25/2008 4 9 10/26/2008 11/29/2008 5 10 11/30/2008 12/27/2008 4 11 12/28/2008 1/24/2009 4 12 1/25/2009 2/28/2009 5 IV-6 SCHEDULE V MATERIAL LITIGATION I. INVESTIGATIONS AND LITIGATION MATTERS. 1. US Attorney Eastern District PA investigation regarding PBM matters. Investigation pending. 2. There are currently pending federal governmental investigations, both civil and criminal, by the United States Attorney, involving various matters related to prior management's business practices. We are cooperating fully with the United States Attorney. We have begun settlement discussions with the United States Attorney for the Middle District of Pennsylvania. The United States Attorney has proposed that the government would not institute any criminal proceeding against us if we enter into a consent judgment providing for a civil penalty payable over a period of years. The amount of the civil penalty has not been agreed to and there can be no assurance that a settlement will be reached or that the amount of such penalty will not have a material adverse effect on our financial condition and results of operations. We have recorded an accrual of $20.0 million in fiscal year 2003 in connection with the resolution for these matters; however, we may incur charges in excess of that amount and we are unable to estimate the possible range of loss. We will continue to evaluate our estimate and to the extent that additional information arises or our strategy changes, we will adjust our accrual accordingly. These investigations and settlement discussions are ongoing and we cannot predict their outcomes. If we were convicted of any crime, certain licenses and government contracts such as Medicaid plan reimbursement agreements that are material to our operations may be revoked, which would have a material adverse effect on our results of operations, financial condition or cash flows. In addition, substantial penalties, damages or other monetary remedies assessed against us, including a settlement, could also have a material adverse effect on our results of operations, financial condition or cash flows. II. OTHER LITIGATION MATTERS We, together with a significant number of major U.S. retailers, have been sued by the Lemelson Foundation in a complaint which alleges that portions of the technology included in our point-of-sale system infringe upon a patent held by the plaintiffs. The amount of damages sought is unspecified and may be material. We cannot predict the outcome of this litigation or whether it could result in a material adverse effect on our results of operations, financial conditions or cash flows (Lemelson Medical, Education & Research Foundation Limited V-1 Partnership v. Rite Aid Corporation et al.; Case CIV00-0660 PHX RCB, U.S. District Court, District of Arizona). We are subject from time to time to lawsuits arising in the ordinary course of business. In the opinion of our management, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve amounts that would not have a material adverse effect on our financial condition, results of operations or cash flows if decided adversely. V-2 SCHEDULE VIII SPECIAL CONCENTRATION LIMITS NAME OF OBLIGOR MAXIMUM PERCENTAGE MAXIMUM AMOUNT Medco (PAID) 100 % of Loss Percentage $ 92,000,000 Express Scripts 100% of Loss Percentage $ 92,000,000 Caremark 100% of Loss Percentage $ 92,000,000 New York State 40% of Loss Percentage $ 37,000,000 VIII-1 ANNEX D FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT Dated __________ __, 200_ Reference is made to the Receivables Financing Agreement, dated as of September 21, 2004, as amended to date (the "Agreement"), among RITE AID FUNDING II, as the Borrower, CAFCO, LLC and JUPITER SECURITIZATION CORPORATION and BLUE RIDGE ASSET FUNDING CORPORATION, as the Investors, CITIBANK, N.A., as a Bank, BANK ONE, NA, as a Bank and an Investor Agent, WACHOVIA BANK, NATIONAL ASSOCIATION, as a Bank and an Investor Agent, CITICORP NORTH AMERICA, INC., a Delaware corporation ("CNAI"), as program agent (the "Program Agent") for the Investors and the Banks and as an Investor Agent, RITE AID HDQTRS. FUNDING, INC., a Delaware corporation, as Collection Agent each of the Originators named therein, and JPMORGAN CHASE BANK, as Trustee. Terms defined in the Agreement are used herein with the same meaning. _________________ (the "Assignor"), ________________ (the "Assignee") and ______________, in its capacity as Investor Agent for the Group which includes the Assignor and the Assignee (the "Group Investor Agent"), agree as follows: 1. Purchase and Sale of Interest. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to all of the Assignor's rights and obligations under the Agreement as of the date hereof equal to the percentage (the "Percentage") interest specified on the signature page hereto of all outstanding rights and obligations of all Banks under the Agreement [and all of the Assignor's rights and obligations as the Group Investor Agent under the Agreement]. After giving effect to such sale and assignment, the Assignee will be a Related Bank for [Name of Investor] and the Assignee's Bank Commitment and the amount of the Principal of the Advances owned by the Assignee will be as set forth in Section 2 of the signature page hereto. [As consideration for the sale and assignment contemplated in this Section 1, the Assignee shall pay to the Assignor on the Effective Date (as hereinafter defined) in immediately available funds an amount equal to $_________, representing the purchase price payable by the Assignee for the Advances sold and assigned to the Assignee under this Section 1.](1) 2. Representations and Disclaimers of Assignor. The Assignor i. represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; - --------------- (1) Include bracketed text if Assignor holds a portion of Advances on the Effective Date. D-1 ii. makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Agreement or any other instrument or document furnished pursuant thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Agreement or any other instrument or document furnished pursuant thereto; and iii. makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, the Originators, the Collection Agent, the Parent or Cayman SPE I or the performance or observance by the Borrower, the Originators, the Collection Agent, the Parent or Cayman SPE I of any of their obligations under the Agreement or any other instrument or document furnished pursuant thereto. 3. Representations and Agreements of Assignee. The Assignee i. confirms that it has received a copy of the Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.01(k) of the Agreement and Section 6(c) of each of the Parent Undertakings and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance Agreement; ii. agrees that it will, independently and without reliance upon the Program Agent, any Investor Agent, the Assignor 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 action under the Agreement; iii. appoints and authorizes the Program Agent [and the Group Investor Agent] to take such action as agent on its behalf and to exercise such powers under the Agreement and the other Transaction Documents as are delegated to the Program Agent [and the Group Investor Agent, respectively,] by the terms thereof, together with such powers as are reasonably incidental thereto; iv. agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Agreement and this Assignment and Acceptance Agreement are required to be performed by it as a Bank [and as an Investor Agent]; v. specifies as its address for notices the office set forth beneath its name on the signature pages hereof; vi. represents that this Assignment and Acceptance Agreement has been duly authorized, executed and delivered by the Assignee pursuant to its corporate powers and constitutes the legal, valid and binding obligation of the Assignee; and vii. if the Assignee is organized under the laws of a jurisdiction outside the United States, (A) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made D-2 to the Assignee under the Agreement or such other documents as are necessary to indicate that all such payments are subject to such taxes at a rate reduced by an applicable tax treaty, and (B) agrees to provide the Program Agent and the Group Investor Agent (to the extent permitted by applicable law) with similar forms for each subsequent tax year of the Assignee in which payments are to be made to the Assignee under the Agreement. 4. Effectiveness of Assignment. a. Following the execution of this Assignment and Acceptance by the Assignor and the Assignee, it will be delivered to the Group Investor Agent for acceptance and recording by the Group Investor Agent. The effective date of this Assignment and Acceptance shall be the date of acceptance thereof by the Group Investor Agent, unless otherwise specified in Section 3 of the signature page hereto (the "Effective Date"). Upon such acceptance and recording by the Group Investor Agent, the Group Investor Agent shall deliver a fully executed counterpart of this Assignment and Acceptance Agreement to the Program Agent. b. Upon such acceptance and recording by the Group Investor Agent, as of the Effective Date, (i) the Assignee shall be a party to the Agreement and, to the extent provided in this Assignment and Acceptance Agreement, have the rights and obligations of a Bank thereunder and hereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance Agreement, relinquish its rights and be released from its obligations under the Agreement. c. Upon such acceptance and recording by the Group Investor Agent, from and after the Effective Date, the Group Investor Agent, the Borrower or the Collection Agent, as the case may be, shall make all payments under the Agreement in respect of the interest assigned hereby (including, without limitation, all payments of Principal, Yield and fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Agreement for periods prior to the Effective Date directly between themselves. 5. GOVERNING LAW. THIS ASSIGNMENT AND ACCEPTANCE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written, such execution being made on the signature page hereto. [Remainder of this page intentionally left blank] D-3 Signature Page to Rite Aid Funding II Assignment and Acceptance Agreement Dated __________ ____, 20__ Section 1. - ---------- Percentage: ______% Section 2. - ---------- Assignee's Bank Commitment: $______ Aggregate Outstanding Principal of Advances held by the Assignee: $______ Section 3. - ---------- Effective Date:2 ________ __, 200_ [NAME OF ASSIGNOR] By: -------------------------- Title: [NAME OF ASSIGNEE] By: -------------------------- Title: Address for Notices: [Insert] - --------------- (2) This date should be no earlier than the date of acceptance by the Group Investor Agent. D-4 Accepted this _____ day of ________ __, 200_ , as Group Investor Agent ----------------------- By: -------------------------------------- Title: RECEIPT ACKNOWLEDGED: CITICORP NORTH AMERICA, INC., as Program Agent By: ---------------------------------------- Title: D-5 ANNEX E [Form of Funds Transfer Letter] [Letterhead of the Borrower] [Date] Citicorp North America, Inc., as Program Agent 450 Mamaroneck Avenue Harrison, New York 10528 Re: Funds Transfers --------------- Gentlemen: This letter is the Funds Transfer Letter referred to in Section 2.02(b) of the Receivables Financing Agreement, dated as of September 21, 2004, as modified, amended or restated from time to time (the "RFA"; terms used in the RFA, unless otherwise defined herein, having the meaning set forth therein) among the undersigned, the Investors, the Banks, the Investor Agents, you, as Program Agent for the Investors and the Banks, the Collection Agent and the Originators. You are hereby directed to deposit all funds representing proceeds of Advances to [Account Number], at [Name, Address and ABA Number of Bank]. The provisions of this Letter may not be changed or amended orally, but only by a writing in substantially the form of this letter signed by the undersigned and acknowledged by you. Very truly yours, Rite Aid Funding II By: ------------------------- Title: Receipt acknowledged: CITICORP NORTH AMERICA, INC., as Program Agent By: ------------------------------- Vice President E-1 Annex F NOTE New York, New York $______________ September __, 2004 FOR VALUE RECEIVED, THE UNDERSIGNED, Rite Aid Funding II, a Cayman Islands exempted company incorporated with limited liability (the "Borrower"), promises to pay to the order of [Name of Group Investor Agent], as Investor Agent ("Payee") for the benefit of the Investors and Banks in Payee's Group, the principal sum of ______________ ($____________) or, if less, the aggregate unpaid principal amount of all Advances shown on the schedule attached hereto (and any continuation thereof) and/or in the records of the Investors and the Banks in the Payee's Group made by Payee's Group pursuant to that certain Receivables Financing Agreement, dated as of September 21, 2004 (together with all amendments, restatements and other modifications, if any, from time to time thereafter made thereto, the "Receivables Financing Agreement"), among Rite Aid Funding II, as borrower, Bank One, NA and Wachovia Bank, National Association, each as an investor agent, Citicorp North America, Inc., as program agent and as an investor agent, the other investors, banks and investor agents party thereto from time to time, Rite Aid Hdqtrs. Funding, Inc., as the collection agent, the parties thereto named as Originators, and JPMorgan Chase Bank., as trustee. The Borrower also promises to pay Yield on the unpaid principal amount hereof from time to time outstanding from the date hereof until paid in full, at the rates per annum and on the dates specified in the Receivables Financing Agreement. Payments of both Principal and Yield are to be made in lawful money of the United States of America in same day or immediately available funds to the Investor Agent's Account designated by the Payee pursuant to the Receivables Financing Agreement. This Note is a Note referred to in, and evidences indebtedness incurred under, the Receivables Financing Agreement, and the holder hereof is entitled to the benefits of the Receivables Financing Agreement, to which reference is made for a description of the security for this Note and for a statement of the terms and conditions on which the Borrower is permitted and required to make prepayments and repayments of principal of the indebtedness evidenced by this Note. Unless otherwise defined, capitalized terms used herein have the meanings provided in the Receivables Financing Agreement. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. F-1 The Borrower hereby irrevocably submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York City in any action or proceeding arising out of or relating to this Note, and the Borrower hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. The Borrower hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Borrower consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to it at its address specified in Section 9.02 of the Receivables Financing Agreement. Nothing in this Note shall affect the right of the Payee or its assignees to serve legal process in any other manner permitted by law. To the extent that the Borrower has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Borrower hereby irrevocably waives such immunity in respect of its obligations under this Note. If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder in U.S. Dollars into another currency, the Borrower agrees, to the fullest extent that it may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the judgment creditor could purchase U.S. Dollars with such other currency at New York, New York on the Business Day preceding that on which final judgment is given. The obligation the Borrower in respect of any sum due hereunder shall, notwithstanding any judgment in a currency other than U.S. Dollars, be discharged only to the extent that on the Business Day following receipt by the Payee, the Payee may in accordance with normal banking procedures purchase U.S. Dollars with such other currency; if the U.S. Dollars so purchased are less than the sum originally due to the Payee in U.S. Dollars, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Payee against such loss. F-2 THIS AGREEMENT SHALL, IN ACCORDANCE WITH SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION. RITE AID FUNDING II By: ----------------------------- Title: F-3 ================================================================================ Schedule attached to Note Dated September ___, 2004 of Rite Aid Funding II payable to the order of ______________________________________ - -------------------------------------------------------------------------------- Date of Amount of Amount of Advance Advance Repayment - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ F-4 ANNEX H APPLICABLE MARGIN ----------------- - -------------------------------------------------------------------------------- Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 - -------------------------------------------------------------------------------- Senior Unsecured BBB-/ BB+/Ba1 BB/Ba2 BB-/Ba3 B+/B1 to Below B-/ Rating for the Baa3 or B-/B3 B3 Parent above - -------------------------------------------------------------------------------- Applicable Margin 1.25% 1.50% 1.50% 1.75% 1.75% 1.75% (p.a.) - -------------------------------------------------------------------------------- For the purposes of establishing the Applicable Margin hereunder, in the event that (a) the Parent's Senior Unsecured Debt Rating by S&P and Moody's fall within different Levels, the Level corresponding to the lower of the two Senior Unsecured Debt Ratings shall apply, and (b) a Debt Rating is not available from either or both of S&P and Moody's, then Level 6 shall apply. Notwithstanding the table above, if the Applicable Margin or equivalent amount payable to the Lenders under the Credit Agreement is increased at any time, then the Applicable Margin payable hereunder shall be increased by a similar amount. H-1

Exhibit 10.4 ------------ ORIGINATOR PURCHASE AGREEMENT Dated as of September 21, 2004 Among The parties listed on Schedule 1 hereto as Sellers, ---------- and RITE AID HDQTRS. FUNDING, INC., as Purchaser and as Collection Agent ------------------------------------ TABLE OF CONTENTS Page ---- PRELIMINARY STATEMENTS............................................................................................1 ARTICLE I DEFINITIONS.....................................................................................1 SECTION 1.01. Certain Defined Terms.....................................................................1 SECTION 1.02. Other Terms..............................................................................14 ARTICLE II AMOUNTS AND TERMS OF PURCHASES.................................................................14 SECTION 2.01. Facility.................................................................................14 SECTION 2.03. Collections..............................................................................15 SECTION 2.04. Settlement Procedures....................................................................16 SECTION 2.05. Payments and Computations, Etc...........................................................17 ARTICLE III CONDITIONS OF PURCHASES........................................................................17 SECTION 3.01. Conditions Precedent to Initial Purchase from the Sellers................................17 SECTION 3.02. Conditions Precedent to All Purchases....................................................18 ARTICLE IV REPRESENTATIONS AND WARRANTIES.................................................................19 SECTION 4.01. Representations and Warranties of the Sellers............................................19 ARTICLE V COVENANTS .....................................................................................22 SECTION 5.01. Covenants of the Sellers.................................................................22 SECTION 5.02. Grant of Security Interest...............................................................27 ARTICLE VI ADMINISTRATION AND COLLECTION..................................................................27 SECTION 6.01. Designation of Collection Agent..........................................................27 SECTION 6.02. Duties of Collection Agent...............................................................27 SECTION 6.03. Collection Agent Fee.....................................................................28 SECTION 6.04. Certain Rights of the Purchaser..........................................................29 SECTION 6.05. Rights and Remedies. ....................................................................29 SECTION 6.06. Transfer of Records to Purchaser.........................................................30 ARTICLE VII EVENTS OF TERMINATION...............................................................................31 SECTION 7.01. Events of Termination....................................................................31 ARTICLE VIII INDEMNIFICATION....................................................................................33 SECTION 8.01. Indemnities by the Sellers...............................................................33 ARTICLE IX MISCELLANEOUS..................................................................................35 i Page ---- SECTION 9.01. Amendments, Etc..........................................................................35 SECTION 9.02. Notices, Etc.............................................................................35 SECTION 9.03. Binding Effect; Assignability............................................................35 SECTION 9.04. Costs, Expenses and Taxes................................................................36 SECTION 9.05. [Intentionally Omitted]..................................................................36 SECTION 9.06. Confidentiality..........................................................................36 SECTION 9.07. GOVERNING LAW............................................................................37 SECTION 9.08. Third Party Beneficiary..................................................................37 SECTION 9.09. Execution in Counterparts................................................................37 SCHEDULES - --------- SCHEDULE 1 List of Sellers SCHEDULE 2 Months SCHEDULE 3 Material Litigation SCHEDULE 4 Trade Names EXHIBITS - -------- EXHIBIT A Credit and Collection Policy EXHIBIT B Deposit Banks, Lock Boxes and Deposit Accounts/Account Banks and Governmental Entity Receivables Accounts EXHIBIT C Form of Promissory Note for Deferred Purchase Price EXHIBIT D Addresses ii ORIGINATOR PURCHASE AGREEMENT Dated as of September 21, 2004 Each of the parties listed on Schedule 1 hereto (each, a "Seller" and collectively, the "Sellers"), and Rite Aid Hdqtrs. Funding, Inc., a Delaware corporation, as the Collection Agent (the "Collection Agent") and as the purchaser (the "Purchaser"), agree as follows: PRELIMINARY STATEMENTS. (1) Certain terms which are capitalized and used throughout this Agreement (in addition to those defined above) are defined in Article I of this Agreement. (2) The Sellers have Receivables (or interests therein) that they wish to sell to the Purchaser, and the Purchaser is prepared to purchase such Receivables (or interests therein) on the terms set forth in this Originator Purchase Agreement (this "Agreement"). NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Account Bank" has the meaning given to such term in the definition of Governmental Entity Receivables Agreement. "Adverse Claim" means a lien, security interest, or other charge or encumbrance, or any other type of preferential arrangement. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person. "Alternate Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to the highest of: (a) the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time as Citibank, N.A.'s base rate; and (b) 1/2 of one percent above the Federal Funds Rate. "Borrower" means Rite Aid Funding II, a Cayman Islands company formerly known as Cayman Resources (22) Ltd. incorporated August 11, 2004 with registration number 138722. "Business Day" means any day on which banks are not authorized or required to close in New York City. "Capital Lease" means any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which, in accordance with GAAP, should be capitalized on the lessee's balance sheet. "Capital Lease Obligation" of any Person means the obligations of such Person to pay rent or other amounts under any Capital Lease, which obligations should be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "CHAMPUS" means the Civilian Health and Medical Program of the Uniformed Service, a program of medical benefits covering former and active members of the uniformed services and certain of their dependents, financed and administered by the United States Departments of Defense, Health and Human Services and Transportation and established pursuant to 10 U.S.C. ss.ss. 1071-1106, and all regulations promulgated thereunder including without limitation (a) all federal statutes (whether set forth in 10 U.S.C. ss.ss. 1071-1106 or elsewhere) affecting CHAMPUS and (b) all rules, regulations (including 32 CFR 199), manuals, orders and administrative, reimbursement and other guidelines of all Governmental Entities (including, without limitation, the Department of Health and Human Services, the Department of Defense, the Department of Transportation, the Assistant Secretary of Defense (Health Affairs) and the Office of CHAMPUS, or any Person or entity succeeding to the functions of any of the foregoing) promulgated pursuant to or in connection with any of the foregoing (whether or not having the force of law) in each case, as amended, supplemented or otherwise modified from time to time. "CMS" means Centers for Medicare & Medicaid Services of the Department of Health and Human Services, and any successor agency. "Collection Agent" means at any time the Person then authorized pursuant to Section 6.01 to service, administer and collect Purchased Assets. "Collection Agent Fee" has the meaning specified in Section 6.03. 2 "Collections" means, (a) with respect to any Receivable, all cash collections and other cash proceeds of such Receivable, including, without limitation, all cash proceeds of Related Security with respect to such Receivable, and all funds deemed to have been received by the applicable Seller or any other Person as a Collection pursuant to Section 2.04, and (b) with respect to any Participation Interest, all cash collections and other cash proceeds of the Government Receivable underlying such Participation Interest, including, without limitation, all cash proceeds of Related Security with respect to such Participation Interest, and all funds deemed to have been received by the applicable Seller or any other Person as a Collection pursuant to Section 2.04. "Contract" means an agreement between a Seller and a Person, or between a PBM and a Contract Payor, pursuant to or under which such Person or Contract Payor shall be obligated to pay for pharmaceutical merchandise sold by such Seller or its Affiliates from time to time. "Contract Payor" means a Person who is required under its agreement with a PBM to make payments to such PBM who, in turn, pays such amounts to a Seller on such Person's behalf. "Credit and Collection Policy" means those receivables credit and collection policies and practices of each of the Sellers in effect on the date of this Agreement applicable to the Receivables and described in Exhibit A hereto, as modified in compliance with this Agreement. "Debt" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (e) all Debt of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Adverse Claim on property owned or acquired by such Person, whether or not the Debt secured thereby has been assumed, (f) all Guarantees by such Person of Debt of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Debt of any Person shall include the Debt of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent of the terms of such Debt provide that such Person is not liable therefor. 3 "Defaulted Participation Interest" means a Participation Interest in a Government Receivable which is a Defaulted Receivable. "Defaulted Receivable" means a Receivable: (i) as to which any payment, or part thereof, remains unpaid for 120 or more days from the original date of service relating to such Receivable; (ii) as to which the Obligor thereof or any other Person obligated thereon or owning any Related Security in respect thereof has taken any action, or suffered any event to occur, of the type described in Section 7.01(g); (iii) which, consistent with the applicable Seller's Credit and Collection Policy, would be written off as uncollectible; or (iv) as to which the applicable Seller has (or consistent with such Seller's Credit and Collection Policy should have) established a specific reserve for non-payment. "Deferred Purchase Price" means the portion of the Purchase Price of Purchased Assets purchased on any Purchase Date exceeding the amount of the Purchase Price under Section 2.02 to be paid in cash. "Deposit Account" means an account maintained at a Deposit Bank into which (i) Collections in the form of checks and other items are deposited that have been sent to one or more related Lock Boxes by Obligors (other than the Contract Payors paying a PBM) and/or (ii) Collections in the form of electronic funds transfers and other items are paid directly by Obligors (other than the Contract Payors paying a PBM) and (iii) which is subject to a Deposit Account Agreement. "Deposit Account Agreement" means an agreement among a Seller, the Purchaser (or its assignees or designees) and any Deposit Bank in form and substance satisfactory to the Purchaser (or its assignees or designees). "Deposit Bank" means any of the banks holding one or more Deposit Accounts. "Designated Obligor" means, at any time, each Obligor; provided, however, that any Obligor shall cease to be a Designated Obligor upon three Business Days' notice by the Purchaser (or its assignees or designees) to the applicable Seller. "Determination Date" means the seventh Business Day after the end of each Month, provided that if an Event of Termination has occurred and is continuing, the Sellers or the Purchaser may designate more frequent Determination Dates. 4 "Diluted Participation Interest" means a Participation Interest in a Government Receivable which is a Diluted Receivable. "Diluted Receivable" means that portion (and only that portion) of any Receivable which is either (a) reduced or canceled as a result of (i) any defective, rejected or returned merchandise or services or any failure by a Seller to deliver any merchandise or provide any services or otherwise to perform under the underlying Contract, (ii) any change in the terms of or cancellation of, a Contract or any cash discount, discount for quick payment or other adjustment by a Seller which reduces the amount payable by the Obligor on the related Receivable (except any such change or cancellation resulting from or relating to the financial inability to pay or insolvency of the Obligor of such Receivable) or (iii) any set-off by an Obligor in respect of any claim by such Obligor as to amounts owed by it on the related Receivable (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (b) subject to any specific dispute, offset, counterclaim or defense whatsoever (except the discharge in bankruptcy of the Obligor thereof); provided that Diluted Receivables are calculated assuming that all chargebacks are resolved in the Obligor's favor. "Discount" means, in respect of each Purchase, 2.00% of the Outstanding Balance of the Receivables that are the subject of such Purchase; provided, however, the foregoing Discount may be revised prospectively by request of either the Sellers or the Purchaser to reflect changes in recent experience with respect to write-offs, timing and cost of Collections and cost of funds, provided that such revision is consented to by each of the Sellers and the Purchaser (it being understood that each party agrees to duly consider such request but shall have no obligation to give such consent). "Eligible Receivable" means a Receivable: (i) the Obligor of which is a United States resident, is not an Affiliate of the Parent, and is not a Governmental Entity, except to the extent payment of such Receivable is governed under the Social Security Act (42 U.S.C. ss. 1395, et seq.), including payments under Medicaid and CHAMPUS or regulated by CMS; (ii) the Obligor of which, at the time of the transfer of such Receivable under this Agreement, is a Designated Obligor; (iii) which, at the time of the transfer thereof to the Purchaser under this Agreement, is not a Defaulted Receivable; (iv) the Obligor of which, at the time of the transfer of such Receivable under this Agreement, is not the Obligor of any Defaulted Receivables which in 5 the aggregate constitute 50% or more of the aggregate Outstanding Balance of all Receivables of such Obligor; (v) which has been billed and, according to the Contract related thereto, is required to be paid in full within 60 days of the original billing date therefor; (vi) which is an obligation representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended, and the nature of which is such that its purchase with the proceeds of notes would constitute a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended; (vii) which is an "account" or a "payment intangible" within the meaning of Article 9 of the UCC of the applicable jurisdictions; (viii) which is denominated and payable only in United States dollars in the United States; (ix) which arises under a Contract which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable and is not subject to any Adverse Claim or any dispute, offset, counterclaim or defense whatsoever (except the potential discharge in bankruptcy of such Obligor and except with respect to adjudication fees charged by any relevant PBM) and is not settled on a net basis; (x) which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Contract related thereto is in violation of any such law, rule or regulation in any material respect; (xi) which arises under a Contract (other than a Contract with respect to which the related Obligor is a Governmental Entity) which (A) does not contain an enforceable provision requiring the Obligor under such Contract to consent to the transfer, sale or assignment of the Obligor's payment obligation by the applicable Seller, and (B) if such Contract is between a PBM and a Contract Payor, does not contain any enforceable provision prohibiting the transfer, sale or assignment of such Contract Payor's payment obligation to the applicable Seller; 6 (xii) which was generated in the ordinary course of the applicable Seller's business; (xiii) which, at the time of the transfer of such Receivable under this Agreement, has not been extended, rewritten or otherwise modified from the original terms thereof; (xiv) the transfer, sale or assignment of which in accordance with the Transaction Documents does not contravene any applicable law, rule or regulation; (xv) which (A) satisfies all applicable requirements of the Credit and Collection Policy and (B) complies with such other criteria and requirements (other than those relating to the collectibility of such Receivable) as the Purchaser or its assignees may from time to time reasonably specify to the applicable Seller(s) upon 30 days' notice; (xvi) as to which, at or prior to the later of the date of this Agreement and the date such Receivable is created, the Purchaser or its assignees has not notified the applicable Seller that such Receivable (or class of Receivables) is no longer reasonably acceptable for purchase hereunder; (xvii) as to which the applicable Seller has satisfied and fully performed all obligations required to be fulfilled by it; (xviii) as to which the applicable Seller has, or has the right to use, valid provider identification numbers and licenses to generate valid Receivables and all information set forth in the bill and supporting claim documents with respect to such Receivable is true, complete and correct; (xix) as to which the applicable Seller has, or has the right to use, valid provider identification numbers and licenses to generate reports with respect to such Receivable, and all cost reports required by the applicable state agency or other CMS-designated agents or agents of such state agency; (xx) which does not arise from a sale by the applicable Seller from a store located in Hawaii, Illinois, Minnesota, Montana or New Mexico, unless the applicable Seller shall have furnished the Purchaser with an opinion of local counsel, or other evidence satisfactory to the Purchaser, to the effect that the transfer, sale and assignment of Receivables and Participation Interests in accordance with this Agreement from a store located in such state does not violate any provision of the law of such state; and 7 (xxi) which is not a Medicare Receivable. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Event of Termination" has the meaning specified in Section 7.01. "Facility Termination Date" means the earliest of (i) the "Facility Termination Date" (as such term is defined in the Financing Agreement), (ii) the date determined pursuant to Section 7.01 and (iii) the date which the Parent designates by at least 2 Business Days prior notice to the Purchaser and its assignees (including the Program Agent under the Financing Agreement). "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day on such transactions received by Citibank, N.A. from three Federal funds brokers of recognized standing selected by it. "Financial Officer" means the chief financial officer, principal accounting officer, treasurer, vice president of financial accounting or controller of the relevant Person. "Financing Agreement" means that certain Receivables Financing Agreement, dated as of the date hereof, among the Borrower, CAFCO, LLC, Jupiter Securitization Corporation and Blue Ridge Asset Funding Corporation, each as an investor, Citibank, N.A., Bank One, NA and Wachovia Bank, National Association, each as a bank, Citicorp North America, Inc., as program agent, Citicorp North America, Inc., Bank One, NA and Wachovia Bank, National Association, each as an investor agent, the other investors, banks and investor agents party thereto from time to time, Rite Aid Hdqtrs. Funding, Inc., as the collection agent, the parties thereto named as Originators, and JPMorgan Chase Bank as trustee, as amended or restated from time to time. "GAAP" means generally accepted accounting principles in the United States. "General Trial Balance" for any Seller on any date means the applicable Seller's (or the Collection Agent's) accounts receivable trial balance (whether in the form of a computer printout, magnetic tape or diskette) on such date, listing Obligors (other than 8 Contract Payors) and the Receivables respectively owed by such Obligors on such date together with the aged Outstanding Balances of such Receivables, in form and substance satisfactory to the Purchaser. "Government Receivable" means any Receivable with respect to which the Obligor is a Governmental Entity. "Governmental Entity" means the United States of America, any state, any political subdivision of a state and any agency or instrumentality of the United States of America or any state or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. Payments from Governmental Entities shall be deemed to include payments governed under the Social Security Act (42 U.S.C. ss. 1395, et seq.), including payments under Medicare, Medicaid and CHAMPUS, and payments administered or regulated by CMS. "Governmental Entity Receivables Account Notice" means a notice contained in a Governmental Entity Receivables Agreement pursuant to which an Affiliate of the Parent gives revocable standing instructions to the Account Bank to sweep funds on a daily basis from the Governmental Entity Receivables Account to another designated account approved by the Purchaser and its assigns. "Governmental Entity Receivables Account" has the meaning given to such term in the definition of Governmental Entity Receivables Agreement. "Governmental Entity Receivables Agreement" means an agreement between a bank (an "Account Bank") and one or more Sellers or Affiliates of the Parent with respect to one or more accounts (each, a "Governmental Entity Receivables Account") or associated Lock-Boxes into which Collections on account of Receivables of Governmental Entities are deposited or remitted and which is subject to a Governmental Entity Receivables Account Notice. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Debt or other obligation of any Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Debt or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Debt or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Debt or 9 obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "HQ" means Rite Aid Hdqtrs. Funding, Inc., a Delaware corporation. "Incipient Event of Termination" means an event that but for notice or lapse of time or both would constitute an Event of Termination. "Indemnified Amounts" has the meaning specified in Section 8.01. "Intercreditor Agreement" means that certain Intercreditor Agreement dated as of September 22, 2004 by and among Citicorp North America, Inc. (as program agent under the Financing Agreement), the Borrower, Rite Aid Funding I (formerly known as Cayman Resources (21) Ltd. with registration number 138720), the Purchaser, the Sellers, and Citicorp North America, Inc. and JPMorgan Chase Bank, as senior collateral agents, as the same may be amended, modified or restated from time to time. "Lock-Box" means a post office box either (a) administered by a Deposit Bank for the purpose of receiving Collections, which is the subject of a Deposit Account Agreement, or (b) which receives Collections of Government Receivables and is associated with a Government Entity Receivables Account that is subject to a Governmental Entity Receivables Agreement. "Material Adverse Effect" means a material adverse effect on (i) the collectibility of the Receivables, (ii) the ability of the Purchaser or any Seller to perform any of its respective material obligations under the Transaction Documents to which it is a party, (iii) the legality, validity or enforceability of the Transaction Documents (including, without limitation, the validity, enforceability or priority of the ownership interests and security interests granted hereunder) or the rights of or benefits available to the Purchaser under the Transaction Documents, or (iv) the business, assets, operations, condition (financial or otherwise), or prospects of the Parent and its subsidiaries, taken as a whole. "Medicaid" means the medical assistance program established by Title XIX of the Social Security Act (42 U.S.C. Secs. 1396 et seq.) and any statutes succeeding thereto. "Medicare" means the health insurance program for the aged and disabled established by Title XVIII of the Social Security Act (42 U.S.C. Secs. 1395 et seq.) and any statutes succeeding thereto. "Month" means a fiscal month of the Parent as set forth on Schedule 2 hereto, as such schedule shall be updated from time to time in accordance with the terms hereof. 10 "Obligor" means a Person obligated to make payments to a Seller pursuant to a Contract; provided, however, if a PBM acts as agent for Contract Payors and is obligated, pursuant to a Contract, to turn over to a Seller payments made to it by such Contract Payors, then the term "Obligor" shall include both such PBM and such Contract Payors. "Outstanding Balance" means at any time (i) with respect to any Receivable, the then outstanding principal balance thereof and (ii) with respect to any Participation Interest, the then outstanding principal balance of the underlying Receivable. Any sales or use tax billed in connection with a Receivable is not included in the Outstanding Balance. "Parent" means Rite Aid Corporation, a Delaware corporation. "Participated Receivable" means any Receivable which is the subject of a Purchased Participation Interest. "Participation Interest" means, with respect to any Seller, a 100% undivided beneficial interest in such Seller's right, title and interest, whether now owned or hereafter arising and wherever located, in, to and under (i) each Government Receivable owned by such Seller, (ii) all Related Security and Collections with respect to such Government Receivable and (iii) all proceeds of such Government Receivable, Related Security, and Collections. "PBM" means a pharmaceutical benefits manager which has entered into an agreement with a Seller to make payments as agent for various insurers and other Persons, on account of pharmaceutical goods sold or services rendered by such Seller. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a Governmental Entity. "Purchase" means a purchase by the Purchaser of Receivables and/or Participation Interests from a Seller pursuant to Article II. "Purchase Date" means each day on which a Purchase is made pursuant to Article II. "Purchase Price" for any Purchase means an amount equal to the Outstanding Balance of the Receivables that are the subject of such Purchase as set forth in the Seller's General Trial Balance, minus the Discount for such Purchase. "Purchased Asset" means any Purchased Receivable or Purchased Participation Interest. 11 "Purchased Participation Interest" means any Participation Interest which is purchased or purported to be purchased by the Purchaser pursuant to Article II. "Purchased Receivable" means any Receivable (other than a Government Receivable) which is purchased or purported to be purchased by the Purchaser pursuant to Article II. "RAD" means Rite Aid of Delaware, Inc., a Delaware corporation. "Receivable" means the indebtedness or obligation of any Obligor resulting from the provision or sale of pharmaceutical merchandise by a Seller (or an Affiliate on behalf of such Seller) under a Contract (whether constituting an account, instrument, chattel paper, payment intangible or general intangible), and includes the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto. "Related Security" means (a) with respect to any Receivable: (i) all of the applicable Seller's interest in merchandise, if any, (including returned merchandise) relating to any sale giving rise to such Receivable; (ii) all security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements filed against an Obligor describing any collateral securing such Receivable; (iii) all guaranties, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise; and (iv) the Contract and all other books, records and other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights, subject to the rights of any licensors and to applicable law) relating to such Receivable and the related Obligor, and (b) with respect to any Participation Interest, the Related Security with respect to the Government Receivable that is the subject of such Participation Interest. 12 "RFA Final Payment Date" means the later of the "Facility Termination Date" (as such term is defined in the Financing Agreement) and the date on which all Principal, Yield, fees and other obligations under the Financing Agreement are paid in full. "Secondary Purchase Agreement" means the purchase agreement, dated as of the date hereof, among the Purchaser, as seller, Rite Aid Funding I, as purchaser, and HQ, as collection agent, as amended or restated from time to time. "Secured Obligations" has the meaning given to such term in Section 5.02 hereof. "Seller Collateral" has the meaning given to such term in Section 5.02 hereof. "Seller Report" means a report, in form and substance satisfactory to the Purchaser, furnished by the Collection Agent to the Purchaser pursuant to Section 6.02(b). "Settlement Date" means a Distribution Date (as such term is defined in the Financing Agreement); provided, however, that following the occurrence of an Event of Termination, Settlement Dates shall occur on such days as are selected from time to time by the Purchaser or its assignees in a written notice to the Collection Agent. "Tangible Net Worth" means at any time the total of all assets appearing on a balance sheet prepared in accordance with generally accepted accounting principles for the Purchaser and its subsidiaries on a consolidated basis, after deducting therefrom (without duplication of deductions): (i) any write-up in the book carrying value of any asset resulting from a revaluation thereof subsequent to February 28, 2004; (ii) all reserves, including but not limited to reserves for liabilities, fixed or contingent, deferred income taxes, obsolescence, depletion, insurance, and inventory valuation, which are not deducted from assets; (iii) the amount, if any, at which shares of treasury stock of the Purchaser or a subsidiary appear on the asset side of such balance sheet; (iv) all Debt of the Purchaser and its subsidiaries (after eliminating intercompany items); and (v) the book value of all assets which would be treated as intangibles under generally accepted accounting principles, including, without limitation, good will, trademarks, trade names, patents, copyrights and licenses, 13 "Transaction Document" means any of this Agreement, the Deposit Account Agreements, the Governmental Entity Receivables Agreements, all amendments to any of the foregoing and all other agreements and documents delivered and/or related hereto or thereto. "UCC" means the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction. SECTION 1.02. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. ARTICLE II AMOUNTS AND TERMS OF PURCHASES SECTION 2.01. Facility. On the terms and conditions hereinafter set forth and without recourse to the Sellers (except to the extent specifically provided herein), each Seller shall sell to the Purchaser (i) all of its right, title and interest in, under and to all Receivables (other than Government Receivables) originated by it from time to time, and (ii) Participation Interests in all Government Receivables originated by it from time to time, and the Purchaser shall purchase from such Seller all such Receivables (other than Government Receivables) and all such Participation Interests in Government Receivables of such Seller from time to time, in each case during the period from the date hereof to the Facility Termination Date. SECTION 2.02. Making Purchases. (a) Initial Purchase. The Sellers shall give the Purchaser at least one Business Day's notice of their request for the initial Purchase, which request shall specify the date of such Purchase (which shall be a Business Day) and the proposed Purchase Price for such Purchase. The Purchaser shall promptly notify the Sellers whether it has determined to make such Purchase. On the date of such Purchase, the Purchaser shall, upon satisfaction of the applicable conditions set forth in Article III, pay the Purchase Price for such Purchase in the manner provided in Section 2.02(d). Effective upon such payment, each Seller hereby sells, conveys, transfers and assigns to the Purchaser (i) all Receivables (other than Government Receivables) originated by it in existence on the date of the initial Purchase and (ii) all Participation Interests in all Government Receivables originated by it in existence on the date of the initial Purchase. (b) Subsequent Purchases. On each Business Day following the initial Purchase with respect to each Seller, unless either party shall notify the other party to the contrary, such Seller shall sell to the Purchaser and the Purchaser shall purchase from such 14 Seller, upon satisfaction of the applicable conditions set forth in Article III, (i) all Receivables (other than Government Receivables) originated by such Seller, and (ii) Participation Interests in all Government Receivables originated by such Seller, in each case which have not previously been sold to the Purchaser. The Purchaser shall pay the Purchase Price for such Purchase in the manner provided in Section 2.02(d). Effective on each Purchase Date, each Seller hereby sells, conveys, transfers and assigns to the Purchaser (i) all Receivables (other than Government Receivables) originated by it and not previously sold, conveyed, transferred or assigned to the Purchaser and (ii) all Participation Interests in all Government Receivables originated by it and not previously sold, conveyed, transferred or assigned to the Purchaser (c) Special Provisions Relating to Sales of Participation Interests. Following each sale of a Participation Interest in a Government Receivable, each Seller hereby agrees to hold such Government Receivable and any Related Security, Collections and proceeds with respect thereto for the benefit of the Purchaser; provided that such Seller shall take no action in contravention of any law, rule or regulation applicable to such Government Receivable. It is understood and agreed that sales of Participation Interests in Government Receivables shall not include any right to collect the proceeds of any Government Receivable directly from the applicable Governmental Entity, except insofar as a court of competent jurisdiction shall order such Governmental Entity to make such payments directly to the Purchaser or its assigns. (d) Payment of Purchase Price. The Purchase Price for the initial Purchase shall be paid on the Purchase Date therefor and the Purchase Price for each subsequent Purchase shall be paid on the next Settlement Date (without giving effect to the proviso in the definition thereof) after the Purchase Date therefor, in each case, by means of any one or a combination of the following: (i) a deposit in same day funds to the applicable Seller's account designated by such Seller, or (ii) an increase in the Deferred Purchase Price payable to the applicable Seller. The allocation of the Purchase Price as among such methods of payment shall be subject in each instance to the approval of the Purchaser and the applicable Seller; provided, however, that the Deferred Purchase Price may not be increased to the extent that, after giving effect to such increase, the Tangible Net Worth would be less than 1.00% of the Outstanding Balance of all Purchased Assets. The obligations of the Purchaser in respect of the Deferred Purchase Price shall be evidenced by the Purchaser's subordinated promissory note in the form of Exhibit C hereto payable to RAD, as agent for the Sellers. Each Seller hereby appoints RAD as its agent for the purpose of collecting and remitting to it amounts payable to it pursuant to such note. (e) Ownership of Receivables, Participation Interests and Related Security. On each Purchase Date, after giving effect to the Purchase on such date, the Purchaser shall own (i) all Receivables (other than Government Receivables) originated by the Sellers as of such date (including Receivables which have been previously sold to the Purchaser hereunder), and (ii) Participation Interests in all Government Receivables originated by the Sellers as of such date (including Participation Interests in Government Receivables which have been previously sold to the Purchaser hereunder). The Purchase of any Receivable or Participation Interest shall include all Related Security with respect to such Receivable or Participation Interest. 15 SECTION 2.03. Collections. (a) Unless otherwise agreed, the Collection Agent shall, on each Settlement Date, deposit into an account of the Purchaser or the Purchaser's assignee all Collections of Purchased Assets then held by the Collection Agent. (b) In the event that a Seller believes that Collections which are not Collections of Purchased Assets have been deposited into an account of the Purchaser or the Purchaser's assignee, such Seller shall notify the Collection Agent who shall so advise the Purchaser and, on the Business Day following such identification, the Purchaser shall remit, or shall cause to be remitted, all Collections so deposited which are identified, to the Purchaser's satisfaction, to be Collections of Receivables which are not either Purchased Receivables or Participated Receivables to the applicable Seller. (c) On each Settlement Date, the Purchaser shall pay to the applicable Seller accrued interest on the Deferred Purchase Price and the Purchaser may, at its option, prepay in whole or in part the principal amount of the Deferred Purchase Price; provided that each such payment shall be made solely from (i) Collections of Purchased Assets after all other amounts then due from the Purchaser under the Secondary Purchase Agreement and from the Borrower under the Financing Agreement have been paid in full and all amounts then required to be set aside by the Purchaser under the Secondary Purchase Agreement and by the Borrower or the Collection Agent under the Financing Agreement have been so set aside or (ii) excess cash flow from operations of the Purchaser which is not required to be applied to the payment of other obligations of the Purchaser under the Secondary Purchase Agreement; and provided further, that no such payment shall be made at any time when an Event of Termination shall have occurred and be continuing. At such time following the Facility Termination Date when all Principal, Yield and other amounts owed by the Purchaser under the Secondary Purchase Agreement and by the Borrower under the Financing Agreement shall have been paid in full, the Purchaser shall apply, on each Settlement Date, all Collections of Purchased Assets received by the Purchaser pursuant to Section 2.03(a) (and not previously distributed) first to the payment of accrued interest on the Deferred Purchase Price, and then to the reduction of the principal amount of the Deferred Purchase Price. SECTION 2.04. Settlement Procedures. (a) If on any day any Purchased Asset becomes (in whole or in part) a Diluted Receivable or a Diluted Participation Interest (as the case may be), the Seller which originated such Purchased Asset shall be deemed to have received on such day a Collection of such Purchased Asset in the amount of such Diluted Receivable or Diluted Participation Interest (as the case may be). If such Seller is not the Collection Agent, such Seller shall pay to the Collection Agent on or prior to the next Settlement Date all amounts deemed to have been received pursuant to this subsection. (b) Upon discovery by a Seller or the Purchaser of a breach of any of the representations and warranties made by any Seller in Section 4.01(j) with respect to any Purchased Asset, such party shall give prompt written notice thereof to the Purchaser, the Collection Agent, and the applicable Seller, as soon as practicable and in any event within three 16 Business Days following such discovery. The applicable Seller shall, upon not less than two Business Days' notice from the Purchaser or its assignee or designee, repurchase such Purchased Asset on the next succeeding Settlement Date for a repurchase price equal to the Outstanding Balance of such Purchased Asset. Each repurchase of a Purchased Asset shall include the Related Security with respect to such Purchased Asset. The proceeds of any such repurchase shall be deemed to be a Collection in respect of such Purchased Asset. If the applicable Seller is not the Collection Agent, such Seller shall pay to the Collection Agent on or prior to the next Settlement Date the repurchase price required to be paid pursuant to this subsection. (c) Except as stated in subsection (a) or (b) of this Section 2.04 or as otherwise required by law or the underlying Contract, all Collections from an Obligor of any Purchased Receivable or Participated Receivable shall be applied to the Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates its payment for application to specific Receivables. SECTION 2.05. Payments and Computations, Etc. (a) All amounts to be paid or deposited by a Seller or the Collection Agent hereunder shall be paid or deposited no later than 12:00 noon (New York City time) on the day when due in same day funds to an account or accounts designated by the Purchaser from time to time, which accounts, during the existence of the Financing Agreement, shall be those set forth in the Financing Agreement. (b) Each Seller shall, to the extent permitted by law, pay to the Purchaser interest on any amount not paid or deposited by such Seller (whether as Collection Agent or otherwise) when due hereunder at an interest rate per annum equal to 2% per annum above the Alternate Base Rate, payable on demand. (c) All computations of interest and all computations of fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. ARTICLE III CONDITIONS OF PURCHASES SECTION 3.01. Conditions Precedent to Initial Purchase from the Sellers. The initial Purchase of Receivables and/or Participation Interests from the Sellers hereunder is subject to the conditions precedent that the Purchaser shall have received on or before the date of such Purchase the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Purchaser: 17 (a) Certified copies of the resolutions of the Board of Directors of each of the Sellers approving this Agreement and certified copies of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement. One such certificate will be acceptable for any number of such Persons. (b) A certificate of the Secretary or Assistant Secretary of each of the Sellers certifying the names and true signatures of the officers of such Seller authorized to sign this Agreement and the other documents to be delivered by it hereunder. One such certificate will be acceptable for any number of such Persons. (c) Copies of proper financing statements, duly filed on or before the date of the initial Purchase, naming each Seller as the seller/debtor and the Purchaser as the purchaser/secured party, or other similar instruments or documents, as the Purchaser may deem necessary or desirable under the UCC of all appropriate jurisdictions or other applicable law to perfect the Purchaser's ownership of and security interest in the Purchased Assets and Related Security and Collections with respect thereto. (d) Copies of proper financing statements, if any, necessary to release all security interests and other rights of any Person in the Purchased Assets, Contracts or Related Security previously granted by any Seller, except those security interests subject to the Intercreditor Agreement. (e) Completed requests for information, dated on or before the date of such initial Purchase, listing all effective financing statements filed in the jurisdictions referred to in subsection (c) above that name any Seller as debtor, together with copies of such other financing statements (none of which shall cover any Purchased Assets, Contracts or Related Security except those evidencing security interests subject to the Intercreditor Agreement). (f) A favorable opinion of (i) Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Sellers, in form and substance satisfactory to the Purchaser, (ii) Chapman & Cutler relating to various states' local perfection issues and (iii) Parent's general counsel, in each case, as to such matters as the Purchaser may reasonably request, and (g) Executed copies of (i) Deposit Account Agreements with each Deposit Bank and (ii) Governmental Entity Receivables Agreements with each Account Bank. SECTION 3.02. Conditions Precedent to All Purchases. Each Purchase (including the initial Purchase) hereunder shall be subject to the further conditions precedent that: (a) with respect to any such Purchase, on or prior to the date of such Purchase, the applicable Seller shall have delivered to the Purchaser, if requested by the Purchaser, 18 (i) such Seller's General Trial Balance (which if in magnetic tape or diskette format shall be compatible with the Purchaser's computer equipment) as of a date not more than 31 days prior to the date of such Purchase, and (ii) such additional information concerning the Receivables and Participation Interests to be purchased as may reasonably be requested by the Purchaser; (b) with respect to any such Purchase, on or prior to the date of such Purchase, the Collection Agent shall have delivered to the Purchaser, in form and substance satisfactory to the Purchaser, a completed Seller Report for the most recently ended reporting period for which information is required pursuant to Section 6.02(b) and containing such additional information as may reasonably be requested by the Purchaser; (c) the applicable Seller shall have marked its master data processing records and, at the request of the Purchaser, each Contract giving rise to Purchased Assets and all other relevant records evidencing the Receivables and Participation Interests which are the subject of such Purchase with a legend, acceptable to the Purchaser, stating that such Receivables and Participation Interests, together with the Related Security and Collections with respect thereto, have been sold in accordance with this Agreement; and (d) on the date of such Purchase the following statements shall be true (and the applicable Seller, by accepting the Purchase Price for such Purchase, shall be deemed to have certified that): (i) The representations and warranties made by such Seller in Section 4.01 are correct on and as of the date of such Purchase as though made on and as of such date, (ii) No event has occurred and is continuing, or would result from such Purchase, that constitutes an Event of Termination or an Incipient Event of Termination and (iii) The Purchaser shall not have delivered to the Sellers a notice that the Purchaser shall not make any further Purchases hereunder; and (e) the Purchaser shall have received such other approvals, opinions or documents as the Purchaser may reasonably request. 19 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Sellers. Each Seller represents and warrants as to itself as follows (except that the representation and warranty in subsection (f) is made solely by the Parent): (a) Such Seller is a corporation duly incorporated, validly existing and in good standing under the laws of it jurisdiction of incorporation (as listed in Schedule 1 hereto as amended from time to time), and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified, except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect. (b) The execution, delivery and performance by such Seller of this Agreement and the other documents to be delivered by it hereunder, including such Seller's sale of Receivables and Participation Interests hereunder and such Seller's use of the proceeds of Purchases, (i) are within such Seller's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene (1) such Seller's charter or by-laws, (2) any law, rule or regulation applicable to such Seller, (3) any contractual restriction binding on or affecting such Seller or its property or (4) any order, writ, judgment, award, injunction or decree binding on or affecting such Seller or its property, and (iv) do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties (except for the transfer of such Seller's interest in the Purchased Assets pursuant to this Agreement). This Agreement has been duly executed and delivered by such Seller. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by such Seller of this Agreement or any other document to be delivered by it hereunder, except for the filing of UCC financing statements referred to herein. (d) Each of the Transaction Documents to which it is a party constitutes the legal, valid and binding obligation of such Seller enforceable against such Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and general equitable principles (whether considered in a proceeding at law or in equity). (e) Purchases made pursuant to this Agreement will constitute a valid sale, transfer, and assignment of the Purchased Assets to the Purchaser, enforceable against 20 creditors of, and purchasers from, such Seller. Such Seller shall have no remaining property interest in any Purchased Asset. (f) The consolidated balance sheet of the Parent and its consolidated sub sidiaries as at February 28, 2004, and the related statements of income, stockholders equity and cash flows of the Parent and its consolidated subsidiaries for the fiscal year then ended, reported on by Deloitte & Touche LLP, copies of which have been furnished to the Purchaser, fairly present the financial condition and results of operations and cash flows of the Parent and its consolidated subsidiaries as of and for the fiscal year ended on such date, in accordance with GAAP. Since February 28, 2004 there has been no material adverse change in the business, assets, operations, properties, condition (financial or otherwise), or prospects of the Parent and its subsidiaries, taken as a whole. (g) Except as set forth in Schedule 3 hereto (or as otherwise disclosed by the Parent in its publicly available SEC filings), there is no pending or threatened action, investigation or proceeding affecting such Seller or any of its subsidiaries before any court, governmental agency or arbitrator which if determined adversely to any of them, could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (h) No proceeds of any Purchase will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934. (i) No transaction contemplated hereby requires compliance with any bulk sales act or similar law. (j) Each Receivable (including, without limitation, each Participated Receivable) originated by such Seller and characterized in any Seller Report as an Eligible Receivable is, as of the date of such Seller Report (or if applicable, as of a date certain specified in such report) an Eligible Receivable. Each Purchased Asset, together with the Related Security, is owned (immediately prior to its sale hereunder) by the applicable Seller free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by the Purchaser). When the Purchaser makes a Purchase it shall acquire valid and perfected first priority ownership of each Purchased Asset and the Related Security and Collections with respect thereto free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by the Purchaser), and no effective financing statement or other instrument similar in effect covering any Purchased Asset, any interest therein, the Related Security or Collections with respect thereto is on file in any recording office except such as may be filed in favor of Purchaser in accordance with this Agreement or in connection with any Adverse Claim arising solely as the result of any action taken by the Purchaser or those which relate to security interests that are subject to the Intercreditor Agreement. 21 (k) Each Seller Report (if prepared by such Seller, or to the extent that information contained therein is supplied by such Seller), information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time (whether before or after the date of this Agreement) by such Seller to the Purchaser in connection with this Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Purchaser at such time) as of the date so furnished (or, if applicable, as of a date certain specified in such report), and no such document contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. (l) The principal place of business and chief executive office of such Seller and the office where such Seller keeps its records concerning the Purchased Assets are located at the address or addresses referred to in Section 5.01(b). (m) The names and addresses of all the Deposit Banks and Account Banks, together with the post office boxes and account numbers of the Lock-Boxes, Deposit Accounts at such Deposit Banks, and Governmental Entity Receivables Accounts at such Account Banks are specified in Exhibit B (as the same may be updated from time to time pursuant to Section 5.01(g)). The Lock-Boxes, Deposit Accounts and Governmental Entity Receivables Accounts are the only post office boxes and bank accounts into which Collections of Receivables and Participation Interests are deposited or remitted. (n) Except as set forth under the name of such Seller in Schedule 4, such Seller is not known by and does not use any tradename or doing-business-as name. (o) With respect to any programs used by such Seller in the servicing of the Receivables and Participation Interests, no sublicensing agreements are necessary in connection with the designation of a new Collection Agent pursuant to Section 6.01 so that such new Collection Agent shall have the benefit of such programs (it being understood that, however, the Collection Agent, if other than HQ, shall be required to be bound by a confidentiality agreement reasonably acceptable to HQ (on behalf of itself and each of the Sellers)). (p) The transfers of Purchased Assets by such Seller to the Purchaser pursuant to this Agreement, and all other transactions between such Seller and the Purchaser, have been and will be made in good faith and without intent to hinder, delay or defraud creditors of such Seller. (q) Such Seller has timely filed or caused to be filed all required income tax and sales tax returns and reports and all other material tax returns and reports required to have been filed and has paid or caused to be paid all material taxes due pursuant to such returns or pursuant to any assessment received by such Seller, except where the payment 22 of any such taxes is being contested in good faith by appropriate proceedings and for which such Seller has set aside on its books adequate reserves. The charges, accruals and reserves on the books of such Seller in respect of such taxes or charges imposed by all Governmental Entities are, in the opinion of such Seller, adequate for the payment thereof. ARTICLE V COVENANTS SECTION 5.01. Covenants of the Sellers. Each Seller covenants as to itself from the date hereof until the first day following the Facility Termination Date on which all of the Purchased Assets are either collected in full or become Defaulted Receivables or Defaulted Participation Interests (as the case may be): (a) Compliance with Laws, Etc. Such Seller will comply in all material respects with all applicable laws, rules, regulations and orders and preserve and maintain its corporate existence, rights, franchises, qualifications and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such rights, franchises, qualifications, and privileges could not reasonably be expected to result in a Material Adverse Effect. (b) Offices, Records, Name and Organization. Such Seller will keep its principal place of business and chief executive office and the office where it keeps its records concerning the Purchased Assets at the address of such Seller set forth on Exhibit D hereto or, upon 30 days' prior written notice to the Purchaser and its assignees, at any other locations within the United States. No Seller will change its name or its jurisdiction of organization, unless (i) such Seller shall have provided the Purchaser and its assignees with at least 30 days' prior written notice thereof and (ii) no later than the effective date of such change, all actions required by Section 5.01(j) shall have been taken and completed. Such Seller also will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Purchased Assets and related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Purchased Assets (including, without limitation, records adequate to permit the daily identification of each new Purchased Asset and all Collections of and adjustments to each existing Purchased Asset). Such Seller shall make a notation in its books and records, including its computer files, to indicate which Receivables have been sold by it to the Purchaser hereunder, and which Receivables have been the subject of a sale of Participation Interests in such Receivable. 23 (c) Performance and Compliance with Contracts and Credit and Collection Policy. Such Seller will, at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Purchased Receivables and Participated Receivables, and timely and fully comply in all material respects with the Credit and Collection Policy in regard to each Purchased Receivable, each Participated Receivable and the related Contract. (d) Sales, Liens, Etc. Except for the sales of Purchased Assets contemplated herein, such Seller will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any Purchased Asset, Receivable, Related Security, related Contract or Collections, or upon or with respect to any account to which any Collections of any Purchased Asset are sent, or assign any right to receive income in respect thereof. (e) Extension or Amendment of Purchased Assets. Except as provided in Section 6.02(c), such Seller will not extend, amend or otherwise modify the terms of any Purchased Receivable or Participated Receivable, or amend, modify or waive any term or condition of any Contract (to which it is a party) related thereto. (f) Change in Business or Credit and Collection Policy. Such Seller will not make any change in the character of its business or in the Credit and Collection Policy that could, in either case, reasonably be expected to result in a Material Adverse Effect. (g) Change in Payment Instructions to Obligors. Such Seller will not add or terminate any post office box, bank, or bank account as a Lock-Box, Deposit Bank, Deposit Account, Governmental Entity Receivables Account or Account Bank from those listed in Exhibit B to this Agreement, or make any change in its instructions to Obligors regarding payments to be made to any such box or account, unless the Purchaser shall have received notice of such addition, termination or change (including an updated Exhibit B) and a fully executed Deposit Account Agreement or Governmental Entity Receivables Agreement with each new Deposit Bank or Account Bank, as the case may be, with respect to each new Lock-Box, Deposit Account, or Governmental Entity Receivables Account. (h) Deposits to Lock-Boxes, Deposit Accounts and Governmental Entity Receivables Accounts. Such Seller will instruct all of its Obligors that are Governmental Entities (other than Contract Payers) to remit all their payments in respect of Participated Receivables to Governmental Entity Receivables Accounts or Lock-Boxes associated therewith. Such Seller will instruct all of its Obligors that are not Governmental Entities (other than Contract Payors) to remit all their payments in respect of Purchased Receivables to Deposit Accounts or Lock-Boxes associated therewith. If a Seller shall receive any Collections directly, it shall immediately (and in any event within one Business Day) deposit the same to a Deposit Account or Governmental Entity 24 Receivables Account, as the case may be. No Seller will deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box, Deposit Account or Governmental Entity Receivables Account cash or cash proceeds other than Collections of Purchased Receivables and Participated Receivables. (i) Audits. Such Seller will, from time to time during regular business hours as requested by the Purchaser or its assigns, permit the Purchaser, or its agents, represen- tatives or assigns, (i) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of such Seller relating to Purchased Assets and the Related Security, including, without limitation, the related Contracts, and (ii) to visit the offices and properties of such Seller for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to Purchased Assets and the Related Security or such Seller's performance hereunder or under the Contracts with any of the officers or employees of such Seller having knowledge of such matters. (j) Further Assurances. (i) Such Seller agrees from time to time, at its expense, promptly to execute and deliver all further instruments and documents, and to take all further actions, that may be necessary or desirable, or that the Purchaser or its assignees may reasonably request, to perfect, protect or more fully evidence the sale of Purchased Assets under this Agreement, or to enable the Purchaser or its assignees to exercise and enforce its respective rights and remedies under this Agreement. Without limiting the foregoing, such Seller will, upon the request of the Purchaser or its assignees, (A) execute and file such financing or continuation statements, or amendments thereto, and such other instruments and documents, that may be necessary or desirable to perfect, protect or evidence such Purchased Assets; and (B) deliver to the Purchaser copies of all Contracts (to which it is a party) relating to the Purchased Assets and all records relating to such Contracts and the Purchased Assets, whether in hard copy or in magnetic tape or diskette format (which if in magnetic tape or diskette format shall be compatible with the Purchaser's computer equipment). (ii) Such Seller authorizes the Purchaser or its assignees to file financing or continuation statements, and amendments thereto and assignments thereof, relating to the Purchased Assets and the Related Security, the related Contracts and the Collections with respect thereto. (iii) Such Seller shall perform its obligations under the Contracts related to the Purchased Receivables and Participated Receivables to the same extent as if the Purchased Receivables and Participated Receivables had not been sold or transferred. (k) Reporting Requirements. Parent will provide to the Purchaser the following: 25 (i) as soon as available and in any event within 50 days (or such earlier date that is 5 days after the then-current filing deadline for the Parent's Quarterly Report on Form 10-Q) after the end of each of the first three quarters of each fiscal year of Parent, balance sheets of Parent and its consolidated subsidiaries as of the end of such quarter and statements of income and cash flows for the then elapsed portion of such fiscal year of the Parent and its consolidated subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by a Financial Officer of the Parent; (ii) as soon as available and in any event within 105 days (or such earlier date that is 10 days after the then-current filing deadline for the Parent's Annual Report on Form 10-K) after the end of each fiscal year of the Parent, the audited consolidated balance sheet of the Parent and its consolidated subsidiaries and related statements of income and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any material qualification or exception as to the scope of the audit) to the effect that such consolidated financial statements present fairly in all material respects the financial position, results of operations and cash flows of the Parent and its consolidated subsidiaries on a consolidated basis in accordance with GAAP; (iii) as soon as possible and in any event within five days after the occurrence of each Event of Termination or Incipient Event of Termination, a statement of a Financial Officer of the Parent setting forth details of such Event of Termination or Incipient Event of Termination and the action that Parent or the applicable Seller has taken and proposes to take with respect thereto; (iv) at least 30 days prior to any change in a Seller's name or state of incorporation, a notice setting forth the new name or state of incorporation and the effective date thereof; (v) at least 60 days prior to the end of the last fiscal year of the Parent referred to in Schedule 2, a new Schedule 2, setting forth the Months for the upcoming fiscal year or years; and (vi) such other information respecting the Purchased Assets or the condition or operations, financial or otherwise, of any Seller as the Purchaser may from time to time reasonably request, to the extent such disclosure is permitted under applicable law, rule or regulation. Reports and financial statements required to be delivered pursuant to clauses (i) and (ii) of this Section 5.01(k) shall be deemed to have been delivered on the date on which the 26 Parent posts such reports, or reports containing such financial statements, on the Parent's website on the internet at http://www.riteaid.com or when such reports, or reports containing such financial statements, are posted on the SEC's website at www.sec.gov. (l) Additional Information. If additional information is requested by the Obligor as to a bill or supporting claim documents, such Seller has or will promptly provide the same, and if any error has been made with respect to such information, such Seller will promptly correct the same and, if necessary, rebill such Receivable. SECTION 5.02. Grant of Security Interest. Each of the Sellers and the Purchaser intend that the transfer of each Purchased Receivable and Participation Interest hereunder from the Sellers to the Purchaser be treated as a sale of all of the applicable Seller's right, title and interest in, to and under such Purchased Receivable and Participation Interest (as the case may be) and that, immediately after giving effect to the transfer, such Seller has no further interest (legal or equitable) in any Purchased Receivable or Participation Interest. Each Seller and the Purchaser shall record each Purchase as a sale or purchase, as the case may be, on its books and records, and reflect each Purchase in its financial statements and tax returns as a sale or purchase, as the case may be. In the event that, contrary to the mutual intent of the Sellers and the Purchaser, any Purchase of Purchased Receivables and/or Participation Interests hereunder is not characterized as a sale but rather as a collateral transfer for security (or the transactions contemplated hereby are characterized as a financing transaction), such Purchase shall be deemed to be a secured financing, secured by a security interest in all of the related Seller's right, title and interest now or hereafter existing and hereafter arising in, to and under (i) all Receivables now existing and hereafter arising, (ii) all Participation Interests, (iii) all Related Security, (iv) all Collections with respect to the items in clauses (i) through (iii), and (v) all proceeds of the foregoing (collectively, the "Seller Collateral"), provided that no security interest is granted in, and the Seller Collateral shall not include any, Post-Event Receivables (as such term is defined in the Intercreditor Agreement). In furtherance of the foregoing, each Seller hereby grants, to the Purchaser a security interest in all of such Seller's right, title and interest now or hereafter existing in, to and under the Seller Collateral to secure the repayment of all amounts due and owing by such Seller to the Purchaser hereunder with accrued interest thereon, if applicable, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent (such amounts the "Secured Obligations"). ARTICLE VI ADMINISTRATION AND COLLECTION SECTION 6.01. Designation of Collection Agent. The servicing, administration and collection of the Purchased Assets shall be conducted by such Person (the "Collection Agent") so designated hereunder from time to time. Until the RFA Final Payment Date, HQ (or such other Person as may be designated from time to time under the Financing Agreement) is 27 hereby designated as, and hereby agrees to perform the duties and obligations of, the Collection Agent pursuant to the terms hereof. Thereafter, the Purchaser may designate as Collection Agent any other Person to succeed HQ or any successor Collection Agent, if such Person shall consent and agree to the terms hereof. The Collection Agent may, with the prior consent of the Purchaser, subcontract with any other Person for the servicing, administration or collection of Purchased Assets. Any such subcontract shall not affect the Collection Agent's liability for performance of its duties and obligations pursuant to the terms hereof, and any such subcontract shall terminate upon designation of a successor Collection Agent. SECTION 6.02. Duties of Collection Agent. (a) The Collection Agent shall take or cause to be taken all such actions as may be necessary or advisable to collect each Purchased Asset from time to time, all in accordance in all material respects with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. The Purchaser hereby appoints the Collection Agent, from time to time designated pursuant to Section 6.01, as agent to enforce its ownership and other rights in the Purchased Assets, the Related Security and the Collections with respect thereto. In performing its duties as Collection Agent, the Collection Agent (if other than the Purchaser) shall exercise the same care and apply the same policies as it would exercise and apply if it owned the Purchased Assets and shall act in the best interests of the Purchaser and its assignees. (b) On or before each Determination Date, the Collection Agent shall prepare and forward to the Purchaser (i) a Seller Report, relating to all then outstanding Purchased Assets, and the Related Security and Collections with respect thereto, in each case, as of the close of business of the Collection Agent on the last day of the immediately preceding Month, and (ii) if requested by the Purchaser, a listing by Obligor (other than Contract Payors) of all Purchased Assets, together with an aging report of such Purchased Assets. (c) If no Event of Termination or Incipient Event of Termination shall have occurred and be continuing, HQ, while it is the Collection Agent, may, in accordance with the Credit and Collection Policy, extend the maturity or adjust the Outstanding Balance of any Purchased Receivable or Participated Receivable as it deems appropriate to maximize Collections thereof, or otherwise amend or modify other terms of any Purchased Receivable or Participated Receivable. (d) Each Seller shall deliver to the Collection Agent, and the Collection Agent shall hold in trust for such Seller and the Purchaser in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) which evidence or relate to Purchased Assets. (e) The Collection Agent shall as soon as practicable following receipt turn over to the applicable Seller any cash collections or other cash proceeds received with respect to Receivables not constituting Purchased Receivables or Participated Receivables. 28 (f) The Collection Agent also shall perform the other obligations of the "Collection Agent" set forth in this Agreement with respect to the Purchased Assets. SECTION 6.03. Collection Agent Fee. The Purchaser shall pay to the Collection Agent, so long as it is acting as the Collection Agent hereunder, a periodic collection fee (the "Collection Agent Fee") of 1.00% per annum on the average daily aggregate Outstanding Balance of the Purchased Assets, payable in arrears on each Settlement Date or such other day during each Month as the Purchaser and the Collection Agent shall agree. SECTION 6.04. Certain Rights of the Purchaser. (a) The Purchaser may, at any time during the existence of an Event of Termination or Incipient Event of Termination, give notice of ownership and/or direct the Obligors of Purchased Assets and any Person obligated on any Related Security, or any of them, that payment of all amounts payable under any Purchased Asset shall be made directly to the Purchaser or its assignees. Each Seller hereby transfers to the Purchaser (and its assigns and designees) the exclusive ownership and control of the Lock-Boxes and Deposit Accounts maintained by such Seller for the purpose of receiving Collections (other than Collections from Governmental Entities). (b) Each Seller shall, at any time during the existence of an Event of Termination or Incipient Event of Termination upon the Purchaser's request and at such Seller's expense, give notice of the Purchaser's ownership to each Obligor of Purchased Assets and, to the extent permitted under applicable law, direct that payments of all amounts payable under the Purchased Receivables and Participated Receivables be made directly to the Purchaser or its assignees. (c) At the Purchaser's request and at the applicable Seller's expense, each Seller and the Collection Agent shall (A) assemble all of the documents, instruments and other records (including, without limitation, computer tapes and disks) that evidence or relate to the Purchased Assets, and the related Contracts and Related Security, or that are otherwise necessary or desirable to collect the Purchased Receivables and Participated Receivables, and shall make the same available to the Purchaser at a place selected by the Purchaser or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Purchased Assets in a manner acceptable to the Purchaser and, promptly upon receipt, remit all such cash, checks and instruments, duly indorsed or with duly executed instruments of transfer, to the Purchaser or its designee. The Purchaser shall also have the right to make copies of all such documents, instruments and other records at any time. (d) Each Seller authorizes the Purchaser to take any and all steps in the applicable Seller's name and on behalf of such Seller that are necessary or desirable, in the determination of the Purchaser, to collect amounts due under the Purchased Receivables and Participated Receivables, including, without limitation, endorsing such Seller's name on checks and other instruments representing Collections of Purchased Assets and enforcing the Purchased Receivables and Participated Receivables and the Related Security and related Contracts. 29 SECTION 6.05. Rights and Remedies. (a) If any Seller or the Collection Agent fails to perform any of its obligations under this Agreement, the Purchaser may (but shall not be required to) (after notice to such Seller or Collection Agent and such failure to perform, if capable of being cured, is not cured within 10 days after such notice is sent) itself perform, or cause performance of, such obligation, and, if a Seller (as Collection Agent or otherwise) fails to so perform, the costs and expenses of the Purchaser incurred in connection therewith shall be payable by such non-performing Seller as provided in Section 8.01 or Section 9.04 as applicable. (b) Each Seller shall perform all of its obligations under the Contracts related to the Purchased Receivables and Participated Receivables to the same extent as if such Seller had not sold Receivables or Participation Interests hereunder and the exercise by the Purchaser of its rights hereunder shall not relieve such Seller from such obligations or its obligations with respect to the Purchased Receivables and Participated Receivables. The Purchaser shall not have any obligation or liability with respect to any Purchased Receivables and Participated Receivables or related Contracts, nor shall the Purchaser be obligated to perform any of the obligations of the applicable Seller thereunder. (c) Each Seller shall cooperate with the Collection Agent in collecting amounts due from Obligors in respect of the Purchased Receivables and Participated Receivables. (d) Each Seller hereby grants to Collection Agent an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of such Seller all steps necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by such Seller or transmitted or received by Purchaser (whether or not from such Seller) in connection with any Purchased Asset. SECTION 6.06. Transfer of Records to Purchaser. Each Purchase of Receivables and Participation Interests hereunder shall include the transfer to the Purchaser of all of the applicable Seller's right and title to and interest in the records relating to such Receivables or Participation Interests (as the case may be) and, subject to the rights of any licensors and applicable law, shall include an irrevocable non-exclusive license to the use of the applicable Seller's computer software system to access and create such records. Such license shall be without royalty or payment of any kind, is coupled with an interest, and shall be irrevocable until all of the Purchased Assets are either collected in full or become Defaulted Receivables or Defaulted Participation Interests (as the case may be). Each Seller shall take such action requested by the Purchaser, from time to time hereafter, that may be necessary or appropriate to ensure that the Purchaser has an enforceable ownership interest in the records relating to the Purchased Assets and rights (whether by ownership, license or sublicense) to the use of such Seller's computer software system to access and create such records, subject to the rights of any licensors and applicable law. 30 In recognition of the applicable Seller's need to have access to the records transferred to the Purchaser hereunder, the Purchaser hereby grants to such Seller an irrevocable license to access such records in connection with any activity arising in the ordinary course of such Seller's business or in performance of its duties as Collection Agent, provided that (i) such Seller shall not disrupt or otherwise interfere with the Purchaser's use of and access to such records during such license period and (ii) such Seller consents to the assignment and delivery of the records (including any information contained therein relating to such Seller or its operations) to any assignees or transferees of the Purchaser provided they agree to hold such records confidential. ARTICLE VII EVENTS OF TERMINATION SECTION 7.01. Events of Termination. If any of the following events ("Events of Termination") shall occur and be continuing: (a) The Collection Agent (if other than the Purchaser) (i) shall fail to perform or observe any term, covenant or agreement under this Agreement (other than as referred to in clause (ii) or (iii) of this subsection (a)) and such failure, if capable of being cured, shall remain unremedied for ten days or (ii) shall fail to make when due any payment or deposit to be made by it under this Agreement or (iii) shall fail to deliver any Seller Report when required and such failure shall remain unremedied for one Business Day (provided that the grace period in this clause (iii) may not be utilized more than once in any Month); or (b) Any Seller shall fail to make any payment required under Section 2.04(a) or 2.04(b); or (c) Any representation or warranty (unless such representation or warranty relates solely to one or more specific Receivables incorrectly characterized as Eligible Receivables and the applicable Seller shall have made any required deemed Collection payment pursuant to Section 2.04 with respect to such Receivables) made or deemed made by any Seller (or any of its officers) under or in connection with this Agreement or any information or report delivered by any Seller pursuant to this Agreement shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; or (d) Any Seller shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for 10 days after written notice thereof shall have been given to such Seller by the Purchaser or its assignees, provided that failure to 31 perform or observe any covenant contained in Sections 5.01(b), 5.01(d), 5.01(g), and 5.01(h) shall not be entitled to the benefit of such 10-day period; or (e) Any Seller or the Collection Agent (if other than the Purchaser) shall fail to pay any principal of or premium or interest on any of its Debt which is outstanding in a principal amount of at least $25,000,000 in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to repay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) Any Purchase of Receivables or Participation Interests hereunder, the Related Security and the Collections with respect thereto shall for any reason cease to constitute valid and perfected ownership of such Receivables, Participation Interests, Related Security and Collections free and clear of any Adverse Claim; or (g) Any Seller or the Collection Agent (if other than the Purchaser) shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Seller or the Collection Agent (if other than the Purchaser) seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or any Seller shall take any corporate action to authorize any of the actions set forth above in this subsection (g); or (h) an Event of Termination shall have occurred under the Financing Agreement; or 32 (i) There shall have occurred any event which may materially adversely affect the collectibility of the Purchased Receivables or Participated Receivables or the ability of any Seller to collect Purchased Receivables or Participated Receivables or otherwise perform its respective obligations under this Agreement; then, and in any such event, the Purchaser may in its sole discretion without regard to Section 9.08, by notice to the Parent and the Sellers take either or both of the following actions: (x) declare the Facility Termination Date to have occurred (in which case the Facility Termination Date shall be deemed to have occurred), and all Purchases hereunder shall cease immediately and (y) following the RFA Final Payment Date, without limiting any right under this Agreement to replace the Collection Agent, designate another Person to succeed HQ (or any successor Collection Agent) as Collection Agent; provided, that, automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in paragraph (g) of this Section 7.01, the Facility Termination Date shall occur, HQ (if it is then serving as the Collection Agent) shall cease to be the Collection Agent, and the Purchaser (or, prior to the RFA Final Payment Date, the Person designated under the Financing Agreement) shall become the Collection Agent. Upon any such declaration or designation or upon such automatic termination, the Purchaser shall have, in addition to the rights and remedies under this Agreement, all other rights and remedies with respect to the Receivables provided after default under the UCC and under other applicable law, which rights and remedies shall be cumulative. ARTICLE VIII INDEMNIFICATION SECTION 8.01. Indemnities by the Sellers. Without limiting any other rights which the Purchaser may have hereunder or under applicable law, each Seller hereby agrees to indemnify the Purchaser and its assigns and transferees (each, an "Indemnified Party"), from and against any and all damages, claims, losses, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts"), awarded against or incurred by any Indemnified Party arising out of or as a result of this Agreement or the purchase of any Purchased Assets or in respect of any Purchased Asset, Participated Receivable or any Contract, including, without limitation, arising out of or as a result of: (i) the characterization in any Seller Report or other statement made by such Seller of any Purchased Receivable or Participated Receivable as an Eligible Receivable which is not an Eligible Receivable as of the date on which such information was certified; 33 (ii) any representation or warranty or statement made or deemed made by such Seller (or any of its officers) under or in connection with this Agreement, which shall have been incorrect in any material respect when made; (iii) the failure by such Seller to comply with any applicable law, rule or regulation with respect to any Purchased Asset, Participated Receivable or the related Contract; or the failure of any Purchased Asset, Participated Receivable or the related Contract to conform to any such applicable law, rule or regulation; (iv) the failure to vest in the Purchaser absolute ownership of the Purchased Receivables and Participation Interests that are, or that purport to be, the subject of a Purchase under this Agreement and the Related Security and Collections in respect thereof, free and clear of any Adverse Claim; (v) the failure of such Seller to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Purchased Receivables or Participation Interests that are, or that purport to be, the subject of a Purchase under this Agreement and the Related Security and Collections in respect thereof, whether at the time of any Purchase or at any subsequent time; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable that is, or that purports to be, the subject of (A) a Purchase under this Agreement, or (B) a Participation Interest Purchased under this Agreement from such Seller (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by such Seller acting as Collection Agent); (vii) any failure of such Seller to perform its duties or obligations in accordance with the provisions hereof or to perform its duties or obligations under any Contract related to a Purchased Receivable or Participated Receivable; (viii) any products liability or other claim arising out of or in connection with merchandise, insurance or services which are the subject of any Contract related to a Purchased Receivable or Participated Receivable originated by such Seller; (ix) the commingling of Collections of Purchased Assets by such Seller (or a designee of such Seller), as Collection Agent or otherwise, at any time with other funds of any Seller or an Affiliate of any Seller; 34 (x) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of Purchases by such Seller or the ownership by such Seller of Receivables, Participation Interests (and the Government Receivables with respect thereto) the Related Security, or Collections with respect thereto or in respect of any Receivable, Participation Interests (and the Government Receivables with respect thereto) Related Security or Contract; (xi) any failure of such Seller to comply with its covenants contained in this Agreement; (xii) any claim brought by any Person other than an Indemnified Party arising from any activity such Seller or any designee of such Seller in servicing, administering or collecting any Purchased Asset or Participated Receivable; (xiii) any Purchased Asset becoming (in whole or in part) a Diluted Receivable or a Diluted Participation Interest; (xiv) in the case of a Contract between a Seller and a PBM, where such PBM acts as an agent for Contract Payors rather than as a principal, the inability of the Purchaser to enforce any Receivable arising under such contract directly (by contract or by operation of law) against such Contract Payor, except to the extent such Contract Payor is a Governmental Entity and such enforcement rights are limited by the 1972 Amendments to the Social Security Act; or (xv) the inability of the Purchaser to exercise its rights under this Agreement to review any Contract which contains a confidentiality provision that purports to restrict its ability to do so, or any litigation or proceeding relating to any such confidentiality provision. It is expressly agreed and understood by the parties hereto (i) that the foregoing indemnification is not intended to, and shall not, constitute a guarantee of the collectibility or payment of the Purchased Assets and (ii) that nothing in this Section 8.01 shall require any Seller to indemnify any Person (A) for Purchased Receivables and Participation Interests which are not collected, not paid or uncollectible on account of the insolvency, bankruptcy, or financial inability to pay of the applicable Obligor, (B) for damages, losses, claims or liabilities or related costs or expenses to the extent found in a final non-appealable judgment of a court of competent jurisdiction to have resulted from such Person's gross negligence or willful misconduct, or (C) for any income taxes or franchise taxes measured by income incurred by such Person arising out of or as a result of this Agreement or in respect of any Purchased Asset, Participated Receivable or any Contract. ARTICLE IX 35 MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or consent to any departure by a Seller therefrom shall be effective unless in a writing signed by the Purchaser and, in the case of any amendment, also signed by the Sellers, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Purchaser to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. SECTION 9.02. Notices, Etc. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, to each party hereto, at its address set forth on Exhibit D hereto or at such other address as shall be designated by such party in a written notice to the other parties hereto. Notwithstanding anything herein to the contrary, delivery of a single notice to the Parent shall constitute delivery of a notice to each and every one of the Sellers. All notices and communications given to any party hereto shall be deemed to have been given on the date of receipt. SECTION 9.03. Binding Effect; Assignability. (a) This Agreement shall be binding upon and inure to the benefit of the Sellers, the Purchaser and their respective successors and assigns; provided, however, that no Seller may assign its rights or obligations hereunder or any interest herein without the prior written consent of the Purchaser. In connection with any sale or assignment by the Purchaser of all or a portion of the Purchased Assets, the buyer or assignee, as the case may be, shall, to the extent of its purchase or assignment, have all rights of the Purchaser under this Agreement (as if such buyer or assignee, as the case may be, were the Purchaser hereunder) except to the extent specifically provided in the agreement between the Purchaser and such buyer or assignee, as the case may be. (b) This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time, after the Facility Termination Date, when all of the Purchased Receivables and Participated Receivables are either collected in full or become Defaulted Receivables; provided, however, that rights and remedies with respect to any breach of any representation and warranty made by a Seller pursuant to Article IV and the provisions of Article VIII and Sections 9.04, 9.05 and 9.06 shall be continuing and shall survive any termination of this Agreement. SECTION 9.04. Costs, Expenses and Taxes. (a) In addition to the rights of indemnification granted to the Purchaser pursuant to Article VIII hereof, the Sellers agree to pay on demand, on a joint and several basis, all costs and expenses in connection with the preparation, execution and delivery of this Agreement and the other documents and agreements to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket 36 expenses of counsel for the Purchaser with respect thereto and with respect to advising the Purchaser as to its rights and remedies under this Agreement, and the Sellers agree to pay, on a joint and several basis, all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Agreement and the other documents to be delivered hereunder excluding, however, any costs of enforcement or collection of Purchased Assets which are not paid on account of the insolvency, bankruptcy or financial inability to pay of the applicable Obligor. (b) In addition, the Sellers agree to pay, on a joint and several basis, any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and the Sellers agree, on a joint and several basis, to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 9.05. [Intentionally Omitted] SECTION 9.06. Confidentiality. Unless otherwise required by applicable law, each party hereto agrees to maintain the confidentiality of this Agreement in communications with third parties and otherwise; provided that this Agreement may be disclosed to (i) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the other party hereto, and (ii) such party's legal counsel and auditors and the Purchaser's assignees, if they agree in each case to hold it confidential. SECTION 9.07. GOVERNING LAW. THIS AGREEMENT SHALL, IN ACCORDANCE WITH SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION, EXCEPT TO THE EXTENT THAT, PURSUANT TO THE UCC OF THE STATE OF NEW YORK, THE PERFECTION AND THE EFFECT OF PERFECTION OR NON- PERFECTION OF THE PURCHASER'S OWNERSHIP OF OR SECURITY INTEREST IN THE RECEIVABLES ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 9.08. Third Party Beneficiary. Each of the parties hereto hereby acknowledges that the Purchaser may assign all or any portion of its rights under this Agreement and that such assignees may (except as otherwise agreed to by such assignees) further assign their rights under this Agreement, and each of the Sellers hereby consents to any such assignments. All such assignees, including parties to the Financing Agreement in the case of assignment to such parties, shall be third party beneficiaries of, and shall be entitled to enforce the Purchaser's 37 rights and remedies under, this Agreement to the same extent as if they were parties thereto, except to the extent specifically limited under the terms of their assignment. SECTION 9.09. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. 38 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SELLERS: RITE AID CORPORATION RITE AID OF CONNECTICUT, INC. RITE AID OF DELAWARE, INC. RITE AID OF GEORGIA, INC. RITE AID OF INDIANA, INC. RITE AID OF KENTUCKY, INC. RITE AID OF MAINE, INC. RITE AID OF MARYLAND, INC. RITE AID OF MICHIGAN, INC. RITE AID OF NEW HAMPSHIRE, INC. RITE AID OF NEW JERSEY, INC. RITE AID OF NEW YORK, INC. RITE AID OF OHIO, INC. RITE AID OF PENNSYLVANIA, INC. RITE AID OF TENNESSEE, INC. RITE AID OF VERMONT, INC. RITE AID OF VIRGINIA, INC. RITE AID OF WASHINGTON, D.C., INC. RITE AID OF WEST VIRGINIA, INC. KEYSTONE CENTERS, INC. THE LANE DRUG COMPANY RITE AID DRUG PALACE, INC. THRIFTY PAYLESS, INC. HARCO, INC. PERRY DRUG STORES, INC. APEX DRUG STORES, INC. PDS-1 MICHIGAN, INC. RDS DETROIT, INC. K & B ALABAMA CORPORATION K & B LOUISIANA CORPORATION K & B MISSISSIPPI CORPORATION K & B TENNESSEE CORPORATION By: _____________________________________ Title: __________________________________ Signature Page to Originator Purchase Agreement ----------------------------------------------- PURCHASER: RITE AID HDQTRS. FUNDING, INC. By: _____________________________________ Title: __________________________________ COLLECTION AGENT: RITE AID HDQTRS. FUNDING, INC. By: _____________________________________ Title: __________________________________ Signature Page to Originator Purchase Agreement ----------------------------------------------- PARENT: RITE AID CORPORATION By: _____________________________________ Title: __________________________________ Signature Page to Originator Purchase Agreement ----------------------------------------------- SCHEDULE 1 LIST OF SELLERS Rite Aid Corporation, a Delaware corporation Rite Aid of Connecticut, Inc., a Connecticut corporation Rite Aid of Delaware, Inc., a Delaware corporation Rite Aid of Georgia, Inc., a Georgia corporation Rite Aid of Indiana, Inc., an Indiana corporation Rite Aid of Kentucky, Inc., a Kentucky corporation Rite Aid of Maine, Inc., a Maine corporation Rite Aid of Maryland, Inc., a Maryland corporation Rite Aid of Michigan, Inc., a Michigan corporation Rite Aid of New Hampshire, Inc., a New Hampshire corporation Rite Aid of New Jersey, Inc., a New Jersey corporation Rite Aid of New York, Inc., a New York corporation Rite Aid of Ohio, Inc., an Ohio corporation Rite Aid of Pennsylvania, Inc., a Pennsylvania corporation Rite Aid of Tennessee, Inc., a Tennessee corporation Rite Aid of Vermont, Inc., a Vermont corporation Rite Aid of Virginia, Inc., a Virginia corporation Rite Aid of Washington, D.C., Inc., a District of Columbia corporation Rite Aid of West Virginia, Inc., a West Virginia corporation Keystone Centers, Inc., a Pennsylvania corporation The Lane Drug Company, an Ohio corporation Rite Aid Drug Palace, Inc., a Delaware corporation Thrifty PayLess, Inc., a California corporation Harco, Inc., an Alabama corporation Perry Drug Stores, Inc., a Michigan corporation Apex Drug Stores, Inc., a Michigan corporation PDS-1 Michigan, Inc., a Michigan corporation RDS Detroit, Inc., a Michigan corporation K & B Alabama Corporation, an Alabama corporation K & B Louisiana Corporation, a Louisiana corporation K & B Mississippi Corporation, a Mississippi corporation K & B Tennessee Corporation, a Tennessee corporation Sch 1-1 SCHEDULE 2 MONTHS Fiscal Year 2004 ---------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/2/2003 3/29/2003 4 2 3/30/2003 4/26/2003 4 3 4/27/2003 5/31/2003 5 4 6/1/2003 6/28/2003 4 5 6/29/2003 7/26/2003 4 6 7/27/2003 8/30/2003 5 7 8/31/2003 9/27/2003 4 8 9/28/2003 10/25/2003 4 9 10/26/2003 11/29/2003 5 10 11/30/2003 12/27/2003 4 11 12/28/2003 1/24/2004 4 12 1/25/2004 2/28/2004 5 Sch 2-1 SCHEDULE 2 MONTHS Fiscal Year 2005 (leap year) ---------------------------- Period Start End # of Wks - ------ ----- --- -------- 1 2/29/2004 3/27/2004 4 2 3/28/2004 4/24/2004 4 3 4/25/2004 5/29/2004 5 4 5/30/2004 6/26/2004 4 5 6/27/2004 7/24/2004 4 6 7/25/2004 8/28/2004 5 7 8/29/2004 9/25/2004 4 8 9/26/2004 10/23/2004 4 9 10/24/2004 11/27/2004 5 10 11/28/2004 12/25/2004 4 11 12/26/2004 1/22/2005 4 12 1/23/2005 2/26/2005 5 Sch 2-2 SCHEDULE 2 MONTHS Fiscal Year 2006 (53 weeks) --------------------------- Period Start End # of Wks - ------ ----- --- -------- 1 2/27/2005 3/26/2005 4 2 3/27/2005 4/23/2005 4 3 4/24/2005 5/28/2005 5 4 5/29/2005 6/25/2005 4 5 6/26/2005 7/23/2005 4 6 7/24/2005 8/27/2005 5 7 8/28/2005 9/24/2005 4 8 9/25/2005 10/22/2005 4 9 10/23/2005 11/26/2005 5 10 11/27/2005 12/31/2005 5 11 1/1/2006 1/28/2006 4 12 1/29/2006 3/4/2006 5 Sch 2-3 SCHEDULE 2 MONTHS Fiscal Year 2007 ---------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/5/2006 4/1/2006 4 2 4/2/2006 4/29/2006 4 3 4/30/2006 6/3/2006 5 4 6/4/2006 7/1/2006 4 5 7/2/2006 7/29/2006 4 6 7/30/2006 9/2/2006 5 7 9/3/2006 9/30/2006 4 8 10/1/2006 10/28/2006 4 9 10/29/2006 12/2/2006 5 10 12/3/2006 12/30/2006 4 11 12/31/2006 1/27/2007 4 12 1/28/2007 3/3/2007 5 Sch 2-4 SCHEDULE 2 MONTHS Fiscal Year 2008 (leap year) ---------------------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/4/2007 3/31/2007 4 2 4/1/2007 4/28/2007 4 3 4/29/2007 6/2/2007 5 4 6/3/2007 6/30/2007 4 5 7/1/2007 7/28/2007 4 6 7/29/2007 9/1/2007 5 7 9/2/2007 9/29/2007 4 8 9/30/2007 10/27/2007 4 9 10/28/2007 12/1/2007 5 10 12/2/2007 12/29/2007 4 11 12/30/2007 1/26/2008 4 12 1/27/2008 3/1/2008 5 Sch 2-5 SCHEDULE 2 MONTHS Fiscal Year 2009 ---------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/2/2008 3/29/2008 4 2 3/30/2008 4/26/2008 4 3 4/27/2008 5/31/2008 5 4 6/1/2008 6/28/2008 4 5 6/29/2008 7/26/2008 4 6 7/27/2008 8/30/2008 5 7 8/31/2008 9/27/2008 4 8 9/28/2008 10/25/2008 4 9 10/26/2008 11/29/2008 5 10 11/30/2008 12/27/2008 4 11 12/28/2008 1/24/2009 4 12 1/25/2009 2/28/2009 5 Sch 2-6 SCHEDULE 3 MATERIAL LITIGATION I. INVESTIGATIONS AND LITIGATION MATTERS. 1. US Attorney Eastern District PA investigation regarding PBM matters. Investigation pending. 2. There are currently pending federal governmental investigations, both civil and criminal, by the United States Attorney, involving various matters related to prior management's business practices. We are cooperating fully with the United States Attorney. We have begun settlement discussions with the United States Attorney for the Middle District of Pennsylvania. The United States Attorney has proposed that the government would not institute any criminal proceeding against us if we enter into a consent judgment providing for a civil penalty payable over a period of years. The amount of the civil penalty has not been agreed to and there can be no assurance that a settlement will be reached or that the amount of such penalty will not have a material adverse effect on our financial condition and results of operations. We have recorded an accrual of $20.0 million in fiscal year 2003 in connection with the resolution for these matters; however, we may incur charges in excess of that amount and we are unable to estimate the possible range of loss. We will continue to evaluate our estimate and to the extent that additional information arises or our strategy changes, we will adjust our accrual accordingly. These investigations and settlement discussions are ongoing and we cannot predict their outcomes. If we were convicted of any crime, certain licenses and government contracts such as Medicaid plan reimbursement agreements that are material to our operations may be revoked, which would have a material adverse effect on our results of operations, financial condition or cash flows. In addition, substantial penalties, damages or other monetary remedies assessed against us, including a settlement, could also have a material adverse effect on our results of operations, financial condition or cash flows. II. OTHER LITIGATION MATTERS We, together with a significant number of major U.S. retailers, have been sued by the Lemelson Foundation in a complaint which alleges that portions of the technology included in Sch 3-1 our point-of-sale system infringe upon a patent held by the plaintiffs. The amount of damages sought is unspecified and may be material. We cannot predict the outcome of this litigation or whether it could result in a material adverse effect on our results of operations, financial conditions or cash flows (Lemelson Medical, Education & Research Foundation Limited Partnership v. Rite Aid Corporation et al.; Case CIV00-0660 PHX RCB, U.S. District Court, District of Arizona). We are subject from time to time to lawsuits arising in the ordinary course of business. In the opinion of our management, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve amounts that would not have a material adverse effect on our financial condition, results of operations or cash flows if decided adversely. Sch 3-2 SCHEDULE 4 TRADE NAMES In addition to names scheduled below, the Sellers set forth on Schedule 1 hereto use the following Trade Names: Rite Aid; Rite Aid Pharmacy; and Rite Aid Drug Stores. ALL OTHER NAMES INCLUDING TRADE NAMES, ASSUMED SELLER NAMES OR OTHER APPELLATIONS - --------------------------------------------------------------------------------------------------------------- Apex Drug Stores, Inc. Rite-Aid Discount Pharmacy (8/10/95-12/31/00) Rite-Aid Discount Pharmacy (11/02/00-12/31/05) - --------------------------------------------------------------------------------------------------------------- Harco, Inc. d/b/a Harco Drug Inc. - --------------------------------------------------------------------------------------------------------------- K & B Tennessee Corporation Rite Aid (2/09/98) - --------------------------------------------------------------------------------------------------------------- PDS-1 Michigan, Inc. Rite-Aid Discount Pharmacy (8/10/95-12/31/00) Rite-Aid Discount Pharmacy (11/02/00-12/31/05) - --------------------------------------------------------------------------------------------------------------- Perry Drug Stores, Inc. Jack's Bargain Basement (10/21/93-12/31/98) Rite-Aid Discount Pharmacy (8/10/95-12/31/00) Rite-Aid Discount Pharmacy (11/02/00-12/31/05) - --------------------------------------------------------------------------------------------------------------- RDS Detroit, Inc. Rite-Aid Discount Pharmacy (8/10/95-12/31/00) Rite-Aid Discount Pharmacy (11/02/00-12/31/05) - --------------------------------------------------------------------------------------------------------------- Rite Aid of Indiana, Inc. Rite Price (9/15/92) - --------------------------------------------------------------------------------------------------------------- Rite Aid of Maine, Inc. Clark's Pharmacy (7/18/85 - 3/26/99) Stevens Avenue Pharmacy (10/15/85) Ham's Drug Store (10/15/85) - --------------------------------------------------------------------------------------------------------------- Rite Aid of Michigan, Inc. Rite Aid Beverage Center (8/12/99-12/31/04) Rite Aid 1025 (10/27/00-12/31/05) Rite Aid 2731 (10/27/00-12/31/05) Rite-Aid Discount Pharmacy (11/02/00-12/31/05) - --------------------------------------------------------------------------------------------------------------- Sch 4-1 EXHIBIT A CREDIT AND COLLECTION POLICY RITE AID CORPORATION THIRD PARTY CREDIT AND COLLECTION POLICY September 2004 CREDIT POLICY It is our credit policy to only conduct business with Payors of acceptable credit risk. The Managed Care Department is our relationship leader with the PBMs, insurers and government agencies (collectively referred to as Payors). The activities of the Managed Care Department are many but include initially assessing the credit worthiness of the Payors and monitoring activities and developments related to the credit worthiness of the Payors. The Managed Care Department makes the final decision regarding credit worthiness of a Payor. For specific, very significant Payor opportunities, the Managed Care Department will make a recommendation to and obtain the approval of the Executive Committee regarding the credit worthiness of a Payor. The Third Party Administration and Third Party Finance departments support the efforts of the Managed Care Department and are also responsible for supporting this credit policy. The majority of our largest Payor contracts have the Payor as Obligor to us. For such entities, we initially rely on their reputation and financial condition in assessing credit worthiness. For those contracts with Payors as Agent/Administrator, the clients of the Payor are the Obligor to us. We also initially assess the reputation and financial condition of the Agent/Administrator but we rely on the Payor to assess the credit worthiness of the clients of the Payor who are the Obligor to us. For the contracts with Payors as Agent/Administrator there is a distinction between recent and certain legacy contracts. For recent contracts with a Agent/Administrator Payor, we attempt to include language to mitigate exposure to non-payment by Payor clients whereby the Payor plays an active role in minimizing the credit risk. The majority of our largest Payor contracts are with publicly traded companies, e.g., MEDCO, Caremark PCS, Express Scripts, Wellpoint, Anthem, Aetna, Cigna, Prescription Solutions, aka Pacificare. These companies have publicly available financial information which we reference in determining credit worthiness. Another large group of Payor contracts are with large insurance A-1 companies (e.g., Aetna, Cigna) and Blue Cross/ Blue Shield companies (e.g., Michigan, Alabama) who are subject to state regulatory requirements and oversight regarding their financial condition. The Blue Cross/Blue Shield Association are also subject to the capital requirements for maintenance of their BCBS licensure status. We rely on the regulatory requirements and oversight efforts as a basis for credit worthiness of the insurance companies and Blue Cross/Blue Shield companies. On an on-going basis, there are no further credit worthiness assessments unless the Payor does not comply with our collection policy or we become aware of information that raises concern about credit worthiness. COLLECTION POLICY It is our collection policy to only conduct business with Payors that meet the agreed-to payment terms. The Third Party Finance Department closely monitors payment practices. The Managed Care Department is notified by Third Party Finance of increases in Days Sales Outstanding or any aberrant payment patterns with Payors. Most Payors are on a biweekly payment cycle and timing issues are identified immediately. In addition, receivable amounts are aged from date of service and past due amounts are readily identified. The Managed Care Department takes immediate action to address issues with the Payor to understand and correct the situation and either arranges for current payment or instructs Third Party Administration to disable claims processing for the Payor. Once an account balance is deemed to be uncollectible, it is written off in accordance with our accounting policies and procedures. A-2 EXHIBIT B DEPOSIT BANKS, LOCK BOXES AND DEPOSIT ACCOUNTS - -------------------------------------------------------------------------------- DEPOSIT BANK NAME AND ADDRESS LOCK BOX (POST OFFICE DEPOSIT ACCOUNT BOX) NUMBER NUMBER - -------------------------------------------------------------------------------- Mellon Bank, Pittsburgh 360321 - - -------------------------------------------------------------------------------- Mellon Bank - 069-3636 - -------------------------------------------------------------------------------- ACCOUNT BANKS AND GOVERNMENTAL ENTITY RECEIVABLES ACCOUNTS - -------------------------------------------------------------------------------- ACCOUNT BANK NAME AND ADDRESS LOCK BOX (POST OFFICE GOVERNMENTAL BOX) NUMBER ENTITY RECEIVABLES ACCOUNT NUMBER - -------------------------------------------------------------------------------- Mellon Bank, Philadelphia 007020 - - -------------------------------------------------------------------------------- Mellon Bank, Pittsburgh 371115 - - -------------------------------------------------------------------------------- Mellon Bank - 103-7294 - -------------------------------------------------------------------------------- B-1 EXHIBIT C FORM OF DEFERRED PURCHASE PRICE NOTE New York, New York _____________, 2004 FOR VALUE RECEIVED, RITE AID HDQTRS. FUNDING, INC., a Delaware corporation (the "Purchaser"), hereby promises to pay to RITE AID OF DELAWARE, INC. ("RAD"), as agent for the Sellers (as defined below), the principal amount of this Note, determined as described below, together with interest thereon at a rate per annum equal at all times to the sum of 0.25% plus the Applicable Margin (as defined in the Financing Agreement) in effect from time to time plus the Eurodollar Rate (as defined in the Financing Agreement) for periods of one month, in each case in lawful money of the United States of America. Capitalized terms used herein but not defined herein shall have the meanings assigned to such terms in the Originator Purchase Agreement dated as of September 21, 2004 among the "Sellers" (as defined therein) parties thereto, the Purchaser, and Rite Aid Hdqtrs. Funding, Inc., as collection agent (such agreement, as it may from time to time be amended, restated or otherwise modified in accordance with its terms, the "Originator Purchase Agreement"). This Note is the note referred to in Section 2.02(d) of the Originator Purchase Agreement. The aggregate principal amount of this Note at any time shall be equal to the difference between (a) the sum of the aggregate principal amount of this Note on the date of the issuance hereof and each addition to the principal amount of this Note pursuant to the terms of Section 2.02 of the Originator Purchase Agreement minus (b) the aggregate amount of all payments made in respect of the principal amount of this Note, in each case, as recorded on the schedule annexed to and constituting a part of this Note, but failure to so record shall not affect the obligations of the Purchaser to the Sellers. The entire principal amount of this Note shall be due and payable one year and one day after the Facility Termination Date or such later date as may be agreed in writing by the Sellers and the Purchaser. The principal amount of this Note may, at the option of the Purchaser, be prepaid in whole at any time or in part from time to time, subject to the provisions of the Originator Purchase Agreement. Interest on this Note shall be paid in arrears on each Settlement Date, at maturity and thereafter on demand. All payments hereunder shall be made by wire transfer of immediately available funds to such account of RAD as RAD may designate in writing. Notwithstanding any other provisions contained in this Note, in no event shall the rate of interest payable by the Purchaser under this Note exceed the highest rate of interest permissible under applicable law. The obligations of the Purchaser under this Deferred Purchase Price Note are subordinated in right of payment, to the extent set forth in Section 2.03(c) of the Originator Purchase Agreement, to the prior payment in full of certain obligations of the Purchaser and the Borrower. Notwithstanding any provision to the contrary in this Deferred Purchase Price Note or elsewhere, other than with respect to payments specifically permitted by Section 2.03(c) of the Originator Purchase Agreement, no demand for any payment may be made hereunder, no payment shall be due with respect hereto and the Seller shall have no claim for any payment hereunder prior to the occurrence of the Facility Termination Date and the RFA Final Payment Date. In the event that, notwithstanding the foregoing provision limiting such payment, RAD or any Seller shall receive any payment or distribution on this Deferred Purchase Price Note which is not specifically permitted by Section 2.03(c) of the Originator Purchase Agreement, such payment shall be received and held in trust by RAD or such Seller for the benefit of the entities to whom the obligations are owed under the Secondary Purchase Agreement and the Financing Agreement and shall be promptly paid over to such entities. The Purchaser hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. Neither this Note, nor any right of RAD or the Sellers to receive payments hereunder, shall, without the prior written consent of the Purchaser and (so long as the Financing Agreement remains in effect or any amounts remain outstanding thereunder) the Program Agent under the Financing Agreement, be assigned, transferred, exchanged, pledged, hypothecated, participated or otherwise conveyed. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. RITE AID HDQTRS. FUNDING, INC. By: --------------------------------------- Title: C-2 SCHEDULE TO DEFERRED PURCHASE PRICE NOTE - -------------------------------------------------------------------------------------------------------------------- Addition to Principal Amount of Principal Unpaid Principal Notation Made Date Amount Paid or Prepaid Balance By - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- C-3 EXHIBIT D ADDRESSES PURCHASER: Rite Aid Hdqtrs. Funding, Inc. 30 Hunter Lane Camp Hill, PA, 17011 COLLECTION AGENT: Rite Aid Hdqtrs. Funding, Inc. 30 Hunter Lane Camp Hill, PA, 17011 PARENT: Rite Aid Corporation 30 Hunter Lane Camp Hill, PA, 17011 D-1 SELLERS: Rite Aid Corporation Rite Aid of Connecticut, Inc. Rite Aid of Delaware, Inc. Rite Aid of Georgia, Inc. Rite Aid of Indiana, Inc. Rite Aid of Kentucky, Inc. Rite Aid of Maine, Inc. Rite Aid of Maryland, Inc. Rite Aid of Michigan, Inc. Rite Aid of New Hampshire, Inc. Rite Aid of New Jersey, Inc. Rite Aid of New York, Inc. Rite Aid of Ohio, Inc. Rite Aid of Pennsylvania, Inc. Rite Aid of Tennessee, Inc. Rite Aid of Vermont, Inc. Rite Aid of Virginia, Inc. Rite Aid of Washington, D.C., Inc. Rite Aid of West Virginia, Inc. Keystone Centers, Inc. The Lane Drug Company Rite Aid Drug Palace, Inc. Thrifty PayLess, Inc. Harco, Inc. Perry Drug Stores, Inc. Apex Drug Stores, Inc. PDS-1 Michigan, Inc. RDS Detroit, Inc. K & B Alabama Corporation K & B Louisiana Corporation K & B Mississippi Corporation K & B Tennessee Corporation each at 30 Hunter Lane Camp Hill, PA, 17011 D-2

SECONDARY PURCHASE AGREEMENT Dated as of September 21, 2004 Among RITE AID HDQTRS. FUNDING, INC., as Seller and as Collection Agent, and RITE AID FUNDING I, as Purchaser TABLE OF CONTENTS Page ---- PRELIMINARY STATEMENTS.........................................................1 ARTICLE I DEFINITIONS..................................................1 SECTION 1.01. Certain Defined Terms..................................1 SECTION 1.02. Other Terms...........................................13 ARTICLE II AMOUNTS AND TERMS OF PURCHASES..............................14 SECTION 2.01. Facility..............................................14 SECTION 2.02. Making Purchases......................................14 SECTION 2.03. Collections...........................................15 SECTION 2.04. Settlement Procedures.................................15 SECTION 2.05. Payments and Computations, Etc........................16 ARTICLE III CONDITIONS OF PURCHASES.....................................17 SECTION 3.01. Conditions Precedent to Initial Purchase from the Seller.......................................17 SECTION 3.02. Conditions Precedent to All Purchases.................18 ARTICLE IV REPRESENTATIONS AND WARRANTIES..............................19 SECTION 4.01. Representations and Warranties of the Seller..........19 ARTICLE V COVENANTS ..................................................22 SECTION 5.01. Covenants of the Seller...............................22 SECTION 5.02. Grant of Security Interest............................26 SECTION 5.03. Covenant of the Seller and the Purchaser..............26 ARTICLE VI ADMINISTRATION AND COLLECTION...............................26 SECTION 6.01. Designation of Collection Agent.......................26 SECTION 6.02. Duties of Collection Agent............................27 SECTION 6.03. Collection Agent Fee..................................28 SECTION 6.04. Certain Rights of the Purchaser.......................28 SECTION 6.05. Rights and Remedies. .................................29 SECTION 6.06. Transfer of Records to Purchaser......................29 ARTICLE VII EVENTS OF TERMINATION............................................30 SECTION 7.01. Events of Termination.................................30 ARTICLE VIII INDEMNIFICATION.................................................32 SECTION 8.01. Indemnities by the Seller.............................32 i Page ---- ARTICLE IX MISCELLANEOUS...............................................34 SECTION 9.01. Amendments, Etc.......................................34 SECTION 9.02. Notices, Etc..........................................34 SECTION 9.03. Binding Effect; Assignability.........................35 SECTION 9.04. Costs, Expenses and Taxes.............................35 SECTION 9.05. No Proceedings........................................35 SECTION 9.06. Confidentiality.......................................36 SECTION 9.07. GOVERNING LAW.........................................36 SECTION 9.08. Third Party Beneficiary...............................36 SECTION 9.09. Execution in Counterparts.............................36 SECTION 9.10. Consent to Jurisdiction...............................36 SECTION 9.11. WAIVER OF JURY TRIAL..................................37 SECTION 9.12. Judgment..............................................37 SCHEDULE 1 Intentionally Omitted. SCHEDULE 2 MONTHS SCHEDULE 3 MATERIAL LITIGATION EXHIBIT A CREDIT AND COLLECTION POLICY EXHIBIT B DEPOSIT BANKS, LOCK BOXES AND DEPOSIT ACCOUNTS EXHIBIT C Intentionally Omitted EXHIBIT D ADDRESSES ii SECONDARY PURCHASE AGREEMENT Dated as of September 21, 2004 Rite Aid Hdqtrs. Funding, Inc., a Delaware corporation, as the seller (the "Seller") and as collection agent (the "Collection Agent") and Rite Aid Funding I, a Cayman Islands exempted company incorporated with limited liability on August 11, 2004 under the name Cayman Resources (21) Ltd. (registration number 138720) (the "Purchaser"), agree as follows: PRELIMINARY STATEMENTS. (1) Certain terms which are capitalized and used throughout this Agreement (in addition to those defined above) are defined in Article I of this Agreement. (2) The Seller has Receivables (or interests therein) that it wishes to sell to the Purchaser, and the Purchaser is prepared to purchase such Receivables on the terms set forth in this Secondary Purchase Agreement (this "Agreement"). NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Account Bank" has the meaning given to such term in the definition of Governmental Entity Receivables Agreement. "Adverse Claim" means a lien, security interest, or other charge or encumbrance, or any other type of preferential arrangement. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person. "Alternate Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to the highest of: (a) the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time as Citibank, N.A.'s base rate; and (b) 1/2 of one percent above the Federal Funds Rate. "Borrower" means Rite Aid Funding II, a Cayman Islands exempted company incorporated with limited liability on August 11, 2004 under the name Cayman Resources (22) Ltd. (registration number 138722). "Business Day" means any day on which banks are not authorized or required to close in New York City. "Capital Lease" means any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which, in accordance with GAAP, should be capitalized on the lessee's balance sheet. "Capital Lease Obligation" of any Person means the obligations of such Person to pay rent or other amounts under any Capital Lease, which obligations should be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "CHAMPUS" means the Civilian Health and Medical Program of the Uniformed Service, a program of medical benefits covering former and active members of the uniformed services and certain of their dependents, financed and administered by the United States Departments of Defense, Health and Human Services and Transportation and established pursuant to 10 U.S.C. ss.ss. 1071-1106, and all regulations promulgated thereunder including without limitation (a) all federal statutes (whether set forth in 10 U.S.C. ss.ss. 1071-1106 or elsewhere) affecting CHAMPUS and (b) all rules, regulations (including 32 CFR 199), manuals, orders and administrative, reimbursement and other guidelines of all Governmental Entities (including, without limitation, the Department of Health and Human Services, the Department of Defense, the Department of Transportation, the Assistant Secretary of Defense (Health Affairs) and the Office of CHAMPUS, or any Person or entity succeeding to the functions of any of the foregoing) promulgated pursuant to or in connection with any of the foregoing (whether or not having the force of law) in each case, as amended, supplemented or otherwise modified from time to time. "CMS" means Centers for Medicare & Medicaid Services of the Department of Health and Human Services, and any successor agency. "Collection Agent" means at any time the Person then authorized pursuant to Section 6.01 to service, administer and collect Purchased Assets. 2 "Collection Agent Fee" has the meaning specified in Section 6.03. "Collections" means, (a) with respect to any Receivable, all cash collections and other cash proceeds of such Receivable, including, without limitation, all cash proceeds of Related Security with respect to such Receivable, and all funds deemed to have been received by the applicable Originator, the Seller or any other Person as a Collection pursuant to Section 2.04, and (b) with respect to any Participation Interest, all cash collections and other cash proceeds of the Government Receivable underlying such Participation Interest, including, without limitation, all cash proceeds of Related Security with respect to such Participation Interest, and all funds deemed to have been received by the applicable Originator, the Seller or any other Person as a Collection pursuant to Section 2.04. "Contract" means an agreement between an Originator and a Person, or between a PBM and a Contract Payor, pursuant to or under which such Person or Contract Payor shall be obligated to pay for pharmaceutical merchandise sold by such Originator or its Affiliates from time to time. "Contract Payor" means a Person who is required under its agreement with a PBM to make payments to such PBM who, in turn, pays such amounts to an Originator on such Person's behalf. "Credit and Collection Policy" means those receivables credit and collection policies and practices of the Seller and the Originators in effect on the date of this Agreement applicable to the Receivables and described in Exhibit A hereto, as modified in compliance with this Agreement. "Debt" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (e) all Debt of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Adverse Claim on property owned or acquired by such Person, whether or not the Debt secured thereby has been assumed, (f) all Guarantees by such Person of Debt of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Debt of any Person shall include the Debt of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership 3 interest in or other relationship with such entity, except to the extent of the terms of such Debt provide that such Person is not liable therefor. "Defaulted Participation Interest" means a Participation Interest in a Government Receivable which is a Defaulted Receivable. "Defaulted Receivable" means a Receivable: (i) as to which any payment, or part thereof, remains unpaid for 120 or more days from the original date of service relating to such Receivable; (ii) as to which the Obligor thereof or any other Person obligated thereon or owning any Related Security in respect thereof has taken any action, or suffered any event to occur, of the type described in Section 7.01(g); (iii) which, consistent with the Credit and Collection Policy, would be written off as uncollectible; or (iv) as to which the applicable Originator or the Seller has (or consistent with the Credit and Collection Policy should have) established a specific reserve for non-payment. "Deposit Account" means an account maintained at a Deposit Bank into which (i) Collections in the form of checks and other items are deposited that have been sent to one or more related Lock Boxes by Obligors (other than the Contract Payors paying a PBM) and/or (ii) Collections in the form of electronic funds transfers and other items are paid directly by Obligors (other than the Contract Payors paying a PBM) and (iii) which is subject to a Deposit Account Agreement. "Deposit Account Agreement" means an agreement among a Seller, the Purchaser (or its assignees or designees) and any Deposit Bank in form and substance satisfactory to the Purchaser (or its assignees or designees). "Deposit Bank" means any of the banks holding one or more Deposit Accounts. "Designated Obligor" means, at any time, each Obligor; provided, however, that any Obligor shall cease to be a Designated Obligor upon three Business Days' notice by the Purchaser (or its assignees or designees) to the applicable Seller. "Determination Date" means the seventh Business Day after the end of each Month, provided that if an Event of Termination has occurred and is continuing, the Seller or the Purchaser may designate more frequent Determination Dates. 4 "Diluted Participation Interest" means a Participation Interest in a Government Receivable which is a Diluted Receivable. "Diluted Receivable" means that portion (and only that portion) of any Receivable which is either (a) reduced or canceled as a result of (i) any defective, rejected or returned merchandise or services or any failure by an Originator to deliver any merchandise or provide any services or otherwise to perform under the underlying Contract, (ii) any change in the terms of or cancellation of, a Contract or any cash discount, discount for quick payment or other adjustment by an Originator which reduces the amount payable by the Obligor on the related Receivable (except any such change or cancellation resulting from or relating to the financial inability to pay or insolvency of the Obligor of such Receivable) or (iii) any set-off by an Obligor in respect of any claim by such Obligor as to amounts owed by it on the related Receivable (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (b) subject to any specific dispute, offset, counterclaim or defense whatsoever (except the discharge in bankruptcy of the Obligor thereof); provided that Diluted Receivables are calculated assuming that all chargebacks are resolved in the Obligor's favor. "Discount" means, in respect of each Purchase, 2.00% of the Outstanding Balance of the Receivables that are the subject of such Purchase; provided, however, the foregoing Discount may be revised prospectively by request of the Seller or the Purchaser to reflect changes in recent experience with respect to write-offs, timing and cost of Collections and cost of funds, provided that such revision is consented to by the Seller and the Purchaser (it being understood that each party agrees to duly consider such request but shall have no obligation to give such consent). "Eligible Receivable" means a Receivable: (i) the Obligor of which is a United States resident, is not an Affiliate of the Parent, and is not a Governmental Entity, except to the extent payment of such Receivable is governed under the Social Security Act (42 U.S.C. ss. 1395, et seq.), including payments under Medicaid and CHAMPUS or regulated by CMS; (ii) the Obligor of which, at the time of the transfer of such Receivable under this Agreement, is a Designated Obligor; (iii) which, at the time of the transfer thereof to the Purchaser under this Agreement, is not a Defaulted Receivable; (iv) the Obligor of which, at the time of the transfer of such Receivable under this Agreement, is not the Obligor of any Defaulted Receivables which in 5 the aggregate constitute 50% or more of the aggregate Outstanding Balance of all Receivables of such Obligor; (v) which has been billed and, according to the Contract related thereto, is required to be paid in full within 60 days of the original billing date therefor; (vi) which is an obligation representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended, and the nature of which is such that its purchase with the proceeds of notes would constitute a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended; (vii) which is an "account" or a "payment intangible" within the meaning of Article 9 of the UCC of the applicable jurisdictions; (viii) which is denominated and payable only in United States dollars in the United States; (ix) which arises under a Contract which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable and is not subject to any Adverse Claim or any dispute, offset, counterclaim or defense whatsoever (except the potential discharge in bankruptcy of such Obligor and except with respect to adjudication fees charged by any relevant PBM) and is not settled on a net basis; (x) which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Contract related thereto is in violation of any such law, rule or regulation in any material respect; (xi) which arises under a Contract (other than a Contract with respect to which the related Obligor is a Governmental Entity) which (A) does not contain an enforceable provision requiring the Obligor under such Contract to consent to the transfer, sale or assignment of the Obligor's payment obligation by the applicable Originator, and (B) if such Contract is between a PBM and a Contract Payor, does not contain any enforceable provision prohibiting the transfer, sale or assignment of such Contract Payor's payment obligation to the applicable Originator; 6 (xii) which was generated in the ordinary course of the applicable Originator's business; (xiii) which, at the time of the transfer of such Receivable under this Agreement, has not been extended, rewritten or otherwise modified from the original terms thereof; (xiv) the transfer, sale or assignment of which in accordance with the Transaction Documents does not contravene any applicable law, rule or regulation; (xv) which (A) satisfies all applicable requirements of the Credit and Collection Policy and (B) complies with such other criteria and requirements (other than those relating to the collectibility of such Receivable) as the Purchaser or its assignees may from time to time reasonably specify to the Seller upon 30 days' notice; (xvi) as to which, at or prior to the later of the date of this Agreement and the date such Receivable is created, the Purchaser or its assignees has not notified the Seller that such Receivable (or class of Receivables) is no longer reasonably acceptable for purchase hereunder; (xvii) as to which the applicable Originator has satisfied and fully performed all obligations required to be fulfilled by it; (xviii) as to which the applicable Originator has, or has the right to use, valid provider identification numbers and licenses to generate valid Receivables and all information set forth in the bill and supporting claim documents with respect to such Receivable is true, complete and correct; (xix) as to which the applicable Originator has, or has the right to use, valid provider identification numbers and licenses to generate valid reports with respect to such Receivable, and all cost reports required by the applicable state agency or other CMS-designated agents or agents of such state agency; (xx) which does not arise from a sale by the applicable Originator from a store located in Hawaii, Illinois, Minnesota, Montana or New Mexico, unless the applicable Originator shall have furnished the Seller and its assignees with an opinion of local counsel, or other evidence satisfactory to the Seller and its assignees, to the effect that the transfer, sale and assignment of Receivables and Participation Interests in accordance with this Agreement from a store located in such state does not violate any provision of the law of such state; and 7 (xxi) which is not a Medicare Receivable. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Event of Termination" has the meaning specified in Section 7.01. "Facility Termination Date" means the earliest of (i) the "Facility Termination Date" (as such term is defined in the Financing Agreement), (ii) the date determined pursuant to Section 7.01 and (iii) the date which the Seller designates by at least two Business Days prior notice to the Purchaser and its assignees (including the Program Agent under the Financing Agreement). "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day on such transactions received by Citibank, N.A. from three Federal funds brokers of recognized standing selected by it. "Financial Officer" means the chief financial officer, principal accounting officer, treasurer, vice president of financial accounting or controller of the relevant Person. "Financing Agreement" means that certain Receivables Financing Agreement, dated as of the date hereof, among the Borrower, CAFCO, LLC, Jupiter Securitization Corporation and Blue Ridge Asset Funding Corporation, each as an investor, Citibank, N.A., Bank One, NA and Wachovia Bank, National Association, each as a bank, Citicorp North America, Inc., as program agent, Citicorp North America, Inc., Bank One, NA and Wachovia Bank, National Association, each as an investor agent, the other investors, banks and investor agents party thereto from time to time, Rite Aid Hdqtrs. Funding, Inc., as the collection agent, the parties thereto named as Originators, and JPMorgan Chase Bank, as trustee, as amended or restated from time to time. "GAAP" means generally accepted accounting principles in the United States. "General Trial Balance" for the Seller on any date means the Seller's (or the Collection Agent's) accounts receivable trial balance (whether in the form of a computer printout, magnetic tape or diskette) on such date, listing Obligors (other than Contract 8 Payors) and the Receivables respectively owed by such Obligors on such date together with the aged Outstanding Balances of such Receivables, in form and substance satisfactory to the Purchaser. "Government Receivable" means any Receivable with respect to which the Obligor is a Governmental Entity. "Governmental Entity" means the United States of America, any state, any political subdivision of a state and any agency or instrumentality of the United States of America or any state or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. Payments from Governmental Entities shall be deemed to include payments governed under the Social Security Act (42 U.S.C. ss. 1395, et seq.), including payments under Medicare, Medicaid and CHAMPUS, and payments administered or regulated by CMS. "Governmental Entity Receivables Account Notice" means a notice contained in a Governmental Entity Receivables Agreement pursuant to which an Affiliate of the Parent gives revocable standing instructions to the Account Bank to sweep funds on a daily basis from the Governmental Entity Receivables Account to another designated account approved by the Purchaser and its assigns. "Governmental Entity Receivables Account" has the meaning given to such term in the definition of Governmental Entity Receivables Agreement. "Governmental Entity Receivables Agreement" means an agreement between a bank (an "Account Bank") and one or more Originators or Affiliates of the Parent with respect to one or more accounts (each, a "Governmental Entity Receivables Account") or associated Lock-Boxes into which Collections on account of Receivables of Governmental Entities are deposited or remitted and which is subject to a Governmental Entity Receivables Account Notice. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Debt or other obligation of any Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Debt or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Debt or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Debt or 9 obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Incipient Event of Termination" means an event that but for notice or lapse of time or both would constitute an Event of Termination. "Indemnified Amounts" has the meaning specified in Section 8.01. "Intercreditor Agreement" means that certain Intercreditor Agreement dated as of September 22, 2004 among Citicorp North America, Inc. (as program agent under the Financing Agreement), the Borrower, the Originators, the Seller, and Citicorp North America, Inc. and JPMorgan Chase Bank, as collateral agents, as the same may be amended, modified or restated from time to time. "Lock-Box" means a post office box either (a) administered by a Deposit Bank for the purpose of receiving Collections, which is the subject of a Deposit Account Agreement, or (b) which receives Collections of Government Receivables and is associated with a Government Entity Receivables Account that is subject to a Governmental Entity Receivables Agreement. "Material Adverse Effect" means a material adverse effect on (i) the collectibility of the Receivables, (ii) the ability of the Purchaser, the Seller or any Originator to perform any of its respective material obligations under the Transaction Documents to which it is a party, (iii) the legality, validity or enforceability of the Transaction Documents (including, without limitation, the validity, enforceability or priority of the ownership interests and security interests granted hereunder) or the rights of or benefits available to the Purchaser under the Transaction Documents, or (iv) the business, assets, operations, condition (financial or otherwise), or prospects of the Parent and its subsidiaries, taken as a whole. "Medicaid" means the medical assistance program established by Title XIX of the Social Security Act (42 U.S.C. Secs. 1396 et seq.) and any statutes succeeding thereto. "Medicare" means the health insurance program for the aged and disabled established by Title XVIII of the Social Security Act (42 U.S.C. Secs. 1395 et seq.) and any statutes succeeding thereto. "Month" means a fiscal month of the Parent as set forth on Schedule 2 hereto, as such schedule shall be updated from time to time in accordance with the terms hereof. "Obligor" means a Person obligated to make payments to an Originator pursuant to a Contract; provided, however, if a PBM acts as agent for Contract Payors and is obligated, pursuant to a Contract, to turn over to an Originator payments made to it by 10 such Contract Payors, then the term "Obligor" shall include both such PBM and such Contract Payors. "Originator" means each of the Persons designated as such on Schedule I to the Originator Purchase Agreement. "Originator Purchase Agreement" means the Purchase Agreement dated as of the date of this Agreement among the Originators, as sellers and the Seller, as purchaser and collection agent, as amended or restated from time to time. "Outstanding Balance" means at any time (i) with respect to any Receivable, the then outstanding principal balance thereof and (ii) with respect to any Participation Interest, the then outstanding principal balance of the underlying Government Receivable. Any sales or use tax billed in connection with a Receivable is not included in the Outstanding Balance. "Parent" means Rite Aid Corporation, a Delaware corporation. "Parent Undertaking (Originators)" means the Undertaking Agreement dated as of September 21, 2004 made by the Parent in favor of the Seller relating to obligations of the Originators, as amended, modified or restated from time to time. "Participated Receivable" means any Receivable which is the subject of a Purchased Participation Interest. "Participation Interest" means, with respect to any Originator, a 100% undivided beneficial interest in such Originator's right, title and interest, whether now owned or hereafter arising and wherever located, in, to and under (i) each Government Receivable owned by such Originator, (ii) all Related Security and Collections with respect to such Government Receivable and (iii) all proceeds of such Government Receivable, Related Security, and Collections. "PBM" means a pharmaceutical benefits manager which has entered into an agreement with an Originator to make payments as agent for various insurers and other Persons, on account of pharmaceutical goods sold by such Originator. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a Governmental Entity. "Purchase" means a purchase by the Purchaser of Receivables and/or Participation Interests from the Seller pursuant to Article II (including a purchase paid for in whole or in part by a capital contribution). 11 "Purchase Date" means each day on which a Purchase is made pursuant to Article II. "Purchase Price" for any Purchase means an amount equal to the Outstanding Balance of the Receivables that are the subject of such Purchase as set forth in the Seller's General Trial Balance, minus the Discount for such Purchase. "Purchased Asset" means any Purchased Receivable or Purchased Participation Interest. "Purchased Participation Interest" means any Participation Interest which is purchased or purported to be purchased by the Purchaser pursuant to Article II (including a Participation Interest which is contributed by the Seller to the Purchaser). "Purchased Receivable" means any Receivable (other than a Government Receivable) which is purchased or purported to be purchased by the Purchaser pursuant to Article II (including a Receivable (other than a Government Receivable) which is contributed by the Seller to the Purchaser). "Receivable" means the indebtedness or obligation of any Obligor resulting from the provision or sale of pharmaceutical merchandise by an Originator (or an Affiliate on behalf of such Originator) under a Contract (whether constituting an account, instrument, chattel paper, payment intangible or general intangible), and includes the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto. "Related Security" means (a) with respect to any Receivable: (i) all of the applicable Originator's interest in merchandise, if any, (including returned merchandise) relating to any sale giving rise to such Receivable; (ii) all security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements filed against an Obligor describing any collateral securing such Receivable; (iii) all guaranties, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise; 12 (iv) the Contract and all other books, records and other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights, subject to the rights of any licensors and to applicable law) relating to such Receivable and the related Obligor; and (v) the Originator Purchase Agreement and the Parent Undertaking (Originators) and all rights of the Seller to receive monies due or to become due thereunder, and (b) with respect to any Participation Interest, the Related Security with respect to the Government Receivable that is the subject of such Participation Interest. "RFA Final Payment Date" means the later of the "Facility Termination Date" (as such term is defined in the Financing Agreement) and the date on which all Principal, Yield, fees and other obligations under the Financing Agreement are paid in full. "Secured Obligations" has the meaning given to such term in Section 5.02 hereof. "Seller Collateral" has the meaning given to such term in Section 5.02 hereof. "Seller Report" means a report, in form and substance satisfactory to the Purchaser, furnished by the Collection Agent to the Purchaser pursuant to Section 6.02(b). "Settlement Date" means a Distribution Date (as such term is defined in the Financing Agreement); provided, however, that following the occurrence of an Event of Termination, Settlement Dates shall occur on such days as are selected from time to time by the Purchaser or its assignees in a written notice to the Collection Agent. "Transaction Document" means any of this Agreement, the Originator Purchase Agreement, the Deposit Account Agreements, the Governmental Entity Receivables Agreements, all amendments to any of the foregoing and all other agreements and documents delivered and/or related hereto or thereto. "UCC" means the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction. SECTION 1.02. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. 13 ARTICLE II AMOUNTS AND TERMS OF PURCHASES SECTION 2.01. Facility. On the terms and conditions hereinafter set forth and without recourse to the Seller (except to the extent specifically provided herein), the Seller shall sell and/or contribute to the capital of the Purchaser all of its right, title and interest in, to and under (i) all Receivables (other than Government Receivables) acquired by it from time to time, and (ii) all Participation Interests in all Government Receivables acquired by it from time to time, and the Purchaser shall purchase and/or accept as a contribution from the Seller all such Receivables (other than Government Receivables) and all Participation Interests in Government Receivables of the Seller from time to time, in each case during the period from the date hereof to the Facility Termination Date. SECTION 2.02. Making Purchases. (a) Initial Purchase. The Seller shall give the Purchaser at least one Business Day's notice of its request for the initial Purchase, which request shall specify the date of such Purchase (which shall be a Business Day) and the proposed Purchase Price for such Purchase. The Purchaser shall promptly notify the Seller whether it has determined to make such Purchase. On the date of such Purchase, the Seller shall sell or contribute to the capital of Purchaser (i) all Receivables (other than Government Receivables) acquired by the Seller pursuant to the Originator Purchase Agreement and (ii) all Participation Interests acquired by the Seller pursuant to the Originator Purchase Agreement, and the Purchaser shall, upon satisfaction of the applicable conditions set forth in Article III, pay the Purchase Price for such Purchase in the manner provided in Section 2.02(d). Effective upon such payment, the Seller hereby sells, conveys, transfers and assigns to the Purchaser (i) all Receivables (other than Government Receivables) acquired by it and in existence on the date of the initial Purchase and (ii) all Participation Interests in all Government Receivables acquired by it and in existence on the date of the initial Purchase. (b) Subsequent Purchases. On each Business Day following the initial Purchase, unless either party shall notify the other party to the contrary, the Seller shall sell to the Purchaser and the Purchaser shall purchase from such Seller, upon satisfaction of the applicable conditions set forth in Article III, (i) all Receivables (other than Government Receivables) acquired by the Seller and (ii) all Participation Interests in all Government Receivables acquired by the Seller, in each case which have not previously been sold and/or contributed to the Purchaser. The Purchaser shall pay the Purchase Price for such Purchase in the manner provided in Section 2.02(d). Effective on each Purchase Date, the Seller hereby sells, conveys, transfers and assigns to the Purchaser (i) all Receivables (other than Government Receivables) acquired by it and not previously sold, conveyed, transferred or assigned to the Purchaser and (ii) all Participation Interests in all Government Receivables acquired by it and not previously sold, conveyed, transferred or assigned to the Purchaser. 14 (c) Special Provisions Relating to Sales of Participation Interests. Pursuant to the Originator Purchase Agreement, each Originator has agreed, following each sale of a Participation Interest in a Government Receivable, to hold such Government Receivable and any Related Security, Collections and proceeds with respect thereto for the benefit of the Seller and its assigns; provided that such Originator shall take no action in contravention of any law, rule or regulation applicable to such Government Receivable. It is understood and agreed that sales of Participation Interests in Government Receivables shall not include any right to collect the proceeds of any Government Receivable directly from the applicable Governmental Entity, except insofar as a court of competent jurisdiction shall order such Governmental Entity to make such payments directly to the Purchaser or its assigns. (d) Payment of Purchase Price. The Purchase Price for the initial Purchase shall be paid on the Purchase Date therefor and the Purchase Price for each subsequent Purchase shall be paid on the next Settlement Date (without giving effect to the proviso in the definition thereof) after the Purchase Date therefor, in each case, by means of any one or a combination of the following: (i) a deposit in same day funds to the Seller's account designated by the Seller, and/or (ii) a contribution to the capital of the Purchaser. To the extent that on any date set for the payment of Purchase Price, the Purchaser does not have sufficient funds to pay the entire Purchase Price in cash, the amount in excess of the cash portion of the Purchase Price paid by the Purchaser shall constitute a contribution to the capital of the Purchaser by the Seller, and the parties hereto will make the appropriate accounting entries in their books and records to reflect such allocation of the Purchase Price as between cash payment and capital contribution. It is agreed by the parties hereto that the portion of the Purchase Price for the initial Purchase allocated to a capital contribution is $394,971,504.26. (e) Ownership of Receivables, Participation Interests and Related Security. On each Purchase Date, after giving effect to the Purchase on such date, the Purchaser shall own (i) all Receivables (other than Government Receivables) acquired by the Seller as of such date (including Receivables which have been previously sold and/or contributed to the Purchaser hereunder), and (ii) all Participation Interests in all Government Receivables acquired by the Seller as of such date (including Participation Interests in Government Receivables which have been previously sold and/or contributed to the Purchaser hereunder). The Purchase of any Receivable or Participation Interest shall include all Related Security with respect to such Receivable or Participation Interest. SECTION 2.03. Collections. (a) Unless otherwise agreed, the Collection Agent shall, on each Settlement Date, deposit into an account of the Purchaser or the Purchaser's assignee all Collections of Purchased Assets then held by the Collection Agent. (b) In the event that the Seller believes that Collections which are not Collections of Purchased Assets have been deposited into an account of the Purchaser or the Purchaser's assignee, the Seller shall notify the Collection Agent who shall so advise the Purchaser and, on the Business Day following such identification, the Purchaser shall remit, or 15 shall cause to be remitted, all Collections so deposited which are identified, to the Purchaser's satisfaction, to be Collections of Receivables which are not either Purchased Receivables or Participated Receivables to the Seller. SECTION 2.04. Settlement Procedures. (a) If on any day any Purchased Asset becomes (in whole or in part) a Diluted Receivable or a Diluted Participation Interest (as the case may be), the Seller shall be deemed to have received on such day a Collection of such Purchased Asset in the amount of such Diluted Receivable or Diluted Participation Interest (as the case may be). If the Seller is not the Collection Agent, the Seller shall pay to the Collection Agent on or prior to the next Settlement Date all amounts deemed to have been received pursuant to this subsection. (b) Upon discovery by the Seller or the Purchaser of a breach of any of the representations and warranties made by the Seller in Section 4.01(j) with respect to any Purchased Asset, such party shall give prompt written notice thereof to the Purchaser, the Collection Agent, and the Seller, as soon as practicable and in any event within three Business Days following such discovery. The Seller shall, upon not less than two Business Days' notice from the Purchaser or its assignee or designee, repurchase such Purchased Asset on the next succeeding Settlement Date for a repurchase price equal to the Outstanding Balance of such Purchased Asset. Each repurchase of a Purchased Asset shall include the Related Security with respect to such Purchased Asset. The proceeds of any such repurchase shall be deemed to be a Collection in respect of such Purchased Asset. If the Seller is not the Collection Agent, the Seller shall pay to the Collection Agent on or prior to the next Settlement Date the repurchase price required to be paid pursuant to this subsection. (c) Except as stated in subsection (a) or (b) of this Section 2.04 or as otherwise required by law or the underlying Contract, all Collections from an Obligor of any Purchased Receivable or Participated Receivable shall be applied to the Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates its payment for application to specific Receivables. SECTION 2.05. Payments and Computations, Etc. (a) All amounts to be paid or deposited by the Seller or the Collection Agent hereunder shall be paid or deposited no later than 12:00 noon (New York City time) on the day when due in same day funds to an account or accounts designated by the Purchaser from time to time, which accounts, during the existence of the Financing Agreement, shall be those set forth in the Financing Agreement. (b) The Seller shall, to the extent permitted by law, pay to the Purchaser interest on any amount not paid or deposited by the Seller (whether as Collection Agent or otherwise) when due hereunder at an interest rate per annum equal to 2% per annum above the Alternate Base Rate, payable on demand. 16 (c) All computations of interest and all computations of fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. ARTICLE III CONDITIONS OF PURCHASES SECTION 3.01. Conditions Precedent to Initial Purchase from the Seller. The initial Purchase of Receivables and/or Participation Interests from the Seller hereunder is subject to the conditions precedent that the Purchaser shall have received on or before the date of such Purchase the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Purchaser: (a) Certified copies of the resolutions of the Board of Directors of the Seller approving this Agreement and certified copies of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement. (b) A certificate of the Secretary or Assistant Secretary of the Seller certifying the names and true signatures of the officers of such Seller authorized to sign this Agreement and the other documents to be delivered by it hereunder. (c) Copies of proper financing statements, duly filed on or before the date of the initial Purchase, naming the Seller as the seller/debtor and the Purchaser as the purchaser/secured party, or other similar instruments or documents, as the Purchaser may deem necessary or desirable under the UCC of all appropriate jurisdictions or other applicable law to perfect the Purchaser's ownership of and security interest in the Purchased Assets and Related Security and Collections with respect thereto. (d) Copies of proper financing statements, if any, necessary to release all security interests and other rights of any Person in the Purchased Assets, Contracts or Related Security previously granted by the Seller, except those security interests subject to the Intercreditor Agreement. (e) Completed requests for information, dated on or before the date of such initial Purchase, listing all effective financing statements filed in the jurisdictions referred to in subsection (c) above that name the Seller as debtor, together with copies of such other financing statements (none of which shall cover any Purchased Assets, Contracts or 17 Related Security except those evidencing security interests subject to the Intercreditor Agreement). (f) A favorable opinion of (i) Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Seller, in form and substance satisfactory to the Purchaser, (ii) Chapman & Cutler relating to various states' local perfection issues and (iii) Parent's general counsel, in each case, as to such matters as the Purchaser may reasonably request, and (g) Executed copies of (i) Deposit Account Agreements with each Deposit Bank and (ii) Governmental Entity Receivables Agreements with each Account Bank. SECTION 3.02. Conditions Precedent to All Purchases. Each Purchase (including the initial Purchase) hereunder shall be subject to the further conditions precedent that: (a) with respect to any such Purchase, on or prior to the date of such Purchase, the Seller shall have delivered to the Purchaser, if requested by the Purchaser, (i) the Seller's General Trial Balance (which if in magnetic tape or diskette format shall be compatible with the Purchaser's computer equipment) as of a date not more than 31 days prior to the date of such Purchase, and (ii) such additional information concerning the Receivables and Participation Interests to be purchased as may reasonably be requested by the Purchaser; (b) with respect to any such Purchase, on or prior to the date of such Purchase, the Collection Agent shall have delivered to the Purchaser, in form and substance satisfactory to the Purchaser, a completed Seller Report for the most recently ended reporting period for which information is required pursuant to Section 6.02(b) and containing such additional information as may reasonably be requested by the Purchaser; (c) the Seller shall have marked its master data processing records and, at the request of the Purchaser, each Contract giving rise to Purchased Assets and all other relevant records evidencing the Receivables and Participation Interests which are the subject of such Purchase with a legend, acceptable to the Purchaser, stating that such Receivables and Participation Interests, together with the Related Security and Collections with respect thereto, have been sold in accordance with this Agreement; and (d) on the date of such Purchase the following statements shall be true (and the Seller, by accepting the Purchase Price for such Purchase, shall be deemed to have certified that): (i) The representations and warranties made by the Seller in Section 4.01 are correct on and as of the date of such Purchase as though made on and as of such date, 18 (ii) No event has occurred and is continuing, or would result from such Purchase, that constitutes an Event of Termination or an Incipient Event of Termination and (iii) The Purchaser shall not have delivered to the Seller a notice that the Purchaser shall not make any further Purchases hereunder; and (e) the Purchaser shall have received such other approvals, opinions or documents as the Purchaser may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Seller. The Seller represents and warrants as follows: (a) The Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the state of Delaware and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified, except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect. (b) The execution, delivery and performance by the Seller of this Agreement and the other documents to be delivered by it hereunder, including the Seller's sale of Receivables and Participation Interests hereunder and the Seller's use of the proceeds of Purchases, (i) are within the Seller's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene (1) the Seller's charter or by-laws, (2) any law, rule or regulation applicable to the Seller, (3) any contractual restriction binding on or affecting the Seller or its property or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Seller or its property, and (iv) do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties (except for the transfer of the Seller's interest in the Purchased Assets pursuant to this Agreement). This Agreement has been duly executed and delivered by the Seller. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Seller of this Agreement or any other document to be delivered by it hereunder, except for the filing of UCC financing statements referred to herein. 19 (d) Each of the Transaction Documents to which it is a party constitutes the legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and general equitable principles (whether considered in a proceeding at law or in equity). (e) Purchases made pursuant to this Agreement will constitute a valid sale, transfer, and assignment of the Purchased Assets to, or contributions of the Purchased Assets to the capital of, the Purchaser, enforceable against creditors of, and purchasers from, the Seller. The Seller shall have no remaining property interest in any Purchased Asset. (f) (i) The fair value of the property of the Seller is greater than the total amount of liabilities, including contingent liabilities, of the Seller, (ii) the present fair salable value of the assets of the Seller is not less than the amount that will be required to pay all probable liabilities of the Seller on its debts as they become absolute and matured, (iii) the Seller does not intend to, and does not believe that it will, incur debts or liabilities beyond the Seller's abilities to pay such debts and liabilities as they mature and (iv) the Seller is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which the Seller's property would constitute unreasonably small capital. (g) Except as set forth in Schedule 3 hereto (or as otherwise disclosed by the Parent in publicly available SEC filings), there is no pending or threatened action, investigation or proceeding affecting the Seller or any of its subsidiaries before any court, governmental agency or arbitrator which if determined adversely to any of them, could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (h) No proceeds of any Purchase will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934. (i) No transaction contemplated hereby requires compliance with any bulk sales act or similar law. (j) Each Receivable (including, without limitation, each Participated Receivable) sold and/or contributed by the Seller and characterized in any Seller Report (or, if applicable, as of a date certain specified in such report) as an Eligible Receivable is, as of the date of such Seller Report, an Eligible Receivable. Each Purchased Asset, together with the Related Security, is owned (immediately prior to its sale hereunder) by the Seller free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by the Purchaser). When the Purchaser makes a Purchase it shall acquire valid and perfected first priority ownership of each Purchased 20 Asset and the Related Security and Collections with respect thereto free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by the Purchaser), and no effective financing statement or other instrument similar in effect covering any Purchased Asset, any interest therein, the Related Security or Collections with respect thereto is on file in any recording office except such as may be filed in favor of Seller in accordance with the Originator Purchase Agreement, in favor of Purchaser in accordance with this Agreement or in connection with any Adverse Claim arising solely as the result of any action taken by the Purchaser or those which relate to security interests that are subject to the Intercreditor Agreement. (k) Each Seller Report (if prepared by the Seller, or to the extent that information contained therein is supplied by the Seller), information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time (whether before or after the date of this Agreement) by the Seller to the Purchaser in connection with this Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Purchaser at such time) as of the date so furnished (or, if applicable, as of a date certain specified in such report), and no such document contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. (l) The principal place of business and chief executive office of the Seller and the office where such Seller keeps its records concerning the Purchased Assets are located at the address or addresses referred to in Section 5.01(b). (m) The names and addresses of all the Deposit Banks and Account Banks, together with the post office boxes and account numbers of the Lock-Boxes, Deposit Accounts at such Deposit Banks, and Governmental Entity Receivables Accounts at such Account Banks are specified in Exhibit B (as the same may be updated from time to time pursuant to Section 5.01(g)). The Lock-Boxes, Deposit Accounts and Governmental Entity Receivables Accounts are the only post office boxes and bank accounts into which Collections of Receivables and Participation Interests are deposited or remitted. (n) The Seller is not known by and does not use any tradename or doing-business-as name. (o) With respect to any programs used by the Seller in the servicing of the Receivables and Participation Interests, no sublicensing agreements are necessary in connection with the designation of a new Collection Agent pursuant to Section 6.01 so that such new Collection Agent shall have the benefit of such programs (it being understood that, however, the Collection Agent, if other than the Seller, shall be required to be bound by a confidentiality agreement reasonably acceptable to the Seller (on behalf of itself and each of the Originators)). 21 (p) The transfers of Purchased Assets by the Seller to the Purchaser pursuant to this Agreement, and all other transactions between the Seller and the Purchaser, have been and will be made in good faith and without intent to hinder, delay or defraud creditors of such Seller. (q) The Seller has timely filed or caused to be filed all required income tax and sales tax returns and reports and all other material tax returns and reports required to have been filed and has paid or caused to be paid all material taxes due pursuant to such returns or pursuant to any assessment received by the Seller, except where the payment of any such taxes is being contested in good faith by appropriate proceedings and for which the Seller has set aside on its books adequate reserves. The charges, accruals and reserves on the books of the Seller in respect of such taxes or charges imposed by all Governmental Entities are, in the opinion of the Seller, adequate for the payment thereof. ARTICLE V COVENANTS SECTION 5.01. Covenants of the Seller. The Seller covenants from the date hereof until the first day following the Facility Termination Date on which all of the Purchased Assets are either collected in full or become Defaulted Receivables or Defaulted Participation Interests (as the case may be): (a) Compliance with Laws, Etc. The Seller will comply in all material respects with all applicable laws, rules, regulations and orders and preserve and maintain its corporate existence, rights, franchises, qualifications and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such rights, franchises, qualifications, and privileges could not reasonably be expected to result in a Material Adverse Effect. (b) Offices, Records, Name and Organization. The Seller will keep its principal place of business and chief executive office and the office where it keeps its records concerning the Purchased Assets at the address of the Seller set forth on Exhibit D hereto or, upon 30 days' prior written notice to the Purchaser and its assignees, at any other locations within the United States. The Seller will not change its name or its jurisdiction of organization, unless (i) the Seller shall have provided the Purchaser and its assignees with at least 30 days' prior written notice thereof and (ii) no later than the effective date of such change, all actions required by Section 5.01(j) shall have been taken and completed. The Seller also will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Purchased Assets and related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information 22 reasonably necessary or advisable for the collection of all Purchased Assets (including, without limitation, records adequate to permit the daily identification of each new Purchased Asset and all Collections of and adjustments to each existing Purchased Asset). The Seller shall make a notation in its books and records, including its computer files, to indicate that all of its Receivables and Participation Interests have been sold by it to the Purchaser hereunder. (c) Performance and Compliance with Contracts and Credit and Collection Policy. The Seller will, at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Purchased Receivables and Participated Receivables, and timely and fully comply in all material respects with the Credit and Collection Policy in regard to each Purchased Receivable, each Participated Receivable and the related Contract. (d) Sales, Liens, Etc. Except for the sales of Purchased Assets contemplated herein, the Seller will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any Purchased Asset, Receivable, Related Security, related Contract or Collections, or upon or with respect to any account to which any Collections of any Purchased Asset are sent, or assign any right to receive income in respect thereof. (e) Extension or Amendment of Purchased Assets. Except as provided in Section 6.02(c), the Seller will not extend, amend or otherwise modify the terms of any Purchased Receivable or Participated Receivable, or amend, modify or waive any term or condition of any Contract (to which it is a party) related thereto. (f) Change in Business or Credit and Collection Policy. The Seller will not make any change in the character of its business or in the Credit and Collection Policy that could, in either case, reasonably be expected to result in a Material Adverse Effect. (g) Change in Payment Instructions to Obligors. The Seller will not add or terminate any post office box, bank, or bank account as a Lock-Box, Deposit Bank, Deposit Account, Governmental Entity Receivables Account or Account Bank from those listed in Exhibit B to this Agreement, or make any change in its instructions to Obligors regarding payments to be made to any such box or account, unless the Purchaser shall have received notice of such addition, termination or change (including an updated Exhibit B) and a fully executed Deposit Account Agreement or Governmental Entity Receivables Agreement with each new Deposit Bank or Account Bank, as the case may be, with respect to each new Lock-Box, Deposit Account, or Governmental Entity Receivables Account. (h) Deposits to Lock-Boxes, Deposit Accounts and Governmental Entity Receivables Accounts. The Seller will instruct all of the Obligors that are Governmental 23 Entities other than Contract Payers to remit all their payments in respect of Participated Receivables to Governmental Entity Receivables Accounts or Lock-Boxes associated therewith. The Seller will instruct all of its Obligors that are not Governmental Entities (other than Contract Payors) to remit all their payments in respect of Purchased Receivables to Deposit Accounts or Lock-Boxes associated therewith. If the Seller shall receive any Collections directly, it shall immediately (and in any event within one Business Day) deposit the same to a Deposit Account or Governmental Entity Receivables Account, as the case may be. The Seller will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box, Deposit Account or Governmental Entity Receivables Account cash or cash proceeds other than Collections of Purchased Receivables and Participated Receivables, except as provided in the last sentence of this Section 5.01(h). In furtherance of the foregoing, the Collection Agent agrees (i) within 30 days from the date of this Agreement, to notify all Obligors that are not Governmental Entities (other than Contract Payors) to remit all their payments in respect of Purchased Receivables to Deposit Accounts or Lock-Boxes associated therewith and (ii) thereafter, to use ongoing commercially reasonable efforts to obtain compliance with such notice from those Obligors who have failed to so comply. The foregoing notwithstanding the Collection Agent acknowledges that collections on account of accounts receivable belonging to Drugstore.com are regularly deposited into the Governmental Entity Receivables Account and agrees to identify and remove such collections (from such account) within two Business Days after they are received. (i) Audits. The Seller will, from time to time during regular business hours as requested by the Purchaser or its assigns, permit the Purchaser, or its agents, representatives or assigns, (i) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of the Seller relating to Purchased Assets and the Related Security, including, without limitation, the related Contracts, and (ii) to visit the offices and properties of the Seller for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to Purchased Assets and the Related Security or the Seller's performance hereunder or under the Contracts with any of the officers or employees of the Seller having knowledge of such matters. (j) Further Assurances. (i) The Seller agrees from time to time, at its expense, promptly to execute and deliver all further instruments and documents, and to take all further actions, that may be necessary or desirable, or that the Purchaser or its assignees may reasonably request, to perfect, protect or more fully evidence the sale of Purchased Assets under this Agreement, or to enable the Purchaser or its assignees to exercise and enforce its respective rights and remedies under this Agreement. Without limiting the foregoing, the Seller will, upon the request of the Purchaser or its assignees, (A) execute and file such financing or continuation statements, or amendments thereto, and such other 24 instruments and documents, that may be necessary or desirable to perfect, protect or evidence such Purchased Assets; and (B) deliver to the Purchaser copies of all Contracts (to which it is a party) relating to the Purchased Assets and all records relating to such Contracts and the Purchased Assets, whether in hard copy or in magnetic tape or diskette format (which if in magnetic tape or diskette format shall be compatible with the Purchaser's computer equipment). (ii) The Seller authorizes the Purchaser or its assignees to file financing or continuation statements, and amendments thereto and assignments thereof, relating to the Purchased Assets and the Related Security, the related Contracts and the Collections with respect thereto. (k) Reporting Requirements. The Seller will provide to the Purchaser the following: (i) any reports, notices, public filings, financial information and any other information or correspondence delivered to the Seller pursuant to the Originator Purchase Agreement; (ii) as soon as possible and in any event within five days after the occurrence of each Event of Termination or Incipient Event of Termination, a statement of a Financial Officer of the Seller setting forth details of such Event of Termination or Incipient Event of Termination and the action that the Seller has taken and proposes to take with respect thereto; (iii) at least 30 days prior to any change in the Seller's name or state of incorporation, a notice setting forth the new name or state of incorporation and the effective date thereof; (iv) such other information respecting the Purchased Assets or the condition or operations, financial or otherwise, of the Seller as the Purchaser may from time to time reasonably request, to the extent such disclosure is permitted under applicable law, rule or regulation. Reports and financial statements required to be delivered pursuant to clauses (i) and (ii) of Section 5.01(k) of the Originator Purchase Agreement shall be deemed to have been delivered on the date on which the Parent posts such reports, or reports containing such financial statements, on the Parent's website on the internet at http://www.riteaid.com or when such reports, or reports containing such financial statements, are posted on the SEC's website at www.sec.gov. (l) Separate Conduct of Business. The Seller will: (i) maintain separate corporate records and books of account from those of the Purchaser; (ii) conduct its 25 business from an office separate from that of the Purchaser (but which may be located in the same facility as the Purchaser); (iii) ensure that all oral and written communications, including without limitation, letters, invoices, purchase orders, contracts, statements and applications, will be made solely in its own name; (iv) have stationery and other business forms and a mailing address and a telephone number separate from those of the Purchaser; (v) not hold itself out as having agreed to pay, or as being liable for the obligations of the Purchaser; (vi) not engage in any transaction with the Purchaser except as contemplated by this Agreement or as permitted by the other Transaction Documents; and (vii) in its capacity as shareholder of the Purchaser, not adopt any special resolution for the voluntary winding up of the Purchaser without the prior written consent of the Program Agent under the Financing Agreement. (m) Originator Purchase Agreement. The Seller will not amend, waive or modify any provision of the Originator Purchase Agreement or waive the occurrence of any "Event of Termination" under the Originator Purchase Agreement, without in each case the prior written consent of the Purchaser and its assignees; provided, however, that the Seller may amend the percentage set forth in the definition of "Discount" in the Originator Purchase Agreement in accordance with the provisions of the Originator Purchase Agreement without the consent of the Purchaser and its assignees, provided, further, that the Seller shall promptly notify the Purchaser and its assignees of any such amendment. The Seller will perform all of its obligations under the Originator Purchase Agreement in all material respects and will enforce the Originator Purchase Agreement in accordance with its terms in all material respects. (n) Additional Information. If additional information is requested by the Obligor as to a bill or supporting claim documents, the Seller has or will (or will cause the applicable Originator to) promptly provide the same, and if any error has been made with respect to such information, the Seller will (or will cause the applicable Originator to) promptly correct the same and, if necessary, rebill such Receivable. SECTION 5.02. Grant of Security Interest. The Seller and the Purchaser intend that the transfer of each Purchased Receivable and Participation Interest hereunder from the Seller to the Purchaser be treated as a sale of all of the Seller's right, title and interest in, to and under such Purchased Receivable and Participation Interest and that, immediately after giving effect to the transfer, the Seller has no further interest (legal or equitable) in any Purchased Receivable or Participation Interest. The Seller and the Purchaser shall record each Purchase as a sale or purchase, as the case may be, on its books and records, and reflect each Purchase in its financial statements and tax returns as a sale or purchase, as the case may be. In the event that, contrary to the mutual intent of the Seller and the Purchaser, any Purchase of Purchased Receivables and/or Participation Interests hereunder is not characterized as a sale but rather as a collateral transfer for security (or the transactions contemplated hereby are characterized as a financing transaction), such Purchase shall be deemed to be a secured financing, secured by a security interest in all of the Seller's right, title and interest now or hereafter existing and hereafter arising in, to and under 26 (i) all Receivables now existing and hereafter arising, (ii) all Participation Interests, (iii) all Related Security, (iv) all Collections with respect to the items in clauses (i) through (iii), and (v) all proceeds of the foregoing (collectively, the "Seller Collateral"). In furtherance of the foregoing, the Seller hereby grants, to the Purchaser a security interest in all of the Seller's right, title and interest now or hereafter existing in, to and under the Seller Collateral to secure the repayment of all amounts due and owing by the Seller to the Purchaser hereunder with accrued interest thereon, if applicable, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent (such amounts the "Secured Obligations"). SECTION 5.03. Covenant of the Seller and the Purchaser. Each of the Seller and the Purchaser shall comply with (and cause to be true and correct) each of the facts and assumptions relevant to it contained in the portion of the opinion of Skadden, Arps, Slate, Meagher & Flom, LLP (Re: Substantive Non-Consolidation) entitled "Assumptions of Fact" delivered pursuant to Section 3.01(f)(i). ARTICLE VI ADMINISTRATION AND COLLECTION SECTION 6.01. Designation of Collection Agent. The servicing, administration and collection of the Purchased Assets shall be conducted by such Person (the "Collection Agent") so designated hereunder from time to time. Until the RFA Final Payment Date, the Seller (or such other Person as may be designated from time to time under the Financing Agreement) is hereby designated as, and hereby agrees to perform the duties and obligations of, the Collection Agent pursuant to the terms hereof. Thereafter, the Purchaser, by notice to the Seller, may designate as Collection Agent any Person (including itself) to succeed the Seller or any successor Collection Agent, if such Person shall consent and agree to the terms hereof. Upon the Seller's receipt of such notice, the Seller agrees that it will terminate its activities as Collection Agent hereunder in a manner which the Purchaser (or its designee) believes will facilitate the transition of the performance of such activities to the new Collection Agent, and the Seller shall use its best efforts to assist the Purchaser (or its designee) to take over the servicing, administration and collection of the Purchased Assets, including, without limitation, providing access to and copies of all computer tapes or disks and other documents or instruments that evidence or relate to Purchased Assets maintained in its capacity as Collection Agent and access to all employees and officers of the Seller responsible with respect thereto. The Collection Agent may, with the prior consent of the Purchaser, subcontract with any other Person for the servicing, administration or collection of Purchased Assets. Any such subcontract shall not affect the Collection Agent's liability for performance of its duties and obligations pursuant to the terms hereof, and any such subcontract shall terminate upon designation of a successor Collection Agent. SECTION 6.02. Duties of Collection Agent. (a) The Collection Agent shall take or cause to be taken all such actions as may be necessary or advisable to collect each Purchased 27 Asset from time to time, all in accordance in all material respects with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. The Purchaser hereby appoints the Collection Agent, from time to time designated pursuant to Section 6.01, as agent to enforce its ownership and other rights in the Purchased Assets, the Related Security and the Collections with respect thereto. In performing its duties as Collection Agent, the Collection Agent shall exercise the same care and apply the same policies as it would exercise and apply if it owned the Purchased Assets and shall act in the best interests of the Purchaser and its assignees. (b) On or before each Determination Date, the Collection Agent shall prepare and forward to the Purchaser (i) a Seller Report, relating to all then outstanding Purchased Assets, and the Related Security and Collections with respect thereto, in each case, as of the close of business of the Collection Agent on the last day of the immediately preceding Month, and (ii) if requested by the Purchaser, a listing by Obligor (other than Contract Payors) of all Purchased Assets, together with an aging report of such Purchased Assets. (c) If no Event of Termination or Incipient Event of Termination shall have occurred and be continuing, the Seller, while it is the Collection Agent, may, in accordance with the Credit and Collection Policy, extend the maturity or adjust the Outstanding Balance of any Purchased Receivable or Participated Receivable as it deems appropriate to maximize Collections thereof, or otherwise amend or modify other terms of any Purchased Receivable or Participated Receivable. (d) The Seller shall deliver to the Collection Agent, and the Collection Agent shall hold in trust for the Seller and the Purchaser in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) which evidence or relate to Purchased Assets. (e) The Collection Agent shall as soon as practicable following receipt turn over to the Seller (or other person entitled thereto) any cash collections or other cash proceeds received with respect to Receivables not constituting Purchased Receivables or Participated Receivables. (f) The Collection Agent also shall perform the other obligations of the "Collection Agent" set forth in this Agreement with respect to the Purchased Assets. SECTION 6.03. Collection Agent Fee. The Purchaser shall pay to the Collection Agent, so long as it is acting as the Collection Agent hereunder, a periodic collection fee (the "Collection Agent Fee") of 1.00% per annum on the average daily aggregate Outstanding Balance of the Purchased Assets, payable in arrears on each Settlement Date or such other day during each Month as the Purchaser and the Collection Agent shall agree. So long as the Financing Agreement is in effect, amounts paid to the Collection Agent as "Collection Agent Fee" pursuant to the Financing Agreement shall reduce, on a dollar-for-dollar basis, the obligation of the 28 Purchaser to pay the Collection Agent Fee hereunder, provided that such obligation of the Purchaser shall in no event be reduced below zero. SECTION 6.04. Certain Rights of the Purchaser. (a) The Purchaser may, at any time during the existence of an Event of Termination or Incipient Event of Termination, give notice of ownership and/or direct the Obligors of Purchased Assets and any Person obligated on any Related Security, or any of them, that payment of all amounts payable under any Purchased Asset shall be made directly to the Purchaser or its assignees. The Seller hereby transfers to the Purchaser (and its assigns and designees) the exclusive ownership and control of the Lock-Boxes and Deposit Accounts maintained by the Seller for the purpose of receiving Collections (other than Collections from Governmental Entities). (b) The Seller shall, at any time during the existence of an Event of Termination or Incipient Event of Termination upon the Purchaser's request and at the Seller's expense, give notice of the Purchaser's ownership to each Obligor of Purchased Assets and, to the extent permitted under applicable law, direct that payments of all amounts payable under the Purchased Receivables or Participated Receivables be made directly to the Purchaser or its assignees. (c) At the Purchaser's request and at the Seller's expense, the Seller and the Collection Agent shall (A) assemble all of the documents, instruments and other records (including, without limitation, computer tapes and disks) that evidence or relate to the Purchased Assets, and the related Contracts and Related Security, or that are otherwise necessary or desirable to collect the Purchased Receivables and Participated Receivables, and shall make the same available to the Purchaser at a place selected by the Purchaser or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Purchased Assets in a manner acceptable to the Purchaser and, promptly upon receipt, remit all such cash, checks and instruments, duly indorsed or with duly executed instruments of transfer, to the Purchaser or its designee. The Purchaser shall also have the right to make copies of all such documents, instruments and other records at any time. (d) The Seller authorizes the Purchaser to take any and all steps in the Seller's name and on behalf of the Seller that are necessary or desirable, in the determination of the Purchaser, to collect amounts due under the Purchased Receivables and Participated Receivables, including, without limitation, endorsing the Seller's name on checks and other instruments representing Collections of Purchased Assets and enforcing the Purchased Receivables and Participated Receivables and the Related Security and related Contracts. SECTION 6.05. Rights and Remedies. (a) If the Seller or the Collection Agent fails to perform any of its obligations under this Agreement, the Purchaser may (but shall not be required to) (after notice to the Seller or Collection Agent and such failure to perform, if capable of being cured, is not cured within 10 days after such notice is sent) itself perform, or cause performance of, such obligation, and, if the Seller (as Collection Agent or otherwise) fails to so 29 perform, the costs and expenses of the Purchaser incurred in connection therewith shall be payable by the Seller as provided in Section 8.01 or Section 9.04 as applicable. (b) The Seller shall perform all of its obligations under the Contracts related to the Purchased Receivables and Participated Receivables to the same extent as if the Seller had not sold Receivables or Participation Interests hereunder and the exercise by the Purchaser of its rights hereunder shall not relieve the Seller from such obligations or its obligations with respect to the Purchased Receivables and Participated Receivables. The Purchaser shall not have any obligation or liability with respect to any Purchased Receivables and Participated Receivables or related Contracts, nor shall the Purchaser be obligated to perform any of the obligations of the Seller thereunder. (c) The Seller shall cooperate with the Collection Agent in collecting amounts due from Obligors in respect of the Purchased Receivables and Participated Receivables. (d) The Seller hereby grants to Collection Agent an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of the Seller all steps necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by the Seller or transmitted or received by Purchaser (whether or not from the Seller) in connection with any Purchased Asset. SECTION 6.06. Transfer of Records to Purchaser. Each Purchase of Receivables and Participation Interests hereunder shall include the transfer to the Purchaser of all of the Seller's right and title to and interest in the records relating to such Receivables or Participation Interests (as the case may be) and, subject to the rights of any licensors and applicable law, shall include an irrevocable non-exclusive license to the use of the Seller's computer software system to access and create such records. Such license shall be without royalty or payment of any kind, is coupled with an interest, and shall be irrevocable until all of the Purchased Assets are either collected in full or become Defaulted Receivables or Defaulted Participation Interests (as the case may be). The Seller shall take such action requested by the Purchaser, from time to time hereafter, that may be necessary or appropriate to ensure that the Purchaser has an enforceable ownership interest in the records relating to the Purchased Assets and rights (whether by ownership, license or sublicense) to the use of the Seller's computer software system to access and create such records, subject to the rights of any licensors and applicable law. In recognition of the Seller's need to have access to the records transferred to the Purchaser hereunder, the Purchaser hereby grants to the Seller an irrevocable license to access such records in connection with any activity arising in the ordinary course of the Seller's business or in performance of its duties as Collection Agent, provided that (i) the Seller shall not disrupt or otherwise interfere with the Purchaser's use of and access to such records during such license period and (ii) the Seller consents to the assignment and delivery of the records (including any 30 information contained therein relating to the Seller or its operations) to any assignees or transferees of the Purchaser provided they agree to hold such records confidential. ARTICLE VII EVENTS OF TERMINATION SECTION 7.01. Events of Termination. If any of the following events ("Events of Termination") shall occur and be continuing: (a) The Collection Agent (i) shall fail to perform or observe any term, covenant or agreement under this Agreement (other than as referred to in clause (ii) or (iii) of this subsection (a)) and such failure, if capable of being cured, shall remain unremedied for ten days or (ii) shall fail to make when due any payment or deposit to be made by it under this Agreement or (iii) shall fail to deliver any Seller Report when required and such failure shall remain unremedied for one Business Day (provided that the grace period in this clause (iii) may not be utilized more than once in any Month); or (b) The Seller shall fail to make any payment required under Section 2.04(a) or 2.04(b); or (c) Any representation or warranty (unless such representation or warranty relates solely to one or more specific Receivables incorrectly characterized as Eligible Receivables and the Seller shall have made any required deemed Collection payment pursuant to Section 2.04 with respect to such Receivables) made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement or any information or report delivered by the Seller pursuant to this Agreement shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; or (d) The Seller shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for 10 days after written notice thereof shall have been given to the Seller by the Purchaser or its assignees, provided that failure to perform or observe any covenant contained in Sections 5.01(b), 5.01(d), 5.01(g), and 5.01(h) shall not be entitled to the benefit of such 10-day period; or (e) The Seller or the Collection Agent shall fail to pay any principal of or premium or interest on any of its Debt which is outstanding in a principal amount of at least $25,000,000 in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or 31 instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to repay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) Any Purchase of Receivables or Participation Interests hereunder, the Related Security and the Collections with respect thereto shall for any reason cease to constitute valid and perfected ownership of such Receivables, Participation Interests, Related Security and Collections free and clear of any Adverse Claim; or (g) The Seller or the Collection Agent shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Seller or the Collection Agent seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or any proceeding or petition shall be instituted or adopted for the winding up of the Seller (whether or not in the context of a bankruptcy or insolvency proceeding) or the Seller shall take any corporate action to authorize any of the actions set forth above in this subsection (g); or (h) An Event of Termination shall have occurred under the Originator Purchase Agreement or the Financing Agreement; or (i) There shall have occurred any event which may materially adversely affect the collectibility of the Purchased Assets or the ability of the Seller or the Collection Agent to collect Purchased Assets or otherwise perform its respective obligations under this Agreement; then, and in any such event, the Purchaser may in its sole discretion without regard to Section 9.08, by notice to the Parent and the Seller take either or both of the following actions: (x) declare the Facility Termination Date to have occurred (in which case the Facility Termination 32 Date shall be deemed to have occurred), and all Purchases hereunder shall cease immediately and (y) following the RFA Final Payment Date, without limiting any right under this Agreement to replace the Collection Agent, designate another Person to succeed the Seller (or any successor Collection Agent) as Collection Agent; provided, that, automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in paragraph (g) of this Section 7.01, the Facility Termination Date shall occur, the Seller (if it is then serving as the Collection Agent) shall cease to be the Collection Agent, and the Purchaser (or, prior to the RFA Final Payment Date, the Person designated under the Financing Agreement) shall become the Collection Agent. Upon any such declaration or designation or upon such automatic termination, the Purchaser shall have, in addition to the rights and remedies under this Agreement, all other rights and remedies with respect to the Receivables provided after default under the UCC and under other applicable law, which rights and remedies shall be cumulative. ARTICLE VIII INDEMNIFICATION SECTION 8.01. Indemnities by the Seller. Without limiting any other rights which the Purchaser may have hereunder or under applicable law, the Seller hereby agrees to indemnify the Purchaser and its assigns and transferees (each, an "Indemnified Party"), from and against any and all damages, claims, losses, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts"), awarded against or incurred by any Indemnified Party arising out of or as a result of this Agreement or the purchase of any Purchased Assets or in respect of any Purchased Asset, Participated Receivable or any Contract, including, without limitation, arising out of or as a result of: (i) the characterization in any Seller Report or other statement made by the Seller of any Purchased Receivable or Participated Receivable as an Eligible Receivable which is not an Eligible Receivable as of the date on which such information was certified; (ii) any representation or warranty or statement made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement, which shall have been incorrect in any material respect when made; (iii) the failure by the Seller to comply with any applicable law, rule or regulation with respect to any Purchased Asset, Participated Receivable or the related Contract; or the failure of any Purchased Asset, Participated Receivable or the related Contract to conform to any such applicable law, rule or regulation; (iv) the failure to vest in the Purchaser absolute ownership of the Purchased Receivables and Participation Interests that are, or that purport to be, the subject of a 33 Purchase under this Agreement and the Related Security and Collections in respect thereof, free and clear of any Adverse Claim; (v) the failure of the Seller to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Purchased Receivables or Participation Interests that are, or that purport to be, the subject of a Purchase under this Agreement and the Related Security and Collections in respect thereof, whether at the time of any Purchase or at any subsequent time; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable that is, or that purports to be, the subject of (A) a Purchase under this Agreement, or (B) a Participation Interest purchased under this Agreement from the Seller (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by the Seller acting as Collection Agent); (vii) any failure of the Seller to perform its duties or obligations in accordance with the provisions hereof or to perform its duties or obligations under any Contract related to a Purchased Receivable or Participated Receivable; (viii) any products liability or other claim arising out of or in connection with merchandise, insurance or services which are the subject of any Contract related to a Purchased Receivable or Participated Receivable; (ix) the commingling of Collections of Purchased Assets by the Seller (or a designee of the Seller), as Collection Agent or otherwise, at any time with other funds of the Seller or an Affiliate of the Seller; (x) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of Purchases by the Seller or the ownership by the Seller of Receivables, Participation Interests (and the Government Receivables with respect thereto) the Related Security, or Collections with respect thereto or in respect of any Receivable, Participation Interests (and the Government Receivables with respect thereto) Related Security or Contract; (xi) any failure of the Seller to comply with its covenants contained in this Agreement; 34 (xii) any claim brought by any Person other than an Indemnified Party arising from any activity the Seller or any designee of the Seller in servicing, administering or collecting any Purchased Asset or Participated Receivable; or (xiii) any Purchased Asset becoming (in whole or in part) a Diluted Receivable or a Diluted Participation Interest; or (xiv) in the case of a Contract between an Originator and a PBM, where such PBM acts as an agent for Contract Payors rather than as a principal, the inability of the Program Agent, as collateral assignee pursuant to this Agreement and the other Purchase Agreements of such Contract, to enforce any Receivable arising under such contract directly (by contract or by operation of law) against such Contract Payor, except to the extent such Contract Payor is a Governmental Entity and such enforcement rights are limited by the 1972 Amendments to the Social Security Act; or (xv) the inability of the Purchaser to exercise its rights under this Agreement to review any Contract which contains a confidentiality provision that purports to restrict its ability to do so, or any litigation or proceeding relating to any such confidentiality provision. It is expressly agreed and understood by the parties hereto (i) that the foregoing indemnification is not intended to, and shall not, constitute a guarantee of the collectibility or payment of the Purchased Assets and (ii) that nothing in this Section 8.01 shall require the Seller to indemnify any Person (A) for Purchased Receivables and Participation Interests which are not collected, not paid or uncollectible on account of the insolvency, bankruptcy, or financial inability to pay of the applicable Obligor, (B) for damages, losses, claims or liabilities or related costs or expenses to the extent found in a final non-appealable judgment of a court of competent jurisdiction to have resulted from such Person's gross negligence or willful misconduct, or (C) for any income taxes or franchise taxes measured by income incurred by such Person arising out of or as a result of this Agreement or in respect of any Purchased Asset, Participated Receivable or any Contract. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or consent to any departure by the Seller therefrom shall be effective unless in a writing signed by the Purchaser and, in the case of any amendment, also signed by the Seller, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Purchaser to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. 35 SECTION 9.02. Notices, Etc. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, to each party hereto, at its address set forth on Exhibit D hereto or at such other address as shall be designated by such party in a written notice to the other parties hereto. All notices and communications given to any party hereto shall be deemed to have been given on the date of receipt. SECTION 9.03. Binding Effect; Assignability. (a) This Agreement shall be binding upon and inure to the benefit of the Seller, the Purchaser and their respective successors and assigns; provided, however, that the Seller may not assign its rights or obligations hereunder or any interest herein without the prior written consent of the Purchaser. In connection with any sale or assignment by the Purchaser of all or a portion of the Purchased Assets, the buyer or assignee, as the case may be, shall, to the extent of its purchase or assignment, have all rights of the Purchaser under this Agreement (as if such buyer or assignee, as the case may be, were the Purchaser hereunder) except to the extent specifically provided in the agreement between the Purchaser and such buyer or assignee, as the case may be. (b) This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time, after the Facility Termination Date, when all of the Purchased Receivables and Participated Receivables are either collected in full or become Defaulted Receivables; provided, however, that rights and remedies with respect to any breach of any representation and warranty made by the Seller pursuant to Article IV and the provisions of Article VIII and Sections 9.04, 9.05 and 9.06 shall be continuing and shall survive any termination of this Agreement. SECTION 9.04. Costs, Expenses and Taxes. (a) In addition to the rights of indemnification granted to the Purchaser pursuant to Article VIII hereof, the Seller agrees to pay on demand all costs and expenses in connection with the preparation, execution and delivery of this Agreement and the other documents and agreements to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Purchaser with respect thereto and with respect to advising the Purchaser as to its rights and remedies under this Agreement, and the Seller agrees to pay all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Agreement and the other documents to be delivered hereunder excluding, however, any costs of enforcement or collection of Purchased Assets which are not paid on account of the insolvency, bankruptcy or financial inability to pay of the applicable Obligor. (b) In addition, the Seller agrees to pay any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and the Seller agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. 36 SECTION 9.05. No Proceedings. The Seller hereby agrees that it will not institute against, or join any other Person in instituting against, the Purchaser any proceeding of the type referred to in Section 7.01(g) so long as there shall not have elapsed one year plus one day since the later of (i) the Facility Termination Date and (ii) the date on which all of the Purchased Receivables and Participated Receivables are either collected in full or become Defaulted Receivables. SECTION 9.06. Confidentiality. Unless otherwise required by applicable law, each party hereto agrees to maintain the confidentiality of this Agreement in communications with third parties and otherwise; provided that this Agreement may be disclosed to (i) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the other party hereto, and (ii) such party's legal counsel and auditors and the Purchaser's assignees, if they agree in each case to hold it confidential. SECTION 9.07. GOVERNING LAW. THIS AGREEMENT SHALL, IN ACCORDANCE WITH SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION, EXCEPT TO THE EXTENT THAT, PURSUANT TO THE UCC OF THE STATE OF NEW YORK, THE PERFECTION AND THE EFFECT OF PERFECTION OR NON- PERFECTION OF THE PURCHASER'S OWNERSHIP OF OR SECURITY INTEREST IN THE RECEIVABLES ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 9.08. Third Party Beneficiary. Each of the parties hereto hereby acknowledges that the Purchaser may assign all or any portion of its rights under this Agreement and that such assignees may (except as otherwise agreed to by such assignees) further assign their rights under this Agreement, and the Seller hereby consents to any such assignments. All such assignees, including parties to the Financing Agreement in the case of assignment to such parties, shall be third party beneficiaries of, and shall be entitled to enforce the Purchaser's rights and remedies under, this Agreement to the same extent as if they were parties thereto, except to the extent specifically limited under the terms of their assignment. SECTION 9.09. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. SECTION 9.10. Consent to Jurisdiction. (a) Each party hereto hereby irrevocably submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York City in any action or proceeding arising out of or relating to this Agreement or the other Transaction Documents, and each party hereto hereby irrevocably agrees that all claims in respect 37 of such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. The parties hereto hereby irrevocably waive, to the fullest extent they may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The Purchaser hereby irrevocably appoints CT Corporation (the "Process Agent"), with an office on the date hereof at 111 8th Avenue, 13th Floor, New York, New York 10011, United States, as its agent to receive on behalf of the Purchaser and its property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding. Such service may be made by mailing or delivering a copy of such process to the Purchaser in care of the Process Agent at the Process Agent's above address, and the Purchaser hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf. The parties hereto agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Each of the parties hereto consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to it at its address specified in Section 9.02. Nothing in this Section 9.10 shall affect the right of the Purchaser or its assignees to serve legal process in any other manner permitted by law. (c) To the extent that the Purchaser has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Purchaser hereby irrevocably waives such immunity in respect of its obligations under this Agreement or any other Transaction Document. SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY DOCUMENT EXECUTED OR DELIVERED PURSUANT HERETO. SECTION 9.12. Judgment. (a) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder in U.S. Dollars into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the judgment creditor could purchase U.S. Dollars with such other currency at New York, New York on the Business Day preceding that on which final judgment is given. (b) The obligation of any party hereto (an "Obligor Party") in respect of any sum due from it to any other party hereto (the "Obligee") hereunder shall, notwithstanding any judgment in a currency other than U.S. Dollars, be discharged only to the extent that on the Business Day following receipt by the Obligee of any sum adjudged to be so due in such other 38 currency, the Obligee may in accordance with normal banking procedures purchase U.S. Dollars with such other currency; if the U.S. Dollars so purchased are less than the sum originally due to the Obligee in U.S. Dollars, the Obligor Party agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Obligee against such loss, and if the U.S. Dollars so purchased exceed the sum originally due to the Obligee in U.S. Dollars, the Obligee shall remit to the Obligor Party such excess. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SELLER AND COLLECTION AGENT: RITE AID HDQTRS. FUNDING, INC. By: --------------------------------------- Title: ------------------------------------ PURCHASER: RITE AID FUNDING I By: --------------------------------------- Title: ------------------------------------ 39 SCHEDULE 1 Intentionally Omitted. Sch 1-1 SCHEDULE 2 MONTHS Fiscal Year 2004 ---------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/2/2003 3/29/2003 4 2 3/30/2003 4/26/2003 4 3 4/27/2003 5/31/2003 5 4 6/1/2003 6/28/2003 4 5 6/29/2003 7/26/2003 4 6 7/27/2003 8/30/2003 5 7 8/31/2003 9/27/2003 4 8 9/28/2003 10/25/2003 4 9 10/26/2003 11/29/2003 5 10 11/30/2003 12/27/2003 4 11 12/28/2003 1/24/2004 4 12 1/25/2004 2/28/2004 5 Sch 2-1 SCHEDULE 2 MONTHS Fiscal Year 2005 (leap year) ---------------------------- Period Start End # of Wks - ------ ----- --- -------- 1 2/29/2004 3/27/2004 4 2 3/28/2004 4/24/2004 4 3 4/25/2004 5/29/2004 5 4 5/30/2004 6/26/2004 4 5 6/27/2004 7/24/2004 4 6 7/25/2004 8/28/2004 5 7 8/29/2004 9/25/2004 4 8 9/26/2004 10/23/2004 4 9 10/24/2004 11/27/2004 5 10 11/28/2004 12/25/2004 4 11 12/26/2004 1/22/2005 4 12 1/23/2005 2/26/2005 5 Sch 2-2 SCHEDULE 2 MONTHS Fiscal Year 2006 (53 weeks) --------------------------- Period Start End # of Wks - ------ ----- --- -------- 1 2/27/2005 3/26/2005 4 2 3/27/2005 4/23/2005 4 3 4/24/2005 5/28/2005 5 4 5/29/2005 6/25/2005 4 5 6/26/2005 7/23/2005 4 6 7/24/2005 8/27/2005 5 7 8/28/2005 9/24/2005 4 8 9/25/2005 10/22/2005 4 9 10/23/2005 11/26/2005 5 10 11/27/2005 12/31/2005 5 11 1/1/2006 1/28/2006 4 12 1/29/2006 3/4/2006 5 Sch 2-3 SCHEDULE 2 MONTHS Fiscal Year 2007 ---------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/5/2006 4/1/2006 4 2 4/2/2006 4/29/2006 4 3 4/30/2006 6/3/2006 5 4 6/4/2006 7/1/2006 4 5 7/2/2006 7/29/2006 4 6 7/30/2006 9/2/2006 5 7 9/3/2006 9/30/2006 4 8 10/1/2006 10/28/2006 4 9 10/29/2006 12/2/2006 5 10 12/3/2006 12/30/2006 4 11 12/31/2006 1/27/2007 4 12 1/28/2007 3/3/2007 5 Sch 2-4 SCHEDULE 2 MONTHS Fiscal Year 2008 (leap year) ---------------------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/4/2007 3/31/2007 4 2 4/1/2007 4/28/2007 4 3 4/29/2007 6/2/2007 5 4 6/3/2007 6/30/2007 4 5 7/1/2007 7/28/2007 4 6 7/29/2007 9/1/2007 5 7 9/2/2007 9/29/2007 4 8 9/30/2007 10/27/2007 4 9 10/28/2007 12/1/2007 5 10 12/2/2007 12/29/2007 4 11 12/30/2007 1/26/2008 4 12 1/27/2008 3/1/2008 5 Sch 2-5 SCHEDULE 2 MONTHS Fiscal Year 2009 ---------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/2/2008 3/29/2008 4 2 3/30/2008 4/26/2008 4 3 4/27/2008 5/31/2008 5 4 6/1/2008 6/28/2008 4 5 6/29/2008 7/26/2008 4 6 7/27/2008 8/30/2008 5 7 8/31/2008 9/27/2008 4 8 9/28/2008 10/25/2008 4 9 10/26/2008 11/29/2008 5 10 11/30/2008 12/27/2008 4 11 12/28/2008 1/24/2009 4 12 1/25/2009 2/28/2009 5 Sch 2-6 SCHEDULE 3 MATERIAL LITIGATION I. INVESTIGATIONS AND LITIGATION MATTERS. 1. US Attorney Eastern District PA investigation regarding PBM matters. Investigation pending. 2. There are currently pending federal governmental investigations, both civil and criminal, by the United States Attorney, involving various matters related to prior management's business practices. We are cooperating fully with the United States Attorney. We have begun settlement discussions with the United States Attorney for the Middle District of Pennsylvania. The United States Attorney has proposed that the government would not institute any criminal proceeding against us if we enter into a consent judgment providing for a civil penalty payable over a period of years. The amount of the civil penalty has not been agreed to and there can be no assurance that a settlement will be reached or that the amount of such penalty will not have a material adverse effect on our financial condition and results of operations. We have recorded an accrual of $20.0 million in fiscal year 2003 in connection with the resolution for these matters; however, we may incur charges in excess of that amount and we are unable to estimate the possible range of loss. We will continue to evaluate our estimate and to the extent that additional information arises or our strategy changes, we will adjust our accrual accordingly. These investigations and settlement discussions are ongoing and we cannot predict their outcomes. If we were convicted of any crime, certain licenses and government contracts such as Medicaid plan reimbursement agreements that are material to our operations may be revoked, which would have a material adverse effect on our results of operations, financial condition or cash flows. In addition, substantial penalties, damages or other monetary remedies assessed against us, including a settlement, could also have a material adverse effect on our results of operations, financial condition or cash flows. II. OTHER LITIGATION MATTERS We, together with a significant number of major U.S. retailers, have been sued by the Lemelson Foundation in a complaint which alleges that portions of the technology included in our Sch 3-1 point-of-sale system infringe upon a patent held by the plaintiffs. The amount of damages sought is unspecified and may be material. We cannot predict the outcome of this litigation or whether it could result in a material adverse effect on our results of operations, financial conditions or cash flows (Lemelson Medical, Education & Research Foundation Limited Partnership v. Rite Aid Corporation et al.; Case CIV00-0660 PHX RCB, U.S. District Court, District of Arizona). We are subject from time to time to lawsuits arising in the ordinary course of business. In the opinion of our management, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve amounts that would not have a material adverse effect on our financial condition, results of operations or cash flows if decided adversely. Sch 3-2 EXHIBIT A CREDIT AND COLLECTION POLICY A-1 EXHIBIT B DEPOSIT BANKS, LOCK BOXES AND DEPOSIT ACCOUNTS DEPOSIT BANK NAME AND ADDRESS LOCK BOX (POST OFFICE DEPOSIT ACCOUNT BOX) NUMBER NUMBER Mellon Bank, Pittsburgh 360321 - Mellon Bank - 069-3636 ACCOUNT BANKS AND GOVERNMENTAL ENTITY RECEIVABLES ACCOUNTS ACCOUNT BANK NAME AND ADDRESS LOCK BOX (POST OFFICE GOVERNMENTAL BOX) NUMBER ENTITY RECEIVABLES ACCOUNT NUMBER MELLON BANK, PHILADELPHIA 007020 - MELLON BANK, PITTSBURGH 371115 - MELLON BANK - 103-7294 B-1 EXHIBIT C Intentionally Omitted C-1 EXHIBIT D ADDRESSES PURCHASER: Rite Aid Funding I 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Robert Sari Facsimile No. (717) 760-7867 SELLER AND Rite Aid Hdqtrs. Funding, Inc. COLLECTION AGENT: 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Robert Sari Facsimile No. (717) 760-7867 D-1

Exhibit 10.6 TERTIARY PURCHASE AGREEMENT Dated as of September 21, 2004 Among RITE AID FUNDING I, as Seller, RITE AID FUNDING II, as Purchaser, and RITE AID HDQTRS. FUNDING, INC., as Collection Agent TABLE OF CONTENTS Page ---- PRELIMINARY STATEMENTS......................................................................................1 ARTICLE I DEFINITIONS.....................................................................................1 SECTION 1.01. Certain Defined Terms...................................................................1 SECTION 1.02. Other Terms............................................................................14 ARTICLE II AMOUNTS AND TERMS OF PURCHASES.................................................................14 SECTION 2.01. Facility...............................................................................14 SECTION 2.02. Making Purchases.......................................................................14 SECTION 2.03. Collections............................................................................16 SECTION 2.04. Settlement Procedures..................................................................16 SECTION 2.05. Payments and Computations, Etc.........................................................16 ARTICLE III CONDITIONS OF PURCHASES........................................................................17 SECTION 3.01. Conditions Precedent to Initial Purchase from the Seller...........................17 SECTION 3.02. Conditions Precedent to All Purchases..............................................18 ARTICLE IV REPRESENTATIONS AND WARRANTIES.................................................................19 SECTION 4.01. Representations and Warranties of the Seller.......................................19 ARTICLE V COVENANTS .....................................................................................22 SECTION 5.01. Covenants of the Seller............................................................22 SECTION 5.02. Grant of Security Interest.........................................................27 ARTICLE VI ADMINISTRATION AND COLLECTION..................................................................28 SECTION 6.01. Designation of Collection Agent....................................................28 SECTION 6.02. Duties of Collection Agent.........................................................28 SECTION 6.03. Collection Agent Fee...............................................................29 SECTION 6.04. Certain Rights of the Purchaser....................................................29 SECTION 6.05. Rights and Remedies. ..............................................................30 SECTION 6.06. Transfer of Records to Purchaser...................................................31 ARTICLE VII EVENTS OF TERMINATION......................................................................31 SECTION 7.01. Events of Termination..............................................................31 ARTICLE VIII INDEMNIFICATION............................................................................34 SECTION 8.01. Indemnities by the Seller..........................................................34 ARTICLE IX MISCELLANEOUS..................................................................................36 i Page ---- SECTION 9.01. Amendments, Etc....................................................................36 SECTION 9.02. Notices, Etc.......................................................................36 SECTION 9.03. Binding Effect; Assignability......................................................36 SECTION 9.04. Costs, Expenses and Taxes..........................................................37 SECTION 9.05. No Proceedings.....................................................................37 SECTION 9.06. Confidentiality....................................................................37 SECTION 9.07. GOVERNING LAW......................................................................38 SECTION 9.08. Third Party Beneficiary............................................................38 SECTION 9.09. Execution in Counterparts..........................................................38 SECTION 9.10. Consent to Jurisdiction............................................................38 SECTION 9.11. WAIVER OF JURY TRIAL...............................................................39 SECTION 9.12. Judgment...........................................................................39 SCHEDULE 1 Intentionally Omitted SCHEDULE 2 MONTHS EXHIBIT A CREDIT AND COLLECTION POLICY EXHIBIT B DEPOSIT BANKS, LOCK BOXES AND DEPOSIT ACCOUNTS; ACCOUNT BANKS AND GOVERNMENTAL ENTITY RECEIVABLES ACCOUNTS EXHIBIT C Intentionally Omitted EXHIBIT D ADDRESSES ii TERTIARY PURCHASE AGREEMENT Dated as of September 21, 2004 Rite Aid Funding I, a Cayman Islands exempted company incorporated with limited liability on August 11, 2004 under the name Cayman Resources (21) Ltd. (registration number 138720) (the "Seller"), Rite Aid Funding II, a Cayman Islands exempted company incorporated with limited liability on August 11, 2004 under the name Cayman Resources (22) Ltd. (registration number 138722) (the "Purchaser") and Rite Aid Hdqtrs. Funding, Inc., a Delaware corporation (the "Collection Agent"), agree as follows: PRELIMINARY STATEMENTS. (1) Certain terms which are capitalized and used throughout this Agreement (in addition to those defined above) are defined in Article I of this Agreement. (2) The Seller has Receivables (or interests therein) that it wishes to sell to the Purchaser, and the Purchaser is prepared to purchase such Receivables (or interests therein) on the terms set forth in this Tertiary Purchase Agreement (this "Agreement"). NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Account Bank" has the meaning given to such term in the definition of Governmental Entity Receivables Agreement. "Adverse Claim" means a lien, security interest, or other charge or encumbrance, or any other type of preferential arrangement. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person. "Alternate Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to the highest of: (a) the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time as Citibank, N.A.'s base rate; and (b) 1/2 of one percent above the Federal Funds Rate. "Business Day" means any day on which banks are not authorized or required to close in New York City. "Capital Lease" means any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which, in accordance with GAAP, should be capitalized on the lessee's balance sheet. "Capital Lease Obligation" of any Person means the obligations of such Person to pay rent or other amounts under any Capital Lease, which obligations should be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "CHAMPUS" means the Civilian Health and Medical Program of the Uniformed Service, a program of medical benefits covering former and active members of the uniformed services and certain of their dependents, financed and administered by the United States Departments of Defense, Health and Human Services and Transportation and established pursuant to 10 U.S.C. ss.ss. 1071-1106, and all regulations promulgated thereunder including without limitation (a) all federal statutes (whether set forth in 10 U.S.C. ss.ss. 1071-1106 or elsewhere) affecting CHAMPUS and (b) all rules, regulations (including 32 CFR 199), manuals, orders and administrative, reimbursement and other guidelines of all Governmental Entities (including, without limitation, the Department of Health and Human Services, the Department of Defense, the Department of Transportation, the Assistant Secretary of Defense (Health Affairs) and the Office of CHAMPUS, or any Person or entity succeeding to the functions of any of the foregoing) promulgated pursuant to or in connection with any of the foregoing (whether or not having the force of law) in each case, as amended, supplemented or otherwise modified from time to time. "CMS" means Centers for Medicare & Medicaid Services of the Department of Health and Human Services, and any successor agency. "Collection Agent" means at any time the Person then authorized pursuant to Section 6.01 to service, administer and collect Purchased Assets. "Collection Agent Fee" has the meaning specified in Section 6.03. 2 "Collections" means, (a) with respect to any Receivable, all cash collections and other cash proceeds of such Receivable, including, without limitation, all cash proceeds of Related Security with respect to such Receivable, and all funds deemed to have been received by the applicable Originator, the Collection Agent, the Seller or any other Person as a Collection pursuant to Section 2.04, and (b) with respect to any Participation Interest, all cash collections and other cash proceeds of the Government Receivable underlying such Participation Interest, including, without limitation, all cash proceeds of Related Security with respect to such Participation Interest, and all funds deemed to have been received by the applicable Originator, the Seller, the Collection Agent or any other Person as a Collection pursuant to Section 2.04. "Contract" means an agreement between an Originator and a Person, or between a PBM and a Contract Payor, pursuant to or under which such Person or Contract Payor shall be obligated to pay for pharmaceutical merchandise sold by such Originator or its Affiliates from time to time. "Contract Payor" means a Person who is required under its agreement with a PBM to make payments to such PBM who, in turn, pays such amounts to an Originator on such Person's behalf. "Credit and Collection Policy" means those receivables credit and collection policies and practices of the Seller, the Collection Agent and the Originators in effect on the date of this Agreement applicable to the Receivables and described in Exhibit A hereto, as modified in compliance with this Agreement. "Debt" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (e) all Debt of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Adverse Claim on property owned or acquired by such Person, whether or not the Debt secured thereby has been assumed, (f) all Guarantees by such Person of Debt of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Debt of any Person shall include the Debt of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent of the terms of such Debt provide that such Person is not liable therefor. 3 "Defaulted Participation Interest" means a Participation Interest in a Government Receivable which is a Defaulted Receivable. "Defaulted Receivable" means a Receivable: (i) as to which any payment, or part thereof, remains unpaid for [120] or more days from the original date of service relating to such Receivable; (ii) as to which the Obligor thereof or any other Person obligated thereon or owning any Related Security in respect thereof has taken any action, or suffered any event to occur, of the type described in Section 7.01(g); (iii) which, consistent with the Credit and Collection Policy, would be written off as uncollectible; or (iv) as to which the applicable Originator, the Collection Agent or the Seller has (or consistent with the Credit and Collection Policy should have) established a specific reserve for non-payment. "Deposit Account" means an account maintained at a Deposit Bank into which (i) Collections in the form of checks and other items are deposited that have been sent to one or more related Lock Boxes by Obligors (other than the Contract Payors paying a PBM) and/or (ii) Collections in the form of electronic funds transfers and other items are paid directly by Obligors (other than the Contract Payors paying a PBM) and (iii) which is subject to a Deposit Account Agreement. "Deposit Account Agreement" means an agreement among an Originator, HQ (or its assignees or designees) and any Deposit Bank in form and substance satisfactory to the Purchaser (or its assignees or designees). "Deposit Bank" means any of the banks holding one or more Deposit Accounts. "Designated Obligor" means, at any time, each Obligor; provided, however, that any Obligor shall cease to be a Designated Obligor upon three Business Days' notice by the Purchaser (or its assignees or designees) to the applicable Seller. "Determination Date" means the seventh Business Day after the end of each Month, provided that if an Event of Termination has occurred and is continuing, the Seller or the Purchaser may designate more frequent Determination Dates. "Diluted Participation Interest" means a Participation Interest in a Government Receivable which is a Diluted Receivable. 4 "Diluted Receivable" means that portion (and only that portion) of any Receivable which is either (a) reduced or canceled as a result of (i) any defective, rejected or returned merchandise or services or any failure by an Originator to deliver any merchandise or provide any services or otherwise to perform under the underlying Contract, (ii) any change in the terms of or cancellation of, a Contract or any cash discount, discount for quick payment or other adjustment by an Originator which reduces the amount payable by the Obligor on the related Receivable (except any such change or cancellation resulting from or relating to the financial inability to pay or insolvency of the Obligor of such Receivable) or (iii) any set-off by an Obligor in respect of any claim by such Obligor as to amounts owed by it on the related Receivable (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (b) subject to any specific dispute, offset, counterclaim or defense whatsoever (except the discharge in bankruptcy of the Obligor thereof); provided that Diluted Receivables are calculated assuming that all chargebacks are resolved in the Obligor's favor. "Discount" means, in respect of each Purchase, 2.00% of the Outstanding Balance of the Receivables that are the subject of such Purchase; provided, however, the foregoing Discount may be revised prospectively by request of the Seller or the Purchaser to reflect changes in recent experience with respect to write-offs, timing and cost of Collections and cost of funds, provided that such revision is consented to by the Seller and the Purchaser (it being understood that each party agrees to duly consider such request but shall have no obligation to give such consent). "Eligible Receivable" means a Receivable: (i) the Obligor of which is a United States resident, is not an Affiliate of the Parent, and is not a Governmental Entity, except to the extent payment of such Receivable is governed under the Social Security Act (42 U.S.C. ss. 1395, et seq.), including payments under Medicaid and CHAMPUS or regulated by CMS; (ii) the Obligor of which, at the time of the transfer of such Receivable under this Agreement, is a Designated Obligor; (iii) which, at the time of the transfer thereof to the Purchaser under this Agreement, is not a Defaulted Receivable; (iv) the Obligor of which, at the time of the transfer of such Receivable under this Agreement, is not the Obligor of any Defaulted Receivables which in the aggregate constitute 50% or more of the aggregate Outstanding Balance of all Receivables of such Obligor; 5 (v) which has been billed and, according to the Contract related thereto, is required to be paid in full within 60 days of the original billing date therefor; (vi) which is an obligation representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended, and the nature of which is such that its purchase with the proceeds of notes would constitute a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended; (vii) which is an "account" or a "payment intangible" within the meaning of Article 9 of the UCC of the applicable jurisdictions; (viii) which is denominated and payable only in United States dollars in the United States; (ix) which arises under a Contract which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable and is not subject to any Adverse Claim or any dispute, offset, counterclaim or defense whatsoever (except the potential discharge in bankruptcy of such Obligor and except with respect to adjudication fees charged by any relevant PBM) and is not settled on a net basis; (x) which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Contract related thereto is in violation of any such law, rule or regulation in any material respect; (xi) which arises under a Contract (other than a Contract with respect to which the related Obligor is a Governmental Entity) which (A) does not contain an enforceable provision requiring the Obligor under such Contract to consent to the transfer, sale or assignment of the Obligor's payment obligation by the applicable Originator, and (B) if such Contract is between a PBM and a Contract Payor, does not contain any enforceable provision prohibiting the transfer, sale or assignment of such Contract Payor's payment obligation to the applicable Originator; (xii) which was generated in the ordinary course of the applicable Originator's business; 6 (xiii) which, at the time of the transfer of such Receivable under this Agreement, has not been extended, rewritten or otherwise modified from the original terms thereof; (xiv) the transfer, sale or assignment of which in accordance with the Transaction Documents does not contravene any applicable law, rule or regulation; (xv) which (A) satisfies all applicable requirements of the Credit and Collection Policy and (B) complies with such other criteria and requirements (other than those relating to the collectibility of such Receivable) as the Purchaser or its assignees may from time to time reasonably specify to the Seller upon 30 days' notice; (xvi) as to which, at or prior to the later of the date of this Agreement and the date such Receivable is created, the Purchaser or its assignees has not notified the Seller that such Receivable (or class of Receivables) is no longer reasonably acceptable for purchase hereunder; (xvii) as to which the applicable Originator has satisfied and fully performed all obligations required to be fulfilled by it; (xviii) as to which the applicable Originator has, or has the right to use, valid provider identification numbers and licenses to generate valid Receivables and all information set forth in the bill and supporting claim documents with respect to such Receivable is true, complete and correct; (xix) as to which the applicable Originator has, or has the right to use, valid provider identification numbers and licenses to generate valid reports with respect to such Receivable, and all cost reports required by the applicable state agency or other CMS-designated agents or agents of such state agency; (xx) which does not arise from a sale by the applicable Originator from a store located in Hawaii, Illinois, Minnesota, Montana or New Mexico, unless the applicable Originator shall have furnished the Seller and its assignees with an opinion of local counsel, or other evidence satisfactory to the Seller and its assignees, to the effect that the transfer, sale and assignment of Receivables and Participation Interests in accordance with this Agreement from a store located in such state does not violate any provision of the law of such state; and (xxi) which is not a Medicare Receivable. 7 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Event of Termination" has the meaning specified in Section 7.01. "Facility Termination Date" means the earliest of (i) the "Facility Termination Date" (as such term is defined in the Financing Agreement), (ii) the date determined pursuant to Section 7.01 and (iii) the date which the Seller designates by at least two Business Days prior notice to the Purchaser and its assignees (including the Program Agent under the Financing Agreement). "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day on such transactions received by Citibank, N.A. from three Federal funds brokers of recognized standing selected by it. "Financial Officer" means the chief financial officer, principal accounting officer, treasurer, vice president of financial accounting or controller of the relevant Person. "Financing Agreement" means that certain Receivables Financing Agreement, dated as of the date hereof, among the Purchaser, as borrower, CAFCO, LLC, Jupiter Securitization Corporation and Blue Ridge Asset Funding Corporation, each as an investor, Citibank, N.A., Bank One, NA and Wachovia Bank, National Association, each as a bank, Citicorp North America, Inc., as program agent, Citicorp North America, Inc., Bank One, NA and Wachovia Bank, National Association, each as an investor agent, the other investors, banks and investor agents party thereto from time to time, Rite Aid Hdqtrs. Funding, Inc., as the collection agent, the parties thereto named as Originators, and JPMorgan Chase Bank as trustee, as amended or restated from time to time. "GAAP" means generally accepted accounting principles in the United States. "General Trial Balance" for the Seller on any date means the Seller's (or the Collection Agent's) accounts receivable trial balance (whether in the form of a computer printout, magnetic tape or diskette) on such date, listing Obligors (other than Contract Payors) and the Receivables respectively owed by such Obligors on such date together 8 with the aged Outstanding Balances of such Receivables, in form and substance satisfactory to the Purchaser. "Government Receivable" means any Receivable with respect to which the Obligor is a Governmental Entity. "Governmental Entity" means the United States of America, any state, any political subdivision of a state and any agency or instrumentality of the United States of America or any state or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. Payments from Governmental Entities shall be deemed to include payments governed under the Social Security Act (42 U.S.C. ss. 1395, et seq.), including payments under Medicare, Medicaid and CHAMPUS, and payments administered or regulated by CMS. "Governmental Entity Receivables Account Notice" means a notice contained in a Governmental Entity Receivables Agreement pursuant to which an Affiliate of the Parent gives revocable standing instructions to the Account Bank to sweep funds on a daily basis from the Governmental Entity Receivables Account to another designated account approved by the Purchaser and its assigns. "Governmental Entity Receivables Account" has the meaning given to such term in the definition of Governmental Entity Receivables Agreement. "Governmental Entity Receivables Agreement" means an agreement between a bank (an "Account Bank") and one or more Originators or Affiliates of the Parent with respect to one or more accounts (each, a "Governmental Entity Receivables Account") or associated Lock-Boxes into which Collections on account of Receivables of Governmental Entities are deposited or remitted and which is subject to a Governmental Entity Receivables Account Notice. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Debt or other obligation of any Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Debt or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Debt or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Debt or 9 obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "HQ" means Rite Aid Hdqtrs. Funding, Inc., a Delaware corporation. "Incipient Event of Termination" means an event that but for notice or lapse of time or both would constitute an Event of Termination. "Indemnified Amounts" has the meaning specified in Section 8.01. "Intercreditor Agreement" means that certain Intercreditor Agreement dated as of September 22, 2004 among Citicorp North America, Inc. (as program agent under the Financing Agreement), the Borrower, the Originators, the Seller, and Citicorp North America, Inc. and JPMorgan Chase Bank, as collateral agents, as the same may be amended, modified or restated from time to time. "Lock-Box" means a post office box either (a) administered by a Deposit Bank for the purpose of receiving Collections, which is the subject of a Deposit Account Agreement, or (b) which receives Collections of Government Receivables and is associated with a Government Entity Receivables Account that is subject to a Governmental Entity Receivables Agreement. "Material Adverse Effect" means a material adverse effect on (i) the collectibility of the Receivables, (ii) the ability of the Purchaser, the Seller, the Collection Agent or any Originator to perform any of its respective material obligations under the Transaction Documents to which it is a party, (iii) the legality, validity or enforceability of the Transaction Documents (including, without limitation, the validity, enforceability or priority of the ownership interests and security interests granted hereunder) or the rights of or benefits available to the Purchaser under the Transaction Documents, or (iv) the business, assets, operations, condition (financial or otherwise), or prospects of the Parent and its subsidiaries, taken as a whole. "Medicaid" means the medical assistance program established by Title XIX of the Social Security Act (42 U.S.C. Secs. 1396 et seq.) and any statutes succeeding thereto. "Medicare" means the health insurance program for the aged and disabled established by Title XVIII of the Social Security Act (42 U.S.C. Secs. 1395 et seq.) and any statutes succeeding thereto. "Month" means a fiscal month of the Parent as set forth on Schedule 2 hereto, as such schedule shall be updated from time to time in accordance with the terms hereof. 10 "Obligor" means a Person obligated to make payments to an Originator pursuant to a Contract; provided, however, if a PBM acts as agent for Contract Payors and is obligated, pursuant to a Contract, to turn over to an Originator payments made to it by such Contract Payors, then the term "Obligor" shall include both such PBM and such Contract Payors. "Originator" means each of the Persons designated as such on Schedule I to the Originator Purchase Agreement. "Originator Purchase Agreement" means the Purchase Agreement dated as of the date of this Agreement among the Originators, as sellers and HQ, as purchaser and collection agent, as amended or restated from time to time. "Outstanding Balance" means at any time (i) with respect to any Receivable, the then outstanding principal balance thereof and (ii) with respect to any Participation Interest, the then outstanding principal balance of the underlying Government Receivable. Any sales or use tax billed in connection with a Receivable is not included in the Outstanding Balance. "Parent" means Rite Aid Corporation, a Delaware corporation. "Parent Undertaking (Originators)" means the Undertaking Agreement dated as of September 21, 2004 made by the Parent in favor of HQ relating to obligations of the Originators, as amended, modified or restated from time to time. "Participated Receivable" means any Receivable which is the subject of a Purchased Participation Interest. "Participation Interest" means, with respect to any Originator, a 100% undivided beneficial interest in such Originator's right, title and interest, whether now owned or hereafter arising and wherever located, in, to and under (i) each Government Receivable owned by such Originator, (ii) all Related Security and Collections with respect to such Government Receivable and (iii) all proceeds of such Government Receivable, Related Security, and Collections. "PBM" means a pharmaceutical benefits manager which has entered into an agreement with an Originator to make payments as agent for various insurers and other Persons, on account of pharmaceutical goods sold by such Originator. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a Governmental Entity. 11 "Purchase" means a purchase by the Purchaser of Receivables and/or Participation Interests from the Seller pursuant to Article II (including a purchase paid for in whole or in part by a capital contribution). "Purchase Date" means each day on which a Purchase is made pursuant to Article II. "Purchase Price" for any Purchase means an amount equal to the Outstanding Balance of the Receivables that are the subject of such Purchase as set forth in the Seller's General Trial Balance, minus the Discount for such Purchase. "Purchased Asset" means any Purchased Receivable or Purchased Participation Interest. "Purchased Participation Interest" means any Participation Interest which is purchased or purported to be purchased by the Purchaser pursuant to Article II (including a Participation Interest which is contributed by the Seller to the Purchaser). "Purchased Receivable" means any Receivable (other than a Government Receivable) which is purchased or purported to be purchased by the Purchaser pursuant to Article II (including a Receivable (other than a Government Receivable) which is contributed by the Seller to the Purchaser). "Receivable" means the indebtedness or obligation of any Obligor resulting from the provision or sale of pharmaceutical merchandise by an Originator (or an Affiliate on behalf of such Originator) under a Contract (whether constituting an account, instrument, chattel paper, payment intangible or general intangible), and includes the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto. "Related Security" means (a) with respect to any Receivable: (i) all of the applicable Originator's interest in merchandise, if any, (including returned merchandise) relating to any sale giving rise to such Receivable; (ii) all security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements filed against an Obligor describing any collateral securing such Receivable; 12 (iii) all guaranties, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise; (iv) the Contract and all other books, records and other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights, subject to the rights of any licensors and to applicable law) relating to such Receivable and the related Obligor; and (v) the Originator Purchase Agreement, the Secondary Purchase Agreement and the Parent Undertaking (Originators) and all rights of the Seller to receive monies due or to become due thereunder, and (b) with respect to any Participation Interest, the Related Security with respect to the Government Receivable that is the subject of such Participation Interest. "RFA Final Payment Date" means the later of the "Facility Termination Date" (as such term is defined in the Financing Agreement) and the date on which all Principal, Yield, fees and other obligations under the Financing Agreement are paid in full. "Secondary Purchase Agreement" means the purchase agreement, dated as of the date hereof, among HQ, as seller and collection agent and the Seller, as purchaser, as amended or restated from time to time. "Secured Obligations" has the meaning given to such term in Section 5.02 hereof. "Seller Collateral" has the meaning given to such term in Section 5.02 hereof. "Seller Report" means a report, in form and substance satisfactory to the Purchaser, furnished by the Collection Agent to the Purchaser pursuant to Section 6.02(b). "Settlement Date" means a Distribution Date (as such term is defined in the Financing Agreement); provided, however, that following the occurrence of an Event of Termination, Settlement Dates shall occur on such days as are selected from time to time by the Purchaser or its assignees in a written notice to the Collection Agent. "Transaction Document" means any of this Agreement, the Originator Purchase Agreement, the Secondary Purchase Agreement, the Deposit Account Agreements, the Governmental Entity Receivables Agreements, all amendments to any of the foregoing and all other agreements and documents delivered and/or related hereto or thereto. 13 "UCC" means the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction. SECTION 1.02. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. ARTICLE II AMOUNTS AND TERMS OF PURCHASES SECTION 2.01. Facility. On the terms and conditions hereinafter set forth and without recourse to the Seller (except to the extent specifically provided herein), the Seller shall sell and/or contribute to the capital of the Purchaser all of its right, title and interest in, to and under (i) all Receivables (other than Government Receivables) acquired by it from time to time, and (ii) all Participation Interests in all Government Receivables acquired by it from time to time, and the Purchaser shall purchase and/or accept as a contribution from the Seller all such Receivables (other than Government Receivables) and all Participation Interests in Government Receivables of the Seller from time to time, in each case during the period from the date hereof to the Facility Termination Date. SECTION 2.02. Making Purchases. (a) Initial Purchase. The Seller shall give the Purchaser at least one Business Day's notice of its request for the initial Purchase, which request shall specify the date of such Purchase (which shall be a Business Day) and the proposed Purchase Price for such Purchase. The Purchaser shall promptly notify the Seller whether it has determined to make such Purchase. On the date of such Purchase, the Seller shall sell or contribute to the capital of Purchaser (i) all Receivables (other than Government Receivables) acquired by the Seller pursuant to the Originator Purchase Agreement and (ii) all Participation Interests acquired by the Seller pursuant to the Originator Purchase Agreement, and the Purchaser shall, upon satisfaction of the applicable conditions set forth in Article III, pay the Purchase Price for such Purchase in the manner provided in Section 2.02(d). Effective upon such payment, the Seller hereby sells, conveys, transfers and assigns to the Purchaser (i) all Receivables (other than Government Receivables) acquired by it and in existence on the date of the initial Purchase and (ii) all Participation Interests in all Government Receivables acquired by it and in existence on the date of the initial Purchase. (b) Subsequent Purchases. On each Business Day following the initial Purchase, unless the Seller or the Purchaser shall notify the other party to the contrary (with a copy to the Collection Agent), the Seller shall sell to the Purchaser and the Purchaser shall purchase from such Seller, upon satisfaction of the applicable conditions set forth in Article III, (i) all Receivables (other than Government Receivables) acquired by the Seller and (ii) all 14 Participation Interests in all Government Receivables acquired by the Seller, in each case which have not previously been sold and/or contributed to the Purchaser. The Purchaser shall pay the Purchase Price for such Purchase in the manner provided in Section 2.02(d). Effective on each Purchase Date, the Seller hereby sells, conveys, transfers and assigns to the Purchaser (i) all Receivables (other than Government Receivables) acquired by it and not previously sold, conveyed, transferred or assigned to the Purchaser and (ii) all Participation Interests in all Government Receivables acquired by it and not previously sold, conveyed, transferred or assigned to the Purchaser. (c) Special Provisions Relating to Sales of Participation Interests. Pursuant to the Originator Purchase Agreement, each Originator has agreed, following each sale of a Participation Interest in a Government Receivable, to hold such Government Receivable and any Related Security, Collections and proceeds with respect thereto for the benefit of the Seller and its assigns; provided that such Originator shall take no action in contravention of any law, rule or regulation applicable to such Government Receivable. It is understood and agreed that sales of Participation Interests in Government Receivables shall not include any right to collect the proceeds of any Government Receivable directly from the applicable Governmental Entity, except insofar as a court of competent jurisdiction shall order such Governmental Entity to make such payments directly to the Purchaser or its assigns. (d) Payment of Purchase Price. The Purchase Price for the initial Purchase shall be paid on the Purchase Date therefor and the Purchase Price for each subsequent Purchase shall be paid on the next Settlement Date (without giving effect to the proviso in the definition thereof) after the Purchase Date therefor, in each case, by means of any one or a combination of the following: (i) a deposit in same day funds to the Seller's account designated by the Seller, and/or (ii) a contribution to the capital of the Purchaser. To the extent that on any date set for the payment of Purchase Price, the Purchaser does not have sufficient funds to pay the entire Purchase Price in cash, the amount in excess of the cash portion of the Purchase Price paid by the Purchaser shall constitute a contribution to the capital of the Purchaser by the Seller, and the parties hereto will make the appropriate accounting entries in their books and records to reflect such allocation of the Purchase Price as between cash payment and capital contribution. It is agreed by the parties hereto that the portion of the Purchase Price for the initial Purchase allocated to a capital contribution is $394,971,504.26. (e) Ownership of Receivables, Participation Interests and Related Security. On each Purchase Date, after giving effect to the Purchase on such date, the Purchaser shall own (i) all Receivables (other than Government Receivables) acquired by the Seller as of such date (including Receivables which have been previously sold and/or contributed to the Purchaser hereunder), and (ii) all Participation Interests in all Government Receivables acquired by the Seller as of such date (including Participation Interests in Government Receivables which have been previously sold and/or contributed to the Purchaser hereunder). The Purchase of any Receivable or Participation Interest shall include all Related Security with respect to such Receivable or Participation Interest. 15 SECTION 2.03. Collections. (a) Unless otherwise agreed, the Collection Agent shall, on each Settlement Date, deposit into an account of the Purchaser or the Purchaser's assignee all Collections of Purchased Assets then held by the Collection Agent. (b) In the event that the Seller believes that Collections which are not Collections of Purchased Assets have been deposited into an account of the Purchaser or the Purchaser's assignee, the Seller shall notify the Collection Agent who shall so advise the Purchaser and, on the Business Day following such identification, the Purchaser shall remit, or shall cause to be remitted, all Collections so deposited which are identified, to the Purchaser's satisfaction, to be Collections of Receivables which are not either Purchased Receivables or Participated Receivables to the Seller. SECTION 2.04. Settlement Procedures. (a) If on any day any Purchased Asset becomes (in whole or in part) a Diluted Receivable or a Diluted Participation Interest (as the case may be), the Seller shall be deemed to have received on such day a Collection of such Purchased Asset in the amount of such Diluted Receivable or Diluted Participation Interest (as the case may be). The Seller shall pay to the Collection Agent on or prior to the next Settlement Date all amounts deemed to have been received pursuant to this subsection. (b) Upon discovery by the Seller or the Purchaser of a breach of any of the representations and warranties made by the Seller in Section 4.01(j) with respect to any Purchased Asset, such party shall give prompt written notice thereof to the Purchaser, the Collection Agent, and the Seller, as soon as practicable and in any event within three Business Days following such discovery. The Seller shall, upon not less than two Business Days' notice from the Purchaser or its assignee or designee, repurchase such Purchased Asset on the next succeeding Settlement Date for a repurchase price equal to the Outstanding Balance of such Purchased Asset. Each repurchase of a Purchased Asset shall include the Related Security with respect to such Purchased Asset. The proceeds of any such repurchase shall be deemed to be a Collection in respect of such Purchased Asset. The Seller shall pay to the Collection Agent on or prior to the next Settlement Date the repurchase price required to be paid pursuant to this subsection. (c) Except as stated in subsection (a) or (b) of this Section 2.04 or as otherwise required by law or the underlying Contract, all Collections from an Obligor of any Purchased Receivable or Participated Receivable shall be applied to the Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates its payment for application to specific Receivables. SECTION 2.05. Payments and Computations, Etc. (a) All amounts to be paid or deposited by the Seller or the Collection Agent hereunder shall be paid or deposited no later than 12:00 noon (New York City time) on the day when due in same day funds to an account or accounts designated by the Purchaser from time to time, which accounts, during the existence of the Financing Agreement, shall be those set forth in the Financing Agreement. 16 (b) The Seller shall, to the extent permitted by law, pay to the Purchaser interest on any amount not paid or deposited by the Seller (whether as Collection Agent or otherwise) when due hereunder at an interest rate per annum equal to 2% per annum above the Alternate Base Rate, payable on demand. (c) All computations of interest and all computations of fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. ARTICLE III CONDITIONS OF PURCHASES SECTION 3.01. Conditions Precedent to Initial Purchase from the Seller. The initial Purchase of Receivables and/or Participation Interests from the Seller hereunder is subject to the conditions precedent that the Purchaser shall have received on or before the date of such Purchase the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Purchaser: (a) Certified copies of the resolutions (or similar authorization, if not a corporation) of the Board of Directors (or similar governing body or Persons, if not a corporation) of the Seller approving this Agreement and certified copies of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement. (b) A certificate of the Secretary or Assistant Secretary of the Seller certifying the names and true signatures of the officers of such Seller authorized to sign this Agreement and the other documents to be delivered by it hereunder. (c) Copies of proper financing statements, duly filed on or before the date of the initial Purchase, naming the Seller as the seller/debtor and the Purchaser as the purchaser/secured party, or other similar instruments or documents, as the Purchaser may deem necessary or desirable under the UCC of all appropriate jurisdictions or other applicable law to perfect the Purchaser's ownership of and security interest in the Purchased Assets and Related Security and Collections with respect thereto. (d) Copies of proper financing statements, if any, necessary to release all security interests and other rights of any Person in the Purchased Assets, Contracts or Related Security previously granted by the Seller, except those evidencing security interests subject to the Intercreditor Agreement. 17 (e) Completed requests for information, dated on or before the date of such initial Purchase, listing all effective financing statements filed in the jurisdictions referred to in subsection (c) above that name the Seller as debtor, together with copies of such other financing statements (none of which shall cover any Purchased Assets, Contracts or Related Security except those evidencing security interests subject to the Intercreditor Agreement). (f) A favorable opinion of (i) Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Seller, in form and substance satisfactory to the Purchaser, (ii) Chapman & Cutler relating to various states' local perfection issues and (iii) Parent's general counsel, in each case, as to such matters as the Purchaser may reasonably request, and (g) Executed copies of (i) Deposit Account Agreements with each Deposit Bank and (ii) Governmental Entity Receivables Agreements with each Account Bank. (h) A copy of the Memorandum and Articles of Association of the Seller, certified by the Secretary or Assistant Secretary of the Seller. SECTION 3.02. Conditions Precedent to All Purchases. Each Purchase (including the initial Purchase) hereunder shall be subject to the further conditions precedent that: (a) with respect to any such Purchase, on or prior to the date of such Purchase, the Seller shall have delivered to the Purchaser, if requested by the Purchaser, (i) the Seller's General Trial Balance (which if in magnetic tape or diskette format shall be compatible with the Purchaser's computer equipment) as of a date not more than 31 days prior to the date of such Purchase, and (ii) such additional information concerning the Receivables and Participation Interests to be purchased as may reasonably be requested by the Purchaser; (b) with respect to any such Purchase, on or prior to the date of such Purchase, the Collection Agent shall have delivered to the Purchaser, in form and substance satisfactory to the Purchaser, a completed Seller Report for the most recently ended reporting period for which information is required pursuant to Section 6.02(b) and containing such additional information as may reasonably be requested by the Purchaser; (c) the Seller shall have marked its master data processing records and, at the request of the Purchaser, each Contract giving rise to Purchased Assets and all other relevant records evidencing the Receivables and Participation Interests which are the subject of such Purchase with a legend, acceptable to the Purchaser, stating that such Receivables and Participation Interests, together with the Related Security and Collections with respect thereto, have been sold in accordance with this Agreement; and 18 (d) on the date of such Purchase the following statements shall be true (and the Seller, by accepting the Purchase Price for such Purchase, shall be deemed to have certified that): (i) The representations and warranties made by the Seller in Section 4.01 are correct on and as of the date of such Purchase as though made on and as of such date, (ii) No event has occurred and is continuing, or would result from such Purchase, that constitutes an Event of Termination or an Incipient Event of Termination and (iii) The Purchaser shall not have delivered to the Seller a notice that the Purchaser shall not make any further Purchases hereunder; and (e) the Purchaser shall have received such other approvals, opinions or documents as the Purchaser may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Seller. The Seller represents and warrants as follows: (a) The Seller is an exempted company incorporated with limited liability validly existing and in good standing under the laws of the Cayman Islands, and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified. (b) The execution, delivery and performance by the Seller of this Agreement and the other documents to be delivered by it hereunder, including the Seller's sale of Receivables and Participation Interests hereunder and the Seller's use of the proceeds of Purchases, (i) are within the Seller's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene (1) the Seller's Memorandum and Articles of Association, (2) any law, rule or regulation applicable to the Seller, (3) any contractual restriction binding on or affecting the Seller or its property or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Seller or its property, and (iv) do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties (except for the interest created pursuant to this Agreement). This Agreement has been duly executed and delivered by the Seller. 19 (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Seller of this Agreement or any other document to be delivered by it hereunder, except for the filing of UCC financing statements referred to herein. (d) Each of the Transaction Documents to which it is a party constitutes the legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and general equitable principles (whether considered in a proceeding at law or in equity). (e) Purchases made pursuant to this Agreement will constitute a valid sale, transfer, and assignment of the Purchased Assets to, or contributions of the Purchased Assets to the capital of, the Purchaser, enforceable against creditors of, and purchasers from, the Seller. The Seller shall have no remaining property interest in any Purchased Asset. (f) (i) The fair value of the property of the Seller is greater than the total amount of liabilities, including contingent liabilities, of the Seller, (ii) the present fair salable value of the assets of the Seller is not less than the amount that will be required to pay all probable liabilities of the Seller on its debts as they become absolute and matured, (iii) the Seller does not intend to, and does not believe that it will, incur debts or liabilities beyond the Seller's abilities to pay such debts and liabilities as they mature and (iv) the Seller is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which the Seller's property would constitute unreasonably small capital. (g) There is no pending or threatened action, investigation or proceeding affecting the Seller or any of its subsidiaries before any court, governmental agency or arbitrator which if determined adversely to any of them, could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (h) No proceeds of any Purchase will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934. (i) No transaction contemplated hereby requires compliance with any bulk sales act or similar law. (j) Each Receivable (including, without limitation, each Participated Receivable) sold and/or contributed by the Seller and characterized in any Seller Report (or, if applicable, as of a date certain specified in such report) as an Eligible Receivable is, as of the date of such Seller Report, an Eligible Receivable. Each Purchased Asset, together with the Related Security, is owned (immediately prior to its sale hereunder) by 20 the Seller free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by the Purchaser). When the Purchaser makes a Purchase it shall acquire valid and perfected first priority ownership of each Purchased Asset and the Related Security and Collections with respect thereto free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by the Purchaser), and no effective financing statement or other instrument similar in effect covering any Purchased Asset, any interest therein, the Related Security or Collections with respect thereto is on file in any recording office except such as may be filed in favor of HQ as purchaser under the Originator Purchase Agreement, in favor of the Seller in accordance with the Secondary Purchase Agreement, in favor of Purchaser in accordance with this Agreement or in connection with any Adverse Claim arising solely as the result of any action taken by the Purchaser or those which relate to security interests that are subject to the Intercreditor Agreement. (k) Each Seller Report (if prepared by the Seller, or to the extent that information contained therein is supplied by the Seller), information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time (whether before or after the date of this Agreement) by the Seller to the Purchaser in connection with this Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Purchaser at such time) as of the date so furnished (or, if applicable, as of a date certain specified in such report), and no such document contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. (l) The principal place of business and chief executive office of the Seller and the office where such Seller keeps its records concerning the Purchased Assets are located at the address or addresses referred to in Section 5.01(b). (m) The names and addresses of all the Deposit Banks and Account Banks, together with the post office boxes and account numbers of the Lock-Boxes, Deposit Accounts at such Deposit Banks, and Governmental Entity Receivables Accounts at such Account Banks are specified in Exhibit B (as the same may be updated from time to time pursuant to Section 5.01(g)). The Lock-Boxes, Deposit Accounts and Governmental Entity Receivables Accounts are the only post office boxes and bank accounts into which Collections of Receivables and Participation Interests are deposited or remitted. (n) The Seller is not known by and does not use any tradename or doing- business-as name. (o) With respect to any programs used by HQ in the servicing of the Receivables and Participation Interests, no sublicensing agreements are necessary in connection with the designation of a new Collection Agent pursuant to Section 6.01 so that such new Collection Agent shall have the benefit of such programs (it being understood 21 that, however, the Collection Agent, if other than HQ, shall be required to be bound by a confidentiality agreement reasonably acceptable to HQ (on behalf of itself and each of the Originators)). (p) The transfers of Purchased Assets by the Seller to the Purchaser pursuant to this Agreement, and all other transactions between the Seller and the Purchaser, have been and will be made in good faith and without intent to hinder, delay or defraud creditors of such Seller. (q) The Seller has timely filed or caused to be filed all required income tax and sales tax returns and reports and all other material tax returns and reports required to have been filed and has paid or caused to be paid all material taxes due pursuant to such returns or pursuant to any assessment received by the Seller, except where the payment of any such taxes is being contested in good faith by appropriate proceedings and for which the Seller has set aside on its books adequate reserves. The charges, accruals and reserves on the books of the Seller in respect of such taxes or charges imposed by all Governmental Entities are, in the opinion of the Seller, adequate for the payment thereof. (r) The Seller was incorporated on August 11, 2004 under the name Cayman Resources (21) Ltd., and the Seller did not engage in any business activities prior to the date of this Agreement. ARTICLE V COVENANTS SECTION 5.01. Covenants of the Seller. The Seller covenants from the date hereof until the first day following the Facility Termination Date on which all of the Purchased Assets are either collected in full or become Defaulted Receivables or Defaulted Participation Interests (as the case may be): (a) Compliance with Laws, Etc. The Seller will comply in all material respects with all applicable laws, rules, regulations and orders and preserve and maintain its corporate existence, rights, franchises, qualifications and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such rights, franchises, qualifications, and privileges could not reasonably be expected to result in a Material Adverse Effect. (b) Offices, Records, Name and Organization. The Seller will keep its principal place of business and chief executive office and the office where it keeps its records concerning the Purchased Assets at the address of the Seller set forth on Exhibit D hereto or, upon 30 days' prior written notice to the Purchaser and its assignees, at any other locations within the United States. The Seller will not change its name or its 22 jurisdiction of organization, unless (i) the Seller shall have provided the Purchaser and its assignees with at least 30 days' prior written notice thereof and (ii) no later than the effective date of such change, all actions required by Section 5.01(j) shall have been taken and completed. The Seller also will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Purchased Assets and related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Purchased Assets (including, without limitation, records adequate to permit the daily identification of each new Purchased Asset and all Collections of and adjustments to each existing Purchased Asset). The Seller shall make a notation in its books and records, including its computer files, to indicate that all of its Receivables and Participation Interests have been sold by it to the Purchaser hereunder. (c) Performance and Compliance with Contracts and Credit and Collection Policy. The Seller will, at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Purchased Receivables and Participated Receivables, and timely and fully comply in all material respects with the Credit and Collection Policy in regard to each Purchased Receivable, each Participated Receivable and the related Contract. (d) Sales, Liens, Etc. Except for the sales of Purchased Assets contemplated herein, the Seller will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any Purchased Asset, Receivable, Related Security, related Contract or Collections, or upon or with respect to any account to which any Collections of any Purchased Asset are sent, or assign any right to receive income in respect thereof. (e) Extension or Amendment of Purchased Assets. Except as provided in Section 6.02(c), the Seller will not extend, amend or otherwise modify the terms of any Purchased Receivable or Participated Receivable, or amend, modify or waive any term or condition of any Contract (to which it is a party) related thereto. (f) Change in Business or Credit and Collection Policy. The Seller will not make any change in the character of its business or in the Credit and Collection Policy that could, in either case, reasonably be expected to result in a Material Adverse Effect. (g) Change in Payment Instructions to Obligors. The Seller will not add or terminate any post office box, bank, or bank account as a Lock-Box, Deposit Bank, Deposit Account, Governmental Entity Receivables Account or Account Bank from those listed in Exhibit B to this Agreement, or make any change in its instructions to Obligors regarding payments to be made to any such box or account, unless the Purchaser shall have received notice of such addition, termination or change (including an updated Exhibit B) and a fully executed Deposit Account Agreement or Governmental Entity Receivables 23 Agreement with each new Deposit Bank or Account Bank, as the case may be, with respect to each new Lock-Box, Deposit Account, or Governmental Entity Receivables Account. (h) Deposits to Lock-Boxes, Deposit Accounts and Governmental Entity Receivables Accounts. The Seller will instruct all of the Obligors that are Governmental Entities other than Contract Payers to remit all their payments in respect of Participated Receivables to Governmental Entity Receivables Accounts or Lock-Boxes associated therewith. The Seller will instruct all of its Obligors that are not Governmental Entities (other than Contract Payors) to remit all their payments in respect of Purchased Receivables to Deposit Accounts or Lock-Boxes associated therewith. If the Seller shall receive any Collections directly, it shall immediately (and in any event within one Business Day) deposit the same to a Deposit Account or Governmental Entity Receivables Account, as the case may be. The Seller will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box, Deposit Account or Governmental Entity Receivables Account cash or cash proceeds other than Collections of Purchased Receivables and Participated Interests except as provided in the last sentence of this Section 5.01(h). In furtherance of the foregoing, the Collection Agent agrees (i) within 30 days from the date of this Agreement, to notify all Obligors that are not Governmental Entities (other than Contract Payors) to remit all their payments in respect of Purchased Receivables to Deposit Accounts or Lock-Boxes associated therewith and (ii) thereafter, to use ongoing commercially reasonable efforts to obtain compliance with such notice from those Obligors who have failed to so comply. The foregoing notwithstanding the Collection Agent acknowledges that collections on account of accounts receivable belonging to Drugstore.com are regularly deposited into the Governmental Entity Receivables Account and agrees to identify and remove such collections (from such account) within two Business Days after they are received. (i) Audits. The Seller will, from time to time during regular business hours as requested by the Purchaser or its assigns, permit the Purchaser, or its agents, representatives or assigns, (i) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of the Seller relating to Purchased Assets and the Related Security, including, without limitation, the related Contracts, and (ii) to visit the offices and properties of the Seller for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to Purchased Assets and the Related Security or the Seller's performance hereunder or under the Contracts with any of the officers or employees of the Seller having knowledge of such matters. (j) Further Assurances. (i) The Seller agrees from time to time, at its expense, promptly to execute and deliver all further instruments and documents, and to take all further actions, that may be necessary or desirable, or that the Purchaser or its assignees 24 may reasonably request, to perfect, protect or more fully evidence the sale of Purchased Assets under this Agreement, or to enable the Purchaser or its assignees to exercise and enforce its respective rights and remedies under this Agreement. Without limiting the foregoing, the Seller will, upon the request of the Purchaser or its assignees, (A) execute and file such financing or continuation statements, or amendments thereto, and such other instruments and documents, that may be necessary or desirable to perfect, protect or evidence such Purchased Assets; and (B) deliver to the Purchaser copies of all Contracts (to which it is a party) relating to the Purchased Assets and all records relating to such Contracts and the Purchased Assets, whether in hard copy or in magnetic tape or diskette format (which if in magnetic tape or diskette format shall be compatible with the Purchaser's computer equipment). (ii) The Seller authorizes the Purchaser or its assignees to file financing or continuation statements, and amendments thereto and assignments thereof, relating to the Purchased Assets and the Related Security, the related Contracts and the Collections with respect thereto. Such financing statements filed against the Seller may describe the collateral in the same manner specified in Section 5.02 hereof or in any other manner as the Purchaser or its assignees may reasonably determine is necessary to ensure the perfection of such security interest, including, without limitation, describing such property as all assets or all personal property of the Seller whether now owned or hereafter acquired. (k) Reporting Requirements. The Seller will provide to the Purchaser the following: (i) any reports, notices, public filings, financial information and any other information or correspondence delivered to the Seller pursuant to the Secondary Purchase Agreement; (ii) as soon as possible and in any event within five days after the occurrence of each Event of Termination or Incipient Event of Termination, a statement of a Financial Officer of the Seller setting forth details of such Event of Termination or Incipient Event of Termination and the action that the Seller has taken and proposes to take with respect thereto; (iii) at least 30 days prior to any change in the Seller's name or state of incorporation, a notice setting forth the new name or state of incorporation and the effective date thereof; and (iv) such other information respecting the Purchased Assets or the condition or operations, financial or otherwise, of the Seller as the Purchaser may from time to time reasonably request, to the extent such disclosure is permitted under applicable law, rule or regulation. 25 Reports and financial statements required to be delivered pursuant to clauses (i) and (ii) of Section 5.01(k) of the Originator Purchase Agreement (which are required to be delivered to the Seller pursuant to the Secondary Purchase Agreement) shall be deemed to have been delivered on the date on which the Parent posts such reports, or reports containing such financial statements, on the Parent's website on the internet at http://www.riteaid.com or when such reports, or reports containing such financial statements, are posted on the SEC's website at www.sec.gov. (l) Separate Conduct of Business. The Seller will: (i) maintain separate corporate records and books of account from those of the Purchaser; (ii) conduct its business from an office separate from that of the Purchaser (but which may be located in the same facility as the Purchaser); (iii) ensure that all oral and written communications, including without limitation, letters, invoices, purchase orders, contracts, statements and applications, will be made solely in its own name; (iv) have stationery and other business forms and a mailing address and a telephone number separate from those of the Purchaser; (v) not hold itself out as having agreed to pay, or as being liable for the obligations of the Purchaser; (vi) not engage in any transaction with the Purchaser except as contemplated by this Agreement or as permitted by the other Transaction Documents; and (vii) in its capacity as shareholder of the Purchaser, not adopt any special resolution for the voluntary winding up of the Purchaser without the prior written consent of the Program Agent under the Financing Agreement. (m) Secondary Purchase Agreement. The Seller will not amend, waive or modify any provision of the Secondary Purchase Agreement or waive the occurrence of any "Event of Termination" under the Secondary Purchase Agreement, without in each case the prior written consent of the Purchaser and its assignees; provided, however, that the Seller may amend the percentage set forth in the definition of "Discount" in the Secondary Purchase Agreement in accordance with the provisions of the Secondary Purchase Agreement without the consent of the Purchaser and its assignees, provided, further, that the Seller shall promptly notify the Purchaser and its assignees of any such amendment. The Seller will perform all of its obligations under the Secondary Purchase Agreement in all material respects and will enforce the Secondary Purchase Agreement in accordance with its terms in all material respects. (n) Additional Information. If additional information is requested by the Obligor as to a bill or supporting claim documents, the Seller has or will (or will cause the applicable Originator to) promptly provide the same, and if any error has been made with respect to such information, the Seller will (or will cause the applicable Originator to) promptly correct the same and, if necessary, rebill such Receivable. (o) Nature of Business. The Seller will not engage in any business other than the purchase or acquisition of Receivables, Participation Interests, Related Security and Collections from HQ and the transactions contemplated by this Agreement. The Seller will not create or form any Subsidiary other than the Purchaser. 26 (p) Mergers, Etc. The Seller will not merge with or into or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions), all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets or capital stock or other ownership interest of, or enter into any joint venture or partnership agreement with, any Person, other than as specifically contemplated by this Agreement and the other Transaction Documents. (q) Distributions, Etc. The Seller will not declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of equity interests of the Seller, or return any capital to its shareholders as such, or purchase, retire, defease, redeem or otherwise acquire for value or make any payment in respect of any shares of any class of equity of the Seller or any warrants, rights or options to acquire any such shares, now or hereafter outstanding; provided, however, that the Seller may declare and pay cash dividends on its share capital to its shareholders so long as (i) no Event of Termination shall then exist or would occur as a result thereof, (ii) such dividends are in compliance with all applicable law including the laws of The Cayman Islands, and (iii) such dividends have been approved by all necessary and appropriate corporate action of the Seller. (r) Debt. The Seller will not incur any Debt. (s) Memorandum and Articles of Association. The Seller will not amend, modify or delete any provision of its Memorandum and Articles of Association without the prior written consent of the Program Agent under the Financing Agreement. SECTION 5.02. Grant of Security Interest. The Seller and the Purchaser intend that the transfer of each Purchased Receivable and Participation Interest hereunder from the Seller to the Purchaser be treated as a sale of all of the Seller's right, title and interest in, to and under such Purchased Receivable and Participation Interest and that, immediately after giving effect to the transfer, the Seller has no further interest (legal or equitable) in any Purchased Receivable or Participation Interest. The Seller and the Purchaser shall record each Purchase as a sale or purchase, as the case may be, on its books and records, and reflect each Purchase in its financial statements and tax returns as a sale or purchase, as the case may be. In the event that, contrary to the mutual intent of the Seller and the Purchaser, any Purchase of Purchased Receivables and/or Participation Interests hereunder is not characterized as a sale but rather as a collateral transfer for security (or the transactions contemplated hereby are characterized as a financing transaction), such Purchase shall be deemed to be a secured financing, secured by a security interest in all of the Seller's right, title and interest now or hereafter existing and hereafter arising in, to and under (i) all Receivables now existing and hereafter arising, (ii) all Participation Interests, (iii) all Related Security, (iv) all Collections with respect to the items in clauses (i) through (iii), (v) all other assets, including without limitation, accounts, chattel paper, instruments, payment intangibles and general intangibles (as those terms are defined in the UCC) and (vi) all proceeds of the foregoing (collectively, the "Seller Collateral"). In furtherance of the foregoing, the Seller 27 hereby grants, to the Purchaser a security interest in all of the Seller's right, title and interest now or hereafter existing in, to and under the Seller Collateral to secure the repayment of all amounts due and owing by the Seller to the Purchaser hereunder with accrued interest thereon, if applicable, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent (such amounts the "Secured Obligations"). ARTICLE VI ADMINISTRATION AND COLLECTION SECTION 6.01. Designation of Collection Agent. The servicing, administration and collection of the Purchased Assets shall be conducted by such Person (the "Collection Agent") so designated hereunder from time to time. Until the RFA Final Payment Date, HQ (or such other Person as may be designated from time to time under the Financing Agreement) is hereby designated as, and hereby agrees to perform the duties and obligations of, the Collection Agent pursuant to the terms hereof. Thereafter, the Purchaser, by notice to HQ and the Seller, may designate as Collection Agent any Person (including itself) to succeed HQ or any successor Collection Agent, if such Person shall consent and agree to the terms hereof. Upon HQ's receipt of such notice, HQ agrees that it will terminate its activities as Collection Agent hereunder in a manner which the Purchaser (or its designee) believes will facilitate the transition of the performance of such activities to the new Collection Agent, and HQ shall use its best efforts to assist the Purchaser (or its designee) to take over the servicing, administration and collection of the Purchased Assets, including, without limitation, providing access to and copies of all computer tapes or disks and other documents or instruments that evidence or relate to Purchased Assets maintained by HQ in its capacity as Collection Agent and access to all employees and officers of HQ responsible with respect thereto. The Collection Agent may, with the prior consent of the Purchaser, subcontract with any other Person for the servicing, administration or collection of Purchased Assets. Any such subcontract shall not affect the Collection Agent's liability for performance of its duties and obligations pursuant to the terms hereof, and any such subcontract shall terminate upon designation of a successor Collection Agent. SECTION 6.02. Duties of Collection Agent. (a) The Collection Agent shall take or cause to be taken all such actions as may be necessary or advisable to collect each Purchased Asset from time to time, all in accordance in all material respects with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. The Purchaser hereby appoints the Collection Agent, from time to time designated pursuant to Section 6.01, as agent to enforce its ownership and other rights in the Purchased Assets, the Related Security and the Collections with respect thereto. In performing its duties as Collection Agent, the Collection Agent shall exercise the same care and apply the same policies as it would exercise and apply if it owned the Purchased Assets and shall act in the best interests of the Purchaser and its assignees. 28 (b) On or before each Determination Date, the Collection Agent shall prepare and forward to the Purchaser (i) a Seller Report, relating to all then outstanding Purchased Assets, and the Related Security and Collections with respect thereto, in each case, as of the close of business of the Collection Agent on the last day of the immediately preceding Month, and (ii) if requested by the Purchaser, a listing by Obligor (other than Contract Payors) of all Purchased Assets, together with an aging report of such Purchased Assets. (c) If no Event of Termination or Incipient Event of Termination shall have occurred and be continuing, HQ, while it is the Collection Agent, may, in accordance with the Credit and Collection Policy, extend the maturity or adjust the Outstanding Balance of any Purchased Receivable or Participated Receivable as it deems appropriate to maximize Collections thereof, or otherwise amend or modify other terms of any Purchased Receivable or Participated Receivable. (d) The Seller shall deliver to the Collection Agent, and the Collection Agent shall hold in trust for the Seller and the Purchaser in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) which evidence or relate to Purchased Assets. (e) The Collection Agent shall as soon as practicable following receipt turn over to the Seller (or other person entitled thereto) any cash collections or other cash proceeds received with respect to Receivables not constituting Purchased Receivables or Participated Receivables. (f) The Collection Agent also shall perform the other obligations of the "Collection Agent" set forth in this Agreement with respect to the Purchased Assets. SECTION 6.03. Collection Agent Fee. The Purchaser shall pay to the Collection Agent, so long as it is acting as the Collection Agent hereunder, a periodic collection fee (the "Collection Agent Fee") of 1.00% per annum on the average daily aggregate Outstanding Balance of the Purchased Assets, payable in arrears on each Settlement Date or such other day during each Month as the Purchaser and the Collection Agent shall agree. So long as the Financing Agreement is in effect, amounts paid to the Collection Agent as "Collection Agent Fee" pursuant to the Financing Agreement shall reduce, on a dollar-for-dollar basis, the obligation of the Purchaser to pay the Collection Agent Fee hereunder, provided that such obligation of the Purchaser shall in no event be reduced below zero. SECTION 6.04. Certain Rights of the Purchaser. (a) The Purchaser may, at any time during the existence of an Event of Termination or Incipient Event of Termination, give notice of ownership and/or direct the Obligors of Purchased Assets and any Person obligated on any Related Security, or any of them, that payment of all amounts payable under any Purchased Asset shall be made directly to the Purchaser or its assignees. The Seller hereby transfers to the Purchaser (and its assigns and designees) the exclusive ownership and control of the Lock-Boxes 29 and Deposit Accounts maintained by the Seller for the purpose of receiving Collections (other than Collections from Governmental Entities). (b) The Seller shall, at any time during the existence of an Event of Termination or Incipient Event of Termination upon the Purchaser's request and at the Seller's expense, give notice of the Purchaser's ownership to each Obligor of Purchased Assets and, to the extent permitted under applicable law, direct that payments of all amounts payable under the Purchased Receivables or Participated Receivables be made directly to the Purchaser or its assignees. (c) At the Purchaser's request and at the Seller's expense, the Seller and the Collection Agent shall (A) assemble all of the documents, instruments and other records (including, without limitation, computer tapes and disks) that evidence or relate to the Purchased Assets, and the related Contracts and Related Security, or that are otherwise necessary or desirable to collect the Purchased Receivables and Participated Receivables, and shall make the same available to the Purchaser at a place selected by the Purchaser or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Purchased Assets in a manner acceptable to the Purchaser and, promptly upon receipt, remit all such cash, checks and instruments, duly indorsed or with duly executed instruments of transfer, to the Purchaser or its designee. The Purchaser shall also have the right to make copies of all such documents, instruments and other records at any time. (d) The Seller authorizes the Purchaser to take any and all steps in the Seller's name and on behalf of the Seller that are necessary or desirable, in the determination of the Purchaser, to collect amounts due under the Purchased Receivables and Participated Receivables, including, without limitation, endorsing the Seller's name on checks and other instruments representing Collections of Purchased Assets and enforcing the Purchased Receivables and Participated Receivables and the Related Security and related Contracts. SECTION 6.05. Rights and Remedies. (a) If the Seller or the Collection Agent fails to perform any of its obligations under this Agreement, the Purchaser may (but shall not be required to) (after notice to the Seller or Collection Agent and such failure to perform, if capable of being cured, is not cured within 10 days after such notice is sent) itself perform, or cause performance of, such obligation, and, if the Seller (as Collection Agent or otherwise) fails to so perform, the costs and expenses of the Purchaser incurred in connection therewith shall be payable by the Seller as provided in Section 8.01 or Section 9.04 as applicable. (b) The Seller shall perform all of its obligations under the Contracts related to the Purchased Receivables and Participated Receivables to the same extent as if the Seller had not sold Receivables or Participation Interests hereunder and the exercise by the Purchaser of its rights hereunder shall not relieve the Seller from such obligations or its obligations with respect to the Purchased Receivables and Participated Receivables. The Purchaser shall not have any obligation or liability with respect to any Purchased Receivables and Participated Receivables or related 30 Contracts, nor shall the Purchaser be obligated to perform any of the obligations of the Seller thereunder. (c) The Seller shall cooperate with the Collection Agent in collecting amounts due from Obligors in respect of the Purchased Receivables and Participated Receivables. (d) The Seller hereby grants to Collection Agent an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of the Seller all steps necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by the Seller or transmitted or received by Purchaser (whether or not from the Seller) in connection with any Purchased Asset. SECTION 6.06. Transfer of Records to Purchaser. Each Purchase of Receivables and Participation Interests hereunder shall include the transfer to the Purchaser of all of the Seller's right and title to and interest in the records relating to such Receivables or Participation Interests (as the case may be) and, subject to the rights of any licensors and applicable law, shall include an irrevocable non-exclusive license to the use of the Seller's computer software system to access and create such records. Such license shall be without royalty or payment of any kind, is coupled with an interest, and shall be irrevocable until all of the Purchased Assets are either collected in full or become Defaulted Receivables or Defaulted Participation Interests (as the case may be). The Seller shall take such action requested by the Purchaser, from time to time hereafter, that may be necessary or appropriate to ensure that the Purchaser has an enforceable ownership interest in the records relating to the Purchased Assets and rights (whether by ownership, license or sublicense) to the use of the Seller's computer software system to access and create such records, subject to the rights of any licensors and applicable law. In recognition of the Seller's need to have access to the records transferred to the Purchaser hereunder, the Purchaser hereby grants to the Seller an irrevocable license to access such records in connection with any activity arising in the ordinary course of the Seller's business or in performance of its duties as Collection Agent, provided that (i) the Seller shall not disrupt or otherwise interfere with the Purchaser's use of and access to such records during such license period and (ii) the Seller consents to the assignment and delivery of the records (including any information contained therein relating to the Seller or its operations) to any assignees or transferees of the Purchaser provided they agree to hold such records confidential. ARTICLE VII EVENTS OF TERMINATION SECTION 7.01. Events of Termination. If any of the following events ("Events of Termination") shall occur and be continuing: 31 (a) The Collection Agent (i) shall fail to perform or observe any term, covenant or agreement under this Agreement (other than as referred to in clause (ii) or (iii) of this subsection (a)) and such failure, if capable of being cured, shall remain unremedied for ten days or (ii) shall fail to make when due any payment or deposit to be made by it under this Agreement or (iii) shall fail to deliver any Seller Report when required and such failure shall remain unremedied for one Business Day (provided that the grace period in this clause (iii) may not be utilized more than once in any Month); or (b) The Seller shall fail to make any payment required under Section 2.04(a) or 2.04(b); or (c) Any representation or warranty (unless such representation or warranty relates solely to one or more specific Receivables incorrectly characterized as Eligible Receivables and the Seller shall have made any required deemed Collection payment pursuant to Section 2.04 with respect to such Receivables) made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement or any information or report delivered by the Seller pursuant to this Agreement shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; or (d) The Seller shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for 10 days, provided that failure to perform or observe any covenant contained in Sections 5.01(b), 5.01(d), 5.01(g), and 5.01(h) shall not be entitled to the benefit of such 10-day period; or (e) The Seller or the Collection Agent shall fail to pay any principal of or premium or interest on any of its Debt which is outstanding in a principal amount of at least $25,000,000 in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to repay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) Any Purchase of Receivables or Participation Interests hereunder, the Related Security and the Collections with respect thereto shall for any reason cease to constitute valid and perfected ownership of such Receivables, Participation Interests, Related Security and Collections free and clear of any Adverse Claim; or 32 (g) The Seller or the Collection Agent shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Seller or the Collection Agent seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up (whether such Person is insolvent or not), reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or any proceeding or petition shall be instituted or adopted for the winding up of the Seller (whether or not in the context of a bankruptcy or insolvency proceeding); or the Seller shall take any corporate action to authorize any of the actions set forth above in this subsection (g); or (h) An Event of Termination shall have occurred under the Originator Purchase Agreement, the Secondary Purchase Agreement or the Financing Agreement; or (i) There shall have occurred any event which may materially adversely affect the collectibility of the Purchased Assets or the ability of the Seller or the Collection Agent to collect Purchased Assets or otherwise perform its respective obligations under this Agreement; then, and in any such event, the Purchaser may in its sole discretion without regard to Section 9.08, by notice to the Parent and the Seller take either or both of the following actions: (x) declare the Facility Termination Date to have occurred (in which case the Facility Termination Date shall be deemed to have occurred), and all Purchases hereunder shall cease immediately and (y) following the RFA Final Payment Date, without limiting any right under this Agreement to replace the Collection Agent, designate another Person to succeed HQ (or any successor Collection Agent) as Collection Agent; provided, that, automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in paragraph (g) of this Section 7.01, the Facility Termination Date shall occur, HQ (if it is then serving as the Collection Agent) shall cease to be the Collection Agent, and the Purchaser (or, prior to the RFA Final Payment Date, the Person designated under the Financing Agreement) shall become the Collection Agent. Upon any such declaration or designation or upon such automatic termination, the Purchaser shall have, in addition to the rights and remedies under this Agreement, all other rights and remedies with respect to the Receivables provided after default under the UCC and under other applicable law, which rights and remedies shall be cumulative. 33 ARTICLE VIII INDEMNIFICATION SECTION 8.01. Indemnities by the Seller. Without limiting any other rights which the Purchaser may have hereunder or under applicable law, the Seller hereby agrees to indemnify the Purchaser and its assigns and transferees (each, an "Indemnified Party"), from and against any and all damages, claims, losses, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts"), awarded against or incurred by any Indemnified Party arising out of or as a result of this Agreement or the purchase of any Purchased Assets or in respect of any Purchased Asset, Participated Receivable or any Contract, including, without limitation, arising out of or as a result of: (i) the characterization in any Seller Report or other statement made by the Seller of any Purchased Receivable or Participated Receivable as an Eligible Receivable which is not an Eligible Receivable as of the date on which such information was certified; (ii) any representation or warranty or statement made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement, which shall have been incorrect in any material respect when made; (iii) the failure by the Seller to comply with any applicable law, rule or regulation with respect to any Purchased Asset, Participated Receivable or the related Contract; or the failure of any Purchased Asset, Participated Receivable or the related Contract to conform to any such applicable law, rule or regulation; (iv) the failure to vest in the Purchaser absolute ownership of the Purchased Receivables and Participation Interests that are, or that purport to be, the subject of a Purchase under this Agreement and the Related Security and Collections in respect thereof, free and clear of any Adverse Claim; (v) the failure of the Seller to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Purchased Receivables or Participation Interests that are, or that purport to be, the subject of a Purchase under this Agreement and the Related Security and Collections in respect thereof, whether at the time of any Purchase or at any subsequent time; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable that is, or that purports to be, the subject of (A) a Purchase under this Agreement, or (B) a Participation Interest purchased under this Agreement from the Seller (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding 34 obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by the Seller acting as Collection Agent); (vii) any failure of the Seller to perform its duties or obligations in accordance with the provisions hereof or to perform its duties or obligations under any Contract related to a Purchased Receivable or Participated Receivable; (viii) any products liability or other claim arising out of or in connection with merchandise, insurance or services which are the subject of any Contract related to a Purchased Receivable or Participated Receivable; (ix) the commingling of Collections of Purchased Assets by the Seller (or a designee of the Seller) at any time with other funds of the Seller or an Affiliate of the Seller; (x) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of Purchases by the Seller or the ownership by the Seller of Receivables, Participation Interests (and the Government Receivables with respect thereto) the Related Security, or Collections with respect thereto or in respect of any Receivable, Participation Interests (and the Government Receivables with respect thereto) Related Security or Contract; (xi) any failure of the Seller to comply with its covenants contained in this Agreement; (xii) any claim brought by any Person other than an Indemnified Party arising from any activity the Seller or any designee of the Seller in servicing, administering or collecting any Purchased Asset or Participated Receivable; or (xiii) any Purchased Asset becoming (in whole or in part) a Diluted Receivable or a Diluted Participation Interest; or (xiv) in the case of a Contract between an Originator and a PBM, where such PBM acts as an agent for Contract Payors rather than as a principal, the inability of the Program Agent, as collateral assignee pursuant to this Agreement and the other Purchase Agreements of such Contract, to enforce any Receivable arising under such contract directly (by contract or by operation of law) against such Contract Payor, except to the extent such Contract Payor is a Governmental Entity and such enforcement rights are limited by the 1972 Amendments to the Social Security Act; or 35 (xv) the inability of the Purchaser to exercise its rights under this Agreement to review any Contract which contains a confidentiality provision that purports to restrict its ability to do so, or any litigation or proceeding relating to any such confidentiality provision. It is expressly agreed and understood by the parties hereto (i) that the foregoing indemnification is not intended to, and shall not, constitute a guarantee of the collectibility or payment of the Purchased Assets and (ii) that nothing in this Section 8.01 shall require the Seller to indemnify any Person (A) for Purchased Receivables and Participation Interests which are not collected, not paid or uncollectible on account of the insolvency, bankruptcy, or financial inability to pay of the applicable Obligor, (B) for damages, losses, claims or liabilities or related costs or expenses to the extent found in a final non-appealable judgment of a court of competent jurisdiction to have resulted from such Person's gross negligence or willful misconduct, or (C) for any income taxes or franchise taxes measured by income incurred by such Person arising out of or as a result of this Agreement or in respect of any Purchased Asset, Participated Receivable or any Contract. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or consent to any departure by the Seller therefrom shall be effective unless in a writing signed by the Purchaser and, in the case of any amendment, also signed by the Seller and the Collection Agent, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Purchaser to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. SECTION 9.02. Notices, Etc. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, to each party hereto, at its address set forth on Exhibit D hereto or at such other address as shall be designated by such party in a written notice to the other parties hereto. All notices and communications given to any party hereto shall be deemed to have been given on the date of receipt. SECTION 9.03. Binding Effect; Assignability. (a) This Agreement shall be binding upon and inure to the benefit of the Seller, the Purchaser, the Collection Agent and their respective successors and assigns; provided, however, that neither the Seller nor the Collection Agent may assign its rights or obligations hereunder or any interest herein without the prior written consent of the Purchaser. In connection with any sale or assignment by the Purchaser of all or a portion of the Purchased Assets, the buyer or assignee, as the case may be, shall, to the extent of its purchase or assignment, have all rights of the Purchaser under this Agreement (as if such buyer or assignee, as the case may be, were the Purchaser hereunder) except to the extent 36 specifically provided in the agreement between the Purchaser and such buyer or assignee, as the case may be. (b) This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time, after the Facility Termination Date, when all of the Purchased Receivables and Participated Receivables are either collected in full or become Defaulted Receivables; provided, however, that rights and remedies with respect to any breach of any representation and warranty made by the Seller pursuant to Article IV and the provisions of Article VIII and Sections 9.04, 9.05 and 9.06 shall be continuing and shall survive any termination of this Agreement. SECTION 9.04. Costs, Expenses and Taxes. (a) In addition to the rights of indemnification granted to the Purchaser pursuant to Article VIII hereof, the Seller agrees to pay on demand all costs and expenses in connection with the preparation, execution and delivery of this Agreement and the other documents and agreements to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Purchaser with respect thereto and with respect to advising the Purchaser as to its rights and remedies under this Agreement, and the Seller agrees to pay all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Agreement and the other documents to be delivered hereunder excluding, however, any costs of enforcement or collection of Purchased Assets which are not paid on account of the insolvency, bankruptcy or financial inability to pay of the applicable Obligor. (b) In addition, the Seller agrees to pay any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and the Seller agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 9.05. No Proceedings. Each of the Seller and the Collection Agent hereby agrees that it will not institute against, or join any other Person in instituting against, the Purchaser any proceeding of the type referred to in Section 7.01(g) so long as there shall not have elapsed one year plus one day since the later of (i) the Facility Termination Date and (ii) the date on which all of the Purchased Receivables and Participated Receivables are either collected in full or become Defaulted Receivables. SECTION 9.06. Confidentiality. Unless otherwise required by applicable law, each party hereto agrees to maintain the confidentiality of this Agreement in communications with third parties and otherwise; provided that this Agreement may be disclosed to (i) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the other party hereto, and (ii) such party's legal counsel and auditors and the Purchaser's assignees, if they agree in each case to hold it confidential. 37 SECTION 9.07. GOVERNING LAW. THIS AGREEMENT SHALL, IN ACCORDANCE WITH SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION, EXCEPT TO THE EXTENT THAT, PURSUANT TO THE UCC OF THE STATE OF NEW YORK, THE PERFECTION AND THE EFFECT OF PERFECTION OR NON- PERFECTION OF THE PURCHASER'S OWNERSHIP OF OR SECURITY INTEREST IN THE RECEIVABLES ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 9.08. Third Party Beneficiary. Each of the parties hereto hereby acknowledges that the Purchaser may assign all or any portion of its rights under this Agreement and that such assignees may (except as otherwise agreed to by such assignees) further assign their rights under this Agreement, and the Seller hereby consents to any such assignments. All such assignees, including parties to the Financing Agreement in the case of assignment to such parties, shall be third party beneficiaries of, and shall be entitled to enforce the Purchaser's rights and remedies under, this Agreement to the same extent as if they were parties thereto, except to the extent specifically limited under the terms of their assignment. SECTION 9.09. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. SECTION 9.10. Consent to Jurisdiction. (a) Each party hereto hereby irrevocably submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York City in any action or proceeding arising out of or relating to this Agreement or the other Transaction Documents, and each party hereto hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. The parties hereto hereby irrevocably waive, to the fullest extent they may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The Seller and the Purchaser hereby irrevocably appoints CT Corporation (the "Process Agent"), with an office on the date hereof at 111 8th Avenue, 13th Floor, New York, New York, 10011, United States, as their agent to receive on behalf of each of the Seller and the Purchaser and its property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding. Such service may be made by mailing or delivering a copy of such process to the Purchaser in care of the Process Agent at the Process Agent's above address, and each of the Seller and the Purchaser hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf. The parties hereto agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. 38 (b) Each of the parties hereto consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to it at its address specified in Section 9.02. Nothing in this Section 9.10 shall affect the right of the Purchaser or its assignees to serve legal process in any other manner permitted by law. (c) To the extent that the Seller or the Purchaser has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, such party hereby irrevocably waives such immunity in respect of its obligations under this Agreement or any other Transaction Document. SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY DOCUMENT EXECUTED OR DELIVERED PURSUANT HERETO. SECTION 9.12. Judgment. (a) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder in U.S. Dollars into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the judgment creditor could purchase U.S. Dollars with such other currency at New York, New York on the Business Day preceding that on which final judgment is given. (b) The obligation of any party hereto (an "Obligor Party") in respect of any sum due from it to any other party hereto (the "Obligee") hereunder shall, notwithstanding any judgment in a currency other than U.S. Dollars, be discharged only to the extent that on the Business Day following receipt by the Obligee of any sum adjudged to be so due in such other currency, the Obligee may in accordance with normal banking procedures purchase U.S. Dollars with such other currency; if the U.S. Dollars so purchased are less than the sum originally due to the Obligee in U.S. Dollars, the Obligor Party agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Obligee against such loss, and if the U.S. Dollars so purchased exceed the sum originally due to the Obligee in U.S. Dollars, the Obligee shall remit to the Obligor Party such excess. 39 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SELLER: RITE AID FUNDING I By: ------------------------------------------ Title: --------------------------------------- PURCHASER: RITE AID FUNDING II By: ------------------------------------------ Title: --------------------------------------- Signature Page to Tertiary Purchase Agreement --------------------------------------------- COLLECTION AGENT: RITE AID HDQTRS. FUNDING, INC. By: ------------------------------------------ Title: --------------------------------------- Signature Page to Tertiary Purchase Agreement --------------------------------------------- SCHEDULE 1 Intentionally Omitted. Sch 1-1 SCHEDULE 2 MONTHS Fiscal Year 2004 ---------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/2/2003 3/29/2003 4 2 3/30/2003 4/26/2003 4 3 4/27/2003 5/31/2003 5 4 6/1/2003 6/28/2003 4 5 6/29/2003 7/26/2003 4 6 7/27/2003 8/30/2003 5 7 8/31/2003 9/27/2003 4 8 9/28/2003 10/25/2003 4 9 10/26/2003 11/29/2003 5 10 11/30/2003 12/27/2003 4 11 12/28/2003 1/24/2004 4 12 1/25/2004 2/28/2004 5 Sch 2-1 SCHEDULE 2 MONTHS Fiscal Year 2005 (leap year) ---------------------------- Period Start End # of Wks - ------ ----- --- -------- 1 2/29/2004 3/27/2004 4 2 3/28/2004 4/24/2004 4 3 4/25/2004 5/29/2004 5 4 5/30/2004 6/26/2004 4 5 6/27/2004 7/24/2004 4 6 7/25/2004 8/28/2004 5 7 8/29/2004 9/25/2004 4 8 9/26/2004 10/23/2004 4 9 10/24/2004 11/27/2004 5 10 11/28/2004 12/25/2004 4 11 12/26/2004 1/22/2005 4 12 1/23/2005 2/26/2005 5 Sch 2-2 SCHEDULE 2 MONTHS Fiscal Year 2006 (53 weeks) -------------------------- Period Start End # of Wks - ------ ----- --- -------- 1 2/27/2005 3/26/2005 4 2 3/27/2005 4/23/2005 4 3 4/24/2005 5/28/2005 5 4 5/29/2005 6/25/2005 4 5 6/26/2005 7/23/2005 4 6 7/24/2005 8/27/2005 5 7 8/28/2005 9/24/2005 4 8 9/25/2005 10/22/2005 4 9 10/23/2005 11/26/2005 5 10 11/27/2005 12/31/2005 5 11 1/1/2006 1/28/2006 4 12 1/29/2006 3/4/2006 5 Sch 2-3 SCHEDULE 2 MONTHS Fiscal Year 2007 ---------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/5/2006 4/1/2006 4 2 4/2/2006 4/29/2006 4 3 4/30/2006 6/3/2006 5 4 6/4/2006 7/1/2006 4 5 7/2/2006 7/29/2006 4 6 7/30/2006 9/2/2006 5 7 9/3/2006 9/30/2006 4 8 10/1/2006 10/28/2006 4 9 10/29/2006 12/2/2006 5 10 12/3/2006 12/30/2006 4 11 12/31/2006 1/27/2007 4 12 1/28/2007 3/3/2007 5 Sch 2-4 SCHEDULE 2 MONTHS Fiscal Year 2008 (leap year) ---------------------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/4/2007 3/31/2007 4 2 4/1/2007 4/28/2007 4 3 4/29/2007 6/2/2007 5 4 6/3/2007 6/30/2007 4 5 7/1/2007 7/28/2007 4 6 7/29/2007 9/1/2007 5 7 9/2/2007 9/29/2007 4 8 9/30/2007 10/27/2007 4 9 10/28/2007 12/1/2007 5 10 12/2/2007 12/29/2007 4 11 12/30/2007 1/26/2008 4 12 1/27/2008 3/1/2008 5 Sch 2-5 SCHEDULE 2 MONTHS Fiscal Year 2009 ---------------- Period Start End # of Wks - ------ ----- --- -------- 1 3/2/2008 3/29/2008 4 2 3/30/2008 4/26/2008 4 3 4/27/2008 5/31/2008 5 4 6/1/2008 6/28/2008 4 5 6/29/2008 7/26/2008 4 6 7/27/2008 8/30/2008 5 7 8/31/2008 9/27/2008 4 8 9/28/2008 10/25/2008 4 9 10/26/2008 11/29/2008 5 10 11/30/2008 12/27/2008 4 11 12/28/2008 1/24/2009 4 12 1/25/2009 2/28/2009 5 Sch 2-6 EXHIBIT A CREDIT AND COLLECTION POLICY A-1 EXHIBIT B DEPOSIT BANKS, LOCK BOXES AND DEPOSIT ACCOUNTS - -------------------------------------------------------------------------------------------------------------------- DEPOSIT BANK NAME AND ADDRESS LOCK BOX (POST OFFICE DEPOSIT ACCOUNT BOX) NUMBER NUMBER - -------------------------------------------------------------------------------------------------------------------- Mellon Bank, Pittsburgh 360321 - - -------------------------------------------------------------------------------------------------------------------- Mellon Bank - 069-3636 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- ACCOUNT BANKS AND GOVERNMENTAL ENTITY RECEIVABLES ACCOUNTS - -------------------------------------------------------------------------------------------------------------------- ACCOUNT BANK NAME AND ADDRESS LOCK BOX (POST OFFICE GOVERNMENTAL BOX) NUMBER ENTITY RECEIVABLES ACCOUNT NUMBER - -------------------------------------------------------------------------------------------------------------------- Mellon Bank, Philadelphia 007020 - - -------------------------------------------------------------------------------------------------------------------- Mellon Bank, Pittsburgh 371115 - - -------------------------------------------------------------------------------------------------------------------- Mellon Bank - 103-7294 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- B-1 EXHIBIT C Intentionally Omitted C-1 EXHIBIT D ADDRESSES PURCHASER: Rite Aid Funding II 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Robert Sari Facsimile No. (717) 760-7867 SELLER: Rite Aid Funding I 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Robert Sari Facsimile No. (717) 760-7867 COLLECTION AGENT: Rite Aid Hdqtrs. Funding, Inc. 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: Robert Sari Facsimile No. (717) 760-7867 D-1

Exhibit 10.7 Execution Copy - -------------------------------------------------------------------------------- INTERCREDITOR AGREEMENT dated as of September 22, 2004 among CITICORP NORTH AMERICA, INC., as Program Agent, ----------------- RITE AID FUNDING I, as Purchaser, ------------- RITE AID FUNDING II, as Borrower, ------------ Each of the Other Parties Listed on Annex I as Originators -------------- RITE AID HDQTRS. FUNDING, INC., as a Purchaser and as Collection Agent -------------------------------------- and CITICORP NORTH AMERICA, INC. and JPMORGAN CHASE BANK, collectively as Senior Collateral Agent --------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- PRELIMINARY STATEMENTS............................................................................................1 ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms...........................................................3 SECTION 1.02. References to Terms Defined in the Purchaser Documents and the Senior Loan Documents.................................9 ARTICLE II INTERCREDITOR PROVISIONS SECTION 2.01. Interests in and Priorities of Purchased Property and Pre-Event Unsold Receivables Property...................................9 SECTION 2.02. Respective Interests in Purchased Property and Collateral.............................................................10 SECTION 2.03. Distribution of Proceeds...............................................11 SECTION 2.03A. Collections............................................................12 SECTION 2.04. Deferred Purchase Price Note...........................................12 SECTION 2.05. Enforcement Actions....................................................12 SECTION 2.06. Access to and Use of Collateral........................................13 SECTION 2.07. Notice of Defaults.....................................................14 SECTION 2.08. Agency for Perfection..................................................14 SECTION 2.09. UCC Notices............................................................15 SECTION 2.10. Independent Credit Investigations......................................15 SECTION 2.11. Limitation on Liability of Parties to Each Other.......................15 SECTION 2.12. Marshalling of Assets..................................................15 SECTION 2.13. Relative Rights of Investors, Liquidity Banks and Secured Parties as Among Themselves....................................15 SECTION 2.14. Effect upon Senior Loan Documents and Purchaser Documents..............................................................16 SECTION 2.15. Accountings............................................................16 SECTION 2.16. Further Assurances.....................................................16 ARTICLE III MISCELLANEOUS SECTION 3.01. Notices................................................................17 SECTION 3.02. Agreement Absolute.....................................................18 SECTION 3.03. Successors and Assigns.................................................18 SECTION 3.04. Third-Party Beneficiaries..............................................18 SECTION 3.05. Amendments, Etc........................................................19 SECTION 3.06. Section Titles.........................................................19 SECTION 3.07. Severability...........................................................19 SECTION 3.08. Execution in Counterparts..............................................19 SECTION 3.09. Governing Law..........................................................19 SECTION 3.10. Submission to Jurisdiction.............................................19 SECTION 3.11. Consent to Service of Process..........................................20 i Page ---- SECTION 3.12. Waiver of Jury Trial...................................................20 SECTION 3.13. No Proceedings.........................................................20 ANNEX I List of Originators ii INTERCREDITOR AGREEMENT INTERCREDITOR AGREEMENT, dated as of September 22, 2004, by and among CITICORP NORTH AMERICA, INC., as Program Agent (together with its successors and assigns, the "Program Agent") for and on behalf of CAFCO, LLC ("CAFCO") and the other financial institutions from time to time party to the Receivables Financing Agreement referred to below as Investors (together with CAFCO, the "Investors"), CITIBANK, N.A., a national banking association ("Citibank"), and the other financial institutions from time to time party to the Receivables Financing Agreement referred to below as Banks (together with Citibank, the "Liquidity Banks"), CITICORP NORTH AMERICA, INC. ("CNAI") and the other financial institutions from time to time party to the Receivables Financing Agreement referred to below as Investor Agents (together with CNAI, the "Investor Agents"), RITE AID HDQTRS. FUNDING, INC., a Delaware corporation ("HQ"), RITE AID FUNDING I, a Cayman Islands exempted company incorporated with limited liability on August 11, 2004 with registration number 138720 (formerly known as Cayman Resources (21) Ltd.) ("RAF I"), RITE AID FUNDING II, a Cayman Islands exempted company incorporated with limited liability on August 11, 2004 with registration number 138722 (formerly known as Cayman Resources (22) Ltd.) (the "Borrower"), each of the other parties listed on Annex I hereto as an originator (the "Originators"), and CITICORP NORTH AMERICA, INC., as administrative agent pursuant to the Credit Agreement (as hereinafter defined) and as senior collateral processing co-agent pursuant to the Other Intercreditor Agreement (as hereinafter defined) and JPMORGAN CHASE BANK, as senior collateral processing co-agent pursuant to the Other Intercreditor Agreement (Citicorp North America, Inc. and JPMorgan Chase Bank, as senior collateral processing co-agents, and their respective successors and assigns, collectively, the "Senior Collateral Agent"). PRELIMINARY STATEMENTS 1. The Originators have agreed to sell, transfer and assign to HQ and HQ has agreed to purchase and acquire from the Originators, all of the right, title and interest of the Originators in and to the Purchased Receivables (as hereinafter defined) and the Related Security (as hereinafter defined) with respect thereto (or, in the case of certain Purchased Receivables, a 100% undivided beneficial interest therein) pursuant to an Originator Purchase Agreement, dated as of September 21, 2004 (as amended, supplemented, restated or otherwise modified from time to time, the "Originator Purchase Agreement"), among the Originators and HQ. 2. Pursuant to the Originator Purchase Agreement, the Originators shall grant to HQ a security interest in all of the right, title and interest of the Originators in and to the Pre- Event Unsold Receivables (as hereinafter defined) and the Related Security with respect thereto. 3. HQ has agreed to sell, transfer and assign to RAF I, and RAF I has agreed to purchase and acquire from HQ, all of the right, title and interest of HQ in and to the Purchased Receivables and the Related Security with respect thereto pursuant to a Secondary Purchase Agreement, dated as of September 21, 2004 (as amended, supplemented, restated or otherwise modified from time to time, the "Secondary Purchase Agreement"), between HQ and RAF I. 4. Pursuant to the Secondary Purchase Agreement, HQ shall grant to RAF I a security interest in all of the right, title and interest of HQ in and to the Pre-Event Unsold Receivables and the Related Security with respect thereto. 5. RAF I has agreed to sell, transfer and assign to the Borrower, and the Borrower has agreed to purchase and acquire from RAF I, all of the right, title and interest of RAF I in and to the Purchased Receivables and the Related Security with respect thereto pursuant to a Tertiary Purchase Agreement, dated as of September 21, 2004 (as amended, supplemented, restated or otherwise modified from time to time, the "Tertiary Purchase Agreement"), between RAF I and the Borrower. 6. Pursuant to the Tertiary Purchase Agreement, RAF I shall grant to the Borrower a security interest in all of the right, title and interest of RAF I in and to the Pre-Event Unsold Receivables and the Related Security with respect thereto. 7. The Borrower, the Originators, HQ, as the collection agent (the "Collection Agent"), the Program Agent, the Investors, the Liquidity Banks and the Investor Agents are parties to a Receivables Financing Agreement, dated as of September 21, 2004 (as amended, supplemented, restated or otherwise modified from time to time, the "Receivables Financing Agreement"), pursuant to which the Investors and the Liquidity Banks have agreed to make Advances (as hereinafter defined) to the Borrower secured by the Purchased Receivables and the Related Security with respect thereto or interests therein and the Borrower has agreed to grant a security interest in favor of the Program Agent in, among other things, the right, title and interest of the Borrower in and to the Originator Purchase Agreement, the Secondary Purchase Agreement and the Tertiary Purchase Agreement (including, without limitation, all of the Borrower's interest in the Pre-Event Unsold Receivables and the Related Security with respect thereto). 8. The Originator Purchase Agreement, the Secondary Purchase Agreement, the Tertiary Purchase Agreement and the Receivables Financing Agreement provide for the filing of UCC (as hereinafter defined) financing statements and, in the case of the Tertiary Purchase Agreement and the Receivables Financing Agreement, the registration of charges on the register of mortgages and charges of RAF I and the Borrower in connection with obtaining the ownership and perfecting the security interests of the parties thereto in the Receivables (as hereinafter defined) and the Related Security. 9. The Originators and certain other subsidiaries of Rite Aid Corporation ("Rite Aid") have entered into a Credit Agreement, dated as of June 27, 2001, as amended and restated as of August 4, 2003, as further amended and restated as of September 22, 2004 with, among other parties, the Senior Lenders (as hereinafter defined) and CNAI, as administrative agent and collateral processing co-agent (as amended, supplemented, restated or otherwise modified from time to time, the Credit Agreement") and related agreements, pursuant to which the Originators other than Rite Aid and such subsidiaries have guaranteed the payment and performance of the Senior Obligations (as hereinafter defined) and granted security interests in 2 certain collateral, including but not limited to the Receivables, the Related Security and proceeds thereof. 10. The Originators and certain subsidiaries of Rite Aid have entered into the 12.5% Note Indenture, the 9.5% Note Indenture and the 8.125% Note Indenture (each as defined in the Other Intercreditor Agreement) in favor of the Second Priority Debt Parties (as hereinafter defined) (such indentures, as amended, supplemented, restated or otherwise modified from time to time, the "Indentures") and related agreements, pursuant to which the Originators other than Rite Aid and such subsidiaries have guaranteed the payment and performance of the Second Priority Debt Obligations and granted security interests in certain collateral, including but not limited to the Receivables, the Related Security and proceeds thereof. 11. The Originators, Rite Aid, the Second Priority Collateral Trustee (as hereinafter defined), the Senior Collateral Agent, JPMorganChase Bank and certain trustees have entered into an Amended and Restated Collateral Trust and Intercreditor Agreement dated as of June 27, 2001, as amended and restated as of May 28, 2003, as amended, supplemented, restated or otherwise modified from time to time, the "Other Intercreditor Agreement"), pursuant to which, among other things, lien priority was established between the Senior Lenders and the Second Priority Debt Parties and the Senior Collateral Agent was given certain rights with respect to the release of liens on the Receivables and the Related Security. 12. It is a condition precedent to the making of the initial Advance secured by the Purchased Receivables pursuant to the Receivables Financing Agreement that the parties hereto enter into this Agreement. 13. The parties hereto have agreed to enter into this Agreement to set forth provisions regarding the interests and allocation of priorities in, and the enforcement of remedies with respect to, the Purchased Property (as hereinafter defined), the Pre-Event Unsold Receivables Property (as hereinafter defined) and the other Collateral (as hereinafter defined); NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, it is hereby agreed as follows: ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms. As used in this Agreement, the following capitalized terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined). The term "Agreement" shall mean this Intercreditor Agreement, as the same may be amended, supplemented, restated or otherwise modified from time to time. "Advances" has the meaning specified in the Receivables Financing Agreement. 3 "Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are closed. "Claim" means the Lender Claim and/or the Indenture Claims, as applicable. "Collateral" means all Lender Collateral which does not constitute Purchased Property. "Collection Account" means deposit account no. 069-3636 at Mellon Bank, N.A. and the corresponding lock-box 360321, into which Collections on account of Receivables are deposited or remitted. "Collection Account Bank" has the meaning specified for the term "Deposit Bank" in the Receivables Financing Agreement. "Collection Agent" has the meaning specified in Preliminary Statement 7. "Collections" means, with respect to any Receivable, all cash collections and other cash proceeds of such Receivable, including, without limitation, all cash proceeds of the Related Security with respect to such Receivable, excluding such collections and proceeds received by an Originator or HQ with respect to the sale of the Purchased Receivables (or interests therein) under the Originator Purchase Agreement or the Secondary Purchase Agreement. "Company Claim" means all of the indebtedness, obligations and other liabilities of HQ to the Originators arising under, or in connection with, the Purchaser Documents, including, but not limited to, obligations evidenced by the Deferred Purchase Price Note, and all costs of collection or enforcement thereof. "Contract" means an agreement between an Originator and an Obligor or between a pharmaceutical benefits manager and an Obligor pursuant to or under which such Obligor shall be obligated to pay for pharmaceutical merchandise sold by such Originator or its affiliates from time to time. "Deferred Purchase Price Note" has the meaning specified in the Originator Purchase Agreement. "Enforcement" means, collectively or individually, for (i) the Program Agent on behalf of the Investors, the Liquidity Banks and the Investor Agents to declare an "Event of Termination" under the Receivables Financing Agreement and to cease making Advances secured by Receivables or interests therein or (ii) a "Triggering Event" (as defined in the Other Intercreditor Agreement) to occur or, if the Other Intercreditor Agreement is no longer in effect, an Event of Default to occur which results in the acceleration of the principal amount of any 4 Senior Obligations or Second Priority Debt Obligations under the terms of any Senior Loan Document or any Second Priority Debt Document. "Enforcement Notice" means a written notice delivered in accordance with Section 2.05 hereof, which notice shall (i) if delivered by the Program Agent, state that an Event of Termination has occurred, specify the nature of such Event of Termination and state that an Enforcement Period has commenced and (ii) if delivered by the Senior Collateral Agent, state that an Event of Default has occurred, specify the nature of such event and state that an Enforcement Period has commenced. "Enforcement Period" means the period of time following the receipt by either the Program Agent or the Senior Collateral Agent of an Enforcement Notice delivered by the other such Person until the earliest of the following: (i) the Purchaser Claim Termination Date, in the case of an Enforcement Notice delivered by the Program Agent; (ii) the Lender Claim Termination Date, in the case of an Enforcement Notice delivered by the Senior Collateral Agent; and (iii) the date the Program Agent and the Senior Collateral Agent agree in writing to terminate the Enforcement Period. "Event of Default" means any "Event of Default" as defined in the Credit Agreement and any "Event of Default" or similar event as defined in any Second Priority Debt Document, as the case may be. "Event of Termination" has the meaning specified in the Receivables Financing Agreement. "Governmental Entity Receivables Account" means deposit account no. 103-7294 at Mellon Bank, N.A. and the corresponding lock-boxes nos. 007020 and 371115, into which Collections on account of Receivables are deposited or remitted. "Indenture" has the meaning specified in Preliminary Statement 10. "Indenture Claims" means the Second Priority Debt Obligations. "Lender Claim" means all Senior Obligations. "Lender Collateral" means the Senior Collateral (as defined in the Other Intercreditor Agreement) and the Second Priority Collateral (as defined in the Other Intercreditor Agreement). "Lender Commitments" means the "Commitments" as such term is defined in the Credit Agreement. "Lender/Indenture Claim Termination Date" means the first date after the date hereof on which (a)(i) the Bank Commitments shall have expired or terminated and (ii) the 5 Lender Claim has been indefeasibly paid and satisfied in full in cash and (b) the Indenture Claims have been indefeasibly paid and satisfied in full in cash. "Obligor" means a Person obligated to make payments pursuant to a Contract; provided, however, if a pharmaceutical benefits manager acts as agent for various persons and is obligated, pursuant to a Contract, to turn over to an Originator payments made to it by such persons, then the term "Obligor" shall include both such pharmaceutical benefits manager and such persons. "Other Intercreditor Agreement" has the meaning specified in Preliminary Statement 11. "Person" means an individual, corporation, trust (including a business trust), joint-stock company, limited liability company, unincorporated organization, association, partnership, joint venture, governmental authority or any other entity. "Post-Event Receivables" means (i) all Receivables arising from the conduct or operation of the business of any Originator after the occurrence of an Enforcement with respect to any Lender Claim or Indenture Claim, (ii) the Collections related to such Receivables and (iii) the Related Security with respect to such Receivables. "Pre-Event Unsold Receivables" means any Receivables other than Purchased Receivables and which arise from the conduct or operation of the business of any Originator prior to the occurrence of an Enforcement with respect to any Lender Claim or Indenture Claim. "Pre-Event Unsold Receivables Property" means (i) the Pre-Event Unsold Receivables, (ii) the Collections related to the Pre-Event Unsold Receivables and (iii) the Related Security with respect to the Pre-Event Unsold Receivables. "Purchase Agreements" means, collectively, the Originator Purchase Agreement, the Secondary Purchase Agreement and the Tertiary Purchase Agreement. "Purchased Property" means (i) the Purchased Receivables, (ii) the Collections related to the Purchased Receivables, (iii) the Related Security with respect to the Purchased Receivables and (iv) each of the Collection Accounts; provided, however, that the inclusion of each of the Collection Accounts as Purchased Property is not intended to include as Purchased Property cash collections and other cash proceeds deposited in the Collection Accounts that are not Collections related to Purchased Receivables, Pre-Event Unsold Receivables or Related Security with respect to either of the foregoing. "Purchased Receivables" means all Receivables now owned or hereafter existing sold, contributed or otherwise transferred or purported to be sold, contributed or otherwise transferred (including Receivables in which a 100% Participation Interest (as defined in the Originator Purchase Agreement) has been transferred), in each instance, to a Purchaser, under 6 and pursuant to the terms of the Originator Purchase Agreement, the Secondary Purchase Agreement or the Tertiary Purchase Agreement. "Purchaser" means any of (i) the Borrower, HQ or RAF I, as the purchaser or transferee of Purchased Receivables under the Purchase Agreements or the holder of a security interest in Pre-Event Unsold Receivables under the Purchase Agreements; (ii) the Investors and Liquidity Banks, as the owners of Advances secured by Purchased Receivables or interests therein under the Receivables Financing Agreement or (in the case of the Liquidity Banks) as the purchasers of Advances or interests therein from the Investors; (iii) the Program Agent, as representative of the Investors and the Liquidity Banks; and (iv) the Investor Agents. "Purchaser Claim" means all obligations of any Originator, HQ, RAF I, or the Collection Agent or of the Borrower to, or which have been assigned to or entered into in favor of, the Program Agent, the Investors, the Liquidity Banks or the Investor Agents arising under any Purchaser Document and of any Obligor arising under any Purchased Receivable, including, but not limited to, all amounts now or hereafter advanced or made to or for the benefit of the Borrower thereunder, any interest thereon, any repayment obligations, indemnity payments, fees or expenses due thereunder (including any interest, fees or expenses that, but for the provisions of the federal Bankruptcy Code, would have accrued), and any costs of collection or enforcement. "Purchaser Claim Termination Date" means the first date after the date hereof on which (i) the Purchaser Claim has been indefeasibly paid and satisfied in full in cash and (ii) the commitments of the Liquidity Banks to make Advances secured by Purchased Receivables or interests therein pursuant to the Receivables Financing Agreement shall have expired or terminated. "Purchaser Documents" means the Receivables Financing Agreement, the Originator Purchase Agreement, the Secondary Purchase Agreement, the Tertiary Purchase Agreement, the Deposit Account Agreements, the Governmental Entity Receivables Agreements, the Parent Undertakings and the Fee Agreement (each as defined in the Receivables Financing Agreement) and any other agreements, instruments or documents executed by the Originators, the Collection Agent, HQ, RAF I, or the Borrower in connection therewith. "Purchaser Funding Date" means the date on which the initial Advances are made by the Investors and/or the Liquidity Banks under the Receivables Financing Agreement. "Receivable" means the indebtedness or obligation of any Obligor resulting from the provision or sale of pharmaceutical merchandise by an Originator (or an affiliate on behalf of such Originator) under a Contract (whether constituting an account, instrument, chattel paper, payment intangible or general intangible), and includes the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto. "Records" means all contracts (including, without limitation, the Contracts) and other books, records and other information (including, without limitation, computer programs, 7 tapes, disks, punch cards, data processing software and related property and rights, subject to the rights of any licensors and to applicable law) to the extent relating to any of the Receivables or any of the related Obligors. "Related Security" means with respect to any Receivable: (i) all of the interest of an Originator in the merchandise (including Returned Goods), if any, relating to any sale giving rise to such Receivable; (ii) all security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together will all UCC financing statements filed against an Obligor describing any collateral securing such Receivable; (iii) all guaranties, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise; and (iv) the Records relating to such Receivable and the related Obligor. Notwithstanding the foregoing, Returned Goods shall only constitute part of the Related Security for Purchased Receivables and Pre-Event Unsold Receivables after an Enforcement with respect to the Receivables Financing Agreement. At all other times, Returned Goods shall constitute part of the Collateral. "Responsible Officer" means, as to the Senior Collateral Agent or the Program Agent, an officer thereof at the level of vice president or higher who is actively involved with the administration of the Credit Agreement, the Purchaser Documents or the Other Intercreditor Agreement, as the case may be. "Returned Goods" means all right, title and interest of an Originator, HQ, RAF I or the Borrower, as applicable, in and to returned, repossessed or foreclosed goods and/or merchandise the sale of which gave rise to a Purchased Receivable or a Pre-Event Unsold Receivable. "Second Priority Collateral Trustee" has the meaning specified in the Other Intercreditor Agreement. "Second Priority Debt Documents" has the meaning specified in the Other Intercreditor Agreement. "Second Priority Debt Obligations" has the meaning specified in the Other Intercreditor Agreement. "Second Priority Debt Parties" has the meaning specified in the Other Intercreditor Agreement. "Secured Parties" has the meaning specified in the Other Intercreditor Agreement. "Senior Lenders" has the meaning specified in the Other Intercreditor Agreement. 8 "Senior Loan Documents" has the meaning specified in the Other Intercreditor Agreement. "Senior Obligations" has the meaning specified in the Other Intercreditor Agreement. "UCC" means the Uniform Commercial Code as from time to time in effect in the applicable jurisdictions. SECTION 1.02. References to Terms Defined in the Purchaser Documents and the Senior Loan Documents. Whenever in Section 1.01 a term is defined by reference to the meaning specified in any of the Purchaser Documents, the Other Intercreditor Agreement or Senior Loan Documents, then, unless otherwise specified herein, such term shall have the meaning specified in such Purchaser Documents, the Other Intercreditor Agreement or Senior Loan Documents, as the case may be, as in existence on the date hereof, without giving effect to any amendments of such term as may hereafter be agreed to by the parties to such documents, unless such amendments have been consented to in writing by all of the parties hereto. ARTICLE II INTERCREDITOR PROVISIONS SECTION 2.01. Interests in and Priorities of Purchased Property and Pre- Event Unsold Receivables Property. (a) Notwithstanding any provision of the UCC, any applicable law or decision or any of the Senior Loan Documents, Purchaser Documents or the Other Intercreditor Agreement, the Senior Collateral Agent hereby agrees that (1) any lien, claim, encumbrance, security interest or other interest acquired by the Senior Collateral Agent, the Second Priority Collateral Trustee or any other Secured Party in the Purchased Receivables, the Related Security with respect thereto, the proceeds thereof or any other Purchased Property is hereby automatically and without further action terminated and released, effective on the Purchaser Funding Date, and the Senior Collateral Agent, the Second Priority Collateral Trustee and the other Secured Parties shall thereafter have no lien, claim, encumbrance, security interest or other interest or right therein, and (2) any lien, claim, encumbrance, security interest or other interest acquired by the Senior Collateral Agent, the Second Priority Collateral Trustee or any other Secured Party in the Pre-Event Unsold Receivables, the Related Security with respect thereto, the proceeds thereof or any other Pre-Event Unsold Receivables Property shall in all respects be junior and subordinate to any lien, claim, encumbrance, security interest or other interest acquired by the Program Agent or any Purchaser therein; provided, however, that nothing in clause (1) above shall be deemed to constitute a termination or release by the Senior Collateral Agent of: (i) any lien on and security interest in the proceeds received by any Originator or HQ for the sale or other transfer of the Purchased Receivables (including, without limitation, cash payments made by HQ or RAF I and the Deferred Purchase Price Note issued by HQ in favor of Rite Aid of Delaware, Inc., as agent for the Originators, each in connection with such sales) and the Related Security with respect thereto; (ii) any lien on, security interest in or assignment of any Company Claim; (iii) any lien, claim, encumbrance, security interest or other interest or right the Senior Collateral Agent may have in the Deferred Purchase Price Note or in any capital or 9 equity interests issued by HQ; and (iv) any lien, claim, encumbrance, security interest or other interest or right the Senior Collateral Agent may have in the Records (other than the Contracts), provided, that the Program Agent may have access to and use of all Records as provided in Section 2.06. If Returned Goods are fungible with any Collateral and are commingled with any Collateral, such Returned Goods shall be presumed to be the first goods of such type sold by an Originator after such Returned Goods become commingled with other goods of the same type. In the event that the Senior Collateral Agent shall foreclose or otherwise dispose of any commingled inventory described in the immediately preceding sentence, the Program Agent shall be allowed to have a representative observe such foreclosure or disposition and the Senior Collateral Agent's application of proceeds received therefrom. (b) The Senior Collateral Agent hereby acknowledges that the Deferred Purchase Price Note is subordinated to the Purchaser Claim and the lien of the Program Agent on the Purchased Property and Pre-Event Unsold Receivables Property pursuant to the Purchaser Documents. (c) The priorities of the liens, claims, encumbrances, security interests or other interests established, altered or specified in clause (2) of the first sentence of Section 2.01(a) are applicable irrespective of the time or order of attachment or perfection thereof, the method of perfection, the time or order of filing of financing statements or the taking of possession, or the giving of or failure to give notice of the acquisition or expected acquisition of purchase money or other security interests or otherwise and irrespective of any other fact, circumstance, act or occurrence that might otherwise affect the priorities established under such clause (2). SECTION 2.02. Respective Interests in Purchased Property and Collateral. (a) Except for all rights of access to and use of Records granted to the Purchasers pursuant to the Purchaser Documents and Section 2.06 hereof and the Program Agent's security interest in, lien upon or other interest in the Pre-Event Unsold Receivables Property, the Program Agent agrees that it does not have and shall not have any security interest in, lien upon or interest in the Collateral. Except as otherwise specified in Section 2.01 above, the Senior Collateral Agent agrees that it does not have and shall not have any security interest in, lien upon or interest in the Purchased Property, the Pre-Event Unsold Receivables Property, the Governmental Entity Receivables Account or any other assets or property of the Borrower or RAF I. The Program Agent agrees that (i) it does not have and shall not have any security interest in, lien upon, or interest in, any Post-Event Receivables and (ii) any lien, claim, encumbrance, security interest or other interest acquired by the Program Agent, the Investors, the Liquidity Banks or the Purchasers in the Post-Event Receivables shall in all respects be junior and subordinate to any lien, claim, encumbrance, security interest or other interest acquired therein by the Senior Collateral Agent, the Second Priority Collateral Trustee and any other Security Party. The Senior Collateral Agent agrees to terminate, effective on the date of this Agreement, any account control agreements in its favor with respect to the Collection Account or the Governmental Entity Receivables Account. (b) The priorities of the liens, claims, encumbrances, security interests or other interests established, altered or specified in the third sentence of Section 2.02(a) are applicable 10 irrespective of the time or order of attachment or perfection thereof, the method of perfection, the time or order of filing of financing statements or the taking of possession, or the giving of or failure to give notice of the acquisition or expected acquisition of purchase money or other security interests or otherwise and irrespective of any other fact, circumstance, act or occurrence that might otherwise affect the priorities established under such sentence. SECTION 2.03. Distribution of Proceeds. At all times, all proceeds of Collateral and Purchased Property shall be distributed in accordance with the following procedure: (a) (i) prior to the Lender/Indenture Claim Termination Date, all proceeds of the Collateral, including the Post-Event Receivables (other than Pre-Event Unsold Receivables Property), shall, to the extent required by the Other Intercreditor Agreement and the other Senior Loan Documents and Second Priority Debt Documents, be paid or delivered to the Senior Collateral Agent for application in accordance with the Other Intercreditor Agreement and the other Senior Loan Documents and Second Priority Debt Documents and (ii) any proceeds of Collateral (other than Pre-Event Unsold Receivables Property) not required to be applied pursuant to clause (i) shall be paid to the Originators or as otherwise required by applicable law. (b) (i) prior to the Purchaser Claim Termination Date, all Collections and other proceeds of the Purchased Property shall, to the extent required by the Purchaser Documents, be paid or delivered to the Program Agent for the benefit of the Investors and the Liquidity Banks for application in accordance with the terms of the Receivables Financing Agreement against the Purchaser Claim until the Purchaser Claim Termination Date, (ii) any Collections and proceeds of the Purchased Property not required to be applied pursuant to clause (i) shall be paid to the Borrower in accordance with the terms of the Receivables Financing Agreement or as otherwise required by applicable law, (iii) prior to the Purchaser Claim Termination Date, all Collections and other proceeds of the Pre-Event Unsold Receivables Property shall be paid or delivered to the Originators unless provided otherwise in the Purchaser Documents and (iv) after the Purchaser Claim Termination Date, all Collections and other proceeds of the Pre-Event Unsold Receivables Property shall be paid or delivered to the Originators unless provided otherwise in the Senior Loan Documents or the Second Priority Debt Documents; provided, however, that HQ and the Originators hereby agree that, prior to the Lender Claim Termination Date, all such remaining Collections and proceeds of Purchased Property which, pursuant to the Purchaser Documents, are to be paid by HQ to the Originators for application against a Company Claim shall, if required by the Other Intercreditor Agreement or the other Senior Loan Documents or Second Priority Debt Documents, be paid by the Borrower, HQ and RAF I directly on behalf of the Originators to the Senior Collateral Agent for application against the Claim before being paid to the Originators. (c) Subject to the terms and conditions of this Section 2.03(c), the Program Agent agrees that it shall transfer its interest in and control over the Collection Account 11 and its rights with respect to the Governmental Entity Receivables Account to the Senior Collateral Agent upon the occurrence of the Purchaser Claim Termination Date (provided that the Lender/Indenture Claim Termination Date shall not yet have occurred). Any such transfer shall be without representation, recourse or warranty of any kind on the part of the Program Agent. SECTION 2.03A. Collections. (a) For purposes of determining whether specific Collections and other proceeds have been received on account of Purchased Receivables, on the one hand, or on account of Pre-Event Unsold Receivables or Post-Event Receivables, on the other hand, the parties hereto agree as follows: (i) all payments made by an Obligor which is obligated to make payments on Purchased Receivables but is not obligated to make any payments on Pre-Event Unsold Receivables or Post-Event Receivables shall be conclusively presumed to be payments on account of Purchased Receivables and all payments made by an Obligor which is obligated to make payments on Pre-Event Unsold Receivables or Post-Event Receivables but is not obligated to make any payments on Purchased Receivables shall be conclusively presumed to be payments on account of Pre-Event Unsold Receivables or Post-Event Receivables; and (ii) all payments made by an Obligor which is obligated to make payments with respect to both Purchased Receivables and Pre-Event Unsold Receivables or Post-Event Receivables shall be applied against the specific Receivables, if any, which are designated by such Obligor as the Receivables with respect to which such payments should be applied. In the absence of such designation, such payments shall be applied as a Collection of Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable. (b) For purposes of determining whether specific Collections and other proceeds have been received on account of Pre-Event Unsold Receivables, on the one hand, or on account of Post-Event Receivables, on the other hand, the parties hereto agree that all payments made by an Obligor which is obligated to make payments with respect to both Pre-Event Unsold Receivables and Post-Event Receivables shall be applied against the specific Receivables, if any, which are designated by such Obligor as the Receivables with respect to which such payments should be applied. In the absence of such designation, such payments shall be applied as a Collection of Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable. SECTION 2.04. Deferred Purchase Price Note. The Program Agent hereby acknowledges that Rite Aid will deliver to the Senior Collateral Agent the Deferred Purchase Price Note issued by HQ to Rite Aid, as agent for the Originators, as security for the Claim. SECTION 2.05. Enforcement Actions. Each of the Senior Collateral Agent and the Program Agent agrees to use reasonable efforts to give an Enforcement Notice to each 12 other party hereto prior to commencement of Enforcement and further agrees that during the period, if any, between the giving of such Enforcement Notice and the commencement of Enforcement thereunder, each party receiving such notice shall have the right to the extent within its power (but not the obligation) to cure the Event of Default or Event of Termination which has occurred under the Senior Loan Documents, the Second Priority Debt Documents or the Purchaser Documents, and to which such Enforcement Notice relates. Subject to the foregoing, the parties hereto agree that during an Enforcement Period: (a) To the extent authorized by the Purchaser Documents, the Program Agent may take any action to liquidate the Purchased Property and Pre-Event Unsold Receivables Property or to foreclose or realize upon or enforce any of its rights with respect to the Purchased Property and Pre-Event Unsold Receivables Property without the prior written consent of any Secured Party (including, without limitation, the Senior Collateral Agent) or any other party hereto. (b) To the extent authorized by the Other Intercreditor Agreement or the other Senior Loan Documents or Second Priority Debt Documents, the Senior Collateral Agent may, at its option and without the prior written consent of the other parties hereto, take any action to accelerate payment of the Claim and to foreclose or realize upon or enforce any of its rights with respect to the Collateral; provided, however, that the Senior Collateral Agent shall not take any action to foreclose or realize upon or to enforce any rights it may have with respect to any of (i) the Company Claim (including, without limitation, any obligations evidenced by the Deferred Purchase Price Note), or (ii) the Pre-Event Unsold Receivables Property (including, without limitation, sending or causing to be sent any notice to any Obligor of any Pre-Event Unsold Receivables Property directing such Obligor to remit Collections of any Pre-Event Unsold Receivables Property other than to the Deposit Accounts), in each case without the Program Agent's prior written consent (unless the Purchaser Claim Termination Date shall have occurred). SECTION 2.06. Access to and Use of Collateral. The Program Agent and the Senior Collateral Agent hereby agree that, notwithstanding the priorities and other agreements set forth in this Agreement, the Program Agent and the Senior Collateral Agent shall have the following rights of access to and use of the Purchased Property and the Collateral, respectively: (a) To the extent authorized by the Purchaser Documents, the Program Agent may enter one or more premises of the Originators, HQ, RAF I, or the Borrower, whether leased or owned, at any time during reasonable business hours, without force or process of law and without obligation to pay rent or compensation to the Originators, HQ, RAF I, the Borrower, the Senior Collateral Agent or any other Secured Party, whether before, during or after an Enforcement Period, and may have access to and use of all Records located thereon (including the right to make copies thereof) and may have access to and use of any other property to which such access and use are granted under the Purchaser Documents, in each case provided that such use is for any purpose permitted under the Purchaser Documents or for the purposes of enforcing the rights of the Purchasers with 13 respect to the Purchased Property or the Pre-Event Unsold Receivables Property. To the extent the Senior Collateral Agent has taken possession of the Records in connection with any enforcement of any rights and remedies as set forth in under the Other Intercreditor Agreement or the Other Senior Loan Documents or Second Priority Debt Documents, the Senior Collateral Agent will permit the Program Agent to have access to and use of the Records during reasonable business hours (including the right to make copies thereof). (b) To the extent the Program Agent has taken possession of the Records for any reason, the Program Agent will permit the Senior Collateral Agent to have access to and use of the Records during reasonable business hours (including the right to make copies thereof), provided that such use by the Senior Collateral Agent is for any purpose permitted under the Senior Loan Documents (other than any use for any purpose prohibited by the proviso to Section 2.05(b) above) or for the purposes of enforcing the Senior Collateral Agent's rights with respect to the Collateral (other than Pre-Event Unsold Receivables Property). SECTION 2.07. Notice of Defaults. The Senior Collateral Agent agrees to use reasonable efforts to give to the Program Agent a copy of any notice sent to any Originator with respect to the occurrence or existence of an Event of Default which continues for a period of ten (10) consecutive Business Days without there being in effect a waiver thereof or an agreement forbearing from the exercise of remedies duly executed by the parties required to do so under the applicable Senior Loan Documents. The Program Agent agrees to use reasonable efforts to give to the Senior Collateral Agent a copy of any notice sent to any Originator, HQ, RAF I or the Borrower with respect to the occurrence or existence of an Event of Termination which continues for a period of ten (10) consecutive Business Days without there being in effect a waiver thereof or an agreement forbearing from the exercise of remedies duly executed by the parties required to do so under the applicable Purchaser Documents. Notwithstanding the foregoing, any failure by any party hereto to give such notice shall not create a cause of action against any party failing to give such notice or create any claim or right on behalf of any third party. In each of the above cases, the party receiving such notice shall have the right to the extent within its power (but not the obligation) to cure the Event of Default or Event of Termination, as the case may be, which gave rise to the sending of such notice. SECTION 2.08. Agency for Perfection. The Program Agent and the Senior Collateral Agent hereby appoint each other as agent for purposes of perfecting by possession their respective security interests and ownership interests and liens on the Collateral (which may include the Deferred Purchase Price Note) and the Purchased Property. In the event the Program Agent, to the actual knowledge of a Responsible Officer thereof, obtains possession of any of the Collateral (other than Pre-Event Unsold Receivables Property), the Program Agent shall notify the Senior Collateral Agent of such fact, shall hold such Collateral in trust and shall deliver such Collateral to the Senior Collateral Agent upon request. In the event that the Senior Collateral Agent, to the actual knowledge of a Responsible Officer thereof, obtains possession of any of the Purchased Property or Pre-Event Unsold Receivables Property, the Senior Collateral Agent shall notify in writing the Program Agent of such fact, shall hold such Purchased Property or Pre- 14 Event Unsold Receivables Property in trust and shall deliver such Purchased Property or Pre- Event Unsold Receivables Property to the Program Agent upon request. SECTION 2.09. UCC Notices. In the event that any party hereto shall be required by the UCC or any other applicable law to give notice to the other of the intended disposition of Purchased Property or Collateral, such notice shall be given in accordance with Section 3.01 hereof and ten (10) days' notice shall be deemed to be commercially reasonable. SECTION 2.10. Independent Credit Investigations. Neither the Program Agent nor the Senior Collateral Agent or any of their respective directors, officers, agents or employees shall be responsible to the other or to any other Person for the solvency, financial condition or ability of an Originator, HQ, RAF I or the Borrower to repay the Purchaser Claim or the Lender Claim, or for the value of the Purchased Property or the Collateral, or for statements of an Originator, HQ, RAF I or the Borrower, oral or written, or for the validity, sufficiency or enforceability of the Purchaser Claim, the Lender Claim, the Purchaser Documents, the Senior Loan Documents, the Program Agent's interest in the Purchased Property, the Pre-Event Unsold Receivables Property or any other collateral or the Senior Collateral Agent's interest in the Collateral or any other collateral. The Senior Collateral Agent and the Program Agent have entered into their respective agreements with the Originators, HQ, RAF I or the Borrower, as applicable, based upon their own independent investigations. Neither the Senior Collateral Agent nor the Program Agent makes any warranty or representation to the other nor does it rely upon any representation of the other, in each instance, with respect to matters identified or referred to in this Section 2.10. SECTION 2.11. Limitation on Liability of Parties to Each Other. Except as provided in this Agreement, the Senior Collateral Agent shall have no liability to the Program Agent, and the Program Agent shall have no liability to the Senior Collateral Agent, except in each case for liability arising from the gross negligence or willful misconduct of such party or its representatives. Neither the Senior Collateral Agent nor the Program Agent shall have any liability to any other party hereto in each case for consequential or exemplary damages. SECTION 2.12. Marshalling of Assets. Nothing in this Agreement will be deemed to require either the Program Agent or the Senior Collateral Agent (a) to proceed against certain property securing any or all of the Lender Claim, the Indenture Claims or the Purchaser Claim prior to proceeding against other property securing any such Claim or (b) to marshal the Collateral or the Purchased Property (as applicable) upon the enforcement of the Senior Collateral Agent's or the Program Agent's rights or remedies under the Other Intercreditor Agreement or Purchaser Documents, as applicable. SECTION 2.13. Relative Rights of Investors, Liquidity Banks and Secured Parties as Among Themselves. The relative rights of the Investors and the Liquidity Banks, each as against the other, with respect to the exercise of the rights and the receipt of the benefits granted by the Program Agent hereunder shall be determined by mutual agreement among such parties in accordance with the terms of the Purchaser Documents. Each of the parties hereto (other than the Program Agent) shall be entitled to rely on the power and authority of the 15 Program Agent to act on behalf of all of the Investors, the Liquidity Banks and the Investor Agents. The relative rights of the Secured Parties, each as against the other, with respect to the exercise of the rights and the receipt of the benefits granted by the Senior Collateral Agent shall be determined by mutual agreement among such parties in accordance with the terms of the Other Intercreditor Agreement, the Senior Loan Documents and the Second Priority Debt Documents. Each of the parties hereto (other than the Senior Collateral Agent) shall be entitled to rely conclusively on the power and authority of the Senior Collateral Agent to act on behalf of all of the other Secured Parties in connection with this Agreement. SECTION 2.14. Effect upon Senior Loan Documents and Purchaser Documents. By executing this Agreement, the Originators, HQ, RAF I and the Borrower agree to be bound by the provisions hereof (a) as they relate to the relative rights of the Senior Collateral Agent and the Program Agent, as the case may be, with respect to the property of the Originators, HQ, RAF I and the Borrower and (b) as they relate to the relative rights of the Originators and the Program Agent as creditors of the Borrower. Each of the Originators, HQ, RAF I and the Borrower acknowledge that the provisions of this Agreement shall not give any of them any substantive rights as against any other Person and that nothing in this Agreement shall amend, modify, change or supersede the terms of (x) the Senior Loan Documents, the Second Priority Debt Documents or the Other Intercreditor Agreement as among the Originators and the respective other parties thereto or (y) the Purchaser Documents as among the Originators, HQ, RAF I, the Borrower, the Investors, the Liquidity Banks, the Investor Agents, the Collection Agent and the Program Agent. Notwithstanding the foregoing, the Senior Collateral Agent, on the one hand, and the Program Agent, on the other hand, agree that, as between themselves, to the extent the terms and provisions of the Other Intercreditor Agreement or the Purchaser Documents are inconsistent with the terms and provisions of this Agreement, the terms and provisions of this Agreement shall control. SECTION 2.15. Accountings. To the extent not provided by the Originators or the Collection Agent, (a) the Senior Collateral Agent agrees to render accounts of the Lender Claim to the Program Agent upon request, including, but not limited to, giving effect to the application of proceeds of any collateral as hereinbefore provided and (b) the Program Agent agrees to render statements to the Senior Collateral Agent upon request, which statements shall identify in reasonable detail the Purchased Receivables and shall render an account of the Purchaser Claim, giving effect to the application of proceeds of Purchased Property as hereinbefore provided. The Senior Collateral Agent understands that any such statements provided by the Program Agent will be based on information furnished to the Program Agent by the Collection Agent, and the Program Agent makes no representation as to such information furnished to it by the Collection Agent. SECTION 2.16. Further Assurances. Each of the parties hereto agrees to take such actions as may be reasonably requested by any other party, whether before, during or after an Enforcement Period, in order to effect the rules of release, distribution and allocation set forth above in this Article II. 16 ARTICLE III MISCELLANEOUS SECTION 3.01. Notices. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, to the intended party at the address or facsimile number of such party set forth below or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be deemed to have been given on the date of receipt. If to the Program Agent: Citicorp North America, Inc. 450 Mamaroneck Avenue Harrison, New York 10528 Facsimile No. (914) 899-7890 Attention: Global Securitization If to the Borrower: Rite Aid Funding II 30 Hunter Lane Camp Hill, PA 17011 Facsimile No. Attention: If to RAF I: Rite Aid Funding I 30 Hunter Lane Camp Hill, PA 17011 Facsimile No. Attention: If to any Originator, the Collection Agent or Rite Aid: c/o Rite Aid Corporation 30 Hunter Lane Camp Hill, PA 17011 Facsimile No. Attention: 17 If to the Senior Collateral Agent: Citicorp North America, Inc. 388 Greenwich St, 19th floor New York, NY 10013 Facsimile No. (212) 816-2613 Attention: Sebastien Delasnerie Except as otherwise expressly required by this Agreement, no notice shall be required to be given to any Secured Party under any Senior Loan Document or Second Priority Debt Document, other than to the Senior Collateral Agent. SECTION 3.02. Agreement Absolute. The Program Agent shall be deemed to have entered into the Purchaser Documents in express reliance upon this Agreement. The Senior Collateral Agent and the other Secured Parties shall be deemed to have entered into the Senior Loan Documents in express reliance upon this Agreement. This Agreement shall be and remain absolute and unconditional under any and all circumstances, and no acts or omissions on the part of any other party to this Agreement shall affect or impair the agreement of any party to this Agreement, unless otherwise agreed to in writing by all of the parties hereto. This Agreement shall be applicable both before and after the filing of any petition by or against any Originator, HQ, RAF I or the Borrower under the United States Bankruptcy Code or any similar proceeding under the laws of the Cayman Islands and all references herein to the Originators, HQ, RAF I or the Borrower shall be deemed to apply to a debtor-in-possession, trustee or liquidator for such party and all allocations of payments among the parties hereto shall, subject to any court order to the contrary, continue to be made after the filing of such petition on the same basis that the payments were to be applied prior to the date of the petition. SECTION 3.03. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. The successors and assigns for an Originator, HQ, RAF I and the Borrower shall include a debtor-in-possession, trustee or liquidator of or for such party. The successors and assigns for the Senior Collateral Agent or the Program Agent, as the case may be, shall include any successor Senior Collateral Agent or Program Agent, as the case may be, appointed under the terms of the Other Intercreditor Agreement or the Purchaser Documents, as applicable. Each of the Senior Collateral Agent and the Program Agent, as the case may be, agrees to not transfer any interest it may have in the Other Intercreditor Agreement or the Purchaser Documents, as the case may be, unless such transferee has been notified of the existence of this Agreement and has agreed to be bound hereby. SECTION 3.04. Third-Party Beneficiaries. The terms and provisions of this Agreement shall be for the sole benefit of the parties hereto, the Investors, the Liquidity Banks, the Investor Agents and the other Secured Parties and their respective successors and assigns and no other Person shall have any right, benefit or priority by reason of this Agreement. 18 SECTION 3.05. Amendments, Etc. No amendment or waiver of any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed by all the parties hereto, and any such amendment or waiver shall be effective only in the specific instance and for the specific purpose for which given. SECTION 3.06. Section Titles. The article and section headings contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. SECTION 3.07. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 3.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page of this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 3.09. Governing Law. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 3.10. Submission to Jurisdiction. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement in the courts of any other jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. 19 SECTION 3.11. Consent to Service of Process. Each party to this Agreement irrevocably consents to service of process by personal delivery, certified mail, postage prepaid or overnight courier. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 3.12. Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY TO THIS AGREEMENT WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR RELATING TO THIS AGREEMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), ACTIONS OF ANY OF THE PARTIES HERETO OR ANY OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SECTION 3.13. No Proceedings. Each of the Senior Collateral Agent and the Originators hereby agrees that it will not institute against RAF I or the Borrower any proceeding under the United States Bankruptcy Code or any insolvency, liquidation or winding up proceeding under the laws of the Cayman Islands so long as there shall not have elapsed one year plus one day since the Purchaser Claim Termination Date; provided that the foregoing shall not prohibit the Senior Collateral Agent from exercising its rights in any such proceeding that is instituted by another Person. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. [Remainder of Page Intentionally Left Blank] 20 CITICORP NORTH AMERICA, INC., as Program Agent By: --------------------------------------- Name: Title: Signature Page to the Intercreditor Agreement --------------------------------------------- RITE AID FUNDING I, as a Purchaser By: ---------------------------------------- Name: Title: Signature Page to the Intercreditor Agreement --------------------------------------------- RITE AID FUNDING II, as Borrower By: ------------------------------------- Name: Title: Signature Page to the Intercreditor Agreement --------------------------------------------- RITE AID CORPORATION By: -------------------------------------- Name: Title: Signature Page to the Intercreditor Agreement --------------------------------------------- RITE AID HDQTRS. FUNDING, INC., as a Purchaser and as Collection Agent By: ------------------------------------- Name: Title: Signature Page to the Intercreditor Agreement --------------------------------------------- CITICORP NORTH AMERICA, INC., as Senior Collateral Agent By: ------------------------------------- Name: Title: Signature Page to the Intercreditor Agreement --------------------------------------------- THE ORIGINATORS LISTED ON ANNEX I HERETO By: ----------------------------------- Name: Authorized Signatory: Signature Page to the Intercreditor Agreement --------------------------------------------- JPMORGAN CHASE BANK, as Senior Collateral Agent By: --------------------------------------- Name: Title: Signature Page to the Intercreditor Agreement --------------------------------------------- ANNEX I LIST OF ORIGINATORS Rite Aid Corporation, a Delaware corporation Rite Aid of Connecticut, Inc., a Connecticut corporation Rite Aid of Delaware, Inc., a Delaware corporation Rite Aid of Georgia, Inc., a Georgia corporation Rite Aid of Indiana, Inc., an Indiana corporation Rite Aid of Kentucky, Inc., a Kentucky corporation Rite Aid of Maine, Inc., a Maine corporation Rite Aid of Maryland, Inc., a Maryland corporation Rite Aid of Michigan, Inc., a Michigan corporation Rite Aid of New Hampshire, Inc., a New Hampshire corporation Rite Aid of New Jersey, Inc., a New Jersey corporation Rite Aid of New York, Inc., a New York corporation Rite Aid of Ohio, Inc., an Ohio corporation Rite Aid of Pennsylvania, Inc., a Pennsylvania corporation Rite Aid of Tennessee, Inc., a Tennessee corporation Rite Aid of Vermont, Inc., a Vermont corporation Rite Aid of Virginia, Inc., a Virginia corporation Rite Aid of Washington, D.C., a District of Columbia corporation Rite Aid of West Virginia, Inc., a West Virginia corporation Keystone Centers, Inc., a Pennsylvania corporation The Lane Drug Company, an Ohio corporation Rite Aid Drug Palace, Inc., a Delaware corporation Thrifty PayLess, Inc., a California corporation Harco, Inc., an Alabama corporation Perry Drug Stores, Inc., a Michigan corporation Apex Drug Stores, Inc., a Michigan corporation PDS-1 Michigan, Inc., a Michigan corporation RDS Detroit, Inc., a Michigan corporation K & B Alabama Corporation, an Alabama corporation K & B Louisiana Corporation, a Louisiana corporation K & B Mississippi Corporation, a Mississippi corporation K & B Tennessee Corporation, a Tennessee corporation Sch 1-1


		Page
	Cautionary Statement Regarding Forward Looking Statements		3
PART I FINANCIAL INFORMATION
ITEM 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of August 28, 2004 and February 28, 2004		4
	Condensed Consolidated Statements of Operations for the Thirteen Week Periods Ended August 28, 2004 and August 30, 2003		5
	Condensed Consolidated Statements of Operations for the Twenty-Six Week Periods Ended August 28, 2004 and August 30, 2003		6
	Condensed Consolidated Statements of Cash Flows for the Twenty-Six Week Periods Ended August 28, 2004 and August 30, 2003		7
	Notes to Condensed Consolidated Financial Statements		8
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		18
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		26
ITEM 4.	Controls and Procedures		26
PART II OTHER INFORMATION
ITEM 1.	Legal Proceedings		27
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		27
ITEM 3.	Defaults Upon Senior Securities		27
ITEM 4.	Submission of Matters to a Vote of Security Holders		27
ITEM 5.	Other Information		27
ITEM 6.	Exhibits		28


	August 28, 2004			February 28, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	406,885		$	334,755
Accounts receivable, net		636,800			670,004
Inventories, net		2,291,007			2,223,171
Prepaid expenses and other current assets		99,190			150,067
Total current assets		3,433,882			3,377,997
Property, plant and equipment, net		1,844,414			1,883,808
Goodwill		684,535			684,535
Other intangibles, net		178,537			176,672
Other assets		142,495			123,667
Total assets	$	6,283,863		$	6,246,679

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and lease financing obligations	$	193,272		$	23,976
Accounts payable		819,474			758,290
Accrued salaries, wages and other current liabilities		697,375			701,484
Total current liabilities		1,710,121			1,483,750
Convertible notes		246,750			246,000
Long-term debt, less current maturities		3,210,402			3,451,352
Lease financing obligations, less current maturities		168,404			170,338
Other noncurrent liabilities		853,691			885,975
Total liabilities		6,189,368			6,237,415
Commitments and contingencies		—			—
Stockholders' equity:
Preferred stock, par value $1 per share, liquidation value $100 per share		434,682			417,803
Common stock, par value $1 per share		517,743			516,496
Additional paid-in capital		3,127,219			3,133,277
Accumulated deficit		(3,962,270	)		(4,035,433	)
Accumulated other comprehensive loss		(22,879	)		(22,879	)
Total stockholders' equity		94,495			9,264
Total liabilities and stockholders' equity	$	6,283,863		$	6,246,679


	Thirteen Week Period Ended
	August 28, 2004			August 30, 2003
Revenues	$	4,123,906		$	4,052,091
Costs and expenses:
Cost of goods sold, including occupancy costs		3,097,789			3,087,845
Selling, general and administrative expenses		926,153			902,199
Store closing and impairment charges (credits)		13,932			(8,994	)
Interest expense		76,519			79,409
(Gain) loss on debt modifications and retirements, net		(791	)		1,888
(Gain) loss on sale of assets and investments, net		(254	)		342
		4,113,348			4,062,689
Income (loss) before income taxes		10,558			(10,598	)
Income tax expense		728			—
Net income (loss)	$	9,830		$	(10,598	)
Computation of income (loss) applicable to common stockholders:
Net income (loss)	$	9,830		$	(10,598	)
Accretion of redeemable preferred stock		(25	)		(26	)
Cumulative preferred stock dividends		(8,523	)		(7,874	)
Income (loss) attributable to common stockholders	$	1,282		$	(18,498	)
Basic and diluted income (loss) per share:
Basic income (loss) per share	$	0.00		$	(0.04	)
Diluted income (loss) per share	$	0.00		$	(0.04	)


	Twenty-Six Week Period Ended
	August 28, 2004			August 30, 2003
Revenues	$	8,368,263		$	8,098,259
Costs and expenses:
Cost of goods sold, including occupancy costs		6,289,623			6,156,020
Selling, general and administrative expenses		1,838,998			1,801,767
Store closing and impairment charges (credits)		9,345			(2,628	)
Interest expense		154,320			158,367
(Gain) loss on debt modifications and retirements, net		(791	)		35,315
Gain on sale of assets and investments, net		(2,172	)		(1,162	)
		8,289,323			8,147,679
Income (loss) before income taxes		78,940			(49,420	)
Income tax expense		5,777			—
Net income (loss)	$	73,163		$	(49,420	)
Computation of income (loss) applicable to common stockholders:
Net income (loss)	$	73,163		$	(49,420	)
Accretion of redeemable preferred stock		(51	)		(52	)
Cumulative preferred stock dividends		(16,879	)		(7,874	)
Income (loss) attributable to common stockholders	$	56,233		$	(57,346	)
Basic and diluted income (loss) per share:
Basic income (loss) per share	$	0.11		$	(0.11	)
Diluted income (loss) per share	$	0.11		$	(0.11	)


•	our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our senior secured credit facility and other debt agreements;


•	our ability to improve the operating performance of our existing stores in accordance with our management's long term strategy;


•	our ability to hire and retain pharmacists and other store personnel;


•	the outcomes of pending lawsuits and governmental investigations;


•	competitive pricing pressures and continued consolidation of the drugstore industry; and


•	the efforts of third party payors to reduce prescription drug reimbursements and encourage mail order, changes in state or federal legislation or regulations, the success of planned advertising and merchandising strategies, general economic conditions and inflation, interest rate movements, access to capital, and our relationships with our suppliers.


	August 28, 2004					February 28, 2004
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Favorable leases and other	$	306,314	$	(180,053	)	$	298,475	$	(173,774	)
Prescription files		357,158		(304,882	)		350,501		(298,530	)
Total	$	663,472	$	(484,935	)	$	648,976	$	(472,304	)


	August 28, 2004			February 28, 2004
Secured Debt:
Senior secured credit facility due April 2008	$	1,147,125		$	1,150,000
12.5% senior secured notes due September 2006 ($142,025 face value less unamortized discount of $3,379 and $4,158)		138,646			137,867
8.125% senior secured notes due May 2010 ($360,000 face value less unamortized discount of $3,834 and $4,168)		356,166			355,832
9.5% senior secured notes due February 2011		300,000			300,000
Other		2,551			5,125
		1,944,488			1,948,824
Lease Financing Obligations		179,297			183,169
Unsecured Debt:
7.625% senior notes due April 2005		170,500			198,000
6.0% fixed-rate senior notes due December 2005		38,047			38,047
4.75% convertible notes due December 2006 ($250,000 face value less unamortized discount of $3,250 and $4,000)		246,750			246,000
7.125% notes due January 2007		184,074			210,074
11.25% senior notes due July 2008		150,000			150,000
6.125% fixed-rate senior notes due December 2008		150,000			150,000
9.25% senior notes due June 2013 ($150,000 face value less unamortized discount of $2,101 and $2,221)		147,899			147,779
6.875% senior debentures due August 2013		184,773			184,773
7.7% notes due February 2027		295,000			295,000
6.875% fixed-rate senior notes due December 2028		128,000			140,000
		1,695,043			1,759,673
Total debt		3,818,828			3,891,666
Short-term debt and current maturities of long-term debt and lease financing obligations		(193,272	)		(23,976	)
Long-term debt and lease financing obligations, less current maturities	$	3,625,556		$	3,867,690


Debt Redeemed	Principal Amount Redeemed		Amount Paid		Gain / (loss)
7.625% notes due 2005	$	27,500	$	28,275	$	(795	)
7.125% notes due 2007		26,000		26,548		(605	)
6.875% fixed rate senior notes due 2028		12,000		9,660		2,191
Total	$	65,500	$	64,483	$	791


	Defined Benefit Pension Plan						Nonqualified Executive Pension Plan					Defined Benefit Pension Plan						Nonqualified Executive Pension Plan
	Thirteen Week Period Ended											Twenty-six Week Period Ended
	August 28, 2004			August 30, 2003			August 28, 2004		August 30, 2003			August 28, 2004			August 30, 2003			August 28, 2004		August 30, 2003
Service cost	$	1,350		$	653		$	18	$	21		$	2,700		$	1,306		$	35	$	42
Interest cost		1,200			1,154			246		300			2,400			2,307			492		646
Expected return on plan Assets		(1,250	)		(370	)		—		—			(2,500	)		(740	)		—		—
Amortization of unrecognized net transition obligation		—			—			22		22			—			—			43		43
Amortization of unrecognized prior service cost		175			113			—		—			350			226			—		—
Amortization of unrecognized net gain		475			822			89		83			950			1,643			178		166
Curtailment and settlement		—			—			—		(4,191	)		—			—			—		(4,191	)
Net pension expense (credit)	$	1,950		$	2,372		$	375	$	(3,765	)	$	3,900		$	4,742		$	748	$	(3,294	)



	Thirteen Week Period Ended						Twenty-Six week Period Ended
	August 28, 2004			August 30, 2003			August 28, 2004			August 30, 2003
	(dollars in thousands)
Revenues	$	4,123,906		$	4,052,091		$	8,368,263		$	8,098,259
Revenue growth		1.8	%		5.1	%		3.3	%		4.1	%
Same store sales growth		2.0	%		5.9	%		3.7	%		5.0	%
Pharmacy sales growth		1.8	%		6.1	%		3.4	%		5.3	%
Same store pharmacy sales growth		2.1	%		6.8	%		3.8	%		6.2	%
Pharmacy sales as a % of total sales		63.9	%		63.8	%		64.2	%		64.1	%
Third party sales as a % of total pharmacy sales		93.3	%		93.2	%		93.5	%		93.2	%
Front-end sales growth		1.4	%		3.2	%		3.0	%		1.9	%
Same store front end sales growth		1.8	%		4.3	%		3.5	%		3.1	%
Front end sales as a % of total sales		36.1	%		36.2	%		35.8	%		35.9	%
Store data:
Total stores (beginning of period)		3,374			3,396			3,382			3,404
New stores		1			1			1			1
Closed stores		(7	)		(11	)		(16	)		(19	)
Store acquisitions, net		2			—			3			—
Total stores (end of period)		3,370			3,386			3,370			3,386
Relocated stores		2			1			5			2
Remodeled stores		57			49			105			90



Mary F. Sammons	For:	460,715,596	Against:	0	Withheld:	16,264,832
George G. Golleher	For:	458,502,972	Against:	0	Withheld:	18,477,456
Series D Preferred stockholders:	For:	77,475,761	Against:	0	Withheld:	0



Common stockholders:
For:	21,886,744	Against:	176,790,698	Abstain:	21,968,866
Series D Preferred stockholders:
For:	0	Against:	77,475,761	Abstain:	0



Common stockholders:
For:	153,977,882	Against:	61,079,030	Abstain:	5,589,398
Series D Preferred stockholders:
For:	77,475,761	Against:	0	Abstain:	0



	Thirteen Week Period Ended					Twenty-Six Week Period
	August 28, 2004		August 30, 2003			August 28, 2004		August 30, 2003
	(dollars in thousands)
Impairment charges	$	70	$	1,186		$	899	$	2,017
Store and equipment lease exit charges (credits)		13,862		(10,180	)		8,446		(4,645	)
	$	13,932	$	(8,994	)	$	9,345	$	(2,628	)


	2005			2006			2007			2008			2009			Thereafter			Total			Fair Value at September 22, 2004
	(dollars in thousands)
Long-term debt, Including current portion
Fixed rate	$	224		$	208,917		$	569,912		$	870		$	300,091		$	1,412,392		$	2,492,406		$	2,454,357
Average Interest Rate		8.00	%		7.33	%		7.51	%		8.00	%		8.69	%		8.21	%		8.03	%
Variable Rate	$	1,125		$	5,625		$	4,500		$	4,500		$	4,500		$	489,750		$	510,000		$	510,000
Average Interest Rate		5.50	%		5.50	%		5.50	%		5.50	%		5.50	%		5.50	%		5.50	%


1.	Elected two directors to hold office until the 2007 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified, by the following votes:


2.	Defeated a stockholder proposal that requested the Company's management to prepare and make public an employment diversity report.


Exhibit Numbers		Description	Incorporation By Reference To
	3.1	Restated Certificate of Incorporation dated December 12, 1996	Exhibit 3(i) to Form 8-K, filed on November 2, 1999
	3.2	Certificate of Amendment to the Restated Certificate of Incorporation dated February 22, 1999	Exhibit 3(ii) to Form 8-K, filed on November 2, 1999
	3.3	Certificate of Amendment to the Restated Certificate of Incorporation dated June 27, 2001	Exhibit 3.4 to Registration Statement on Form S-1, File No. 333-64950, filed on July 12, 2001
	3.4	8% Series D Cumulative Pay-in-Kind Preferred Stock Certificate of Designation dated October 3, 2001	Exhibit 3.5 to Form 10-Q, filed on October 12, 2001
	3.5	By-laws, as amended on November 8, 2000	Exhibit 3.1 to Form 8-K, filed on November 13, 2000
	3.6	Amendment to By-laws, adopted January 30, 2002	Exhibit T3B.2 to Form T-3, filed on March 4, 2002
	4.1	Indenture, dated August 1, 1993 by and between Rite Aid Corporation, as issuer, and Morgan Guaranty Trust Company of New York, as trustee, related to the Company's 6.70% Notes due 2001, 7.125% Notes due 2007, 7.70% Notes due 2027, 7.625% Notes due 2005 and 6.875% Notes due 2013	Exhibit 4A to Registration Statement on Form S-3, File No. 333-63794, filed on June 3, 1993
	4.2	Supplemental Indenture dated as of February 3, 2000, between Rite Aid Corporation, as issuer, and U.S. Bank Trust National Association as successor to Morgan Guaranty Trust Company of New York,, to the Indenture dated as of August 1, 1993, relating to the Company's 6.70% Notes due 2001, 7.125% Notes due 2007, 7.70% Notes due 2027, 7.625% Notes due 2005 and 6.875% Notes due 2013	Exhibit 4.1 to Form 8-K filed on February 7, 2000
	4.3	Indenture, dated as of December 21, 1998, between Rite Aid Corporation, as issuer, and Harris Trust and Savings Bank, as trustee, related to the Company's 5.50% Notes due 2000, 6% Notes due 2005, 6.125% Notes due 2008 and 6.875% Notes due 2028	Exhibit 4.1 to Registration Statement on Form S-4, File No. 333-74751, filed on March 19, 1999
	4.4	Supplemental Indenture, dated as of February 3, 2000, between Rite Aid Corporation and Harris Trust and Savings Bank, to the Indenture dated December 21, 1998, between Rite Aid Corporation and Harris Trust and Savings Bank, related to the Company's 5.50% Notes due 2000, 6% Notes due 2005, 6.125% Notes due 2008 and 6.875% Notes due 2028	Exhibit 4.4 to Form 8-K filed on February 7, 2000



	Date: September 28, 2004				RITE AID CORPORATION By: /s/ ROBERT B. SARI Robert B. Sari Senior Vice President and General Counsel
	Date: September 28, 2004				By: /s/ JOHN T. STANDLEY John T. Standley Senior Executive Vice President, Chief Administrative Officer, and Chief Financial Officer


1.	I have reviewed this quarterly report on Form 10-Q of Rite Aid Corporation;


2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;


3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

30 Hunter Lane,
Camp Hill, Pennsylvania
(Address of principal executive offices)

17011
(Zip Code)